Nerd's Eye View blog

Creating A Six-Week Onboarding Program To Train New Advisory Firm Employees

September 14, 2020 07:04 am 2 Comments CATEGORY: Practice Management

Financial advisory firms can find themselves struggling to grow their businesses for a wide range of reasons. While some firms have difficulty developing a seamless client service experience, others may find business development strategies difficult to implement (or scale across additional new advisors) to increase their client base, and others yet may feel their executive leadership team is unable to connect with the firm as a whole. Regardless of where the difficulty lies, though, the root problem for most firms struggling with growth often lies in the lack of a well-developed training program.

For many busy firms seeking growth, investing time in establishing an effective training program is not often a top priority, and it can be difficult to even find the time to develop training protocols. However, a well-defined training program is critical not only for providing employees with a solid foundation of specific procedural requirements on how to run a firm that can grow, but also in establishing a unified firm culture that provides the vision required by employees to attract the right clients to the firm and to develop an implicit understanding of the expectations for servicing those clients. And the good news is that a good training program doesn’t have to be built all at once; instead, it can be developed iteratively, often in conjunction with fleshing out an advisory firm’s Operations Manual of processes and procedures.

Through an extensive study of employee training programs across many fast-growing financial advisory firms that were expanding their reach across the country, Herbers & Co. identified certain key characteristics that were consistent across successful training programs. From the research, they optimized an effective six-week program that can be adapted by firms to create a defined and repeatable training program for their new employees.

The weekly focus of the six-week onboarding training program for new employees is as follows:

Week 1. Understanding the company profile and its technology systems;

Week 2. Roles and responsibilities of employees across the firm and administrative procedures;

Week 3. Total client experience;

Week 4. Marketing and the prospective client process;

Week 5. Understanding the Client meeting process and client communications; and

Week 6. Compliance.

The easiest way for a firm to build a training program based on the six-week program is to develop an Operations Manual that encompasses all of the firm’s protocols and values on which training will be based. For firms that don’t already have an Operations Manual in place, it can in turn also be created one topic at a time, and over the span of several months. In fact, firms that aim to address each of the areas outlined in the weekly training topics may need up to 9 – 12 months to establish their training programs (though of course, it will still be updated over time to reflect how the firm’s processes evolve).

In today’s work environment, given our current pandemic state, it is important for remote training to be an available option for new employees. Strategies for an effective remote training program include timing the training sessions in short bursts, mixing in self-paced instructional videos, and assigning ‘homework’ exercises to be completed in between training sessions. Once the instruction and assignments have been completed, the trainer should review the assignment and offer feedback to the new employee.

Ultimately, the key point is that firms who want long-term, sustainable growth of their business need to have a well-developed training program in place. A consistent and thorough training program will ensure that all employees have a clear understanding of the firm culture and its goals, as well as being able to execute within the systems the firm uses. And while establishing a good training program can be a long-term process that may require a significant investment in time and resources, the end result will be a well-trained firm that not only knows how to operate consistently and in accordance with the firm’s culture and values to promote growth, but also is able to delegate training to more employees across the firm, which in turn frees up firm leadership from much of the training responsibilities so that their focus can be on developing and implementing growth strategies!

Weekend Reading for Financial Planners (September 12-13)

September 11, 2020 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the buzzing industry news that Merrill Lynch is barring its brokers from receiving gifts, meals, or entertainment from its wholesalers, in what some see as a shift of even large brokerage firms to begin stamping out more conflicts of interest in the new era of Regulation Best Interest, and critics suggest is simply the new path of brokerage firms to require asset managers and product companies to go through (and revenue share to) the home office instead of its brokers directly (payments which must be disclosed, but are not against the rules for broker-dealers under Regulation Best Interest).

Also in the news this week are some notable new industry studies, including one that looks at what clients actually want to talk about in advisory meetings beyond their portfolios (from protecting against identity theft to new housing decisions), the latest data on which types of consumers are actually using robo-advisors (only 10% of Millennials with <$50,000 of assets but almost 50% of those with >$500,000!), and the latest trends in how advisory firms are investing (showing the continued dominance of ETFs, an ongoing decline in the use of individual stocks, bonds, and REITs, but what is still, at best, just a small minority of advisors who are actually 'passive' as most advisors appear to be using ETFs as their own active management portfolio building blocks).

From there, we have several more interesting investment-related articles, including the launch of the new Long Term Stock Exchange by Lean Startup founder Eric Ries, the growing turmoil in prime money markets as interest rates appear to be pegged near the zero-bound for a long time to come and 'gates' implemented to prevent a 2008-style run on money markets may actually be exacerbating one this time around, growing questions about the long-term viability of the 60/40 portfolio in a persistent low-yield environment and what the future alternatives may be, and a look at how no-commission annuities may be emerging as a bond alternative for advisory accounts.

We wrap up with three interesting articles, all around the theme of being (and feeling) wealthy and what helps us get there: the first is a review of the recent Morgan Housel book "The Psychology Of Money" which explores the differences between being rich and being wealthy; the second examines what it takes to not feel 'rushed' (hint: it's all about delegation to focus on the biggest and most important tasks); and the last explores recent research finding that those who work with financial advisors don't just do better with their money... they're also happier with it, too!

Enjoy the 'light' reading!

Kitces & Carl Ep 42: Overcoming Objections By Asking More Questions To Truly Understand A Client’s Needs

September 10, 2020 07:07 am 1 Comment CATEGORY: Kitces & Carl Podcast

The roots of the financial planning industry are an eat-what-you-kill sales environment, when financial advice existed to facilitate the sale of a product, and initial survival (and eventual success) was predicated on the ability of an advisor to convince clients to buy whatever financial instrument they were selling. Which necessitated not only knowing the features and benefits of any given product, but also learning how to overcome every single objection that prospects could possibly throw at the advisor. In today’s world, though, advisors increasingly are focused on financial advice itself as the value proposition, are paid for the advice directly, and ‘just’ have the obligation to determine the best possible advice to give that helps the client achieve their goals (and keeps the advisor working with the client). Yet in practice, many advisors still think in terms of “overcoming objections” when a client doesn’t want to implement the advice they’re being given.

In our 42nd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss the key shift in mindset that advisors must go through when it comes to addressing client objections in an advice-based world, and the necessary strategies to reframe conversations by asking more questions in order to better understand a client’s needs and situation, instead of trying to overcome any resistance to taking an advisor’s advice or engaging their services.

The key to making that shift in mindset starts with understanding that a client’s (or prospect’s) objection doesn’t stem from not understanding how great the advice is that they’re getting, but rather is an indication that the advisor must be missing something important or miscommunicating somewhere along the way. After all, if the whole point of advice is to help someone achieve their goals, then a client who objects to that advice is effectively saying “that’s not going to get me to the goals that I really want to achieve… and so I’m objecting to the advice!”

Yet by taking responsibility for misunderstanding some key bit of information, the advisor can take a step backwards to start asking more questions instead, which starts back at exploring the assumptions that defined the client’s original “statement of financial purpose” (upon which all of the subsequent recommendations were based). From there, questions around what brought a client in on a particular day, or if there’s a specific thing that has changed in their lives to make them reassess their goals, can help move the conversation forward and further uncover any mid-course corrections that might need to be made. Which can even end out shifting the entire context of the conversation to figuring out if the advisor really is still the best fit for the client and their needs.

Ultimately, the key point is that the more “traditional” approach for overcoming objections was built for people that had a thing to sell (and objections to overcome to get it sold), whereas the ongoing shift towards a more collaborative advice-based client/advisor relationship means clients should naturally want to take the advice if it really gets them to their goals. Which means the starting point to overcoming an objection is digging deeper by asking more questions in order to better understand what the client’s goals – even and especially the unstated ones that may be blocking the advice process – really are in the first place.

Improving Advisor Team Efficacy By Overcoming The Many Minds Problem Of Group Conversation

September 9, 2020 07:04 am 0 Comments CATEGORY: Client Trust & Communication

Many advisory firms are building advisory teams with the hopes of sharing the workload and increasing client satisfaction. However, there are inherent challenges faced by teams, which consist of a group of "Many Minds" whose conversational mechanics are increasingly complicated by the growing number of participants, specifically when it comes to effective team communication. In fact, Harvard researchers studying how communication changed between two-person ‘dyad’ conversations and multi-person group conversations found that group communication is inherently more complex (and more problematic, as expected) because of two primary issues: 1) the ambiguity that arises regarding how and when to talk or listen, and 2) what to say (or not to say) when it is a person’s turn to speak.

When it comes to assessing how and when to talk and listen in a group conversation, there are three important considerations that will help an advisory team successfully communicate with clients: airtime (i.e., the time a person is given to speak during the meeting) is shared, typically unequally, among the meeting participants; taking turns to speak can be much more confusing in groups than between two people, as whose turn it is to speak when someone else is finished talking can often be very ambiguous; and back-channel feedback provides cues – both non-verbal (e.g., head nods, hand gestures, etc.) and verbal (e.g., saying 'yes', 'mmm-hmm', 'oh', etc.) – from listeners that let the speaker (and other participants) know they are being heard, but it is typically more limited in group conversations (as we may engage less like a participant and more like a staid audience).

Deciding what to say and how much information to offer to an advisory team can be an especially difficult process for a client, who must evaluate whether and how much to disclose personal and sensitive information… the specific type of information required during a financial planning meeting. The situation can be worse, too, if the client prefers working with a single advisor and is not yet comfortable sharing sensitive personal details with their entire advisory team.

Some tools that advisory teams can consider to optimize client communication and to develop trust include preparing agendas for all meetings that are sent to participants in advance with the aim to encourage thoughtful discussion by all who attend; setting clear expectations to facilitate a better balance between the client and advisory team members with respect to distributing conversation airtime; using active listening techniques that involve fully concentrating, understanding, and responding to what the person they’re talking to says; and organizing role-playing exercises for team members to practice communicating and focusing on the dynamics between participants.

Ultimately, while advisory teams are commonly faced with "Many Minds" issues that can make it difficult to communicate effectively with clients (and to keep them happy!), there are several tools (using meeting agendas proactively to spark engagement and develop rapport, setting clear expectations, active listening, and role-playing activities for advisory team members) that can help to overcome these challenges. Because despite the challenges that all teams face in working to communicate better, the benefits of working in a well-developed and well-trained team can far outweigh the drawbacks as, in the end, team members can work to keep clients happy while supporting each other in the process!

#FA Success Ep 193: Turning Operations Experience Into A Virtual Assistant Outsourcing Solution, with Michelle Wong

September 8, 2020 07:04 am 8 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 193rd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Michelle Wong. Michelle is the founder of Nifty Advisor Support, a virtual assistant outsourcing solution serving more than two dozen independent advisory firms across the country. What's unique about Michelle, though, is the way that she's been able to capitalize on the dual trends of outsourcing and virtual teams by pivoting her own career in operations and as a client service administrator into an entrepreneurial venture.

In this episode, we talk in-depth about the rise of virtual assistant solutions for financial advisors. The kinds of advisory firms that choose to hire virtual assistants to help with everything from marketing to client servicing to paraplanning, the typical tasks that especially solo advisory firm owners can outsource to make themselves more efficient, and how Michelle's firm structures its solution to provide support across all three areas.

We also talk about the practical mechanics of how it works when taking on a virtual assistant as a financial advisor. How the typical cost of a virtual assistant is a higher hourly rate than hiring a full-time staff member but may be a fraction of the total cost when firms only have to pay for the productive hours they actually need. The benefits of using an external firm to avoid the responsibility of training staff members on key systems as a busy advisor, how virtual assistants typically work with firms through a combination of task and workflow systems within an advisor CRM and separate communication tools like Slack, and the way that cybersecurity with a virtual assistant can now be managed using third-party solutions like LastPass.

And be certain to listen to the end, where Michelle shares her frustration that so few advisory firms have a clear career track for operations team members the way they often do for their advisors. Why the flexibility and work-life balance of virtual work is just as relevant to operations team members as the rest of the advisory firm team, and the way Michelle has been able to scale her business by finding others in the industry with similar operations and client service experience who want career opportunities with greater work-life flexibility.

So whether you’re interested in learning about hiring a virtual assistant, how Michelle created a career path for operations team members, or how outsourcing can make your firm more efficient, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial #AdvisorTech (September 2020)

September 7, 2020 07:06 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2020 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 continues with new co-author (and AdvisorTech guru) Craig Iskowitz, along with guest contributor Kyle Van Pelt, and kicks off with a look at Schwab’s announcement that all existing Schwab clients will receive free access to a MoneyGuide financial plan that they can create for themselves using the MoneyGuide One guided experience (or work with a Schwab Intelligent Advisory CFP professional for an advisory fee as little as $30/month), and highlighting how financial advisors can no longer justify their financial planning value by just inputting client data into and presenting the output from comprehensive financial planning software, and instead will increasingly be required to specialize into niches, and/or demonstrate their value in the conversations they have around the planning software.

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

Apex partners with Marstone for a tech-plus-custody all-in-one in an anticipated effort to charge fees for RIA custody (and has hired Morningstar’s Chief Product Officer Tricia Rothschild to help execute!)
Riskalyze partners with Rowboat Advisors to support ‘tax alpha’ and tax-intelligent optimization as the new portfolio value-add
LPL launches a Meeting Planner solution to optimize the surprisingly-time-intensive meeting prep process for advisors
The SEC changes the Accredited Investor definition to include financial advisors themselves, in what may be a boon to AdvisorTech crowdfunding efforts to raise capital directly from their future users?

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Envestnet preparing its own direct indexing overlay tools as technology increasingly becomes the new value-add layer, Vanguard begins to develop its own 'robo' platform for advisors to compete for custody, XTiva raises $10M to compete for the complex process of integrating advisor compensation systems in large-scale financial services enterprises, and Timeline raises $2.3M in capital to compete in the increasingly popular realm of specialized planning tools that goes beyond what ‘generalist’ planning software can provide (in the case of Timeline, to facilitate retirement distribution planning in the decumulation phase!).

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

I hope you're continuing to find this column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*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 (September 5-6)

September 4, 2020 03:00 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a big expose from the Wall Street Journal on the SEC's new Form CRS, which found that amongst 8,100 firms that had filed Form CRS, 3,100 of them had a legal or disciplinary history they were required to disclose... and 40% of them failed to do so, raising serious concerns about whether the "transparency and disclosure" lynchpin of the SEC's new Regulation Best Interest rules is already coming up short.

Also in the news this week is an announcement that the state of Massachusetts will begin to enforce its own state fiduciary rule on both investment advisers and broker-dealers (in response to its view that the SEC's Regulation Best Interest came up short in regulating brokers giving advice), criticism of the Department of Labor's new fiduciary rule from both fiduciary advocates who say it doesn't go far enough and industry participants who fear it will already impose 'too much' fiduciary obligation on brokerage firms and insurance companies, and news that the SEC is finalizing changes to its Advertising and Anti-Testimonial rules with updates due to be announced next month!

From there, we have several interesting investment articles on retirement planning, including a look at how to reframe retirement as an 8,000 day period that clients can plan around (recognizing that 'play golf' may be a good start to retirement, but probably is not something you want to do for 8,000 straight days!), new research from Morningstar's David Blanchett about how to set a reasonable life expectancy estimate for retirees, a discussion of how to craft a 'Retirement Policy Statement' to complement a client's Investment Policy statement, an exploration of how retirement is really more a 'state of mind' than a state of being, and a look at the origins of FIRE as a movement around Financial Independence and not just 'extreme Early Retirement'.

We wrap up with three interesting articles, all around the theme of the new Work-From-Home era: the first explores how firms are testing out new 'hub-and-spoke' models of work environments with limited central office space and decentralized home office work environments; the second looks at the new rise of 'tiny office' spaces (e.g., 'tiny homes' custom-built as an office space!); and the last looks at how work from home may be challenging for many jobs and types of workers but especially conducive to knowledge-based workers (including financial advisors!?)!

Enjoy the 'light' reading!

Isolating IRA Basis For More Tax Efficient Roth IRA Conversions

September 2, 2020 07:02 am 23 Comments CATEGORY: Taxes

The Roth IRA was first introduced in 1997 and has since been a popular tax planning tool for financial advisors and their clients. As while Roth IRA accounts generate tax-free growth and income from retirement savings, making Roth IRA contributions is most beneficial when a client is in a relatively low marginal tax bracket. This is in contrast to deferring pre-tax dollars to a Traditional IRA, which is often most beneficial when a client’s current marginal tax bracket is high (and anticipated future tax brackets are lower). While Roth conversions are often used to transfer Traditional IRA funds into a Roth IRA account, reporting these transactions for income tax purposes can be complicated when the Traditional IRA from which the funds are being transferred include both pre- and post-tax funds.

Although contributions made to a Traditional IRA usually consist of pre-tax dollars (for which taxpayers can take an above-the-line income tax deduction on their tax returns), there are occasions when post-tax dollars are included as well. For instance, nondeductible contributions are made when a taxpayer (or their spouse) is an active participant in an employer-sponsored retirement plan, and their MAGI exceeds the applicable limit for their filing status. Rollovers originating from an employer-sponsored retirement plan can also include after-tax funds if the plan allowed for after-tax contributions.

When Traditional IRA accounts hold both pre-tax and post-tax dollars, the balance will be subject to the “Pro Rata Rule”, which stipulates that, in general, distributions from a taxpayer’s IRA maintain the same ratable proportion of pre-tax and post-tax funds as the taxpayer’s total IRA balance. Which means that distributions from accounts with a mix of pre-tax and post-tax funds cannot be made as solely pre-tax or post-tax and that transferring these distributions into a Roth IRA will need to be accounted for accordingly.

Despite the intricacies of reporting Roth conversions from Traditional IRAs with pre- and post-tax funding, converting Traditional IRA accounts can make sense, especially when a substantial percentage of after-tax dollars are in the Traditional IRA. As while the after-tax contributions themselves will be tax-free, the growth on those funds will be taxable! Therefore, paying tax on the pre-tax portion of the Traditional IRA balance can be worthwhile when considering the tax-free growth of all contributions made to a Roth IRA.

Accordingly, there are few strategies that advisors can use to make Roth conversions more compelling, which can be particularly useful when the Traditional IRA may not (initially) have a large proportion of after-tax funding. For instance, some clients may have access to an employer-sponsored plan that allows for rollovers of IRA funds into the plan. Since IRA-to-plan rollovers are restricted to pre-tax dollars, such rollovers can essentially serve to reduce the pre-tax balance of a Traditional IRA, maximizing the after-tax balance available for the Roth conversion. Importantly, rolling funds back into an IRA from an employer plan, after completing a Roth conversion, should not be done until after the calendar year in which the Roth conversion was carried out, as doing so would result in the basis of the rollover to be included in the converted amount.

Another strategy available to increase the proportion of IRA after-tax dollars is to make a Qualified Charitable Distribution (QCD), as these distributions are restricted to pre-tax dollars from the IRA. Thus, as in the case of rollovers into an employer-sponsored plan, QCDs effectively reduce the pre-tax portion of the IRA account balance, leaving a larger post-tax balance available for Roth conversions.

Ultimately, Roth conversions continue to be a powerful and versatile tool for financial advisors to help their clients mitigate the tax bite from distributions taken from their retirement accounts. By planning around current and expected marginal tax brackets, and by strategizing to isolate the basis of pre-tax dollars in Traditional IRA accounts, advisors can facilitate substantial tax savings for their clients by way of efficient Roth conversions.

#FA Success Ep 192: Breaking Away From A Wirehouse To Build A True Fiduciary Multi-Family Office, with Paul Pagnato

September 1, 2020 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 192nd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Paul Pagnato. Paul is the co-chairman and chief visionary officer of Cresset Capital, a multi-family office with nearly $9.5 billion of assets under management for just over 600 ultra-high-net-worth clients. What's unique about Paul, though, is the journey he's had as an advisory firm owner, from a nearly 20-year career at Merrill Lynch to breaking away to work with HighTower Advisors as a partner, deciding to go out entirely on his own as an independent RIA to build his own vision, and then deciding to merge his multibillion-dollar advisory firm into Cresset and give up control in order to further expand the reach of that vision.

In this episode, we talk in-depth about Paul's entrepreneurial journey through the industry. How the stresses of the financial crisis on the brokerage industry created a unique conflict that led him to leave the wirehouse world after 20 years there, the challenging learning curve than an advisory firm faces when first breaking away, the unique stresses that emerge in the client relationship when the Broker Protocol and wirehouse employment agreements require that clients not be informed about the plan to leave until surprising them with it after the fact, and why it's so important to have a strong support structure in place with experienced vendors when making the decision to break away as a large team.

We also talk about the unique multi-family office that Paul built once he was finally able to go fully independent. The $90,000 a year flat fee structure the firm uses to serve its ultra-affluent clientele, why and how Paul's firm weaves together tax services, legal support, and even concierge travel assistance into their high-net-worth offering, the unique approach of quarterly experiments that Paul's firm conducts on an ongoing basis to come up with new ways to serve clients more efficiently, and how Paul has been able to scale efficiently with a philosophy of always trying to outsource as much as he can.

And be certain to listen to the end, where Paul shares the journey of deciding to merge his multibillion-dollar multi-family office into an even larger one. The investment banker he used to explore the options, why he ultimately decided to sell instead of raising capital from a private equity firm, and how he got comfortable with the decision to no longer have full control with the decision to merge.

Announcing New Kitces Research Study On Advisor Well-Being

August 31, 2020 07:06 am 0 Comments CATEGORY: Nerd's Eye View

It’s an old saying that “money can’t buy happiness”, but recent research has shown that, in reality, the relationship between money and happiness is more nuanced. Greater income levels are associated with greater levels of emotional well-being (at least up to a certain point); money is associated with higher levels of happiness, at least when it’s spent in certain ways (e.g., on experiences shared with other people or outright on others, rather than spent on ‘stuff’); we are increasingly recognizing the real-world trade-offs between earning more money versus having more time with our friends and family; and in the context of advisory firms, the trade-offs between income and work are of even greater focus as many advisors can outright control how many clients they wish to take on and what ‘Enough’ really means in the context of an advisory business.

Yet, in practice, remarkably little research exists to understand what maximizes the well-being of financial advisors. Instead, industry research overwhelmingly focuses only on what produces ‘More’ – more revenue, bigger businesses, more profitable businesses, with greater and greater productivity – as though the only path to success is through growth, and completely ignoring the growing base of financial advisors who are deliberately building ‘lifestyle’ practices and stopping their growth once they reach the point of having 'Enough'.

To better understand these trends, we’re excited to announce the launch of our latest Kitces Research Study on Advisor Well-Being, which explores what factors really are – or are not – associated with greater well-being as a financial advisor. Are independent advisors really happier than employee advisors? Are smaller advisory firms really more stressed than larger firms? Does the platform an advisor is associated with impact their own individual well-being? Does advisor well-being actually rise as an advisory firm grows, or is there a point of diminishing (or even negative) well-being returns on growth?

So if you have a few minutes, please take our latest Kitces Advisor Research study on Advisor Well-Being. It is the shortest yet of our Research studies (for those of you who have been kind enough to go through some of our prior longer surveys!), and we’ll be sharing the results at the end of the year, in the hopes of helping the entire advisor community plan out what should be on their New Year’s business resolution lists to make 2021 their best year yet.

Thanks again for your willingness to contribute to this important advisor research!