Kitces.com - Advancing Knowledge in Financial Planning

#FA Success Ep 245: Leveraging The Entrepreneurial Operating System (EOS) To Scale An Ensemble Practice, With John Kennedy

September 7, 2021 07:05 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 245th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is John Kennedy. John is a founding partner of CandorPath Financial, a hybrid-RIA in Orlando, Florida that manages $110m for 162 client households.

What's unique about John, though, is that he and his partner have implemented Gino Wickman's Entrepreneurial Operating System (or "EOS", for short) as a framework to rapidly scale up their ensemble practice in a deliberate and intentional manner.

In this episode, we talk in depth about how John uses EOS in order to run his financial planning practice as a business, and how it helps him to not only make clearer business decisions, but make them faster as well, why John feels that the quarterly objectives defined in the EOS system, called "rocks", allows him to stay focused on the activities that help him move his practice forward (even if only a portion of the quarterly rocks are actually completed on time), and how John leverages EOS's Vision/Traction Organizer document to define his practice's core values and ensure that all of their business activities and goals align with those core values.

We also talk about how, by setting a three-year picture and big ten-year goals, John and his partner were able to stop being focused solely on growth for growth's sake and instead to start intentionally managing towards their long-term vision of what they wanted their lives to look like further down the road, how defining CandorPath's core values helped John lay the foundation for a well-defined company culture and also gives him a way to clearly communicate with clients just how important their relationship is, and the key business statistics and metrics that John tracks on his EOS scorecard, including data around their net profit margin, sales funnel, and client satisfaction.

And be certain to listen to the end, where John shares his strategy around creating videos to share on social media and how those have helped prospective clients get to know CandorPath even before sitting down in a first meeting, how CandorPath developed their own Alexa Skill as a means of fostering daily touchpoints with clients between their regular quarterly (or semi-annual) meetings, and the advice that John has for other advisors considering launching a new firm as an ensemble practice with a partner of their own.

And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast, with John Kennedy.

The Latest In Financial #AdvisorTech (September 2021)

September 6, 2021 02:44 pm 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the September 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 Riskalyze has been 'recapitalized' with a valuation of more than $300M, as the risk tolerance assessment tool continues to expand its advisor reach - seemingly unimpacted by an explosion of new startup competitors that have failed to make much of a dent in its growing market share - and move into more adjacent components of the advisor tech stack. Yet with increasingly large competitors firing back with their own recent new offerings - from Morningstar's Risk Score to Orion's new 3D Risk Profile - and the majority of advisors still 'apathetic' and not using any risk tolerance software tools (Riskalyze's or any other) at all, the question arises as to whether Riskalyze's new round of capital will be deployed to continue growing its presence in the US, begin to "go global" into new (and less competitive) markets in Europe instead... or adapt its trading platform to move into the hot new space of direct indexing where there are even more dollars currently in flux?

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

RightCapital launches new "dynamic" retirement decumulation tools to model client spending strategies that adapt to the markets
Veriti crosses $1B of AUM as yet another direct indexing provider shoots off to the races
American Express partners with BodesWell to come back into the (free) financial planning business 16 years after spinning off Ameriprise
Altruist hires away the (now-)former Betterment Head of Investing as it expands from RIA custodian to vertically integrated TAMP

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

OnRamp raises $6M of venture capital to scale its offering of cryptocurrency education (and future crypto-asset-management?) for advisors
FabricRQ raises a new seed round to compete in 'institutional grade' risk analytics even as advisors become less investment-centric
The T3 Technology conference and Wealthstack both reschedule to 2022 as AdviceTech.LIVE's virtual event rolls on
XY Planning Network announces that submissions are open for its latest 'AdvisorTech Expo' at XYPN LIVE

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 (Sept 4-5)

September 3, 2021 02:59 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a review of the latest Social Security trustees report, which shows the Social Security trust fund is set to deplete one year earlier than previously projected (2033), but 4 years further out than was feared (with original estimates suggesting the pandemic could have curtailed it to be as early as 2029), though in the end the real question is simply which of the known levers (between a 21% benefits cut or a 3.6% payroll tax rate increase, or other adjustments to the system) will eventually get implemented... albeit perhaps not until a few months before 2033 when the immediacy of a deadline builds the necessary political will to make changes?

Also in the industry news this week are a number of other interesting industry headlines:

A Spectrem Research study shows that Millennials are the least satisfied with the responsiveness of their advisors, but are overwhelmingly (nearly 4X) more likely to refer their advisors when they are satisfied
An Ensemble Practice mid-year study shows rapid growth in advisory firms, with client count up 6%, AUM up nearly 14%, and 63% of firms hiring for a new position

From there, we have several tax planning articles, including:

How to leverage a solo 401(k) plan to make giant "mega backdoor" Roth contributions
The resurgence of Private Placement Life Insurance (PPLI) as a HNW tax-sheltered savings strategy after the Consolidated Appropriations Act of 2020 improved cash value accumulation potential
Other popular HNW tax-planning strategies with a looming Biden tax increase, from IDGTs to tax-gains harvesting

We've also included a number of retirement planning articles:

A JP Morgan study on how retirees really change their spending and portfolio allocations in retirement
Do's and Don'ts for those retiring with a 7-figure portfolio (including why it's so important to retire towards what comes next, not just away from what you're leaving!)
Revelations from recent price data from hospitals on how much - or sometimes, how little - insurers are actually negotiating prices

We wrap up with three final articles, all around the theme of life tips we learn when we're experienced that we can reflect back upon:

Tips to build your career more effectively in the earlier years
Suggestions for any 18-year-old getting ready to go to college about how to set a good foundation
Practical tips for anyone to live a better life, including, invest in the things you spend the most time on or in (your bed and your office chair, which combined consume more than half of your life!), and don't underestimate how much our wellbeing is impacted by the simple things in life (exercise, sleep, light, and nature)!

Enjoy the 'light' reading and the holiday weekend!

Why Making Retirement (Or Other Financial) Decisions Based On Happiness Studies May Not Be A Good Idea

September 1, 2021 07:04 am 5 Comments CATEGORY: Retirement Planning

“Happiness” is highly valued in our society, and the “pursuit of Happiness” as an ideal is even embedded within the U.S. Declaration of Independence. However, “happiness” can mean different things in different contexts. In a very broad sense, the term may align with something along the lines of Aristotle’s “eudaimonia” that was meant to refer to the ultimate aim of humans to live a good life. However, in recent years, a narrower conception of “happiness” has emerged – particularly within psychology and economics research. Based on a desire to evaluate how factors such as income are related to “happiness”, researchers have come up with survey questions such as “How happy are you on a scale of 1 to 3” that are then used to test all sorts of hypotheses regarding the relationships between life circumstances and happiness.

There’s nothing intrinsically wrong with such research; however, studies based on this narrow conception of happiness tend to make for good headlines and often get widely cited in the media (e.g., “People who drink coffee are happier!”). As a result, such studies can gain traction to the point that they could actually influence life decisions, and that can be problematic.

First, there’s the issue that personality is actually one of the strongest predictors of “happiness” (as reported in such studies). For instance, all else being equal, extraverted individuals simply tend to report they are “happier” than introverted individuals when presented with such survey questions. Moreover, extraversion is associated with all sorts of life decisions (e.g., living in cities), which means that we can’t make much of research findings that don’t consider how personality factors influence results. For instance, if survey respondents who live in cities report that they are happier than those who don’t, are they “happier” because city life makes people happier? Or is it simply the case that more extraverted people live in cities and are also more likely to report they are happy no matter what their life circumstances? And beyond that, even if it’s true that city living makes some people happier, it does not necessarily follow that an introvert who likes to live in the mountains would be happier if they were forced to relocate to a city.

More fundamentally, however, is the issue that this narrow conception of happiness (i.e., happiness that can be rated through shallow inquiries such as, “How happy are you on a scale from 1 to 3?”) is not an effective way to choose life goals that will actually bring a person long-lasting feelings of fulfillment. Researchers have criticized the notion that people should chase these narrower forms of happiness, rather than orienting one’s life toward the pursuit of meaning and purpose – which often comes from accomplishments that take work and are not easy.

A common example of how media has hyped happiness studies within a personal finance context comes from Michael Finke’s oft-cited finding that parents who live near their children in retirement are less happy than those who don’t. Notably, the relationships between living near children and happiness in retirement are often tiny, and even Finke and his coauthors found that they were non-existent when controlling for other factors. Such studies also generally can’t control for other factors such as personality or the possibility that factors such as declining health (and therefore children moving to parents rather than vice-versa) are the actual factors driving the observed (tiny/non-existent) relationships.

But more fundamentally, no one lies on their death bed wishing they’d averaged 2.5 rather than 2.4 on their lifetime happiness score when measured on a scale from 1 to 3. However, many people do lie on their death beds wishing they’d spent more time with family, built better relationships, or otherwise engaged in pursuits that brought a sense of purpose and meaning. That’s even true – and perhaps particularly so – when pursuits that brought purpose and meaning were challenging and required sacrifice. Ultimately, unless we’re truly indifferent between two alternatives or realize we’ve made some life decisions without giving much conscious thought, happiness studies are simply not a great way to make life decisions. Instead, we are generally better served thinking about what we know about ourselves, and relying on that to guide our important decisions in life.

#FA Success Ep 244: Taking A ‘Financial Gym’ Approach To Financial Coaching For Next-Generation Clients, With Shannon McLay

August 31, 2021 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 244th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Shannon McLay. Shannon is the founder of The Financial Gym, which offers financial coaching services on a monthly subscription basis to about 3,500 Millennial and Gen-Z clients.

What's unique about Shannon, though, is that, while her coaches (or “trainers” as she calls them) offer traditional financial planning services around budgeting, saving, debt management, and financial literacy, she brands her offering as helping people get “financially fit” in the same way that a personal trainer helps someone get physically fit.

In this episode, we talk in depth about the germination of Shannon’s Financial Gym business model, including the ah-ha moment while she was a financial advisor at Merrill Lynch and realized that helping her pro-bono clients change the trajectory of their financial lives gave her far more personal satisfaction than serving her high net-worth clients, how while Shannon freely points out that she didn’t know the first thing about starting or running a business the idea that she could help a massively underserved segment of population literally kept her awake at night, and how even though Shannon received pushback from initial investors who didn’t think she could scale the business because she wouldn’t be able to replicate herself, she was quick to point out that the wirehouses have been replicating “traditional” financial advisors regardless of background for decades.

We also talk about the Financial Gym’s coaching process when delivering advice to clients, including how Shannon’s trainers really focus in on their clients’ spending habits, pointing out that while investing $1,000 might provide $50 of growth, her trainers can double or triple that value by helping clients find ways to reduce their spending, how after helping clients define what financial independence looks like for them, Shannon and her trainers focus beyond what they need to save to get there to also focus on what they need to earn as well, and why Shannon feels that an added benefit of the monthly subscription model is that it places accountability on her trainers, who have to prove their value to clients who see the Financial Gym’s charges on their bank statements every month.

And be certain to listen to the end, where Shannon shares why she ditched an off-the-shelf software package to develop their own proprietary budgeting and reporting tool for clients (as well as the important lessons she learned along the way in building her own software for clients), how Shannon has been able to build such a diverse and inclusive team of trainers and support staff for a diverse client base who often want to work with people with whom they can relate, and how even though Shannon has experienced some difficult moments in her journey as an entrepreneur (including just barely making payroll on a few occasions), she wouldn’t go back and do anything differently because of the valuable lessons she learned along the way.

So whether you’re interested in learning about the planning services Shannon and her team at The Financial Gym offer their clients, how she’s been able to build such a diverse team, or about her experience with raising money through venture capital firms, then we hope you enjoy this episode of the Financial Advisor Success podcast with Shannon McLay.

How Financial Advisor Titles Shape Consumer Perceptions

August 30, 2021 07:03 am 2 Comments CATEGORY: Regulation & Compliance

In a world where it’s hard to regulate the wide and ever-changing world of advertising, one of the most common frameworks that regulators take is a ‘truth-in-advertising’ approach that simply requires whatever advertisers say or claim to be true and accurate. In recent years, regulators have begun to consider whether this approach should be applied in the world of financial advice, as consumers engage with both advice-providers and brokerage salespeople… all of whom use increasingly similar “financial advisor”, “financial consultant”, “financial planner”, and similar titles. Which has led to both the original SEC Regulation Best Interest proposal to restrict the use of the term “advisor”, and states such as Nevada proposing to regulate a(n even broader) list of titles that includes not only "financial advisor", but also terms like "financial planner", "retirement consultant", etc.

However, when it comes to understanding the extent to which “advisor” titles are truly confusing to consumers (or not), the research available has actually been quite limited. Is title confusion actually a big issue that severely leads consumers astray? And, to the extent that confusion does exist, what types of titles or policies might better promote consumer clarity?

A recent study published in the International Journal of Consumer Studies explored these questions directly, by testing (a) how consumers perceive "financial advisor" and similar titles, and (b) the extent to which clarity could be improved through the use of disclosures. The study found that, in practice, titles do matter, consumers do have substantively different expectations regarding both the competency and loyalty (i.e., trustworthiness) of those who use “financial advisor” or especially “financial planner” as their title in lieu of "stockbroker" or "insurance agent", and that more generally consumers do distinguish between sales-oriented titles and advice-oriented titles.

On the other hand, the research also shows that disclosures do matter as well, and in fact, when consumers see both a title and a disclosure, it’s actually the disclosure that was found to matter more. On the plus side, this means that the prospective harm of misleading titles (e.g., salespeople using advice-centric titles) can potentially be ameliorated by having clear disclosures about their true role as a salesperson or advisor. On the minus side, though, the research also shows that when disclosures are themselves not well crafted, consumers can misinterpret a salesperson to be subject to a higher standard than the title actually conveys as a result of the unclear disclosure.

Ultimately, this suggests that regulation of advisors in the future will likely necessitate a combination of both clearer oversight of titles, and the use of clear(er) disclosure. For instance, a ‘safe harbor’ approach of setting certain titles that can be safely used by salespeople or advisors, respectively, provides a framework for consumers to understand the types of people they can engage, and can be a good system to help bring the ‘whack-a-mole’ style of title switching to a stop. At the same time, though, further scrutiny of disclosures becomes crucial, as disclosures help to bridge the gap in consumer clarity for an ever-changing landscape of titles that may not (yet?) be regulated, but also run the risk of causing further consumer confusion if the disclosures don’t create an accurate understanding for consumers of whether they are engaging a product salesperson or an advice-provider.