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Weekend Reading For Financial Planners (May 7-8)

May 6, 2022 02:08 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that amid a wave of mergers, the number of broker-dealers has declined during the past few years, according to a report from FINRA. And while broker-dealers are also seeing a decline in the number of their registered representatives, their profits have actually ticked higher in the past few years, perhaps supported by strong market performance buoying their growing fee-based business. At the same time, the number of RIAs continues to grow, suggesting that the shift toward advice-centric, rather than product-centric, business models is continuing!

Also in industry news this week:

For the largest independent broker-dealers, fee-based revenues now make up a majority of total revenue (with commissions accounting for just 34%) according to a recent survey, representing a dramatic shift from just a decade ago, when commissions made up the majority of revenue.
Why FINRA is considering raising the barriers for retail investors to purchase a range of “complex” investments, potentially including leveraged and inverse ETFs

From there, we have several articles on industry studies:

A recent study shows that advisors at RIAs tend to focus on expense ratios rather than recent performance when picking mutual funds for client portfolios, leading to better outcomes than both broker-dealer registered representatives and dual registrants, who are more likely to choose more expensive, active mutual funds
A Cerulli study indicates that in a world of low stock and bond returns, advisors are increasingly considering alternative asset classes to generate income for clients
How an advice-only business model can allow advisors to be more creative with their service offerings and reach a wider range of potential clients

We also have a number of articles on retirement planning:

The pros and cons of using a Qualified Longevity Annuity Contract (QLAC) to insure clients against longevity risk while deferring some RMDs
Why clients with long-term care policies may soon see premium increases and how advisors can help these clients analyze their options
Why planned changes to “Traditional” Medicare could make it look more like Medicare Advantage and how advisory clients might be affected

We wrap up with three final articles, all about how one’s personality can affect their wealth:

How certain personality types are correlated with increased lifetime earnings among the general population, and why the traits that lead to success for financial advisors might be different
How the personality traits associated with ‘self-made’ millionaires differ from those who inherited their wealth, and why these traits could affect client behavior
Why certain characteristics are associated with the ability to separate ‘financial BS’ from genuinely profound advice

Enjoy the ‘light’ reading!

Kitces & Carl Ep 85: Building Your (Local) Brand With PR That Actually Works

May 5, 2022 07:06 am 0 Comments CATEGORY: Kitces & Carl Podcast

Traditionally, advisors have relied on client referrals and networking to attract potential clients, but with modern technology and an increase in publicity mediums available, advisors have many more options to build a brand to represent themselves. However, with more available methods to choose from, advisors are increasingly challenged to find the ones that are most effective. Choosing an effective public relations strategy can seem daunting and exhaustive to already busy advisors. Moreover, with so many metrics to consider, making sure there is a strong return on investment and leveraging any public relations efforts is even more difficult.

In our 85th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how financial advisors can utilize public relations to better brand themselves, how to decide which medium will have the best return on investment, and how to leverage public relations to increase the number of connections with potential clients.

As a starting point, it’s important to identify the intention behind utilizing public relations and to determine the effort the advisor wants to commit to. Writing an article for a local paper or receiving a one-time mention in a periodical may be suitable for those who simply want to offer social proof of their expertise to current and potential clients. Whereas running a local radio show or becoming a go-to financial expert on a high-profile medium may be better suited for those who want an ongoing presence and have the capacity for a higher level of commitment.

Identifying a specific intention will help advisors to better track the right metrics to assess the ROI of their public relations strategy. If an advisor’s intention is to attract more clients, using social media might be a good way to connect with a larger audience (and gain popularity), but will not necessarily increase the number of potential clients who will possibly do business with the advisor. Which means that it is important to spend time determining the right metrics to track, as this will support the advisor in identifying the right strategy to realize their primary goal.

Furthermore, while some advisors may be uncomfortable sharing their media coverage (for fear of sounding too boastful), it is important to recognize that telling clients about their efforts is the only way clients (current or potential) will find out about their appearances. Providing printouts or links to publications to current and prospective clients can be an easy way for advisors to relay their work to clients, which can serve to build their credibility and grow their referrals.

Ultimately, the key point is that while public relations can be used by advisors to build their brand, having a clear intention will help advisors leverage their branding efforts to realize their goals. Understanding the different strategies available and how results can be measured for each will allow the advisor to spend more time on the right actions that will yield better results for them and help them reach their goals!

Questions, Not Answers: Conversations For Advisors To Navigate Clients’ Anxiety Around Change

May 4, 2022 07:09 am 0 Comments CATEGORY: Client Trust & Communication

Financial advisory clients are bound to experience stressful conditions that can impact their finances at some point during their relationship with their advisor. From market downturns to geopolitical shocks, there are many potential external factors that might make a client nervous about their financial situation. What’s more, the stories individuals tell themselves can lead to decisions that negatively compound the initial impact of the event. For example, a market correction can create fear for investors (particularly those nearing – or even in – retirement), and when they create certain narratives (e.g., “I need to sell all of my stocks now before the market drops further”) they can find themselves in an even worse situation. For worried clients, advisors often serve as a sounding board for many of their stories, putting the advisor in a unique situation to help clients weather their emotional challenges and stay on course with their financial plans.

Advisors naturally strive to offer expert guidance to their clients, but sometimes addressing only the technical intricacies of a client’s plan is not always the most helpful response. For example, reminding a panicking client during a market downturn that they have a diversified portfolio or that corrections are a regular part of market cycles might not resonate with them to truly alleviate their anxiety.

Instead, addressing a client’s upsetting stressors by encouraging them to form new personal narratives can help them understand and implement new perspectives that make it easier for them to address challenging situations in different (and often more successful) ways. In this way, the client can become their own ‘expert’ through facilitation from their advisor. One way for advisors to start this conversation is by asking the client the question, “What would you tell your best friend if they asked you this question?”

This strategy can lead the client to expand their narrative (by serving as an ‘outside’ advisor to themselves) and to potentially accept new ideas that they may already know but have been resistant to acknowledge before. Because reminding a friend that having a well-diversified portfolio is a good way to manage market risk can be easier than reminding themselves of the same thing (as they watch their portfolio value fall during a downturn); at the same time, clients are likely to respond to a friend with more kindness and empathy (versus the negative self-talk they can present to themselves). Thus, going through this exercise can calm and empower the client by revealing a more compassionate and relatable response that they come up with for themselves! Additionally, the advisor is afforded valuable insight into productive ways in which the client might want to respond to the situation.

Ultimately, the key point is that by finding ways to change their own narrative stories, a client can expand how they see themselves and better understand that they can change their role in the story. In this way, they can become empowered and more capable of preventing a stressful situation from compounding negatively. And advisors can play an important role in this exercise by facilitating the conversation and listening actively, enabling the client to craft a new narrative and potential next steps!

#FA Success Ep 279: Expanding The Impact Of Sustainable Investing For Ultra-HNW Families, With Erika Karp

May 3, 2022 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 279th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Erika Karp. Erika is the Chief Impact Officer at Pathstone, an independent RIA based in Englewood, New Jersey that oversees $35 billion in assets under management for a few hundred ultra-high-net-worth households.

What's unique about Erika, though, is how she and her firm are incorporating sustainable investing by utilizing their own internal ESG analysis to align their ultra-high-net-worth clients’ sizable amount of capital with their own values.

In this episode, we talk in-depth about how Erika and her firm utilize environmental, social, and governance analysis to find the intersection between investments that are expected to be sustainable and produce a strong investment return, how Erika focuses on the factors of intentionality, additionality, and measurability to ensure the impact of their investments decisions align with her clients’ values and objectives, and how Erika and her firm use manager due diligence discussions and their own thematic research to better identify managers that better fit with, and then hold them accountable to, the firm’s investment standards.

We also talk about how Erika was inspired to begin her own firm after becoming frustrated with the relatively slow pace that her prior firm was (not quickly enough) recognizing the emerging shift towards sustainable investing, how Erika’s confidence in her abilities was juxtaposed with the intense pressures of putting up her own capital to launch and then having to quickly reach $25 million in AUM within 90 days to receive SEC approval on her Federal registration, and how Erika leveraged publishing her own proprietary ESG investing research through a monthly report and doing corporate consulting to create a revenue stream on the side while she was launching her own firm and getting her initial clients.

And be certain to listen to the end, where Erika shares how the realization that we all have to make decisions that are based on imperfect information known at the time helped her have fewer regrets in her own life, how Erika struggled with wanting to be known as a trusted advisor while also feeling the pressure of needing to sell herself and her services to acquire clients as she was building her firm, and why Erika believes it is important as an advisor to focus on the work that brings personal joy and to keep aspiring to do more of that work to develop a better career.

So whether you’re interested in learning about how Erika and her firm analyze and measure the ESG impact of their investments, how Erika was able to navigate the pressures of having to fully fund her own firm and get SEC approval in a short amount of time, or how Erika was able to reach a point where she could focus more on the aspects of her career that she loves, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Erika Karp.

The Latest In Financial #AdvisorTech (May 2022)

May 2, 2022 07:05 am 4 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the May 2022 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the big news that Orion Advisor Services is acquiring Redtail CRM, increasingly positioning Orion as the ‘All-In-One’ solution to compete against Envestnet with its combination of financial planning (Advizr vs MoneyGuide), performance reporting (Orion vs Tamarac), and now CRM (Redtail vs Tamarac CRM), paired with its back-end TAMP solutions (Brinker and Orion’s model marketplace vs Envestnet’s PMC and its SMA platform). Though in the near term, it is more likely that Orion and Redtail will simply focus on trying to cross-sell their respective services to the users of the other, given what was ‘only’ a 20% - 30% overlap in existing advisors already using both (while still respecting the majority of each user base that may not be looking to switch and will remain with its current CRM or portfolio management solution).

From a broader industry perspective, though, the real significance of the Orion-Redtail deal may simply be a sign of the ongoing bullishness of growth for AdvisorTech more broadly, as Redtail’s valuation was likely buoyed by Wealthbox’s recent Series B, and Orion’s potential IPO valuation in the future may be boosted by rumors that a PE firm may take Envestnet private. In other words, the Orion-Redtail deal may not necessarily be one of a great unified vision of a single all-in-one solution for all advisors – though few would likely object to seeing greater integrations between the two – but simply a financial opportunity to attempt to make the whole worth more than the sum of the parts.

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Advyzon launches its “Quantum Rebalancer” to shore up its hold on small-to-mid-sized investment-centric firms that want to use Advyzon for ‘everything’ (excluding financial planning)
RightCapital launches a new ‘One-Page Financial Plan’ Snapshot feature that highlights the gap in financial planning solutions for clients after their initial plan is done

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

Vanguard launches a new partnership with American Express to pay the same 25bps promoter fees that have become common in the independent RIA channel as well (and highlighting the ongoing extraordinary cost of lead generation)
SimplyEasier launches a new fee-for-service billing solution as more advisors continue to explore non-AUM business models
Schwab gears up for the launch of its new Personalized Indexing solution at a 40bps cost that may actually offset most or all of the tax-loss harvesting benefits it purports to generate?

In the meantime, we’ve also launched a beta version of our new Kitces AdvisorTech Directory to make it even easier for financial advisors to look through the available advisor technology options to choose what’s right for them!

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading For Financial Planners (Apr 30-May 1)

April 29, 2022 02:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the Investment Advisers Association has become the latest industry organization to push back against the SEC’s guidance limiting the use of the term “fiduciary” on Form CRS, joining a growing number of voices attesting that RIAs should be able to highlight the differences between the standards of care required of them with respect to their entire advisor-client relationship, versus Reg BI’s standard of care for broker-dealers that is limited to just the moment the broker makes the recommendation (rather than the structure of the broker-dealer itself).

Also in industry news this week:

In response to the SEC’s proposed regulations for RIAs to address cybersecurity threats, industry advocates have focused on the proposed requirement to report incidents to the SEC within 48 hours, a rule that could impede advisors’ ability to respond to threats adequately while also rushing to meet the reporting deadline, while highlighting that smaller RIAs just don’t have the resources to respond in the same way that large firms do.
The FPA’s Virtual Externship program is open for enrollment for its third year, offering experiential training at scale for newer advisors (and exposure to a diverse range of firms and planning techniques) to give those with classroom knowledge opportunities to see how different advisors “do” financial planning

From there, we have several articles on how advisors are approaching the decision to retire (or not):

At a time when the ‘Great Resignation’ is making headlines, why many advisors are choosing to continue working well into their 70s and 80s
The steps advisory firm owners can take to prevent ‘seller’s remorse’ when they sell their firms by vetting more than just the price of the offers
How one firm navigated an internal succession and the lessons learned from guiding clients through the transition

We also have a number of articles on taxes:

How advisors can add value by reviewing clients’ tax returns (and gain insights about the client’s behavior and values that might not have been revealed in earlier conversations)
How owners of highly appreciated artwork have taken advantage of a tax-planning strategy of donating ‘fractional’ shares of art, allowing them to keep the art for a part of the year while enjoying the tax deduction for the donated share
Why moving to a state with lower income tax rates can actually result in higher costs of living because of factors like property taxes and housing costs (and why financial aspects, including taxes, should make up only part of the reason for moving – or not – to another state)

We wrap up with three final articles, all about personal development:

Why the most important and often hardest step to achieving a goal, whether it is running a marathon or starting an advisory firm, is just getting started, as habits are far easier to maintain than to begin
How a lifetime of recreational exercise could pay dividends for our health as we age
Why ditching your smartphone at key moments during the day can promote personal and professional fulfillment

Enjoy the ‘light’ reading!