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#FA Success Ep 269: Accelerating The Fee-Only Transition By Acquiring A Commission-Based Book Of Business, With Michael Hartman

February 22, 2022 07:02 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Michael Hartman Podcast Featured Image FAS

Welcome back to the 269th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Michael Hartman. Michael is the founder of Hyperion Financial, an independent RIA based in Shillington, Pennsylvania, that oversees almost $60 million in assets under management for 75 client households.

What's unique about Michael, though, is how he fast-tracked his transition away from his insurance roots to become a fee-only RIA… by making the investment to acquire a commission-based book of clients and convert them to fee-only as well.

In this episode, we talk in depth about the way Michael built a financial planning fee model with a base financial planning fee and then offsets AUM fees against his ongoing planning fee if clients want him to manage assets after creating the comprehensive plan, how Michael and his team leverage a client service calendar and ‘surge’ meetings to more efficiently create a high-touch experience for their clients, and how Michael and his firm present clients with a one-page ‘financial snapshot’ at every meeting to remind clients of their financial goals and reassure them those goals are on track.

We also talk about how Michael’s discovery of the financial planning world through publications and podcasts inspired him to pursue a career change as a financial advisor; how, after being weighed down for years by the contractual obligations of the insurance companies he worked for, Michael realized he needed to acquire his CFP designation to take his career to the next level; and how Michael ultimately recognized he needed to become an independent firm owner to achieve the freedom to serve clients the way he craved and achieve his personal business aspirations.

And be certain to listen to the end, where Michael shares how he persevered through losing 3 out of 6 of his team members (including his wife) while trying to transition the insurance company he worked for into the financial planning space; how taking a personal “pause” with an 8-week road trip gave Michael the clarity to purchase a local insurance firm and convert it into an independent RIA; and how Michael has lived firsthand the challenge that, much like being a parent for the first time, research and preparation can only get you so far, and at some point, you just have to take the leap to make your business what you think it can become.

So whether you’re interested in learning about how Michael guided his newly purchased insurance brokerage firm through fee and model transitions, how Michael encourages other advisors to actively seek advice and resources from professionals outside of their immediate circles to expand their career opportunities, or how Michael believes the hardships and failures he encountered are part of the journey toward personal and professional growth, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Michael Hartman.

What Advisors Really Want From Their (Independent) Advisor Technology: Opportunities And Threats

February 21, 2022 07:08 am 0 Comments CATEGORY: Technology & Advisor FinTech

The financial advisor marketplace is an incredibly fractured one, where even the largest mega-firms with 10,000–20,000 financial advisors have only single-digit market share, and tens of thousands of advisors operate on an entirely standalone basis as solo advisors. Which means it’s incredibly difficult for most advisor-technology solutions to grow and gain market adoption because of the challenges in just reaching advisors… one firm at a time. It also means that it’s very difficult to figure out which technology tools are ‘best’ and most popular amongst advisors.

To address this, the industry has produced a number of advisor technology studies, but most are conducted via ‘open-link’ surveys, which are subsequently distributed by the vendors themselves to their users, turning the surveys from objective measurements of adoption and satisfaction into a ‘voter turnout’ exercise for the vendors. Which is why last year, Kitces Research launched its own Independent Advisor Technology study, using a more robust sampling methodology to get a clearer perspective on what tools are really the most popular and most liked within the advisor community.

Overall, the results of the Kitces Independent AdvisorTech study show a remarkably tight link between the technology that advisors deem most important (which has the highest demand), and advisor satisfaction with those tools, signaling that, in most categories, the marketplace really is remarkably efficient at iterating on in-demand software to meet advisor needs.

However, the latest Kitces research also shows that a shift is underway, with a number of advisor software categories in the aggregate gaining far more advisor satisfaction than their current adoption reflects, signaling the potential for accelerated growth in key categories (including advice engagement, plan monitoring, specialized planning tools, and the billing and eSignature process of client onboarding). At the same time, a number of ‘traditional’ advisor software categories (including CRM systems, performance reporting, compliance, digital marketing, and especially account aggregation) are particularly prone to disruption from new competitors. And in some categories (like trading and risk/behavioral assessments), advisors are so dissatisfied with the current solutions that a disproportionately high number of firms are building their own solutions from scratch, rather than buying anything in the existing marketplace!

Which shows how, as the advisor value proposition increasingly shifts from a focus on product sales and portfolio management to the delivery of advice itself as a service for which advisors charge fees, there is an emerging gap in advisor technology to solve the problems of advice delivery itself. And at the same time, while the leading advisor technology firms are trying to add (or even acquire) complementary features to become more ‘all-in-one’ systems, advisors are increasingly looking to alternatives to implement a more ‘best-of-breed’ approach to fill in the unique gaps they’re experiencing in their own firms.

In the end, though, the latest Kitces Independent Advisor Technology research shows that the advisor technology marketplace remains incredibly robust, and that, despite more than 300 offerings on the AdvisorTech Solutions Map, and existing incumbents who continue to retain their market leadership in the core of the advisor technology stack, there is still a great deal of opportunity for new firms to grow and capture market share, especially as the advisor business model itself continues to change and evolve!

Weekend Reading for Financial Planners (Feb 19-20)

February 18, 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, according to population and moving data with increased relocations during the pandemic’s era of remote work, the states that lost the most population in 2021 were those with the highest personal income tax rates (and likewise, the states that gained the most population were those with the lowest tax rates), which, while not definitively proving that tax rates were a primary factor for remote workers taking advantage of the freedom to live and work anywhere, does show that Southern and Western states (which make up the majority of lower-tax states) continue to hold allure for workers seeking a lower cost of living or better economic opportunity.

Also in industry news this week:

The CFP Board issued new guidance and case studies focusing on satisfying their “fiduciary-at-all-times” duty of care, navigating the seven-step financial planning process as a solo advisor, and managing conflicts of interest in compliance with the Code of Ethics and Standards of Conduct that has been in force since June 2020
A new research study from TIAA concluded that high school coursework on personal finance has no impact on a student’s likelihood to eventually save for retirement or own a home (though previous research has suggested that financial literacy education can at least improve young adulthood credit and debt behavior)

From there, we have several articles on client communication:

An extensive new study from FPA concluding that advisors may overrate their own communication skills, as compared to how clients view them, suggesting the need for a more systematic approach to gathering both quantitative and qualitative client data to understand clients’ personal and financial priorities in more depth
Why, when clients of financial advisors fail to act on recommendations, it may not be a sign of their being unwilling to act so much as not (yet) being ready to act – and how pushing the client to take the “right” action can actually have the opposite effect (and cause the client to even further delay a needed course correction)
How the nature of financial advice is expanding beyond the strictly financial aspects of clients’ lives (although clients may not yet be willing to go too far beyond the boundaries of their financial lives)

We also have a number of articles on retirement:

How data from both the United States and United Kingdom show that average annual spending after inflation declines throughout retirement, and the implications for creating financial plans
Why mini-retirements can not only be relaxing, but also create significant tax planning opportunities in the low-income years (that can even help to offset the long-term cost of taking extended time off from work!)
How advisors can apply the lessons of those pursuing financial independence at an accelerated pace, not just in terms of savings habits, but the mindset it takes to FIRE early (from ignoring social comparisons to getting clearer about what is ‘Enough’)

We wrap up with three final articles, all about how negative emotions can actually lead to self-improvement:

How experiencing sadness, anger, and anxiety can actually make you happier and smarter in the long run
Why learning to get comfortable with the loss of the known (as opposed to reducing future uncertainty about the unknown) may be the key to getting comfortable with change
How addressing, rather than avoiding, regrets can lead to self-growth, and perhaps fewer regrets in the future

Enjoy the ‘light’ reading!

The Four Types Of Direct Indexing And Technology Solutions For Advisors

February 16, 2022 07:01 am 8 Comments CATEGORY: Investments

First introduced in the 1970s, index funds have grown in popularity over time thanks to their ability to provide broad-based diversification at (typically) very low costs, making their benefits available to investors of any level of wealth. And while mutual funds and Exchange-Traded Funds (ETFs) have been the dominant way for investors to get index exposure, thanks to improved technological capabilities and reduced trading costs, direct indexing – buying the individual component stocks within an index – has emerged as an alternative tool with a range of potential use cases.

Historically, direct indexing was developed as a means to unlock the tax losses of individual stocks in an index – even if the index itself was up – and was primarily used only by the most affluent investors (who had the highest tax rates and benefitted the most from the available loss harvesting). However, direct indexing can be used not only to harvest tax losses but also to harvest capital gains (particularly for those taxpayers in the 10% and 12% tax brackets). In addition, direct indexing can provide tax benefits to investors who are charitably inclined by allowing them to donate the underlying shares within an index that have the largest gains, thereby helping them to maximize their tax savings.

For those whose primary goal is to benefit from a more personalized indexing strategy that still gains broad market exposure while specifically adjusting for personal preferences, using a personalized index can ensure the investor’s capital will support the exact industries or companies they wish to support (while also saving on the management fees otherwise charged by more packaged ESG/SRI mutual funds and ETFs).

The direct indexing framework also is relevant for advisors whose default strategy is to own “the market” (i.e., broad-based index funds), but who also want to overlay various rules that subsequently modify or tilt the allocations based on their own (or their clients’) investment preferences or outlook, such as over- (or under-)weighting certain sectors, factors, or segments of the market.

Finally, direct indexing can be used to help a client with a large, highly appreciated or concentrated investment position, or one whose human capital is tied up in one company or industry. For these clients, an advisor can build around the holdings committed to an existing company or industry by diversifying the remaining assets into an index, better positioning the client away from exposure to a potential downturn in their company’s (or its industry’s) performance.

The distinctions between the four types of direct indexing are important, as the various uses of direct indexing necessitate very different capabilities from the platforms themselves. Which in turn means that more than multiple different indexing providers can each have the potential for breakout success, by building the best-in-class solution for a particular direct indexing approach… while recognizing that what it takes to be most successful in one direct indexing category may be very different from what it takes in others.

Ultimately, the key point is that the value of direct indexing is no longer limited to tax benefits for high-net-worth clients. The developing uses for direct indexing – personalized indexes, rules-based advisor investment strategies, and customized completion portfolios – can benefit a wider range of clients. And while it remains to be seen whether direct indexing will start to displace mutual funds and ETFs in advisor-managed portfolios, its expanded uses, increased outside funding into direct indexing providers, and growing platform capabilities, suggest that direct indexing’s value to advisors is likely to expand in the future!

#FA Success Ep 268: Centralizing Departments To Systematize And Scale A $2B AUM Advisory Business, With Patti Brennan

February 15, 2022 07:07 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Patti Brennan Podcast Featured Image FAS

Welcome back to the 268th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Patti Brennan. Patti is the CEO of Key Financial, an independent RIA based in the Greater Philadelphia area that oversees more than $2 billion in assets under management for nearly 800 client households.

What's unique about Patti, though, is how she has scaled her firm by centralizing her departments into a unique team structure, and systematizing processes amongst her client service team – not lead financial advisors – to create a high-touch experience for her clients.

In this episode, we talk in depth about how Patti adopts the “Starbucks” model where her advisors create tailor-made plans for each client by utilizing customizable templates, how Patti has designed a concierge-style client services department that she refers to as ‘key’ client services (a play on the name of her firm, and because she wants her clients to feel like they are key), and how Patti has, in the vision of KFC’s Colonel Sanders, leveraged her personal image and reputation as a symbol of her brand and marketing, even if she is not the forerunner of each client’s relationship with the firm anymore.

We also talk about how The 4 Disciplines of Execution by Sean Covey motivated Patti to form systems to get past just visualizing her business goals and move toward actualizing them, how Patti was inspired to increase her firm’s yearly goal after hearing an advisor describe bringing in $50 million in AUM in one year when she wasn’t growing at even half that rate, and how she focuses on optimizing her team’s individual talents to create a well-oiled organization.

And be certain to listen to the end, where Patti shares how she realized that to truly scale her business, she needed to let go of fear and learn to trust her team to implement her plans and vision, how Patti feels newer advisors would benefit most from working at a firm that is growing and has potential to keep growing, and why it is important as a leader to show vulnerability, admit mistakes, and master the art of apology.

So whether you’re interested in learning about how Patti organizes the departments in her firm to create an efficient workflow, why Patti places importance on cultivating deep, long-lasting relationships with both her employees and her clients, and how Patti stays inspired to continue setting and achieving goals, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Patti Brennan.

Financial Advisor Office Hours: A Step-By-Step Guide To Maximizing Your Time

February 14, 2022 07:03 am 2 Comments CATEGORY: Practice Management

For financial advisors in the early phases of starting their own practice, especially in the fee-only part of the industry, being successful often comes down to the resources and advice available to the advisor. A call with a mentor or peer to ask something as simple as, “Was this hard for you, too?” or “Is this a good choice?”, or even just to ask for references and resources can provide not only monumental comfort but also affirm an entrepreneur’s choices, thus allowing them to take the next step forward – and hopefully to become a successful advicer in the meantime! However, the advisors on the other end of the call, who are eager to give back to the community that originally gave them support and mentorship, often face their own challenges as they look to provide support to up-and-coming advisors without overwhelming their own calendars and potentially stalling the growth of their own firms.

In this article, Meg Bartelt, founder of Flow Financial Planning, explains how (and why) she developed her own “Office Hours/Ask Me Anything” system, how she prevents time creep, and how advisors can develop their own systems of mentorship and trust.

From an overarching perspective, Meg’s Office Hours structure – 45 minutes, every Friday, with up to three people – starts from a time management perspective. Many advisors looking to give back begin with a very open structure. For example, Meg started by setting aside 30 minutes each Friday to have one-on-one discussions with whoever wanted to talk to her. However, more advisors began to reach out, and more slots were added – plus, conversations occasionally went over 30 minutes and ate into even more time! Designating a set block of time for Office Hours for multiple people at the same time helps manage both expectations and time for advisors on the call. And, of course, advisors are not obligated to hold weekly Office Hours. Biweekly or even just monthly meetings can be more than sufficient.

Once an advisor has decided how frequently to hold Office Hours, all that’s left is to get started. Initial set-up doesn’t have to be complex: a sign-up system, such as ScheduleOnce (which Meg uses) or Calendly, and a social media post or email broadcasting the service may be sufficient depending on how much of a following the advisor already has. Preparation can also be minimal; Meg asks participants for their contact information only, and often enters Office Hours without having done any research or advance preparation for the session.

Ultimately, the key point is that giving back to the advisor community doesn’t have to be hard, complicated, or time-consuming. Sometimes, it’s as simple as lending expertise, empathy, and community when an advisor needs it most. One connection, insight, or aid can be all it takes to help transform a young advisor’s career – but first, one has to start by opening the door!