Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the recent announcement that President Trump has issued an Executive Order for the IRS and Department of Labor to review (and ease) the rules around Multiple Employer [retirement] Plans (MEPs) as a way to expand small business access to employer retirement plans, ideally bringing down costs through greater economies of scale, and at the least giving 401(k)-centric advisors a new way to work with small business owners (by creating and offering their own Open MEP solution?!).
From there, we have several articles about advisor marketing this week, from a look at how it's not enough to just have a good value proposition for clients if you can't also explain the process you'll use to achieve it and provide some "proof" (e.g., sample deliverables) to show your results, to how to engage in a formal "marketing makeover" for your firm (which starts with crafting your own one-page marketing "messaging brief" before you hire anyone to help you implement it, why it's so important to keep asking "why" (literally, over and over again) to prospects to truly understand their needs, and the reason that advisory firms doing in-person seminar marketing are now turning to Facebook digital advertising as a more cost-effective path to get prospects to attend their seminars in the first place.
We also have a few practice management articles, including: how to think through different types of financial advisor business models based on what's actually being provided to clients (e.g., investment-only, investments with some planning as needed, planning with some investments as needed, or financial consulting only); why it's crucial for advisory firm owners to separate out their compensation for the work in the business from their profit distributions for the income from the business; what it takes to successfully take a 6-week sabbatical away from your own advisory firm; and the issues to consider when your multi-advisor partnership actually has to "vote a partner off the island" and remove a partner from the business (without collapsing the business itself in the process!).
We wrap up with three interesting articles, all around the theme of better understanding our own motivations and focus: the first explores fascinating research that finds one of the best ways to help people improve their situation is not for them to receive good advice but actually for them to give it to others, which actually cements their own confidence in their knowledge and helps them formulate a specific plan of action (the one they're recommending to others as well!); the second looks at how, in the end, there really are no "natural born salespeople," just people who have a natural desire to help others and learn the very learnable sales skills and conversations it takes to succeed; and a fascinating look at how the popular wisdom to "find and pursue your passion" is awful advice, because, in reality, passions are more likely to evolve from something we actively do, not be something that already exists that we decide to pursue and do more of (which means it's better to just start doing something you're interested in and let the passion develop, rather than trying to intuit your passion in the first place).
Enjoy the "light" reading!
Why President Trump's Executive Order On MEPs May Not Improve Access To Retirement Plans After All (Jeff Levine, Nerd's Eye View) - Late last week, President Trump issued a new Executive Order directing the IRS and Department of Labor to revisit the rules on the so-called Multiple Employer [retirement] Plan (or "MEP" for short), in an effort to ease their creation and purportedly increase access to an employer retirement plan for the nearly 1/4th of workers who still don't have one offered to them through their company. The basic idea of the MEP is that, rather than multiple small businesses each having their own plans, a single master MEP is offered and multiple employers all offer plans to their own employees under that umbrella agreement in order to simplify the process of creating and administering the plans (reducing Form 5500 filings) and achieving better economies of scale (to further reduce costs). While technically MEPs are feasible to offer now under current law, in practice they are rarely utilized because, as a shared plan, one employer that fails to honor the requirements of the plan can disqualify it for everyone (known as the "one bad apple" problem), and in many cases the DoL requires each employer to file their own Form 5500 anyway (under Advisory Opinion 2012-04A) if they don't have a common "nexus" (connection to each other); accordingly, President Trump's Executive Order directs the IRS and DoL to revisit these bad apple and nexus challenges/issues, and consider issuing new proposed regulations in the next 180 days that would eliminate these concerns or make them easier to resolve safely. However, the reality is that most 401(k) recordkeepers already have tremendous scale, since technology is forever making them even more efficient at administering a high volume of small business 401(k) plans, and the reason that small businesses tend to have higher costs is not the lack of administrative economies of scale (which MEPs potentially help to resolve) but that it's difficult to distribute them (i.e., convince small business owners to take the time to set one up), and it's not clear that the proposed rule would do much to alter that situation (although individual 401(k) advisors could sponsor their own open MEP, creating at least some new distribution possibilities for advisors working in the small business environment). In fact, there is some concern that advisors would still be better served by avoiding MEPs, both to have more flexibility in customizing the plan to the needs of the individual business itself, and because a MEP that aggregates together a large number of small business owners may actually have more difficulty negotiating on their own individual behalf (and it's hard to collect a large group of unrelated small business owners together to get consensus on anything in the first place!). In the meantime, President Trump's Executive Order also included a provision directing the IRS to revisit whether it's time to update the Required Minimum Distribution (RMD) tables, increasing the RMD life expectancy factors to reflect recent medical advances (as the tables haven't been updated since the Regulations were implemented in 2002), which would potentially slightly reduce RMD obligations on retirement plans in 2019 and beyond (at least for the subset of investors who don't already withdraw more than the modest RMD percentage amount just to maintain their retirement lifestyle anyway).
Proposition, Process, Proof (Stephen Wershing, Client Driven Practice) - A good financial advisor value proposition may help to draw prospective clients in, but ultimately, it takes a more specific and concrete offer of what you will do for your prospects to actually convince them to move forward with engaging you. In other words, it's not just about the value you will provide, but the process you will engage in with them in order to deliver it. And here, unfortunately, Wershing suggests that many advisors fall short, presenting what may sound like unique value propositions to clients, but then falling back on the same undifferentiated process as everyone else (a discovery meeting, creating a plan, presenting the plan, and then implementing it). Or at a minimum, do a better job of articulating how your process will connect with them (and be customized to them) more directly - for instance, you don't "create a balance sheet", instead you will "show them everything they own on one piece of paper", and you won't "create an expense analysis" but instead will "show them how to get control of their cash flow." Ideally, the whole process should be 4-6 steps, including at least one (being laid out visually for them to actually see) genuinely unique and differentiated step in the process, and then what you'll do (and ideally, how you're different). And ultimately, once that's done, it's necessary to provide proof that you can actually deliver - which, in a world where financial advisors can't use testimonials, means actually giving clients a tangible sample of your deliverables (e.g., a sample financial plan, a sample Social Security analysis, etc.), to really prove to them why it's worthwhile to go through your process and how that will achieve the promised value proposition you've stated you're offering them.
Your Marketing Makeover (Gail Graham, Financial Advisor) - The first step to building an advisory business is to solidify your actual value proposition to clients and how you will deliver on it. But once you have a good and valuable solution for clients, there's still the matter of marketing it effectively. Graham suggests that the starting point for creating a good marketing plan is to create a "messaging brief," which is a one-page document articulating: 1) your business objectives (e.g., grow by $10M or $100M of AUM this year); 2) your target clientele (so it's clear who your marketing is really targeting); 3) your value proposition (what you do, for whom, how does it benefit them, what is your proof you can deliver since everyone says they deliver great wealth management, and why do you do it for them?); 4) who the competition is so you can better articulate who you should be compared to and then contrast against them (e.g., "unlike discount brokerage firms, we..."); and 5) an articulation of "the reason to choose you" over all the others that prospects may be checking out (e.g., "People come to us when they feel out of control and tell us that a weight comes off their shoulders from having a clear plan and a much more organized financial life"). Once you've created the message brief, and tested it out in conversations with some prospects and clients (to make sure the messages click), then take it to a print shop and make physical hard-card copies for all of your staff, so everyone is truly on the same page. From there, you can engage a marketing firm to help you formulate the creative collateral for your identity (e.g., colors, graphics, photos, logos, etc., to visually connect what prospects see with the key messages you're trying to relate from your marketing brief). And then begin to implement your actual marketing makeover to the key marketing domains of your business, including your website, a "pitch deck" that you use to show prospects what you do, any business templates, and your marketing brochure.
The 3 WHYs To Finding Your Advisory Marketing Gold (Stewart Bell, Iris.xyz) - One of the fundamental challenges in creating a compelling value proposition for clients is that it can actually be remarkably difficult to figure out what clients even really want in the first place. As the famous Henry Ford saying goes, "If I had asked people what they wanted, they would have said faster horses" and not the cars (or "horseless carriages!") that he ultimately successfully sold to them. Or stated more simply, even when clients tell you what they want, it's rarely what they really want (especially because what we first articulate we want is usually a rational logical thought, but what we really want often has a deeper and more emotional connection). Accordingly, Bell suggests that the way to really delve into what clients want is that if/when you ask them what they're looking for, ask at least THREE "Why" follow-up questions before accepting their answer. For instance, if the prospective client says, "I think I want to self-manage my IRA," ask them why... which may get a response of, "I want to control my investing, and buy some real estate." Asking them why they're concerned about the lack of control may lead to a response, "Because I want to be able to invest in things I understand and believe in, like real estate." Asking them why they're so concerned about understanding what they're invested in may, in turn, lead to the response, "Because then I know whether I'm doing something, and it's not just a bunch of unknown shares in a manager's pocket while he's out getting a fancy lunch." Asking them why that's a concern then elicits a response, "I just have this feeling I'm not doing enough. I don't know enough about it myself to know if what I'm getting is OK or not." And suddenly, the focus of the conversation has gone very, very far away from "just" talking about self-managing an IRA, where the client's real concern was actually about understanding how to evaluate whether his/her portfolio is doing what it should (not an actual desire to manage it themselves). The fundamental point: you often have to keep asking why, nicely but persistently, over and over again, to get to the real root of what clients want or are really concerned about.
Why Advisors Are Turning To Facebook Ads To Fill Seminar Seats (John Jones, Investment News) - Seminar marketing remains a staple of how financial advisors get new clients, but in an increasingly competitive environment, it's become harder and harder to actually get prospects to show up for seminars in the first place, given how many different advisors now saturate the same popular zip codes with direct mail seminar solicitations. Accordingly, Jones suggests that the best alternative in today's environment is to market those seminars, not with targeted direct mail to affluent zip codes, but targeted advertising on Facebook instead. The reason is not just that Facebook adoption itself is so high (with an estimated 71% of all those with a net worth between $100,000 and $1M on Facebook), but that Facebook provides the ability to do ultra-targeted marketing like no other medium (thanks, awkwardly, to that incredible amount of information that Facebook has on us!), which means as a financial advisor there's virtually no waste to your targeted seminar ads (unlike traditional direct mail where a huge swath of seminar solicitations may end up going to non-qualified prospects anyway). And thanks to the depth of digital marketing tracking capabilities, it's easier to precisely measure the results and confirm the effectiveness of each dollar spent on Facebook marketing (unlike most other forms of traditional advertising and mailers!). In addition, the combination of immediate-feedback analytics and hyper-targeted marketing potential also makes it especially easy to get started on Facebook advertising - simply identify your ideal target audience (and then use the available Facebook advertising tools to target them on Facebook, including location-based targeting to ensure they're within a reasonable drive's distance from your seminar location in the first place), craft a message or few to try (e.g., if you connect with wine-drinkers, try a version of the seminar ad that includes an image of a wine glass!?), and then track the analytics to see what works and what connects! The key point, though, is that even in a world of face-to-face, in-person seminars, there's still an opportunity to market them digitally.
What's The Right Advisory Business Model For Your Practice? (Angie Herbers, Investment Advisor) - The fundamental principle of building an advisory firm is rather straightforward: get some clients and give them valuable financial advice. The caveat, though, is that there are a lot of different types of financial advice, and a lot of different ways to get paid for it, which can add layers of cost and complexity to the business if there isn't a clear vision of what the advisor is trying to build towards. Herbers suggests that, at the core, there are five business structures for independent advisory firms: 1) investment management firms (that simply focus on managing the assets, don't provide any financial planning, and as a result face a highly competitive environment but operate with low overhead and also have a very high profit margin potential); 2) hybrid firms that are primarily focused on investment management but do at least some financial planning, and while the latter may be on an informal or ad-hoc basis (for which there is usually not a separate charge), the deeper level of service and connection usually results in higher retention rates; 3) Wealth management firms that give the most "full service," including full portfolio management services and robust financial planning advice (using financial planning software tools) and conducting multiple client meetings every year, which tend to have the highest overhead and lowest profit margins but higher retention rates and strongest valuations (thanks to their deep relationships and connection to clients); 4) financial planning firms, that may still do investment management but are "planning-centric" firms, meeting quarterly with clients and doing deep financial planning while downplaying the focus on investments (i.e., if portfolios are managed, they tend to simply be strategic asset allocations with passive ETFs); and 5) financial consulting firms, that don't necessarily do any investment management at all and focus solely on getting paid for advice, which as an individual practitioner can often be done with very little overhead as a highly profitable solo advisor. Ultimately, advisory firms and their business models can and sometimes do change over time, but Herbers suggests that often they do so unwittingly or without a clear intention, so the starting point is to know what you're working towards... so that any future potential service for clients is evaluated in the context of whether it actually fits the intended model, or not.
When Owners Are Also Employees (Mark Tibergien, Investment Advisor) - One of the biggest challenges that crops up for advisory firms when they're considering a potential sale is whether or how to include the owner's compensation as an expense on the company's financial statements. In practice, if only for tax and reporting simplicity, most advisory firm owners simply draw from the profits left in the company after paying all employees and expenses, and only a subset of the largest firms formalize the compensation of the owners and split "salary" in the business from profits of the business when it all flows to the same owner's pocket anyway. But Tibergien suggests that, ultimately, it's crucial to understand the difference between compensation for work the owner does in the business from the profits of the business, or firm owners may lose perspective on how valuable their advisory firm really is (or not). For instance, if an advisory firm is going to be bought for 6X free cash flow and generates $1M of earnings on $3M of revenue, the owner may think that the business is worth $6M; yet if in reality, it would cost at least $300,000 to get a replacement financial advisor to manage the bulk of the revenue the owner is currently responsible for, the firm's free cash flow is actually just $700,000, which means it's worth "only" $4.2M, or a whopping $1.8M swing in the valuation by failing to recognize that the owner's work and role in the business will have to be replaced if he/she sells (which means it's not really part of the free cash flow that the buyer is acquiring!). Similarly, if the seller is not leaving immediately and is expected to have a continuing role, it's difficult to set appropriate compensation for the former owner after the sale if he/she didn't recognize and mark the value of the work being done in the business in the first place. The fundamental point, though, is simply that even advisor-owners who work in the advisory business and own it must clearly delineate their rewards for labor (which can be evaluated and set via industry benchmarking studies on advisor compensation) from their rewards for ownership, or risk having a substantial misunderstanding about the value of what they've built for themselves.
Sabbatical Success: How To Have A Business To Come Back To After 6 Weeks Away (Lisa Kirchenbauer, Journal of Financial Planning) - For many, or even most, financial advisors, the challenges of running an active advisory business are so immersive, it's difficult to imagine even stepping away for a one or two week vacation, much less a 6-week sabbatical. Yet Kirchenbauer suggests that ultimately, research is increasingly finding that it's crucial as a business owner to be able to take sabbatical breaks to refresh your own energy and focus. And it really is feasible to take a 6-week sabbatical as a firm owner (as she's done it twice herself in the past 6 years)... but it does take preparation. The starting point is simply to raise with the team the plan and intention to take a sabbatical and give everyone the opportunity to talk through what training must happen, knowledge must be transferred, and duties must be shifted, in order to make that possible. And in the year leading up to the sabbatical, Kirchenbauer gave two associate financial advisors more opportunities to run some client meetings themselves (with her present), to build their credibility and experience and confidence in being able to do so for some client meetings without her during the sabbatical period. Other key preparation items included: unsubscribe or set up auto-archiving rules to handle the volume of email while you're gone; establish situations where it is OK to reach out to the advisor on sabbatical if truly necessary (e.g., death of a client, SEC audit, serious compliance issue, etc.); communicate to clients a few months in advance that it's happening (to allay their fears, and more importantly to show you walk your talk about living a balanced life!); and have a plan to follow-up with key clients upon return just to ensure nothing crucial slipped through the cracks. Ultimately, Kirchenbauer notes that she was still "around" for much of her sabbatical time and able to be reached if necessary... but did cut off her own business email access, and simply relied on her team to contact her if it was really needed (which, in the end, it wasn't).
Voting A Partner Off The Island (Philip Palaveev, Financial Advisor) - While many financial advisors struggle with the details of whether or how to come together to form an advisory firm partnership, in some cases the even-bigger challenge is figuring out how to remove a partner from the advisory business when it just isn't working out. Which is important not only because the partner situation isn't working out, but also because if it's that bad, the level of partner dysfunction may otherwise substantively compromise the entire business. Ultimately, the best way to go about separating a partner out of the business depends on the reason, which Palaveev notes is most commonly either because: 1) poor performance (the partner is gaining a disproportionate share of compensation and profits but not contributing proportionately to growth and value creation of the business, or in one extreme, a partner was getting paid $600,000/year to manage only $500,000 of total revenue for the business!); 2) poor relationships with other partners (i.e., the partner just isn't working productively with other partners to advance the goals of the business, and instead is frustrating the business' attempts to grow, evolve, or accomplish necessary projects due to inter-partner personal friction, or there's simply a bad personality fit); 3) problems outside work that are spilling over (e.g., marital problems that are turning into business problems); or 4) cause (the partner actually did something that fails to meet the standards of the firm, from berating employees to having an affair with one, or does something that is an outright compliance or legal violation). Notably, though, the most important part of being able to terminate a partner if ever necessary is simply about setting appropriate partnership expectations in the first place, which is not that being a partner is guaranteed employment for life, that there is real accountability for partners (albeit with a reasonable amount of latitude for the real-world ups and downs of life), and that there is a mechanism (e.g., in the partnership agreement) to buy out or terminate partners (e.g., a supermajority vote requirement). And bear in mind that even if a partner is being asked to (or forced to) leave, they are still a co-owner of the business, which means their stakes have to be valued and paid for appropriately (and in some cases, firms do allow ongoing ownership as a partner even without ongoing employment in the business, which may be a good temporary remedy in situations where the partner needs time to resolve out-of-business personal issues).
Why Is It Better To Give Advice Than Receive It? (Marcia Frellick, University of Chicago Booth School of Business) - According to an upcoming new research paper in Psychological Science, aptly titled "In Giving We Receive," researchers Ayelet Fishbach, Lauren Eskries-Winkler, and Angela Duckworth found that for many people who are struggling to achieve their goals, the best way forward is not to solicit and get advice about how to solve their problems, but instead to dole out advice instead (despite the problem that they're struggling to achieve their own goals in the first place). The reason is that the act of giving advice to others helps to build our own confidence and that the confidence-building, in turn, helps us to achieve our goals too. And the more specific the advice we give to others about how to formulate a plan of action, the more it cements our own plans of action to help ourselves as well. The findings were consistent across a wide range of experiments, from improving study habits to saving money to controlling tempers and losing weight. By contrast, the researchers also found that when people are otherwise struggling with confidence and motivation, receiving advice can actually be harmful, as the recipient feels embarrassed, judged, or otherwise stigmatized for being unable to succeed in implementing the advice. On the one hand, this raises interesting questions about whether or how a give-advice-to-get-confident model might be implemented amongst financial advisors to help make their own advice with clients stick. And on the other hand, the research also helps to explain why it's so common in recent years for people struggling with financial issues to write a blog that doles out advice and shares their journey - because it actually helps the advice-giver stick to their own path of success.
The Born Salesperson (Seth Godin, Seth's Blog) - The conventional view is that some people are just naturally born salespeople, but Godin suggests that in reality, successful salespeople are just "people with empathy and learned charisma who choose to work hard." Because ultimately, even the best salespeople will face a lot of "no's" in their careers. The best are the ones who simply keep showing up and showing up and showing up and care enough to learn how to make real connections with other people and let the benefits compound over time. The key point, though, is that as long as you have a fundamental drive to care about and help other people and are willing to keep showing up... the rest can be learned. So if that's you, the only blocking point to sales is to start the learning process. Which Godin suggests means listening to (or reading for) 30 minutes a day content that trains you in sales skills and helps you learn the long game, available from a long list of quality sales educators including Zig Ziglar, Anthony Iannarino, Daniel Pink, Brian Tracy, Frank Bettger, or Jill Konrath.
"Find Your Passion" Is Awful Advice (Olga Khazan, The Atlantic) - The popular career wisdom today is to find your passion and then pursue a career there, recognizing that we often have nearly "unlimited" motivation to work hard at something we're passionate about (as the saying goes, "find something you love to do and you'll never have to work a day in your life"). And in fact, the phrase "follow your passion" has increased ninefold in English books in just the past generation. Yet for many, the challenge is that they're not actually certain what their passion is, leading to a challenging process of searching and trying to find that passion in the first place. And if doing something you love (that's your "passion") should never feel like work, it implies that anything that does feel like work "can't" be your passion. But a soon-to-be-released research paper in Psychological Science, by Paul O'Keefe, Carol Dweck, and Gregory Walton, finds that, in reality, we don't have a fixed set of interests (as though there's a natural list of core interests we'll be passionate about if only we can discover and identify them), and instead interests are something we cultivate into passions over time. And in fact, those who think that there's just a fixed set of interests are less likely to have their interest piqued by new opportunities that could lead to a new passion. On the other hand, some studies do suggest that those who do have some passion interest already identified are better at finding jobs that fit them well from the outset. But for those who are struggling to find their passion, the good news is that's actually normal, and the real key is to have a "growth mindset" that is open to finding and deepening interests over time... because for most people, it's the continued pursuit of an ongoing interest that turns it into a passion over time!
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.
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