Nerd's Eye View blog

Creating Incentive Trusts To Foster Beneficiary Legacies Without Spoiling The Kids

June 19, 2024 07:01 am 0 Comments CATEGORY: Estate Planning

The role of estate planning is most commonly considered to be about transferring assets from one generation to the next in the most efficient manner possible (e.g., how to minimize the burden of estate taxes and avoid the public spectacle of the probate process). And yet, looking at estate planning solely through the lens of assets on a balance sheet can make it easy to overlook the reality that people often have other, intangible assets that they wish to pass on to the next generation, such as values, lessons, and opportunities to pursue lifelong passions that can't be achieved – and in many cases may be contradicted – by a simple transfer of cash.

So it often makes sense to think of estate planning not only in terms of which assets go to which person, but also in terms of how best to use those assets to incentivize the types of behavior that the assets' owner wants to instill in their heirs. As while will-based transfers and cash gifts generally impose no restrictions on how they're used by their beneficiaries, certain types of trust-based estate plans can allow an individual to set very specific guidelines for how their assets are held and under which circumstances they can be distributed.

The most common example involves trust provisions that direct assets to be distributed to beneficiaries once they obtain a certain age (e.g., at age 21 or 30) or stagger distributions at multiple ages. However, it's possible to get much more specific and to allow distributions that are tied to specific conditions that incentivize the beneficiary, such as academic achievements (like maintaining a certain GPA or attaining advanced degrees), life events (like getting married or buying a first home), or even the level of the beneficiary's own earned income (like allowing for 'matching' distributions equal or in proportion to the amount of income that the beneficiary earns).

In addition to incentivizing behaviors, trust provisions can also include tools to disincentivize certain behaviors. For beneficiaries who have known behavioral issues such as gambling or substance abuse, the trustee may be able to delay distributions until there is evidence that the behaviors have been curtailed. Likewise, an individual wanting to avoid litigation or family conflict as the result of a contested estate (e.g., by a family member who feels they were treated unfairly) can include a "no contest" clause that effectively disinherits anyone who takes legal action against the estate.

The key point is that as with most financial planning topics, advisors can play a role in helping to guide clients to the most appropriate solutions for their goals, including how to carry on their legacy of personal values. By asking questions to clarify the client's aims in leaving money to their beneficiaries and then helping them find an estate administrator or trustee and an attorney who can draft a trust that reflects the client's goals, advisors can assist clients in making sure their legacy is preserved for generations to come!

#FASuccess Ep 390: Helping Prospects Find Their Way To You Online With (Local) SEO, With Brent Carnduff

June 18, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 390th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Brent Carnduff. Brent is the founder of Advisor Rankings, a marketing firm based in Boise, Idaho that specializes in search engine optimization for financial advisors.

What's unique about Brent, though, is how his firm helps advisors maximize both the advisor's organic SEO to attract prospects with specific planning needs through effective content creation, and their local SEO to rise to the top of the Google rankings when a consumer simply searches for a financial advisor located near them.

In this episode, we talk in-depth about how Brent helps advisors improve their local SEO, starting by claiming and then accurately and completely filling out their firm's Google Business Profile page, why Brent recommends that advisors ask their clients (consistently and systematically, to be compliant) to write a review on Google in order to boost both the firm's search ranking and the number of prospects who actually visit the firm's website, and why Brent views local SEO as an opportunity for advisors who already work with clients in their geographic area to turn their existing presence into a geographic niche that more effectively attracts new nearby prospects.

We also talk about Brent's advice for maximizing organic SEO to attract clients with planning needs that match the advisor's expertise, including the optimal cadence and length of content for SEO purposes, Brent's recommendations for selecting topics for website content, in particular writing lengthy hyper-specific posts on focused subjects that won't appear on more generalist websites but are relevant to the firm's ideal clientele, and Brent's tips for coming up with ideas for content, such as by simply writing articles to answer the questions that an advisor's clients are already asking.

And be certain to listen to the end, where Brent shares how serving a specific client niche can play a major role in helping an advisor really rise in Google search rankings, why Brent finds that local SEO can have a positive impact in 6 months but organic content-based SEO has to be a more long-term investment for a firm, and why Brent hired a coach to get his own business to the next level, especially by helping him to price his services at their real value, and helping him to get more comfortable in delegating tasks so he can focus his time on providing his SEO expertise to the advisors he serves.

So, whether you're interested in learning about how Brent assists advisors in improving their local SEO, content strategies that Brent recommends that advisors can leverage to resonate with their target clientele, or how Brent advises on maximizing organic SEO, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Brent Carnduff.

How Financial Advisers Can Boost Online Reputation Through Google Reviews (While Complying With SEC Marketing Rule Requirements)

June 17, 2024 07:01 am 0 Comments CATEGORY: Marketing

Online reviews are commonly given and used by consumers across many industries, from finding a good restaurant in a new town to reviewing a lawn care service provider. Nonetheless, fewer than 10% of SEC-registered investment advisers report using them, even though the SEC’s updated investment adviser marketing rule allows financial advisors to proactively encourage testimonials (from clients), use endorsements (from non-clients), and highlight their own ratings on various third-party review sites. Which suggests that advisers have an opportunity to leverage the power of online reviews, which can act as "evergreen referrals" and drive more prospects to seek out the firm’s services, all while adhering to their firm’s compliance requirements.

While some advisors might be concerned that reviews they encourage clients to make on the firm’s Google Business Profile could be seen as advertisements (creating additional compliance requirements), the language of the rule (and the SEC’s stated intent behind it) suggests that by providing all clients an equal opportunity to leave candid feedback on a Google Business Profile would not in and of itself turn that content into an advertisement (unless the content was later endorsed or approved by the adviser). However, selectively asking a subset of clients for testimonials, or guiding their responses to encourage more positive content (involving themselves in the preparation of the content), would likely result in the content being considered a communication of the adviser, potentially rendering it an advertisement subject to the disclosure and compliance requirements of the marketing rule.

Even though the updated marketing rule has enhanced advisers’ ability to leverage online reviews, some advisers might wonder whether clients will actually leave reviews (and, if, so, whether they will be positive). However, an analysis of thousands of Google reviews from financial advisory firms around the country shows not only that clients are willing to leave reviews (particularly if the firm has a proactive strategy for review generation), but also that firms with the most reviews tended to have higher than average ratings for advisory firms overall. Further, advisers tend to have higher ratings than businesses in other industries (perhaps reflecting the financial planning industry’s high retention rates and ability to make a difference in clients’ lives!).

To create an effective (and compliant) Google review strategy, a starting point for advisers is to update their Form ADV to reflect the use of testimonials and their Policies & Procedures to govern their approach to collecting, approving, and sharing testimonials. Next, by taking a proactive approach to reinforcing where they add value (e.g., because the most enthusiastic testimonials related to clients feeling like their adviser was delivering a personalized plan, advisers who address client concerns directly and make them feel a part of the process could generate more positive reviews). Further, advisers can potentially reduce the number of negative reviews received by ensuring that prospect and client relationships that do not work out (e.g., when a prospect does not meet the firm’s asset minimum) are handled respectfully (e.g., by referring the prospect to another advisor who might be able to better meet their needs) so that the individual does not feel compelled to leave a negative review.

Ultimately, the key point is that the SEC’s updated marketing rule provides advisers with the opportunity to boost their online reputation through the use of online reviews. And by taking a proactive approach (both to encouraging reviews and to meeting the rule’s requirements), advisers can potentially increase the number of inbound prospects they attract while remaining in compliance with the marketing rule’s requirements!

Weekend Reading For Financial Planners (June 15-16)

June 14, 2024 02:00 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 a recent study found that advisory teams tend to have higher assets under management per advisor, serve wealthier clients on average, and have stronger growth than solo advisors, thanks in part to the efficiencies gained from sharing expertise and back-office support. Nevertheless, these findings could reflect self-selection amongst advisors, with those who don't want to grow past a certain satisfying income (happily and profitably) remaining as solos, and those seeking greater growth upside joining teams.

Also in industry news this week:

While an infusion of Private Equity (PE) capital has shaken up the RIA M&A market, the ultimate implications for advisors, their clients, and the PE firms themselves remain unclear
A recent study has found that a significant portion of 'DIY' investors are open to working with a human advisor (and paying for the service), with 'just in time' advice potentially providing an opening for advisors to demonstrate their value

From there, we have several articles on retirement planning:

Practical considerations for advisors when engaging in (partial) Roth conversions, from assessing the "effective marginal rate" paid on the conversion to deciding when during the year to complete the conversion(s)
Why regular portfolio rebalancing could be sub-optimal for retirees and how a "rising equity glide path" could lead to greater portfolio size and longevity
Why an advisor's tools for helping clients successfully navigate the early years of retirement extend beyond asset allocation

We also have a number of articles on practice management:

A 6-step plan for advisory firms to create a compensation plan that reflects their values and goals
How firms can use cash bonuses, equity opportunities, and non-monetary perks to attract and retain top talent
A survey of Gen Y and Gen Z advisors indicates that many of the factors that make a firm attractive to them, from the company culture to training and mentorship opportunities, do not necessarily have to cost firms in terms of hard dollars

We wrap up with 3 final articles, all about overcoming limiting beliefs:

Tactics for overcoming limiting beliefs and "impostor syndrome" from the "WOOP" technique to participating in "mastermind" groups
How self-compassion can help one overcome excessive self-criticism and become more resilient when things go wrong
A 6-step approach to 'defuse' negative thoughts and shift towards more empowering beliefs

Enjoy the 'light' reading!

Kitces & Carl Ep 140: Are You Worrying About Scale Before You Even Have A Scale Problem

June 13, 2024 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

As the financial advice industry continues to move toward providing full-blown professional services rather than focusing primarily on product sales, advisory (advicery?) firms are increasingly experiencing similar stages of growth in their practices. From the initial stage of onboarding their first clients to the point of hitting a capacity wall and deciding whether to increase their headcount, and later to a threshold where an ensemble business eventually becomes an enterprise, advicers face many of the same challenges and opportunities along the way. Conversations around these commonalities often work their way into the broader advicer community, and one topic that frequently crops up is the concept of scale, which denotes a disproportionate increase in revenues over expenses (often because of increased efficiencies within the business), and is distinct from "growth", which involves a proportional increase in both revenue and expenses. Often, advicers whose firms are still in the early stages of development begin thinking about how they can scale their business, which begs the question: Are advicers worrying about how they'll scale their business long before scale is even an issue?

In our 140th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how early-career advicers can sometimes get distracted by questions around how they can scale their practices, the issues they should really be focusing their time and energy on instead, and strategies they can use to identify what sort of business they want to build in the first place.

Advicer concerns around scaling typically present in a couple of ways. The first is based on the fear that, if the advicer introduces a new service, scaling it will be difficult because the margins are too low. Put another way, the advicer has a pricing problem and hopes that the economies of scale can correct for not charging enough. Another concern centers around increasing headcount, where advicers who don't want to hire and manage staff begins looking at technology as the key to achieving better margins while keeping headcount low.

The reality is that most advisory firms run profit margins around 25%, which means that the better way to increase profitability isn't to 'scale' margins by another couple hundred basis points but to grow the business and make the same profit margin on a larger number. In fact. worrying about scale can really be an excuse the advicer leans on to not do the next thing that would help move their business forward. Instead, an advicer's business would be far better served by prioritizing the most immediate problems, and more often than not this involves focusing on how to add more clients to first reach capacity, and then figuring out where to go next. Or put another way, is a major software upgrade really necessary for an advicer to serve their next 10 clients more effectively, or would the advicer's time be better spent re-examining pricing structures, marketing strategies, or service offerings?

The key point is that advicery (😊) firm owners may find it tempting to explore projects that keep them from addressing their most immediate problems. However, the most successful entrepreneurs are those who are able to quickly identify the most pressing issue they face, and solving for whatever may be blocking their progress/ And it's by focusing on doing the next hard thing that will ultimately be the most effective means of moving their practices forward and improving the trajectory of their bottom line!

When Are Advisors (Financially) Liable For Negligent Investment Advice? (And Who Pays For It)

June 12, 2024 07:04 am 0 Comments CATEGORY: Regulation & Compliance

Financial advisors, as professionals whose clients rely on their advice to make financial decisions, are legally and financially responsible for the advice that they give. For example, if an advisor recommends an investment that prioritizes the commission they would receive rather than any benefit the client would derive from it, they could incur fines and sanctions for violating their fiduciary duty as an advisor. Or if an advisor knowingly misled a client in giving information that led them to make an investment decision, they could be penalized for giving fraudulent advice under state or Federal law.

But liability for advisors also extends to situations where they may not have intended to give false information, but nevertheless provided advice that caused the client to incur financial loss. In these situations, advisors can still be held liable – and required to pay restitution – for 'negligent' investment advice if they're determined to have failed to exercise due care when making a recommendation to a client.

Which means that when an advisor recommends a certain investment strategy for a client, their standards of care should dictate that they first make sure that the strategy is within the client's tolerance for risk. Otherwise, if the advisor doesn't account for the client's stated risk tolerance when making the recommendation (or doesn't bother to assess their risk tolerance to begin with), and the portfolio declines with the client incurring losses as a result, the advisor could be required by a jury or arbitrator to pay back the client for those losses. And as courts have found over time, even types of advisors' who do not owe a fiduciary duty to their clients – e.g., broker-dealer representatives and insurance producers in certain instances – can still be found liable for giving negligent advice if their customers rely on the information that they give to make decisions about which products to buy.

Notably, even though individual advisors are liable for the advice they give, it is often the advisory firm that employs them that ultimately pays out any liability-related payments to clients. In some cases, that might be because the firm itself is held jointly liable with the advisor (which is allowed when the advisor's negligent advice or recommendations are given within the scope of their duties as an employee). In others, it's because the firm has Errors & Omissions (E&O) insurance that covers the liabilities of itself and its employees. And often, the firm is simply more likely to have the resources to pay a liability claim than an individual advisor. (Although individual advisors may face further consequences, like regulatory fines and sanctions, loss of professional designations, and public disclosure of the advisor's disciplinary history, that affect themselves and their careers.)

The key point is that advisor liability doesn't just affect individual advisors who are held accountable for their own advice: If an advisor is found liable for giving negligent advice, it also impacts the firm they work for and, by extension, the reputations of the other advisors they work with. Which is why it's important for advisors thinking about joining a firm to consider the firm's culture and how well it trains its advisors (and reinforces the training) on exercising due care in giving financial advice. Because ultimately, it's better to be surrounded by others who take care in advising their clients than to be the only one doing so!

#FASuccess Ep 389: Generating $5M In Hourly Planning Fees In The Blue Ocean Of Consumer Demand, With Mark Berg

June 11, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 389th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Mark Berg. Mark is the Founder of Timothy Financial Counsel, an RIA based in Wheaton, Illinois, that is on track to generate approximately $5 million in annual revenue this year serving 800 client households.

What's unique about Mark, though, is how his firm has scaled from $1.8 million of revenue to $5 million, in only 6 years, and has maintained a 25% profit margin… all while serving clients by exclusively using an hourly fee model.

In this episode, we talk in-depth about how Mark created a structured process to serve clients under the hourly model, including segmenting client engagements into 5 "levels" based on the complexity of their needs to match them with the right advisor, how Mark's firm uses those levels to provide accurate quotes for how many hours it will take to meet a client's planning needs in the first prospecting call , and why Mark thinks that proper pricing is a key to success using the hourly fee model, with his firm charging either $350 or $450/hour depending on the seniority of the assigned advisor.

We also talk about how Mark's firm attracts clients both through referrals from current clients and from other financial advisors who need to refer prospects who don't meet their asset minimums or whose planning needs don't match their expertise, why Mark created a client waitlist to manage his and his staff's capacity amidst a wave of interest from prospective clients (after realizing that this "wave of interest" could be the new normal that he couldn't just assume was temporary and would pass), and how Mark uses time-tracking software not only to accurately and efficiently bill clients, but also to manage his and his advisors' capacity as well.

And be certain to listen to the end, where Mark shares how hiring a president of the firm – and choosing someone without a financial planning background – helped his firm scale by allowing him to focus on the big-picture ideas for the firm and having the president implement them, how Mark structured the firm's employee hiring, onboarding, and training process to match the unique development curves of his firm's junior employees in an hourly model where nearly everyone contributes to generating revenue, and why Mark compares the hourly fee model to a "blue ocean" of opportunity for financial advisors, with the potential to reach millions of potential clients for whom other fee models might not be a fit, but who are showing a clear willingness to pay several hundred dollars per hour in fees… that advisors themselves can build and scale with.

So, whether you're interested in learning about how to scale a firm using an hourly fee model, how to segment client engagements based on the complexity of their needs, or how to create processes for hiring and training employees in a growing business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Mark Berg.

Summer Reading List Of “Best Books” For Financial Advisors – 2024 Edition

June 10, 2024 07:02 am 0 Comments CATEGORY: Personal/Career Development

The first half of 2024 has been a solid start for most advisory firms, with markets enjoying moderate growth (a pleasant follow-through after a particularly strong 2023!), client retention rates remaining robust, and at least a bit of client referral growth trickling in. Which is leading to healthy profit margins at the typical advisory firm, as more and more advisors eye the possibility that AI will produce even more business efficiencies (and stronger profitability) in the year to come. Fortunately, change never happens fast in the slow but steady evolution of the advisor industry, which affords advisory firms the time to pause and take a fresh look at the landscape of opportunities.

In this context, the approaching summer season will once again bring its usual respite – a time when most advisors take more time off (if only because clients are harder to pin down for summer meetings, especially as post-pandemic summer vacations away from home are back in full swing)… and find some time to read and catch up on a few good books!

For those who love to read, though (and especially for those who have limited time and will only get to read just 1 or 2 books over the summer), the perennial question is always, "So… what's a good book worth reading this summer?"

As a voracious reader myself, I've always been eager to hear suggestions from others of great books to read, whether it's something new that's just come out or an 'old classic' that I should go back and read (again or for the first time!). And so, in the spirit of sharing, a few years ago I launched my list of "Recommended (Book) Reading for Financial Advisors", and it was so well received that in 2013 I also started sharing my annual "Summer Reading List" for financial advisors of the best books I'd read in the preceding year. It quickly became a perennial favorite on Nerd's Eye View, and so I've updated it every year, with new lists of books in 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, and a fresh round last year in 2023.

And now, I'm excited to share my latest Summer Reading list of top books for financial advisors in 2024, from new perspectives on how to transform your business into what you really want it to be (whether the goal is to "10X" the business, scale up the systems and dial back your own time, or get your team working together better), tactics to improve on client communication (from scripts you can use to cultivate more referrals, to better connect with clients and prospects as a "Supercommunicator"), ideas for reinvesting into your own under-developed capabilities to tap your "Hidden Potential", or ways to take a pause and consider how to improve your health and personal wellbeing (not just the business).

So as the summer season and summer vacations get underway, I hope that you find this suggested summer reading list of books for financial planners to be helpful… and please do share your own suggestions in the comments at the end of the article about the best books you've read over the past year as well!

Weekend Reading For Financial Planners (June 8-9)

June 7, 2024 02:00 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 recent surveys indicate that consumers continue to trust human financial advisors more than Artificial Intelligence (AI)-powered tools. Nonetheless, respondents (particularly those in younger generations) do not see this as an either-or choice, but rather anticipate benefitting from working with human advisors who leverage AI tools for certain tasks (e.g., detecting fraud or analyzing data) to provide a better client experience!

Also in industry news this week:

Backers announced the new Texas Stock Exchange, which seeks to provide companies with a lower-cost alternative to the NYSE and Nasdaq, which, if successful, could create a more competitive landscape and potentially better execution and reduced trading costs for financial advisors and their clients
The American College of Financial Services is launching a new certification focused on tax planning, offering an opportunity for financial advisors to dig deeper into an increasingly valuable part of the planning process

From there, we have several articles on investment planning:

Why real estate, high-yield corporate bonds, and cryptocurrencies might not offer the diversification benefits one might assume
How exchange funds can potentially help advisors and their clients reduce concentration risk in a tax-efficient manner
Why today's stock market concentration is not necessarily an outlier in historic terms and might not actually be detrimental to client portfolios

We also have a number of articles on the intersection of financial planning and disabilities:

How financial advisors can support clients whose child has a disability, from helping them balance their own financial needs with those of their child to leveraging accounts that do not disqualify individuals with disabilities from receiving government benefits
Why having an ADA-accessible website not only can help financial advisory firms avoid potential legal trouble, but also attract more clients in the process
How advisors can support the estate planning process for clients with a disabled family member, from confirming the clients' goals are communicated clearly to ensuring that any special needs trusts are administered properly

We wrap up with 3 final articles, all about spending time well:

The value of not only considering one's own lifespan and "healthspan", but also those of loved ones when it comes to setting goals and making plans for the future
Best practices for going on a sabbatical that will allow an individual to truly unplug and reflect on their personal and/or professional lives
How engaging in a "depth year" can be a more meaningful alternative to constant accumulation

Enjoy the 'light' reading!

Hiring Your First Employee: What You Need To Know To Cover Your Compliance Obligations

June 5, 2024 07:02 am 0 Comments CATEGORY: Regulation & Compliance

For the most part, solo advicers launching their first practice often have plenty of time and not a lot of revenue, which means they tend to take care of every aspect of the business themselves. As their practices grow and they start to serve more clients, though, advicers invariably reach a point where they simply don't have the time to do everything on their own and need to decide whether to make their first hire (or not!). If they want to continue to grow and increase their capacity, they'll need to make several important decisions and address a plethora of legal and compliance requirements not only to avoid potential legal issues but also to ensure that their business will continue to operate smoothly.

In this guest post, Jaqueline Hummel, an Independent Compliance Consultant and Director of Thought Leadership at SEC3 Compliance, discusses the initial decisions advicers must make when making their first hire, whether the person they're onboarding will need to register as an Investment Adviser Representative, and the regulatory issues that the newly minted employer may need to address.

Once an advicer chooses to push past their "capacity wall" and make their first hire, the initial step is determining what duties the employee will assume. For instance, if the advicer finds that they have more clients and prospects than they can handle, then they may need an assistant to help with administrative tasks. However, if growth has stalled, hiring (or partnering with) an IAR who can help attract new clients may make more sense.

From there, the next decision will be whether the new hire should be an employee or independent contractor. Notably, onboarding someone as an independent contractor who should actually be hired as an employee (because they work specific hours using company tools and resources, are paid an hourly wage or salary, dedicate their working hours solely to the firm, and receive benefits) can result in significant penalties, including back wages, tax arrears, and other fines.

The advicer must also decide whether their new hire will act as an IAR; in other words, will they provide advice regarding securities, manage client accounts, identify what advice should be given, sell the firm's advisory services, or supervise anyone who performs any of those duties? If so, they will typically need to register with their state regulator. From the firm level, there are several disclosures the advicer needs to make on various SEC forms (e.g., ADV Part 1A, Part 2B, and CRS). Importantly, Form ADV defines anyone who performs advisory functions on behalf of an advisory firm as "employees" – even IARs classified as independent contractors.

Finally, firm owners must determine how they'll supervise their new hire and whether they need to update their compliance manual. While there are multiple issues to consider, some of the higher-risk areas include maintaining client confidentiality, ensuring that marketing materials align with regulatory rules, limiting access to the firm's trading platform and the ability to move funds, securing certain firm documents, investigating the new hire's background, and identifying potential conflicts of interest.

Ultimately, transitioning from a solo-advicer to an employer responsible for hiring and supervising others is a big step that requires serious consideration. For advicers who want to serve more clients, adopting a systematic process can help ensure that the firm complies with all the various regulatory requirements. While doing so may seem daunting, the good news is that making that first hire can be a step towards expanding the advicer's capacity to grow their practice and serve more clients!