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Weekend Reading for Financial Planners (Jan 16-17)

January 15, 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 the details of President-elect Biden's newly proposed "American Rescue Plan", a $1.9 trillion economic stimulus proposal that would provide additional from additional ($1,400) stimulus checks to increased unemployment benefits, a higher Child Tax Credit to an increase in the minimum wage (to $15), along with a wide range of state and local government aid, and more funding for national COVID-19 testing and vaccinations. Of course, a legislative proposal does not necessarily mean it will become law... though, with the potential for tax legislation to pass with a simple majority as a budget reconciliation bill, all eyes are increasingly on the potential for major tax legislation in the initial weeks of the incoming Biden administration.

Also in the news this week are a number of other key announcements on transition and new plans from the Biden administration, including:

A signal from Senate Democrats that they intend to quickly take up the Biden Tax Plan proposal to increase capital gains rates to ordinary income rates for upper-income households (e.g., those making more than $1M in income)
An indication that the Biden administration may soon announce Gary Gensler as the incoming SEC Commissioner... who is known for implementing aggressive pro-consumer policies to reign in Wall Street from his years at the CTFC and suggesting that Regulation Best Interest may be back on the table for consideration in the coming year

From there, we have several articles around managing household cash flow:

A look at the new 'perks' that premium credit cards are rolling out to keep high-end customers on board in a world where travel perks weren't usable in 2020
6 apps that can help automate the process of figuring out all the services you're automatically subscribed to (and help you unsubscribe from them!)
Thoughtful consideration of when 'frugal habits' become so ingrained that they persist long past the point of being useful or necessary (do you really still need to keep using single-ply toilet paper!?)

We've also included a number of articles around marketing:

How using the word "only" in your marketing (as in, you "only" work with certain types of clients) can actually attract them more quickly
Why it's not helpful to ask clients if they want to connect with you on social media, and instead should ask them what they want to hear about instead
How the shift to working with clients virtually means having a 'local' advisor is no longer necessary... a game-changer in marketing as a financial advisor for many years to come!

We wrap up with three final articles, all around the theme of running a better advisory business:

Why it's so important to create a 'culture of learning' when, in the end, the advice business is all about the wisdom and experience of the people that work there
How better decisions require not just more perspectives but substantively different perspectives that force consideration of issues from all angles
Why the remedy for boring meetings is not to make them shorter (or eliminate them altogether) but actually to make them longer... and in the process, spend more time focusing on the topics that are most relevant to have the time to really discuss in depth!

Enjoy the 'light' reading!

Kitces & Carl Ep 51: Fighting The Fear of Focusing When Trying To Select A Niche

January 14, 2021 07:08 am 2 Comments CATEGORY: Kitces & Carl Podcast

For most of its history, the financial advice industry has been predominantly transaction-based, with advisors earning a living solely from the commissions they earned on whatever product they sold to help their clients meet their needs. And since there wasn’t any reason to meet with those clients again until there was another opportunity to implement a product, advisors needed to attract as many potential clients as they could in order to be successful. As a result, it was essential for advisors to be as broad in their messaging and marketing as they possibly could, to be certain they reached anyone who might potentially be able to buy their company’s products.

However, as the industry has moved towards recurring-revenue model, where advisors are paid for ongoing financial advice, not only has it become increasingly difficult for advisors to stand out in a crowded and competitive marketplace, but as recent Kitces Research shows, advisors who serve a niche enjoy clear operational benefits as well, including the ability to spend more time on high-value, client-facing activities, charge more for the advice they give, scale their practices more efficiently, and earn (on average) more than 50% more than their non-niche counterparts. Yet, the reality is that many advisors still balk at the notion of focusing in on a specific niche, which raises the question: why is it so challenging to choose an area of focus, and how does one get comfortable choosing a particular niche to focus on?

In our 51st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss some of the reasons advisors have a hard time committing to a niche, the mindset shift that advisors can make when thinking about the choice to serve a niche, and why relevance (through serving a focused clientele) is a key element to building a successful advisory business in the future.

As a starting point, it’s important to recognize that the most common reason that advisors avoid ‘just one’ specific client-type is that they worry that they will have to say ‘no’ to prospective clients who don’t fit that focus… and actively turn down revenue in the process, which a particularly daunting prospect for advisors who are in the early stages of their career. Yet, the likelihood is that very few people (if any) end out saying ‘yes’ to advisors who try to be everything to everybody in the first place. Which is often readily apparent when looking at advisor websites, that (for generalists, at least) rarely generate leads, despite seeing (usually) a few hundred visitors each month… who might arrive at the advisor’s website, take a (virtual) look around, but leave without taking any action. Put another way, advisors who don’t develop the expertise to solve specific problems for a specific group of people better than anyone else may be able to work with anyone, but don’t end out being relevant to anyone.

Ultimately, the key point is that deciding to serve a niche isn’t about saying ‘no’ to a bunch of prospective clients, it’s about getting at least a few more potential clients to say ‘yes’ in the first place. Getting started as a financial advisor (regardless of the business model) is by far the most difficult stage in every advisor’s career. But the good news is that there is nothing to lose by not trying to be everything to everyone, and a whole lot to gain from getting really good at serving a specific clientele with issues that are unique to them for which the advisor can offer differentiated value. In the process, advisors can move from not being relevant to each and every person with whom they interact, to being in a position to serve the exact needs of at least a few of them… which, at the end of the day, is a big step forward, both for advisors just getting going, and for advisors who want to take their businesses to the next level!

When More Advisor Empathy Isn’t Better And The Compassion-Based Alternative

January 13, 2021 07:07 am 1 Comment CATEGORY: Client Trust & Communication

Many financial advisors find that expressing empathy can help them to bond with and strengthen their relationships with clients. Yet, while becoming emotionally invested in clients’ personal experiences can be an effective (and often enjoyable!) way for advisors to establish close relationships and friendships with them, when clients experience difficult and even traumatic experiences (e.g., panicking in response to extreme market volatility, or suffering from the loss or plight of a loved one), advisors may find themselves sharing the same emotions as their clients… such that they, too, suffer emotional distress, to the point that their own emotional well-being becomes jeopardized.

Notably, though, there are different forms of empathy, some of which don’t require experiencing the other person’s emotions. As while emotional empathy does involve personally experiencing the same emotions as someone else, cognitive empathy involves simply understanding the level and significance of someone else’s emotional experience, but on an intellectual level (sometimes referred to as ‘emotional intelligence’), without necessarily experiencing those emotions. And when coupled with compassion (which is a “concern to enhance the welfare of another who suffers or is in need” and which motivates us to take action to help someone), cognitive empathy can become a valuable tool for financial advisors to understand and help clients without experiencing the same emotional highs and lows their clients may be experiencing.

Another important caveat of emotional empathy is that it is often limited to individuals with whom we consider similar to ourselves; accordingly, if someone isn’t similar enough to us, we just might have less emotional empathy for that person. Which is important, as advisors who lead with empathy can unintentionally narrow their client base to only others who are similar to themselves, and actually make it more difficult to connect with other types of clients.

Advisors who want to connect with their clients, but reduce the emotional toll of an emotional empathy approach, and instead seek to implement more cognitive empathy and compassion into their client meetings, might consider exploring practices adopted from Compassion-Focused Therapy (CFT). What’s unique about the CFT approach is that it focuses on helping clients not just trace the past to how they arrived where they are, but instead to identify their strengths, current abilities, and their present opportunities, in order to identify ways to comfortably move forward through specific challenges they may be facing. Compassion-Focused Therapy can be especially helpful when working with clients in distress and is designed to support clients and accomplish change.

Ultimately, the key point is that advisors can employ cognitive empathy to connect with their clients by understanding what they feel, yet without necessarily experiencing the same emotions as their clients that can take a real emotional toll. And by practicing compassion, advisors can take the insights gleaned from cognitive empathy to take action to help and support their clients productively, with confidence that the help they are providing to their clients is not clouded by the emotional burdens they may have taken from their clients!

#FASuccess Ep 211: How A Clear Marketing Focus Can Make The Sales Process Easier, With Kristin Harad

January 12, 2021 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 211th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kristin Harad. Kristin is the founder of her eponymous marketing consulting firm for advisors, with a particular focus on both helping to coach solo advisors to the next level and providing outsourced CMO services to midsize RIAs. What's unique about Kristin, though, is that she isn't only a marketing consultant to advisors, but spent eight years building her own independent advisory firm, which she launched from scratch and had an incredibly fast growth start to nearly $200,000 of financial planning fee revenue alone in barely three years, and of course, grew even further in the years that followed all from applying her advisor marketing principles first and foremost to herself, and now she's built a consulting business to teach others to do the same.

In this episode, we talk in-depth about how Kristin's background in consumer marketing with a focus on building brand loyalty and retention programs provided a foundation for her to launch and market her own advisory firm. Why Kristin chose from the start to focus in on a niche before she even figured out what to call the firm or how to structure her services. The way Kristin's clear focus on a particular target market of new and expecting parents and dual-income households in San Francisco gave her opportunities to market in an extremely cost-effective way. And the way Kristin marketed and offered 'welcome' kits to her prospects before their first meeting with her, to make it easier to convince them to work with her, as someone who wasn't naturally inclined toward sales herself. We also talked about Kristin's journey through the advisory industry, how her work in consumer marketing at large financial services firms from Chase Manhattan Bank to Charles Schwab built her initial awareness of the financial advisor industry.

Why it was an interest in life coaching that ended up being Kristin's initial pathway to deciding to launch her own advisory firm. How Kristin overcame the unexpected career challenges that arose when she made the personal life decision to give her children a chance to live in a foreign country and had to uproot her own business in the process. And why in the end, Kristin's passion for advisor marketing ultimately led her to transition her clients to the other advisor she recruited into her firm so that she could focus her full time on coaching other advisors in their marketing instead.

And be certain to listen to the end where Kristin shares her tips on how advisors can find the right target market to focus on when they're not sure which one to pursue. The ways that a strong and persistent marketing process can make it easier for those who otherwise struggle with their sales process, and why once again selecting her own clear target market to work with, now in her advisor marketing business, is allowing Kristin to have her best business year ever in 2020 despite the turmoil of the pandemic.

So whether you’re interested in learning about how Kristin found her niche of working with new mothers, the challenges that arose from moving her family and business to a foreign country, or the cost-effective marketing strategy she used to attract her target clients, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Announcing The Kitces Tax Course On How To Review A Client’s Tax Return For Planning Opportunities

January 11, 2021 07:05 am 5 Comments CATEGORY: Nerd's Eye View

The Internal Revenue Code stipulates that US citizens must pay taxes on all income worldwide. Which makes it somewhat inevitable that financial advisors, who counsel clients on how to enhance their financial futures and generate wealth to achieve their financial goals, will have to help their clients deal with the tax consequences of that financial success (and the implementation of the advisor’s advice along the way). And in the end, it’s appealing to provide tax guidance to clients, as the hard-dollar tax savings can in many cases more than offset a financial advisor’s entire fee… even if we’re not ultimately the ones who prepare and file the tax return itself (which, in the end, is backward-looking anyway, while financial advice – and its potential tax consequences and tax savings – is an exercise in forward-looking planning).

Yet the irony is that even as the world of financial planning and tax planning converge – especially as technology automates more and more of the investment process, shifting the focus of the advisor value proposition to the other supporting advice areas (e.g., tax planning) around it – there remains remarkably little in the way of tax education for financial advisors. As in most states, CPA licensure requires numerous courses or outright years of experience in auditing (which isn’t practical for most advisors to get after they’re already advisors), the Enrolled Agent license is still primarily focused on tax compliance (e.g., filing returns and other tax reporting, and responding to IRS inquiries), and what little advisor education that exists is either relatively basic (the CTS designation) or a very substantial commitment (e.g., a Master’s degree in Taxation).

And so we’re excited to announce a new Kitces Course on “Reviewing The Tax Return For Planning Opportunities”, a 6-hour online educational program designed for CFP certificants who have obtained the tax knowledge but have little-to-no practical experience applying it in the real world (and would rather gain experience in a structured course that allows them to apply the knowledge and practice with hypothetical-but-real-world client scenarios, instead of just trying to figure it out on ‘live’ clients when real dollars are at stake!).

In the end, we anticipate this new Kitces Tax Course will be just the first of many to come, providing not just the knowledge but the opportunity to practice and master the skills it takes to become a better and more successful financial advisor. And while we don’t have any plans to issue a new designation – there’s enough alphabet soup in the world of advisor designations – we do hope that advisors who complete our new Kitces Courses will not only use their completion certificates to claim their 6 hours of continuing education credits… but also include it on their resume as a demonstration of their commitment to honing their skills as a financial advisor!
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Weekend Reading for Financial Planners (Jan 9-10)

January 8, 2021 02:55 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the Financial Planning Association's transition to its new incoming President Skip Schweiss, an experienced executive and newly minted CFP professional, who is aiming to work with the FPA's incoming new CEO Patrick Mahoney to try to turn around its declining membership in a shifting environment where "CE and Community" alone don't create the distinction it once did for associations in an increasingly competitive environment (even as the social isolation of the pandemic makes connectedness more important than ever, and ongoing industry regulatory debates arguably make financial planning advocacy more important than ever).

From there, we have several investment-related articles, including:

A discussion of whether it's still worthwhile at all to try to invest in bonds for client portfolios as yields continue to drift to new record lows
The appeal of multi-year guaranteed fixed annuities as a higher-yielding bond alternative in the current environment
How Single Premium Immediate Annuities (SPIAs) can be used, not as a lifetime income guarantee vehicle, but as a fixed-income alternative (with a mortality credit kicker) that simply gets reinvested back into equities as it pays out, and
Why the advisory community may need to change its mind on the long-term staying power of Bitcoin as its recent rise nearly doubles the prior "peak" that many advisors had said was a bubble that would never be achieved again (except... it has).

We've also included a number of articles around the topic of behavioral finance and client communication:

How to think about a 'hierarchy' of financial wellness that clients can build upon over time to improve their wellbeing
Why it's crucial to understand a client's "money story" to better glean why certain clients make certain not-so-rational decisions
The rise of "Financial Therapists" as either a new player in the holistic advisor team, or even a new direction (and new CFT designation) for financial advisors to pursue, and
What it is that actually makes money so meaningful to us (hint: it's not the money itself, but what it allows us to do)

We wrap up with three interesting articles, all around the theme of looking ahead to and planning for the coming year:

Why creating an effective Strategic Plan for 2021 isn't about going through a vision/mission exercise, but instead simply getting clearer about the Key Performance Indicators that the business needs to improve upon in the coming year
A checklist of new (and what's-old-is-new) marketing ideas to reinvigorate growth for 2021
A broad look at the state of financial planning itself as a profession, and what may be in store as the coming year unfolds (from more virtual client meetings to virtual team management, and the ongoing rise of alternative non-AUM fee models for advisors)

Enjoy the 'light' reading!