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#FA Success Ep 249: Going Beyond Client Experience With Client Adventures To Drive Organic Growth, With Drew Waldron

October 5, 2021 07:04 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 249th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Drew Waldron. Drew is the co-founder of Canvas Wealth Advisors, an RIA in Overland Park, KS that manages about $455 million for 150 client households.

What's unique about Drew, though, is the way he and his partner take the implementation of client experience to the next level, by not just reinvesting into client service or better technology, but organizing and executing exotic once-in-a-lifetime excursions for their clients to have a truly differentiated experience as clients of the firm.

In this episode, we talk in depth about the sorts of adventures that Drew and Scott plan for their clients and prospects (and how they assemble groups specifically to foster introductions for clients who might benefit from connecting with others who are also invited along), Drew's observations about how staging the right experience with the right group of people can help his wealth management firm stand out against competing firms, and how Drew's prior experience as a junior advisor on other wealth management teams allowed him to build out a network of affluent professionals in his area that he can call on to make those connections that help their clients and prospects build their own new relationships.

We also talk about how, after launching in the spring of 2019 and bringing along about $50 million in client assets from his previous firm, Canvas Wealth has been able to grow to north of $450 million in assets in just two-and-a-half years with its unique experiences-based marketing approach, the lesson that Drew learned during the height of the pandemic around the importance of staying in touch with clients and being truly proactive with maintaining relationships, and how Drew creates touch-points for every single one of his clients every single month by bringing his team together to meet on Mondays and discuss what value-added items (whether it be an introduction or updated projection) they're going to deliver to the clients they're reaching out to that week.

And be certain to listen to the end, where Drew shares how he and his firm make a clear distinction between those on the team who live solely in the business development side of the firm and those who are in the financial planning and advice-delivery side, how Drew has integrated FinLife's MoneyMind and HonestConversations tools to systematically onboard new clients in a way that better aligns their advice with their clients' unique values, and Drew's focus on recruiting a bench of younger advisors from the Kansas State financial planning program that he can develop into lead advisors so that he continue to scale and grow his practice in the years to come.

So whether you’re interested in learning about the unique adventures Drew and his partner take their clients on, how they’ve been able to 8x their firm in just two-and-a-half years, or how he’s integrated FinLife's MoneyMind and HonestConversations tools into his practice, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Drew Waldron.

The Latest In Financial #AdvisorTech (October 2021)

October 4, 2021 07:03 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the October 2021 issue of the Latest News in Financial #AdvisorTech – 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!

This month's edition kicks off with the big news that Franklin Templeton is acquiring O’Shaughnessy Asset Management and its Canvas direct indexing platform, as yet another ‘traditional’ asset manager makes a bet that the future will be increasingly driven by ‘direct’ indexing over traditional mutual funds and ETFs. Notably, though, OSAM’s Canvas wasn’t simply another platform to turn an index fund into one where its component stocks can be tax-loss harvested for incremental tax alpha; instead, it was part of a ‘second generation’ of direct indexing platforms that are building tools for advisors to create increasingly personalized “custom indexes” for each client based on their own individual preferences… where the asset manager can get paid as a Separate Account Manager to implement those unique-to-each-client portfolios?

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

Morningstar acquires Moorgate Benchmarks to become a licenser of (direct) indexes
Betterment for Advisors increasingly pivots from TAMP to RIA custodian competitor with more custom model-management tools
The SEC opens an inquiry into when FinTech-driven nudges become formal recommendations or bona fide investment advice
Docupace acquires PreciseFP as digital onboarding increasingly focuses not on advisor replacement but back-office business process automation

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

AdvicePay launches Engagements for Enterprises to manage the entire end-to-end process of overseeing fee-for-service financial advice
Vanilla raises $11.6M in Series A funding to scale its estate planning solution for financial advisors
Fidelity partners with Armorblox to help RIAs improve their email cybersecurity to avoid fraudulent wire transfers
MoneyMap.io launches a new API-based service to help existing FinTechs connect their users with financial advisors to ‘upsell’ human financial advice

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*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 (Oct 2-3)

October 1, 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 Franklin Templeton is acquiring O’Shaughnessy Asset Management and its ‘Canvas’ direct indexing platform, as yet another traditional asset manager stakes a view that the future will increasingly be built not on mutual funds and ETFs but the use of technology to build more customized portfolios down to the individual stock level (configured via a software interface, and implemented as an SMA that asset managers can charge for?).

Also in the industry news this week:

An RIA is forced to pay out nearly $1M in restitution as a settlement for charging advisory fees on “house accounts” without assigning an advisor to service those clients
FINRA institutes a new rule that will allow ex-brokers to reinstate their Series licenses within 5 years (instead of ‘just’ 2 years) as long as they complete their FINRA CE requirement and pay a (nominal) fee

From there, we have tax planning articles, including:

End-of-year tax planning strategies for the fourth quarter, which are taking on a greater focus with the potential for significant tax law changes that may come into effect for 2022
A look at how ultra-popular GRATs have become with ultra-HNW clients (with one estimate that more than 50% of the top 100 wealthiest families are using the estate planning strategy)
The outlook for the Qualified Small Business Stock (QSBS) tax incentive that may be halved (from $10M to only $5M of capital gains that can be excluded) in the years to come

We've also included a number of marketing-related articles:

How to structure an advisory firm if it wants to serve multiple niches at once (hint: each niche needs its own team of advisors within the firm)
Why client satisfaction isn’t just a function of the service they receive, but their expectations of those services
How the future of growth is all about formulating expertise and making it more ‘visible’ to prospects (e.g., through blogging, social media, and other digital marketing channels)

We wrap up with three final articles, all around the theme of how technology is reshaping our world:

Why the rise of technology platforms for small businesses is making it easier to be a successful solopreneur (despite the calls that firms must achieve greater size and economies of scale to survive)
The ways that Decentralized Finance (DeFi) and the blockchain could change the financial services industry (by becoming the next generation of broker-dealers and RIA custodial platforms?)
How the intersection of human and artificial intelligence is proving to be more effective than humans or AI alone… suggesting that the future of financial advice is less about robots versus humans and more that success will be defined by the human advisors who best augment themselves with technology!

Enjoy the 'light' reading!

Net Unrealized Appreciation (NUA) Tax Strategies For Modestly Appreciated Stock

September 29, 2021 07:05 am 11 Comments CATEGORY: Taxes

While pre-tax distributions from retirement accounts are generally taxed at ordinary income rates, an exception to this rule applies to appreciated employer securities distributed from an employer plan that are a part of a Net Unrealized Appreciation (NUA) transaction. In such instances, the NUA (i.e., the appreciation on the employer securities that occurred within the employer’s retirement plan) is taxed at the more favorable long-term capital gains rates (when sold in a taxable account).

Given the disparity between the two rates, the ability to swap ordinary income tax rates for long-term capital gains tax rates on a portion of a worker’s retirement savings may sound highly appealing. However, doing so is not always a great move. While the NUA itself gets the benefit of long-term capital gains treatment, the portion of the shares distributed that is attributable to their cost when purchased within the employer plan (what would be their basis had they been purchased with taxable dollars) is subject to ordinary income tax rates right away. Additionally, completing an NUA transaction removes the assets (for which NUA is used) from the ‘protective’ tax-deferred wrapper provided by a retirement account.

Nevertheless, there are clearly times when an NUA transaction can be used to help reduce an individual’s tax liability. But to do so, three key NUA rules must be followed:

NUA transactions can only be made after a ‘Triggering Event’;
The employer-sponsored retirement plan must be emptied within one calendar year (i.e., as a lump-sum distribution); and
The shares of stock on which NUA is desired must be moved, in-kind, to a taxable account.

Since the favorable long-term capital gains treatment in an NUA transaction is only applicable to the growth of the employer securities (while the purchase price of the shares is subject to ordinary income tax), the strategy is generally viewed as one that is best reserved for employer securities that have experienced substantial growth. Indeed, the greater the appreciation, the more attractive NUA becomes. Even so, that doesn’t mean that NUA can’t be useful in other situations.

One situation in which NUA with more modestly appreciated employer securities can make sense is when the NUA transaction is used to fund near-term cash flow needs. If a plan participant needs to take a distribution from their plan to satisfy immediate cash flow needs, then absent the use of NUA, the entire distribution will be taxed at ordinary income rates. By contrast, as long as there is at least some level of appreciation in the employer stock in the plan (i.e., some amount of NUA), then using an NUA transaction to fund short-term cash needs will result in a tax savings, as the proportion of the distribution attributable to growth (versus the purchase price) will be taxed at long-term capital gains rates.

Just how ‘short-term’ the cash flow need should be for NUA with modestly appreciated securities to make sense depends on the situation, which should be evaluated based on a taxpayer’s unique set of facts and circumstances. If a taxpayer can fund multiple years of cash flow needs using NUA, without pushing themselves into a higher tax bracket, then such a move is likely to make sense. By contrast, where (a significant portion of) the added ordinary income created by an NUA transaction is taxed at a higher marginal rate than would otherwise be the case if ‘regular’ distributions were spread of those years, the benefit of the long-term capital gains tax treatment on the NUA is often more than offset by the higher ordinary rates that apply to the cost of the shares.

Ultimately, Net Unrealized Appreciation (NUA) can provide certain plan participants with valuable tax-saving opportunities. And while using NUA with modestly appreciated employer securities to fund short-term cash flow needs isn’t likely to be the ‘move’ that makes or breaks one’s retirement success, it’s a relatively easy way for many plan participants to reduce their tax bill. And when it comes to taxes, less is always more!

#FA Success Ep 248: Scaling Diamond Teams Profitably By Charging Separate Planning Fees, With J.D. Bruce

September 28, 2021 07:09 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 248th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is J.D. Bruce. J.D. is the Chief of Innovation for Abacus Wealth Partners, an RIA headquartered in Santa Monica, CA that manages over $4B in assets for 1,900 clients.

What's unique about J.D., though, is how he’s been able to help scale Abacus to the size it is today by implementing Angie Herbers’ Diamond Team Model, in order to offer a variety of different service models for different types of clients.

In this episode, we talk in depth about how J.D. and Abacus segment their clients into three styles based on their complexity and net worth, including Builders, Protectors, and Changemakers, how Abacus charges a separate financial planning fee in addition to an AUM fee for most of their clients in order to emphasize the planning work that they do and have the flexibility to charge different amounts for different clients depending on where those clients land along the complexity curve, and how J.D. found that implementing Angie Herbers’ Diamond Team Structure was the key to unlocking the puzzle of making sure that clients are comfortable working with different advisors over time while staying connected to the firm.

We also talk about how Abacus has built a focus on working with those who are most interested in shaping their financial lives to reflect their most deeply held values, why J.D. feels that financial planning firms should be focused on their advisors’ capacity, which isn’t defined solely by the amount of time they spend doing their work, but by the emotional impact of the work they do as well, and why Abacus moved away from a “revenue under management” compensation model and toward a model that bases an advisor’s compensation on the competencies they’ve gained and what they’re capable of in the future, rather than just what they’ve accomplished in the past.

And be certain to listen to the end, where J.D. shares why he feels that finding new talent that is a “good cultural fit” isn’t nearly as desirable as hiring people who can become "culture adds" and help change Abacus’ perspective and see things in a different way, why J.D. feels that AUM fees will inevitably compress industry-wide to 50 basis points, but that the price of advice overall will increase as financial planning itself becomes more valuable (and something we can increasingly charge separately for), and how, even though J.D. admits to having an innate dislike of conflict, he realizes that some level of internal conflict and disagreement are often necessary ingredients for advisory firms looking to grow and change.

So whether you’re interested in learning how J.D. and Abacus have implemented Diamond Teams in their practice, how they use different service models and fee structures for their three client segments, or how they structure their compensation, then we hope you enjoy this episode of the Financial Advisor Success podcast, with J.D. Bruce.

Client Testimonials: Leveraging The New SEC-Acceptable Marketing Practices To Connect With New And Existing Clients

September 27, 2021 07:06 am 3 Comments CATEGORY: Marketing

Since the 1970s, the Securities and Exchange Commission (SEC) has prohibited Registered Investment Advisers (RIAs) from using client testimonials in their advertising. While their rules were intended to protect consumers by preventing advisors from showcasing only the best investment results of a few select clients, two major developments in recent years have necessitated reforms of the existing rules to permit the use of testimonials by financial advisors.

First, consumers are increasingly reliant on testimonials and reviews when choosing which products and services to buy, leading to the massive growth of testimonial-based marketing in other industries, but leaving financial advisors without a key tool in their marketing toolbox. Second, the expansion of RIAs’ services beyond ‘just’ investment advice – often addressing increasingly complex family, career, and retirement questions alongside (or sometimes even instead of) managing an investment portfolio – means that the blanket prohibition against testimonials, meant to tamp down on misleading performance numbers, also stifled advisory firms’ ability to highlight other important features like planning expertise and exceptional client service that might matter far more to potential clients than past investment returns.

In May 2021, the SEC finalized its updated advertisement rules to allow the use of testimonials in RIA marketing materials. This change offers a new opportunity for advisory firms to provide social ‘proof’ of their ability to build relationships through their services and to develop trust and a positive reputation among potential clients. The proliferation of options available to potential clients makes the ‘stamp of approval’ of a good testimonial a key part of the client’s decision of whom to hire, which makes it all the more important for advisors to understand how to deploy testimonials as part of their overall marketing strategy.

The core goals of using testimonials are to connect with a target audience in a relatable and authentic way and to highlight the firm’s services and specialties. Accordingly, a good testimonial will go beyond general praise, and will instead reflect the firm’s own values and areas of specialization. For example, a firm with a certain niche focus might use a testimonial that specifically acknowledges their unique area of expertise, not just in a positive manner, but with honesty as well – after all, the trust-building effect of testimonial advertising only works as far as the testimonials themselves are trustworthy.

Of course, the ability to select good testimonials depends on actually having a ‘supply’ of testimonials, so firms must find some way to gather testimonials to be able to choose the ones that work best for them. Some firms may already have an existing trove of material on third-party review sites like Yelp or Google Reviews (which were permitted before the new rules went into effect), while others can use a Net Promoter Score (NPS) survey or a direct email request to current clients to obtain new testimonials.

Regardless of how the testimonials are ultimately used – on the firm’s website, in social media posts, on third-party platforms, or elsewhere – they should complement the firm’s overall marketing strategy and comply with SEC rules including appropriate disclosures and client confidentiality (e.g., the client must give permission for the firm to use their testimonial in public). Luckily, the same principles that make for an effective testimonial – honesty, authenticity, and transparency – also lend themselves to compliance under the new rule, so that ultimately, firms that take advantage of the new rule allowing testimonials can do so while highlighting their services in a relatable, trust-building way!