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Developing Employee Career Tracks As An Alternative To Performance Reviews For Better Team Improvement

July 27, 2020 07:06 am 1 Comment CATEGORY: Practice Management

In the early days of the financial advice industry, an advisor’s career track was relatively straightforward. Either they met their insurance policy or investment product sales quota to qualify their contract, or they found some other way to make a living. However, amid the ongoing shift towards the recurring revenue AUM model, and the concomitant rising need for ongoing client advice and servicing, various new roles within firms began to emerge, including client service associates, paraplanners, and (not-responsible-for-business-development) lead advisors.

Along the way, advisory firms generally followed a traditional “performance review” model for determining why and when this new crop of employee advisor roles would progress (or not) on to the next level. Yet in practice, most of corporate America has shifted away from this traditional performance review approach, and towards leadership-based programs to develop and retain talent… while many advisory firms remain mired in the now-outdated management-heavy performance model.

In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – explains why advisory firms still favor the performance model (they’re in the advice business after all, and tend to tell employees what they should be doing instead of providing training, development, and leadership), and how those firms can instead create a stronger culture and ensure that employees are collectively striving towards the same end-goal with a different approach to employee management.

The key distinction is that there is a fine line between telling an employee what they should be doing (and how), and influencing them to go in a direction that helps advance everyone involved. And a first step towards aligning expectations with a more influencing-oriented approach is by developing well-defined career tracks that show (rather than tell) firm employees the path that’s ahead of them… so they know where they’re expected to go (and can see what it takes to get there)!

In the process, though, it’s key to avoid creating a one-size-fits-all, linear path that ignores employees’ strengths and training. Instead, advisory firm owners should recognize at least four baseline career tracks that emerge in a prototypical independent advisory firm. Each track may cater to a particular employee’s strengths and goals, including Financial Planning (for big-picture, strategic thinkers), Advisory (for relationship-driven individuals that like to make things happen), Investment Management (for aspiring CFAs who like research), and Client Services And Operations (for organizers who love to serve others).

Ultimately, implementing a variety of career tracks will provide employees clear paths to travel along as they progress through the firm (and give managers a roadmap they can use to proactively lead their teams rather than reactively telling them how to improve their performance). But first, the leadership team must also have the right mindset, expectations, and plan in place. Once that’s done, and career tracks are established, advisory firms can foster continuous communication and develop talent far more efficiently, by showing them where they can go and letting them step up to the desired challenge and opportunity.

Weekend Reading for Financial Planners (July 25-26)

July 24, 2020 03:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the latest on the prospective fifth round of economic stimulus in response to the coronavirus pandemic, with a formal legislative proposal delayed until next week, but the details starting to take shape, including another round of stimulus checks (similar to the March stimulus), and an extension for unemployment benefits (but likely at a lower level than the prior), while a proposed payroll tax cut through the end of the year appears to be off the table... with more details anticipated early next week as Congress aims to pass something by the end of next week (July 31st, when Congress goes back out on its August recess, and the current additional unemployment benefits would otherwise expire).

From there, we have a number of articles about the growing focus on business continuity for financial advisors, from a recent NASAA study raising the question of whether succession plans may need to become mandatory at some point as advisors age (and cognitive impairment and diminished mental capacity becomes a risk not just for clients, but for older advisors themselves), the rise of business continuity planning as a top concern for advisory firms themselves (in light of the pandemic), and the rise of "Sell And Stay" transactions where advisory firms choose to sell and harvest the economic value of their businesses, but then remain as employees with the acquirer for several years thereafter (decoupling the decision of when to sell and no longer have responsibility for business continuity, from the actual decision to exit the business and retire altogether).

We also have several articles on cash flow and budgeting, including a look at the "Values-Based" approach to budgeting, how the biggest driver of "super savers" is not scrimping on avocado toast and lattes but driven primarily by decisions about housing and automobiles, how the pandemics curtailment of travel may force major changes in 'premium' credit cards that offer no-longer-as-valued travel rewards, why having a "finhobby" to take your mind off financial stresses can help to come up with financial solutions, and why a growth mindset really can help one "think" their way to financial success.

We wrap up with three interesting articles, all around the theme of navigating one's own career to success: the first explores how, despite the growing focus in modern society on the value of entrepreneurship, we may be underrating the value (and economic wealth-building potential) of the "traditional" career; the second explores the rise of coaching as a way to better navigate one's career transitions (whether within their firm or when looking to make a change) to get the guidance needed to really find an ideal role and path for the future; and the last explores the "canvas strategy" for career-building, where the focus is simply on doing the work that has positive impact regardless of who gets the credit... recognizing that in the long run, deferring credit for one's success often just builds compounding interest that makes it even more rewarding (and in the meantime, helping others along the way of your career just makes you indispensable in your current job, which isn't a bad place to be in the current economic environment!).

Enjoy the 'light' reading!

50 Portfolio Management Software Solutions For Advisors Can’t All Survive

July 23, 2020 07:18 am 13 Comments CATEGORY: Technology & Advisor FinTech

The total addressable marketplace for financial advisor technology is limited, with a ‘mere’ few hundred thousand financial advisors (as contrasted with millions upon millions of potential users with direct-to-consumer software). And while at advisor (and especially enterprise) prices, that is still a healthy marketplace for software, it is further limited by the fact that not all advisory firms do the same thing, and the addressable market for any particular software solution may be even more limited (and is further complicated by the fact that overlapping advisor licenses made it difficult to count the exact market opportunity in the first place!). A matter that is both simplified, but also further limited, by the ongoing trend towards industry consolidation, that is splitting the market between a few behemoth wealth management firms (meaning larger but fewer enterprise opportunities), and a flood of small firms (who aren’t necessarily in the market for sophisticated, complex FinTech offerings, and can be expensive and challenging to reach from a software distribution perspective).

Yet despite the limitations in market opportunity, certain categories in the FinTech landscape – in particular, portfolio management systems – continue to grow each year, as more and more competing vendors vie to provide complete end-to-end solutions for (a not necessarily growing number of) advisory firms. And while this trend is certainly a natural stage in any maturing market, the presence of so many portfolio management systems that aim to support almost every step of the investment management process is resulting in an overwhelming array of choices for advisors… none of which are able to really differentiate themselves beyond a variety of increasingly bloated and often cumbersome user experiences. Especially when advisory firms can simply use the growing breadth of API integrations to cobble together their own “best-of-breed” solution anyway.

On the other hand, for many firms, a less-than-perfect all-in-one solution can still be preferable to cobbling together a smorgasbord of what may be “best-of-breed” solutions to address each stage of the portfolio management process, which in practice almost never results in the desired seamless workflow that really passes along relevant data and tasks through the various steps. Instead, firms – especially enterprises – do seem to be shifting towards all-in-one offerings, opting for the “one throat to choke” solution that (at the very least) makes it easier for them to figure out who to blame when something breaks, and leaving one vendor accountable instead of leaving it up to the advisor to manage whatever problems that may arise.

Still, though, the problem remains that more and more competition amongst both best-of-breed and all-in-one portfolio management solutions has left us with a landscape that is crowded with a whopping 50 portfolio management systems for advisory firms to choose from. And with a limited number of opportunities for vendors to target (especially as various custodians develop their own in-house portfolio solutions, such as Schwab’s Portfolio Connect and Fidelity’s WealthScape), conditions are ripe for smaller vendors to either team up, or look for potential buyers, rather than getting squeezed out of business. The current crisis created by the pandemic and the resulting economic downturn will likely only accelerate this process.

Which, at the end of the day, could result in a smaller playing field of portfolio management systems for advisors, and a higher hurdle for any new offerings that will have an even harder time trying to differentiate themselves. Because in the end, advisor choice is good… but do we really need 50 different portfolio management systems today?

Navigating Income Harvesting Strategies: Harvesting (0%) Capital Gains Vs Partial Roth Conversions

July 22, 2020 07:01 am 18 Comments CATEGORY: Retirement Planning

For many high-income clients, financial advisors recommend deferring income as a strategy to mitigate taxes, especially when the client is in a high tax bracket and expects to be in a lower tax bracket in the future as income levels decline (e.g., after retirement). However, in the opposite circumstance, when current taxable income is lower than anticipated future income (e.g., because the client is building substantial wealth), it can be beneficial instead to harvest income instead, take advantage of the taxpayer’s lower tax bracket, and limit the amount of income deferred into the future which would presumably be taxed at a higher rate anyway (as the more income that is deferred to the future, the greater the risk of bumping up the taxpayer into an even higher tax bracket as a result!). But how does the financial advisor choose the best strategy when it comes to avoiding too much tax deferral and harvesting income instead, especially when there are opportunities to harvest both ordinary income (e.g., Roth conversions) and also capital gains (at their own preferential rates and tax bracket thresholds)?

Advisors choosing between these methods – and whether to harvest ordinary or capital gains income – should consider the tax rate brackets associated with each income type to assess how to most effectively minimize overall tax liability (both now and in the future), as well as the “Capital Gains Bump Zone” – where the marginal tax rate on ordinary income can be driven substantially higher by indirectly driving capital gains (along with income generated from qualified dividends) into higher capital gains brackets as well. Because capital gains may be harvested at 0% for those in the bottom two tax brackets… but only if other ordinary income doesn’t ‘crowd out’ those lower tax brackets first!

Accordingly, financial advisors can design optimal income harvesting strategies for their clients by considering when it’s better to harvest ordinary income at its brackets, versus capital gains at those brackets, depending on the relative outlook for each in the future. For instance, those in the 0% ordinary income tax bracket can benefit more from harvesting additional ordinary income (versus capital gains) at 0%, as the jump to the next ordinary income tax bracket (once income turns from negative to positive) is significant. However, for clients in the 10% or 12% ordinary tax bracket (but still in the 0% capital gains tax bracket), it’s often better to harvest capital gains income (versus ordinary income) to reduce the impact of future capital gains income taxed at the 15% capital gains rate (and thus minimizing a 15% increase in capital gain taxation from 0%, compared to a 10% increase, from 12% to 22%, in ordinary income tax). In other words, the choice to harvest either ordinary or capital gains income will largely depend on how that additional harvested income will impact future income tax rates (for that particular type of income, given that individual’s own income growth trajectory).

However, the changes in ordinary and capital gains tax brackets as income itself rises (if only through the impact of deferring that income in the first place) are not the only factors to consider when deciding whether to harvest income, though, as there are other mitigating factors that will impact a taxpayer’s overall tax liability. These include the taxation of Social Security benefits, which phases in as income levels rise (such that harvesting income can actually trigger taxation of these benefits); Medicare Part B and Part D Premium Surcharges, which increase with higher income levels; and the Net Investment Income Tax (NIIT), which increases part of the 15% and the entire 20% capital gains tax brackets by 3.8% and applies not just to capital gains income but also to interest and dividend income as well (except for IRA withdrawals, including those carried out for Roth conversions, which are not subject to NIIT). Financial advisors should also consider the impact of state income taxes (especially if the client is planning to relocate to a different state in the future), and charitable contributions, as well as the step-up in basis of inherited assets received by beneficiaries, and even the beneficiaries’ own tax rates.

Ultimately, the key point is that financial advisors whose clients have lower tax rates today should be wary about deferring income at those low rates – often causing higher rates in the future – and instead can soften the impact of higher future tax rates by strategically harvesting ordinary and/or capital gain income today (with their separate tax bracket structures). However, there are several mitigating factors (such as Social Security, Medicare premiums, and the Net Investment Income Tax) that need to be considered when designing a suitable strategy for the client, and because of the unique tax rates (and bracket structures, and strategies) of ordinary income versus capital gains, it’s often necessary to navigate from year to year which is actually the ‘optimal’ strategy to pursue!

#FASuccess Ep 186: Cost-Effective Seminar Marketing By Leveraging Facebook Digital Ads To Fill Local Events, with Samantha Bezar

July 21, 2020 07:05 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 186th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Samantha Bezar. Samantha is the director of digital marketing for Thrive Financial Services, a hybrid RIA and insurance agency near Philadelphia generating more than $6 million of annual revenue while serving nearly 500 clients. What's unique about Samantha, though, is the way she's built a scalable marketing solution for the firm, with a combination of digital marketing and in-person events that have lifted the revenue of the firm from a few hundred thousand dollars to more than $6 million of revenue in under 3 years.

In this episode, we talk in-depth about Thrive's seminar marketing approach, why they've chosen to do education-only events and not dinner seminars, the way they initially drew participants by relying on buying third-party mailing lists but dropped their cost of client acquisition by more than half by doing their own Facebook digital marketing to fill in-person seminar events, the exact process that Thrive goes through to target their ideal prospects on Facebook, engage them to register for the seminar and confirm they actually attend, and the metrics of how a $3,000 marketing spend can turn into tens of thousands of dollars of new revenue, which just gives Thrive more money to reinvest into their marketing process to further accelerate their growth.

We also talk about how Thrive transitioned to webinar events in the face of the coronavirus pandemic, why the company still chooses to do its webinars as an in-person live stream and not just a recorded webinar or voice-over PowerPoint approach, the tools and technology that Thrive uses to deliver its webinars and handle its online registration process, and how Samantha determined that text messaging can actually be a highly effective marketing tool to ensure prospects follow through.

And be certain to listen to the end, where Samantha shares her own journey of learning digital marketing in the advisory world without a background as a financial advisor, the importance of viewing all marketing as experiments where it's okay to try something out and fail because that's the only way you find out a new approach that works, and why Samantha sees marketing automation software tools as the key to executing scalable marketing for an advisory firm in the future.

Credibility Marketing: Self-Publishing A Financial Advisor Book For Authority, Not Book Sales

July 20, 2020 07:08 am 0 Comments CATEGORY: Marketing

There is no question that writing and publishing a book as a first-time author is a huge commitment, yet a growing number of financial advisors are finding that having a self-published book is not only a doable and personally rewarding undertaking, but that it is also a highly effective return on their time and financial investment. As while the revenue generated from book sales may not be exceedingly lucrative, it is the opportunity a book offers to the financial advisor to grow their business that is actually worth far more than the book sale revenue itself! For instance, publishing a book not only bolsters an advisor’s authority as a subject matter expert, but it can also be used to promote the author, generate client referrals, and open conversations with key contacts (from prospects to hard-to-reach COIs).

In this guest post, Zach Obront, Co-Founder of Scribe Media, explains how financial advisors can harness the potential of a self-published book to strengthen their brand, establish their expertise, and grow their business. As a starting point, successfully leveraging a self-published book begins with establishing a well-crafted listing on Amazon. This includes not only a compelling description of the book itself, but also a complete Central Author page (including author photo, bio, and other articles or content released), and getting book reviews (which can be generated by asking people who have read the book, or to whom the advisor can offer to send a copy of the book, to leave a written review). When asking for book reviews, it is important to ensure that reviews are only about the book itself, and that they do not include comments on the advisor or on the advisory firm’s abilities. Accordingly, it is helpful to ask for reviews from readers who are not the advisor’s clients to prevent any potential issues around testimonial rules.

And with a good foundation in place, financial advisors as authors can optimize publicity by identifying who their primary target audience is (i.e., the ideal client persona they want to reach), and the media sources where they spend the most time. Authors can use articles or blog posts to pitch their books and seek out interview or podcast opportunities to talk about their book. Financial advisors can also share and/or discuss their book with existing and prospective clients, which is a good method of word-of-mouth publicity, and with symbiotic professionals (i.e., Centers Of Influence) whose lines of work intersect with the topic of the advisor's book and who can provide copies of the advisor’s book to their own clients to promote the advisor’s subject matter expertise (and generate referrals in the process).

Ultimately, the key point is that financial advisors with a self-published book possess a powerful tool to increase their own authority as subject matter experts and generate new client referrals… which can be worth many multiples more than ‘just’ the value of book sales themselves. By intentionally determining who they want to attract and who would be interested in the subject matter of the book, advisors can make powerful new connections by opening conversations with potential new clients and lead-generators.