Nerd's Eye View blog

Advisor Platform Comparison: Wirehouse vs RIA Aggregator vs Independent RIA

September 11, 2017 07:01 am 18 Comments CATEGORY: Practice Management

The wealth management industry has evolved significantly over the years, now offering a variety of different business models and platforms for advisors, from traditional wirehouses and independent broker-dealers, to independent RIAs, and increasingly the RIA aggregator and network platforms that support them. As a result, it’s become increasingly challenging for advisors to simply figure which model and path is the best to choose!

In this guest post, Aaron Hattenbach shares his experience working as an advisor in 3 different wealth management models: Wirehouse (at Bank of America Merrill Lynch); RIA Aggregator (with HighTower Advisors); and ultimately transitioning to his own fully independent RIA (his current firm, Rapport Financial).

And so if you’ve ever wanted a comparison between working at a wirehouse, an RIA aggregator, and an independent RIA, from someone who has actually had experience in all three, Aaron’s guest post here should provide some helpful perspective – whether you’re a veteran of the industry considering whether to make a change, or a new financial advisor trying to decide where to start your career.

Conducting in depth research in advance goes a long way in sparing you the potential headaches and risks that can come with moving your practice from one firm to another… given that every time you move your practice to another firm, you run the risk of losing your valuable and hard earned client relationships! And so I hope you find today’s guest post to be informative, as you consider what may be the best potential path for you!

Weekend Reading for Financial Planners (Sep 9-10)

September 8, 2017 02:58 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a series of big news stories around broker-dealers, including the announcement that LPL is going to force most new hybrid advisors who join the platform to use LPL's own corporate RIA (and not outside RIAs, nor even the RIAs of its OSJs), the news that Mass Mutual is cutting its MetLife annuity trail compensation by a whopping 73% for advisors who left the MetLife broker-dealer in recent years (a potentially troubling precedent), and the emerging trend of smaller broker-dealers "tucking in" to larger B/Ds by becoming a branch OSJ in order to avoid the compliance and technology burdens of running a B/D while maintaining their team and culture.

From there, we have a few practice management articles, including one on how trying to make all your clients happy can actually reduce the success of the business (as it hopelessly divides the limited resources of the business), another on why it's better to try to win new client business by being "different" than just showing how you're "better" (in large part because few consumers will believe you when you say you're better anyway!), and a third on how to handle the news when you find out you're losing a great client (by changing your own mindset to focus on the capacity opportunity it creates!).

We also have several more technical articles this week, from a discussion of how it's not enough to just talk about "success" and "failure" risk of a retirement plan because there are really several different degrees of "bad" (from not maintaining a desired standard of living, to not being able to support a basic floor standard of living, or true depletion and bankruptcy), to a fascinating study that looks at what investors really want from an advisor's investment reporting (and how it's not only a performance reporting issue but also a trust issue), and a look at how our understanding of investor risk profiling is beginning to change with a more nuanced understanding of the different factors at play (which should only get better as we gather more big data on how investors really do behave).

We wrap up with three interesting articles, all focused on the theme of overcoming our own personal hurdles and demons: the first looks at how for successful advisory businesses, one of the greatest "risks" is becoming satisfied that the business is good enough, and never asking pushing it to be great (which leaves substantial upside on the table!); the second is the story of investment writer Morgan Housel, who was a lifelong sufferer of severe stuttering, but went through a personal shift that has allowed him to at least partially overcome his disability, to the point that he is now working actively as a professional speaker on behavioral finance and investment issues; and the last is the story of writer Jeff Goins, who transitioned from being "just" a successful writer to an entrepreneur and business owner, and grew the business to more than a million dollars of revenue... making himself miserable in the process, and ultimately leading him to make a difficult decision to "downsize" the business, which while scary ultimately led him to be substantially happier, and to take home substantially more in profit as well!

Enjoy the "light" reading!

CFP Board Quietly Raises Certification Fees By 17% But To What End?

September 7, 2017 12:07 pm 8 Comments CATEGORY: Planning Profession

While the CFP Board has done a lot to justify its certification fees over recent years – from increasing the number of CFP certificants over the past 10 years by nearly 50% (despite the fact that the number of financial advisors is down over the past 10 years), to raising the status of the marks with its ongoing successful public awareness campaign – an important but little-noticed announcement was buried half way through the CFP Board's recent monthly email update: the CFP Board will be increasing its annual certification fee from $325 per year to $355. And while this increase may seem modest, because $145 of the total certification fee is earmarked for the public awareness campaign, the reality is that this is a 17% increase on top of the $180 portion that actually goes towards operations of the CFP Board. Which raises the question: why such a large increase, and why now?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the recently announced 17% increase in CFP Board certification fees, as well as why accountability of the CFP Board to its certificants is important, and why it is concerning that the CFP Board has given no substantive explanation for why it is pushing through such a large increase – and particularly for an organization coming off of a $1.3M surplus in 2015 and with over $20M in reserves.

Of course, fee increases aren't unusual in the long run for any organization, as it's essential to keep pace with rising staffing costs due to inflation. And this is still only the first increase the CFP Board has put in place since 2011... which, even then, was just tacking on the $145 surcharge to cover the public awareness campaign. It has actually been nearly 10 years since the CFP Board raised its core certification fees, relying instead on the rising number of new CFP certificants paying those fees to fund growth instead. Additionally, both the public awareness campaign and CFP Board satisfaction ratings appear to suggest the CFP Board is making some good progress.

Nonetheless, accountability is crucial, and especially since the CFP Board has been prone in recent years to taking actions without soliciting much input or holding public comment periods. In fact, while the CFP Board did put forth a recent public comment period on proposed changes to their Code of Ethics and Standards of Conduct, the reality is that their Disciplinary Rules and Procedures require the CFP Board to do this, and it has been over 5 years now since the CFP Board put forth a public comment period on any other changes to the 3 E's (Education, Exam, and Experience) – effectively eschewing the practice ever since the CFP Board got "voted down" in negative public comments regarding increasing the number of required CFP CE credits.

Which raises the question once again of why a 17% fee increase, and why now? Especially on top of the fact that the organization is already running a substantial operating surplus of $1.3 million dollars in 2015 and has more than $20 million in net reserves available. Was there a major downturn on the CFP Board's 2016 Form 990 that we just can't see yet? Is the CFP Board trying to raise more revenue internally for its Center for Financial Planning initiative, even though the organization originally said it would be funded separately (especially in light of the fact that the CFP Board tried to put through a $25 fee increase last year in the form of a "voluntary donation" that certificants were going to be defaulted into)?

Unfortunately, the reality is that we just don't know, because the CFP Board gave no substantive explanation for why it is pushing through such a large increase beyond saying that it "supports the operations of CFP Board in fulfilling its mission and strategic priorities". And so, while it's not necessarily a negative for an organization to raise its fees over time, the question remains: why does the CFP Board now, all of the sudden, need another $2.3 million in its operating budget for 2018? And what does it take to get some transparency and basic explanations from the CFP Board on why it is pushing through a 17% fee increase?

The Challenges When Using A Funded Ratio To Track Progress Towards Retirement

September 6, 2017 07:00 am 8 Comments CATEGORY: Retirement Planning

Saving and accumulating for retirement takes decades. As a result, most people will spend a very long time working towards the goal with only small, incremental progress along the way. And it can be very hard to stay focused and motivated to achieve a long-term goal when there’s no sense of progress.

Fortunately, the most straightforward indicator of forward progression is simply to see a retirement account balance that grows over time. But the challenge is that just viewing the balance gives no context to where it stands relative to the retirement goal being pursued. It’s just an abstract number.

An increasingly popular strategy to give context to the progress of saving towards a (retirement) goal is the funded ratio – where the current account value is presented as a percentage of the total savings necessary to achieve the goal (or at least, be on track for the goal with an assumed growth rate).

The virtue of the funded ratio is that it takes an abstract account balance and relates it directly to a goal or outcome, and can give savers a sense of accomplishment as the percentage slowly and steadily climbs towards 100%. The bad news, though, is that once account balances grow large, the funded ratio itself can become highly volatile as markets move up and down, and the discount rate used to calculate the funded ratio can unwittingly turn into an indirect absolute return benchmark that is difficult to keep up with.

Unfortunately, the sensitivity to assumptions means the funded ratio can ultimately be just as problematic as many other approaches to quantify investment results and progress towards goals. Nonetheless, the rising focus on trying to benchmark portfolios against the goals they’re meant to achieve means it may become an increasingly popular approach in the coming years, notwithstanding its flaws!

#FASuccess Ep 036: Turning A Utilities Niche And A Radio Show Into A National Advisory Firm with Scott Hanson

September 5, 2017 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-sixth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Scott Hanson. Scott is a co-founder in Hanson McClain, an independent RIA based in the Sacramento area that manages nearly $2.5 billion of assets under management for nearly 4,500 clients, most of which are telecom and utility workers.

What's fascinating about Scott's firm, though, is not merely that they managed to turn a niche in working with Pacific Bell retirees into a mega-RIA, but how their steady focus on reinvesting into marketing has allowed Hanson McClain to build an advisory firm where none of the advisors are responsible for their own marketing and business development, and instead can focus entirely on serving their clients - which in turn has led Hanson McClain to achieve a stunningly high Net Promoter Score of 85 with its clients!

In this episode, we talk about how Hanson McClain markets itself, what it took to get established in their initial niche working with Pac Bell employees, how they expanded successfully into marketing with a call-in radio show (although Scott isn't very upbeat on the potential of marketing through radio today!), why direct mail for seminars and other marketing events still works for business development, and the depth of the marketing team that Hanson McClain maintains to sustain its growth.

In addition, Scott shares his own journey as an advisor, from starting out at a financial-planning-centric life insurance firm, to transitioning to work at an independent broker-dealer while building his hybrid RIA, why he eventually decided to let go of his FINRA licenses to focus solely on the RIA, and the challenges in managing and maintaining growth in an ever-larger advisory firm.

And be certain to listen to the end, where Scott shares why he decided with his partner to sell 70% of Hanson McClain to a private equity firm – despite the fact that he thinks the firm can grow to double or even quadruple its size in the coming years – because ultimately, the reality is that growth requires cash, and in the end it can still be a better deal to own a smaller slice of an ever-growing pie... and have the benefit of taking a few chips off the table as well!

And so whether you’ve ever been curious to know how a startup RIA ultimately grows to become $2.5B under management, are looking for marketing ideas and perspective on the benefits of having a radio show, or simply want to understand why an experienced and successful advisory firm would decide to sell to private equity (even when there’s no desire to retire), I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (September 2017)

September 4, 2017 07:01 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2017 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 Personal Capital has crossed $5B of AUM, and raised another $40M of venture capital as it looks to expand by hiring more financial advisors in multiple major cities across the US, as the revenue growth of “cyborg” (tech-augmented human) advisors continues to outpace pure robo-advisors, and Personal Capital’s revenue continues to stay ahead of all other major robo-advisors combined, thanks in large part to its innovative Personal Financial Management (PFM) app that serves as the company’s client acquisition funnel (even as banks continue to struggle to monetize PFM software solutions at all!).

And also in the big news this month is the announcement that Canadian financial planning software company PlanPlus has acquired risk tolerance assessment provider FinaMetrica, raising the question of whether PlanPlus is about to make a push into the US financial planning software market to compete against the likes of eMoney Advisor, MoneyGuidePro, and NaviPlan.

From there, the latest highlights also include a number of major new partnership announcements this month, including:

JemStep picks up two major enterprise deals, with the Advisor Group broker-dealers, and KeyBank’s Investment Services division, as its efforts to integrate with the Pershing platform is finally beginning to pay dividends with its Invesco parent backing;
Apex Clearing announces yet another partnership, this time with tech-savvy TAMP provider FolioDynamix, setting up a new RIA custodian pricing war in 2018;
Advicent’s NaviPlan rolls out a new integration with Envestnet, and expands the APIs in its Narrator platform; and
Envestnet’s Tamarac announces a new in-depth integration available in the Salesforce App Exchange, despite the fact that Tamarac’s own Advisor CRM is built on Dynamics!

You can view analysis of these announcements and more trends in advisor technology in this month's column, including Vestwell being selected as the winner of the recent XY Planning Network FinTech competition, WealthAccess rolling out a new Business Intelligence dashboard to roll up advisor/client PFM data into a consolidated business reporting tool, TD Ameritrade rolls out a Facebook Messenger Chatbot as a sign of the future of client service and communication, and the emergence of a new category of “client financial profiling” tools, including ROL Advisor, DataPoints, and Whealthcare, that aim to deepen the client relationship far beyond what a mere risk tolerance profile alone can reveal about a client’s attitudes about money.

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 (Sep 2-3)

September 1, 2017 02:56 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of big news, including that the Department of Labor has received OMB approval to issue a formal proposal to delay the full enforcement date of the fiduciary rule by another 18 months until mid-2019 (but will still have to collect and consider public comments before making it final), the IRS is loosening rules on hardship distributions and employer retirement plan loans for those impacted by Hurricane Harvey, a Federal judge has struck down the Obama administration's overtime pay rules (which could have impacted a wide range of financial advisor trainees and paraplanners), HUD has announced new rules that will increase costs and reduce borrowing limits for HECM reverse mortgages, and this weekend Wall Street will be finalizing the switchover to shift most trade settlements from T+3 to T+2 instead.

From there, we have a number of articles on marketing for financial advisors, including: new research on how the financial services industry is using social media (and that even though LinkedIn is the most adopted platform, Twitter is actually the one with the most advisor activity!); the rise of text messaging as a way of communicating with clients; a guide on Facebook marketing and advertising for financial advisors; guidance on the key information that must be on your advisor website to communicate both your costs and your value; and a look at how and why most financial prospects slip through the cracks (and what advisors should do about it).

We wrap up with three interesting articles: the first explores the concept of "nonlinear" thinking, why it's so much better to improve a car's fuel efficiency from 10 Miles Per Gallon to 20MPG (instead of improving from 20MPG to 50MPG), and how such nonlinear concepts translate to other parts of the business world; the second explores the critical thinking concept of "inversion", where instead of focusing on your goals and what it takes to succeed, you focus on what could ruin the outcome (and identify that as something concrete to avoid!); and the last takes a fascinating look at the true difference between an "amateur" and a true "professional", which is all about the mindset of how you approach problems and try to create solutions.

Enjoy the "light" reading!

New SEC Custody Rule Requirements For Advisors With Third-Party SLOA Authority

August 30, 2017 07:01 am 5 Comments CATEGORY: Practice Management

In an effort to provide premium service to clients, it’s common for financial advisors to be granted a standing letter of authorization – or “SLOA” – to enact money movements in and out of a client’s account. The use of SLOAs and other disbursement authorizations effectively allows advisors to act based on a client’s verbal requests, without “troubling” them for additional paperwork and signatures every time.

Yet the caveat is that while providing such conveniences is appealing from a client service perspective, from a regulatory perspective, the ability of an advisor to transfer money out of a client’s account – especially to a third party that isn’t the client – creates the risk that the advisor could abuse their authority. Accordingly, in this “age of Madoff”, the SEC has decided it’s necessary to issue additional compliance rules to protect consumers when it comes to advisors with standing letters of authorization (SLOAs) to make client disbursements.

In this guest post, Chris Stanley, a compliance consultant and the founding principal of Beach Street Legal, shares his perspective on the recent issuance of an SEC No-Action Letter, and supporting FAQ and IM Guidance Update 2017-01, which deems that advisors who have SLOA authority will be treated as having custody of client assets. Which means not only will those assets and accounts need to be reported for custody purposes on Form ADV, but those investment advisers who don’t comply with certain new safe harbor provisions will also be subjected to the requirement for an annual surprise exam under the custody rule as well!

Fortunately, the SEC will allow RIAs to continue to use SLOAs to support clients in limited (but still useful) circumstances, and provide additional guidance on how RIAs can avoid the custody rule if their only standing authorizations are for “first-party” transfers (i.e., moving money amongst accounts that are all the client’s, with the same account registration). Nonetheless, the reality is that most advisors will at least need to work with their RIA custodian to update account agreements and/or some of their SLOA paperwork with clients to remain compliant and avoid surprise exams under the custody rule!

#FASuccess Ep 035: Investing In Your CRM And Your Team To Systematically Grow Your Advisory Business with Cheryl Holland

August 29, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-fifth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Cheryl Holland. Cheryl is the founder of Abacus Planning Group, a private wealth management firm located in Columbia, South Carolina, that manages more than $1B of assets under management for just over 200 affluent clients.

What's fascinating about Cheryl's firm, though, is the way that she has systematized the processes of the firm - in a way that actually helps them be even more high touch and customized for their clients. From automating workflows, tasks, and reminders of client needs, to building a templated meeting agenda for every client meeting that covers check-ins, celebrations, investment, financial planning, and administrative tasks, to refining an investment process around model portfolios with DFA funds, Cheryl's firm has invested heavily in systematizing the business... and invested heavily into customizing Salesforce as their CRM to facilitate the process.

In this episode, Cheryl shares how her firm structures its blended AUM-plus-planning fee structure, why Abacus sets a minimum fee - rather than an asset minimum - in deciding which new clients to work with, why the firm decided to make a shift towards focusing on a niche of closely-held family businesses after already growing successfully for nearly 20 years, and how the firm markets with a combination of COI referrals, national board volunteerism, and client referrals, to drive its growth.

In addition, we talk about Abacus' approach to reinvesting into its team – because as Cheryl puts it, "you can't grow your firm if your people aren't growing" - with everything from sending employees out to conferences, bringing in psychologists to teach active listening and empathy skills, management training classes for emerging leaders (including Cheryl herself!), and how every the Operations and Administrative team members at Abacus have a chance to take the Registered Paraplanner course and advance themselves in the firm.

And be certain to listen to the end, where Cheryl shares the two key advisory business books that she re-reads every year to advance the firm, how she decides when it's time to make a change and evolve the firm and her role, and her advice to young women who are trying to grow their own advisory careers and manage the competing demands of work, home, and family.

So whether you're curious about how to balance the dynamic between systematizing your firm's processes and procedures without losing the sense of high-touch customization, or simply want some ideas of what, exactly, you might standardize, or are looking for ideas on how to deepen the training and education of the advisors (and emerging leaders) in your firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

How (New) Advisors Should Dress And The Dangers Of Countersignaling

August 28, 2017 07:01 am 19 Comments CATEGORY: Personal/Career Development

A topic of increasing discussion amongst financial advisors is whether it’s truly necessary to dress up in order to attract and retain clients, and whether it might instead be better to adopt more casual attire – either because such attire makes it easier to connect with clients, or because some very experienced and successful advisors have adopted such wardrobes, seemingly with no negative impact on their success. But the reality is, just because a more casual style may work for seasoned and successful advisors, does not mean that it will work for all advisors.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – explores the concept of “countersignaling” and what the research shows are the implications it may have for the decision to dress down – particularly amongst younger and newer advisors.

In economics, signaling refers to the ways in which we try to convey information to another party under conditions in which credible communication is difficult. For instance, when meeting with a prospective client, financial advisors may need to engage in certain forms of signaling in order to demonstrate their competency (e.g., becoming a CFP professional), since all advisors trying to win over a prospect would have an incentive to claim they are competent, regardless of their true level of knowledge. By contrast, countersignaling is a strategy which refers to ways in which we may try and demonstrate an even higher level of status by not signaling (e.g., a mid-level student may eagerly attempt to answer an easy question in class, while a high-level student may not, as a signal that their knowledge surpasses the point at which they would take pride in answering such a question).

In an attempt to explain such countersignaling behavior, prior research has used game theory to demonstrate why signaling can be an effective strategy for mid-level individuals with regard to some characteristic (to demonstrate they are not low-level, and to hopefully be perceived as high-level), while countersignaling may actually be more effective for high-level individuals (as they are unlikely to be mistaken as low-level, and signaling could actually give the perception they are mid-level). And this dynamic may have direct implications for the decision to dress down as a financial advisor, as it could be the case that dressing down actually increases the status of an experienced and successful advisor, while dressing down might decrease the perceived status of a young and inexperienced advisor.

Of course, this doesn’t mean that it isn’t still wise to consider other factors, such as a particular client niche (and their typical dress/attire), when deciding whether or not to dress down. But given that many people prefer to not dress up, advisors – and particularly those who are young and inexperienced – should be careful not to skip out on opportunities to signal credibility to prospective clients, and be especially cognizant of the fact that just because seasoned advisors can dress down successfully, does not mean that young and inexperienced advisors can, too!