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Weekend Reading for Financial Planners (September 26-27)

September 25, 2020 02:56 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a striking new study from state regulators finding that broker-dealers are drastically more likely to recommend 'complex' investment products than RIAs (from being 2X more likely to use leveraged and inverse ETFs, to 8X more likely to recommend variable annuities, and 9X more likely to use non-traded REITs), raising questions of whether or how the newly implemented Regulation Best Interest will actually change such tendencies or not (which NASAA is preparing to measure with a follow-up study in early 2021).

Also in the news this week is news that FINRA is preparing new Regulation Best Interest guidance as initial broker-dealer exams reveal where firms are doing well and where they're still struggling to implement, and a new industry study that finds the Department of Labor's 2015 fiduciary rule really was reducing the cost of annuity products for consumers while not limiting access to financial advice for small investors (at least for the limited time window it was in effect before the product manufacturing and distribution companies successfully sued to have it vacated anyway).

From there, we have several articles on the ongoing rise of new lower-cost annuity solutions, including a fresh look at how Single Premium Immediate Annuities compare to bonds in today's low-interest-rate environment, when it pays to wait to buy an annuity to avoid 'locking in' today's low interest rates (and how far and fast rates must rise to actually benefit), and how a new wave of no-commission annuities are being developed by annuity companies after a major new Private Letter Ruling last year that allows RIAs to bill their AUM fees from the products directly (but are still struggling with the technology integrations necessary for RIAs to execute annuities in their client portfolios at scale).

We've also included a number of client communication articles this week, from a reminder that helping panicking clients starts with first acknowledging that it's normal to panic during turbulent times (rather than telling clients to 'calm down'), to a look at how Financial Therapy is gaining more and more attention as a complement to (and facilitator for implementing) financial advice in the pandemic environment, and a look at how clients will rarely change their behavior until their advisor understands and helps them to change their own financial stories first.

We wrap up with three interesting articles, all around the theme of how to maintain a cohesive work environment in the midst of what is now becoming a long-term work-from-home world: the first looks at how introducing a "virtual commute" can help us to more effectively transition from our home life to our work life (and back again); the second looks at the techniques that companies are implementing to maintain their office cultures in an online/virtual world (from internal video podcasts to virtual team-building exercises); and the last looks at how technology tools themselves are being reshaped in how they are used to maintain a strong office culture in a world where it's unclear when we'll be returning to our offices (or if we ever will for at least some firms!?).

Enjoy the 'light' reading!

Kitces & Carl Ep 43: Discussing Financial Advice Fees And Value To Help Clients Better Understand The Benefits Of Financial Planning

September 24, 2020 07:08 am 2 Comments CATEGORY: Kitces & Carl Podcast

In the early days of financial planning when an advisor’s primary function was to provide access to capital markets, fees that clients paid were baked into the cost of the product they were buying. With the advent of planning as a service, however, fee transparency became an important feature for clients. Accordingly, charging an explicit fee for financial planning is a relatively new phenomenon, and as a result many financial planners struggle not only with when and how to communicate the fee itself and the value they provide, but with the fear that they will scare away prospective clients in the process.

In our 43rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss the merits of two opposing philosophies around when to discuss fees with prospective clients and strategies to help clients understand the value of the services an advisor provides.

One approach, for some advisors, is to first create context around the services they provide before discussing fees, leaving it until the end of the second meeting after gaining (and demonstrating) a clear understanding of a prospective client’s situation and presenting a rough plan about how they will align the use of the client’s capital with what they state is important to them. By doing so, the advisor can give the prospective client the experience of what it will be like working together.

Another approach, meanwhile, is to state their fees directly on their website, so prospective clients can either filter themselves out of the process even before it begins (because, for some people, one of the main determinants of whether or not they will hire an advisor is if they can afford it in the first place) or at the very least come into a first meeting with a clear understanding of what they will be paying. Moreover, in an environment where advisors market on being transparent around their fees, waiting until the end of the second meeting to discuss fees is the opposite of clear and transparent.

Regardless of the approach, the important thing is for the advisor to be confident that they will deliver value for the fee that they charge. Because a fee will only ever be questionable in the absence of value. And explaining that value simply boils down to gaining an understanding of what a prospective client may be comparing the fee to (e.g., did they have a negative experience with a previous planner or think that they weren’t even paying a fee at all?) and figuring out where their “cost anchor” may be (e.g., do they view the fee as an expense that is anchored to their annual cashflow versus an investment that is allocated from their entire balance sheet?).

Ultimately, the key to discussing fees is first solving for when to discuss fees, and being able to do so confidently. After that, the value part of the equation hinges on understanding what clients might be comparing the process to and ensuring that they view financial planning as an investment in themselves and their future. Because when you can relate the fees to their lives, align it with their pricing scale, and address the problems that they're trying to solve that brought them in the first place, the whole nature of the fee/value conversation becomes much more collaborative!

Fostering Healthier Advisor-Client Relationships By Mitigating Transference And Counter-Transference

September 23, 2020 07:04 am 1 Comment CATEGORY: Client Trust & Communication

When it comes to connecting with strangers in a new relationship, our minds often jump to associating them with a friend or family member who we know well (“you remind me of so-and-so!”)… something we do without even realizing it. The tendency to do this is part of our brain’s natural shortcuts to making sense of the world; if we can associate someone new as being ‘similar’ to someone we already know, it becomes easier to figure out how to interact with and relate to them. Yet while this is often helpful and poses no problems, in some cases our tendency to substitute in another existing relationship can be counterproductive, blinding us to really taking the time to understand the person in front of us, or even causing adverse reactions when it turns out the person we’re actually relating to is not like the one our brains are associating them with! And this is especially relevant for financial advisors and their clients, where failing to really understand the person in front of us can impair the relationship between the advisor and client, and undermine the open lines of communication that are so important to ensure that the advisor is able to obtain the information needed to provide the necessary advice (and deliver it in a way that the client will actually implement it!).

Drawing from the world of therapy and mental health, this phenomenon of a patient projecting the values and characteristics of someone with whom they are very familiar onto the professional they have engaged, but don’t yet know very well, is referred to as “transference”. Similarly, the professional projecting values of someone else onto their patient is referred to as “counter-transference.” For example, a therapist may remind a new patient of the patient’s own brother. If the patient has had a supportive and caring relationship with their brother, they may immediately feel an unfounded trust for their new therapist, based on how the patient feels about the brother. Alternately, if a patient reminds their therapist of an intensely disliked relative with whom they are always fighting, they may experience counter-transference issues and may find it difficult to empathize with compassion toward their patient. And, like therapists and their patients, financial advisors and their clients are just as prone to engaging in transference and counter-transference behaviors during their relationship.

For instance, when difficult relationships (not with the advisor) in a client’s life remind the client of their advisor, unhealthy transference tendencies can cause the client to have trouble communicating openly with their advisor about important financial affairs, or make them unwilling to accept the advisor’s advice. Similarly, problems can arise for advisors if a client were to remind them subconsciously of a person with whom the advisor has an unhealthy relationship, such as the advisor who struggles to give hard advice to an elderly client that reminds them of their own mother. This difficulty to communicate becomes problematic, not only because it can prevent information crucial to the financial planning engagement from being shared, but can also eventually lead to feelings of frustration and burnout – for both advisor and client.

To address the situation and prevent counter-transference-based tendencies from harming relationships with clients, advisors can use various techniques to practice awareness of any counter-transference behaviors they may be impacted by. As a first step, advisors can identify any of their own personal triggers that may be impacting their client relationships. Recognizing and understanding the differences between the client and the other person being mentally associated with the client, who may be the actual cause of the advisor’s personal triggers, can be helpful for the advisor to see the client clearly as the unique individual that they are. A self-analysis tool that can be helpful for the advisor to work through counter-transference issues is the Money Script Inventory, which helps to identify subconscious beliefs about money (which can itself be a springboard for further investigation into the actual causes of those beliefs, which can often provide clues to identify counter-transference causes). Another technique is for the advisor to assess their own money history by reflecting on their own personal relationship with money and the challenges they have faced around money.

While self-analysis can be sufficient for some advisors to work through counter-transference issues, others may prefer the support and guidance of a mental health professional themselves. Therapists understand and know how to help their patients work through transference issues, and are themselves trained to work through their own counter-transference habits.

Ultimately, the key point is that advisors have access to tools that can help them recognize their own counter-transference tendencies, which can help them maintain healthy relationships with their clients, and that are key to open communication and good financial planning!

#FASuccess Ep 195: Own Your Future By Continuously Reinvesting In Yourself To Build The Advisory Career You Want, With Echo Huang

September 22, 2020 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 195th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Echo Huang. Echo is the founder of Echo Wealth Management, an independent RIA based in Minneapolis that oversees nearly $120 million of assets under management for 76 client households. What's unique about Echo, though, is the way she's built a niche serving corporate executives and has managed to grow the firm almost entirely by word of mouth by building her reputation within her niche.

In this episode, we talk in-depth about how Echo built her career starting out in the industry from scratch as an immigrant to the U.S. with just $800 in her pocket. How she started studying finance as an undergraduate, then decided that it would help her career to get a CPA license, so she joined a public accounting firm to get the requisite two years of audit experience. Then, transitioned to the personal financial planning division of a regional accounting firm and earned her CFP certification to build her professional credibility and help overcome the fact that she looked young when sitting across from older clients. Why Echo ultimately went out on her own at a cost of losing two-thirds of her AUM to rebuild the vision of the advisory firm she wanted to build. And why, as an already successful advisor in her 40s, she still decided to go back and get her CFA certification on top of juggling the challenges of growing the business and being a parent to her daughter Nina.

We also talk about how Echo actually built her independent advisory firm to serve the clients she wanted to serve. Why she chose TD Ameritrade as her custodian. The reason she selected Salesforce as her CRM of choice despite Redtail and Wealthbox being more popular for solo advisors. Why eMoney Advisor became the hub of her financial planning services for clients. And how Echo structures her fees for clients with an AUM fee that starts at 1% on their first $1 million for portfolio management. And a separate fee of up to $5,000 for the first years' financial planning.

And be certain to listen to the end, where Echo shares the unique challenges of being what she terms a triple minority of being Asian, female, and a new immigrant coming into the financial planning profession. The unique way that Echo views career and business risk to have made some of the key transitions she's made to advance her career. And why she views the key to success as building the confidence to believe in yourself, and your own advisor value. And getting the education, study group peer support, and whatever else it takes to build that confidence in yourself.

So whether you’re interested in learning about the journey that led Echo to starting her own firm, how she created her niche working with Fortune 500 executives, or how she built her tech stack from scratch, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Adapting Advisory Teams To A Hybrid Office/Home Workplace: Leadership, Culture, And Infrastructure For The New RIA Workplace

September 21, 2020 07:06 am 1 Comment CATEGORY: Practice Management

Financial planning advisory firms have traditionally operated as brick-and-mortar establishments, with clients coming to the office to meet with their advisors in person, and where all employees would generally be available on-site every day during normal business hours. However, with the onset of the COVID-19 pandemic, ‘business as usual’ took a dramatic shift to a more ‘virtual’ reality. Businesses around the world were required to shift gears to comply with social distancing requirements to mitigate the impact of the spreading disease. For financial advisors in particular, this meant quickly developing a strategy to implement processes that would accommodate virtual meetings with clients, as well as work-from-home systems in place for employees to continue servicing clients and to maintain everyday business operations. With no immediate end in sight of the current pandemic condition being resolved, however, business owners are now looking to create more permanent workplace solutions that will accommodate social distancing practices.

Sustaining a successful future advisory firm model will require several changes to leadership strategies, including a shift in focus from a ‘presence-based’ management style, in which the key metric to assessing employee productivity is by the very fact that they show up for work in the office, to more of an ‘output-based’ management style, in which productivity is measured more by attainment of company goals and the deliverables required of employees to achieve those goals. Critical to this shift in management style is a clearly communicated career progression strategy, to convey to employees the importance of their role in the organization and how those roles are designed to meet company goals. Another leadership strategy to adapt a successful future model is the cultivation of ‘Team-Based’ (versus ‘Boss-Based’) accountability systems, in which team members themselves have more freedom and autonomy in conducting work as a means to manage their own accountability, instead of relying on bosses to guide the direction of individual workloads. Finally, allowing employees to choose between working environments (e.g., virtually or onsite with other team members) can enhance employee satisfaction and help them work more effectively.

Also important in cultivating a sustainable future advisory firm is the creation of a cohesive culture that includes all employees – including those team members who work remotely. Open and frequent communication is important in reminding employees about the core values and company goals of their organization. It is also important for management to ensure that employees know that they are valued members of the company, intentionally reminding them of this from time to time, allowing for flexible work hours to accommodate personal priorities, supporting employees in setting up comfortable and functional work environments (whether at home or in the office), and finding team-building activities to engage employees while at the same time emphasizing that the workplace can be considered a source of personal support.

Finally, infrastructure must be thoughtfully designed to support firm growth. Functional technology systems are a crucial infrastructure component and are essential for good communication across the organization, especially when employees are working remotely in different locations. Being able to assess all processes and identify the specific steps that employees are working on through the use of a well-designed workflow task management platform can help all team members to determine whether their workloads are being managed effectively (and to tweak processes as needed), and additional channels of communication (e.g., instant messaging applications) can help minimize email inbox overload. Team structures may need to be reassessed as well, such as limiting the number of a manager’s direct reports so that sufficient resources are available to support employees.

Ultimately, the key point is that as financial advisory firms evolve their organizations to accommodate a more remotely based workforce, there are many decisions for enhancing their success. Critical to this process is for firms to self-assess the needs of their individual employees, to decide how best to reshape the practices followed by leadership and management, and to maintain their culture regardless of where employees may be situated.

Weekend Reading for Financial Planners (September 19-20)

September 18, 2020 02:58 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that despite concerns from fiduciary advocates that the Department of Labor's new "fiduciary" rule will undermine consumer protections by allowing "fiduciary commissions", the annuity industry is mounting a challenge to the rule out of a concern that it is still too stringent in attaching a higher standard of care to sales of annuities into IRA rollovers, raising the question of whether a final rule will be issued in the coming months or not (and if it is, whether it will again be challenged and struck down as the last DoL fiduciary rule was).

Also in the news this week are some interesting new industry studies, including a look at the growing interest from industry providers to gain adoption of Health Savings Accounts amongst financial advisors to use as a supplemental retirement savings account for more affluent clientele, and another study finding that 44% of investors (and 68% of Millennials) would consider switching away from an advisor who did not align with their political views (stoking fears amongst some advisors that political discussions will cause lost clients, but signaling an opportunity for others that being more upfront about the advisor's politics can actually better bind clients who share similar political views).

From there, we have a few articles on industry trends around advisor platforms, including a veritable explosion of new recruiting efforts from broker-dealers that have transitioned to virtual recruiting (as it's now easier to vet a new platform from the comfort of your home office!?), the ongoing tension that RIAs face in choosing which RIA custodian on whom they both depend and may compete with (as the Schwab-TD Ameritrade merger creates a veritable oligopoly of mega providers), and the options for advisors to consider if they don't have enough in assets under management to affiliate with one of the mega RIA custodians.

We've also included a number of marketing articles this week, from a look at how anticipated SEC revisions to the advertising and (anti-)testimonial rules could create an upheaval in advisor marketing in 2021, how "expertise marketing" is different than traditional advisor marketing and is all about finding synergies that build compounding marketing momentum over time, and why it's so important to consider the Client's "Lifetime Value" and not just the top-line revenue growth of the firm to understand the health of an advisory firm and its marketing efforts.

We wrap up with three interesting articles, all around the theme of what clients really want from the advisor-client relationship: the first explores a recent Spectrem Group study that finds, despite the rise of robo-advisors and more and more online technology, that more consumers are relying on financial advisors now than in the aftermath of the financial crisis a decade ago (though at the same time, there has also been an uptick in self-directed investors relying on increasingly sophisticated technology solutions); the second provides an interesting perspective from the client's point of view (literally, written by a client who has had many financial advisors over the years) on what really matters when it comes to client retention; and the last recaps a keynote session from this week's Morningstar conference about how the future of the financial advice industry is changing, where the AUM model and in-person meetings won't vanish, but a growing range of virtual meetings and non-AUM fee-for-service business models are opening new doors of opportunity to grow advisory businesses!

Enjoy the 'light' reading!