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#FASuccess Ep 107: Using Podcasting As A Marketing Strategy To Attract (Retirement Niche) Clients, with Roger Whitney

January 15, 2019 07:03 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 107th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Roger Whitney. Roger is a partner with WWK Wealth Advisors, an independent RIA based in Fort Worth, Texas, where Roger works with a personal client base of retirees with $75 million of assets under management.

What's unique about Roger, though, is that he's been able to attract almost $50 million of those assets in just the past 2 years by launching a niche podcast on retirement that attracts to him affluent baby boomers making the transition to retirement.

In this episode, we talk about the why and how Roger built his "Retirement Answer Man" podcast, the style and format of his podcast and what he's found works to attract listeners, the way he transitions podcast listeners to a webinar that shows prospects a sample client meeting and then invites them to a schedule a fit meeting, and the way he treats his podcast marketing strategy as an orchard to be nurtured and tended and not just a tactic to hunt for more retired clients, even though it's generating a lot of retired clients for him anyways.

We also talk about how Roger focused his advisory firm into a niche of working with retirees. Why his focus with clients is less about financial freedom and more about time freedom, his unique Agile Retirement Management approach to working with retirees that's less about producing the comprehensive financial plan and more about producing what he calls a minimum viable plan and then engaging in constant iteration of what he calls SMART sprints to the next short-term goal or objective, and how despite being what he calls a classically-trained financial planner, that most of Roger's conversations today take more of a coaching approach with clients that focuses as much on human and social capital as their financial capital.

And be certain to listen to the end, where Roger shares how the success of his podcast has now evolved into publishing a book called "Rock Retirement" and creating what he calls the Rock Retirement Club as a way to serve the subset of his listeners who will never realistically hire them to be his financial advisor but are willing to pay to join a community he's created that helps support them in their own do-it-yourself journey through retirement.

So whether you're interested in getting started with podcasting (or building a content marketing strategy), how Roger attracts new clients and builds business through his podcast, why he creates content only for a very specific audience, or how he handles the compliance side of the equation, then we hope you enjoy this episode of Financial Advisor Success!

Should The CFP Board Allow Expungements For Those Who Violate Its New Fiduciary Standard?

January 14, 2019 07:01 am 0 Comments CATEGORY: Regulation & Compliance

A core requirement of any bona fide profession is to have a professional Code of Ethics and Standards of Conduct that must be adhered to and a disciplinary enforcement process to remove professionals who don’t honor the standards. And while technically the CFP Board is not a sanctioned regulatory body but a 501(c)(3) public charity that owns a trademark for the CFP marks – and grants CFP certificants the right to use its private trademark in exchange for following its stipulated rules – the organization has been attempting to make financial planning a (more) recognized profession by similarly establishing a Code of Ethics, requiring CFP certificants to adhere to it, and enforcing against those who don’t follow its rules.

Accordingly, to the extent that last year, the CFP Board decided to lift its Code of Ethics and Standards of Conduct to formally adopt a fiduciary standard for all financial advice (or really, financial recommendations of any type) provided by CFP certificants, the CFP Board is now taking steps to refine its processes for enforcing those standards, with a series of proposed updates to its Disciplinary Rules and Procedures.

Yet alongside a number of more process-oriented refinements, the CFP Board has also put forth a rather controversial proposal: to allow CFP certificants to expunge their one-time public disciplinary sanctions (e.g., a public letter of admonition or a temporary suspension of the CFP marks) after 5 years. Despite the fact that recent studies of broker recidivism have found that those who have even “just” one misconduct disclosure on BrokerCheck are a whopping 5X more likely to engage in repeat misconduct, and a more recent study found that those who request expungement of their disciplinary records are even more likely to end out being repeat offenders anyway! While in the internet age when “nothing dies” once it's online, it’s not even clear if expungement of a public sanction from the CFP Board’s website really effectively vacates a CFP certificant’s record anyway… or just makes it harder for the public to find the information they need.

And so at a minimum, if the CFP Board is going to proceed with an expungement process, it should seriously consider more “aggravating factors” like additional private censures or the extent of client harm before automatically granting a time-based expungement, separate the process of expunging public sanctions from “just” bankruptcy-only disclosures, and apply a probationary period to expungement where any expunged sanctions are returned in the event of a future public sanction or private censure.

Ideally, though, the CFP Board should move away from its proposal for expungement, and instead simply provide the means for CFP certificants to add an explanation to their public disciplinary records (akin to what FINRA already provides), and perhaps better aid consumers by clarifying the nature of the infraction and whether or to what extent client harm actually occurred or not. And to the extent there is concern about an uptick in violation of the new fiduciary Standards of Conduct when they launch later this year, consider adopting a more lenient transition enforcement policy for the first year… rather than forgiving all 2020 infractions by 2025 regardless of their actual severity and client harm!

Fortunately, at this point, the proposed Disciplinary Rules and Procedures are just that – proposed – which means CFP certificants still have an opportunity to submit their own Public Comment letter expressing support or concern for the proposals to the CFP Board by January 29^th.

Weekend Reading for Financial Planners (Jan 12-13)

January 11, 2019 02:55 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a striking new projection from Cerulli that direct-to-investor platforms are projected to grow to over $9 trillion of assets by 2022... driven not by robo-advisors, but by the existing leading direct-to-consumer platforms (primarily Fidelity, Vanguard, Schwab, and TD Ameritrade, that collectively own 84% of the direct-to-investor marketplace) that are increasingly competing with financial advisors by launching their own in-house advisory solutions for investors.

From there, we have a number of other notable industry news articles this week, including the news that Schwab, Fidelity, and TD Ameritrade (along with 6 other banks, brokerage firms, and trading firms) are launching a new alternative stock exchange that will be known as MEMX (Members Exchange) to try to undercut trading and data costs of the "traditional" stock exchanges like NYSE and Nasdaq, a discussion of how Schwab is working with the Investment Advisers Association to try to roll back the repeal of the advisory fee deduction and allow financial advisors to be eligible for the 20% QBI deduction as insurance agents are (though progress is not likely until after the 2020 election at best), and a preview of how the CFP Board is getting ready to "beef up" its disciplinary and enforcement capabilities in advance of its new higher fiduciary standard taking effect later this year.

We also have several articles on the theme of mergers and acquisitions of advisory firms, from tips for RIAs that want to be acquired about how to better position themselves, how RIA deals are becoming so lucrative they're beginning to mirror the wirehouse recruiting deals of old (which in turn may be further accelerating the wirehouse breakaway broker trend), some technical issues to consider for those evaluating a merger (from entity structure to compensation policies and decision-making processes), the significance of cultural fit in a merger and how to assess it, and why the key to being a successful acquirer isn't just about offering the right price but scaling the firm's own operational capabilities to truly be able to take the load off the shoulders of advisors who want to sell (often to simply get back to the client-facing advisory work they enjoy the most).

We wrap up with three interesting articles, all around the theme of how technology in general (and FinTech in particular) is evolving: the first looks at how, while platforms like Facebook become popular because of their ability to facilitate connections and sharing of information, their success has created platforms so cluttered with information that it "forces" the companies to create algorithms to manage the newsfeed (which is now leading to other unintended consequences); the second explores how platforms like Google have become so dominant that it's in their interests to not be biased in any way (that might open up half the marketplace to a competitor) but the longer they succeed, the more they may unwittingly stifle innovation anyway; and the last is a fascinating look at the rise of Ant Financial in China, a "FinTech" digital financial services firm that has been so successful, it may have already achieved what many advisors fear Google or Amazon will attempt here in the US (using their technology brands to compete in a wide range of financial services products)... even as, ironically, Ant Financial is now facing a regulatory backlash because of its success and is trying to reposition itself as not being a financial services firm but "just" a technology firm, which may help to explain why companies like Amazon and Google have been content to not directly enter the highly-regulated world of investments and financial advisors themselves, either.

Enjoy the "light" reading, and Happy New Year!

Advisory Firms Don’t Scale: Why Growth Doesn’t Solve Profitability Problems

January 10, 2019 01:31 pm 0 Comments CATEGORY: Practice Management

One of biggest reasons why established firms in any industry are difficult to unseat is that they have “economies of scale” – where fixed costs of overhead and infrastructure on an ever-growing business results in proportionately decreasing costs (as a percentage of revenue) and ever-larger profit margins (or available dollars to reinvest for further growth).

Accordingly, for solo advisory firms and even “smaller” (e.g., <$200M) ensembles, there has been a rising focus on how to grow –expanding the firm itself, either organically, or through a merger or (multiple) acquisition(s) – in order to achieve greater cost efficiencies and advisory firm economies of scale.

In today’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we discuss why, when it comes to advisory firms, increased size and revenues don’t necessarily result in increased profits and economies of scale, the overhead expense margin and profitability ratios successful advisory firm owners can reasonably expect to see, why trying to “scale up” in a time-intensive service industry isn’t always the most effective way to improve firm profitability, and some alternative strategies that can be employed to improve bottom-line results outside of just growth for growth’s sake… which for a firm that is already less profitable than it could be, often ends up compounding the profitability problems rather than solving them!

According to the recent InvestmentNews benchmarking study on advisory firm profitability, small firms with about half a million in revenue average an overhead expense ratio around 35%. But in reality, some of the top-performing solo advisory firms can often get that number down to 20%, or even 10%(!) by giving premium service to an increasingly concentrated premium client base.

In fact, it’s only when those small firms try to grow their revenues that the firm’s expenses actually start to balloon, overhead expense ratios rise, and profit margins begin to decline, because with added capacity comes the need for added infrastructure (from more staff to more office space and more technology, etc.) to support it. Thus, ironically, larger advisory firms tend to have higher the expense ratios than smaller ones… because at a certain point, the firms end up stacking on additional overhead expenses in order to support the additional layers of infrastructure!

Fortunately, though, small and mid-sized firms have more effective tools are their disposal to improve profitability. For many firms, the biggest needle-mover is to simply raise their fees, because more often than not, profitability problems stem from the fact that advisors are doing too much for too little… or stated another way, they’re delivering a Starbucks experience at a McDonald's rate. From there, advisors can pull other levers, including standardizing portfolio construction, consolidating custodians, “graduating” less-profitable clients out of the firm, streamlining technology, and revisiting relationships with any other non-owner advisors who don’t generate at least enough revenue to cover their overhead expenses.

The bottom line is simply that there are better ways for small to mid-sized firms to improve their profit margins beyond just trying to grow their top-line revenue in search of economies of scale. Because, in the early stages of an advisory firm, owners often accommodate specialized needs of clients out of the sheer desire to generate any revenues whatsoever and get their business off the ground. And the direct result of that is cost inefficiencies and profitability problems. Accordingly, those issues are best addressed, not by trying to grow the business itself – which can only compound the problems – but instead by changing the business. Which in turn often requires the advisory firm owner to adjust his/her own mindset and perspective away from thinking things have to be done in a certain way (the way they’ve been done in the past)… when in reality they don’t, and fixing those problems in the business are the real key to better profitability (and then, if still desired, growth)!

The Importance Of Finding Your Tax Equilibrium Rate For Retirement Liquidations

January 9, 2019 07:27 am 0 Comments CATEGORY: Taxes

No one wants to pay any more in taxes than they have to, and Judge Learned Hand is famous for stating that, “Anyone may arrange his affairs so that his taxes shall be as low as possible.” Which, in practice, usually entails engaging in tax strategies that minimize (or at least defer) taxes as long as possible. Except the caveat is that when it comes to tax deferral, there really is such thing as being “too good” at doing so, given the progressive nature of income tax brackets (with higher tax rates on higher income levels). For instance, the tax-deferred retirement account that grows so large that, when Required Minimum Distributions begin, the retiree is thrust into a tax bracket higher than he/she ever faced during the accumulation years (or earlier retirement years) in the first place.

Accordingly, the reality is that sometimes the best way to arrange affairs to minimize taxes is actually not to defer them, and instead accelerate the income. With the caveat that if too much income is accelerated, the individual may simply drive themselves into higher tax brackets today, finishing with less wealth than they would have if they simply relied on good old-fashioned tax deferral instead!

Thus, the optimal balancing point really is a balancing point between the two – seeking out an equilibrium rate that accelerates enough income to fill up lower tax brackets today, but still defers enough income to fill up the tax brackets in the future as well. Or what are actually two tax rate equilibria – one for ordinary income (and its 7 tax brackets), and a second for long-term capital gains and qualified dividends (which have their own 4 tax brackets, and stack their income on top of ordinary income).

And while it can be difficult to know for certain what future tax rates will be, the very nature of doing financial planning (and especially retirement projections) is to determine the current trajectory of wealth… which means with some relatively simple and straightforward assumptions about future Social Security and pension payments, RMD calculations, and anticipated interest, dividends, and capital gains, it really is feasible to make a reasonable approximation of an individual’s future tax rates to determine where the ideal equilibrium will be. And then engage in strategies from accelerated retirement account liquidations, to partial Roth conversions, and capital gains harvesting, as necessary to ensure that any currently-lower tax brackets are filled up to reach the equilibrium point.

Ultimately, the ideal tax bracket to fill up will vary by the individual and their overall wealth and circumstances, with many retirees (even millionaires) able to remain in the 12% ordinary income bracket (and 0% capital gains rates) with proactive planning, while more affluent retirees may aim for the 22% or 24% brackets and the 15% capital gains rate, and the wealthiest households may seek out any tax rate equilibrium that is not the top tax bracket (as anything lower than the top bracket is a relative improvement!).

The fundamental point, though, is simply to understand that the best way to plan around taxes in retirement is not to defer too much income, nor too little, but to seek out and find the equilibrium rate that balances them out!

#FASuccess Ep 106: Empowering Widows Financially By Helping Them Navigate The 3 Stages of Widowhood, with Kathleen Rehl

January 8, 2019 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 106th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Kathleen Rehl. Kathleen is a researcher on the money issues that widows face, the author of "Moving Forward on Your Own," a financial guidebook for widows, and a speaker and trainer for financial advisors on how to work better with widowed clients.

What's unique about Kathleen, though, is that she's also a former financial advisor herself, having spent 17 years operating as an independent RIA before sadly becoming widowed, at which point she decided to sell her advisory firm and shift her focus to empowering widows financially as an encore career.

In this episode, we talk in depth about the challenges in working with recent widows. The words to use and what to say, as well as what not to say when working with a recent widow, how widows typically progress from a grief stage, where it's so difficult to make good decisions, that Kathleen simply advocates for a decision-free zone for 6 to 12 months, to a growth phase where the transition work really gets underway to begin rebuilding the widow's financial life, and then a grace stage that not all widows reach, where the foundation is set for a new life in a new direction. Which is important to understand because financial advisors that push the wrong financial issues based on a widow's current phase will likely become part of that now infamous statistic that 70% of widows end out changing financial advisors... precisely because so few have a real understanding of and empathy for the issues that recent widows face.

We also talk about Kathleen's own practice. Why and how she formed a niche in working with members of the clergy, how she ultimately wound out and sold the practice after becoming a widow, and the transition she made to becoming a speaker, researcher, and ultimately self-publishing her own book to help widows that has now sold tens of thousands of copies, including from financial advisors who often buy the book for their own recently widowed clients.

And be certain to listen to the end, where Kathleen talks about some of the recent research she's done on widows and money, including a study that showed how widows who worked with a financial advisor had significantly more financial confidence in their future, and how the most effective advisors who're working with the widows instilled even more financial confidence for their clients than the average financial advisor, a powerful testament to the value of a financial advisor in a uniquely challenging stage of life.

So whether you're interested in learning what drives about 70% of new widows to fire their advisor, how advisors can better engage both partners in a marriage to establish relationships early on, and the best way that advisors can serve widows in their time of need, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (January 2019)

January 7, 2019 07:32 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the January 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 big news that Blackrock is partnering with Microsoft as it doubles down (or triples down as taking $100M+ stakes in both FutureAdvisor and Envestnet!?) on its strategy of using technology as a distribution channel for its iShares ETFs (and possibly a new next-generation fee-based annuity as well)?

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

TD Ameritrade rolls out a new account-opening API as RIA custodians slowly but steadily try to match the capabilities of retail robo-advisors.
LPL acquires AdvisoryWorld for $28M to be its ClientWorks core after struggling to build its own solution
RIA In A Box gears up to become the first “RegTech Roll-Up” by acquiring cottage industry compliance consulting firms and transitioning them to RIAB’s compliance technology solution
Harness Wealth raises $4M of seed funding for yet another attempt at an advisor matchmaking lead generation platform.

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including wirehouse struggles to build competitive technology to what independent advisors already have, Fiserv’s updated fee billing and revenue management solution, the SEC fining Wealthfront $250k for failing to implement its own tax-loss-harvesting solution properly, Betterment rolling out a new two-way cash sweep program that allows them to attract held-away cash (while advisors are developing new solutions to move cash away from their existing RIA custodians due to non-competitive yields), and a look at how the broker-dealer drive to move deeper into financial planning is causing planning software solutions to finally build the more modular planning tools that advisors have wanted for years… even as it remains unclear is more modular planning tools will actually help broker-dealers themselves to gain financial planning adoption amongst their own brokers.

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]!

Weekend Reading for Financial Planners (Jan 5-6)

January 4, 2019 02:53 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a deep dive from Bob Veres into the Consultant's Report recently released by FPA that was reportedly the driver of their recent OneFPA Network initiative to dissolve and consolidate all the FPA chapters... which, as it turns out, wasn't actually a recommendation from the Consultant in the first place, and in fact the Consultant had cautioned FPA that chapters were concerned about how National was encroaching on chapters and that they valued their autonomy! And raising troubling questions about who is really driving the OneFPA Network initiative.

From there, we have a number of articles about advisory industry trends, including two interesting retrospectives on the major events in 2018 (e.g., fiduciary rulemaking and RIA consolidation) and the potential industry issues still looming in 2019 (will a new advocacy organization emerge for the growing RIA channel?), a discussion of whether recent market volatility will impair the valuation of advisory firms and potentially even bring an end to the current seller's market (or whether revenue decreases from the market decline will just make buyers push even harder to acquire more to grow their revenue instead!), and how a cottage industry is forming around the FINRA expungement process to cleanse brokers' BrokerCheck records (which helps to clean up frivolous customer complaints, but with a 93% expungement rate, may be proving too easy to remove bona fide regulatory black marks as well?).

There are also a number of cash-flow and budgeting oriented articles this week, from a look at how bankruptcy judges are starting to reconsider whether student loans should be adjusted in bankruptcy, how to do a credit freeze for a child (now that Congress has passed a law allowed any parents to do so, for free), tips for navigating the financial conversation in a (new) couple's relationship, and some tips about how to determine what is "reasonable" spending for ultra-wealthy clients who really can afford almost anything.

We wrap up with three interesting articles, all around the theme of self-improvement and creating (good) new habits in the New Year: the first explores the research on how to cultivate better habits (drawing on James Clear's recent "Atomic Habits" book); the second looks at how to minimize being "stupid" (i.e., overlooking or dismissing conspicuously crucial information, or avoiding avoidable mistakes and errors); and the last provides some further food for thought about how to better meet goals even as we all struggle from time to time with our own willpower to do so by creating habits that avoid any need to have or rely on willpower in the first place (and just let the automatic habit take hold instead!).

Enjoy the "light" reading, and Happy New Year!

Setting A Proper Bonus Structure For (Non-Advisor) Advisory Firm Employees

January 3, 2019 02:13 pm 0 Comments CATEGORY: Practice Management

For larger (or even mid-sized) advisory firms, bringing on additional back-office and support staff is just a normal part of the ongoing growth process. But for the solo advisor who may be starting to approach (or has already hit) a capacity wall and needs some operational help, hiring that first employee is a huge decision. Because, in one fell swoop, that once-solitary practitioner has not only suddenly doubled their business’s headcount (from you to two!), but they’ve also just given themselves a whole slew of new responsibilities as an employer that, no matter how good they are at delivering great advice to their clients, they may have little to no experience in.

Because, once you have employees, you have to figure out the best way to keep them challenged and motivated, and how to financially reward them while keeping their interests aligned with those of the business.

For many firms, the easiest way to accomplish that goal is by doling out bonuses, and so in this week’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we discuss the pros and cons of various employee bonus structures, why sometimes monetary/financial rewards are less than optimal, and why it’s important to remember that business owners and employees aren’t always challenged and motivated by the same things.

Because our industry has its roots in product sales and commissions, the most common bonus structure is to share in the “sales” to new clients by sharing a percentage of new client revenue… where any new revenue that’s generated is split amongst advisors and the support team in such a way that recognizes their various levels of participation in the process of generating that revenue in the first place.

However, as the advisory industry shifts from upfront commissions to ongoing recurring revenues (e.g., AUM fees), firms that are hiring often have even more recurring revenue than new revenue, and it’s equally important for employees to not just help get new clients and revenue but retain the existing clients and revenue as well. Consequently, another approach for bonuses is to base them on a percentage of the firm’s gross revenue instead of off new revenue from new clients. Which not only rewards team members when the firm grows by adding new clients, but motivates them to work hard and provide great service to retain existing clients, too.

The caveat, however, is that in a business model that aims to create and increase annual recurring revenues over time, percentage of revenue bonuses – whether tied to new or gross revenue – have the potential to become quite large after a number of years, and can even compound to the point where they end up hindering the firm’s ability to reinvest into the business itself. Which, in turn, has prompted some firms to adopt a fixed-dollar bonus based on measurable (but not always static) business goals that can be adjusted over time based on ongoing firm growth and staffing needs, and (importantly) structured in such a way that manages employee expectations and keeps them focused on supporting the ever-evolving goals of the business (which naturally change over time).

Of course, bonuses don’t have to be monetary at all, as financial rewards on top of base salaries may be motivating initially but can become less so over time once employees begin to expect them as just another (implicitly-guaranteed) piece of their compensation, especially for otherwise-successful firms that regularly hit their bonus targets anyway. Instead, firms can offer experiential rewards for the whole team (and even their families!), which can often be a better sustaining motivator for people whose work requires creativity and original thought anyway.

Perhaps most significantly, though, is simply that advisory firm business owners must remember that their motivators are often quite different from their employees, who might actually respond much better in an environment that offers stability in compensation and job security (rather than risk-based upside potential). Because, if they were interested in taking the types of business/career risks that offered big potential upside as well as the possibility of many sleepless nights, then they would likely have chosen a different path in the first place!

Ultimately, though, in a world where it’s hard enough to find reliable and trustworthy employees in the first place, it only makes sense that one of the most important tasks when hiring that first employee is to figure out a bonus structure that works for them (as well as the ongoing needs of the business)… rather than just the one that you personally might find appealing as an employer!

Scarcity: How This Rather Innocuous Sounding Economics Concept Actually Impacts Decision-Making

January 2, 2019 02:12 pm 0 Comments CATEGORY: General Planning

The basic concept of “scarcity” is rather straightforward – when there isn’t enough of something, that resource is scarce, which may mean it’s something we can’t get, must pay more for, or must find an alternative to, given its scarcity.

Yet recent research finds that the concept of scarcity, and its impact on decisions, goes far beyond just the economic framing of how scarcity may impact price and the economic supply and demand curves. Instead, scarcity also appears to take a more direct toll on our brains themselves and impacts the ways we make decisions in the first place.

In this guest post, Senior Research Associate Meghaan Lurtz explores the recent research of Sendhil Mullainathan and Eldar Shafir on how scarcity can cause “tunneling,” which limits our ability to fully weigh the pros and cons of a decision and also a “bandwidth tax,” which makes it difficult to fully focus on anything when the weighty consequences of scarcity are looming.

And notably, their research finds that it’s more than just financial scarcity that can impact us. Scarcity of time can be similarly damaging to financial scarcity, and the toll that scarcity takes on the brain and our decision-making process is present both in the face of actual scarcity and even just perceived scarcity. In other words, if we think we don’t have enough, it can still impair our decision-making process… potentially leading to less favorable decisions that really do amplify scarcity. A perverse “scarcity trap” that can feed upon itself.

So what’s the alternative? Trying to find “slack,” whether by releasing time commitments or earning more money to actually reduce the objective amount of scarcity. Or trying to deliberately focus more on the times of abundance – even if they’re just moments – to give our brains a break from the toll that scarcity otherwise takes. Although in reality, even those facing near-term scarcity won’t necessarily be facing scarcity in the long run… which means often the best thing a financial advisor can do is simply to put a currently-scarce situation in a longer-term context, reducing the scarcity-induced tendency to tunnel only on the near-term, and setting the pathway for making better long-term financial decisions!