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The Latest In Financial #AdvisorTech (December 2020)

December 7, 2020 07:02 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the December 2020 issue of the Latest News in Financial #AdvisorTech – 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!

This month's edition kicks off with the big news that Blackrock is making a “billion-dollar bet” on the future of Direct Indexing, acquiring #2 player, Aperio, just weeks after Morgan Stanley acquired #1 Direct Indexing provider, Parametric… which given Blackrock’s sheer mass and distribution capabilities, could quickly turn 2021 into the year that Direct Indexing really hits the map with financial advisors, either for its inherent tax advantages (of being able to tax-loss-harvest the individual stocks in the index, rather than just the index fund itself) or the potential to morph into a form of “customized indexing” where advisors adapt “index” funds for each client based on anything from factor bets (e.g., overweighting small-cap and value) or ESG preferences (e.g., underweighting tobacco and overweighting renewable energy). Though from Blackrock’s perspective, it’s still not clear whether it really sees Direct Indexing as the great disruptor of ETFs… or simply wants to hedge against the risk that it might be (in light of its own multi-trillion-dollar iShares ETF business).

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

Fidelity launches a new model marketplace, dubbed FMAX, in what appears to be an attempt to convert the custody business into an upfront basis point charge (at least for advisors who use third-party managers?)
Addepar raises a $117M Series E round as it expands into the (alternatives) Marketplace business as well
CAIS raises $50M for its own alternatives Marketplace solution
Oranj announces that it is (abruptly) shutting down as its own Model Marketplace adoption fails to gain traction (even when its core software was free!?)

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including former LPL CEO Mark Casady’s launch of Lefteris (the first SPAC specifically targeting Advisor FinTech companies for a potential IPO?), Commonwealth launches a new “Connect” platform to facilitate virtual networking for its advisor community, Bill.com launches a new bill-paying solution for wealth management firms to offer concierge bill-payments for their own clients, and ForwardLane launches a new “personalization at scale” Next Best Action solution for RIAs (but do advice-centric RIAs with reasonable client/professional ratios actually need such solutions in the first place?).

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

I hope you're continuing to find this 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 (Dec 5-6)

December 4, 2020 02:59 pm 6 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the industry news that NASAA has approved a new Model Rule that would, for the first time, impose an annual Continuing Education requirement for advisors at RIAs (regardless of whether they have a professional designation)... or at least, at the state-based RIAs that are subject to the individual states that may adopt the NASAA Model Rule in the coming years?

Also in the news this week is the news that the CFP Board has hired a 20-year veteran of the SEC's Enforcement leadership to become its new Managing Director of Enforcement as the organization signals a growing focus on actually enforcing its new fiduciary standards of conduct, and a new consumer research study finding that investors are more comfortable with human advisors over robo-advisors and are (slightly) more likely to follow their advice... but were also more likely to be dissatisfied in the recent pandemic market volatility earlier this year (in particular, for all those advisors who advised their clients to "do nothing" and simply stay the course!).

From there, we have several articles on practice management and growth, including tips on the next positions to hire for as an advisory firm grows (from Client Service to Operations, Investments to Compliance), the importance of visioning exercises as an advisory firm leader to truly envision the future growth of the firm (and the organizational chart it would take to get there), and a look at how advisory firms are increasingly rethinking their approach to compensation and benefits (in particular, the ongoing shift from revenue-based compensation to salary-plus-incentives instead).

We've also included some articles on employee performance reviews (as that time of year queues up!), including one strategic approach on how to run the annual employee review process, another highlighting the importance of benchmarking employees not against one another but their own past selves (to measure personal improvement over time, not competitiveness against others in the workplace), and a look at how the 'emotional culture' of an organization can help drive employee success and retention.

We wrap up with three interesting articles, all around the theme of how financial advisors manage their own money: the first is a recap of the recent new book by Josh Brown and Brian Portnoy aptly titled "How I Invest My Money: Financial Experts Reveal How They Save, Spend, and Invest"; the second is the personal story of the Chief Investment Officer of a multi-billion-dollar RIA about how he invests his own money; and the last is an interesting look at how there's often a gap between what financial advisors say their clients should do, and what they do themselves... and the debate about whether that is a sign of advisor hypocrisy, a recognition of how hard it is to follow advice (even our own, as we're human beings too), or simply an acknowledgment of how varied our goals are and the paths that we take (which is why financial planning is so important in the first place)?

Enjoy the 'light' reading!

Kitces & Carl Ep 48: Why Goals-Based Planning Doesn’t Work And The Possibilities-Based Planning Alternative

December 3, 2020 07:03 am 2 Comments CATEGORY: Kitces & Carl Podcast

Decades ago, when the financial advice industry was focused primarily on the sale of investment products and insurance, the standard planning approach was to conduct a gap analysis to highlight the client’s needs… so that the advisor could implement whatever available products they had to address those needs (and earn a commission in the process). More recently, financial planning has shifted away from a needs-based approach, and towards a more aspirational “goals-based” approach where clients commit to pursuing advisor-recommended strategies to achieve those goals. Yet the challenge of goals-based investing is that it presumes clients know what their goals are, and can effectively articulate them… which in practice isn’t always the case. In part because the compounding math of wealth accumulation itself isn’t natural for most, and it’s difficult to set goals if you don’t even know what the compounding of saving and investing might make possible in the first place!

In our 48th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss why goals-based financial planning puts the proverbial cart before the horse, the importance of exploring the possibilities first, strategies to dig deeper with clients to create frameworks from which realistic and meaningful goals can be developed, and why iterative planning allows advisors to develop long-term relationships with clients, where the focus isn’t on The Plan, per se, but rather on the process of planning and adapting to what else may become possible over time.

As a starting point, it’s important to understand that humans in general aren’t really wired to envision a future that is substantially different from what we experience today. It’s little wonder, then, that clients, when asked about their “goals”, often don’t have very good answers... and may even sometimes wildly unrealistic expectations (which, in turn, forces the advisor to become the “bearer of bad news”). Which means that the first (and perhaps most underrated) thing that an advisor should do is to help clients understand the myriad of possibilities ahead of them, explore a range of scenarios, and understand the inevitable trade-offs and choices that they will have to make along the way.

From that “possibilities-based planning” foundation, advisors can focus on asking good questions that lead to meaningful conversations around helping clients discover those things that are most important to them, identify their desired future state, and then build a framework upon which they can define (and start moving towards) their goals. In turn, defining those goals with a possibilities-based discovery approach creates room to reassess those goals and to shift over time… while allowing the underlying framework to remain in place.

Ultimately, while it’s not necessary to completely discard the notion of goals-based planning, the key is to examine what the various possibilities are to begin with, before even thinking about asking clients what their goals might be. By thinking more along the lines of possibilities-based planning, advisors can help clients determine what are realistic goals to set in the first place and determine the most efficient recommendations that will allow clients to focus on what’s most important to them and get them to their desired future state.

Helping Clients Get Unstuck And Follow Through By Understanding The Six Stages Of Change

December 2, 2020 07:01 am 1 Comment CATEGORY: Client Trust & Communication

One of the most frustrating parts of providing financial planning advice is that not all clients follow through on the advice that is clearly ‘good’ for them. Of course, the reality is that as human beings, we often don’t take the advice proffered by others. But when a prospective client comes to the financial planner for advice, there is a reasonable expectation that they’re ready to act on the advice they receive! Except, as it turns out, research suggests that often the fact that we reach out to an advice-provider is not necessarily a reflection of our readiness to take the advice; instead, it is just one of many steps in a client’s progress through the stages of change from inaction and complacency to actually taking action to change their situation for the better! And by understanding the various stages of change, we can better understand the reasons why clients get stuck in the first place and engage the client in specific processes that help them move forward and make progress in implementing their financial plans.

Interestingly, of the six stages of change identified by psychologist James Proschaka and his team of researchers, only half of the stages actually involve any action steps towards implementing the change. The first three stages of change, where many clients tend to get stuck in following through on their financial plan, don’t involve any action at all. Instead, these ‘non-action’ stages involve self-reflection and emotional preparation to proceed with the change being considered, from Pre-Contemplation (where clients don’t even realize there’s a problem to contemplate fixing) to Contemplation (when they understand that a change is indeed necessary, and acknowledge that there is something they can do about it… but aren’t ready to do anything about it yet), to the third and last non-action stage, Preparation (where we begin to think about what needs to happen and will make plans to actually implement a change). Only at that point can the individual move on to the ‘action’ stages, which include taking action and maintaining the new behavior required to sustain the change.

Advisors can ask clients who seem to be having trouble taking action on their plans a set of four specific questions to understand where in the process they may be stuck: 1) whether the client can identify what they want to change; 2) if they know what they need to do to change; 3) if they believe they have the capacity to make the change, and; 4) if they are committed to begin taking action. Alternatively, advisors can use ‘scaling’ questions to determine the degree of commitment and/or interest to the change being considered and use their clients' responses as a way to adjust courses of action accordingly.

Furthermore, the Transtheoretical Model (TTM) of Change is a framework that identifies ten processes that can be used as tools to help clients move through the various stages of change. These processes are either experiential (dealing with experiences through thought and emotion and more often associated with addressing non-action stages) and include steps that help clients through the Pre-Contemplation stage (Consciousness-Raising, Environmental Reevaluation, and Dramatic Relief) or a mix of other stages (Self-Reevaluation, Social Liberation), or behavioral (involving the client actively taking steps to set the change in motion) and include Self-Liberation, Helping Relationships, Reinforcement Management, Counter Conditioning, and Stimulus Control.

One of the most important considerations when helping clients implement change is the concept of self-efficacy, which is an individual’s sense of their ability to take action in response to a situation. Ideally, advisors will use TTM tools to help clients increase their self-efficacy, whether it be through providing the client with ample opportunity to reflect on the meaning of the change that needs to be made, or simply supporting their efforts (and not necessarily pushing them to action, which can be counterproductive with a client not yet ready to take action).

Ultimately, the key point is that there are processes that advisors can use to help their clients move through the various stages of change, which can make it easier for them to work with those clients who may be stuck or resistant to take action. It is also important to understand that change involves behavioral ‘non-action’ stages and that clients may still be making significant progress even though nothing seems to be happening. By recognizing where clients are in the change process, advisors can decide how to provide the right kind of support to their clients to help them tackle their specific blocking points, and move along in getting on track with their financial plans!

#FASuccess Ep 205: Differentiating From The Crowd By Pursuing A Specialized Clientele Of Cross-Border (Swiss) Expatriates, With Marina Hernandez

December 1, 2020 07:09 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 205th episode of Financial Advisor Success Podcast!

My guest for today's podcast is Marina Hernandez. Marina is an Investment Advisor Representative with Dynamic Wealth Advisors dba Swiss American Wealth Advisors with offices in Philadelphia and Switzerland that specializes in working with cross-border Swiss-American expatriates.

What's unique about Marina, though, is the way her specialized niche allows her to command sizable financial planning fees, working primarily with otherwise hard-to-work-with next-generation clients, while facing remarkably little competition at all, but focusing on not just cross-border expatriate clients, but specifically, those expatriates going just between the U.S. and Switzerland.

In this episode, we talk in-depth about what makes the niche of cross-border planning for expatriates so unique and so complex, the challenges from potential double-taxation of foreign country retirement accounts that the U.S. doesn't recognize for favorable tax treatment, how the rising focus on preventing money laundering and foreign tax cheats has created new layers of specialized tax reporting that expatriates must handle or face $10,000 fines from the U.S. government, and why even seemingly simple publicly traded investments that hold a diversified portfolio in a foreign country can create significant additional U.S. tax challenges.

We also talk about how Marina is structuring her advisory business, why she chose to break away from the existing advisory firm to start her own practice, the reason she affiliated with a larger firm, Dynamic Wealth Advisors, to provide her own back-office RIA support and get her access to multiple RIA custodial platforms, the software tool she uses to do financial planning with her expatriate clients, and why despite the fact that her value hinges on solving the especially complex problems her clients face, Marina's financial planning process is actually very efficient, because her specialization has allowed her to develop repeatable expertise.

Be certain to listen to the end, where Marina shares her journey in finding her cross-border expatriate niche, how her need to handle her own family's taxes as an expatriate living in London made her aware of the unique complexities for Americans living overseas, how the combination of CFP marks and Enrolled Agent license and her experience on international tax issues meant that she had three job offers out to her within just a few months of joining the Financial Planning Association and network for career opportunities, and why Marina is taking the barbell approach to serving the marketplace with a premium financial planning fee for her most complex clients, but then also offering free financial education classes for cross-border citizens who may also need help and may not be able to afford her premium services.

So whether you’re interested in learning about how Marina became an international tax expert, how she found a career that supported her need for mobility, or why she ultimately decided to partner with another firm, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Employee Benefits And Perks That Actually Help To Retain Advisory Firm Employees

November 30, 2020 07:03 am 2 Comments CATEGORY: Practice Management

The financial advice business is a service business, and a service business is a people business. Which means the ability to attract and retain people to work in the business, and keep them happy and engaged with that work becomes increasingly essential as an advisory business grows and scales. And keeping employees happy is a function of not only having meaningful work to do, but also compensating them appropriately for that work. In recent years, this has led to an ever-growing number of “perks” that firms offer employees to keep them happy, from retirement benefits to health insurance, to education reimbursement to student loan support, and gym memberships, and employer-provided meals. But in the end, employers can’t just pile on a never-ending stream of employee benefits and perks in the hopes that it will help employees to retain; at some point, the question becomes: what are the best “perks” and employee benefits that really, actually help to retain employees?

In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – discusses her four principles that she has determined are most effective at supporting employee happiness. Known as the “P4 Principles”, they include a combination of Preparation (helping all team members achieve success), Pay (designing satisfying compensation and incentive packages for employees), Perks (offering lifestyle benefits that motivate employees and help them balance their work and personal life), and Productivity (providing the tech tools that allow employees to do their work in the first place). Importantly, though, “P4 Firms” that implement all four P4 principles successfully have shown that offering the right Perks to employees is the most impactful of the four P4 Principles in achieving lower turnover, higher growth, and more successful employees.

Research conducted by Herbers & Co revealed several perks offered by companies that were most effective in increasing employee happiness. Two perks, above all others, that are important for all financial advisory firms to offer to their employees are health insurance and retirement plans (even if the company is unable to contribute on behalf of their employees). Not only are these two perks necessary for financial advisory firms to attract (and retain) top talent, but they are also important to offer employees access to these benefits simply for company morale, especially when the firm teaches its clients that purchasing health insurance and saving for retirement are essential practices for a healthy financial future (which can quickly make employees wonder why they’re not receiving those benefits, too!).

In addition to the essential employee perks of health insurance and access to an employer retirement plan, financial advisory firms can offer a menu of additional optional perks to motivate their employees and help them better manage (and enjoy) their professional and personal lives. In fact, Herbers' research indicates that while there is a wide range of potential perks and benefits that firms might consider offering, including flex time, unrestricted vacation, bereavement time off, family leave, time off for volunteer work, paying for continuing education, time off for continuing or further non-work-related education, group discounts, and sabbatical time off, companies need not offer all (eleven) types of perks; instead, offering at least six of these options (chosen from any of the top eleven) was sufficient to maximize employee happiness (by allowing enough options that all employees could appreciate and benefit from at least some of the available perks).

Furthermore, employees who are given a range of these perks (and the autonomy to choose amongst them) tend to feel that their employer trusts them to balance their lives with doing a good job which further motivates them to manage themselves (and each other). In fact, despite fears from many employers that too many – or too flexible – perks may lead to abuse, in practice, firms with strong positive work cultures typically find that employees still feel accountable to each other… and consequently generally do not abuse the privileges the perks afford (e.g., if offered unlimited vacation time, P4 Firm employees still end out taking only what they really need). In fact, P4 Firm employees were found to take less vacation (14.5 days per year) when compared to non-P4 Firm employees (who took an average of 19 days per year), despite having more flexibility and often “unlimited” vacation access!

Ultimately, the key point is that financial advisory firms that focus on a P4 culture by implementing good Preparation, Pay, Perks, and Productivity practices, with an emphasis on providing the right Perks for their employees to support their happiness, will generally have great employees with high morale and the motivation to manage the company responsibly and effectively, which can help the company grow into a truly great business!