Nerd's Eye View blog

Why Households With Significant Debt Tend Not To Pay It Down

April 4, 2018 07:35 am 0 Comments CATEGORY: General Planning

One considerable (and unfortunately common) challenge for financial planners is getting clients to focus on the goals they ought to focus on from a purely financial perspective, despite the psychological and behavioral biases which may direct their attention elsewhere. For instance, many households overemphasize accumulating assets (when they should be paying down debt), or overemphasize paying down debt (when they should be accumulating assets). To further complicate things, household preferences for accumulating assets versus paying down debt can sometimes shift in a seemingly confusing manner. However, an interesting new line of research points to one seemingly irrelevant factor which can be lurking in the background and influencing how clients perceive their wealth: whether their total net worth is positive or negative.

In this guest post, Dr. Derek Tharp – a Kitces.com Researcher, and a recent Ph.D. graduate from the financial planning program at Kansas State University – examines research on how our net worth may influence our perceptions of and preferences for holding assets and debt, and particularly the tendency to prefer having more assets when our net worth is negative, but less debt when our net worth is positive.

Mental accounting is a key concept of behavioral finance, which refers to the ways in which we mentally categorize assets, transactions, and other financial information in our heads. In theory, all of our resources should be fungible – dollars are dollars, regardless of what (liquid) account they’re in – but in practice, this is not how we typically behave. A study by Abigail Sussman and Eldar Shafir explores one particular form of mental accounting – the ways we tend to categorize assets and debt based on our net worth. By presenting participants with financial profiles that were equivalent in net worth but varying in the structure of their balance sheets, the researchers found that people tend to prefer having more assets when net worth is negative, but less debt when net worth is positive. For instance, despite the fact that net worth is actually the same -$100,000 in both scenarios, households tend to indicate a preference for having $100,000 in assets and $200,000 in debt over just $10,000 in assets and $110,000 in debt. However, if the assets and liabilities in the scenario above were reversed (i.e., net worth was positive $100,000 instead), then households would tend to prefer simply paying down their debt (even if it means having less in liquid assets)!

And this finding is notable, as it has several important implications from a financial planning perspective. For instance, it can help explain why people struggling with debt tend to accumulate assets and not pay down their debt, even if they're keeping cash in a 0.25%-yield savings accounts while compounding 22% credit card interest rates. Additionally, this may be why affluent clients who can afford lots of leverage still often want to pay down their mortgage. Which, ironically, may mean that the people who can afford to "prudently" use leverage tend to eschew it, while those who can least afford leverage tend to engage in high-debt-profile behaviors that may actually amplify financial fragility! Further, preferences may seem to shift suddenly, particularly as households pay down student debt and begin to move into positive net worth territory, which may (or may not) align with what they should actually be focusing on. And for those who enter positive net worth territory quickly, there may be an overemphasis on paying down debt relative quickly (now that they "can"), rather than saving into investment accounts which may grow at a higher rate in the long-run.

Ultimately, the key point is to acknowledge that seemingly irrelevant factors (such as a household’s net worth) can influence how households perceive their financial situation, the decisions they make as a result, and their willingness to keep accumulating assets (while not paying down the debt) versus liquidating assets to reduce their debt profile as well. As a result, the way we as financial planners communicate with clients and frame these discussions can have a big impact on whether clients do (or do not) ultimately adopt our recommendations. Which means it's important to understand the factors which may be lurking in the background and influencing client behavior, even if those factors should (in theory) be irrelevant to a client's behavior!

#FASuccess Ep 066: Turbocharging Inorganic Growth With Outside Capital To Fund Mergers & Acquisitions with Adam Birenbaum

April 3, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 66th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Adam Birenbaum. Adam is the CEO of Buckingham Strategic Wealth and BAM Advisor Services, a combination of wealth management firm and TAMP platform that oversees more than $30 billion of assets under management.

What's unique about Adam, though, is that he took over as the CEO of the Buckingham companies just over 10 years ago at the age of just 32, when the company was "only" $6 billion of AUM, and has nearly quintupled its size since then, as one of the youngest CEOs of any major advisory firm.

In this episode, we talk in depth about the Buckingham and BAM growth strategy, particularly on how a major investment by Focus Financial has helped to power the firm's growth, giving Buckingham access to capital from Focus at 0% interest rates to fund its acquisitions (because Focus ultimately profits from the growth as an owner anyway), and the way Adam and Buckingham have been able to leverage the capital to accelerate their inorganic growth.

We also talk about the actual structure of Buckingham and BAM itself, why Buckingham has chosen to grow offices in multiple locations, how BAM Advisor Services aims to work with advisory firms by providing what they call a "Turnkey Wealth Management Platform" that provides back office services but does not require its advisors to use standardized investment models, and how the company is positioning itself for an increasingly competitive environment with threats from both low-cost robo-advisors and also large financial services firms like Schwab, Fidelity, and especially Vanguard getting into the advisory business.

And be certain to listen to the end, where Adam talks about what it's like to be the CEO of a $30 billion AUM firm, where he focuses his own time as a leader in the business, and why he believes that strategy is important, but the real determinant of the most successful advisory firms of the future will be all about the firm's ability to execute, and deliver on the client experience.

So whether you are interested in learning more about using outside capital to fund mergers and acquisitions, how you may be able to utilize a Turnkey Wealth Management Platform in your business, or are simply interested in what it's like to be a CEO of a $30 billion AUM firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (April 2018)

April 2, 2018 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the April 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 former Envestnet executive Lori Hardwick is joining the Riskalyze Board of Directors, almost 2 years to the day after she left Envestnet (and the end of a likely-2-year non-compete requirement!?), and just as Riskalyze increasingly pivots towards a more holistic advisor platform that puts it on competitive collision course with Envestnet itself… especially if Riskalyze is paired with the next generation advisor dashboard that Hardwick’s own start-up AI (Advisor Innovation) Labs is reportedly creating?

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

Tamarac launches a new QuickStart platform in an attempt to expedite the onboarding process for breakaway brokers who need to get up-and-running quickly;
Orion Advisor Services expands into compliance technology solutions to ease the burden of RIAs for both ongoing compliance oversight and especially the increasingly-frequent SEC examination;
RobustWealth launches its own Direct Indexing solution as Indexing 2.0 becomes the hot advisor technology topic of 2018 (following on the Model Marketplace buzz of 2017!);
Trizic raises a $10M Series A round to accelerate the growth of its robo-advisor-for-advisors solutions in the bank channel, building on its partnership with FIS.

Read the analysis about these announcements, and a discussion of more trends in advisor technology, in this month's column, including “document automation” provider Conga acquiring Orchestrate and Process Composer to compete with LaserApp and DocuPace on the Salesforce platform with large advisory firms, former TD executive Tom Bradley joins the advisory board of MaxMyInterest as advisor interest grows (no pun intended!) in helping clients get better yields on cash than what RIA custodians typically provide, Advizr lifts out four Morgan Stanley executives to scale up its financial planning software solution in the small broker-dealer and insurance agent marketplace (where it’s about not just the software itself, but practice management training to help them transition for salespeople to advisors), and Blueprint Income launches a new tech solution aiming to deliver Deferred Income Annuities directly to consumers as a means to build their own “Personal Pension” plans with ongoing systematic monthly contributions.

And be certain to read to the end, where we also highlight the launch of Joel Bruckenstein’s new “Virtual Exhibit Hall” that aims to not only be a comprehensive directory of advisor technology but also an advisor review site of technology solutions, and a first look at 55IP, a new investment proposal generation solution (that also aims to help facilitate portfolio implementation on the back end)!

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 (Mar 31 – Apr 1)

March 30, 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 big news that the CFP Board has officially approved its new CFP Code of Ethics and Standards of Conduct, which for the first time will require CFP professionals to be a "fiduciary at all times"... albeit while leaving most CFP Professionals on their own in determining what conflicts of interest are, or are not, permissible to engage in without breaching that fiduciary obligation.

From there, we have several more articles related to advisor regulation, from the news that the National Association of Fixed Annuities (NAFA) has decided to withdraw its Appeal fighting the DoL fiduciary rule now that the 5th Circuit has already ruled against the DoL (to avoid creating a further split amongst the Appeals Courts), to a look at how fiduciary rulemaking is likely to play out in the coming year under the SEC if the DoL fiduciary rule really is vacated, the rise of a "point-in-time" fiduciary as the scope of fiduciary advice is applied to one-time advice interactions (rather than what was historically just ongoing regular interactions between the advisor and client), and a look at why just charging AUM fees alone doesn't necessarily ensure the advisor is properly managing their conflicts of interest (especially if the firm charges different AUM fees for equities versus fixed-income allocations).

We also have a few advisor technology articles, including: the launch of the Orion "Compass" solution that provides additional compliance reports for RIAs using its performance reporting software (which may be especially helpful the next time the SEC shows up for an exam); the rise of estate planning "FinTech" solutions like EverPlans and Yourefolio as estate planning increasingly shifts from estate tax planning to actual planning around the distribution of the estate itself; and the new "Quick Start" offering from Tamarac that aims to make it easier for breakaway brokers to get up-and-running quickly on their trading and performance reporting software tools.

We wrap up with three interesting articles, all by industry commentator Bob Veres, about various trends in the advisory industry: the first explores how even as the CFP Board lifted up its Standards for the first time in 11 years to expand its fiduciary duty, it is still accommodating a wide range of sometimes-questionable commission compensation models under the auspices that certain products and solutions simply aren't available or feasible for non-commission advisors... which may become a moot point in the coming decade as more and more firms finally launch "advisory" product solutions and technology makes it easier and easier to serve an ever-widening range of clients; the second details a painful list of the true costs of the low bar of suitability for brokers, which isn't about the majority of brokers that still do the right thing for clients anyway (simply because it's good business), but the extent to which bad behavior by a small subset of especially bad actors can and is condoned under the low suitability bar; and the last raises the interesting question of whether in the long run it's a problem for us to have so many "overlapping" membership associations all serving financial planning and wealth management, whether it would be a better use of resources for them to merge and consolidate together, or if instead it's actually better to have so many different organizations because the nature of competition helps to ensure that they collectively keep pushing to advance the financial planning profession forward (if only to out-compete the others trying to do the same thing).

Enjoy the "light" reading!

How Brokers And Agents Can Get Paid Directly For Delivering A Financial Plan

March 29, 2018 03:27 pm 3 Comments CATEGORY: Practice Management

For decades, financial planning was compensated primarily by the insurance or investment products that were implemented at the end of the plan. But as advisors increasingly become more financial-planning centric, and bring financial advice to clients who don't necessarily want or need to implement products - they just want the advice - there is a growing desire from many advisors to simply get paid directly for the financial planning advice they provide and the plans they deliver. With the caveat that technically, it's not permissible to be paid a standalone fee for financial planning advice as a broker or insurance agent!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore how advisors are licensed to deliver financial advice, why you can't receive fee-for-service compensation through a broker-dealer or insurance agency, and how you must be registered in order to get paid a planning fee (if your firm will allow it!)!

Most "financial advisors" are licensed and registered in one of three ways: either you are a registered representative of a broker-dealer, an agent of an insurance or annuity company, or you are an investment adviser representative (IAR) of a Registered Investment Adviser (RIA). These licenses dictate what advisors can, and cannot, do, and how they may be legally compensated: if you have an insurance license, you can sell insurance... If you have a securities license, you can sell securities... And if you have a license to be an investment adviser, then you can "sell" (and get paid for) investment advice.. Of course, some advisors are licensed multiple ways, but the fundamental point is that technically, getting paid for advice is only associated with the third category: having your Series 65 and being an IAR of an RIA.

As a result, advisors increasingly are becoming dually-registered with their broker-dealer and a corporate RIA, or operating as a hybrid with their own standalone independent RIA separate from their broker-dealer in order to get paid for their financial plans. Because again, you do need to be associated with an RIA to get paid for financial advice... though when you're also with a broker-dealer, it must be disclosed to a broker-dealer as an Outside Business Activity, which in turn must be approved by your B/D). Which means in practice, not all advisors at a broker-dealer can actually charge for a financial plan, either because the broker-dealer does not have a corporate RIA, won't allow the advisor to have an outside RIA as an OBA, or both. And even broker-dealers that do permit such activities still have the ability to decide which advisors will be approved to do so... and how.

As a result, the ability to become dual-registered and operate under the broker-dealer's corporate RIA, or have your own independent RIA as a hybrid, is increasingly turning into a differentiator itself in the selection of a broker-dealer. Which has implications both for the control that the advisor has over their financial planning services and compliance oversight, and also the financial split of the fees between the broker-dealer and the advisor. Not to mention the technology that the advisor can, cannot, or must use to process those financial planning fees.

Nonetheless, the fundamental point is that if you’re at a broker-dealer or an insurance agency, and you want to actually get paid directly for a financial plan and giving financial advice, you need to operate under an RIA. It can be your broker-dealer’s corporate RIA, or your own independent RIA if your broker-dealer will allow it (or you can just break away from the broker-dealer and start your own RIA), but one way or another, you need to pass your Series 65 and be affiliated with an RIA if you are going to receive "fee-for-service" compensation for financial advice!

Capital Gains Strategies For Highly Appreciated Investments After A Big Bull Market Run

March 28, 2018 07:01 am 3 Comments CATEGORY: Taxes

Executives and small business owners often struggle to figure out how to diversify a concentrated investment in company stock, due to the adverse tax ramifications of liquidating a highly appreciated investment. Which leads to strategies including variable prepaid forward contractors, exchange funds or stock protection funds to facilitate diversification, or leveraging available tax laws like Net Unrealized Appreciation to mitigate the tax consequences.

But after nearly 9 years of a bull market since the bottom in March 2009, “most” long-term investors now have substantial capital gains. Not because they held a concentrated stock investment that grew, but simply because even a diversified portfolio of mutual funds and/or ETFs may be up 100%, 200%, or even 300% since the bottom. And ironically, the more tax-efficient and “tax-managed” the fund or advisor has been all along, the less turnover there’s been, and the more likely it is to have very substantial embedded capital gains now!

And unfortunately, such large embedded capital gains create real tax complications for engaging in even routine investment adjustments like periodic rebalancing, and especially in situations where the advisor might want to switch strategies (or the investor might want to switch advisors), but “cannot” do so because of the adverse tax consequences.

On the plus side, the reality is that the tax benefits of deferring capital gains are often smaller than most investors realize, as they confuse “tax avoidance” (not recognizing the capital gains) with what really is just tax deferral (the capital gains will ultimately have to be paid if the investor is ever going to use the money).

In addition, relatively straightforward tax strategies can further help investors to get comfortable with unwinding investments with large capital gains, from establishing a “capital gains budget” for the amount of capital gains to be triggered each year (perhaps targeted to stay under the threshold for the next capital gains tax bracket), setting targets for staged sales at progressively higher (or lower) prices to help investors pre-commit to making a change, or simply engaging in a “donate-and-replace” strategy that leverages the tax preferences of contributing appreciated securities for a tax deduction (and eliminating the capital gains altogether) and then replacing the investment (as a new higher cost basis) with the cash that would have been donated in the first place!

#FASuccess Ep 065: Building A True One-Stop Shop Advisory Firm To Drive Organic Growth with Peter Mallouk

March 27, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 65th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Peter Mallouk. Peter is the President of Creative Planning, one of the largest independent RIAs in the country with nearly $35 billion in assets under management for more than 20,000 clients, spanning 12 states and 21 office locations.

What's unique about Peter, though, is that he's been able to grow the firm from under $100 million to nearly $35 billion in AUM in just 15 years, and without relying on mergers and acquisitions... instead building an organic growth machine through a combination of strategic partnerships, and trying to build a "one-stop shop" with enough size and scale to deliver the kind of comprehensive value that really makes clients refer.

In this episode, we talk in depth about how Peter's firm includes not only financial planning and investment management services but also divisions for tax preparation, estate planning, and trust services (stemming from his own early days as an estate planning attorney before becoming an advisor), why he felt it was necessary to expand and deepen the services of his firm to provide real value to his clients, and why even at $35 billion in AUM Peter still views his firm as a small "boutique" in the marketplace, even as the size of the firm is allowing them to attract more and more affluent ultra-high-net-worth clientele.

We also talk about the broader trends in the advisory industry, how the consumer marketplace is splitting into pursuing either the highest value or the lowest cost (and why that's a threat to most advisors in between), why both wirehouses and the retail divisions of RIA custodians are simultaneously moving away from selling products and into financial advice, and the competitive threats that advisory firm owners must navigate in the coming years.

And be certain to listen to the end, where Peter shares why he still personally spends a whopping 70% of his time every week sitting in front of prospects and clients, and his philosophy of minimizing layers of management in order to keep the firm efficient, even as they approach 500 employees.

So whether you are interested in learning how to achieve organic growth through strategic partnerships and delivering high-value services that make you referrable to clients, how the advisory industry is splitting into pursuing either highest value or lowest cost, or are interested in how Creative Planning has minimized layers of management even while growing to $35 billion in AUM, I hope you enjoy this episode of the Financial Advisor Success podcast!

The True (Hidden) Costs Of Migrating Data To New Financial Planning Software

March 26, 2018 07:01 am 2 Comments CATEGORY: Technology & Advisor FinTech

As we live in the "Golden Age" of advisor fintech, the number of great products to help financial advisors increase the value they deliver to clients continues to expand. Yet, an unfortunate reality of switching from one technology solution to another is that such changes can often come with substantial switching costs, both in terms of the financial costs that might be incurred during the process, and also the costs of the time and effort that must be invested by staff and advisors in order to get data transferred to the new tool and the entire team up to speed on using it. And when it comes to financial planning software, these costs can be even higher, as planning software generally doesn't have an export functionality needed for migrating data from one program to another, and the required training of advisory staff is higher relative to some other types of technology (e.g., CRM and performance reporting software), since advisors increasingly need to be able to confidently use planning software "live" in the client meeting in order to not undermine their credibility with clients.

In this guest post, financial planner Matt Cosgriff shares his perspective on BerganKDV Wealth Management's recent transition from MoneyGuidePro to eMoney, including their lessons learned, how to build an internal transition team, tools for "gamifying" the process, and how the transition can actually serve as a great training opportunity for both advisors and administrative staff. As Matt notes, a successful transition is crucial not only for preserving your existing work for clients, but also understanding how much variation exists between the results of your old software and your new software and why, so that you can effectively use your new software going forward and communicate any different outcomes to clients.

So if you’re contemplating a transition from one financial planning software program to another, or perhaps are just interested in how you can incentivize staff to make progress on a large goal by "gamifying" the process, I hope that you find today’s guest post and the insights from BerganKDV's transition from MoneyGuidePro to eMoney helpful!

Weekend Reading for Financial Planners (March 24-25)

March 23, 2018 02:59 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the Investment Adviser Association, in collaboration with Charles Schwab, has begun an effort with lawmakers to both reverse the recent changes that eliminated the tax deductibility of investment advisory fees and expand the scope of the new "pass-through" business deduction (intended to support businesses that grow jobs and and hire people) to allow at least larger advisory firms that really do hire people and create jobs to be eligible for the deduction as well.

From there, we have several marketing-related articles this week, including: how most financial advisor websites are like a "bad date" that mostly talks about themselves instead of trying to connect with the other person; how Googling around to check out other advisory firms in your area can help to show you how you can better differentiate (or how undifferentiated you may actually be); the steps to follow to create a successful lead-nurturing campaign with prospective clients; key tips for starting your own Public Relations (PR) initiative in your advisory firm with (local) media; and a discussion of a unique COI referral opportunity that most advisors miss out on (working with investment bankers that facilitate the sale of small-to-mid-sized businesses).

We also have a few articles on advisor technology trends, from a look at how performance reporting software may eventually be replaced by "PFM" tools that advisors can give to their clients (which both better engage them, and are less expensive), the rise of the next wave of "robo" firms now targeting disruption in the small-to-mid-sized 401(k) plan marketplace, and a glimpse of the new "Advisor Innovation (AI) Labs" effort from Lori Hardwick and Mike Zebrowski that is aiming to create a new form of advisor desktop that would sit on top of existing broker-dealer or custodial platforms to let independent advisors be more independent (at least, if those firms will cooperate and "let" AI Labs do so with "their" data!).

We wrap up with three interesting articles, all around the theme of raising financially successful children: the first examines the results of a recently published study that took a 40 year(!) view of children in 1968 and again in 2008 to see which children traits were most predictive of the greatest financial success (and found that the "rule-breakers" were often the most financially successful in the end, despite their challenges as children); the second reviews another recent research survey, which found that while those with above-average talent often do at least make above-average income, the greatest levels of success are more commonly driven by luck than talent (or at least talent alone); and the last explores how to raise children to be more grateful, in recognition of both the long-term emotional and other benefits of having an "attitude of gratitude", and the challenges of doing so in a world where parenting styles that aimed to bolster the self-esteem of children may have unwittingly made them more entitled (and less inclined towards gratitude) in the process.

Enjoy the "light" reading!

When A Client’s Failing Retirement Plan Sometimes Isn’t Really

March 22, 2018 01:25 pm 0 Comments CATEGORY: Practice Management

As financial advisors, we never want to see a client run out of money, especially "on our watch" as the advisor. Which makes it especially challenging to deal with clients who appear to be spending "too much" and may be on an unsustainable spending trajectory... especially if you've done a comprehensive financial plan for them, and know that their current spending pattern is unsustainable. Even if it's sometimes difficult medicine to give them - telling them that their spending and lifestyle need to change - it's an essential value of good financial planning to deliver the sometimes-difficult message when it's necessary to do so. Except, in some cases, it turns out that the problem isn't actually that the client has a spending problem at all... instead, the real problem is simply that the client didn't yet trust us enough to tell us about all their assets in the first place.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore situations where clients who have a "spending problem" actually don't have a spending problem... they have a trust problem that leads them to be unwilling to share information about all of their assets with the advisor. A situation that may occur more and more frequently in the future, as the advisory industry continues to converge on the AUM model... and clients feel increasingly pressured to consolidate all their assets with their current advisor once the advisor "finds out" there are other assets he/she doesn't already manage!

Learning that a client has been "hiding" assets can come as a shock for many advisors. It's the situation where you thought you were being a good holistic financial planner, and giving them guidance about unsustainable spending, and then abruptly find out the client is terminating the relationship and consolidating all of their assets with another advisor. Which leads to three surprising and related realizations: (1) they actually had another advisor we didn’t know about, (2) they actually had other assets we didn’t know about, and (3) they weren’t actually overspending in the first place. We only thought they were overspending because they didn’t want to tell us about all of their assets for fear of being solicited about them!

And the reality is, as more and more of the advisory industry shifts to the AUM model and packages together financial planning and investment management, this problem is going to get a lot worse. When we look at the financial advisory market as a whole, about one-third of the 115 million US households are at least mass affluent, only about one-half of those have more than $100k that could be managed by a financial advisor (i.e., outside of a retirement plan), and only about one-third of those are actually delegators who are looking to hire an advisor. Which means, when you do the math, there may only be about 7 to 8 million households to divvy up among 300,000 financial advisors, resulting in about 21 clients per advisor (of which only 5 are millionaires!). Ironically, this means that if all clients did consolidate all of their assets with one advisor, many advisors would go out of business (or at least be compelled to pursue other advisor business models that can serve other types of non-AUM clientele!)!

Fortunately, in practice clients tend to split assets across multiple advisors (which keeps more advisors employed and engaged!), but clients don't necessarily tell us, because they don't want to be solicited to consolidate assets... which can result in a dysfunctional financial planning relationship in the process! For me, this led to the realization of the importance of being even more focused on leading with financial planning first, and to be less aggressive about insisting we "have to" be holistic and do "everything" for clients all at once. Because if clients can't trust you to do the financial planning work first and build that relationship over time, then they may never have enough trust to consolidate their assets regardless. But if you can lead with financial planning and build that trust, then you can end up eventually winning all of their business in the long run anyway. Without clients feeling so pressured that they keep some of their assets a secret in a way that further undermines the planning relationship you're trying to build.

The bottom line, though, is just to acknowledge that if you have a client who has a “spending problem” and is heavily overspending and just keeps ignoring your advice, it is possible they really have a spending problem, but it is also possible that they have a different problem – one where they don't actually trust you and feel as comfortable with you as you may have thought, leading them to hide assets from you so that you don't solicit them to consolidate. And as the industry continues to converge on the AUM model for providing both financial planning and investment management services, we'll likely continue to see more and more clients with "spending problems" that might not actually be!