Weekend Reading For Financial Planners (October 26–27)

Many Advisors Say They Do Comprehensive Planning, But A Study Suggests Otherwise

(John Manganaro | ThinkAdvisor)

As many wealth management firms and advisors have turned towards fee-based (rather than commission-based) models in recent years, many have sought to add to the list of services they provide clients (beyond traditional investment management) to build a stronger client value proposition and differentiate themselves from the competition. However, a recent study suggests that many firms might not be offering the level of 'comprehensive' service that they might assume they do.

The study by research and consulting firm Cerulli Associates and broker-dealer Osaic identified more than 10 key service areas that underpin 'comprehensive' financial planning, including investment management, income tax planning, estate planning, compensation planning (e.g., equity compensation), debt management, risk management, education planning, and retirement income planning. The report then divides advisors into several categories based on the comprehensiveness of their services. The report found that the majority of advisors fit into the category of "case-based planners", providing modular issue-based planning with most clients, with other advisors falling into the categories of "money managers" (providing less comprehensive planning services), "comprehensive financial planners") providing complete plans based on an extensive analysis of their clients' goals, assets, and liabilities), or "private wealth managers" (who go even further in the development and delivery of the financial plan).

Notably, the study identified a mismatch between the self-assessed comprehensiveness level of advisors and the researchers' findings. For example, 60% of advisors said they work in a "comprehensive financial planner" style practice (while the researchers found that only 25% do so) and 28% of advisor respondents said they work for a "private wealth manager" style practice (but just 6% actually did so, according to the researchers). The researchers also surveyed investors, who indicated that they feel a deeper connection to their advisors when they receive comprehensive planning services, suggesting that advisors who are able to offer a truly comprehensive offering could have an advantage when it comes to attracting and retaining clients.

In sum, this study suggests that offering truly comprehensive planning services can pay off for an advisor, which mirrors findings from Kitces Research on How Financial Planners Actually Do Financial Planning, which found that while offering comprehensive plans (i.e., covering 10-12 planning topics) can pay off for an advisor in the form of revenue per advisor and advisor take-home income. However, this research also found that advisors who offer the most comprehensive plans (i.e., covering 13 or more topics) can potentially experience reduced profitability (as covering so many planning areas can require the advisor to spend more time on these plans or to make a hire to help them do so), suggesting that there is a 'sweet spot' of comprehensiveness for advisors (perhaps covering the most important service needs for their ideal target client, but not extending themselves too far beyond?).

RIAs' Use Of AI Among Top Priorities For SEC Examiners In 2025

(Patrick Donachie | WealthManagement)

Each year, the SEC's Division of Examinations publishes a list of examination priorities, detailing the areas in which the agency plans to focus based on where it believes present potential risks exist to investors and the overall market. The regulator's list of fiscal year 2025 priorities was released this week, covering both long-established priorities as well as newer trends.

Looking at emerging issues, the 2025 report suggests that the SEC could be taking a closer look at firms' use of Artificial Intelligence (AI). For instance, for firms that integrate AI in various areas (e.g., portfolio management, trading, marketing, and compliance), SEC exams could look in-depth at compliance policies and procedures as well as disclosures to investors related to these areas. Further, the SEC plans to review firm representations regarding their AI capabilities or AI use for accuracy (to prevent so-called 'AI-washing', where firms exaggerate how they implement AI and/or the value clients will receive from its use).

The SEC also flagged specific areas of interest based on a firm's registration type. For investment advisers, compliance with fiduciary responsibilities will be a priority, with a specific focus on recommendations related to high-cost products, unconventional instruments, illiquid and difficult-to-value assets, and assets sensitive to higher interest rates or changing market conditions, including commercial real estate. For dual registrants, examiners will focus on reviewing the appropriateness of account selection practices (e.g., brokerage versus advisory), including rollovers from an existing brokerage account to an advisory account (as well as whether and how these firms mitigate and fairly disclose conflicts of interests). For broker-dealers, compliance with Regulation Best Interest (Reg BI) remains a priority, with a specific focus on recommended products that are complex, illiquid, or present higher risk to investors (e.g., highly leveraged or inverse products, cryptoassets, and structured products, among others).

Altogether, the SEC's examination priorities for 2025 reflect a desire to enforce major regulations issued in the past few years (e.g., Reg BI) and an interest in assessing advisors' use of increasingly popular (but often complicated) investment products and emerging technologies. Which helpfully gives advisors a heads up on areas to focus on for their own internal compliance reviews, before they potentially experience a formal examination in the coming year!

CFP Board Tweaks 'Perfect Job' Ad Campaign After Advisor Backlash

(John Manganaro | ThinkAdvisor)

In an effort to attract new talent to the financial planning industry (given the graying of the financial advisor population [with the average age of an advisor hovering somewhere north of 50], and forecasts from Cerulli advisors that nearly 1/3 of advisors may retire in the next decade), CFP Board in September debuted a digital ad campaign aimed at high school and college students (appearing on platforms such as Spotify, TikTok, Snapchat, and Facebook) based on the theme that financial planning is "Quite Possibly the Perfect Job". However, many advisors pushed back against some of the ads (particularly static images that didn’t come with a similar level of context as the campaign’s 15-second video ads) for suggesting that working as a financial planner is easy, and/or that individuals uninterested in hard work would be appropriate candidates (some also worried that prospective clients could see the ads and question how much work their planner is performing for them).

In response to this feedback, CFP Board announced this week that the organization has updated the imagery and language of the static ads that appear on social media in an effort to include context to better capture “the essence of being a CFP professional”. For instance, while the social media ads still introduce non-existent jobs (e.g., “celebrity hand-holder”) to draw the attention of viewers, they link them to characteristics of financial planners (e.g., “be a guiding hand for other’s financial well-being”). The organization also appears to have removed the static ad images that received particular pushback from advisors, including one showing an individual sleeping on a couch with the "Quite Possibly the Perfect Job" caption and the "Future CFP Pro" logo (with the text of the post saying that becoming a financial advisor gives individuals the flexibility of managing their own time).

CFP Board also said it refined the age targeting on the ads so that they are more likely to reach high school and college students (the target audience, and perhaps to reduce the amount they are seen by prospective clients with whom the tone of the ads might not resonate) and noted that hundreds of students have signed up to receive CFP Board’s Guide to Careers in Financial Planning (though it will remain to be seen over the longer term how this interest translates to actually becoming a financial planner, or whether the candidates the ads attract actually survive and succeed as financial planners in the long run).

In sum, CFP Board’s adjustments to its ad campaign appear to reflect responsiveness to CFP professionals’ concerns with how some of the original ads depicted financial planners and the industry as a whole (and perhaps a recognition that while the target audience might be attracted by a provocative message, it’s possible to go too far, at least in the minds of those currently in the industry). At the same time, a bigger question remains of whether the ad campaign not only will be able to attract interest from students considering a career in financial planning, but, in particular, those with the characteristics (e.g., being future goal-oriented, having a desire to help others, and having an interest in personal finance) that Kitces Research suggests will make them more likely to actually succeed as an advisor for the long run (and not fall prey to the relatively high attrition rates experienced in the financial advice industry)?

Bad Timing Cost Fund Investors 15% Of Gains Over Past Decade, Morningstar Says

(Tracey Longo | Financial Advisor)

The increasing amount of available financial 'news' and commentary, as well as a dramatic reduction in the cost of trading in and out of mutual funds and ETFs, can increase the temptation for investors to time the market and trade in and out of investments. Which in turn can exacerbate the so-called "behavior gap", where investors tend to underperform the returns of the underlying funds they invest in (because they often buy after the fund has risen in value and sell when it falls).

The latest edition of Morningstar's annual "Mind the Gap" report suggests that this trend is still prevalent, with the average dollar invested in U.S. mutual funds and ETFs earning 6.3% per year during the 10 years ending in December, 2023, approximately 1.1 percentage points less than the funds performed during the same time period. Which means that investors lost a cumulative 15% of their funds' performance during the period studied (though the 1.1 percentage point 'gap' in the study period was down from 1.7 percentage points for the 10-year period ending in December 2022). The report found that the 'gap' was narrowest for allocation funds (which invest across multiple asset classes), which had a 0.4 percentage point gap per year, while narrower (and more volatile) sector equity funds produced the widest gap (2.6 percentage points per year). In addition, index funds had a smaller gap compared to actively managed funds (0.8 percentage points versus 1.2 percentage points per year). Within index funds, index mutual funds showed a smaller gap (0.2 percentage points per year) compared to index ETFs (1.1 percentage points), perhaps based on the relative ease of trading ETFs.

Altogether, these results show that consumers may be doing better in sticking with their 'core' holdings (e.g., asset-allocation funds and broad-based large-cap funds), but still succumb most to the behavior gap (and temptation to trade) when it comes to more volatile investments in particular. Which means advisors can add particular value to clients by helping them stick with the most volatile elements of their diversified portfolio (and the Morningstar study suggests that closing the behavior gap could make up for an advisor's fee on its own). Nonetheless, because prospective clients tend not to look for an advisor who promises to 'handhold you through the emotions' of market swings (as they might be in denial and believe it's not a problem for them), framing this value in a gentler way (e.g., by connecting their portfolio design with their goals) could help advisors demonstrate their benefits without making clients feel judged!

Bad Timing Does Not Cost Investors 1/5th Of Their Funds' Returns: Study

(Fulkerson, Jordan, Riley, and Yan | SSRN)

When explaining the value they can provide to potential clients, financial advisors sometimes will cite their ability to help mitigate the "behavior gap", or the hypothesis that individual investors frequently receive returns less than the funds they invest in because of their patterns of buying and selling (i.e., earning poorer returns than the fund itself by buying when the fund is up and selling when it is down), by managing the prospect's funds for them (and presumably having a cooler head during market volatility). Each year, Morningstar attempts to quantify this "behavior gap" by comparing the return of different funds with the returns investors actually received. For example, in the 10-year period ending in December 2022, Morningstar estimated that investor performance trailed that of the underlying funds by 1.7 percentage points annually, or approximately 1/5th of the return they would have earned by holding the investment throughout the period.

However, the authors of this research paper argue that the "behavior gap" identified by Morningstar is driven by methodological choices that they argue misestimates investors' timing ability. Among the methodological differences, the authors note that Morningstar weights portfolios using end-of-month assets instead of beginning-of-month assets, which they argue induces an upward bias in the hypothetical 'buy-and-hold' portfolio, with the best performing funds being mechanically overweighted. The authors also cite Morningstar's use of returns and investor trades aggregated to the monthly level rather than actual daily values, which does not account for intramonth effects and induces a downward bias in the 'actual investor' returns. When using their preferred methodology, the authors find that the "behavior gap" in reality is only 0.03 percentage points per year, significantly smaller than Morningstar's estimate.

While the debate over the 'true' behavior gap is likely to continue (as Morningstar defended its methodological choices in discussions with the authors), perhaps the key point is that this concept is typically calculated in the aggregate, meaning that individual investors are likely to have a much wider range of experiences. Which suggests that even if the behavior gap is much smaller than Morningstar's estimates, financial advisors are likely to encounter prospects and clients prone to 'buying high and selling low' during volatile periods and for whom the advisor could add significant value by serving as a steady hand for portfolio management (and it's possible that investors who recognize these tendencies in themselves [or their spouses] could be more likely to reach out to an advisor in the first place?).

Do Clients Really Value Getting Help Managing Their Behavior Gap?

(Nerd's Eye View)

One persistent challenge for financial advisors has been to find ways to communicate the value that they bring to the table. Fortunately, several studies have tried to quantify that value - down to a specific number of basis points annually – and have generally shown that financial advisors can more than cover their advisory fees with a wide range of value-added benefits – most significantly, by helping clients overcome the dreaded "behavior gap" that exists between the returns of the market, and the (lesser) returns that investors would otherwise realize on their own due to their behavioral biases.

Unfortunately, however, a 2019 Morningstar survey of almost 700 individual investors found that the advisor's ability to help "control their emotions" is perceived as the least valuable service an advisor can provide from the consumer's perspective, even as it's the most valuable benefit from financial advisors according to the advisor research! Yet this ironic gap in the value of getting help with the behavior gap actually makes sense, since investors themselves often don't see that their behaviors are a problem in the first place.

The starting point is to realize that most clients don't initially seek an advisor's help because they suddenly decide they need help clarifying their life goals or making better decisions at key junctures; they come to an advisor first and foremost because they have an acute pain point they need help with. And while for some new clients, that pain point may be due to devastating decisions in the depths of a bear market - which then prompts them seek out an advisor because they (or more often their spouse) realize that they do need guidance when it matters most – for many consumers, the pain point that drives them to a financial advisor is about some other non-portfolio issue in the first place.

Furthermore, even if many people do undermine themselves by making poorly timed decisions, it's nearly impossible to "sell it" as a benefit of entering into an advisory relationship, since a client will first have to admit to themselves that they are so bad at making financial decisions that they have no other choice than to hand the task off to someone else! And denial about our own failings – even if it's true – can be quite powerful. Which is why, in general, an advisor trying to position themself as someone who can help clients "control their emotions" or change their "bad" behaviors is challenging at best. Which is not to say that managing those clients' behaviors isn't beneficial…it simply means that people who are in most need of that help will likely have a hard time admitting it.

Ultimately, the bottom line is that advisors do truly add value for their clients by managing the "behavior gap" …but selling that as a key feature of the relationship probably might not get most advisors very far. Instead, the best way to help clients close that gap is by connecting their use of their capital with what they say is important to them in the first place. And the only way to help a client down that path is to absorb with empathy where they are presently, and then gradually help them understand continuing to make them same decisions that they've made in the past won't get them different results. Which creates a real opportunity for financial advisors to demonstrate their value!

Why Anybody Over 18 Should Have An Estate Plan

(Julia Carpenter | The Wall Street Journal)

While getting clients to complete agreed-upon follow-up tasks sometimes can be a challenge for financial advisors. Perhaps the task with the most procrastination among clients is preparing estate documents, whether given the weighty decisions involved or because it forces them to contemplate their death and/or incapacitation. And while older clients might be more likely to have these documents created (given that they might recognize their chances of death or incapacitation increase as they age), convincing younger clients to complete estate documents can be even more challenging.

According to a survey by Caring.com, only 25% of those surveyed aged 35–54 had a will (this figure was 24% for those aged 18-34). While procrastination is likely a key driver of this (as it was the most common factor cited by respondents across the age spectrum), another key factor (and one more likely to affect younger individuals) is a perception that estate documents aren't necessary because they have relatively few assets.

Together, these factors provide multiple opportunities for advisors to add value when working with a younger client (or perhaps discussing with older clients the value of having their adult children complete estate documents). To start, an advisor can highlight the value of certain documents (e.g., an advance healthcare directive and power of attorney) in case they become incapacitated (and which are applicable no matter an individual's wealth). Also, even if the individual has few financial assets, a will can help ensure certain tangible property is passed on to their preferred recipient in case of their death (further, even if the individual doesn't have children, they might want to designate a plan of care for a pet). Finally, advisors might be able to get individuals moving on creating estate planning documents by noting that their decisions today aren't final and can be changed as their life circumstances change (which is likely if they might get married and/or have kids in the coming years).

In the end, while preparing estate documents can both feel like a chore and an emotional burden for clients (and/or their adult children), doing so can be quite valuable, no matter their wealth level. Which suggests an opportunity for advisors to add value, whether it is helping clients use digital estate planning platforms to efficiently prepare documents, working together with a client's attorney to ensure their estate plan is synched with their financial plan, or (once they are prepared) reviewing clients' estate documents regularly to ensure they continue to reflect their (likely to change) personal and financial circumstances.

Helping Clients Plan For Incapacity

(Beth Morrison and Amy Erickson| WealthManagement)

When clients think about estate planning, the first thing that comes to mind might be the disposition of their assets upon their deaths. However, proper estate planning also can play an important role when it comes to a situation where the client becomes incapacitated, which could be particularly notable for younger clients who might assume their death is decades away but could become incapacitated by an illness, accident, or other event.

Without proper documents in place, the decision of who will handle an individual's personal and financial affairs can be left up to a court (which can name a guardian to handle personal affairs and a conservator to handle their financial matters), sometimes resulting in contested, drawn-out cases if multiple individuals (e.g., a spouse and a parent) attempt to claim these duties. Given the potential for such a situation to create significant acrimony, an individual can use legal documents to state their wishes and hopefully remove the need for court proceedings. Such documents can include a durable power of attorney (to appoint an agent to manage an individual's affairs if they become incapacitated), a medical power of attorney (to designate an individual to make medical decisions on one's behalf), and a healthcare directive (to outline an individual's wishes regarding life-sustaining treatment, end-of-life care or other medical contingencies).

Ultimately, the key point is that while advisors will likely already be familiar with these documents (and their importance), discussing potential incapacity with (younger) clients (and the negative consequences that could ensue if they don't have legal documents in place) could be a useful way to spur them to action (and perhaps provide an opportunity to encourage them to have other key estate documents prepared at the same time!).

Why Everyone Needs A "Digital Death-Cleaning" Plan

(Alexandra Samuel | The Wall Street Journal)

When it comes to creating an estate plan that explains how they want their assets to be divided, many clients will think of the key documents, from a will and power of attorney to any trusts that are set up. Nonetheless, in the 21st century, an individual's assets are not just financial (e.g., investment accounts) or tangible (e.g., a home and other personal property), but also include digital assets, from online accounts to digital photographs.

Just as an effective estate plan can ease the burden on the executor of an individual's estate (as well as their heirs) when it comes to managing the individual's tangible property, creating a "digital death cleaning" plan can also help to organize and close up their digital life as well. For instance, having a document (hard copy or digital) that includes a list of one's financial and other online accounts, along with passwords, can help survivors close down accounts (e.g., the decedent might not want their Facebook profile to live on forever). Beyond online accounts, individuals can also smooth the process by organizing their digital files (from photographs to important documents), perhaps sorting them into categories such as "relevant", "memorabilia", and "delete upon death". Further, by digitizing hard-copy documents and photos, individuals can further cut down on the amount of clutter that survivors will need to manage (and in the case of pictures and other memorabilia, allow them to be shared with a wider audience compared to only giving a hard copy to a particular person!).

Ultimately, the key point is that as digital assets have become an increasingly important part of client's lives, financial advisors have an opportunity to add value by encouraging them to create a plan for their organization and disposition (perhaps with the assistance of a growing category of software tools designed for this purpose), which, alongside other estate planning documents and plans, could provide them with greater peace of mind that they won't overburden their family and friends upon their death!

4 Mental Exercises That Can Lead To Better Decisions

(Eric Barker | Barking Up The Wrong Tree)

Intelligence is sometimes considered to be the brain's "horsepower", or its ability to process information quickly. However, raw 'smarts' aren't sufficient to make smart decisions, as they also require an individual to process information accurately and avoid decision-making biases along the way. Luckily, there are several methods (which are discussed in more detail in David Robson's book "The Intelligence Trap") individuals can use to help them get to the 'right' answer more often.

When making decisions, a simple way to check yourself is to ask, "How could I be wrong?". By taking a moment to entertain the thought that your opinion or plan might be incorrect, you might be able to find flaws in your mental argument (and could ultimately come away with a better decision after making any needed adjustments). Another practice is to engage in "self-distancing", or pretending you're a third-party considering circumstances (e.g., what advice would you give to a friend dealing with a similar situation?). This can be particularly effective when making emotionally charged decisions, as self-distancing can allow you to have a more reflective attitude about the issue at hand.

When trying to predict whether a certain scenario will come to pass, a helpful practice is to use base rates to get a better understanding of how likely it is to occur. For example, when working with a planning client who is afraid of large market drawdowns (perhaps spurred on by 'experts' constantly calling for the next market crash), an advisor could show them how often they actually occur to provide a more accurate picture (along with the significant gains that come during the bull markets between them!). Finally, using "emotional differentiation", or deciding the true cause of certain emotions, can help you make better decisions in charged situations. For instance, a stock trader who is excited about a potential opportunity might consider whether they are excited based on the fundamentals or whether it's just a high-stakes gambit to make up for recent trading losses.

In sum, just because an individual is able to process information and make a decision quickly doesn't necessarily mean it will be the best possible choice. Which suggests that taking a few moments to step back and consider alternate options (perhaps through one of the above exercises) could ultimately lead to better decision-making, whether in making a planning recommendation or a challenging choice in one's personal life.

Why "Wisdom Work" Is The New "Knowledge Work"

(Chip Conley | Harvard Business Review)

Some workplaces prioritize technical knowledge and speed when it comes to the "knowledge work" their employees perform. However, employees also come with a wide range of experience (client-facing or otherwise) that help them (and could help their colleagues) be better advisors.

While wisdom is sometimes associated with experience or age, research suggests that intergenerational knowledge transfer can be beneficial for employees of all ages. For instance, one study conducted in the United Kingdom found that teams with an age range among their members of 25 years or more met or exceeded management expectations 73% of the time, compared to only 35% for teams that varied in age by fewer than 10 years. In addition, wisdom-sharing can potentially improve employee retention, as research from Deloitte found that those in the Millennial generation who intend to stay in their company for more than 5 years are 68% more likely to have an in-house mentor.

Firms have several potential ways to take advantage of internal wisdom-sharing. For instance, formalizing a way of sharing team lessons (e.g., picking a 'team lesson of the quarter' and discussing ways to put it to use in the future) can ensure that the full firm can benefit from one individual's experience. Another option is to pair older and younger team members together for more co-mentorship based on different skillsets. For example, an older advisor might be able to share their hard-earned wisdom for dealing with thorny client issues, while a younger advisor might show how technology can be used to more effectively communicate recommendations to a client. More broadly, an internal "Wisdom Heat Map" outlining each team member's expertise (some of which might not be obvious on the surface!) can be a valuable resource for employees who have a question but might not know who to seek an answer.

In the end, an employee's value is not limited to just their technical skills, but also includes the experiences they've gained over time, which, if shared across the firm, can help all staff members (no matter their age) gain 'hard' and 'soft' skills that can help them perform at their best!

Intelligent Vs Smart

(Morgan Housel | Morgan Housel)

What does it mean to be "intelligent" or "smart"? Some people might think of a person with a number of academic degrees or who seems to have a wealth of technical information on a variety of topics, while others might choose someone who is able to operate skillfully in society, no matter their level of formal education level.

Housel considers these different views and offers different definitions for 'intelligent' and 'smart'. To him, markers of intelligence could be having a good memory, logic, math skills, and/or test-taking ability, while signs of being smart include having a high degree of empathy, organization, communication skills, social awareness, and understanding the consequences of one's actions. And while schools might prioritize the former (by evaluating based on tests), the latter skills are just as, if not more, important when it comes to the world of work, which involves interpersonal relationships among co-workers and between employees and clients. For example, in the financial planning context, an 'intelligent' advisor could find a mathematically perfect strategy for optimizing a client's wealth, but if they are unable to recognize that the client has different priorities (e.g., financial security over total wealth), they might end up making a recommendation that doesn't serve the client's true interests.

In sum, the skills needed to be successful in the workplace (particularly when it comes to being a client-facing financial advisor) go beyond one's technical knowledge and ability to process information to include interpersonal and communication skills that can lead to more effective client (and co-worker) relationships (which suggests firms could be well-served by incorporating evaluations of the latter when evaluating job candidates?).

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.