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The Great Convergence And The Death Of Fiduciary Differentiation (For RIAs)

July 15, 2019 07:03 am 4 Comments CATEGORY: Planning Profession

For the past several decades, RIAs have increasingly differentiated themselves and their advice from competing broker-dealers by the “best interests” fiduciary standard that RIAs owe to their clients, from outright marketing themselves as fiduciaries, to signing “Fiduciary Oaths” for clients (that other broker-dealers wouldn’t and couldn’t sign).

The fiduciary distinction for RIAs wasn’t originally intended to be a marketing differentiator for advice, though. Its roots lie in the fact that RIAs were created from the start to be providers of investment advice, while broker-dealers originally were created to play a vital role in the capital formation and capital markets process (which included selling investments, in the form of stocks and bonds to prospective investors, often underwritten by the broker-dealer’s investment banking division). For which RIAs were subject to a fiduciary standard – as the providers of advice – while broker-dealers were subject to a lower suitability standard consistent with the sales-centric role they were created to fulfill.

But over the past several decades, as technology has increasingly commoditized the core functionality of broker-dealers, from “discount” brokerage reducing the price to execute trades (without a stockbroker to facilitate them), to online platforms making no-load funds available to consumers directly (without a broker-dealer to sell them), the RIA and broker-dealer channels have gone through a Great Convergence. To the point that today, a consumer may pay 1%/year for ongoing financial advice in the form of a fee-based wrap account, a C-share mutual fund trail, or an advisory fee, and not even make a distinction between the choices. Except from a regulatory perspective, these remain substantively different choices, given the (originally) different roles that broker-dealers and RIAs play.

In recent years, the Great Convergence has led to a flurry of proposals on new standards, as regulators have recognized that as the gap between broker-dealers and RIAs has been reduced over the years, so too did the gap in the standards of conduct between them need to be narrowed as well. Resulting in the release earlier this summer of the SEC’s new Regulation Best Interest, lifting the standard of conduct for broker-dealers to a “Best Interest” standard when making a recommendation to their customers.

Notably, in practice, the new Best Interest standard under Reg BI is not a full-scale fiduciary duty and only applies at the time of the broker’s recommendation itself (and not to the overall relationship). Nonetheless, Reg BI will grant – and in fact, require – that broker-dealers now explain their standard of conduct as being an obligation to act “in the best interests of the customer when making a recommendation.”

Which leaves little room for RIAs to market their fiduciary obligation to act “in the best interests of the client” as a differentiator when broker-dealers will be able to use substantively identical words. Raising the question: how will RIAs differentiate themselves in the future?

On the one hand, some RIAs may point out that there’s still a difference between being a “fiduciary at all times,” versus "just" being held to a Best Interest standard at the time of recommendation alone. Others may pursue and highlight voluntary designations like CFP certification, which itself has its own “fiduciary at all times” obligation (applicable to not only RIAs but those at broker-dealers as well). Some may even choose to pursue new terms of distinction, like “stewardship” as a higher standard above merely being a legally-obligated fiduciary.

In the long run, though, arguably the best path forward for most advisors will simply be to actually differentiate on their services and what they actually do for clients, rather than their standard of conduct in the first place. As the irony is that, the more fiduciary advocates push for higher standards across the industry… the less likely it is that being a fiduciary with higher standards will ever be an effective differentiator again in the future.

Weekend Reading for Financial Planners (July 13-14)

July 12, 2019 02:59 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big Advisor #FinTech news that Orion is acquiring financial planning software Advizr for a whopping $50M in an effort to expand its platform towards more holistic wealth management and provide advisory firms a more planning-centric portal for clients to engage with.

Also in the news this week is the announcement that just 3 months after its launch, Schwab's monthly subscription service has raked in a whopping $1B of AUM, and AdvicePay crossed 20,000 advisors under enterprise contract facilitating financial planning fee payments, as consumer interest in the monthly subscription model of financial planning continues to heat up.

From there, we have several industry-related articles, including a surprising call from the FPA that the CFP Board should delay enforcement of its new fiduciary Standard of Conduct (but just until next June, to take effect alongside the new Regulation Best Interest), the announcement from the FPA that its OneFPA Network Plan has been finalized by the Board and will be proceeding forward with a 10-chapter beta test (despite generating positive Public Comment letters from less than 0.02% of its membership), an Op-Ed from former CFP Board chair Ray Ferrara disputing at least some of fiduciary advocate Don Trone's allegations that the CFP Board needs to improve its own fiduciary governance processes, and the news that Fi360 has become (only) the 10th financial advisor designation to earn (ANSI) accreditation for its AIF (Accredited Investment Fiduciary) designation.

We also have a few marketing-related articles this week, from tips on how advisory firms can differentiate themselves on their websites once Reg BI eliminates "fiduciary" as a differentiator, how to improve your Advisor Bio page so it doesn't "suck," and basic tips on how to improve the SEO (Search Engine Optimization) of the articles you do publish to your website.

We wrap up with three interesting articles, all around the theme of figuring out what is really fulfilling and "enough" to make us happy: the first looks at how more and more research shows what really makes us happy in our jobs, yet in practice people are less and less happy at work; the second explores the ways that we tend to pursue money, but when faced with difficult time-vs-money trade-offs (e.g., would you take all of Warren Buffet's money if you also had to take on his current age of 87?) we virtually always choose the time over the money; and the last examines how often the biggest returns we can get on the path to financial success aren't actually about earning money at all, but about getting comfortable that what we have is "enough" (and then saving all the rest).

Enjoy the "light" reading!

Choosing The Right 529A Plan For A Special Needs Beneficiary

July 10, 2019 07:02 am 2 Comments CATEGORY: Investments

Leveraging the success (and the systems and infrastructure) of tax-preferenced 529 college savings plans, in 2014 Congress passed the “Achieving a Better Life Experience” (ABLE) Act, which created a new “529A” version of the accounts, designed specifically to allow families to accumulate assets on a tax-preferenced basis for special needs beneficiaries. Which for some families may be a more cost-effective (and tax-favored) alternative to a special needs trust, and for others may at least supplement a special needs trust for a portion of the assets the family sets aside.

The caveat, however, is that similar to 529 college savings plans, the new ABLE accounts are established on a state-by-state basis, with everything from the costs to the state tax deductions varying from one state to the next. And because 529A plans are more likely to be used transactionally on an ongoing basis for their special needs beneficiaries… they’ll less likely to grow to a significant size. Which has resulted in some states deciding not to even offer the accounts. Making the process of selecting a 529A plan far more of a state-by-state evaluation effort than even traditional 529 college savings plans.

In this guest post, Andrew Komarow and Craig Breitsprecher of Tenpath Financial Group, an advisory firm with a specialization in working with families that have special needs beneficiaries, explores the current landscape of 529A plans, the key criteria to compare one ABLE account to the next, and what advisors should be mindful of in helping clients to select a plan. Including the fact that very few 529A plans are even designed to work with financial advisors directly in the first place, with only one broker-sold plan and no fee-based options. But with at least some potential workarounds for RIAs through their own custodial platforms.

And with potential legislation under consideration in Washington that might further increase contribution limits, expand age limits, and overall make 529A plans more appealing, ABLE accounts may increasingly need to become part of the financial advisor’s "quiver" of tools to use with clients. At a minimum, though, it’s important to be aware of the options that exist today, and what it takes to ensure that clients who do have a special needs beneficiary pick the plan that’s best for them.

#FASuccess Ep 132: Finding The Confidence To Avoid Discounting And Charge The Fee You’re Really Worth, with Linda Leitz

July 9, 2019 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 132nd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Linda Leitz. Linda is the president of Peace of Mind Financial Planning, an independent RIA based in Colorado Springs providing comprehensive financial planning services on a retainer fee basis to nearly 100 clients with a team of 4.

What's unique about Linda, though, is the depth of her experience in pricing her financial planning services and working with clients for an ongoing retainer fee, and what she's figured out over the span of 20 years about how to successfully position retainer fees for clients who may not be used to seeing the exact dollar amount they'll be paying for financial planning advice.

In this episode, we talk in depth about how Linda has structured her financial planning fees tied to a client's income, net worth, and complexity, the way she presents this information to clients using a fee calculator to validate the price, the way she positions her retainer fee increases during biannual renewals, showing clients how their fees compare to what another advisor's AUM fee might be, how the biggest problem when quoting financial planning fees is not that clients try to haggle the price down, but that as advisors, we often haggle our own fees down due to our own self-doubt, and what it took for Linda to finally stop the temptation to give clients a discount the moment they flinched or gasped at the cost of her services.

We also talk about Linda's decision after nearly 20 years to shift from being a siloed solo advisor under a cost-sharing partnership to building her own multi-advisor team. Why she decided to make the shift not to position herself for retirement, but simply to ensure continuity of service for her clients in the event that something happened to her, what surprised her most by shifting to a team structure after being a solo for so long, and how having a team around her changed her own mentality about how to price her services with clients.

And be certain to listen to the end, where Linda shares why she decided to go back to school for a PhD in financial planning as an experienced practitioner to help build better connections between practitioners and academics. The differences she found about being a practitioner versus doing academic research, and the somewhat humbling experience she had doing a dissertation that showed how some of her own traditional financial planning advice might not actually be fully validated in research.

So, whether you're interested in learning how to gain confidence around the fees you charge, ways to communicate fee increases to clients, and ways in which flat-fee advisors can differentiate themselves from advisors with other fee models, then we hope you enjoy this episode of the Financial Advisor Success podcast.

6 Types Of Niches For Financial Advisors To Differentiate Themselves

July 8, 2019 07:05 am 2 Comments CATEGORY: Marketing

As more and more financial advisors deliver comprehensive financial planning and wealth management services to clients, it’s becoming harder and harder for any particular advisor to differentiate themselves from all the other advisors offering substantively similar services. The good news is that as long as clients are well served, they tend to remain as clients (maintaining good retention for the advisory firm). The bad news, though, is that firms who are unable to differentiate will struggle to grow further, even if they’re serving their clients well and providing good value… because the prospective client’s perception is that every other advisor does, too.

Which means the key to growth as a financial advisor is not merely to be better, but to be different as well… crafting a unique value proposition that is relevant for the particular target market (or a subset thereof) that the advisor wants to serve. Which, in turn, requires the advisor to identify the specific niche solution they can provide to attract some or all of that target market. Except for most advisors, the struggle then becomes: how do you pick the “right” niche in the first place?

In this Guest Post, financial advisor marketing consultant Stephen Wershing shares his perspective on how advisors can better understand the range of niche choices in order to pick the one that best suits them. Because the reality is that not all types of niches are the same in the first place.

For instance, an “Affinity” niche is about developing relationships based on a common social circle (e.g., business development at the yacht club or the local chamber of commerce), while a Values niche builds relationships based on shared Values (e.g., shared religious beliefs, or a Values system like the Boy Scouts). An Educational niche focuses on prospective clients who are looking to get more educated about a particular problem or issue, while a Psychosocial niche focuses on prospects who need to address more emotional needs (e.g., recent divorcees or widows), and an Experiential niche tries to differentiate by crafting a unique experience that will resonate with a particular type of clientele. And some advisors will differentiate with a Technical niche, where they bring to the table a unique and specialized expertise that is relevant for a particular niche clientele.

Ultimately, advisors can differentiate themselves with any of the 6 different types of niches, and which will be most appealing depends on the advisor’s own interests, style, existing relationships, and natural market. The key point, though, is simply to recognize that differentiation isn’t just about being better, but about being different… and the best way to be different is to focus on a particular type of clientele who have unique needs, and develop a niche solution that is especially relevant (and differentiated) for that particular clientele!

Weekend Reading for Financial Planners (July 6-7)

July 5, 2019 02:45 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 broker-dealers are stepping up their efforts to fight the CFP Board's fiduciary rule taking effect in October, with a formal letter through the American Securities Association asking the CFP Board to accept Reg BI compliance as sufficient, and the CFP Board responding that it won't back down from a full fiduciary requirement for CFP certificants and is willing to lose thousands of CFP certificants if necessary to maintain its differentiation (but may partially relent by delaying enforcement and allowing broker-dealers more time to adapt their compliance oversight).

Also in the news this week was an announcement that Morningstar is engaging in its first major overhaul of its Analyst Ratings since 2011 to focus even more on cost (as one of the few factors that is persistently predictive) and benchmark active managers on both a net-of-fees and risk-adjusted basis when comparing to benchmarks and peers, along with a new study by Spectrem Group about why clients leave advisors besides investment performance alone (hint: failure to respond promptly when clients call is still the #1 reason clients fire advisors outside of investment performance!).

From there, we have several marketing-related articles, including tips on how to take baby steps towards enacting a marketing plan for the first time, strategies to expand the visibility and footprint of your advisory firm's brand, and why it's better to memorize stories to communicate your value proposition and 'pitch' to prospective clients (rather than just trying to memorize the right words alone).

We also have a few practice management articles this week, from the reasons why advisory firms should focus on improving productivity and their systems before just hiring more employees, to what makes billion-dollar RIA standouts more successful than the rest (hint: their speed at which they do reinvest into both their systems and their people), and the concept of "Meta Roles" that employees can (and should be encourage to) take on to help everyone work better together as a team.

We wrap up with three interesting articles, all around the theme of how to take (effective and better) vacation as a financial advisor: the first provides a helpful series of Do's and Don'ts reminders about how to prepare for a vacation (and what should and should not be communicated to clients in advance); the second gives tips on how to craft the right Out Of Office (OOO) message while you're out, to ensure the right tone is set with clients and prospects while you're gone; and the last looks at how the research in behavioral finance can be applied to taking vacations (e.g., focus on experiences over goods, build the anticipation, and always do a big activity at the end given that we most often remember what came last/most recently anyway).

Enjoy the "light" reading!

Kitces & Carl Ep 11: What Do You Call Yourself? Planner, Advisor, Industry, Profession

July 4, 2019 07:05 am 4 Comments CATEGORY: Kitces & Carl Podcast Planning Profession

Outside of telling someone that you sell used cars, there aren’t many ways nowadays to shut down a conversation faster saying that you’re a financial advisor. Because, after years of being constantly bombarded by headline after headline about the plethora of misdeeds committed by so-called financial advisors, combined with so many personal experiences with high-pressure sales tactics of unscrupulous salespeople, the public’s trust levels are understandably low.

And while other professions have specific education and ethical requirements (e.g., doctors, lawyers, and accountants), sadly, there are no rules around whether or not someone can call themselves a financial advisor (or any derivation thereof). Which only makes it that much more challenging for “real” financial advisors, who not only have to differentiate themselves from all the other advisors that claim to offer comprehensive financial planning, but also have to separate themselves from literally every other person who wants to call themselves a financial/investment/wealth advisor/consultant/planner… whether or not those jobs have anything to do with the actual delivery of financial advice. Which, in turn, leads to the question: what should financial advisors call themselves… without having to start making excuses immediately afterward?

In our eleventh episode of “Kitces & Carl”, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the roots of various industry titles, why you might want to break the mold and call yourself something completely different (or not), and why the choice ultimately boils down to whether or not what you call yourself resonates with your target clientele.

From a historical perspective, the title of financial advisor originated when the industry was still very product-focused, as a way to differentiate from ‘just’ salespeople with a more consultative approach, as comprehensive financial plans themselves were originally a vehicle through which advisors could recommend (and then sell) their products. As the industry evolved, however, titles such as “wealth manager”, “investment consultant”, and “financial planner” came into the mix, as more advisors and their firms sought out new titles to differentiate and stand out from the crowd, and to sound more “high end” as advisory firms themselves have moved further up-market.

Understandably, then, many professionals in the industry would prefer stricter regulation around who can and can not call themselves any number of titles that imply that they’re providing financial advice (until/unless they’re actually in the business of advice and not product sales). Except that efforts to do just that have simply fallen flat given the vast resources and lobbying might of an industry still dominated by companies that manufacture and distribute financial products.

In the absence of any successful title reform, some advisors have decided to go with whatever standard title that most closely describes what they actually do and own it the best they can. Meanwhile, in an effort to break the proverbial mold, some advisors, particularly those with well-defined niches, have taken it a step further and adopted more creative titles that help them connect with the target audience that they want to reach (think “financial architect” or “financial physician”).

Ultimately, the key point is to make sure that your title accurately reflects the services that you provide, doesn’t get you into any regulatory trouble, and resonates with your target market. Because, in the end, what matters most isn’t what you call yourself, it’s that you’re comfortable and confident when you say it… and if you can invite people into the conversation along the way, then all the better!

Options For Allowing Family Members To Help Manage Accounts In The Event Of Diminished (or In)Capacity

July 3, 2019 07:04 am 2 Comments CATEGORY: Estate Planning

Planning for incapacity is one of the most important aspects of a sound financial plan, and one that is taking on increased importance as the Baby Boomer generation continues to age in record numbers. But while medicine has not yet reached the point where it can prevent (or reverse) all cognitive and physical impairments, there are a number of tools that can be used to ensure one’s finances continue to be managed effectively in the event that diminished capacity becomes a reality.

One common approach used by individuals looking to allow a trusted family member to manage an account on their behalf is to simply add that person to the account as a joint owner. These so-called “convenience accounts” are generally easy to establish, but can lead to a number of unforeseen problems.

For instance, once an individual is added as an owner to an account, they have access to the funds within the account and may be able to use those funds for their own benefit, as opposed to their intended purpose. Similarly, adding an additional owner to an account can subject the account’s assets to the new owner’s creditors. Even in the best of scenarios, this “strategy” can prove problematic, as certain assets, such as IRAs and other retirement accounts, cannot be turned into joint convenience accounts in the first place.

A second way of allowing someone to assist in the management of an account is through the use of a Power Of Attorney. Powers of Attorney are tried and true legal documents that can be drafted in a number of ways to meet an individual’s desired outcome. A General Power Of Attorney, for instance, can be used by a Principal to grant an Attorney-In-Fact a broad array of powers over virtually all assets. A Limited Power Of Attorney, on the other hand, can be used to give an Attorney-In-Fact only specifically enumerated powers, and/or powers over only specifically enumerated assets.

When using a Power Of Attorney to provide for account administration in the event of incapacity, it is critically important to make sure that the Power Of Attorney actually remains in force at that time! Thus, instead of a Nondurable Power Of Attorney, which is no longer effective once the Principal is incapacitated, planning should incorporate either a Springing Power Of Attorney, which typically only becomes effective at the time of incapacity, or a Durable Power Of Attorney, which is effective upon execution of the Power Of Attorney document and remains in effect even after incapacity.

Finally, some individuals may wish to use a Revocable Living Trust to allow for continued management of accounts and financial matters in the event of their incapacity. Revocable Living Trusts are often more expensive to create, but because the Revocable Living Trust actually takes title to accounts and assets, they also offer benefits not available when a Power Of Attorney is used.

Revocable Living Trusts, for example, are less likely to be rejected or held up in lengthy legal department reviews by financial institutions. Also, unlike the rights conveyed to an Attorney-In-Fact via a Power Of Attorney, which end no later than the Principal’s death, the rights granted to a Trustee via a Revocable Living Trust can continue after the Trust creator’s death, allowing for effective post-death management of assets as well.

Notably, though, whichever approach(es) is(are) used, it is critical to act before an individual becomes incapacitated and can no longer legally act on behalf of themselves. Powers Of Attorney should be submitted to financial institutions before they are actually needed, and Revocable Living Trusts should be properly established and funded in advance. Absent such actions, one’s financial affairs may be left up to the mercy of the courts... when time is of the utmost importance.

#FASuccess Ep 131: The (Nearly) $1B Solo Advisor: Scaling Up Client Focus By Outsourcing Everything Else, with Dan Goldie

July 2, 2019 07:06 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 131st episode of Financial Advisor Success Podcast!

My guest on today's podcast is Dan Goldie. Dan is the former president of Dan Goldie Financial Services, an independent RIA based in the San Francisco area that oversees nearly 900 million of assets under management for 275 affluent clients. What's unique about Dan though is that he built his firm up to nearly a billion of assets under management entirely as a solo advisor without even a single full-time administrative staff member. Relying instead on an external TAMP to provide all of his back office support so that he can fully and solely focus on serving his clients and building his practice.

In this episode, we talk about the way that Dan has structured his advisory business, what exactly he does for his 275 clients upfront and on an ongoing basis as a solo advisor, his approach of customizing everything he does to the needs of the client, and why Dan has been able to be so successful and productive even without systematizing what he does for clients because he customizes in a way that not only does more for clients who need more, but also saves time by doing less for clients who want and need less.

We also talk about how Dan built his business primarily through referrals after an initial stint in seminar marketing, the way he's been able to continuously keep time available to continue marketing and meeting with prospects with his relentless focus on improving his own personal efficiency and productivity. How thanks to the ongoing improvements in technology, he still sees even more opportunity to be successful as a solo advisor today, despite all the industry naysayers suggesting that consolidation is inevitable. And why despite his success as a solo advisor, he decided earlier this year, to take some risk off the table and create more continuity's first clients by selling the firm to Buckingham Strategic Wealth.

And be certain to listen to the end where Dan shares how the key to his business and financial success wasn't because outsourcing to a TAMP was necessarily more cost-effective than hiring and developing his own team, although it may have been, but instead because it was his strategy to stay disciplined and hyperfocused on spending as much of his time as possible with this clients and not on the any of the other demands of the business that consumes so much time for most other advisors.

So whether you're interested in how a former professional tennis player was able to grow his solo practice to just shy of $1B in AUM, how he has managed to focus solely on serving his clients by outsourcing everything else, or some sage advice from someone who's been in the business for 28 years, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (July 2019)

July 1, 2019 07:06 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the July 2019 issue of the Latest News in Financial Advisor #FinTech – 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 and wealth management!

This month's edition kicks off with the announcement that Fidelity is launching a new Managed Account XChange (FMAX), in what appears to be a shift in the Fidelity business model to capture the ongoing advisor shift from internal portfolio construction to outsourced third-party managers and models, and also a re-positioning of Fidelity itself to compete more directly with Envestnet’s own manager marketplace in the future.

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

Envestnet putting its own Insurance Exchange into full production, with the potential to finally catalyze growth of fee-based annuities in the RIA channel
Plaid announcing a new Investments API on the back of its Quovo acquisition, that may put even more investment-related tools directly in the hands of consumers through various financial apps
Canadian FinTech Equisoft acquires Grendel CRM to potentially push into US broker-dealer and insurance enterprises
LifeYield rolls out a new “Income Advantage” tool to assist advisors in figuring out exactly which investment retirees can sell to raise spending cash in a tax-sensitive manner
Two new advisor matchmaking platforms – Harness Wealth, and MyPerfectFinancialAdvisor – launch as demand continues for outsourced lead generation for financial advisors

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Tamarac rolling out digital onboarding tools to overlay Schwab and TD Ameritrade, Advisor Group launches an internal financial planning payment processing tool called “eQuipt for Financial Planning” as broker-dealers increasingly pivot into fee-for-service financial planning advice, Personal Capital launches its own high-yield cash offering as Wealthfront raises their cash yields to an industry-leading 2.57%, and XY Planning Network announces the finalists for its 4^th annual FinTech competition for advisor technology to support the delivery of financial planning to the next generation of clients.

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

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!