Nerd's Eye View blog

Weekend Reading for Financial Planners (Nov 23-24)

November 22, 2019 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the mega-news that Charles Schwab is apparently in talks to acquire TD Ameritrade, in what would create an absolute juggernaut in the brokerage industry with nearly $5 trillion in assets and as much as a 70% market share of RIA custody... which in turn is already raising concerns about whether, at least when it comes to RIAs, creating "Schwabitrade" might actually go too far in reducing competition and industry innovation (not to mention the challenges of integration and managing advisor service at such scale).

Also in the news this week is an indication of the growing "turf war" emerging as everyone from private banks (e.g., Goldman Sachs) to robo-advisors converge on serving the mass affluent that historically were the bread-and-butter client of the independent RIA but are now increasingly hard to attract in a more competitive landscape, and an indication that the SEC may be preparing new Proposed Regulations on both the definition of an Accredited Investor and the RIA Custody Rule (both of which are badly in need of updating for the modern era).

From there, we have several articles on behavioral finance, from a look at the value of a financial advisor as one who helps to minimize potential regret of the few big irreversible financial decisions in life (where it's crucial to have the right advice to ensure the right decision is made in the moment), the emerging rise of "financial therapy" as a complementary value-add for financial advisors (or possibly even the future of the financial advisor's value proposition), and a look at how thus far Artificial Intelligence is still struggling with the sheer breadth and complexity of interpreting human emotions (and suggesting that AI may still be a very long ways off from really being able to replace human-to-human interactions on emotional topics and issues).

We also have several marketing-related articles this week, from exploring why RIAs often have difficulty getting clients to read their email newsletters (and what are realistic stats to expect for client open and click-through rates), the importance of storytelling to both convey a financial advisor's value proposition to prospects and their recommendations to clients through a financial plan (which arguably should be more of a 'storytelling aid' than an analytical document), and the key pages that prospects actually focus on (and therefore every financial advisor should have) on their financial advisor website.

We wrap up with three interesting articles, all around the theme of making good career decisions: the first looks at how most people seek out the wrong kind of career advice (asking people in similar roles or other 'successful' people who tend to give advice from their perspective, instead of asking people who know you well personally or are in the company/role in question already who can really validate whether you understand the role and how good of a fit it really is, or not); the second explores how to find the right community of peers to help get that professional sounding board and support; and the last looks at how, because the best firms end out being exponentially (1,000X) more successful, the key to career success is less about finding the right dream job and simply about finding the right company ("rocket ship") to get on board with... and figure out later how to get into the best role/seat on the rocket ship!

Enjoy the 'light' reading!

Kitces & Carl Ep 21: Do You Have To Build Confidence Before Taking Action, Or Take Action To Build Confidence?

November 21, 2019 07:08 am 0 Comments CATEGORY: Kitces & Carl Podcast

Confidence is a critical component of success for financial advisors, as those who lack confidence about their knowledge and abilities will struggle to persuade clients to listen to their advice, or even to find and persuasively convince clients to hire them in the first place. But how do financial advisors develop more and better self-confidence to begin with? And is it really necessary to build self-confidence first in order to take action with clients… or is the reality that taking action and having some success is actually what it takes to best builds self-confidence at all? In other words, is it better to just try to go get clients and service them until you feel confident that you do it well? Or to first study and gain the knowledge necessary to feel confident enough to go get clients and service them instead?

In our 21st episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards explore these ideas as they talk about the results of a recent Twitter poll conducted by Carl, which posed the compelling question, “Which one of these is true for you? Having confidence leads to action; or taking action leads to confidence.” Surprisingly, respondents were equally divided, with 51% identifying themselves as “confidence first” individuals, and 49% as “action first” individuals.

Each of these ‘camps’ faces its own set of unique obstacles, where “confidence first” people must first study and invest in themselves but might then struggle with getting to a stage where they are ever comfortable taking action, as the hurdle for them is finding enough confidence to get going in the first place (in essence, having a very high “self-permission” threshold to ever take the leap and try). On the other hand, “action first” individuals have a lower permission threshold, realizing that they need to practice the action first using more of a trial-and-error approach, and perhaps even relying on ‘fake-it-‘til-you-make-it’ strategies before they can build the confidence they need to flourish… but might then struggle with undesirable outcomes arising from impulsive behavior, or at worst, undermine their confidence with the failures that result as impulsively gained clients turn around and fire them.

Furthermore, while it might be true that some individuals are hardwired with an affinity for either one side or the other, it’s also possible that some individuals may identify with both sides in a chicken-and-egg circular manner of thinking, where that person may not feel confident without taking some action and having some success, but cannot take that initial action without the upfront confidence that they can even do the action successfully!

Ultimately, the key point is that both paths to confidence work – whether a person needs to build confidence in order to take action, or if they need to take action in order to build confidence – and that both paths depend on individual style and arguably on one’s own self-granted permission threshold.

Regardless of which side a person may identify with (or even if they identify with both), though, a universal strategy to effectively develop confidence involves identifying the smallest doable next step that helps them on the path they are trying to follow (whether that be to take a particular action that will eventually lead to some level of confidence, or to figure out what it would take to build up confidence in the first place, which would facilitate carrying out some particular action), followed by a frequent reassessment of one’s situation to discover any new information or opportunities leading to a new smallest doable next step.

Navigating Social Security’s Windfall Elimination Provision (WEP) With A (Non-Covered) Government Pension

November 20, 2019 07:02 am 12 Comments CATEGORY: Retirement Planning

In the midst of America’s Great Depression (which spanned from the October 1929 “Black Tuesday” stock market crash to the end of the 1930’s), President Franklin D. Roosevelt enacted several “New Deal” programs to provide the country with relief (and to encourage recovery) from the poverty and high rates of unemployment facing Americans at the time. Social Security was (and remains) one of the most significant programs created as part of the New Deal, and was intended to protect Americans from the “hazards and vicissitudes of life”, offering them “general welfare” and “social insurance” through retirement income for those over age 65.

However, Social Security benefits were not initially available for state or local government employees because the institutions they worked for often managed their own retirement (pension) programs for employees. To address the concern that state/local government employees were ‘missing out’ on Social Security, and in part to allow states to shift a portion of the retirement burden to the Federal government, Congress passed Section 218 of the Social Security Act in 1951, providing Social Security benefits to public employees in states that entered into a voluntary (but irrevocable) agreement with the Social Security Administration to coordinate state/Federal government benefits.

But the original Social Security retirement benefit formula did not account for workers who had retirement income from both their pension plans through “non-covered” employers (i.e., state or local government employers who did not pay into Social Security), and Social Security benefits through employers who did pay into Social Security. Which was problematic, because Social Security is designed to provide higher replacement rates for lower income workers, but couldn’t distinguish between those who actually had a lifetime of low income, and those who had high lifetime earnings but whose income from “non-covered” state or local government jobs (with its own pension instead) was excluded from the Social Security benefit calculation. Accordingly, policymakers felt that these workers eligible for both Social Security and a non-covered pension benefit were being awarded a higher Social Security replacement rate than they should have been. Thus, in 1983, Congress established the Windfall Elimination Provision (WEP) to more fairly adjust the Social Security benefit for these “non-covered” workers who appeared, based only on their Social-Security-covered earnings, to be lower-income than they actually had been in their working years.

While the number of workers in the United States who are subject to the WEP is relatively small, it’s becoming more common for advisors to run across clients who are affected by WEP as a greater number of public sector employees who started their careers in non-covered jobs are now approaching retirement.

Fortunately, while the WEP can significantly alter an individual’s total retirement income, there are several strategies that an advisor can employ to minimize that impact, including increasing the number of years with “substantial” earnings from a “covered” employer, or taking a lump-sum distribution of a non-covered pension before becoming eligible for the benefit (thus reducing the length of time the WEP penalty is applied to the Social Security benefit).

Ultimately, the key point is that advisors should be aware of the circumstances under which the Windfall Elimination Provision applies to a retiree’s benefits, and the various rules around how their client’s total retirement benefit (as well as any family/auxiliary Social Security benefits based on the client’s own record) may be impacted by the WEP. At a minimum, it’s crucial to be aware of the WEP to ensure that assumed Social Security benefits are adjusted properly for planning purposes (especially since the WEP adjustment is typically not reflected on the worker’s Social Security statement). And while not all of the WEP penalty can always be unwound even with proactive planning (as might be the case for someone who had a non-covered position early in their career), at the very least, there are a few strategies that advisors have at their disposal to help reduce its overall impact.

#FASuccess Ep 151: Expanding Your Advisory Firm’s Reach With A Retail Prosperity Pie Shoppe, with Luna Jaffe

November 19, 2019 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 151st episode of Financial Advisor Success Podcast!

My guest on today's podcast is Luna Jaffe. Luna is the founder of Lunaria Financial, an advisory firm in Portland, Oregon that oversees nearly $55 million of assets under management for 100 client households.

What's unique about Luna, though, is that in an effort to solve the challenge of building an advisory practice that ends out with minimums too high to work with everyone, she launched the Sacred Money Studios & Prosperity Pie Shoppe, an actual pie shop across the street from her advisory firm office that offers low-cost financial education programs on budgeting and what Luna calls her Wild Money process.

In this episode, we talk in-depth about what Luna has learned in trying to expand the reach of financial education through a retail store. Why she ultimately decided to charge a standalone fee for each money class instead of an ongoing membership fee, the budgeting philosophy in the Wild Money process she teaches that she has found resonates with those seeking help with their finances, and the real-world challenges that come with opening up a retail store that has to manage retail employees.

We also talk about Luna's own advisory firm. Her unique year-long financial planning process that can run up to 18 meetings by incrementally helping clients implement changes step by step along the way, the exercises she uses from mind mapping to vision cards she created to having clients write a love letter to their money, how Luna integrates the eMoney Advisor portal into her somewhat non-traditional process, why the firm uses the You Need a Budget, YNAB tool to help clients actually change their spending behaviors and the flat fee structure that Luna adopted to ensure she is properly compensated for her time-intensive planning process.

And be certain to listen to the end, where Luna shares why despite the retail challenges, she hopes to ultimately take on investors and expand the reach of Sacred Money Studios, the additional challenge she faced when she decided to break away from Edward Jones to start her own independent firm, and why her biggest tip to other advisors is the importance of finding a mentor, not just one who will listen to you, but one who will pull you forward into what you can really become.

SEO Strategies Financial Advisors Can Use To Attract The Right Clients Through Google Search

November 18, 2019 07:07 am 7 Comments CATEGORY: Marketing

Search Engine Optimization, or SEO, is the practice of trying to maximizing how often a website comes up at the top of search engine results for various keywords, increasing the number of website users to visit a particular website (i.e., website traffic), and ideally bringing visitors who are part of an appropriately targeted audience (and thus are likely to find value in the website and decide to do business). Which is a valuable marketing strategy for financial advisors to make themselves “findable” for consumers who are seeking out a financial advisor to work with (or more generally, someone who can help them with whatever financial problems they’re searching online for answers to!).

In this guest post, Lee Delahoussaye – Founder and Chief Consultant of Mindtap Marketing, a digital marketing consulting firm – provides an overview of how SEO works and discusses how financial advisors can implement simple SEO techniques to optimize their websites for better search rankings.

While there are many different approaches to developing an SEO strategy, the key ingredient that makes SEO work is understanding intent. Unlike other forms of advertising that are based on putting messages in front of people who might be interested in an advisor’s services, internet searchers oftentimes have a specific intention to find something in particular, whether that be a service, product, or getting more information and education. Which is important, because people with a direct need for financial advice search by the tens-of-thousands, with nearly 30,000 searches for terms related to “financial advisor near me” per month. And because the financial services industry is way behind the curve on this, there are still opportunities to achieve positive SEO results by leveraging the intent of those potential clients to find you as their new financial advisor, and ultimately channeling those clients to seek your advisory services.

Importantly, though, designing effective SEO strategies requires a basic understanding of how search engines actually work. And while search algorithms are highly-guarded intellectual property, it is possible to reverse engineer what limited information is known about those algorithms in order to determine a set of repeatable best practices, and then apply those best practices to improve a financial advisor’s search rankings. A good SEO design will start with identifying appropriate keywords or key phrases that the ideal visitor would likely search for and then including those keywords on the website, as well as developing website content to align with the context around those keywords.

There are four basic types of SEO on which specific strategies are based. These include on-page SEO (which encompasses the things that are done on a web page to improve rankings), off-page SEO (which is all about building external links from outside websites to yours), national/international SEO (geared to appeal to audiences based across broad geographic areas), and local SEO (which focuses on an immediate area such as a city, metropolitan area, or cluster of ZIP codes). Financial advisors can employ a mix of these SEO strategies to target visitors that are interested in their services, increasing their organic website traffic with potential clients by improving their search relevance.

Ultimately, the key point is that simple SEO techniques can be powerful tools for financial advisors to develop their own leads through “organic” internet searches. And while some advisors actually pay search engines directly to show up ahead of organic results (without actually attending to organic methods that would influence how their website would be inherently ranked and included in search results), implementing specific SEO strategies can optimize a website in order to attract a certain base of searchers more organically (and at a lower cost) that fit the advisory firm’s ideal target client and are seeking out the services of a financial advisor.

Weekend Reading for Financial Planners (Nov 16-17)

November 15, 2019 02:59 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the industry announcement that independent broker-dealer network Advisor Group is acquiring fellow IBD network Ladenburg Thalmann, which will create the 2nd largest independent broker-dealer (behind only LPL), with more than 11,500 advisors overseeing $450B in assets across 9 broker-dealer subsidiaries.

From there, we have several practice management articles this week, including a look at the ever-growing breadth of CFP programs for undergraduates (providing students more choices for their CFP education, but arguably making it harder for advisory firms that are hiring to figure out which are the 'best' programs with the best-prepared students), the emerging trend of large advisory firms hiring CTOs (Chief Technology Officers), the new business role of a "Chief Of Staff" that can be used to leverage the efficiency of a founder/CEO (and/or to groom talent for future leadership positions), and an idea on how to better unleash the creativity of your own employees.

We also have several marketing-related articles, from exploring the 'right' way to diversify your marketing (not by diversifying the types of clients you're trying to reach, but instead by diversifying the marketing channels you use to reach a narrower set of target clientele), to tips on figuring out if your niche just isn't working for you yet or if you've picked the wrong niche altogether, the benefits (or not) of hiring a publicist to help an advisory firm with PR (depending on the natural proclivities of the owner towards social media and blogging), and how to build your confidence in your own blogging writing or video abilities to get over the "Imposter Syndrome" of thinking you don't have enough expertise to be valuable (when in fact you do!).

We wrap up with three interesting articles, all around the theme of managing our time: the first looks at how the decade of the 2010s has become the decade we 'lost' control of our time (with the rise of the smartphone and becoming ever-reachable by anyone, anywhere); the second delves into why we seem to have such trouble protecting our time in the modern era; and the last provides some valuable tips on how to get better control of your time by saying "No" more often, and how to change your mindset to get more comfortable with saying "no" more often in the first place!

Enjoy the 'light' reading!

Highlights From The 2019 T3 Enterprise Conference

November 14, 2019 07:10 am 0 Comments CATEGORY: Conferences

In the last week of October, executive leadership from numerous independent broker-dealers and large RIAs gathered in South Florida for the 2019 T3 Enterprise Conference (as differentiated from the T3 Advisor Conference that is predominantly attended by individual/independent advisors). Hosted by Joel Bruckenstein and his team from T3 Consulting Services, the two-day conference mixed networking, panel sessions, and vendor presentations, focused more on enterprise-level solutions.

In this guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – shares his signature Twitter-driven recap of the conference, which featured new enterprise-level AdvisorTech offerings, interviews with industry leaders around emerging financial planning trends, and discussions on the challenges (and opportunities) that firms face in a rapidly-changing landscape.

Craig kicks off his recap highlighting Shirl Penney’s observation that fear and inertia are preventing advisors from going independent, but notes that they're also limiting countless advisory firms who won’t let go of their legacy technology (thus keeping legacy vendors in business). Also casting a long shadow over the proceedings was the Black Friday Crash of (Trading) Commissions, which Penney predicts will lead custodians to start charging for their technology (although Craig points out that there are far more intriguing possibilities for new revenue streams… particularly for smaller RIAs).

Another major theme permeating discussions at this year’s T3 Enterprise conference was the ongoing difficulties with vendor integrations. David Ballard from Ladenburg Thalmann pointed out that firms looking to integrate technology stacks and databases experience too many headaches, and that vendors should take the lead on building those integrations amongst themselves before pushing them out to the end-user.

Other highlights included presentations from:

InterGen Data, which combines government census data with other demographic data sets to deliver unique insights into future life events that could have a significant impact on clients and their families;
Whealthcare Planning, whose platform gives advisors tools to help with challenges their aging clients are facing, including helping retirees letting go of their independence around decision-making, driving, and domicile;
BidMoni, whose FiduciaryShield aims to create a marketplace to connect advisors with service providers when supporting company retirement plans (e.g., record keepers, custodians and TPAs);
Morningstar, which introduced Goal Bridge, a financial planning add-on for Advisor Workstation aimed not at selling financial products, but at selling data and analytics instead; and;
Mike Ragunas, CIO of Cetera Financial, who presented details around their implementation of AdvicePay for their new subscription-based direct billing platform.

Ultimately, the 2019 T3 Enterprise Conference brought together a wide range of vendors and firm leaders with the goal of exploring ways to bring real value to their clients through improving the onboarding process and overall experience, while finding opportunities to increase integrations in order to improve firm efficiency and client retention. And, with the trend towards consolidation and aggregation of data and accounts, it behooves fintech providers to focus on integrations and making sure that the user experience is fast, painless, and seamless… or they can be sure that someone else will.

IRS Proposes New RMD Life Expectancy Tables To Begin In 2021

November 13, 2019 07:31 am 6 Comments CATEGORY: Retirement Planning

After several years of speculation and more than a year since the President issued an Executive Order on “Strengthening Retirement Security in America”, the IRS has released its proposal to update the life expectancy tables used to calculate the annual Required Minimum Distributions (RMDs) from all sorts of tax-preferenced accounts, including IRAs and 401(k)s, for both lifetime account owners and their (stretch) beneficiaries. Most notably, this is the first time the tables have been updated since 2002, despite the fact that life expectancy has increased more than 2% (or 1.6 years) for all Americans, and more than 8% for Americans who have reached the age of 65!

Central to the proposal (which must still go through the formal approval process and thus might not “go live” until sometime next year, though the proposed changes wouldn’t take effect until 2021 anyway) are updates to the RMD factors used to calculate required minimum distributions themselves in each of the three different life expectancy tables, including the Uniform Lifetime Table (for retirement account owners to calculate their RMDs during their lives), the Joint Life And Last Survivor Expectancy Table (used by account owners who have named a spousal beneficiary who is more than 10 years younger), and the Single Life Expectancy Table (which is used by beneficiaries of inherited retirement accounts to calculate their so-called “stretch” distributions).

However, while lowering RMDs across the board will result in some increased tax deferral benefits, the changes likely won’t have as much of an impact for retirement account owners and beneficiaries as was likely hoped for. Specifically, according to data provided by the IRS, of the Americans who are required to take distributions from retirement accounts, only roughly 20% are taking no more than the minimum required. Which means that the remaining 80% are taking more than the required minimum, thus making any decreases in RMDs a moot point.

The question then becomes, will lowering RMDs for those 20% (who likely already have enough wealth to meet their retirement needs in the first place) have a material impact on their account balances as they age? For account owners and beneficiaries who have been extremely fortunate with their returns over the years and have much-larger-than-typical account balances, perhaps. However, when considering someone with an IRA valued at $1 million, the first year RMD would only decrease by roughly $2,100, and only a portion of that amount would have been due as taxes; the value of deferring that tax liability is only the growth potential on those taxes… which are hardly amounts that could significantly alter someone’s overall financial picture later in life (especially for already-affluent retirees), even when considering that the RMD factors continue to increase through the years.

And that lack of impact stretches even to those who have much longer life expectancies, such as younger individuals who have inherited a retirement account and use the Single Life Expectancy Table. A 40-year-old, for example, would see only a tenth of a percentage point decrease in the required distribution amount in the first year, which won’t be a very material difference, even for those who rely on that extra income from an inherited retirement account.

Notably, though, individuals taking RMDs will need to consider the transition to the new life expectancy tables if/when they take effect in 2021. Which, for lifetime RMDs for existing retirement account owners, is fairly straightforward – to simply use the new table in 2021 – though those who defer their first age 70 ½ RMD from 2020 into 2021 must still use the ‘old’ tables for the 2020 RMD. In the case of beneficiaries of inherited retirement accounts looking to stretch, the transition process is a bit more confusing, as such beneficiaries cannot simply use the new life expectancy tables going forward at their current age. Instead, they must retroactively determine what their ‘original’ stretch period would have been in the past under the new tables, and then adjust forward to where that distribution schedule would be today (by subtracting 1 for each subsequent year since the year after the original account owner’s death).

Ultimately, the key point is that, while updates to the life expectancy tables have been a long time coming (especially since other tables – like those used by the IRS to analyze life insurance contracts – have already been updated to reflect longer lifespans years ago), the proposed changes simply won’t make much of a difference for the vast majority of retirement account holders and beneficiaries. Still, for those who take ‘only’ the minimum required by the IRS, the decreases might not provide that much of a benefit, but at least it does help to defer some taxes, which is hardly ever bad news.

#FASuccess Ep 150: Getting Unstuck And Re-Aligning Fees To Build The Solo Advisory Firm You Want, With Tanya Nichols

November 12, 2019 07:20 am 4 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 150th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Tanya Nichols. Tanya is the founder of Align Financial, a hybrid advisory firm near Duluth, Minnesota that oversees nearly $50 million of assets for 80 client households.

What's unique about Tanya, though, is the way she took a leap last year to start her own independent advisory firm after nearly 20 years of working in a larger firm environment, not because of the opportunity for more money or independence, but simply because she found a community of others with a similar growth mindset that would support her in the journey.

In this episode, we talk in depth about Tanya's journey through the advisor industry. From why she left the wirehouse environment to join a smaller independent firm as their succession plan, only to have the plan fail a few years later, to the moment of realization she had that she needed to go in another direction that led her to both leave the firm and become a solo advisor and also divorce her husband all in the span of two weeks. And how she set her current goal to double her revenue to $1 million by age 40 while working only 30 hours a week and laughing more with her kids along the way.

We also talk about how Tanya has completely restructured what she does in her advisory firm itself. From implementing a firm-wide realignment of fees to ensure she was getting paid what she's worth by every client, even if it meant a nearly 50% increase on some clients who've been working with her for over a decade. The meeting surge approach that she uses to schedule all of her client meetings for the year in just two two-month clusters, in the fall and the spring. How she refined her financial planning process leveraging MoneyGuidePro to do the analysis but summarizing it all in a one-page financial plan of observations. And why she starts off every prospect and client meeting with the simple question, "What has your attention right now?"

And be certain to listen to the end, where Tanya shares why she refocused her business on the alignment of our life and money, thus the Align Financial name, how a redesign of her website has generated more inbound inquiries from prospects who say that her website speaks to them, and how ultimately, the biggest surprise of her advisory career is that she never actually thought she'd be running a firm on her own until she got to the point in her career where she could actually give herself permission to do so.

Cultivating Followership To Become A More Effective Advisory Firm Leader

November 11, 2019 07:06 am 0 Comments CATEGORY: Practice Management

Being a “great follower” usually isn’t thought of as an aspirational role, and in fact, being labeled a follower typically carries a negative connotation. Yet, the reality is that no organization can be effective without people to execute a leader’s vision. And good followers, especially those who are able to ‘manage up’, are actually what makes it possible for their bosses to develop good leadership practices in the first place.

In the “followership” model developed by Dr. Robert Kelley, the “effective follower” is an intelligent, motivated, and self-reliant individual who is driven by a desire to support a vision or cause that they understand objectively and believe in. And while they may not be interested in actually being a leader, it is their role as a complement to the leader that makes good leadership even possible. Because while the leader is responsible for setting the vision and communicating that vision to his followers, the effective follower is actually the one that takes responsibility for understanding the vision, coordinating with teammates, troubleshooting the process, and capably managing the tasks required to bring the vision and end goals to fruition.

Dr. Kelley’s followership model relies on a two-dimensional spectrum to classify different follower types. On one spectrum lies a follower’s inclination to think independently and critically – is the person able to solve problems on their own, or do they simply operate rotely, coming to a standstill when they are faced with a novel problem? On the other end of the spectrum, the engagement level of the follower is assessed – is the person actively engaged in the work, making proactive choices and paying attention to what’s happening in their environment? Or are they passively waiting for cues from others, telling them what to do next? The “effective follower” is high on both spectrums – they are actively engaged, and display highly independent, critical thinking skills. Whereas “Sheep Followers” are low on both spectrums, “Yes People” are actively engaged but with a proclivity for dependent, uncritical thinking. “Alienated Followers”, meanwhile, are very capable of being independent, critical thinkers, but are not actively engaged in their work, and “Survivors” can go either way on both spectrums – they adapt their behavior in a manner so as to simply ‘survive’ in their jobs.

This concept of followership aptly applies to many financial advisor-employees who may not be immediately interested in running or starting a firm of their own, because it is primarily the process of financial planning that many advisors love – not the management of an organization. And the most effective advisor-employees will often be the ones who recognize that the work they do and love actually supports the broader goals and vision set forth by their firm’s leadership, and who are motivated to help their firms reach those specific goals.

Thus, it behooves the financial advisors who represent the leadership of their firms to support their advisor-employees into “effective followership” roles. A task that can be accomplished by simply having honest discussions with employees, consciously supporting their advisors by providing them with positive guidance or the tools needed to do their jobs well, or by actively designing more formal training programs helping employees understand the different styles of followership. Importantly, leaders who tend to focus on transformational growth, who are empathetic and emotionally intelligent, and who know how to reward employees who contribute to supporting the firm’s vision are those who are most effective at cultivating good followership practices in their employees.

Ultimately, the key point is that good leaders and good followers depend on each other; neither is more important than the other in achieving the firm’s vision. Moreover, firm owners can support their advisor-employees with the principles of followership by clarifying the synergistic roles of leaders and followers, facilitating open discussions and frank conversation about the firm’s vision and goals, and offering guidance and mentorship to employees who may be interested in eventually becoming leaders themselves.