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#FA Success Ep 261: Replacing The AUM Fee With A Complexity-Based Fee For (Only) The Time It Really Takes, With Andrew Miller

December 28, 2021 07:05 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 261^st episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Andrew Miller. Andrew is the founder of OLIO, a financial planning firm based out of McLean, Virginia, that manages $275 million for over 275 households.

What's unique about Andrew, though, is how he’s been able to craft a scalable business model based on complexity fees, by meticulously capturing the details of every planning analysis he’s done for his clients over the years and translating it into a clear estimate of the time and effort it will take to handle any new client’s planning needs.

In this episode, we talk in depth about how Andrew developed his time-based system to determine how to price his services to clients, why Andrew’s focus on time has led the firm to do less and less investment work for clients and more and more for clients’ other financial planning needs (because as Andrew notes, if your technology stack is good enough, it really does take about the same amount of time to rebalance a $100,000 account as it does to rebalance a $9M account), and the financial planning proposal process that Andrew created to help translate the value of his time into dollar amounts that make his fee worthwhile to the clients he serves.

We also talk about how financial advice given to Andrew developed a skepticism of the financial industry that ultimately helped shape his career and OLIO’s financial planning process, how Andrew’s experience as a civil engineer fostered an understanding of how time and productivity are intertwined (which helped him create the tools that are applied to OLIO’s fee structure), and how Andrew is positioning himself and his firm to be successful as technology encroaches ever further into the realm of financial planning.

And be certain to listen to the end, where Andrew describes how his own financial planning philosophy and ‘money scripts’ began at an early age, how fostering the education of resident advisors means so much to him and his vision for the future of the financial planning industry, and how despite being told by other advisors that his business model would ‘never work’ that it’s been his willingness to create his own definition of success that’s allowed him to achieve it.

So whether you’re interested in learning about how Andrew’s own experience with financial advice and fees inspired him to promote change from within the financial advice industry, how Andrew employed his civil engineering background to create time-based data to determine his fee model, or how Andrew is helping to shape the future by coaching and educating resident advisors, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Andrew Miller.

2021 Highlights – The Top 20 Nerd’s Eye View Blog Posts You Might Have Missed

December 27, 2021 07:04 am 0 Comments CATEGORY: Nerd's Eye View

As 2021 comes to a close, I am once again so thankful to all of you, the ever-growing number of readers who continue to regularly visit this Nerd’s Eye View blog (and share the content with your friends and colleagues, which we greatly appreciate!). This year has been one of mixed feelings for most financial advisors – a year where many people have struggled with the direct and indirect impacts of the ongoing pandemic, from health to employment challenges, but one where many financial advisory firms have managed to adapt and even excel with newfound growth as more consumers realized they need a financial advisor. Personally, it has been a big year of change as well, with a(nother) doubling of the Kitces.com team in 2021 (now more than 20 people who help to make it all happen!), as we expand further into Courses and online Summits to fulfill our own mission of “Making Financial Advicers Better and More Successful”.

We recognize (and appreciate!) that this blog – its articles and podcasts – is a regular habit for tens of thousands of advisors, but that not everyone has the time or opportunity to read every blog post or listen to every podcast that is released from Nerd’s Eye View throughout the year. As many of you noted in response to our Reader Surveys, most choose which content to read or listen to based on headlines and topics that are of interest (and skip the rest). Yet in practice, this means that an article once missed is often never seen again, ‘overwritten’ (or at least bumped out of your Inbox!) by the next day’s, week’s, and month’s worth of content that comes along.

Accordingly, just as I did last year, and in 2019, 2018, 2017, 2016, 2015, and 2014, I've compiled for you this Highlights List of our top 20 articles in 2021 that you might have missed, including some of our most popular episodes of ‘Kitces & Carl’ and the ‘Financial Advisor Success’ podcasts. So whether you're new to the blog and #FASuccess (and Kitces & Carl) podcasts and haven't searched through the Archives yet, or simply haven't had the time to keep up with everything, I hope that some of these will (still) be useful for you! And as always, I hope you'll take a moment to share podcast episodes and articles of interest with your friends and colleagues as well!

In the meantime, I hope you're having a safe and happy holiday season. Thanks again for the opportunity to serve you in 2021, and I’m excited to share more soon about some new initiatives we’re planning to do even more to support the Financial Advicer community in 2022 and beyond!

Weekend Reading for Financial Planners (Dec 25-26)

December 24, 2021 02:28 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 the Biden administration will extend the moratorium on Federal student loan payments until May 1, giving some relief to borrowers impacted by the continuing effects of the pandemic (and softening the blow that January’s lapse in monthly Child Tax Credit payments, alongside the original February 1 date when loan payments would have restarted without the extension, was expected to have on household balance sheets).

Also in industry news this week:

Research shows that, after years of being slow to incorporate ETFs into their clients’ portfolios, investment advisors have actually passed retail investors (and institutions) as the largest buyers of ETFs
The Department of Labor has issued guidance for brokers to freshly evaluate the potential conflicts of interest that their payout grids present (especially grids that provide retroactively higher payouts upon reaching the next threshold)

From there, we also have several articles discussing retirement planning:

New research shows that the pace of the observed decline in spending over the course of a retirement can differ based on a retiree’s wealth and health, suggesting that while spending usually declines for retirees in their later years, the typical clients of advisors may actually maintain more level retirement spending after all?
How advisors can help younger clients balance saving for the future with enjoying life today and not ‘over-saving’
How a new tool that helps individuals to search for the best places to live in the U.S. (for them) based on a range of criteria could help advisors better estimate a client’s potential expenses in retirement

We also have a number of articles on advisor marketing:

Why ‘social proof’ is an important part of attracting new clients, and how advisors can use testimonials and online platforms to generate it
Why advisors might not be getting as many referrals as they would like from Centers of Influence, and how they can get more
Why establishing and communicating company culture is important to attract and retain the ‘right’ clients and employees (and should deliberately repel the wrong ones!)

We wrap up with three final articles, all about how advances in technology have the potential to change the way we live and work in the future:

A primer on the buzz around “Web3”, and why, despite the legitimate concerns about its widespread adoption, it’s worth keeping an eye on how blockchain-based Web3 technologies continue to evolve
Why, after decades of Microsoft Word as the default document editor for many organizations, competitors are now springing up to compete (and change the way we create and edit documents in the online era)
How the mass adoption of telecommuting could, despite its short-term benefits, pose long-term threats for knowledge workers who may now face more global competition for their jobs

Enjoy the “light” reading!

Addressing Financial Advisor Anxiety To Help Prospects Overcome Their Fear Of Judgment

December 22, 2021 07:02 am 0 Comments CATEGORY: Client Trust & Communication

Fear of judgment is an emotion that creates anxiety for many people. For example, seeing a doctor can be stressful for people who fear they will be judged for the current state of their health (or for their health choices and behaviors). This anxiety can lead people to avoid going to a doctor altogether, even when they know that going would be the ‘right’ choice for the sake of their own health. Consumer research has suggested that this fear of judgment also extends to people who may benefit from hiring a financial advisor. Because just as it is common to feel anxiety about revealing the details of one’s physical health to a health professional, disclosing details about one’s financial health – and the potential for being judged based on their lack of financial knowledge or their past financial behaviors – can lead to Financial Advisor Anxiety (FAA).

While FAA can affect different people in different ways (for example, women were shown to feel more anxiety about being unfamiliar with financial terminology, while men worried more about being judged on their past behavior), the result often ends out being that people tend to avoid seeking out professional financial advice when their level of anxiety becomes too great.

For financial advisors, then, this means that a possibly significant number of potential clients may never even reach out… not because they don’t want or need financial advice, but because they are simply too anxious about the idea of revealing personal financial details to a stranger to take the step of making an initial phone call or email. However, advisors can help alleviate the impact of FAA on prospective clients – thereby improving the probability of potential clients actually reaching out to the advisor – by taking proactive steps to alleviate the fear of judgment before the initial contact.

For example, because unfamiliarity with financial terminology is a source of FAA for many people, adding a glossary of common financial terms (e.g., IRA, 529 Plan, Fiduciary, etc.) on the advisor’s website can be a helpful resource – not just as an educational tool, but also an acknowledgment that financial jargon can be obscure and intimidating to non-experts, and a signal that the advisor will not judge anyone for being unfamiliar with financial planning terminology.

Advisors can also alleviate FAA by sharing some of their own vulnerabilities by talking about their fears and challenges with finance. For instance, an advisor could record a video for their website about their own journey towards becoming an advisor, the obstacles they encountered in getting there, and the benefits they have realized by working to overcome their own anxiety. And in their own communities, advisors can model non-judgmental behavior to normalize some of the fear and stress that people often have when talking about money by, for example, talking openly in casual conversation about common financial issues that people experience (and how the advisor works with their clients to overcome them).

Ultimately, alleviating Financial Advisor Anxiety comes down to reducing the fear of judgment and shame that can paralyze some people into not seeking financial advice. And finding strategies to help individuals overcome FAA can be a powerful way for advisors to increase the number of prospects who reach out to them (because they were able to overcome their anxiety enough to do so). Which means that those prospective clients who do reach out will also be more likely to have a higher level of comfort and trust in the advisor from the start!

#FA Success Ep 260: Breaking Bread Together To Build New Client Relationships As Their Financial Chef, With David Ortiz

December 21, 2021 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 260th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is David Ortiz. David is the founder of Financial Chef, an independent RIA operating as a lifestyle practice, serving clients in southern Florida. What's unique about David, though, is the way he combines his experience as a classically trained chef with the growth of his advisory firm, which now includes driving a Sprinter van with a full kitchen, so he can travel to a wider range of clientele across South Florida, to cook custom meals for them and then provide financial advice while they eat their freshly prepared food together.

In this episode, we talk in-depth about how David grew his advisory firm by leveraging his training as a chef, first by building relationships with local charities, where he would provide in-house cooking for a party of 10 as a silent auction offering to get access to high-value prospects who are affluent enough to bid thousands of dollars on his donated chef services, how David then built an office space with a professional kitchen where the timing of client meetings was based on the available breakfast, lunch, and dinner sittings that restaurants use, and why David ultimately decided to make his cooking plus advice services more mobile by buying the van with the kitchen so that he could bring the food directly to his clients in what David calls the Ritz-Carlton of food trucks.

We also talk about how David has evolved his financial planning services for clients, including how David has largely eschewed relying on traditional planning software and instead, built his value proposition directly around the ongoing and never-ending financial planning tasks that his clients need his help to implement, how David built his own custom portals for each client through Microsoft SharePoint to help clients track their financial planning progress over time, and why David has decided to evolve his business model towards charging ongoing planning fees as a percentage of client income for his financial planning task support, in addition to AUM fees where his clients need their portfolios managed.

And be certain to listen to the end where David shares his own journey through the advice business from how he made the transition from being a chef and doing a brief stint at a software company before getting started as a life insurance agent, why David ultimately decided to leave the broker-dealer world and structure his firm as an independent RIA instead, and why David believes that a chef who cooks for his clients in addition to providing them financial advice has been so effective at deepening his client relationships.

So whether you're interested in learning more about why David decided to join his talents as a chef and as a financial advisor into a successful business, why he opts for an almost subscription-style fee model, or how he designs his financial plans with a task-oriented approach, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Using The Advice-Only Financial Planning Model To Build A Sustainable Advisory Firm

December 20, 2021 07:02 am 17 Comments CATEGORY: Practice Management

Traditionally, most financial advisory firms’ business models have been centered around managing their clients’ investment portfolios. Even for firms that offer comprehensive financial planning, investment management is often an important – and, for firms that charge fees on an AUM basis, required – part of the firm’s services. However, there is a segment of potential clients who are not interested in delegating their investment management responsibilities to an advisor, but who are seeking professional guidance on actions that they can take and implement on their own – providing an opportunity for advisors to build a sustainable business offering “Advice-Only” financial planning, without the investment management.

In this guest post, Cody Garrett, CFP – founder of Measure Twice Financial, an Advice-Only financial planning firm – writes about what it means to provide Advice-Only financial planning, the types of clients who engage with his services, how Advice-Only advisors get paid, and how to make it a sustainable business model. Additionally, Cody provides a template for a comprehensive Advice-Only financial planning process that he developed in the course of building his own practice.

Advice-Only financial planning generally serves clients who are comfortable performing investment management tasks on their own, but who have questions about their own situations and strategies that require more personalized advice than YouTube videos or personal finance websites can provide. With most advisory firms still requiring clients to give up control over their investments just to get ‘in the door’, advisors who provide personalized financial planning – while allowing the client to manage their own assets – are highly sought out by these “Do-It-Yourself” (but not “Learn-It-Yourself”) investors.

For advisors who offer Advice-Only planning, the sustainability of the model ultimately depends on how many clients the advisor can (or wants to) serve, and how much revenue from each client they can realize. But because their fees are tied to their advice rather than asset management, Advice-Only advisors can charge a level of fees that reflect the value of the advice that they give – meaning that, for advisors who can provide high-value financial advice to clients with complex needs (and charge fees commensurate with that value) the Advice-Only model can be not just sustainable, but can also give the advisor the flexibility to control both their schedule (since it is not dictated by the schedule tethered to the working hours of the financial markets) and their own income (which does not need to depend on their clients’ asset levels).

Ultimately, for advisors who are passionate about giving comprehensive financial advice – but less so about managing assets – Advice-Only planning is a way to serve clients whose needs align with the advisor’s own expertise and ability to provide value. And because so (relatively) few firms currently offer Advice-Only planning, the firms that do provide it can take advantage of the growing demand for Advice-Only planning to differentiate themselves from traditional AUM-based firms and build a sustainable, flexible advice-based practice!