Nerd's Eye View blog

When A Good Offer For A First Financial Advisor Job Really Isn’t

June 14, 2018 01:01 pm 0 Comments CATEGORY: Personal/Career Development

Getting started as a financial advisor is difficult, in a world where most job offers to become a financial advisor still require getting all of your own clients from scratch, and compensation is tied to the amount of clients and business the new advisor brings in. But the reality is that when a financial advisor is hired from the start to get new clients and generate their own revenue, it's not really a "financial advisor" job in the first place; it's a job offer to be a financial salesperson, as the key to success is not selling the advisor's time or expertise, but the company's products and solutions instead. Which for many (or even most) people, is a terrible way to start a career as a financial advisor.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why taking a position as a financial salesperson is not a good path to becoming a financial advisor, and how those who are interested in actually becoming financial advisors can pursue a better first job instead.

It is first crucial to distinguish between a financial advisor and a financial salesperson. Regardless of what title a company gives to their representatives (no one calls their representatives salespeople because “sales” is taboo, while “advisor” sounds professional), the reality is that when you actually look at the duties of jobs at especially a lot of large national firms that hire "financial advisors", these firms are looking for financial salespeople, usually because their business is the manufacturing and/or distribution of financial services products (e.g., insurance or investment products). The biggest clue is that you are expected to get your own clients from day 1, and that their training is focused not on earning the CFP certification and learning to give better advice, but on sales training, how the company's products work, and how to implement them in various client situations. In fact, new advisors often aren't even allowed to charge clients a separate fee for advice (or need to reach a certain level of production or experience before you will be allowed to)... because, again, these firms are hiring financial salespeople rather than financial advisors.

Fortunately, however, it is not this way at all firms. There are non-sales roles in the industry where you can work as a paraplanner or associate advisor in an existing advisory firm, where your job is to support an existing financial advisor and their clients, rather than bring in new clients - roles that are needed at firms that are actually in the business of giving advice to their clients. The caveat, though, is that firms hiring paraplanners and associate planners these days often want their candidates to have CFP certification (or at least to have passed the CFP exam), so if you are not at that stage, just getting your foot in the door (working in operations or another area) may be your best bet.

Ultimately, the progression of entry-level jobs in the advisory industry (from most to least preferred) would be: (1) a paraplanner or associate planner; (2) an operations, client service, or administrative job; (3) any other salaried job in financial services; and (4) a job as a financial salesperson (as long as you can afford to stay in the business if it turns out that you struggle with sales and getting new clients from the start).

But the key is to understand that the real “entry level job” to a career as a financial advisor is not to start selling products from day 1, and companies hiring "advisors" to do so are really hiring financial salespeople for a sales job instead. Fortunately, even if you don't succeed in an initial financial salesperson role, you can still move forward in one of the other entry-level positions, whether via association websites like the FPA or NAPFA, the CFP Board’s Jobs Board, or our listing of opportunities at New Planner Recruiting. Additionally, a growing number of large firms are realizing this challenge and increasingly hiring new advisors onto teams in entry-level support roles.

But if an honest assessment of your skills does not suggest you would be a good candidate for a sales role, then accepting a job as a financial salesperson is likely not the best path forward for you! And at a minimum, it's important to go into the role with your eyes wide open!

Universal Life Insurance Funding Strategies: Optimizing Death Benefit vs Cash Surrender Value IRRs

June 13, 2018 07:01 am 0 Comments CATEGORY: Insurance

Before the development of universal life insurance, permanent life insurance was relatively straightforward. Policies had fixed premiums, fixed death benefits, and fixed interest rates generating consistent growth of cash surrender values over time. As a result, determining the internal rate of return (IRR) on policies was relatively easy. However, as “flexible premium” universal life products were developed in the early 1980s, policyowners gained flexibility to structure premium payments differently – introducing the possibility for individuals to place greater emphasis on either the IRR of death benefits or the IRR of cash surrender values based on their goals. However, because of the complexity of universal life insurance, many policyowners (and financial advisors) still remain unaware of this ability, and how to properly structure flexible universal life premiums to fully optimize either one of these objectives.

In this guest post, Rajiv Rebello of Colva Insurance Services examines various universal life insurance premium funding strategies, illustrating that in order to fully understand the dynamics influencing both death benefit and cash surrender value IRRs, it is crucial to understand exactly how the policies work, and in particular the interrelationships between cash value, death benefits, and cost-of-insurance (COI) charges, and the ways that changes in the Net Amount At Risk (NAR) compound over time.

Ultimately, the key point is to understand that strategies that maximize the long-term cash value of universal life insurance - which are all about minimizing the net amount at risk to reduce COI while managing the tax code requirements that there must always be at least "some" amount of death - and fundamentally different than the strategies to maximize the IRR of the death benefit of life insurance (which is driven by minimizing the amount of cash in the policy to maximize the net amount at risk and therefore the amount of money the insurance company must come to the table with in the event of death). Which means it is crucially important to pair the right funding strategy with the right policy structure in order to accomplish the long-term goals of a client with a particular flexible premium universal life insurance policy!

#FASuccess Ep 076: Why Financial Therapy Beats Financial Advice To Help Clients Change Their Behavior with Kristy Archuleta

June 12, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 76th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kristy Archuleta. Kristy is an Associate Professor in the financial planning program at Kansas State University, with a focus on teaching advisors how to actually change their clients' behaviors for the better.

What's unique about Kristy, though, is that she's also a licensed marriage and family therapist, and comes to the world of financial planning and how to help clients improve their financial behaviors with the perspective of a trained psychologist.

In this episode, we talk in depth about Kristy's work at the intersection of financial planning and financial therapy, how a financial therapist would view common financial planning challenges from a different perspective with different solutions, the way that therapists approach helping clients to change their behavior by recognizing that clients are the best experts in their own lives, and why according to the best practices research of therapists themselves, what financial advisors typically do – give advice with a comprehensive list of recommendations to their clients about how to improve their financial lives – is actually not a good way to get them to change their financial behaviors for the better.

We also talk about Kristy's work in helping to co-found the Financial Therapy Association, the development of a new Certified Financial Therapist (or "CFT") program they're developing, why Kristy anticipates that financial therapy will eventually become a specialization path for financial planners... and where the line should still be drawn between the end of what advisors can do by providing financial therapy, and when it may still be necessary to involve a fully licensed mental health professional on the client's behalf.

And be certain to listen to the end, where Kristy talks about her own upcoming transition, from teaching financial planning and financial therapy at Kansas State University, to joining the financial planning program at the University of Georgia, to hopefully help them build more insights from financial therapy into their core financial planning curriculum as well.

So whether you are interested in learning more about the intersection between financial planning and financial therapy, how financial therapy can help clients improve their financial behaviors, or how financial therapists can become certified through programs such as the CFT, I hope you enjoy this episode of the Financial Advisor Success podcast!

Celebrating 10 Years Of Kitces.com And Hiring For The Future

June 11, 2018 07:01 am 0 Comments CATEGORY: Nerd's Eye View

In 2008, Kitces.com was first launched as a platform to showcase my new paid newsletter service, The Kitces Report, and to advertise my services as a speaker for financial advisor conferences, with a “grand vision” that my newsletter would help to draw interest for more speaking engagements, and that speaking in front of more advisor audiences would help me grow the number of paid subscribers to the newsletter. And on the side… I launched a blog, to share a few of my thoughts on financial planning strategies and industry trends that didn’t quite merit a full issue of the newsletter.

A decade later, the growth of the Nerd’s Eye View blog has surpassed even my wildest dreams, moving from a side project to the center of my business, built on a foundational belief that if we can stay focused on advancing knowledge in financial planning and helping real financial advisors to be more successful in their businesses and with their clients, that growth and other opportunities would come. And indeed they have, as the latest Erdos & Morgan study on financial advisor usage of digital media found that the Nerd’s Eye View ranks #1 for influence, objectivity, credibility, and simply being actually useful to financial advisors.

Given this growth, we’re excited to announce the addition to two new positions with the Kitces.com team. The first is a new Associate Editor role, to help us manage the ever-growing volume of content, readers, and behind-the-scenes logistics that are necessary to execute our growing media platform. The second is a new Senior Researcher, to replace Dr. Derek Tharp as he takes on a new financial planning teaching position at the University of Southern Maine’s business school. The Senior Researcher will help us to build a growing base of original research we aim to conduct directly through the Kitces.com platform, to help gain a better understanding of what real financial advisors actually do – from how they deliver plans, to how they price their services, how they use technology, and how they market and grow their advice-centric firms.

In the end, the goal of this growth and expanding the Kitces.com team is not to alter the service that we provide to the financial advisory community; instead, it’s simply to help us get even better at what we already do. Because in the end, a successful growing business needs more good people to be more successful and have a bigger impact to the community it serves. Which is true for both running a financial advisory firm itself, and also a platform that serves them. We’re nowhere close to being done yet, and I can’t wait to see what we can build to help the advisor community in the next 10 years from here!

Weekend Reading for Financial Planners (June 9-10)

June 8, 2018 02:52 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 why, nearly 3 months after its surprising decision to vacate the DoL fiduciary rule, the clerk's office of the 5th Circuit Court of Appeals still has not actually issued its official mandate to vacate the rule, raising the question of whether there may actually still be some other last-ditch effort afoot to save the rule... or if the clerk's office is simply backed up on paperwork, such that the final issuance will be coming soon.

Also in the news this week is a brief recap of the Financial Planning Association's Advocacy Day in Washington DC, where 85 FPA members spoke with Congressional lawmakers and their staff about raising the standard for financial advice (and advocating that "financial planner" should also be a protected term, along with financial advisor), and the launch of "Equita Financial Network" for women-led advisory firm owners who are seeking more infrastructure and support to launch and run their own independent advisory firms.

From there, we have a number of articles on the ongoing shifts in the broker-dealer industry, as May is the month that several industry publications issue their annual "top broker-dealer" lists and interview broker-dealer executives. Highlights include: the annual Financial Planning magazine survey, that highlights how the largest broker-dealers are adapting to the changing landscape as this year marks the first ever that fee-based revenue at the top-50 independent broker-dealers exceeds commission-based revenue; the annual ThinkAdvisor broker-dealer Presidents poll showing that in the near-term, most broker-dealers are struggling the most with technology and regulation, even as their advisors are struggling to attract new clients in an increasingly competitive environment; how the likely roll-back of the DoL fiduciary rule (and the non-fiduciary SEC advice rule) is giving a new wind to small broker-dealers, even as more and more large broker-dealers appear intent on rolling them up (which might not be a bad deal for those smaller broker-dealers in the end); how the burden of FINRA regulation is so cumbersome that not only are many advisors leaving broker-dealers to start their own RIAs, but now some hybrid broker-dealers are themselves considering whether to spin off their entire "legacy" broker-dealer and instead just focus on becoming mega-RIAs in the future; how Cambridge Investment Research embodies this trend by choosing to start eschewing broker-dealer terms like "OSJ" and "branch" as the majority of its advisors, and its revenue, now come from the fee-based side of the business; and how the increasing mobility of brokers is leading them to take a hard look at not just the costs of the broker-dealer that are subtracted from their payout grids, but all the additional ways that broker-dealers mark up their various investment solutions by 10bps - 25bps (or more in some cases).

We wrap up with three interesting articles, all around the theme of how the "politicization of everything" is making more and more of us have to deal with criticism and negative feedback, and the best way to handle it: the first is a Harvard Business Review examination of how various CEOs are handling the growing pressure of businesses to take public positions on controversial issues; the second looks at how, whether it's political criticism or simply personal criticism, there are better and worse ways for us to take in criticism to actually learn from it; and the third is a good reminder that, no matter what we do, someone will likely criticize it, so often the best approach is simply to try take it all in, figure out if there is a grain of truth that merits an adjustment, and then simply move on and focus on making whatever choice is right for you (may as well, if you're going to be criticized no matter what!).

Enjoy the "light" reading!

What Do You Say When You Witness Sexual Harassment At A Financial Advisor Conference?

June 7, 2018 11:44 am 1 Comment CATEGORY: Practice Management

The number of female CFP professionals has remained stubbornly pegged at 23% for nearly 15 years, despite an ever-growing effort of the industry to attract more women. Because unfortunately, even as the profession seeks to build awareness and draw more women into financial planning, the positive impact is limited by the amount of sexual harassment and demeaning and belittling comments still directed at women by “fellow” advisors at the typical advisory industry conference.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I share recent and unfortunate case-in-point examples of inappropriate and belittling comments that are still being made towards female advisors at industry conferences today, and explore what needs to be said to curtail problematic behavior.

For instance, at the recent FPA NorCal conference, a conversation that I was having with a group of female colleagues – including fellow advisors and several industry-leading consultants – was interrupted by another advisor who proclaimed the semi-circle of women I was speaking with looked like a “harem”. As though it’s ever appropriate to compare professional female colleagues to concubines!?

Similarly, it’s still all too common for women at advisory industry conferences to receive comments like “Whose assistant are you?” or “What do you actually do at your advisory firm?” with the implication that it couldn’t possibly be working as a financial advisor… even for a woman who prominently displays her CFP certification and a firm that’s named after her!

Yet I’ll confess that even as someone who has witnessed these kinds of disparaging comments, and am incredibly frustrated by them as well… I still struggle to figure out what, exactly, to say in order to break the cycle. As unfortunately, calling out offenders and trying to publicly humiliate them for their offensive comments is more likely to just make them defensive and run from the situation, instead of gaining some empathetic perspective and actually acknowledging and recognizing how their comments may be so demeaning to their female colleagues.

The bottom line, though, is that as someone who has witnessed this behavior, and often said nothing - out of a sheer lack of knowing what to say - I regret not taking a more active role in trying to stop it and saying something when I see or hear inappropriate behavior at advisory industry conferences. And it’s something I intend to address more proactively going forward. But I hope you’ll share your comments at the end of this article with your own perspective, on how best to have this conversation in the first place? What do you say when you witness sexual harassment at a financial advisor conference?

Should A Financial Plan Really Be Boiled Down To An Index Card Of Advice?

June 6, 2018 07:01 am 3 Comments CATEGORY: Client Trust & Communication

Historically, getting paid for financial planning – not just to implement the recommendations, but for "The Plan" itself – meant producing a voluminous physical financial plan for which the advisor would be paid. The Plan was the tangible, physical deliverable, full of in-depth analyses and culminating in the advisor’s recommendations, that substantiates the financial planning fee. The one major caveat: few clients ever actually open The Plan again after it is first presented, focusing only on the subsequent recommendations and action items… and raising the question of whether financial planning might be done far more efficiently by eschewing The Plan and just delivering a One Page Financial Plan (of core recommendations and action items) instead.

Yet the reality is that even if The Plan is never revisited by the client after the day it’s presented, that doesn’t mean it was useless to have created it in the first place. Because from the client’s perspective, The Plan is what helps to validate that the subsequent recommendations are right and to be trusted in the first place; in other words, the client may in the end focus on just the recommendations and not The Plan, but that doesn’t mean they would have trusted and acted on those recommendations in the absence of the supporting comprehensive financial plan analyses and output.

Similarly, the real challenge for many clients is not figuring out the appropriate recommendations for them to achieve the goals in their financial plan, but to identify what their goals should be – or can be, or are even possible – in the first place. Which means producing The Plan, and subsequent What-If scenarios for the plan, are an essential element of the planning process in the first place. And again something that cannot be eschewed by just focusing on the One Page Financial Plan of recommendations at the end.

Notably, this doesn’t necessarily mean that financial advisors should or need to continue producing comprehensive financial plans exactly as they have in the past. The more the advisor can establish their trust and credibility – whether through showing empathy to create rapport with the client, demonstrating good communication skills, or simply their years of experience – the less the client may rely on the advisor’s analytical plan output. And to the extent planning software can be used more interactively and collaboratively with the client, the less it’s necessary to print out the voluminous plan in the first place.

Nonetheless, the challenge remains that even if the goal of the financial advisor is not just to get paid for The Plan, but for the advisor’s own financial planning knowledge and wisdom… it’s still necessary to go through the financial planning process in crafting recommendations for clients, if only because that’s what it takes for the client to have the buy-in and trust necessary to actually follow through and implement them!

#FASuccess Ep 075: Walking Away From RIA Partnership To Scratch Your Own Entrepreneurial Itch with Kathy Longo

June 5, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 75th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kathy Longo. Kathy is the President and Founder of Flourish Wealth Management, a wealth management firm in the Minneapolis area that oversees nearly $130M of assets under management for 61 affluent clients.

What's unique about Kathy, though, is that she had already successfully climbed the partnership track ladder at a billion dollar independent RIA, to become one of their "next generation" successor owners, yet ultimately decided to sell her shares and walk away from that business to start a new one in order to scratch her entrepreneurial itch.

In this episode, we talk in depth about how Kathy has structured and built the staffing of her firm, launching initially by using a third-party TAMP provider, then transitioning to do the investment management internally as the firm grew by having her husband take over as the Director of Investments, the "culture snapshot" document she created to screen potential new employees to ensure they're likely a good fit, and why it's so crucial as a small business owner to embrace the philosophy of "slow to hire, fast to fire" with new employees.

We also talk about the value of having a study or mastermind group, why Kathy decided to join two different study groups - one that is comprised of all women financial planners in the industry from the Minneapolis area, and the other that is comprised of all women business owners outside the industry through the Women's Presidents Organization or WPO, and why having a study group of peers and colleagues you can commiserate with and get advice from is so essential to running your advisory business... especially when you're launching a firm and hit the inevitable challenges and emotional rollercoaster that comes with building your business from scratch.

And be certain to listen to the end, where Kathy talks about why she decided to write a book to further propel the growth of her advisory firm, and why and how she decided to invest in hiring an outside firm to help with the writing and book creation process.

So whether you are interested in figuring out how to structure the investment management component of a financial planning firm, how to create a strong culture for growing your team, or are wondering about the benefits of participating in a study group, I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (June 2018)

June 4, 2018 09:11 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the June 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 buzz from the Envestnet Advisor Summit… that Envestnet is shifting from a focus on investment management, financial planning, and wealth management, towards a new category it calls “Financial Wellness”. Which is not meant to be the employer-delivered-financial-education version of a Financial Wellness program, but a more holistic advisor technology platform aiming to cover all of the relevant areas of a client’s financial health, including not only planning, investments, and insurance (protection), but also credit/debt, and budgeting/cash flow as well. Which leaves Envestnet incredibly well positioned for the ongoing shift of financial advisors from products to advice, and makes its 2015 acquisition of Yodlee look increasingly savvy as holistic financial wellness requires holistic account aggregation to power it!

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

Principal Financial acquires RobustWealth as yet another old-line insurer aims to get more digitally savvy
Private equity firm Aquiline acquires a majority stake in RIAInABox as compliance software becomes an advisor tech category of its own
LearnVest shuts down its financial planning offering but may still be a success for Northwestern Mutual as its financial planning and PFM technology is integrated into the Northwestern core
AdvicePay announces the first ever “advisor crowdfunding” initiative, in an effort to raise $2M of new capital without taking on the conflicts of Venture Capital firms

Read the analysis about these announcements, and a discussion of more trends in advisor technology, in this month's column, including Vestwell partnering with payroll processor Namely to expand distribution of its small-business 401(k) offering, Vestmark launches a new Model Trading Service as the shift to centrally managed portfolios in RIAs and IBDs is leading to a new desire to outsource the implementation, and Fidelity showcases the prototype of a new “Cora” virtual reality assistant for clients as Schwab launches two new Digital Accelerator Hubs. In addition, we highlight the rise of another new category of advisor software: Student Loan Analysis and Modeling tools, as the shift to pursue Gen X and Gen Y clients leads to a demand for new types of software to service them.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map”, including a number of new companies and categories!

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 (June 2-3)

June 1, 2018 02:56 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that financial advisor and fiduciary advocates are now calling for a delay in the public comment period for the SEC's new "Regulation Best Interest" for brokers, suggesting there's not enough time with the original August 7th deadline to properly test the effectiveness of newly proposed Form CRS disclosures. Also in the news this week is continued hubbub about the FPA and its beleaguered New York chapter, as the national organization not only terminates the prior chapter's affiliation agreement but is now also taking over its remaining assets, raising questions of just how much control the national organization should have over its nominally independent chapters.

From there, we have several marketing and business development articles, including a fascinating look at new research about what makes a client actually leave and find another advisor (hint: it's not about bad service, but a change in the client's life that leads them to lose faith that their existing advisor can handle their new financial situation), a study that finds younger clients are less satisfied and loyal to their existing advisors but are still more likely to refer (albeit through sharing content or advisor events, and not just providing a name/introduction), and a review of various platforms/solutions that advisors can use to outsource parts of their marketing.

We also have a few articles about money and financial behaviors, from a study finding that the odds of dying rise significantly when someone has a catastrophic financial loss (i.e., losing >75% of their assets in 2 years), to another study finding that there's so much pressure to "keep up with the Joneses" that when someone wins the lottery even their neighbors are more likely to declare bankruptcy (as they spend more conspicuously, and invest more aggressively, in an attempt to catch up), and the rising trend of marriage couples keeping separate bank accounts and not merging their finances (and instead simply showing their marital commitment with an agreement to split all expenses to their separate accounts instead).

This week includes a round-up of a few extra practice management articles too, including: how to properly pay yourself a salary (or not) depending on the type of business entity you use as a financial advisor; the "three pillars" for growing an advisory practice into a full-fledged business (organizational structure, entity structure, and [proper] compensation models); and how more and more advisory firms are hitting the crossroads where they must decide whether to hunker down and stay small, or aim to grow much larger, with all the trade-offs and changes that go along with a commitment to do so.

We wrap up with three interesting articles, all around the theme of the changing role of the advisor and money in our lives: the first looks at how technology is reshaping the role of doctors, in the near term by making them unfortunately more "clerically" oriented just to enter all the relevant patient data into their computers, but with the hopes that the technology will eventually free the doctors to focus more on their patients; the second explores why it's so hard to talk about money, and powerful questions to ask to better understand someone's finances and financial views (whether it's a family member, or a client); and the last is a fascinating perspective of how the nature of wealth and work has transformed over the past millenium, and how the rise of wealth and decrease of costs in common goods has led us to the point that we now struggle with how to manage and define our relationship with this thing we call "money".

Enjoy the "light" reading!