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#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!

Weekend Reading for Financial Planners (Oct 20-21)

October 19, 2018 02:43 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that despite all the recent buzz, it appears that the SEC may be waiting nearly a year to release a final version of its Regulation Best Interest advice rule... but only because the Department of Labor may also be working in coordination with the SEC on its own version of an updated fiduciary rule as well. And also in the news this week is an announcement by the CFP Board that the organization is expanding its Mentor Match program, from what over the past two years was focused primarily on mentoring for young women entering financial planning (as part of its Women's INitiative or WIN program), to be available to any CFP certificant instead.

From there, we have a number of additional articles on retirement planning, from a look at the rise of "financial freedom" and "financial independence" as an alternative to the traditional label and approach of "retirement," to a fascinating look at the spectrum for total financial dependence to total financial independence (on a 17-step scale!), and the phenomenon of "microadventures" as a way to have more enjoyable vacation experiences even when you don't have the time for an extended vacation (whether during your working years, or in "busy" retirement itself!).

We also have several practice management articles this week, including: an articulation of the key difference between being a manager and a leader; a different way to think about who your most "valuable" clients are (based not just on their revenue or referrals, but how much they value what you do as a financial planner in the first place, which makes them more likely to become your long-term advocates); why it may be better to ditch the Annual Review for As-Needed Reviews instead; and a look at ideas about how to name (or re-name) your advisory firm if you don't want to simply name it after yourself as the lead advisor/owner.

We wrap up with three interesting articles, all around the theme of how to make better decisions: the first explores the so-called "distinction bias," and how we tend to overweight and overvalue small differences (and misjudge how much we'll really care about them in the future) when we compare objects side by side; the second looks at how delaying decisions tends to increase their stakes, so often the best way to make "easier" decisions is simply to proactively make more/faster small decisions instead; and the last looks at the growing base of research around decision-making itself, and how to better frame decisions for yourself with techniques like creating a "premortem" analysis or doing proactive scenario planning... or if you want to use the traditional "Pros and Cons" list, at least be certain to assign values or weights to them so that you give each factor its proper consideration!

Enjoy the "light" reading!

Why All Financial Planners Need To Create A Sample Financial Plan

October 18, 2018 02:15 pm 0 Comments CATEGORY: Client Trust & Communication

One of the biggest challenges we consistently face as financial advisors when creating a financial plan for clients is simply getting the data we need to actually do the plan in the first place. Because, without any information to enter into the financial planning software to begin with, it’s impossible to assess a client’s financial situation, show them the consequences of various trade-offs, and ultimately make our recommendations. Yet while for at least some clients, the problem with getting data is that they literally don’t know their own financial details in the first place – thus their need to hire a financial planner! – more often, the real issue is that the client doesn’t actually understand why they need to provide the data in the first place, and what they’re going to get out of the process.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why it’s not enough to just make the data gathering process mechanically easier for clients (e.g., with online data gathering forms instead of manually entering data into a printed data sheet), and why creating a Sample Financial Plan for prospective and new clients is an essential step in building enough trust with clients that they’re willing to gather and comfortable in sharing their financial information with you in the first place.

Historically, getting clients to complete data gathering forms has been a challenge simply because it’s tedious and time-consuming to fill out a paper form. And the situation is even worse for those who most need financial planning – because their financial lives are currently so disorganized – as the disorganization that makes them want financial planning is also the disorganization that means they don’t even know (and potentially don’t even know where to find) their own data to enter into a form in the first place!

Fortunately, as we move towards a more integrated digital age, the difficulty in obtaining financial planning data in the first place will be mitigated by account aggregation tools. Instead of manually entering information into a form, in the future all clients will have to do is link their accounts to their advisor’s portal, which will then automatically download the pertinent data into the planning software!

Still, even though some of these automations are starting to come online, a client’s hesitation to share their personal financial data often has less to do with the time involved, and more to do with the trust that clients need to feel – in the advisor themselves, and the value of the advisor’s process – before they allow an outsider to have a peek into their personal financial lives.

Because in a world where one of the biggest challenges financial advisors face – besides actually finding prospective clients in the first place – is demonstrating the real value of an intangible financial planning service, one of the most effective ways to get buy-in from new clients is to actually show them a Sample Financial Plan of exactly what they’ll get, and tangibly prove why it’s worthwhile. As even though the real value of what financial planners deliver is the actual process of defining goals, getting clients organized, and delivering advice, that sample financial plan is often the one and only tangible deliverable that clients can see to judge the value of the process.

The bottom line, though, is simply that if you are struggling as an advisor to get clients to share their financial information with you (whether via a data gathering form, or account aggregation), or are having trouble even getting prospective clients to sign on with you in the first place, it implicitly suggests that clients are just not seeing the value that you say you bring to the table. Because, even though we know that the financial planning process is worth it, ultimately, the onus is on us to show our clients that investing their dollars, time, and trust in your services is justified. For which the starting point is to create a Sample Financial Plan to really show clients the relevant value you can bring to them!

Getting Real About (Annual) Health Care Costs In Retirement

October 17, 2018 07:03 am 0 Comments CATEGORY: Retirement Planning

In its latest update, Fidelity recently estimated that the average 65-year-old couple will need a whopping $280,000 just to cover their health care costs in retirement, between Medicare Part B and Part D premiums, and additional out-of-pocket costs (or the Medigap supplemental insurance plan to mitigate them). Not including the potential cost of long-term care needs as well. As a result, one recent study of prospective retirees found that more Baby Boomers are actually less afraid of running out of money in retirement than they are specifically fearful of handling health care costs in retirement.

Yet the reality is that health care costs in retirement aren’t needed as a “lump sum” on the day of retirement, and the Medicare system actually makes health care costs a remarkably stable annual cost that can be planned for. And in fact, looking at health care expense in retirement as a lump sum masks a number of more direct and substantive planning issues, from the fact that unhealthy retirees may face fewer years of costs but much higher annual costs, to the challenges (and additional costs) of navigating health insurance as an early retiree via state health insurance exchanges.

Accordingly, a recent joint study by Vanguard and Mercer Health and Benefits analyzed the typical (and potentially unexpected) costs of health care in retirement, and showed that the "scary" lump sum cost of retiree health care is actually little more than spending a few hundred dollars per month, per person… for the better part of 2-3 decades in retirement, with the average female spending just $5,200/year throughout her retired years including all health care-related costs (albeit excluding long-term care needs).

Of course, individual health care costs may still vary… but it turns out they vary in rather predictable and plannable ways, from the increase in health care costs for those entering retirement with one or several chronic health conditions, to those who must plan for the additional costs of health insurance via state marketplaces for early retirement, and the additional layer of costs for high-income individuals due to the Medicare income-related surcharges.

Which means in the end, while health care costs may cumulatively add up to a lot over a multi-decade time horizon, they do so in ways that can be largely planned for in advance, saved for with both retirement savings itself or using Health Savings Accounts (HSAs) as a supplemental retirement savings vehicle, managed by making good Medicare enrollment choices, and adjusted for (typically-known-by-retirement) chronic health conditions. Or simply funded by Social Security payments, which for a married 65-year-old couple earning merely “average” benefits, amounts to a lump sum equivalent of more than $600,000 anyway (for those who prefer to convert ongoing retirement cash flows to lump sum equivalents)!

#FASuccess Ep 094: Crafting Your Optimal Solo Practice By Simply Charging What You’re Worth With James Osborne

October 16, 2018 07:03 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 94th episode of the Financial Advisor Success podcast!

This week's guest is James Osborne. James is the founder of Bason Asset Management, a solo advisory firm based in the Denver suburbs that oversees more than $225 million of assets under management.

What's unique about James, though, is the unusual way that he structured his advisory business, with a simple flat fee of $4,800 per client regardless of their assets, which has allowed him to build a high-margin solo practice with just 80 clients generating nearly $400,000 of revenue for the firm at the age of just 35 years old.

In this episode, we talk in depth about why James decided to structure his firm using this flat fee approach in lieu of the AUM model. How the design of his business model makes it possible for him to generate a target of his exact income potential as he reaches client capacity, the way he handles situations where his flat fee would be substantially lower than what another advisor's AUM fee might be for prospective clients with a lot of assets and net worth, and the reason that he chose to deliberately build a business model that fits his personal lifestyle and family goals.

We also talk about what it really means to reach personal capacity as a financial advisor. The challenging trade-offs that start to emerge as advisory firms try to grow beyond the individual capacity of the founder, why it is that beyond a certain point, doubling the number of clients and revenue at the practice has almost no impact on the take-home compensation of an advisor, and the reason that so many solo advisory firms will actually generate far more value for their founders by staying small even if the practice is never sold.

And be certain to listen to the end, where James talks about how he's adjusting the way he meets with and takes on prospective clients as he approaches his personal capacity, and what he plans to do to maintain his high-income lifestyle practice once he reaches that threshold.

So, whether you're interested in learning about some of the benefits of a flat-fee structure, how James approaches investment management, or why most advisors are scaling their practices all wrong, then we hope you enjoy this episode of Financial Advisor Success Podcast.