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#FASuccess Ep 129: Building The Lifestyle Practice Of Your Dreams By Selling Your Firm And Starting Over, with Donna Skeels Cygan

June 18, 2019 07:06 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 129th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Donna Skeels Cygan. Donna is the founder of Sage Future Financial, an independent RIA in Albuquerque, New Mexico that oversees nearly $90 million of assets for about 40 client households.

What's unique about Donna, though, is the way that she successfully built her first advisory firm to over $100 million of AUM with 5 full-time staff members, and then found herself so mired in the time it took to run the practice and serve her clients that she sold it and came back 3 years later to start over again, building a much more deliberately crafted structure that's intended to only ever have 40 affluent clients.

In this episode, we talk in depth about Donna's journey of building both her first and second advisory firm. The way that years of continued growth allowed her to hire more team members but frustratingly never got to the point where she was able to free up her time to spend more of it with her family, why she ultimately decided that the only way to relieve the burden of the firm was to sell it, the reason that Donna ended out coming back to start a second advisory firm after all, and how her current structure with just 42 clients paying an average of nearly $18,000 a year in fees allows her to run so efficiently as a solo advisor that she finally has the work-life balance she wanted, needs only 2 part-time assistants for support, and is able to drive nearly 80% of the firm's revenue to the bottom line.

We also talk about Donna's actual process in serving clients. The way she arranges two meetings a year with clients that include a biannual rotation of ongoing planning topics, the structured agenda she uses for each client meeting that includes new and pending issues, financial planning topics and an investment review, the way she leverages her virtual assistant to maximize her time in meeting with clients, and the software she uses to run her advisory firm.

And be certain to listen to the end, where Donna talks about why despite the ongoing buzz in the industry about the need to consolidate and grow to gain economies of scale, she has no concerns about her ability to remain competitive as a standalone solo advisor, and actually feels even better than ever about having sold her larger advisory firm and started over with the goal of building a smaller but far more profitable one instead.

So whether you're interested in what being intentional about starting over and building a new lifestyle practice looks like, how she manages to run such high margins while serving 42 clients, and the services she provides for her clients, then we hope you enjoy this episode of the Financial Advisor Success podcast.

What Really Motivates Financial Advisors – Intrinsic Vs Extrinsic Drivers

June 17, 2019 07:06 am 0 Comments CATEGORY: Practice Management

The traditional view of financial advisors is that they are highly motivated by the income potential and upside opportunity of being a financial advisor… and thus why the compensation system for most advisory firms is still predicated on an “Eat What You Kill” performance-based approach. For those who have the business development skill set, and a motivating desire to be rewarded for it, an advisory career can be incredibly lucrative.

However, when evaluated in our recent Kitces Research study of “What Financial Advisors Really Do,” it turns out that the financial rewards of being a financial advisor are actually not the primary motivator after all. Instead, the primary drivers for doing comprehensive financial planning are an intrinsic desire to help and serve others and to apply one’s talents and interest in personal finance. Which happens to also be financially rewarding… though even then, the income potential of being a financial advisor is more about work/life balance and lifestyle flexibility than just the extrinsic motivation of the income potential itself.

Which is significant, because it suggests that the financial services industry at large may not actually be communicating the right messages to make financial planning an appealing career choice in the first place. Simply put, in an industry dominated by money, it turns out that the mentality of a financial planner truly is about helping others with their money, more so than simply being financially rewarded for the advice and getting clients in the first place.

On the other hand, the data suggests that over time, financial advisors who have spent some time in the industry have largely managed to find the pathway that best fits their natural style. Advisors who are more interested in upside income potential do tend to either build their own advisory firms (hiring the staff and support infrastructure around themselves to grow larger) or join large firms where they can pursue a path to partnership. While those most interested in work/life balance are more inclined towards being – and remaining – solo advisors, where they can have ultimate control. And those who really are the most extrinsically motivated by the income potential itself – and not necessarily the desire to serve – are more likely to stay in commission-based channels where such motivators are best rewarded.

The key point, though, is simply that it’s important to understand the true motivators for financial advisors, both for the industry to attract more next-generation talent to close the talent gap, and also for individual advisory firms that want to attract and retain talent. Because when the primary drivers of motivation are intrinsic – a desire to apply one’s own personal interest in personal finance, combined with a desire to help and serve others – offering too much extrinsic motivation, in the form of variable compensation and bonuses, can actually demotivate financial advisors from doing their best work for clients! Especially as a growing number of next-generation advisors are increasingly showing a motivational preference for stable pay over upside income potential anyway!

Weekend Reading for Financial Planners (June 15-16)

June 14, 2019 03:01 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the official release of IRS regulations that kill the charitable "workarounds" that many states have been trying to create since the Tax Cuts and Jobs Act capped the State And Local Tax (SALT) deduction at just $10,000... even as many high-income individuals complete their first tax returns (for 2018) and realize that due to the prior impact of the Alternative Minimum Tax (which eliminated SALT deductions entirely), that, in practice, the SALT cap is often not as problematic as many had feared early on.

From there, we have several articles on the SEC's recent Regulation Best Interest now that the dust is beginning to settle and the details are emerging, with one article looking at how Reg BI will cement the "two-track" regulatory approach (of keeping broker-dealers and RIAs separate, rather than merging them under a single uniform fiduciary standard), when certain brokers will no longer be allowed to use the advisor/adviser titles (unless they at least become dual-registered as RIAs as well), and what RIAs will need to do to comply with the new Form CRS requirements.

We also have a few articles around the theme of learning to better do sales and business development (especially as an employee advisor who is not naturally inclined towards sales and business development!), including tips for how to better support "sales" activities for non-sales advisor professionals (by reframing it as how to help the advisor help others with their unique skills and abilities), what firms should consider when employee advisors do want to start marketing themselves, why/how professional designations do (or don't) help make advisors more successful (especially when it comes to getting new clients), what to do to avoid getting brushed off when you do get a referral from a client to a new prospect, and some low-key ways to follow up with prospects after the first meeting to keep them engaged.

We wrap up with three interesting articles, all around the theme of the mid-career crisis and what to do if we feel we've hit a wall: the first explores the phenomenon of the mid-career crisis itself, and how it's similar to a midlife crisis, but requires somewhat different remedies (and mindset changes) to resolve; the second explores the research about why employees ultimately tend to quit their jobs (which is less about the job and company itself, and usually about their direct manager and whether he/she is doing what it takes to support and develop the employee in their career and stage); and the last explores the phenomenon of the "Late Bloomer", and how, in reality, our brains are still developing throughout our teens and 20s, such that, while society today often celebrates the "early bloomer," it's the late bloomer in their 30s, 40s, or even 50s, that may actually be more common and expected. (Which is why it's never too late to start a new career or path as a financial advisor!)

Enjoy the "light" reading!

Segmenting Retirement Expenses Into Core Vs. Adaptive To Create Retirement Buckets

June 12, 2019 07:07 am 4 Comments CATEGORY: Retirement Planning

In recent years, a growing number of retirement “bucket” strategies have been developed to tie specific portfolio allocations to specific expenditures – most commonly by tying “essential” expenses that a retiree cannot outlive to guaranteed income streams (or at least highly conservative portfolios with low withdrawal rates), while “discretionary” expenses are supported with more volatile portfolios in recognition of the fact that if the portfolio performs poorly the expenses can be cut (since they are “discretionary”).

The caveat, however, is that it’s not always easy to determine what constitutes an “essential” vs. “discretionary” expense in the first place. The classic approach is to tag the food, clothing, and shelter kinds of categories as “essential” (along with perhaps healthcare in the modern era), while travel and entertainment expenses are discretionary.

Except in practice, if a retiree lost out on such “discretionary” expenses, it would likely not only be a traumatic impact to their real-world lifestyle, but such discretionary expenses often support genuinely psychological needs (e.g., funding activities that empower social well-being). And at the same time, many classically “essential” expenses in the areas of food, clothing, and shelter, really aren’t essential at all. From the house that’s bigger than what a retiree couple truly needs to survive, to eating out at expensive restaurants instead of dining frugally at home, or buying “designer” clothes versus generic or lower-cost brands (or buying at a second-hand thrift store).

In essence, separating “essential” vs. “discretionary” expenses by looking at categories of spending doesn’t necessarily work. Instead, the better approach is perhaps to segment spending within each category into the “Core” expenses that form the nucleus of the household’s lifestyle, from the truly discretionary (and more easily adaptable) expenses within each category (from the upscale restaurants to the designer clothes). In other words, there’s a potential layer of Core vs. Adaptive expenses in every spending category.

And importantly, the distinction isn’t mere semantics. By attaching specific portfolio “buckets” to each of the Core vs. Adaptive spending types, it’s easier for retirees to actually see that their “Core” spending really is secure, while a more-volatile portfolio (with more downside risk but also more upside potential as well) is tied more directly to the expenses that are truly adaptable and flexible, while giving retirees a clear resource bucket to consume (and know when it’s exhausted). Which in turn opens up the door for retirees to decide how much they want tied to each of the associated retirement buckets.

The bottom line, though, is simply to recognize that what defines more flexible “discretionary” spending to fund wants (rather than needs) isn’t just a function of certain categories of expenses, or funding solely the expenses necessary to ensure base-level safety and survival needs. Instead, retirees can upgrade their lifestyle across any number of traditionally “essential” spending categories as well… as long as there’s a clear resource bucket to show how long that spending can be sustained, and when the retiree really may have to adapt!

#FASuccess Ep 128: Advising Small Business Owners By Helping Them Increase Their Own Enterprise Value, with Justin Goodbread

June 11, 2019 07:07 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 128th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Justin Goodbread. Justin is the founder of Heritage Investors, an independent RIA based in Knoxville, Tennessee that supports nearly $150 million of assets under advisement for 120 client households.

What's unique about Justin's firm, though, is the way they've crafted a niche in working with small business owners to the point that the primary asset they advise on is the client's business, not their portfolio, and performance is tracked not via the returns of the portfolio relative to a benchmark, but by how the owner's net worth increases over time through creating enterprise value in their business.

In this episode, we talk in depth about what exactly Justin does to advise small business owners. The way his process starts with traditional financial planning but then shifts in great depth into business planning instead, the tools that Justin uses to do an informal valuation for every small business owner client to start the conversation on increasing enterprise value, the 8 business areas of leadership, planning, sales, marketing, people, operations, finance, and legal that Justin advises on, and why Justin has found it most effective to work with small business owners by breaking his advisory fee that may be as much as $10,000 to $20,000 a year into a more business cash flow-friendly monthly subscription fee instead.

We also talk about how Justin built his marketing to reach small business owner clients. The way he created the marketing avatars of "Frazzled Frank" and "Frantic Frannie" to hone and focus his marketing messages, how becoming more laser-focused in the small business owner niche helped his marketing, the content website and podcast he launched to reach more of his target clientele, and how going deeper into the small business owner niche ironically ended out bringing him more prospects outside of his niche as well.

And be certain to listen to the end, where Justin shares the unique certifications and designations including the CEPA and the CVGA that he obtained to build his expertise in advising small business owners. The five business books he reads over and over again every year to bolster both his business advice and how to run its own advisory business more efficiently, and his perspective on how we as financial advisors can do a better job creating more enterprise value in our own firms as well.

Summer Reading List of “Best Books” For Financial Advisors – 2019 Edition

June 10, 2019 07:03 am 10 Comments CATEGORY: Personal/Career Development

For so many, the season of summer is a time of vacation and family trips, whether for some rest and relaxation or just to get away from the local heat. And the fact that clients tend to travel more during the summer means some slowdown in meetings and business activity as a financial advisor is almost inevitable. Which in turn frees up more of the advisor’s time to take a vacation of their own, or at least slow down and relax with family… and catch up on some good books.

The question, of course, is then to figure out “what’s a good book to read these days?” As a voracious reader myself, I'm always eager to hear suggestions from others of great books to read, whether it's something new that's just come out, or an "old classic" that I should go back and read (again or for the first time!). And so, in the spirit of sharing, a few years ago I launched my list of "Recommended (Book) Reading for Financial Advisors", and it was so well received that in 2013 I also started sharing my annual "Summer Reading List" for financial advisors of the best books I'd read in the preceding year. It quickly became a perennial favorite on Nerd's Eye View, and so I've updated it every year, with new lists of books in 2014, 2015, 2016, 2017, and a fresh round last year in 2018.

And now, I'm now excited to share my latest 2019 Summer Reading list for financial advisors, with suggestions on books about everything from how to better execute a merger or acquisition (if that’s how you’re looking to grow!), build a better “story-based” sales process and your own story-brand (if that’s how you prefer to grow!), some books on practice management and how to run a better business, new perspectives on client psychology and decision-making, how to facilitate better financial health for your clients, and how to better instill your own habits for long-term self-improvement.

So as the summer season gets underway, I hope that you find this suggested summer reading list of books for financial planners to be helpful… and please do share your own suggestions in the comments at the end of the article about the best books you've read over the past year as well!

Weekend Reading for Financial Planners (June 8-9)

June 7, 2019 02:49 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the huge news that the SEC has officially passed Regulation Best Interest (by a 3-1 vote), which will require brokers to act in the "best interests" of their clients when making a recommendation but stops short of actually requiring a fiduciary duty or for broker-dealers to mitigate their conflicts of interest... and raising the question of whether the SEC is so expanding the advice exemption for broker-dealers beyond its "solely incidental" roots that, like the Department of Labor's fiduciary rule, Reg BI may soon end out subject to a legal challenge.

Also in the news this week was the revelation that, with the CFP Board's own coming fiduciary obligation for CFP certificants, Edward Jones is considering whether to force its nearly 2,000 CFP certificants to drop their marks to avoid the fiduciary obligation (at the risk of having them recruited away by broker-dealer or RIA competitors who are willing to embrace an obligation to do the right thing for clients), the announcement that Fidelity is working on a new Managed Account Xchange (FMAX) akin to other model marketplaces but wrapping together Wealthscape and eMoney Advisor into a potential head-to-head Envestnet competitor, the official release of the Envestnet Fiduciary Insurance Exchange (FIDx) to facilitate RIA access to no-commission annuity products, and a look at the current landscape of independent broker-dealers from Financial Planning magazine's annual survey (finding that while IBDs are struggling, the largest are growing, in part by increasingly reinventing themselves as fee-based RIA support platforms less reliant on traditional commission-based revenue!).

We also have a few articles this week around the intersection of money and children, including a look at the rise of "allowance apps" that parents are using to dole out allowance and oversee chores in the digital age, Morgan Housel's advice to his newborn daughter on her financial children, a research study on what children of affluent families are really concerned about (hint: carrying on the family legacy matters to them more than most people realize!), and how to find the "Goldilocks zone" of personal finance, recognizing that while it's very stressful for those who don't have enough, it can be similarly very stressful to have "too much" as well!

We wrap up with three interesting articles, all around the theme of having and managing stress: the first looks at how, while we tend to think of stress as being "bad," a moderate amount of stress can actually be a positive that encourages us to step up and achieve more (as long as we get breaks to refresh and recover, too); the second explores a recent FPA study finding that financial advisors, in particular, are very stressed, despite the ongoing bull market, due to the rising challenges of operating an advisory business; and the last explores the "theory of cumulative stress" and how best to recover when you've been carrying too much stress for too long and need some personal relief.

Enjoy the "light" reading!

Kitces & Carl Ep 9: How Do You Optimize Your Practice To Maximize Your Happiness As A Financial Advisor?

June 6, 2019 08:03 am 6 Comments CATEGORY: Kitces & Carl Podcast Personal/Career Development

Generally speaking, there are two types of unhappy financial advisors. One is the advisor who is having trouble just making it in the business in the first place, who is struggling to find enough clients to make ends meet. The other type is the advisor who might have all the outward markers of success (clients, revenue, profits) but has reached a point in their career where they are supremely unhappy… and often end out feeling trapped, too.

Because, as is often the case for advisors practicing under the recurring revenue AUM model, clients tend to stick around. And while that is undoubtedly a great thing, it can also end out being a double-edged sword, and lead to “practice creep”... where, after a certain number of years of building a book of business, an independent advisor with an otherwise solid lifestyle practice may grow past their personal capacity and find that they have accumulated more clients than they can service by themselves. Which then forces the advisor to hire some staff to help. And (again) while that’s not a bad thing, the advisor can ultimately reach a point where they’re the CEO of a small advisory firm and are spending most of their time managing employees rather than doing what they set out to do in the first place, which was to serve their clients! Which ultimately leads to the question: How can advisors avoid this “accidental business owner” trap, and instead build a business that is optimized to maximize your own happiness?

In our ninth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss why some advisors wind up being unhappy in an otherwise “successful” practice, how some advisors have maximized their happiness by being intentional about building their business the way they want - or even “right-sizing” the advisory practice if necessary – and a few actionable ideas for advisors to do the same.

One strategy that has worked well for advisors is to figure out what outcome you’re trying to reach in the first place (whether that be a certain level of income, or amount of time you have to spend with the people you care most about) and make that the primary thing that you measure in the business. After all, our natural tendency is to direct our efforts to improve whatever we see measured and look at on a daily basis… so it a good idea to make sure that we’re measuring the things that really mean the most to us. Whether that’s the number of clients or amount of revenue in the business… or the number of hours we work, the number of hours we don’t work, or the vacation days we take.

And for those advisors who have already reached the point where they’re feeling unhappy with their current business structure and need to figure out how to get off the proverbial rollercoaster, it’s essential to understand that, although we have a duty to our clients, we also have a duty to ourselves as well. Because if we are absolutely miserable with whatever situation that we are in, we will eventually (and inevitably) experience a negative impact not only for ourselves, but for our clients as well. Which means it’s our responsibility and even our obligation to try to fix it.

So, if you’ve gotten to the point where you’re feeling squeezed by practice creep – unhappy with the business despite it being outwardly financially successful – or if you simply want to avoid that in the first place, then remember that it’s perfectly okay to give yourself permission to build your business in a way that actually makes you happy. And measure and optimize for whatever really matters most to you!

Finding Your Own Money Story To Better Communicate With Clients

June 5, 2019 07:06 am 1 Comment CATEGORY: Client Trust & Communication

It’s difficult to give financial advice to others if you don’t have your own financial house in order, first; not that anyone – including financial planners – is “perfect” when it comes to their own money, but in the end, if financial advisors can’t even follow the advice and go through the process themselves, it suggests that, at the least, there’s room for improvement in the advice itself or how it’s delivered.

In fact, arguably, one of the best ways for financial advisors to really understand what it takes to give good financial advice is to better understand their own financial challenges and what they need to change to improve their own situation… akin to how therapists become better at providing therapy by going through the process themselves.

Money exercises that financial advisors can go through (by themselves, perhaps for future use with clients as well) include the Money Egg (sketching out some of your earliest money memories, reflecting on whether they were positive and negative, and considering how those embedded money memories may be impacting your decisions today), assessing your Money Scripts (do you tend towards Money Vigilance, Money Status, Money Worship, or Money Avoidance?), and considering how your prior money experiences may have created Money Narratives that now impact (or even burden) your everyday decisions (e.g., my advisory firm is a reflection of my self-worth, so I have to keep growing my firm to grow my status… even if I really don’t financially need a larger firm at all!).

Ultimately, many (or even most) financial advisors may feel uncomfortable doing such deep self-reflection on their own financial situation and may find it awkward and intimidating to get help and outside advice around their own money challenges. Yet at the end, when clients are asked to do the same things themselves with a financial advisor, arguably going through the process as an advisor provides a good perspective (and perhaps even empathy-building) for the stress and emotional turmoil that clients may be feeling in the financial planning process as well!

#FASuccess Ep 127: Creating A Stewardship Report To Show Your Ongoing Value To [401(k) Or Other] Clients, With Jania Stout

June 4, 2019 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 127th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Jania Stout. Jania is the co-founder of Fiduciary Plan Advisors at HighTower, an advisory firm focused on 401(k) plan consulting that's responsible for nearly $4 billion of plan assets across almost 120 businesses.

What's unique about Jania, though, is the way that she's been able to rapidly grow her 401(k) practice to $4 billion entirely from scratch over the past 5 years by leveraging nearly 20 years of immersing herself into the 401(k) community to build her own personal brand and reputation as a trustworthy fiduciary.

In this episode, we talk in depth about the 401(k) plan consulting model. The way Jania's business operates as either a 3(21) or 3(38) fiduciary on a flat fee structure for 401(k) plans but tier to asset levels because plans still benchmark their fees to AUM competitors, what it takes to service and support mid-to-large-sized 401(k) plans with tens or even hundreds of millions of dollars for a fee that itself may be tens of thousands of dollars a year, the tools that Fiduciary Plan Advisors uses to support its fiduciary governance consulting with 401(k) plans, and the unique stewardship report that Jania built and automated in her CRM to show all of her clients all the behind-the-scenes work that the firm does on their behalf every year as a means to justify why her clients should stick with her and even accept an increase in their fees going forward.

We also talk about Jania's own path in growing the 401(k) business. From getting involved with SHRM, the Society for Human Resource Management and doing CE education classes for members of their association to being active on LinkedIn and leveraging LinkedIn Groups as a way to network with other professionals, leveraging the industry's various best firms list to generate more inbound requests for proposal inquiries for 401(k) plan opportunities, and why Jania was ultimately willing to break away from her prior firm despite a non-compete and needing to start over entirely from scratch in her mid-40s in order to build her business independently the way she wanted.

And be certain to listen to the end, where Jania talks about the challenges in going independent, where you no longer have a national brand's name and logo on your business card, and what she did to establish her own credibility, even when the firm was little more than her and just a team member or two.

So whether you're interested in learning how Jania built her 401(k) advisory business, how she and her team demonstrate their ongoing value to clients by using "Stewardship Reports", or her advice on how to enter the 401(k) space, then we hope you enjoy this episode of the Financial Advisor Success podcast.