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The Latest In Financial Advisor #FinTech (November 2018)

November 5, 2018 07:03 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the November 2018 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 Fidelity has rolled out a new open architecture marketplace aptly called Integration XChange, in what is both a major shift for the RIA custodian towards a more open architecture, a substantial potential threat to TD Ameritrade’s marketplace differentiator, a huge new opportunity for FinTech upstarts to have a second go-to-market channel for RIAs besides Veo, and a creative way to feed Fidelity’s new Consolidated Data initiative.

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

Riskalyze rolls out a new “GPA” scoring system to evaluate how efficiently a prospect’s (or advisor’s) portfolio allocation maximizes its return potential for a given level of risk tolerance.
eMoney Advisor launches a new Foundational Planning module that takes a bizarre step into MoneyGuidePro’s past, just as FiServ launches a new Financial Advice Management module that also bears eerie similarities to the MGP interface.
Edmond Walters re-emerges after a 3-year hiatus with digital marketing platform AdvisorStream to potentially continue what he started with eMoney’s Advisor Branded Marketing.
AdvicePay announces new integrations with both TD Ameritrade’s Veo and Orion to more easily facilitate fee-for-service billing of financial planning and retainer fees alongside an advisor’s AUM fees.

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including Vestmark’s acquisition of Adhesion and the rollout of Orion Enterprise, YCharts’ new Model Portfolio tracking and analysis tools, Redtail’s new AI system for advisors and what it might someday do, Hearsay’s CRM overlay system to make it easier for advisors to manage tasks and workflows directly from their smartphone, SigFig’s new CoPilot solution to replace more back- and middle-office functions for human advisors, and the rollout of CapGainValet’s 2018 estimates of end-of-year mutual fund distributions for advisors.

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 (Nov 3-4)

November 2, 2018 02:57 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 Schwab is launching a new "Center of Excellence" that is intended to push forward internal innovation, including ways to better support "smaller" advisors with $25M to $100M of AUM that still form the bulk (70%+) of advisor assets but tend to get the least support due to their small individual size, in what may signal a broader shift of RIA custodians to put more resources to "downmarket" advisors in addition to competing for the small subset of the largest firms.

From there, we have a number of articles looking at broad industry trends, from an interesting look at the 50-year anniversary of a number of major independent broker-dealers (who all formed in 1968 as insurance company subsidiaries after a major court case and regulatory ruling required them to do so to continue offering early-stage variable annuities), to a discussion about the rising trend of private equity firms investing into broker-dealers, why perhaps it's time to shift our current industry disclosure approach to providing more standardized data that third-party sites can better package for consumers (instead of regulators trying to design the "optimal" disclosure), a discussion of how direct-to-consumer "Insurtech" providers are trying to disrupt life insurance companies the way online discount brokers disrupted the traditional stockbroker, and an interesting "call to action" to RIA custodians about what they need to improve to better support younger/newer advisory firms.

From there, we have a number of tax planning articles as well, including: pending guidance from the IRS that will affirm that meals do remain deductible even though entertainment expenses aren't deductible anymore (even if the meal itself is tied to an entertainment event); how the Tax Cuts and Jobs Act is shifting the focus of estate planning away from estate taxes and towards income tax planning and asset protection instead; and what to watch out for if clients want to do a "temporary loan" to themselves using the IRA 60-day rollover rules.

We wrap up with three interesting articles, all around the theme of connecting better with others: the first delves into the research about how we actually form close friendships, and what it takes to speed the process of finding and establishing close friends; the second offers up some useful tips on how to better write persuasive emails that connect (and are less likely to be misunderstood); and the last explores the research on what it takes to be perceived as more charming, which as it turns out, has little to do with being perceived as more competent and instead is driven almost entirely by being perceived as more "warm," which means trying to be more welcoming to the other person who may be equally nervous about being perceived as charming themselves!

Enjoy the "light" reading!

(When) Will CFP Certification Ever Become A Licensing Requirement Like The CPA?

November 1, 2018 01:26 pm 0 Comments CATEGORY: Planning Profession

Historically, the competency standards to become a “financial advisor” have been very low. After all, technically in order for someone to hold themselves out as offering “comprehensive financial advice” and get paid for it, all they really need to do is pass a 3-hour regulatory exam that takes just a week or few of preparation. In the meantime, though, salespeople who are “only” licensed to sell insurance or investment products and technically can’t be paid for their advice itself can also still publicly call themselves financial advisors as well. Which is why it’s so difficult for consumers to tell which is which, and for comprehensive financial planners themselves to differentiate their services from the army of other “advisors” out there who say they do the same thing… even though they don’t, and can’t actually be paid for it in the first place. That challenge, in turn, has led many to wonder if there’s a path for regulators to enact (and enforce) rules requiring anyone who says they provide comprehensive financial advice to actually be trained and educated to do so, and whether it might make sense to someday require a minimum standard like CFP certification as a licensing requirement to provide financial advice.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss how the CFP marks are not a license to practice now, the differences between the CFP certification and a bona fide license like the CPA, possible avenues to transition the CFP certification from a trademark into an actual license, a few of the many hurdles such a potential transition would encounter… and why it still might be a worthy goal to pursue anyway.

It’s important to understand that, unlike a CPA license – which is granted by a state certifying body and grants accountants legal authority to perform certain tasks (e.g., attesting an audit) that they wouldn’t be able to do otherwise – the CFP certification does not fall under any state or federal regulatory body, and instead is a trademark that the CFP Board allows advisors to use if and only if they agree to honor the Board’s Terms and Conditions (which happen to include following the Four E’s of the CFP education, exam, experience, and ethics requirements). But that also means that financial advisors aren’t required to obtain CFP certification, or any substantive education or experience, in order to hold out as providing (and get paid for) financial advice, and instead need only to pass some very basic licensing exams.

In the past, this wasn’t a big deal, as the industry was focused primarily on selling investment and insurance products in the first place, for which financial planning was an effective sales strategy. However, in a world where products are increasingly accessible through technology itself, the value that advisors must bring to the table has less and less to do with financial products that are sold, and more and more to do with the quality of advice itself. Yet without the proper education, examination, experience, and ethics requirements that could be prescribed (and then overseen) by a regulatory body, financial advisors aren’t being held to the sort of standards common to professionals in other industries where the advice provided often makes such a significant impact on clients’ lives (and where the depth of expertise of the professional makes it difficult for consumers to vet who is “good” or “bad” in advance).

Unfortunately, the pathway towards turning the CFP certification into a required license to provide financial advice is difficult, as it must fall under the purview of either state or Federal regulators, and both have their own unique challenges. State regulation is often easier to implement – at least something – but rarely ends out being uniform, in a world where advisors are increasingly likely to work with clients across state lines. Federal regulation allows for uniformity across all 50 states, but can be difficult to prevail against concentrated industry lobbying forces, and ironically existing regulators themselves may not want to see their existing regulatory purview entrenched upon!

Nonetheless, the transition to higher competency standards for financial advisors might become inevitable, given the accelerating rate of adoption of the CFP certification itself amongst advisors. Because at some point, the CFP marks will become so ubiquitous that it will be “easy” for the industry to demand that anyone getting paid for providing financial advice should be required to have CFP certification to do so… simply because most advisors already will have it at that point (and the majority will then require the rest to conform).

Ultimately, though, the key point is simply to recognize that CFP certification is not a license today, and realistically can’t become one while it’s still only held by a minority (about 30%) of all financial advisors. But ironically, the best path to enshrining a minimum competency standard like CFP certification into licensing regulation may simply be to support its continued and ever-broadening adoption – which appears poised to accelerate further as it becomes a “mainstream” certification – because at the point most advisors have voluntarily adopted the standard anyway, it’s not a big leap to make it official… and set a formal competency standard akin to other recognized and true professions!

How Do You Actually Create A Steady Retirement Paycheck From A Volatile Retirement Portfolio?

October 31, 2018 07:04 am 0 Comments CATEGORY: Retirement Planning

For prospective retirees who don’t simply want to annuitize most or all of their wealth, determining how best to invest a retirement portfolio to generate income is a substantial challenge. Not only because of the need to invest for enough growth to sustain inflation-adjusting retirement distributions over time, and managing portfolio volatility to avoid triggering an adverse sequence of returns in the first place… but also because, as retirement investing has evolved beyond simple strategies like “buy the bonds and spend the coupons” and into more total return strategies, it’s surprisingly difficult to come up with a system to actually generate the distributions themselves.

After all, most prospective retirees who are looking at making the transition away from work have spent the better part of 40 years paying their ongoing bills from a steady series of monthly or perhaps bi-weekly paychecks. Which means the most straightforward way to facilitate retirement is simply to re-create those ongoing retirement paychecks. Except as noted, modern retirement portfolios – especially those that include both income and growth (i.e., capital gains) components – aren’t necessarily conducive to generating consistent retirement paychecks. At least not without creating a system behind the scenes to ensure the cash will be there as needed.

Over the years, advisors have created a number of different systematic approaches to address the retirement paychecks challenge. For some, it’s about investing into a “traditional” income-generating portfolio of bonds and dividend-paying stocks (perhaps supplemented today by income-generating alternatives like REITs and MLPs), and simply passing through the income as received. For others, it may start with accumulating interest and dividends, but then “topping up” the portfolio’s cash with periodic liquidations of capital gains. For still others, with the ongoing decline of transaction costs, the approach has shifted to simply keeping all cash fully invested, and making liquidations as needed in real-time to generate retirement distributions without any cash drag at all!

Whatever the particular methodology, though, any advisor needs to be able to answer a number of important questions about their mechanical process of generating retirement paychecks, including how they will handle dividends and interest, whether there will be a cash position (or not), how capital gains liquidations will be handled (in various up- and down-market scenarios), the frequency of distributions (monthly, quarterly, or annual?), the sources of distributions from various account types, and how those distributions will be coordinated with the rest of the client’s retirement income picture (from Social Security to pensions and annuities to reverse mortgages).

The bottom line, though, is simply to recognize that the mechanical challenge of how to actually generate those retirement “paychecks” that transitioning retirees are accustomed to, is an entirely separate matter from just investing the retirement portfolio itself, and entails a number of distinct policy-based decisions about how to standardize a process for a wide range of retirees. In turn, advisors might even consider creating Withdrawal Policy Statements to then codify the processes they will use to generate retirement income withdrawals, just as an Investment Policy Statement is used to codify the processes used to invest the retirement portfolio itself!

#FASuccess Ep 096: The 7 Pillars Of Running An Advisory Firm Like A Real Business With Stephanie Bogan

October 30, 2018 07:01 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 96th episode of the Financial Advisor Success podcast!

This week's guest is Stephanie Bogan. Stephanie is a successful practice management consultant who built and sold her first consulting firm and now has gone on to found a new one called the Limitless Adviser Coaching Program.

What's unique about Stephanie, though, is that despite the fact that she doesn't need to build another practice management coaching business for advisors, she's doing so anyways as a means to have a greater positive impact on the advisor community, and in the process, teaching other advisors how to build their businesses to achieve their ideal outcomes as well.

In this episode, we talk in depth about what Stephanie calls the seven pillars or simply the 7P's of building and running a successful advisory firm. Starting with the key step of planning for what outcome you want to create for your firm, then figuring out how to position the firm to reach the right clientele, and then following through with the packaging, promotion, process, platforms, and people that are needed to implement the vision. Because the irony is that, while most financial advisors are independent entrepreneurs, very little practice management in the industry actually teaches the real methods to build and run a business.

However, we also talk about how in the end improving the methods in your advisory business really actually creates any real breakthroughs, as most of the time the ceilings we hit in our businesses are not actually just a function of how we're doing the business or whether we're doing it wrong, instead, most growth ceilings are actually a mindset problem. And once you make the decision to change your mindset, the status quo, and do something differently, it suddenly opens new doors to execute the business differently. And it's then walking through the newly opened doorways that can really create business breakthroughs.

And be certain to listen to the end, where Stephanie talks about how in the long run the key to success and satisfaction with your advisory business isn't really about the size of the firm or what you build at all, it's about figuring out what outcome will make you happy in the business and then crafting a pathway to achieve that vision. Because, just as we as advisors experience with our own clients, few people find satisfaction even with tremendous financial success until you can articulate the non-financial goals you're really trying to achieve in the first place.

How “Robo” Technology Tools Are Causing Fee Deflation But Not Fee Compression

October 29, 2018 07:01 am 0 Comments CATEGORY: Practice Management

After years of forecasting that robo-advisors would cause fee compression – at best reducing the profitability of advisory firms, and at worst compelling them to fold or at least merge in search of economies of scale to compete – the latest InvestmentNews Pricing and Profitability Study shows that, after holding steady since 2012, pricing power of advisory firms took a precipitous downturn in the past two years, with the average revenue yield of an advisory firm falling from 77 basis points to just 69bps since 2015.

The caveat, however, is that even as advisory firm fees may be slipping, the operating profit margins of advisory firms held steady… and did so regardless of the size of the advisory firm. In other words, while fees may be starting to decline, there is no evidence that it’s adversely impacting the profitability of advisory firms… nor that there’s any need to merge, grow, or gain economies of scale to survive and thrive in a lower fee environment.

The reason for this miraculous combination of lower advisory fees and steady advisory firm profitability: productivity. In just the past few years, the average number of clients per staff member, and revenue per staff member, is up a whopping 18%, more-than-fully offsetting any decrease in an advisory firm’s average revenue yield! In other words, “robo” technology isn’t causing fee compression and putting advisory firms out of business; instead, it’s reducing the cost of doing business in the first place, leaving firms room to cut fees, in a phenomenon that looks more like “fee deflation” than “fee compression”!

The caveat, however, is that while advisory fees were able to decline in recent years on the back of improvements in staff productivity, the productivity of financial advisors themselves decreased by 22% in recent years, as advisors are compelled to deepen client relationships and do more work with fewer clients to justify their advisory fees in the first place.

The significance of this trend is that a decline in advisory fees (potentially increasing the appeal of consumers to hire a financial advisor), coupled with a decline in advisor productivity (as advisors do more for each client), may soon make the industry’s looming talent shortage (given the 50-something average age of a financial advisor) far more acute. As even today’s financial advisor population can barely serve 15% of all US households, and the CFP certificant population is only numerous enough to serve 4% of households.

Which means, ironically, the greatest threat to the profitability and growth of advisory firms today is not that robo-advisors are or will compress fees, but simply that there aren’t enough financial advisors in the aggregate to capitalize on the opportunities being wrought by the positive fee-deflationary impact of robo technology efficiencies!

Weekend Reading for Financial Planners (Oct 27-28)

October 26, 2018 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 interesting news that after several years of scandals, two Wells Fargo brokers are actually suing the company and claiming that because the company recruited them with forgivable loans but without disclosure of the impending scandals, that they shouldn't be required to repay the forgivable loans now that they're leaving the firm to distance themselves from Wells' damaged reputation (and potentially setting the groundwork for other brokers in the future to sue their platforms for scandals that impair their advisors' ability to attract and retain clients?).

Also in the news this week was a big "Diversity Summit" hosted by the CFP Board's Center for Financial Planning where the organization shared research about what financial services needs to do to improve its diversity (and stay relevant in a world where fewer than 3.5% of CFP certificants are black or Latino even though within 30 years people of color are projected to be the majority of the U.S. population!), and a look at a recent Cerulli research study finding that, notwithstanding industry buzz about fee compression, actual surveys to end consumers suggest that they are not nearly as fee-sensitive as most advisors fear (in part because consumers still aren't clear enough on the value of financial planning from different advisors in order to price-comparison-shop them in the first place!).

From there, we have a number of retirement planning articles, including a look at end-of-year IRA tax planning strategies (from partial Roth conversions to Qualified Charitable Distributions from IRAs), an analysis of the so-called "Tax Torpedo" (when the taxation of Social Security benefits phases in, and retirees are temporarily boosted from the 24% tax bracket to a 40.7% marginal tax rate), and a review of some lesser-known-but-still-important IRA tax rules... from how the once-per-year 60-day rollover rule can impact spousal IRAs, to the fact that while inherited IRAs cannot be converted to a Roth account, inherited 401(k) plans can be (but are still not as appealing to convert as an individual's own IRA and 401(k) accounts!).

We also have several articles specifically on referrals, including a reminder that how you initially respond to the person who makes the referral can have a significant impact on whether you get any more referrals from them in the future, to what to be wary of so you don't turn off an otherwise-warm referral lead, and why it's important to communicate how you will handle referrals that are not in your target market (so those who might refer to you don't have to worry about what happens if they refer a friend, family, or colleague who might otherwise be "rejected" by you and embarrass them in the process).

We wrap up with three interesting articles, all around the theme of how to more productive and find more energy in your day: the first looks at how to arrange your activities throughout the day to get the best results (complex work in the morning, creative work in the late afternoon!); the second draws on a big list of productivity tips from various experts in order to get things done more effectively; and the last is a fascinating look at the latest research from Tom Rath's "Are You Fully Charged?" about what it actually takes to bring more energy to your daily activities and literally feel more energized about what you do in the first place.

Enjoy the "light" reading!

When Clients “Need” More Risk Than They Can Tolerate: Adjusting Portfolios, Or Goals?

October 24, 2018 07:16 am 1 Comment CATEGORY: Investments

It is a standard requirement in financial services that financial advisors must first determine an investor’s risk tolerance before making any investment recommendations for their portfolio. Yet in the modern era, good financial advisors don’t just invest a portfolio for growth or preservation of principal alone, but to achieve the investor’s goals, and whatever required return (and associated risk) those goals necessitate. Except in practice, doing so is sometimes impossible – because not all investors are able to tolerate the amount of risk they need in order to achieve their goals in the first place!

For financial advisors, this leads to two alternative paths for implementation. The first is to take a more “authoritative” approach, where the financial advisor is literally “the authority” – the expert – whose job is to implement whatever the investor needs to achieve the goal (i.e., to invest them for what they need, regardless of their tolerance), and then bears the responsibility to help their clients stick with the plan and stay the course (i.e., “behaviorally manage”) through the inevitable market downturn. By contrast, the second option is a more “accommodative” approach, where the financial advisor may educate and make suggestions to the investor about why they need (and should be more comfortable with) a greater level of risk, but in the end accommodate however the client wishes to invest (since it’s their money and their decision in the end, even if it’s a path inevitably doomed to failure by generating insufficient returns).

On the other hand, arguably the real problem is not just about deciding whether to be more authoritative or accommodative with respect to an investor’s mismatch between their need for risk and tolerance to take it, but recognizing that their need for risk is so (problematically) high because their goal itself is very demanding and risky in the first place. Which means the best path forward may not be about trying to determine the “optimal” portfolio at all (because there really isn’t one) but is instead about helping clients to adjust their goals such that they don’t need more risk than they can tolerate in the first place. In other words, the advisor doesn’t need to be authoritative or accommodating of the client’s high-risk-need and low tolerance if the goals can be adjusted so the client no longer has that high-risk need after all!

Or stated more simply, in a world where portfolios aren’t just invested for growth or preservation of principal in the abstract, but specifically to achieve certain goals, the first step of the process is not to align the portfolio to the client’s risk tolerance, but to align the goals (and the amount of risk they would necessitate) to the client’s risk tolerance in the first place. Because once goals themselves are aligned to risk tolerance… implementing the optimal portfolio turns out to be remarkably straightforward!

#FASuccess Ep 095: The Never-Ending Process Of Iteratively Building An Advisory Firm with Linda Lubitz Boone

October 23, 2018 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 95th episode of the Financial Advisor Success podcast!

This week's guest is Linda Lubitz Boone. Linda is the founder of Lubitz Financial Group, an independent RIA in the Miami area that oversees nearly $250 million of assets under management for 125 affluent clients.

What's unique about Linda, though, is that despite having reached a phenomenal level of success building a $250 million AUM firm over the past 25 years, she continues to proactively iterate on and make changes to improve the advisory firm, from the service provider she uses to support the business, to the very business model itself.

In this episode, we talk in depth about how Linda continues to evolve her advisory firm. From exploring a potential shift from charging an AUM fee plus an upfront planning fee, into a consolidated income plus net worth retainer fee instead, as a way to shift the focus of clients away from the portfolio and towards growing their entire net worth instead, the decision to outsource her back-office investment operations to a third party provider but without fully transitioning to a TAMP, and how Linda is shifting her own role in the business to transition new and existing clients to her next-generation advisors while formalizing a business development training process for the firm.

We also talk about how Linda got started in the first place. The way she built her business in the early years with the philosophy of, "Meet a lot of people, answer the phones quickly, and do what you say you're going to do," why it's so crucial to plan to cover two to three years of personal living expenses when starting an advisory firm, even if you're confident it's going to succeed, and how joining or even forming your own study group to have a network of peers to hold you accountable to your own business plan can help keep the advisory business focused and growing.

And be certain to listen to the end, where Linda shares how she made a key personal life transition in the midst of growing her business, splitting 50% of her time between her home base in Miami and out to San Francisco, where her then-new husband's firm was based, and how in the end, even though we're often so fearful about how existing clients will react to a change, in reality, once clients trust us, they tend to stick with us and even support us in our own life changes as advisors.

And so with that introduction, I hope you enjoy this episode of the "Financial Advisor Success" podcast with Linda Lubitz Boone.

17 Steps To Successfully Transitioning Clients As A Breakaway Broker To An RIA

October 22, 2018 07:09 am 0 Comments CATEGORY: Practice Management

While a growing number of advisors who have built AUM practices at a broker-dealer have been making the switch to the RIA channel as a pathway to have better control over their businesses and how they serve their clients, the transition itself is still fraught with risk. At best, launching your own RIA – or even joining an existing one – entails an immense amount of paperwork to transition clients from the old firm to the new one, even as the prior firm may take steps to try and retain them. At worst, the onslaught of required paperwork causes mistakes to be made and transfers to slip through the cracks… undermining client confidence and leading them to decide not to make the switch with the breakaway broker after all.

In this guest post, Grier Rubeling of Advisor Transition Services details what it really takes to make a transition successfully – along with practical tools and templates she’s built – based on her real-world experience as part of a firm that made the transition and then founding an Advisor Transitions business to help many more advisors work through the transition process since then. Because the reality is that in a high-stakes competitive environment, where the breakaway broker is trying to persuade clients to come along as the prior firm fights to retain them… there is very little room for error.

The key to a successful transition process is to lay the proper foundation to begin with. Not just with respect to the formalities of creating the legal RIA entity and establishing a custodial relationship, but planning out each step of the transition process in advance, and putting the necessary tracking systems in place, so that when the time comes to hand in the resignation letter… the breakaway broker can hit the ground running immediately.

Unfortunately, even when done well, a breakaway transition can take many months of detailed tracking and client interaction to ensure that every account is opened and transferred and funded properly before the burden finally eases. Nonetheless, there are a lot of practical, time-saving tips that can be employed along the way to make the transition process at least a little easier to manage!