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Weekend Reading for Financial Planners (Apr 10-11)

April 9, 2021 02:59 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a look at President Biden's newly proposed infrastructure plan, which may inject as much as $2.3T into the economy to tackle long-standing infrastructure projects that have long had bipartisan support... but still faces criticism from both Republicans and Democrats, and a "price tag" that is leading to proposed tax increases on both businesses and high-income individuals that may generate a lot of tax planning discussions for financial advisors and their clients in the months to come.

In addition, there are several other notable news items this week, including:

The CFP Board is kicking off the next round of its $10M/year public awareness campaign with a new set of TV commercials and radio ads on the value of seeking out a CFP professional
A new consumer study on pre-retirees that finds they are a much more age-diverse group than the traditional view of "those aged 55 - 64 within 5 years of retirement"

From there, we have several articles on advisor marketing to describe fees and value:

The benefit of stating advisory fees directly on the advisor's website, and tips on how to do so and position the fees effectively
Why it's often better to offer a 'low-cost' reasonably priced service than a "free" one (that usually really isn't)
How "simply" being an accountability partner that helps clients actually do what they plan to do can be a major enhancement to justify an advisor's value for the fees they charge

We've also included a number of articles on industry recruiting trends:

An emerging push to shift the broker-dealer and RIA custodian recruiting model from a commission-based to a flat-fee model
How Schwab is pressuring recruiters to get paid directly from the RIAs they recruit, in an effort to force more transparency
How earnouts for advisor acquisitions were on the rise in 2020 but are on the decline again in 2021 as acquisition demand heats up

We wrap up with three final articles, all around the theme of maximizing our focused productivity:

How interruptions reduce our focus, but knowing that an interruption is coming can actually help us to focus and work faster
Why focusing is often difficult because we spend too much time thinking about what we give up by focusing and not what we gain by doing so
Why "success" in the end isn't just about having good ideas, but actually executing them... which usually means getting focused on the very few things that will have the most impact if executed well

Enjoy the 'light' reading!

Kitces & Carl Ep 57: Transitioning “Good” Clients Who Simply Can’t Be Served Profitably

April 8, 2021 07:05 am 1 Comment CATEGORY: Kitces & Carl Podcast

If there’s one thing that just about every financial advisor can agree upon, it’s that surviving the first few years in the advice business is very difficult. As a result, there’s a natural tendency for newer advisors to not be terribly picky about who they take on as clients, as getting any new clients that can generate any new dollars flowing into the business is often necessary for survival. However as advisers begin to find success, they have the opportunity to start building their practice with focused intent. For some, that means growing and scaling by hiring staff to support a growing number of clients. For others, that may mean remaining a ‘solo’ lifestyle practice and serving a (relatively) small number of (often highly profitable) clients.

But, no matter what a practice may look like, many advisors reach a certain point where the clients that helped them get off their feet early on are no longer a good fit… whether because they “can’t be serviced profitably” given new staff infrastructure, or don’t generate enough revenue to fit the more focused lifestyle practice, such that they can even become a drag on overall business results. In the case of no-longer-profitable clients who aren’t pleasant to work with in the first place, the solution is often straightforward. But what if they’re not unpleasant, just “unprofitable”? Which raises the question: How should advisors handle clients who they otherwise know they are helping and truly enjoy working with, but just aren’t profitable to serve?

In our 57th episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss how to determine if a client doesn’t meet the profitability goals of a business, how to think about serving unprofitable clients who are otherwise a pleasure to work with and need good financial advice, and how to communicate with those clients when there’s no other choice but to let them go.

As a starting point, it’s important to first identify which clients are actually unprofitable for the practice. Accordingly, a common rule of thumb is to take the average revenue per client across the firm (by taking total revenues of the firm and dividing that number by the total number of clients) and then dividing that number by three. Since most advisory firms have overhead somewhere in the neighborhood of 30-40%, those clients who are generating less than about a third of the average revenue per client simply aren’t covering their slice of the basic costs of running the business.

From there, advisors can make a deliberate decision to designate a certain number of clients as “pro bono” and continue to serve them. But after those proverbial pro bono seats are full, there may be even more clients that now need to be transitioned. At that point, the best way to handle that conversation is by being candid and honest, and by explaining that, because of the level of service that’s being provided, the firm needs to charge a higher fee commensurate with the services it’s providing… and that it wouldn’t be in the client’s financial interest to pay the firm’s (new, higher) minimum fees. At that point, the advisor is communicating that they aren’t a good fit for the client (rather than the other way around, in a manner that could hurt the client’s feelings), and can best help by finding a different advisor who is!

Ultimately, the key point is that advisors chose this profession because they want to help people, but it’s equally important to acknowledge that advisors can’t help everyone… and that there are also other advisors out there who do great work, and for whom one advisor’s unprofitable client could still be a very good client for them. In other words, just because a client can’t be served profitably by one advisor doesn’t mean they can’t be served well by any advisor (as one advisor’s “C” client may still be someone else’s “A” client!). Which means transitioning clients who aren’t a good fit isn’t simply about “rejecting” them or leaving them to fend for themselves… instead, it’s an opportunity to help them find the advisor who will want to service them at the level they need and deserve, for the benefit of all!

Making Monte Carlo Results More Relevant By Finding The Right Level Of Abstraction

April 7, 2021 07:04 am 8 Comments CATEGORY: Retirement Planning

When it comes to navigating the world and understanding our surroundings, abstraction (i.e., the process of extracting the higher-level essence of something to formulate general ideas of concepts) is very important. We are constantly formulating and updating mental maps of our world for the purpose of carrying out goals. Abstraction is particularly relevant in a field like financial planning, where we deal with abstractions that are not only more complex than simple, physical objects (e.g., a tangible concept like a chair), but also that represent concepts that are complex and abstract themselves (e.g., the concept of preparedness for retirement).

One difficulty with developing abstractions is that ‘ideal’ levels of abstraction are simply not self-evident. In one context, a ‘high-resolution’ abstraction (e.g., one with very specific information, like the scientific name for a certain species of rattlesnake, 'Crotalus atrox') may be ideal, whereas in another context a ‘low-resolution’ abstraction (e.g., a broader, less detailed description, such as ‘living organism’) may be best. Yet, in other circumstances, some middle-ground abstraction (e.g., ‘rattlesnake’) may be most useful. The level of abstraction that is ideal depends on many factors such as one’s environment, the knowledge level of those we are communicating with, and the need to convey certain pieces of information. This is why a group of advisors can communicate just fine using industry jargon, while that same industry jargon could be a barrier to communicating with a client.

Perhaps one of the best abstractions ever developed within financial planning is the Morningstar Style Box. By capturing two of the most crucial dimensions of equity returns within a single, easy-to-read graphic, the Morningstar Style Box conveys a tremendous amount of important information about a stock portfolio in a highly efficient manner. The Morningstar Style Box also has the advantage of reporting two primary dimensions, which lends itself to presentation in a two-dimensional graphic that remains easy for our brains to interpret. However, once we get out to three dimensions (and particularly four or more dimensions), the added complexity can actually diminish our understanding rather than enhance it.

Despite the success of abstractions such as the Morningstar Style Box, however, abstractions used for many other key concepts within financial planning are severely lacking. For instance, ‘probability of success’ – the primary metric used for conveying preparedness for retirement within most modern planning software – is known to have a number of issues. In particular, ‘probability of success/failure’ entirely misses the dimension of ‘magnitude of success/failure’, which is highly important for developing a rich qualitative understanding of a retiree’s plan dynamics. For instance, a plan with a high probability of failure and a low magnitude of failure is qualitatively different than a plan with a high probability of failure and a high magnitude of failure, but in a world where only ‘probability of success’ is reported, then these two plans will look identical.

Notably, the problem with many Monte Carlo-based retirement analyses is not necessarily with Monte Carlo itself, but with trying to find a better abstraction for communicating Monte Carlo results. At a minimum, an ideal abstraction likely needs to cover both relevant likelihood and magnitude of success/failure. Furthermore, an ideal abstraction should convey that success/failure themselves can be a bit inaccurate in a world where ‘adjustment’ can avoid the most extreme outcomes. And finally, we also want to consider what may even be most important to report to a client in the first place, as it is possible that Monte Carlo metrics can largely live behind the scenes while planning results can be reported in a manner that is more directly relevant to clients (e.g., How much can my portfolio go up/down before I have to make a change? How big of a change would I need to make?).

Ultimately, the key point is to simply acknowledge how financial advisors abstract results that are reported to clients matters. The ideal level of abstraction is not self-evident and varies by context, but it is quite clear that ‘probability of success’ leaves a lot to be desired. We’re still at an early stage of figuring out what those abstractions may be, and most dominant platforms currently have quite limited ability to report anything other than the focal point of ‘probability of success’. We, as advisors, should be thinking about developing better ways to communicate with clients and, if the current tools don’t provide ideal levels of abstraction, letting software providers know that we want more than ‘just’ probability of success!

#FASuccess Ep 223: Finding Success In Succession By Building Towards The Successor’s Vision, With Marianela Collado

April 6, 2021 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 223rd episode of Financial Advisor Success Podcast!

My guest on today’s podcast is Marianela Collado. Marianela is the CEO and majority shareholder of Tobias Financial Advisors, an independent RIA based in Plantation, FL, that services over $500 million of assets for just under 300 households.

What’s unique about Marianela, though, is that she is the next generation owner and leader of Tobias Financial, having successfully navigated an unexpectedly accelerated succession plan laid out by the founder, Ben Tobias, and in the years since has grown the firm from a one-person practice into a business with multiple lead-advisors and an eye towards developing a subsequent succession plan for the next, next generation… all while intentionally keeping the Tobias Financial name.

In this episode, we talk in-depth about how Marianela’s deep background and expertise in tax planning for ultra-high net worth individuals gave her instant credibility when coming into a practice where clients had only ever worked with the founder, how her vision for building out a larger advisory business with the capacity to serve more clients didn’t end out being a roadblock for the succession plan since she and Ben shared the same foundational values around client service and advice, and the subtle changes that Marianela made around client experience and branding ahead of the final execution of the agreement that helped foster a sense of natural transition from the client’s perspective.

We also talk about how Marianela identified early on after joining the firm that, in order to create a solid foundation for growth later on, she would have to formalize a development program to attract and retain talent, the tangible lesson everyone at the firm learned shortly thereafter about why a succession plan is such an essential element of servicing clients well, what it was like when Marianela realized the gravity of the role she assumed after she was handed the company checkbook and instantly responsible for her staff’s livelihoods, and how that led her to hire someone else to run the day-to-day operations of the firm so that she could focus on leading the business’s growth and its client service.

And be certain to listen to the end, where Marianela shares how she set out to create a cohesive culture within the firm, align employee compensation with firm goals, and formalized her advisors’ organization structure by implementing Angie Herber’s Diamond Team model, how she fosters relationships with CPAs and attorneys by conducting “sound checks” to get feedback on planning strategies she’s implementing with her own clients (and, in turn, making those outside centers of influence shine in the eyes of their own clients), and the industry recognition that Tobias Financial has earned for building out a diverse team of advisors and support staff (and the key insights around diversity and inclusion that helped Marianela create a structure to achieve such diversity with her team).

So whether you're interested in how Marianela executed a successful succession plan, how she's managed to 2x the size of the firm she took over in a little over three years, or how she's been able to build such a diverse team, then we hope you enjoy this episode of the Financial Advisor Success podcast with Marianela Collado.

The Latest In Financial #AdvisorTech (April 2021)

April 5, 2021 07:03 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the April 2021 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the big news that AssetMark has acquired UK financial planning software provider Voyant for $145M, with plans to bring the planning software as a new competitor to the US (in addition to likely deeply integrating it into AssetMark’s own technology stack), highlighting both on the ongoing rise of financial planning, the dearth of new financial planning competitors with enough market share for strategic acquirers, and the reality that financial planning software continues to be an appealing synergistic value-add not only to investment-centric firms offering financial planning but also asset managers and TAMPs trying to expand into working with more planning-centric advisors.

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

Orion acquires Hidden Levers to not only expand their risk-centric proposal generation tools but also to overlay portfolio stress testing onto the risk management of advisory firms themselves
Tifin Group acquires Totum Risk and MyFinancialAnswers to bring together yet another emerging advisor platform with embedded financial planning
Outsourced IT managed service providers have become the latest RIA services play for PE firms looking to roll up in the RIA channel
AdvicePay rolls out mobile deposits for financial planning checks to cut down on overnight postage fees for large enterprises (no-longer-)overnighting paper checks

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

Envestnet fully acquires Apprise’s high-net-worth planning tools to feed its new Trust Services Exchange
Skience launches a new data warehousing solution for mid-to-large-sized advisory firms that want more control over their client data
Pershing beta tests a new digital repapering process that aims to take the pain out of breaking away from a broker-dealer
FP Alpha launches a new “Tax Snapshot” to compete against Holistiplan as technology-driven reviews of tax returns get increasingly popular

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

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

Weekend Reading for Financial Planners (Apr 3-4)

April 2, 2021 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 the announcement that the CFP Board is updating the Principal Knowledge Topics of the CFP exam to reflect the ever-growing focus on behavioral coaching for clients that emerged from its latest Practice Analysis of what financial planners do in practice with clients, adding in not just a "behavioral finance" educational component but an entire "Psychology of Financial Planning" category that will become incorporated into CFP curricula (and the CFP exam itself) in 2022 and beyond.

In addition, there are several other notable studies about financial advisors and financial advice in the news this week, including:

The majority of consumers earning more than $100,000/year use a financial advisor, and a whopping 95% of them say the advisor is worth it (but more than half of consumers think financial advisors are far more expensive than they actually are!)
The overwhelming majority of consumers working with a financial planner agree that it's better to focus on the long-term and ignore short-term market volatility (though it's not clear how often financial advisors change their clients' minds to be more long-term, or simply attract long-term-oriented clients and then help them to stay on track?)

From there, we have several articles on advisor marketing:

Why it's important to "get mad" in speaking about the frustrations and 'financial injustices' in clients' lives to get them motivated to work alongside a financial advisor to solve those issues
Thinking differently about 30-second or even one-sentence "elevator pitches" to open the curiosity loop with prospects (or quickly figure out if they're not a fit and move on)
Why good branding isn't just about showing your value and Values but also tackling head-on the primary objections that result in not getting business the way you're currently doing it

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

Who exactly will be eligible for the new "free" COBRA health insurance subsidy that just took effect at the start of April
How technology is changing the way we engage as we get older to "get more life from our longer lives"
5 different "types" of retirement savers based on their psychographic tendencies to save for and be optimistic about the future (or not)

We wrap up with three final articles, all around the theme of maximizing your own career and productivity:

How perfectionism is the enemy of delegation, and the way to break through if you're stuck trying to figure out what you're comfortable delegating
A framework to build your own career plan as a young financial advisor
Creating a system for and around yourself to pull your focus away from the $10/hour tasks that can be delegated and towards the $10,000/day tasks that only you can uniquely do to add the most value to the business

Enjoy the 'light' reading!