Nerd's Eye View blog

Weekend Reading for Financial Planners (Mar 7-8)

March 6, 2020 03:00 pm 6 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 the CFP Board is removing descriptions of how advisors are compensated from its Let's Make A Plan consumer website, claiming that explanations like "Fee-Only" are "not... helpful to consumers", and setting off a fresh debate about whether or to what extent the focus should be on Fiduciary versus Fees (and whether being compensated by Fees is necessary to be a full-fledged fiduciary to clients in the first place).

Also in the news this week are more announcements of the rapidly-evolving landscape for RIA custody, with Pershing Advisor Solutions announcing a new monthly-subscription-fee approach to offering RIA custody services (in exchange for free trades for not only stocks, bonds, and ETFs, but also free mutual fund trades, and a high-yield cash option), and Betterment For Advisors announcing its own new hybridized pricing structure with a monthly per-advisor fee (and a lower basis-point fee stacked on top).

From there, we have several articles about investment markets and the ongoing saga of the coronavirus, including a look at the short- and intermediate-term implications of this week's 'emergency' 0.5% rate cut from the Federal Reserve, the new mortgage refinancing opportunities now emerging as rates crash (potentially giving clients more room to save to help make up for the recent market decline?), and some helpful talking points to consider when discussing volatile markets with clients (especially those who feel they have to 'do something' to feel more in control of the market situation they can't actually control).

We also have a few articles on how to run an advisory firm better and be compensated by the business, including one article on strategies for how best to pay yourself from the business entity (depending on the type of entity), another exploring the "Profits First" approach to budgeting for business expenses (and personal income), and a fascinating look at how, when advisory firms grow, it's crucial to properly pay yourself as the owner/founder of the firm or risk distorting the valuation of the business itself!

We wrap up with three interesting articles, all around the theme of how the business world is changing with the growing availability of data to change how customers or clients are served: the first looks at the rise of "experience" businesses, as technology makes it increasingly possible both to customize experiences, spot trends and data points to identify new experiences... and facilitate customers quickly sharing their good or bad experiences immediately via social media; the second explores how "shelf space" agreements are on the decline in grocery stores, as the growing availability of data about how customers shop means the grocers can create more customer loyalty by eschewing shelf-space payments and focusing first and foremost on what the end customer wants and values (making the foregone shelf space revenue back with additional customer retention instead); and the last examines how the marketplace for investment solutions itself is undergoing rapid change, as the era of the 'financial supermarket' appears to be coming to a close... apparently being replaced by a new generation of increasingly proprietary products and solutions that may cast a new wave of doubt on the objectivity of financial advisors?

Enjoy the 'light' reading!

Highlights From The 2020 T3 Advisor Conference

March 5, 2020 07:11 am 3 Comments CATEGORY: Conferences

The 2020 Technology Tools for Today (T3) Advisor Conference, held last month in San Diego, California, featured a large gathering of financial advisors and representatives across the fintech industry attending the two-and-a-half-day conference, which showcased this year’s theme of “Acceleration and the Pace of Change.” Hosted by Joel Bruckenstein and his team from T3 Consulting, the conference covered everything from how custodians are keeping ahead of the technology curve to the latest in portfolio management and reporting solutions, and from the latest in financial planning software innovations, to marketing tools, billing applications, and the importance of a solid cybersecurity plan.

In this guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – summarizes this year’s conference highlights with his signature Twitter-driven recap, kicking off with presentation highlights from custodial innovators such as Altruist CEO/Founder Jason Wenk, TD Ameritrade’s Director of Innovation Dani Fava, and TradePMR CEO Robb Baldwin, and from industry thought leaders from Fidelity, TD Ameritrade, BNY Mellon/Pershing, and Schwab, who gathered for a panel discussion to delve into the importance of understanding the needs of a diverse client base and maintaining gender equity in the workplace.

The annual T3 Tech survey, which assesses the software programs used by financial advisors, was also released at this year’s T3 Advisor Conference, and revealed that only 64% of advisors surveyed actually use financial planning software tools and even fewer (41%) use risk tolerance instruments, but that 81% use portfolio management tools, suggesting that many advisors are still not actually providing financial planning and remain focused mainly on asset management, instead. Other interesting results show Redtail capturing 62% of overall market share of all CRMs reported, with Wealthbox scoring at second place with less than 7% overall market share! Interestingly, though, more people indicated they were considering using Salesforce Financial Services Cloud than Redtail. And it’s not entirely clear how representative the survey really is of the broader advisor industry (as the survey link was simply open to any company that could encourage its users to participate and ‘turn out the vote’).

Other major highlights from the T3 Advisor Technology Conference included:

Betterment For Advisors made its first T3 conference appearance, with Head of Business Development Tom Moore discussing the firm’s automated investing and custodial services, along with its rapid growth (suspected to be bolstered by the recent inclusion of DFA funds to their investment lineup).
Broker-Dealer presentations included Cambridge CTO Nick Graham, who talked about digital transformation and emphasized the importance of creating a strategy before investing in new technology, and Burt White, LPL Financial Chief Investment Officer, who gave a keynote talk on the difference between running a business and growing a business.
Several new and emerging Portfolio Management vendors attended and offered demonstrations of their full-featured application solutions, including AdvisorPeak, Advyzon, D1g1t, Envestnet Tamarac, and several others.
Automated marketing tools are on the rise for financial advisors, as they often need help understanding it and improving their marketing processes. Vendors that attended and presented demonstrations include Snappy Kraken, AdvisorStream, FMG Suite, and TwentyOverTen.
Vendors showcasing financial planning solutions included Advicent (provider of Naviplan and Profiles financial planning tools), Apprise Labs (creator of Lifestyle Studio by former eMoney Advisor founder Edmond Walters), BlackRock (creator of iRetire, providing retirement income analyses), Covisum, Envestnet MoneyGuide, FinMason, FP Alpha, PlantechHub, Income Conductor, and LifeYield.
The conference also hosted a student competition, featuring university CFP programs from across the country. A mix of students studying financial planning and information technology teamed up with mentoring technology firms and were tasked to create RIA technology solutions addressing real, current financial planning problems. BYU Idaho (which was paired with AdvicePay) won the competition with a public-facing version of AdvicePay’s retainer-fee calculator for clients to use directly on an advisor’s website to calculate their own fees.
Brian Hamburger of Hamburger Law Firm and Founder/CEO of MarketCounsel, talked about cybersecurity, and stressed the importance of adequate training and adherence to compliance as good business practices, and also as basic requirements to simply maintain goodwill with clients.
Fidelity’s ESG Product Manager Hannah Lippe explained the similarities and differences between Environmental, Social, Governance (ESG) Investing, Socially Responsible Investing (SRI) and Impact Investing, and how advisors can use these practices to strengthen client relationships.

Ultimately, the 2020 T3 Advisor Conference brought together vendors, industry thought leaders, financial advisors, and students with the shared goal of gaining insight into the fast-paced growth and change of the financial planning industry, along with learning about new technology tools available to help financial planning businesses flourish efficiently and profitably. In line with this year’s theme, there was an expansive array of new and upcoming technology solutions for current and emerging issues faced by today’s financial advisors, no matter the size of the firm.

Restructuring Conduit Trust Beneficiaries Of Retirement Accounts To Avoid The SECURE Act’s 10-Year Rule

March 4, 2020 07:04 am 13 Comments CATEGORY: Retirement Planning

Passed in December of 2019, the SECURE Act brought several changes to the rules governing retirement accounts, the most significant of which (at least for financial advisors and their clients) was the elimination of the ‘stretch’ provision applicable to most non-spouse Designated Beneficiaries of inherited retirement accounts. Instead of letting such beneficiaries stretch distributions out based on their own lifetimes, inherited retirement accounts under the SECURE Act must now be emptied by the end of the 10th year after the year of death. Which is challenging when planning for retirement account beneficiaries… but is especially impactful for so-called “Conduit” Trust beneficiaries.

A Conduit Trust is a particular type of “See-Through” Trust that can serve as the (stretch) beneficiary of a retirement account. In order to be a Conduit Trust, all distributions from an inherited retirement account received by the trust must be passed out (i.e., “conduited”) to the trust beneficiaries each year. The appeal of a Conduit Trust is that beneficiaries named as a sole Income Beneficiary are essentially treated as if they were named directly on the account beneficiary form (i.e., allowing the trust to still take advantage of the ‘stretch’ provision if that conduit beneficiary is an Eligible Designated Beneficiary). However, Conduit Trusts whose conduit beneficiaries don’t meet the new “Eligible" Designated Beneficiary requirements – or have multiple Income Beneficiaries where at least one Income Beneficiary is not considered an Eligible Designated Beneficiary – can face significant new complications under the SECURE Act.

For Conduit Trusts with at least one Non-Eligible Designated Beneficiary, the ‘stretch’ provision is automatically eliminated and all funds from inherited retirement accounts must be distributed by the end of the 10th year after death! Accordingly, these circumstances with Non-Eligible Designated Beneficiaries, in particular, beg the question as to whether Conduit Trusts subject to the 10-Year Rule are even a viable solution for clients, especially in cases when the trust language limits distributions to “only” the Required Minimum Distribution. In such scenarios, no distributions can be made until the 10th year after death, when the entire account must be emptied all at once, since that is the only point during the 10-Year Rule when a distribution is actually required (resulting in a potentially huge tax liability in the process).

To help clients address the SECURE Act’s impacts on Conduit Trusts, advisors can start by taking a comprehensive inventory of all clients with trusts as retirement account beneficiaries and identifying those that are Conduit Trusts (which may require some legwork in attaining trust documents to review the trust language regarding distributions). The next step involves identifying all Income Beneficiaries of Conduit Trusts to assess whether the trust can still ‘stretch’ distributions (e.g., is the Income Beneficiary an Eligible Designation Beneficiary? If there is there more than one, are any Income Beneficiaries Non-Eligible Designated Beneficiaries?). Advisors should then proactively review with clients the implications of the 10-Year Rule on their estate planning strategies.

If an alternative to a Conduit Trust is deemed beneficial, the most straightforward alternative may be creating a new Discretionary Trust to replace the Conduit Trust as the retirement account’s Designated Beneficiary. While this route maintains post-death control over retirement assets, it comes at a potentially high cost, though, as Trust tax rates reach the 37% rate at just $12,950 (in 2020), versus $518,400 (Single) or $622,050 (Married Joint) for Individual taxpayers. Alternatively, Conduit Trusts can simply be replaced by the individual Income Beneficiaries themselves as the named beneficiaries of the retirement accounts.

Ultimately, the key point is that Conduit Trusts can be significantly impacted under the SECURE Act, especially when those Trusts have multiple beneficiaries, and even more so when at least one of those beneficiaries is a Non-Eligible Designated Beneficiary. Because with the 10-Year Rule in place, these trusts will potentially be required to distribute all retirement account assets on a 10-year schedule, after which they would no longer protect the retirement assets that they were designed to protect in the first place. Which makes it absolutely crucial to review, update, or potentially replace Conduit Trust beneficiaries of inherited retirement accounts… before the retirement account owner passes away, and the (potentially unfavorable) Conduit Trust rules are permanently locked in!

#FASuccess Ep 166: How Organic Growth Begets More Growth: The Size Bonus Of Building A Local And National Advisor Brand, with Peter Mallouk

March 3, 2020 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 166th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Peter Mallouk. Peter is the founder and president of Creative Planning, an independent RIA based in Kansas City that oversees more than $50 billion of assets under management for over 30,000 client families.

What's unique about Peter, though, is the way he's been able to build Creative Planning to an incredible milestone of $50 billion of assets under management nearly from scratch in the past 16 years and without mergers, acquisitions, or outside capital along the way, and why, after building the $50 billion, he's recently decided to begin the process of acquiring outside firms and to take outside equity investment from a private equity firm.

In this episode, we talk in-depth about Creative Planning's organic growth path over the past 16 years. The way the firm built early on with RIA custodial referrals with a then-unique offering of fully customized client portfolios and comprehensive financial planning bundled into a single AUM fee, how the firm's growth engine has shifted increasingly to referrals from existing clients and even direct inbound inquiries as more and more branch locations of Creative Planning become one of the largest local independent firms in their metropolitan areas across the country, and why it takes a very narrow focus on the kind of firms Creative Planning is willing to acquire to ensure that such acquisitions help and don't hinder its long-term organic growth strategy.

We also talk about Peter's perspective on broader industry trends, including why even with an increasing focus on fee compression and the commoditization of investment management, Creative Planning remains committed to the AUM model and not charging separately for planning, how the industry's professed talent shortage isn't necessarily a problem for firms with a clearly differentiated value proposition in the marketplace, and why he believes that independent advisory firms may be near a peak in valuation multiples, leading Creative Planning itself to recently sell a minority stake to a PE firm.

And be certain to listen to the end, where Peter shares what he actually intends to do with the outside capital that Creative Planning raised (and it's not to fund acquisitions), the firm's aggressive growth plan over the next 3 years, and why even as the leader of a $50 billion RIA, Peter still keeps a base of 100 clients that he sees for the bulk of his time every week and encourages most of his leadership team to keep client-facing roles with a portion of their time as well.

The Latest In Financial Advisor #FinTech (March 2020)

March 2, 2020 07:04 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the March 2020 issue of the Latest News in Financial Advisor #FinTech – 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 and wealth management!

This month's edition kicks off with the results of the latest T3 Advisor Software Survey, which continues to show that a subset of dominant players hold the largest market share in each key category… but that at the same time, upstarts in virtually every major advisor software category from Advyzon to RightCapital to Wealthbox to YCharts are gaining market share, and that some of the biggest shifts in advisor interest are coming from the “miscellaneous” listing of new advisor software categories that are still being created!

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

FP Alpha and Intelligent Decision Tools are both launching new “Expert System” artificial intelligence tools that help analyze client documents and data to provide not just financial planning projections but real financial planning observations and recommendations
Indyfin launches a new third-party lead generation service with its own bundled call center (to save advisors the time of qualifying prospects), while FMG Suite and TwentyOverTen launch their own website-integrated digital marketing tools
Fidelity spins off Akoya to build the next generation of account aggregation solutions that rely on (more stable) APIs than (constantly-breaking) screen-scraping by logging in with client credentials
RightCapital launches RightPay to facilitate fee-for-service financial planning payments as the trend of “Financial Planning as a Service” (FPaaS) continues to gain traction

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including the shift towards “re-bundling” of the advisor tech stack into various platform combinations, the rising trend of ‘second-act’ FinTech entrepreneurs coming back to launch new companies to disrupt the ones they originally built and sold, the emergence of Regulation Best Interest compliance and training tools as the June 30^th effective date looms, and the latest list of the Best (Advisor) FinTech companies to work for!

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech 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 (Feb 29 – Mar 1)

February 28, 2020 03:00 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the industry news that Massachusetts has become the first state to officially put forth a 'final' fiduciary rule for brokers providing investment recommendations in their state... albeit in a form that is significantly watered down from the original, though still higher than the SEC's Regulation Best Interest it sought to supplant, as the fiduciary fight increasingly shifts from Federal regulators to the states (and New Jersey and Nevada working on finalizing their own fiduciary rules as well).

Also in the news this week is a significant Supreme Court ruling regarding fiduciary disclosures, that at least under ERISA, it's not enough to provide qualified plan documents and related disclosures, and that plan sponsors must actually ensure that the participants read them in order to start the statute of limitations clock ticking... or risk facing a never-ending open-ended liability exposure that a plan participant could sue over questionable actions many years later because they didn't have 'actual knowledge' of the problematic issue until they actually read the disclosures for the first time!

From there, we have several articles on this week's hot topic of the investment markets and the coronavirus, including a good reminder of why it's important to send out extra communication to clients during turbulent markets (not to tell them to stay the course, but to show them that you as the advisor are 'on the case' and managing their situation... even if the current decision happens to be to stay the course anyway), a look at the recent yield curve inversion that the coronavirus appears to have spawned, and some interesting data on the coronavirus itself and how even though virus fears are currently routing markets it is actually less communicable and less fatal than many other feared disease outbreaks in recent years (e.g., SARS, MERS, Ebola).

We also have a few articles on recent industry studies and trends, including one that finds the key for 'smaller' advisory firms (defined as <$500M of AUM) will be "growth by specialization" in the 2020s, another study noting an emerging split between the 'big' firms trying to acquire and consolidate to achieve massive scale as one-stop-shops and the rest that will survive and thrive by being 'boutiques' that compete against them for narrow slices of affluent clientele who can pay their premium fees, a look at other industry trends that advisory firms must contend with to succeed in the coming trend including 'operational experience' and the unbundling of fees, and a fascinating look at how, in the end, the opportunities in the 'long tail' of niches are actually far bigger (or at least, far more numerous in actual clients) than where the bulk of the industry focuses today (prospective and current retirees between the ages of 50 to 75 with significant investable assets to manage).

We wrap up with three interesting articles, all around the theme of being more personally productive and focused: the first is an interesting look at how, even 100 years ago when the medical profession was emerging (and smartphones and social media couldn't be conceived of), educators were providing lessons not only in the technical knowledge to learn but how to learn and avoid then-modern-day distractions; the second looks at how nearly 90 years ago, John Maynard Keynes predicted an 8X increase in productivity and the drop to a 3-hour workday on the back of that productivity, yet somehow we succeeded in the productivity but failed in the shorter workday to accompany it; and the last explores how the key to success is not to pursue big goals and perfection but to 'just' be 1% better than the competition (because that's all it actually takes to win the game!).

Enjoy the 'light' reading!

Kitces & Carl Ep 28: Email Productivity Hacks And Getting More Done In Your Day

February 27, 2020 07:07 am 3 Comments CATEGORY: Kitces & Carl Podcast

Just about every financial advisor is intimately familiar with the overwhelm induced by an overflowing email inbox. From emails from clients inquiring about basic service requests and financial plan priorities, to team members scheduling staff meetings and service meetings, not to mention the plethora of industry newsletters, helpful educational blog updates, networking group announcements, wholesaler product reviews – on top of all the outright spam – can easily amount to hundreds of emails coming in on a daily basis!

And in addition to simply finding the time to keep up with just looking at all the email that comes in (and reading at least some of them), financial advisors also find themselves responsible for dedicating large chunks of time to actually responding to emails. Which can make it seem nearly impossible to keep up with the deluge of information that comes into an advisor’s email inbox every day! Fortunately, though, there are a few ‘tricks’ that can help keep things under control.

In our 28th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about some simple strategies they use to manage their own own sometimes-overflowing email inboxes, and the cognitive relief that a well-organized (and well-managed) email inbox can bring.

For instance, Michael has specifically configured his own system to manage the tremendous volume of email that comes in on behalf of the blog. Specifically, he has implemented a system of multiple email addresses (to route inquiries by category to different team members), inbox folders with Outlook-based “Rules” to sort email into them (for separating out newsletters to review, informational items requiring no follow-up, and follow-up items that are low- or high-priority) and a routine where email is reviewed on a daily basis.

Delegating email management can also be a very effective means to stay on top of large volumes of email, especially for busy advisors who don’t have time to review every message that comes in. An executive assistant not only can ensure that spam messages are kept at a minimum, but can also make sure that high-priority items get a timely response and, depending on the level of responsibility delegated, can even send responses on behalf of the advisor. They can also ensure that any messages that can (or should) be delegated to another team member are routed as quickly as possible.

There are also some tech tools that can aid with email efficiency, such as TextExpander (for Mac users) and PhraseExpress (for PC users), which both quickly create template language for commonly repeated email responses (which can be most useful for advisors who aren’t particularly fast typists). Microsoft Outlook has a built-in feature that allows an email account owner to designate a second person as an Assistant, who can then access the email account simultaneously from a different computer to share the responsibility of sorting through email, and helping an advisor review only the messages they really need to see.

Ultimately, the key point is that having a well-managed, organized email box allows a financial advisor to spend less time on the distracting busywork that reviewing email can be, and more time to spend on tasks that require cognitive focus and concentration – like preparing financial plans and meeting with clients. Or even to enjoy more time with friends and family!

When A Client’s Financial Problems Are Beyond Financial Advice: How (And When) To Refer Clients To A Mental Health Professional

February 26, 2020 07:02 am 3 Comments CATEGORY: Client Trust & Communication

As financial advisors know, talking to clients about money can get emotionally charged, especially when the discussion concerns major (and potentially traumatic) life events. And sometimes, clients can become so distraught or unable to face the challenging issues in their past… even as the failure to deal with those issues prevents them from moving forward in their financial future. Which can also be distressing for a financial advisor who is striving to help, but who may recognize that the help the client needs is beyond the scope of what the advisor can provide and that referring the client to a mental health professional is the best course of action.

In practice, though, the point when a referral should be made is not always clear. As while it might be obvious that a client who has expressed (for instance) suicidal thoughts, or is otherwise in acute mental or emotional distress, is in need of a mental health professional’s services, how can a financial advisor tell when a client might just be “sad” (and who might simply need an empathetic ear to move forward with their financial planning recommendations)? And when a referral is in order, how does the financial advisor actually give that referral in the first place, without offending the client and potentially driving them away?

To understand when and how to involve an outside mental health professional, it is helpful to consider how money issues can impact an individual’s emotions across a spectrum of stress/anxiety. On the one hand, even common, everyday issues such as basic retirement planning or changes in income levels may be mildly stress-inducing, while more serious issues such as a death in the family or divorce can be very upsetting. On the other hand, at the farthest end of the spectrum are issues that involve disorders and conditions that are psychologically diagnosable, such as addiction, clinical depression, and hoarding behaviors.

To decide whether a referral to a mental health professional should be offered, the first factor to consider is the financial advisor’s own comfort level with the client conversation. Some firms have specialized models designed for clients working through emotionally-charged issues (e.g., divorcees, widows/widowers, etc.); these firms often already have processes in place that can more easily accommodate these clients’ needs, which, in turn, may make it easier for advisors to work with clients themselves, versus offering a mental health referral. On the other hand, if the financial advisor is uncomfortable with a client’s emotions that arise during a conversation, the best course of action can simply be to recognize and acknowledge the client’s distress, and to offer a referral for the client to see someone who is better-equipped to help the client with their stress or anxiety. And even if an advisor is comfortable working with a client who is experiencing high levels of stress, it may still be better for the advisor to refer the client to a mental health professional if they don’t actually have the time capacity (and thus ability) to fully service the client’s needs.

Of course, there’s still the challenge of just bringing up a mental health professional to a client in an unawkward way in the first place. One way to normalize the referral process is to discuss mental health referrals to clients as part of any other referral resource (e.g., CPAs, estate planners, etc.) early in the relationship, and reviewing those resources periodically during annual service meetings, which can then help clients be more comfortable accepting the referrals should the need ever arise. For advisors uncertain who to refer to, a helpful way to identify suitable mental health professionals is for them to personally make use of the mental health professional’s services themselves, which can give them the opportunity to discuss with clients, from firsthand experience, precisely what clients can expect when making referrals to see those professionals. However, some advisors may not have time to vet a network of referrals, or may have clients in need of immediate attention from a mental health professional. In these instances, advisors can work directly with the client to make calls together to find a suitable professional (or ask the client for permission to reach out to friends and family who can help with this).

Ultimately, the key point is that financial advisors should not be afraid to refer clients to mental health professionals, and that it’s perfectly OK to recognize that there is a level of emotionally-charged issues that clients experience, which advisors are not necessarily trained and equipped to handle (especially when those issues impact, but themselves are outside the purview of, financial planning itself). Advisors who are able to identify a network of mental health professionals that they can have on hand to use as referral sources, can, over time, develop a strategy to broach the subject of making referrals with clients in the first place, and make the process of providing mental health referrals a natural and comfortable process not only for themselves but for their clients as well.

#FASuccess Ep 165: Navigating Broker Protocol When The Firm You Start With Isn’t The One You Want To Stick With, with Steve Kampschmidt

February 25, 2020 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 165th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Steve Kampschmidt. Steve is the founder of Freedom Found Financial, an independent RIA based in northern New Jersey that oversees just over $20 million in assets under management for 30 affluent clients.

What's unique about Steve, though, is that he just recently formed his advisory firm having broken away from the training program at a major wirehouse after realizing that with an entrepreneurial mindset and a goal of building a lifestyle practice with good work/life balance, it was simply far more economical for him to operate his own firm and control his own expenses than to give the majority of his income up to the grid.

In this episode, we talk in-depth about how Steve built his initial base of clients at the wirehouse through modern cold-calling techniques leveraging ZoomInfo, the salary base that the wirehouse provided while he built his initial base of clients, the type of alternative non-AUM business model he decided he wanted to create that necessitated a shift away from the wirehouse, and why he's now operating with the blend of annual retainer fees and monthly subscription fees for various client types.

We also talk about where Steve went to find the information and consulting support he needed to make the transition smoothly. What Steve actually went through to comply with the Broker Protocol when leaving his firm, the factors that led him to select Fidelity as his custodian of choice, the way he built out his advisor technology stack, and why he chose not to purchase any kind of portfolio performance reporting software and to rely solely on eMoney's financial planning portal instead.

And be certain to listen to the end, where Steve talks about realistic expectations and how many clients will stick with you if you choose to leave a large firm and its national brand, his tips for career-building in the early years especially as a career changer, and why in the end, the biggest key to success is simply having the confidence in yourself, and being willing to make whatever changes it takes to service your clients the way that you want to serve them.

The One Meeting Close: Reducing Business Development Costs By Restructuring The Advisory Firm’s Sales Process

February 24, 2020 07:05 am 4 Comments CATEGORY: Marketing

For most financial advisory firms that seek to grow, it takes a significant commitment of time to market to, attract, and ultimately close prospective new clients. But as advisory firms grow, the cost of that time it takes to attract clients through marketing efforts and close them through sales efforts becomes commensurately more expensive as the business owner’s own time becomes more valuable. Which can be problematic for firms that want to grow, and the cost to acquire new clients becomes more expensive as the business (and cost of that time) grows, becoming inherently less scalable the larger the business gets … unless the firm updates its marketing and sales methods to match the firm’s (newfound) size and resources.

In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – explains why advisory firms need to adapt the sales engagement methods that they use if they want to continue growing in a sustainable (and time-cost-effective) manner. As notably, while industry benchmarking statistics suggest that an average financial advisory firm will spend about 3% of revenue on marketing, these numbers only include direct marketing expenditures (e.g., online ads, consultant expenses, etc.), and don’t include the actual value of the advisor’s potentially-quite-costly time spent on acquiring clients (e.g., attending networking events, meeting with prospects, etc.). Furthermore, as a financial advisor’s firm grows and the advisor gains experience and expertise, their time generally becomes more valuable; thus, if they spend the same amount of time on client acquisition as they did when their time was worth less, the total cost actually spent on marketing can significantly increase!

In light of this growing premium on an advisor’s time as a part of the marketing and sales process, how should an advisor most efficiently spend their time on business development efforts? To address this, it’s important to consider the three primary processes in any financial advisory firm: A Marketing process to establish awareness that the firm exists, a Sales process to engage prospective clients, and a Client Service process, to cultivate lasting trust with clients and to give them a reason to stay with the firm. While many firms focus primarily on the Marketing or the Client Service process to address growth problems, the reality is that, more often than not, problems with growth (and time-cost-consuming nature) reside mainly in the Sales process – the stage in client acquisition that begins when a prospect schedules a first appointment, and ends with a signed contract.

For most advisory firms, there are generally three methods of engagement an advisor can use in the sales process. The best method for any firm to use will often depend on the approximate revenue of the firm. The “Do” Method involves actually doing something for the prospective client to show them what they might expect to receive from the firm and is most valuable for newer firms (generally those with less than $750,000 in annual revenues) who have not yet established a brand identity. Clients seeking these firms are looking for value and are most interested in what the firm has to offer them. The “Show” Method is less labor-intensive and involves showing samples of what the firm has to offer to the client (e.g., a sample financial plan or investment policy statement); in other words, these firms are typically well-established and can rely on their brand value with compelling stories, supported by “showing” what they offer. While this is more efficient than the “Do” Method, it does still require time to prepare samples to show a target clientele and is often more appropriate for firms with annual revenues between $750,000 and $3 million. The “Tell” Method is the most time-efficient and relies on an advisor’s own confidence in the firm to tell the client specifically how they will address the client’s needs. There is no “free work” done or samples offered because an advisor in a firm with more than $3M in annual revenue can generally rely on their firm’s brand value and the story behind the firm alone to establish trust with a new client. Which is important, because considering the high value of an advisor’s time at this level, (still) using the “Do” or “Tell” methods can be exponentially more expensive (than it may have been when the firm had less revenue and the advisor’s cost of time was less).

Ultimately, the key point is that the Sales process is a distinct step from the Marketing and Client Service processes and that, for many firms, growth problems can most effectively be addressed by adjusting how the Sales process is carried out. While newer firms with less revenue can benefit most using the “Do” method of offering free work to prove to clients they are worthy of their trust and engagement, firms with more revenue can benefit from the more efficient “Show” method of offering work samples and demonstrations to back up their firm’s brand identity, while firms with revenue generally over $3M are often the most well-established and generally have widespread brand recognition… that advisors can leverage to simply “Tell” a client why they should be engaged, ideally (and cost-effectively) ‘closing’ the deal after just one meeting!