Kitces.com - Advancing Knowledge in Financial Planning

Overcoming A Disciplinary U4 Disclosure To Reinvent Your Advisory Business

May 25, 2020 07:08 am 9 Comments CATEGORY: Personal/Career Development

When applying to register within the securities industry, whether as a registered representative of a broker-dealer or an investment advisory representative of an RIA, individuals must complete and file FINRA’s Form U4. The form asks for personal information such as employment and residential history, education, and designations, but is most commonly known for the section towards the end that requires individuals to disclose past events, including criminal history, disciplinary actions from a regulatory body, customer complaints, various financial events, and civil judgments.

Regardless of any mitigating circumstances, having any such “disclosure events” can complicate an advisor’s life and can sometimes even end careers altogether. Not only are most disclosures a permanent part of an advisor’s record, visible to the general public and included for review by prospective clients in the firm’s ADV, the process of dealing with the disclosure itself is also long and expensive, which can involve a formal hearing proceeding by the regulatory body involved.

In this guest post, Tyler Olson – owner of Olson Consulting LLC, an RIA located in Saint Joseph, Michigan – shares his own experience dealing with having a disciplinary disclosure on his U4 record, and the process he went through to move forward in the industry, establishing his own RIA and rebuilding his client base from the ground up after a 3-year ordeal led to a regulatory fine. Through his experience, Tyler learned valuable lessons and devised deliberate strategies to help him organize a failsafe system to avoid the same mistakes he made in the past.

Most importantly, Tyler has come to recognize that the three key characteristics that are vital to operating as a successful advisor are built around integrity and a strong ethical foundation. Specifically, endurance, humility, and respect are the central traits that will not only help advisors avoid potentially damaging mistakes but are also traits that will help an advisor persevere should they find themselves with a challenging disclosure event.

As he rebuilt his business, Tyler developed several strategies to discuss the disciplinary event in his background with prospective clients, organize his processes to prevent future mistakes, and stay abreast of industry trends by keeping up with the CFP Board and investor advocacy groups. He also maintains open communication lines with his state regulator (finding it is more effective to work with them proactively than trying to ‘stay under the radar screen’) and sticks to a structured weekly routine to keep his compliance protocol up to date.

Ultimately, the key point is that U4 disclosure events can be very difficult for any advisor to deal with, but by cultivating key characteristics, developing a strong work ethic, and having the right mindset, advisors who are given the opportunity to remain in the profession with a disciplinary disclosure really can move past the event and still build successful careers.

Weekend Reading for Financial Planners (May 23-24)

May 22, 2020 02:47 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with an interesting investor research study showing what clients are actually interested in learning and hearing about now... which shows that while there was an initial burst of interest in commentary about markets and the economy, within just a week or two of the pandemic shutdown client interest had already shifted to topics more 'personally' relevant to them, from health and wellness to thinking about second careers (as the pandemic may have shut down their first!), and the family dynamics of how the pandemic and its economic impact may be rippling through their personal lives beyond their portfolios alone.

From there, we have several practice management articles on the continued adaptation of working in a virtual environment, including tips on managing your team remotely (from daily huddles to weekly videos and structured virtual get-togethers), to advisory firms taking a fresh look at their office space decisions as lease renewals may be coming due in the midst of the shutdown, some tips on managing client meetings virtually, and why in the end the key to surviving and thriving in the midst of this pandemic shutdown is not just about figuring out whether and how to adapt by changing your mindset to view this as a positive turning point in your business (and then to decide what you're going to build towards from here!).

We also have several marketing-related articles this week, from suggestions of what any advisory firm can start doing to improve (virtual) communication and connection with clients and prospects, why it may be a good time to take a fresh look at your advisor website, tips on how to focus on and change your website to do a better job of turning visitors into qualified prospects and eventually clients (now that we have to rely on our websites more than ever!), and how even though clients commonly find prospective advisors through referrals it's still necessary to do the substantive work of really earning their trust.

We wrap up with three interesting articles, all around the theme of habits and personal productivity: the first is a reminder of the power of "keystone habits", and how finding just one or two positive anchor habits can help spiral the rest of our lives in a more positive direction; the second is a fascinating look at mathematician and computer scientist Stephen Wolfram and the 'personal infrastructure' he has created to make himself more productive; and the last is a powerful reminder that in the end, the pandemic shutdown hasn't necessarily given us more time to be productive (as though we weren't already trying to be productive in the past!), it has just shifted our time, and the real key to productivity remains as it always was: not finding more time in the day, or a way to cram more things into the time that's available, but instead figuring out what you truly need to be doing yourself to be productive... and learning to hyperfocus your time on only those things that really, truly, matter the most!

Enjoy the 'light' reading!

Kitces & Carl Ep 34: Are We Making Financial Advice & Portfolios More Complex Than They Need To Be?

May 21, 2020 07:19 am 1 Comment CATEGORY: Kitces & Carl Podcast

Oftentimes, individuals seek out the services of a financial planner because their lives have become increasingly complex, and they need help to get organized, simplify, or at least just ‘make sense’ of their situation and what to do next. However, some clients don’t even realize just how complex their finances and lives have really become, and therefore may not fully appreciate the extent their financial advisor actually works to create a comprehensive financial plan that simplifies their situation in an easy-to-understand narrative and manageable to-do list.

In our 34th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about how many financial advisors feel compelled to illuminate the complexity in a client’s financial plan as a means of justifying their value, and whether the ability to simplify complexity, especially as pertaining to the client’s investment portfolio, is really what defines an advisor’s value in the first place. Because while clients do find value in the solutions their financial advisors bring to them, for many clients, it is their advisor’s ability to understand who they themselves are and the goals they are trying to achieve (and why) that is even more important than coming up with solutions themselves. And so in many instances, the fear that offering a simple solution to a complex problem may end out encouraging a client to take a do-it-yourself approach (and thus losing the client in the process) is generally misplaced, because helping clients to simplify is still a tremendous value unto itself.

Even so, there are many financial advisors who have encountered prospects who already had well-diversified portfolios that need little, if any, adjustments, sometimes prompting them to question themselves and what value they can actually provide to a client who seems to already have their investments in good order. These situations can be opportunities for the advisor to reflect around their own value proposition outside of portfolio design (e.g., all of the elements aside from investment management involved in a truly holistic financial planning process), and how they might best present their services to clients. As while the value in knowledge and technical details is unmistakable, there is also a huge value proposition in an advisor’s ability to help their clients identify and clarify their goals, and then to help them manage their behaviors and the use of their capital to achieve those goals.

Another common question facing advisors is how much complexity they actually should share with their clients, which depends on where the client may lie on the ‘complexity curve’ of understanding how complex their lives actually are. As for many clients who are far along on the complexity curve are fully aware of how much their lives are embroiled in complexity (though their concern is not so much in understanding that complexity, but just in getting help to manage the complexity), other clients who are at the initial stages along the complexity curve are completely unaware that their situations are anything but simple, and don’t understand the effort it takes to bring some real simplicity back to their financial situations (and thus the actual value their advisors provide to them). These ‘early-curve’ clients may benefit from their advisor sharing the level of detail involved in developing their financial plan, thereby moving farther along the complexity curve… not as a ‘scare tactic’ to reveal how complicated their lives actually are, but just as a way to walk them through the rough terrain that must be traveled to get from their current situation to a workable, simpler outcome.

Ultimately, the key point is that financial advisors have the freedom to delve into varying levels of complexity for their clients, depending on how much the client needs (or wants) to understand and participate in. And by asking simple questions at the start of the relationship to identify why the client sought an advisor in the first place and how the client believes an advisor can help them with their goals, an advisor can leverage how they share complexity as a means to further strengthen their relationship with their clients.

Border Wars: Helping Clients Set Financial (And Emotional) Boundaries To Avoid Enabling Dependent Family Members

May 20, 2020 07:05 am 1 Comment CATEGORY: Client Trust & Communication

It is natural for individuals to want to help their friends and family members in times of need, and doing so can be a healthy way to nurture those important relationships. However, establishing realistic boundaries is also important in healthy relationships, especially when the relationship dynamic involves a provider and dependent. For financial advisors, these become relevant issues when it comes to clients who are inclined to offer financial support to their friends and family, especially when that support continues on an ongoing basis and even more so when the support negatively impacts the client’s own financial plan, potentially interfering with the client’s own financial goals.

Well-structured emotional boundaries include limits, consequences, and consistent enforcement. They are keys to healthy relationships because they offer all parties involved clear rules that govern how to interact with one another to maintain the relationship. While good boundaries indicate that an individual understands their own needs and that they’ve established to others what their needs are (and what the consequences are if those needs are not met), they also provide other individuals with a framework of acceptable behaviors and consequences… as well as the autonomy of choosing whether to honor those expectations (or not).

When good boundaries are not established in a relationship, though, unhealthy behaviors and co-dependencies can arise. Financial enabling is one such example, whereby a financially dependent person (e.g., a child or family member) is continually supported by an enabling provider in such a way that limits the dependent’s own personal development. Dependent individuals in a financially enabling relationship are not only denied the opportunity to learn about financial responsibility, but they are also prone to feelings of inadequacy (perhaps they doubt their own ability to provide for themselves) and uncertainty (e.g., never knowing for certain whether their support will continue). Enablers, too, are impacted – not just by the potential loss of assets that may be an integral part of their own personal financial goals, but also by feelings of shame, guilt, and frustration (e.g., knowing that they shouldn’t be providing ongoing support, but not knowing exactly how to stop).

Accordingly, for financial advisors who have clients struggling in financially enabling relationships, there are a few things they can do to help. One option is simply to broach the subject of the problematic relationship and the role of boundaries and to offer the client some self-help resources to contemplate how they might establish boundaries to remedy the situation on their own, while keeping an open door to continue discussing the client’s progress on establishing those relevant boundaries to address the situation. Another option is for the advisor to offer boundary-building workshops to teach clients in a group setting about how boundaries can promote healthy relationships in the context of their finances.

Advisors can also refer their clients to mental health professionals that specialize in working with family relationship dynamics, as while advisors don’t need to be involved in the actual process of helping the client establish personal boundaries, they can still support their clients with enforcement and follow-through of boundaries. For example, the advisor can serve as the ‘gatekeeper’ to the client’s assets when it comes to the financially dependent individual, helping the client by being the one to deny requests to borrow money, support business ventures, or pay bills. Finally, advisors can support both their client and the enabled dependent by facilitating meetings with both to encourage dialogue, helping them to break the enabling nature of the relationship and to educate the dependent with strategies to become financially responsible and self-sufficient.

Ultimately, the key point is that advisors can help their clients address unhealthy relationships that involve financial enabling, and that may be detrimental to their clients’ financial plans by encouraging clients to examine and establish good boundaries with appropriate limits, consequences, and follow-through and by recognizing that patience and empathy are critical in this work, as the changes required to resolve financially enabling behaviors can be difficult and may need to happen slowly over long periods of time.

#FASuccess Ep 177: Career-Changing To Become A Financial Advisor In The Midst Of A (Financial Crisis And) Bear Market, with Sara Stanich

May 19, 2020 07:25 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 177th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Sara Stanich. Sara is the founder of Cultivating Wealth, an independent RIA based in the New York City area that oversees nearly $50 million of assets under management for 95 ongoing client households. What's unique about Sara, though, is the way she transitioned into the world of financial advice as a career changer in the midst of the financial crisis and the last bear market, which ultimately forced her into the independent channel with less support but more flexibility to build the business at her own pace, which in the end made it easier for Sara to craft the advisory firm she ultimately wanted to.

In this episode, we talk in-depth about Sara's journey through the advisory industry. Why she initially started out in a major wirehouse for their training program, what led her to initially skip out on the independent RIA channel and make a switch to the independent broker-dealer channel instead but still choosing one that had more independence, even if it meant a little less salary base and training, why she ultimately made the decision to switch to the RIA channel six years later anyway, though, because of how much the support structures for independent RIAs had changed and developed during the decade of the 2010s.

We also talk about how Sara built her business and gets clients. The way, in the early days, she obtained both her CFP certification and the CDFA designation to go deeper into the divorce niche, how she tried to take advantage of opportunities to buy out what were ‘C’ clients for other advisors in her branch but ‘A’ clients for her early practice, the way, today, she uses DataPoints, a software service, to provide prospects with a wealth-building assessment to understand themselves better and to identify who may be a good fit for the firm, and the three simple things that Sara includes in her monthly newsletter to prospects to stay in front of them for future business opportunities.

And be certain to listen to the end, where Sara shares how the business has evolved in recent years as she has begun to add more CFP professionals to her team, how she kept her confidence through the early years by focusing on the progress she was making, even if the dollars took years to add up to what she had been making in the past before pulling ahead, and her key advice to career changers and other advisors early in their careers who may be struggling in the firm or platform where they're currently at.

If The S&P 500 Falls To 2,000: How Financial Advisors Can (And Should) Be Preparing For The Next Crisis

May 18, 2020 07:16 am 0 Comments CATEGORY: Practice Management

Over the past several weeks, the major stock indices have experienced both the fastest crash and the most robust market bounce ever seen. In the process, financial advisors have watched their clients transition from abject panic to outright relief and have worked hard to keep their clients focused on their long-term goals… while sometimes questioning how they themselves will persevere through these difficult times because as previous crises have shown, many businesses fail to survive through severe economic downturns. Which, in turn, raises the question: what should advisory firm owners do now to ensure they survive the next crisis (or the next stage of this crisis, if the S&P 500 falls back near 2,000!)?

In this guest post, Stephanie Bogan – CEO of Educe, Inc., and Founder of Limitless Adviser Coaching – explains how financial advisors can address this difficult question and start to understand the steps they need to take to help them prepare for the potential bumps and potholes in the road ahead. More specifically, planning ahead can help avoid getting backed into a fight-or-flight reactionary corner in response to crisis situations; instead, advisors can take a proactive approach in preparing their firms, embracing an enthusiastic mindset, identifying where they provide the most value to their clients, developing efficient systems, and continuously driving growth.

Accordingly, the first step in preparing for a crisis involves contingency planning, a calm evaluation of all business expenses, and modeling various scenarios to identify which expenses can be reduced or eliminated without compromising client care.

Beyond that first step, the capability that will function as the main driver of a successful business is maintaining a positive mindset by categorizing all tasks that need to be done as either ‘above-the-line’ activities (those that empower and create energy and thus create a success-state frame of mind) or ‘below-the-line’ activities (those that stagnate energy and create a negative state of mind with feelings such as fear, uncertainty, doubt, and anxiety) and then to design a plan that will allow the advisor to delegate all below-the-line activities to someone else while keeping their time and energy focused on the above-the-line activities that ultimately are crucial to keep the business thriving and growing through a crisis.

An objective and fair assessment of an advisor’s own value is also a critical step to help home in on a specific client niche for which they are able to provide their best work. By narrowing the ideal client’s profile, advisors can focus on their clients’ specific and unique needs, elevating the value they provide. Efficiency is another core competency that will help advisors not just survive, but thrive, in the face of crisis as efficient systems will permit advisors to continue delivering their specialized services without interruption, even in the face of crises. Finally, a focus on growth – by investing in marketing strategies such as SEO, digital marketing, and podcasting – can help advisors maintain a successful practice even in times of crisis. And with a narrowly defined client niche, providing targeted, essential services addressing the unique and specific needs of the clients in and of itself can also foster growth!

Ultimately, the key point is that by asking the right, albeit difficult, questions about what it will take to maintain a successful mindset in the face of a future business crisis like watching the S&P 500 fall to 2,000, the specific value that can be most effectively offered to clients (and sustained through such a crisis), how operating systems can be systematized most efficiently (especially when facing the pressures of a crisis), and what measures can be taken to foster continued growth of the firm (despite an ongoing crisis), advisors can ensure their own continued success when the next crisis inevitably hits.