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Helping Clients Change: From (Pre-)Contemplation To Implementation Action

March 31, 2021 07:06 am 0 Comments CATEGORY: Client Trust & Communication

Advisors hear them all the time: empty promises for change. And it is a struggle. It is a struggle for the client because they know they want to change and are paying their financial advisor to help them with that change. Yet, they do not move forward. It is also a struggle for the advisor because it is confusing and uncomfortable to ‘fight’ with a client about making a change when the client themselves was the one who said they wanted to implement the change… and now they just want to argue about seeing it through!

Yet, what the financial advisor and client are both often oblivious to is how change happens. And this is no one’s fault – no one teaches the Transtheoretical Model (TTM) of change except for psychology professors (although even 3^rd graders would benefit from learning about how to change – advocating for a better understanding of the change process would create a more change-friendly world!). But without understanding how change happens, it will be challenging to work with clients and figure out how to make it happen.

In the Transtheoretical Model (TTM), Pre-Contemplation is the first stage of the change process. In this stage, clients might not be aware that change is important, or more likely, they have identified the change and might even be able to recite a ‘why’ or two (e.g., retirement sounds fun… someday), but they still have no intention to see this change through (e.g., I have no intention to actually stop going out for coffee or to set up a savings plan). In other words, Pre-Contemplators not only don’t change… they aren’t even really thinking about what it would take to do it.

The central issue in the Pre-Contemplation stage is that clients often get stuck and resist change, even when they acknowledge they should change. Which can be confusing (and frustrating!) to the financial advisor after having just heard the client claim they want to implement changes to reach their goals, followed by the client actively defending their current behavior instead of working to implement the change!

So what should financial advisors do? Arguing with the client generally won’t help. And many times, more client education won’t help either. Enter James and Janice Prochaska, the authors of Changing to Thrive, who have written about what people need at each stage of the change process. Individuals in the Pre-Contemplation stage often feel ambivalent and are probably feeling somewhat disheartened by earlier attempts to change. This can result in anxiety over trying again, and defensiveness of current behavior to avoid having to try again.

The Prochaskas suggest some strategies that advisors can use to help clients, such as coming up with positive reasons for change (instead of the negative outcomes from not implementing the change), educating not on the ‘what’ but on the ‘how’ (because clients often don’t know what exactly they need to do), and spending time addressing clients’ deeper motivations for changing. The Prochaskas also developed worksheets to help people engage in change, which can be easily adapted to address changes that financial planning clients may need to make. These can give advisors a process-oriented strategy to address their clients’ issues, and can make having these potentially sensitive conversations with clients less intimidating.

Because the key point is that while change can be hard, it does have a process to it. If financial advisors understand the change process and what their clients are working toward, then they can implement a systematic way to discuss change with their clients. And by recognizing that action is not yet required in the Pre-Contemplation stage (instead, it is just about recognizing the importance of change and moving toward the Contemplation stage), advisors can help their clients more easily accept the changes they need to make. Change still won’t happen overnight, but that is okay. By guiding their clients through the steps of the change process, advisors will feel less confused and more empowered in their conversations with clients, and clients will be more likely to accept (and eventually take action on) the changes they need to make!

#FASuccess Ep 222: Scaling Growth By Separating Prospecting And Leadership From Client Advice, With Jonathan Kuttin

March 30, 2021 07:04 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 222nd episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Jonathan Kuttin. Jon is the founder of Kuttin Wealth Management, a hybrid RIA headquartered on Long Island, NY that manages over $3 billion dollars for about 5,500 clients.

What’s unique about Jon, though, is that as his firm grew to the point where it became necessary to separate client service from leadership and operation of the business, Jon did not hire a COO to run the firm, and instead made a deliberate decision to move himself away from a client-facing role of working in the business so he could spend all of his time working on the business and developing its systems and culture instead.

In the episode, we talk in-depth about how Jon has carved out three distinct roles within his firm that allow employees to focus solely on what they’re good at (creating both superior results and clarity around responsibilities within the firm itself), why Jon has found that the business is growing better by getting his advisors completely out of the prospecting business and focused on delivering an amazing client experience, and how Jon has powered the growth of the firm by separately building a CPA referral program to bring in prospects that his advisors then close by leveraging the “borrowed trust” they receive from the CPA referrals.

We also talk about the way the “entrepreneurial itch” influenced Jon’s decision to leave his salaried management role at Ameriprise to start his own practice, how once Jon achieved financial security for himself and his family his focus and drive shifted towards helping people within his organization get what they want out of life, how Jon has carried lessons that he learned early on around fostering a strong culture and developing leaders throughout his career, and the “WDYWFY” question of “What Do You Want For Yourself” that Jon has found to be the most effective way to build both loyalty and a culture that really cares about and values the people within the organization.

And be certain to listen to the end, where Jon shares the challenges that still come along the way of scaling an advisory firm by nearly 100X from $30M to $3B over the past 20 years, why Jon felt it was necessary to transition the firm to a vision-based culture that didn’t require him to make every key decision, how Jon learned that having integrity still isn’t a substitute for also having key legal agreements in place after a key partner broke up with the firm and took away a significant segment of clients and revenue, and the 5 levels of leadership that Jon tries to cultivate in all the leaders of the firm – including himself – as he looks to continue growing in the decades to come.

So whether you’re interested in how Jonathan forged productive relationships with CPAs who actively refer clients to his firm, why he’s focused so intently on culture as a key part of his organization, and why getting his advisors out of the business of prospecting has allowed his firm to scale even faster, then we hope you enjoy this episode of the Financial Advisor Success podcast with Jonathan Kuttin.

3 Types Of Advisor Teams And How To Leverage Each To Achieve Firm Goals

March 29, 2021 07:04 am 15 Comments CATEGORY: Practice Management

The ongoing growth of financial advisory businesses over the past decade, when combined with the shift to ongoing recurring revenue models (from assets under management to monthly subscription fees), has led to more and more advisory firms accumulating a critical mass of clientele that requires them to expand their capacity by shifting from the ‘solopreneur’ advisor model into forming an advisor team. The appeal of the team model is the potential to both improve operational productivity through delegation of tasks, expand service with a broader range of expertise, and train and develop next-generation financial advisors in the business. At least, if the advisor team can actually function effectively… as in practice, it’s not enough to simply form the team, it’s also important to ensure it’s the right kind of team to accomplish the business goals of the firm, and that the team develops the skills necessary for it to function successfully!

Because the good news is that, with the right design and training, an Operational Advisor Team can function to increase revenue productivity, an Expertise Advisor Team can offer a wider range of professional services for clients, and a Development Advisor Team can cultivate a deeper talent pool for the benefit of the firm’s future. However, because those teams require different designs and training for each, it’s first necessary to identify the specific bigger-picture goals that are most important to the firm, to ensure the firm selects, optimizes, and fully leverages the team’s structure and training protocols to suit their purpose more appropriately. In other words, by first considering the benefits and challenges inherent in each type of Advisor Team, firms can optimize their team designs to fulfill their desired purpose.

Operational Advisor Teams function mainly to increase revenue productivity and operational efficiency by establishing work roles (e.g., back-office paperwork, scheduling, financial plan research and preparation) that support advisors, allowing them to maximize their facetime with clients. Yet, an effective Operational Team generally requires team members to work together seamlessly and to rely on the work products of their co-workers. Accordingly, the primary challenges for Operational Advisor Teams are developing trust among all team members, and establishing accountability standards through the development of training protocols that ensure the team knows what and how to do the work that is expected of them. Providing opportunities for autonomy can help team members develop trust with other team members, and even assigning team members themselves to create training protocols can encourage a culture of trust and accountability.

Expertise Advisor Teams provide clients with more of a ‘one-stop-shop’ experience for their financial planning needs, and include multiple advisors across different areas of expertise (e.g., CFPs provide comprehensive financial planning, CPAs run tax analyses, CFAs oversee client portfolio management, and estate attorneys identify estate planning strategies and create appropriate legal documents). The main challenges for these teams revolve around composition and communication. It is critical to identify the specific services to be offered so that the right set of experts are selected for the team. Furthermore, the importance of establishing (and reinforcing!) good communication protocols will be important, especially with a team of experts, to ensure that messages delivered to clients remain professional (e.g., ensuring that team members are courteous and respectful to clients… and to each other, even when they professionally disagree!) and uniform (e.g., getting all team members on the same page with respect to client strategy, despite different expert opinions that may conflict with one another). Thus, developing good communication skills within the team by holding meetings to review client strategies in advance, rehearsing conversations through roleplay exercises, and, when hiring new team members, will ensure that all members of the team understand the reason in order to maintain positive morale.

Development Advisor Teams foster new and rising talent in the firm with a focus on investing for the firm’s future talent pipeline, whether the reason is to support succession planning needs, to offer more vacation time, or to deepen the firm’s next-generation talent pool. For Development Advisor Teams, one of the main challenges lies in establishing training programs, which can be both time- and labor-intensive. Delegating to less experienced team members is another challenge, which can be emotionally difficult for more seasoned team members who may be struggling with the idea of retirement or moving on to different roles, and mentally challenging for those who must remember that tasks which are easy for them (that they have carried out routinely for many years) can be complex and potentially difficult to master for newer team members who need detailed instructions. Yet, in order to develop effective training programs and to delegate the right tasks to the right individuals, it is important to crystallize the specific goals of the company. Accordingly, by setting goals that are SMART (Specific, Measurable, Achievable, Realistic, and Timely), firms can design Development Advisor Teams that meet their specific objectives.

Ultimately, the key point is that there are different types of teams that advisory firms can develop, and choosing the right type of team will depend on what is most important to the firm and what overall goals the company has. But with a clear understanding of the ideal type of team that can fulfill the advisory firm’s goals, it’s possible to tackle the unique challenges that each type of team commonly faces, and advisory firms can target specific solutions to help their teams thrive while meeting organizational goals!

Weekend Reading for Financial Planners (Mar 27-28)

March 26, 2021 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 a look at the new health insurance planning opportunities that have emerged under the American Rescue Plan, from the potential to receive several months of "free" (tax-credit-subsidized) COBRA coverage to new rules for Premium Assistance Tax Credits that can produce thousands of dollars in tax savings for those who buy health insurance from state insurance exchanges in 2021.

From there, we have several articles on advisor marketing:

What is a "Retargeting Ad" and why retargeting can be an especially efficient way for financial advisors to spend their marketing dollars
Why "Email" continues to be the #1 most popular marketing channel for financial advisors (and is becoming more popular with the rise of email marketing automation tools)
What it takes to become "an authority" where your expertise attracts your ideal prospective clients
The rise of website providers dedicated to working with financial advisors to produce websites at a "reasonable" (i.e., not $20,000+) cost

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

Why new retirees are beginning to look at taking a "gap year" between the end of work and the beginning of retirement (to better figure out what they want to do, and where they want to live, in retirement)
How "retirement" itself isn't just a phase, but continues 6 sub-phases in retirement (that advisors can help their retired clients navigate through)
A new approach to thinking about more "flexible" retirement spending strategies and why "spending flexibility" itself is a continuum along which retirees can choose an optimal spending strategy
The rise of new Social Security training programs, from the National Social Security Advisor (NSSA) program to the new Registered Social Security Analyst (RSSA) certification

We wrap up with three final articles, all around the theme of (re-)drawing the line between work and home life:

How work itself is increasingly becoming "omnipresent", where "are you available" isn't a question of whether you're actually available and have time, but whether you're ready and willing to give attention to work at that moment
How the pandemic gave rise to the staycation (taking a vacation but staying at home), and now the work-from-home work is leading to the rise of the "workcation"
The ways that businesses are (re-)designing Paid Time Off programs in the modern environment, from more flexible sick-plus-vacation time, to "forced" vacation days, and floating holidays

Enjoy the 'light' reading!

Kitces & Carl Ep 56: The Advisor Fee Debate And Focusing On Value Over Price

March 25, 2021 07:06 am 4 Comments CATEGORY: Kitces & Carl Podcast

For the past several decades, the prices that consumers pay for financial products have been trending lower and lower. From the rise of discount brokerage in the 80s, to no-load mutual funds platforms in the 90s, online brokerage in the “aughts”, and robo-advisors in the 2010s, the cost of investing has decreased steadily and dramatically. Accordingly, a recurring concern over the past decade has been whether the “fee compression” in financial products will eventually spread to financial advice as well. Instead, though, the opposite has been true, as our own Kitces Research shows that there has actually been fee expansion when it comes to financial advice, as the typical price that advisors charge for standalone financial plans, retainers, and hourly rates has been on the rise (and even AUM fees have remained remarkably stable!). Which suggests that, as the industry has become more focused on the advice side of the equation (and less on product sales), advisors have had to up their game… and in practice really are delivering far more value to their clients than they ever have… to the point that they’re even able to charge more for it!

However, as the advisory world transitions fully to advice fees and the debate between commissions versus fees begins to fade, a new sort of industry conflict is rising to take its place: where advisors who charge fees are criticizing each other for whatever fee model they’ve chosen to utilize within their practices, and the suggestion that their particular fee model is superior to all the others. Which raises the question: is the debate about the “best” advice fee model another version of consumer education (akin to teaching consumers about the difference between fees versus commissions), or are advisors charging fees becoming too focused on differentiating on price (or pricing model) instead of focusing on the range of value that a range of advice fee models can support?

In our 56th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss the emerging new advisor fee debate, why advisors may be missing the mark on the core issue at play, and how advisors could reframe their discussion in order to help move the profession (and their own practices) forward.

As a starting point, it’s important to remember that in an industry with a lot of compensation excesses, it has been a tried-and-true tactic for financial advisors to build their businesses over the years by pointing out that their costs are lower (making it more feasible to deliver better performance) than their competition. Yet at the same time, it’s important to remember that there’s a difference between advisors who charge a lot for very little service, and advisors who charge a lot for a lot of service (that not all clients may want to buy and pay for… but some do). In other words, while there are certainly advisors whose rates are “high” (in absolute terms), the central debate shouldn’t be around the fee itself (or what it’s based on), but rather the value that a client is actually getting for the fees they pay. Or stated more simply, the issue isn’t whether a certain fee (or fee model) is good or bad, it’s whether the fee itself is justified for the value it provides to the particular type of clients being served.

From a client-facing perspective, meanwhile, advisors might consider focusing on all the services (and value) they provide when meeting with prospective clients, rather than highlighting the fees that other advisors may be charging. Because, at the end of the day, when advisors ask good questions and emphasize the positive effect that they have on their clients' lives, prospective clients will be able to connect the dots themselves and understand if the service that they’re getting (or not) from their current advisor is worth the fees they’re paying.

Ultimately, the key point is that advisors who win business on price run the risk of eventually losing business on price (and/or simply attracting the most price-sensitive clientele). Which means for advisors focused on long-term relationships, making clear the real value of financial advice (and what that looks like on an ongoing basis) turns the focus away from why a prospective client may or may not be paying too much, and towards their pain points and the issues that they need help with. Because it’s the emphasis on the positive work that advisors do, and the outcomes they facilitate for their clients, that will push the profession (and individual advisory firms) forward.

Overcoming Clients’ Behavioral Biases Using Nudges, Smart Heuristics, And Behavioral Coaching

March 24, 2021 07:04 am 1 Comment CATEGORY: Client Trust & Communication

Even though clients seek out and hire a financial advisor to obtain recommendations they can implement to achieve their financial goals, in practice clients often get stuck and resist taking action or making a change when the time comes. Sometimes the resistance might be based on cognitive or emotional biases, and other times it can be due to a lack of understanding or education about why the change is actually necessary or appropriate. Though in practice, with the range of potential reasons for clients to be resistant – despite having hired the advisor for advice in the first place – it can be confusing and difficult for financial advisors to know what to do to actually help the client move forward.

To help clients get over their resistance, advisors can use methods such as nudges, smart heuristics, and behavioral coaching. These methods have been designed not only to help advisors understand the client’s resistance but also to give them options for addressing the many reasons for the resistance, in a manner that aligns with both the client’s needs (as not everyone may need – or even want – behavioral coaching) and the advisor’s own capacity (advisors may not feel comfortable engaging with all of the available methods, and the time it can take in client meetings to do so).

Nudges are used to help automate processes and tasks for clients (e.g., those that clients must implement on an ongoing basis, such as automating monthly savings with a “pay yourself first” approach). They work best with clients who agree that the action is important and necessary, but who may simply need or want reminders or other mechanisms to help ensure the tasks get done. For clients who aren’t yet sure how to assess whether an action is necessary or important, advisors can use strategies involving smart heuristics, which are less about completing tasks and more about helping clients understand the issue so that they have the ability to engage in meaningful discussions with their advisor. Smart heuristics rely on ‘just-in-time’ teaching, which offers education on topics that the client is currently considering, and thus may find more relevant and meaningful.

For clients who have issues with resistance that stem beyond motivation or understanding, such as emotional biases or personal feelings, advisors can consider using an approach that involves behavioral coaching. Behavioral coaching helps the advisor guide the client to examine how their own emotions and thought processes impact their decision-making. For instance, many clients may be afraid to take action on their financial plan for fear of making a mistake. Accordingly, it is normal for them to hesitate out of fear, anxiety, or ambivalence when making financial decisions. Behavioral coaching can help clients overcome these roadblocks by slowing down to discuss the client’s hopes, dreams, fears, and concerns to ensure their plans are well-rounded and suitable for them. Because while it is important for a plan to be based on technically sound recommendations, the client needs to feel good about the plan and be on board with the recommendations in order for it to matter in the first place.

In order for advisors to choose which strategy to use with clients and when each strategy would be most effective, advisors can turn to a ‘decision tree’ model developed by Sarah Newcomb and Richard Cummings. The decision tree organizes nudges, smart heuristics, and behavioral coaching into a hierarchy that can be applied to each client’s circumstances, and sheds light on when to use one strategy over another. While nudges are helpful to simply remind clients that something needs to be done, smart heuristics can help clients understand an issue so that they can decide for themselves whether they want to take action. If neither a nudge nor a smart heuristic is sufficient to address the client’s resistance, behavioral coaching can help the client understand and work through deeper personal roadblocks.

Ultimately, the key point is that advisors have an arsenal of tools to help them work with clients who are struggling with resistance – stemming from a range of sources – that impede their progress in achieving their financial goals. By developing a plan of action implementing these tools with their clients, advisors can shed light on interesting and insightful details that can potentially result not only in the advisor creating an outstanding financial plan suitable for the client, but also in the client taking ownership over their plan and achieving their financial goals!