Kitces.com - Advancing Knowledge in Financial Planning

Weekend Reading for Financial Planners (Jan 15-16)

January 14, 2022 01:57 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with the news that 2021 ended with inflation hitting 7% – its highest annual rate since 1982 – which makes it more likely that the Federal Reserve could raise interest rates in early 2022 (and potentially more than once throughout the year), contributing to uncertainty not only over the Fed’s ability to tamp down inflation, but also over the potential effects of higher interest rates on financial markets and the greater economy as the country continues its recovery from the pandemic.

Also in industry news this week:

The impact of higher inflation also extends to taxes, and some components of the tax code that are linked to inflation (such as the tax brackets themselves) will see higher-than-average boosts this year (while other taxpayers could experience higher taxes from the components that aren’t linked to inflation, like the income threshold for Net Investment Income Tax)
Though the news about the twin surges of inflation and the Omicron variant has been grim lately, a closer look at the numbers gives some cause for hope, as the rate at which inflation has increased went down between November and December, while the news from South Africa and the United Kingdom shows that the U.S. could soon see Omicron cases start to decline as swiftly as they rose initially

From there, we have several articles on efforts to improve diversity and inclusion within the financial industry:

A new company called Choir aims to incentivize financial conferences to include more representation of women and people of color by creating a “diversity certification” (for conferences that choose to hire Choir to assess their conferences and engage Choir’s consulting services to improve their conference diversity)
A paper suggests that “pre-CFP” designations could serve as a “gateway” to CFP certification for more diverse candidates by providing a lower-cost alternative to the CFP educational requirements that candidates can use to “test the waters” before committing to pursuing the CFP mark
Kamila Elliott recently began her term as CFP Board chair, and though much attention has been given to her being the first Black woman to serve in that role – a significant milestone for the profession – the reality is that the industry’s diversity issues go beyond anything she can solve in her one-year term and require more structural change in the industry as a whole

We also have a number of articles on how individuals can make the most of their retirement years:

Why a ‘challenge list’ might be a better choice than a ‘bucket list’ in retirement, and how advisors can help clients discover how they really want to spend their retirements
While many clients are worried about running out of money in retirement, recent studies show that many retirees can actually safely increase their spending significantly (if only because they are being more conservative than they actually need to be!)
Why many individuals can lose a sense of purpose in retirement, and how advisors can help clients develop strategies to regain this feeling

We wrap up with three final articles, all about the importance of committing to goals:

Why personal and professional commitment is undervalued in a world of almost infinite options where we increasingly try to ‘keep our options open’ instead of committing deeply to one path in particular
Why progress is almost never linear, and how to overcome the inevitable dips and stalls along the way
How most success stories, from bloggers to financial advisors, are the result of years of hard work and persistence before material results start to show up

Enjoy the ‘light’ reading!

Kitces & Carl Ep 77: Virtual Or In-Person Meetings: What Do Clients Really Want?

January 13, 2022 07:08 am 1 Comment CATEGORY: Kitces & Carl Podcast

Traditionally, financial planning meetings were held in person, which created intimacy, but limited an advisor's clientele to those who could physically get to their office. Advancements in technology allowed some advisors to increase their virtual communication, but almost all advisors found themselves operating in a virtual environment at some point during the pandemic. For many advisors, this created a flux in meeting culture – while some advisors found that they preferred the availability, ease of use, and non-geographic constraints, there are still many advisors and clients that prefer to meet in person. Deciding which meeting format (in-person, virtual, or hybrid) to implement has recently become one of the more challenging aspects for advisors in developing the client experience.

In our 77th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how the emergence of remote culture has changed the conversation about how advisors approach meetings, and the benefits and limitations of different meeting mediums.

As a starting point, it’s important to identify how each meeting format impacts communication between the advisor and client. Advisors will often work with clients that share similarities, such as age group, interests, socioeconomic status, and communication styles. Understanding these similarities can clarify which meeting style can be utilized best. For example, younger clients are more accustomed to working remotely and may be a better fit for advisors who meet virtually.

In-person meetings can provide clarity for advisors and clients in judging whether a relationship is a good fit, as it is much easier to interpret trust, emotions, or body language and can make having difficult discussions more comfortable. Virtual meetings can increase the distribution of information and allow for more flexibility and frequency in meeting times and locations, especially as the advisor-client relationship matures. The hybrid method blends meeting styles and offers benefits such as the ability to meet asynchronously, but can also add additional progress tracking and may limit advisor or client responsiveness.

Ultimately, the key point is the right decision for which meeting format to implement is up to the advisor. When designing a great client experience, instinctually, client preferences are put first. But in this case, advisors can benefit from prioritizing and internalizing their meeting preferences to develop more trust, confidence, and better expectations. After deciding the best meeting format for them (just as advisors define their niche or specialization), advisors can develop a client experience and attract clientele by being upfront, honest and clear with clients about the meeting methods utilized. Overall, the benefit of choosing a meeting format is to increase efficacy and efficiency in communication, creating a better, more meaningful experience for advisors and their clients!

3 Essential Client Meeting Skills For Financial Advisors (And How To Develop Them!)

January 12, 2022 07:01 am 2 Comments CATEGORY: Client Trust & Communication

As increasing numbers of new financial advisors enter the industry through support roles (e.g., analysts, paraplanners, and associate advisors), many newer advisors today spend much of their time on ‘back-end’ tasks like data input and analysis rather than meeting with clients (which is reserved for more-experienced lead advisors). Which means that, while many newer advisors have the opportunity to deepen their technical financial planning expertise early in their careers (simply via the day-to-day tasks of their roles), the same may not be true when it comes to mastering the skills necessary to meet and communicate with clients in a one-to-one setting.

Accordingly, for newer advisors who plan to progress into lead advisor roles – and for more-experienced advisors looking to enhance their client communication abilities – practicing client meeting skills can be a valuable way to improve their ability to communicate effectively with their clients. But ironically, many advisors do not get a chance to practice these skills until they actually start to meet with clients—which, given the nuance and complexity of many conversations around clients’ finances, can be somewhat akin to learning how to build an airplane while it is already flying!

A better approach to deepening client meeting skills may be to find (or create) opportunities to practice those skills before meeting with clients. Because, contrary to many people's intuition, the ability to communicate effectively in a client meeting is not an inherent trait limited to extroverted personality types; rather, it is a skill that can be learned and mastered through regular and deliberate practice. And by practicing the most essential of those skills – which include meeting preparation, creating supporting materials, time and agenda management to stay on topic, and active and passive listening to create an environment of open communication with the client – advisors can improve their performance when they get the opportunity to hold a real client meeting, no matter their level of extroversion!

While formal opportunities for newer advisors to practice client meeting skills are not always readily available, advisors do have several options that they can explore based on their goals and available resources. One is to hold mock client meetings with other advisors, which can provide hands-on practice at presenting and managing a meeting (as well as giving valuable feedback from the other participants). Additionally, on-demand virtual training courses (such as Amplified Planning’s CORE program) allow enrollees to observe real client-meeting scenarios while providing additional learning tools to help advisors deepen their skillset. Finally, more comprehensive training programs, like ACP’s Success, Money Quotient’s True Wealth, and Kinder Institute’s EVOKE training, go beyond client meetings to teach whole systems of financial planning and client communication (which may require an advisor’s buy-in to a specific planning philosophy, but can also provide intensive training to incorporate that philosophy into all aspects of the advisor’s process, including client meetings).

Ultimately, good client meeting skills are about creating an environment where the advisor and client can communicate openly. It follows, then, that practicing client meeting skills can improve an advisor’s overall ability to communicate with their clients. Which, given that clients generally value advisors who communicate openly and honestly with them, means that enhancing client meeting skills (by practicing them before meeting with clients) can also make advisors more trusted – and more valuable – in the eyes of their clients!

#FA Success Ep 263: Building A High-Touch Boutique Firm Serving Tech Executives As Their Personal CFO, With Joyce Franklin

January 11, 2022 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 263rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Joyce Franklin. Joyce is the founder of JL Franklin Wealth Planning, an independent RIA based in the San Francisco Bay Area that oversees about $200 million of assets for 40 client families.

What's unique about Joyce, though, is how she built a true boutique financial advisory firm by serving as a personal CFO for high-profile tech executives, creating loyal relationships by not only helping them leverage their equity awards and stock options and positioning herself as a steward of their wealth with her firm averaging of 71 hours of service work provided to each client every year.

In this episode, we talk in depth about how Joyce started out as a CPA preparing tax returns at Big 4 accounting firms during the tech bubble in the 90s (where she developed her expertise in stock option and equity award planning), how Joyce has intentionally maintained a smaller boutique-style client base to ensure she can provide all of her clients with a deep personal touch (but has recently turned her sights on growing her staff to create a succession plan), and how Joyce continues to execute high-touch comprehensive planning services for her clients while still only charging an Assets Under Management fee.

We also talk about Joyce’s desire to stay away from commission-based products from the very start of her career and how she instead focused on building client trust through expertise-based service (and writing two books in her niche to demonstrate that expertise), how Joyce turned a side business of preparing tax returns in her early days into an independent advisory firm (after realizing her entrepreneurial spirit and passion for financial planning), and how Joyce implements her core values by focusing on every last little planning detail for her clients.

And be certain to listen to the end, where Joyce shares how she realized that, by having a trusted team, she was able to let go of time-consuming tasks and hone in on the bigger picture of her firm, how Joyce motivated herself to become a go-to expert for entrepreneurs and executives building wealth with startups, and how Joyce uses the years of information she gathered through interviewing other advisors to help educate future advisors.

So whether you’re interested in learning about how Joyce provides high-touch CFO services to tech executives, how she helps her clients leverage their equity awards and stock options, or how writing books on her specialty attracts new clients in her niche, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Joyce Franklin.

Four Financial Advisor Trends Reshaping #AdvisorTech

January 10, 2022 07:07 am 10 Comments CATEGORY: Technology & Advisor FinTech

Despite the reality that change is inevitable, it’s remarkably difficult to identify in real-time which new innovations will stick around and change the world, and which will never manage to gain traction (or turn into a fad that is quickly adopted but just as quickly forgotten). In some cases, the reality is that the idea was good but its execution was poor, and couldn’t stand up to reality. In other cases, the idea was ‘right’ but was before its time. In the end, it takes the right execution of the right idea, and the right environment that fosters the demand, to make innovation happen.

The past year witnessed an immense amount of change in the AdvisorTech landscape, driven by a combination of new innovations that came to market, and some ‘old’ ideas whose time has seemingly come. All of which is driven by broader structural trends that are slowly but steadily reshaping the financial advisor landscape… and formulating the conditions that allow new technology to take hold.

In the current environment, the four trends reshaping #AdvisorTech include: 1) an ongoing transition From Products To Advice as advisors increasingly sell advice (not products); 2) a growing hunger to Automate The Back Office, as the shift to recurring revenue business models is driving a push to better scale the back office (to service that recurring revenue more efficiently); 3) Scaling New Revenue Growth, as advisory firms increasingly separate the advisors who service clients, and the (non-advisor-driven) marketing systems that bring them in; and 4) Evolving Investment Demand, as anticipated low returns for both stocks and bonds lead to a growing desire to invest in… almost anything else (from alternatives to structured notes and annuities to cryptoassets).

In last week’s discussion, we explored the first two trends – the shift from products to advice, and the growing demand for solutions to automate the advisor’s back office – while this week, we delve further into the #AdvisorTech trends that are driving some of the biggest investments: scaling new revenue growth, and platforms to meet the evolving investment demands of advisors (and their clients). As the reality is that advisors pay substantially more for #AdvisorTech solutions that power revenue growth – either directly in the form of marketing solutions, or indirectly by powering the portfolios of advisors still primarily operating on an Assets Under Management (AUM) model. Which means trends that impact the ways advisors generate (new) revenue are especially lucrative (as reflected in some eye-popping capital raises in 2021!).

In the end, though, it’s important to recognize that trends persist (which is what makes them trends, and not fads!), which means the trends that drove AdvisorTech innovation in 2021 are likely to continue well into 2022 and beyond. So hopefully this discussion provides some helpful perspective in not only looking back at where AdvisorTech has come over the past year… but where it will continue to go in the year to come!?

Weekend Reading for Financial Planners (Jan 8-9)

January 7, 2022 02:03 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with a study showing that private equity firms are targeting financial advisory firms with relatively clean disciplinary records for acquisitions, but that once acquired, advisor misconduct at these firms skyrockets an average of 147%! The reason for this jump is unclear, but potential explanations include heightened pressure from private equity owners to increase profits, or pushing too hard to cross-sell their other portfolio companies’ products and underestimating the compliance requirements of the advisory business. Either way, the study suggests that firm owners considering a sale who want to ensure that their clients remain in good hands could increase their due diligence of potential acquirers and their business practices!

Also in industry news this week:

A new FINRA rule went into effect on January 1 that will attempt to reduce the risk to consumers from brokerages with poor disciplinary records by requiring these firms to fund a segregated account to pay potential arbitration awards (and increase their cost of doing business as long as they insist on keeping problematic brokers onboard)
RIA M&A activity is expected to continue to surge in the coming year, according to a recent survey, with lofty firm valuations expected to sustain as well

From there, we have several articles on advisor communications and marketing:

How to respond when clients object to their advisor’s recommendations (and why asking more questions might be a better approach than more aggressive persuasion to get them to implement)
Why the best-performing types of pages on financial advisors’ websites include not only the basic “Who” and “What” of the advisors, but also show why a prospective client could be the right fit for the advisor and how the advisor helps their clients reach their goals
Why advisors should focus less on client referrals and more on Google Reviews as a one-to-many client referral platform in light of the SEC’s marketing and testimonial rule

We also have a number of articles on being an effective manager and leader:

Why sales training programs for financial advisors can prove ineffective if they use a “one-size-fits-all” approach without considering the personalities and needs of the advisors themselves
How leaders can thread the needle between micromanaging their team and being too hands-off by timing their help for when it’s needed most (and backing off when it isn’t)
Why most advisory firms need at least one person tasked with having a vision for the firm and a strategy to get there – which, as firms grow, may be someone other than the firm’s owner who is hired strictly for their “professional” leadership

We wrap up with three final articles, all about New Year’s Resolutions:

Why one advisor shifted from making New Year’s Resolutions to focusing on the habits that make it more likely he will achieve his goals (and letting the results fall where they may)
Ways individuals can make their financial lives happier in 2022, including by focusing internally rather than externally, simplifying their finances, and getting on the same page financially with a spouse
Why failing at New Year’s Resolutions can actually lead to better personal and professional growth in the future

Enjoy the ‘light’ reading!