Kitces Report On What Actually Contributes To Advisor Wellbeing
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Download a complimentary copy of The Kitces Report (Vol. 2, 2023), "What Actually Contributes To Advisor Wellbeing" below.
After a financial advisor and their client have agreed on a financial plan, there are usually a lot of good feelings going around. The causes of the client's worries have been identified, there's agreement on the steps that will get the client to where they want to be, and all that's left is to take action to implement the plan. But while it seems like the momentum of the earlier steps of the planning process should carry through into the implementation stage, all too often, the opposite occurs: despite all the steps being in place, the client fails to take the agreed-on actions. While the advisor, not wanting to nag or badger the client and sour the good feelings that abounded earlier in the relationship, finds themselves at a loss for how to follow through. As a result, the plan stagnates, and the next steps – some genuinely timely and others needed to set the client on the right track for the long term – go unaddressed until the next plan update rolls around.
For advisors feeling the frustration of stalled implementation, the first step can be understanding some of the reasons that clients may hesitate to take action even when they may have previously seemed ready to act. Often, there are 3 main causes of clients failing to implement. First, when discussing future-oriented plans like retirement, clients may feel as though those plans should have a high priority for them – and yet, when it's time to make the necessary adjustments today (and often, the lifestyle tradeoffs that are needed to start saving more for the future), the needs of tomorrow suddenly have a lower priority than when everyone was simply talking about them. Secondly, clients may sometimes find themselves simply unable to carry out the tasks recommended by the advisor if those actions aren't discussed in sufficient detail. Lastly, for a client who may be new to working with a financial advisor, it may simply take time for the client to become familiar enough with the planning process and the advisor to take action. After all, conversations are one thing, but taking action can often require a great deal of trust that the advisor understands the client enough to make recommendations in their best interests.
Fortunately, advisors can help clients minimize the potential for inaction by asking some simple implementation questions after the plan has been agreed on that can help focus priorities, clarify the most important next steps, and ultimately build up a rapport that can create the foundation of trust needed before the client takes action. For example, asking the client which task they feel is most important can help reinforce the client's prioritization of the task, while asking the client to share what they know about how to accomplish the agreed-on actions can uncover any potential blocking points stemming from a client's lack of knowledge about how a task should be done.
Ultimately, the key point is that clients don't always fully understand the roadblocks that work against implementing their financial plan. Advisors can achieve more consistent follow-through when they can uncover obstacles to implementation before they happen – and by asking questions to identify these impediments, they can also help the client clarify what they need to do going forward, all while building on the client-advisor relationship that will keep the momentum moving forward each time the plan is updated and renewed (and re-implemented) in the future!
Welcome everyone! Welcome to the 364th episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Ted Jenkin. Ted is the consultant of JPTD Partners, a consulting firm based in Atlanta, Georgia, that helps financial advisors gather offers, negotiate, and ultimately sell their advisory firms.
What's unique about Ted, though, is how his journey to facilitate financial advisor mergers and acquisitions started from selling his own $2.2-billion AUM advisory firm that he spent more than a decade building… and the perspective he gained as a founder who sold his firm influences the way he now helps other advisors prepare for and understand the acquisition offers placed in front of them, and their own options to exit the firms that they may have spent their careers building.
In this episode, we talk in-depth about how, after Ted went through the challenge of getting multiple offers to sell his firm and struggled to figure out how to compare them, he found that many other advisors were asking him for advice based on his experience and ultimately decided to build a consulting firm to help fellow advisory firms field and compare multiple acquisition offers at once, how Ted has now come to see himself as a "Zillow for an advisory practice's worth" as he got deeper into the weeds of evaluating how buyers really assess the value of an advisory firm and price its 'true' profit margins, and how Ted's unique niche as an advisor who sold helping other advisors to sell has led to the point where after just a few years his firm is now representing 115 active advisory firms actively shopping for a buyer (allowing him to get even deeper into the current trends of what buyers are really offering and how to maximize the value of a deal).
We also talk about how Ted initially built his own advisory firm with what he calls a "manufactured celebrity" approach by immersing himself in media appearances that made him a go-to local advisor in the Atlanta area, how the success of Ted's marketing approach ironically led to severe burnout (because Ted enjoyed marketing to clients far more than the ongoing servicing of clients and management of a large multi-billion-dollar firm) that resulted in him exiting 'early' when he was still in his forties, and how Ted overcame his nerves of "becoming an employee" again as a result of selling the firm and negotiated his own buy-out deal to play into those same strengths relating to his ability to grow (ultimately resulting in a bigger payout for himself).
And be certain to listen to the end, where Ted shares what he would recommend advisors consider in their own exit plan to maximize value ( even if the transition is still years down the road), how Ted has often found that determining the real value of a firm is more complex than 'just' looking at the bottom line of a firm's profitability, and how Ted learned that while he had considerable strengths in some parts of the business, he wishes he had outsourced his weaknesses to others sooner despite his fear of giving up control (and realizes that if he had, he probably would have been able to stay with the business longer and continued to build it even bigger and make it even more valuable).
And so, whether you're interested in learning how Ted helps advisors navigate mergers and acquisitions by diving into how buyers really assess the value of advisory firms, how niching down helped him scale his consulting firm, and his transition from business owner to employee post-sale of this firm, I hope you enjoy this episode of the Financial Advisor Success podcast, with Ted Jenkin.
As 2023 comes to a close, I am once again so thankful to all of you, the ever-growing number of readers who continue to regularly visit this Nerd's Eye View Blog (and share the content with your friends and colleagues, which we greatly appreciate!).
We recognize (and appreciate!) that this blog – its articles and podcasts – is a regular habit for tens of thousands of advisors, but that not everyone has the time or opportunity to read every blog post or listen to every podcast that is released from Nerd's Eye View throughout the year. As many of you noted in response to our Reader Surveys, most of you choose which content to read or listen to based on headlines and topics that are of interest (and skip the rest). Yet in practice, this means that an article once missed is often never seen again, 'overwritten' (or at least bumped out of your Inbox!) by the next day's, week's, and month's worth of content that comes along.
Accordingly, just as I did last year, and in 2021, 2020, 2019, 2018, 2017, 2016, 2015, and 2014, I've compiled for you this Highlights List of our top 22 articles in 2023 that you might have missed, along with a few of our most popular episodes of "Kitces & Carl" and the "Financial Advisor Success" podcasts. So whether you're new to the blog and #FASuccess (and Kitces & Carl) podcasts and haven't searched through the Archives yet, or simply haven't had the time to keep up with everything, I hope that some of these will (still) be useful for you! And as always, I hope you'll take a moment to share podcast episodes and articles of interest with your friends and colleagues as well!
Don't miss our Annual Guides as well – including our list of the "10 Best Financial Advisor Conferences To Attend in 2024", the ever-popular annual "2023 Reading List of Best Books For Financial Advisors", and our increasingly popular Financial Advisor "FinTech" Solutions Map and AdvisorTech Directory!
In the meantime, I hope you're having a safe and happy holiday season. Thanks again for the opportunity to serve you in 2023, and I hope you enjoy all the new features and resources we'll be rolling out in 2024 (and beyond!), too!
In the world of financial advisors, tradition often emphasizes technical numbers, structure, and a firm focus on solving financial problems. However, in practice, forging a human connection – such as sitting around a fire and having a conversation, digging into emotions, feelings, and fears – and tying it to a client's mindset surrounding their financial priorities and goals can be a powerful way to encourage individuals to explore and reassess their perspectives on finances.
In our 127th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards delve into Carl's latest project – the "50 Fires" podcast. This project, in partnership with the creative team behind "The Big Bang Theory" and featured on Chip & Joanna Gaines's Magnolia Network, centers on 'campfire conversations'. In these sessions, Carl engages in heartfelt discussions with his guests about their personal relationships with money, with the goal of providing financial advisors with ideas for integrating meaningful communication prompts into their own client meetings.
While conversations between financial advisors and their clients often focus on the quantitative aspects of a client's financial life (e.g., balance sheets, investment portfolios, and retirement projections), "50 Fires" aspires to demonstrate how the qualitative aspects of a person's relationship with money can reveal personal values and priorities that provide an advisor with important situational context of a client's financial goals. Through these discussions, Carl explores the stories and wisdom embedded in religious beliefs and family practices, uncovering poignant experiences from recognizing one's socioeconomic status in junior high school because they only owned 1 pair of jeans, to symbolic moments like cherishing an unopened can of Coke because of its representation of financial prosperity in India. These narratives not only shed light on the root of a person's financial mindset but also help to understand their financial behaviors, revealing the deeper lessons learned from these experiences.
Additionally, these conversations underscore an important takeaway: clients often value the personal connections formed with their financial advisors that are based on discussions that go beyond sharing just financial concerns. While these intangible personal connections may be challenging to market, the ability to guide clients into meaningful conversations to identify the big goals and values they have regarding money is universally appreciated. Everyone has financial concerns and yearns for genuine connections with others, even when they may not be consciously aware of these things. And experiencing such a connection with a financial advisor can significantly enhance a client's willingness to engage in the financial planning process.
Ultimately, the key point is that the ability to successfully connect with prospects and clients on an emotional level, using soft skills to navigate their relationship with money, is crucial to build trust and develop stronger relationships with clients. Carl envisions "50 Fires" as a catalyst, providing the spark to ignite millions of genuine discussions about money around the world. This initiative aims to normalize everyday conversations about money while facilitating deeper connections with clients, potentially influencing not only their thought process around finances but also shaping the financial outlook of future generations!
Although numerous tax-advantaged vehicles are available for retirement savings, Health Savings Accounts (HSAs) have particular benefits for individuals saving for retirement. Specifically, HSAs offer a "Triple Tax Benefit" that includes tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. This can allow individuals to save a significant amount that can be withdrawn tax-free for medical expenses later in retirement. Therefore, for workers looking to boost their savings towards the end of their working years, HSA contributions can be the most tax-efficient vehicle available.
The caveat, however, is that to be eligible to contribute to an HSA, an individual must be covered by a qualifying High-Deductible Health Plan (HDHP) with no other non-HDHP coverage. And because government-funded health insurance options such as Medicare are not considered qualifying HDHP coverage, enrolling in Medicare – either directly through its website or by applying for Social Security benefits (which automatically enrolls someone in Medicare once they reach age 65) – means that an individual will no longer be eligible to contribute to an HSA.
For retirees, self-employed workers, and others who rely on Medicare as their sole option for health insurance after reaching age 65, this means there is effectively no way to contribute to an HSA after age 65. However, people who continue working beyond age 65 (or whose spouse does so) and have access to an employer-provided HDHP can continue making HSA contributions as long as they don't enroll in Medicare or apply for Social Security benefits. And because there's no age cap on HSA contributions, it's possible to keep contributing for as long as the person is still working and remains on a qualifying HDHP (although retiring and subsequently enrolling in Medicare will ultimately end HSA eligibility).
Advisors can help their clients who want to keep contributing to HSAs after age 65 by planning strategies that help to preserve their eligibility and maximize the amount they can contribute. For instance, if someone has applied for Social Security benefits and inadvertently enrolled in Medicare (which would make them ineligible for HSA contributions), they may be able to withdraw their Social Security application within 12 months and cancel their Medicare coverage to restore their eligibility – although doing so would require paying back any Social Security benefits actually received.
Additionally, when married couples have one spouse with HDHP coverage, the other spouse can enroll in Medicare without affecting the HDHP-covered spouse's HSA eligibility (and if the HDHP covers both spouses, one spouse can still contribute up to the higher family contribution limit even if the other spouse is covered by Medicare and ineligible to contribute to their own HSA).
And when someone working past age 65 does decide to retire, they will need to navigate the "6-month rule", where Medicare coverage is considered to begin 6 months before applying for benefits. This means the individual will need to plan carefully to calculate their maximum allowed HSA contribution to avoid inadvertently overcontributing to their HSA, since they may become ineligible for contributions well before they actually retire and apply for Medicare!
The key point is that while it's possible to contribute to an HSA after age 65, the specific rules around HSAs and Medicare introduce an additional layer of planning that's needed once an individual crosses the age-65 threshold. But given that the point of working past 65 is often to boost retirement savings, and given the tax-efficient benefits of HSAs as a retirement savings vehicle, the extra planning can ultimately be worthwhile on account of the additional tax-free savings for those who can navigate the challenges of doing so!
Welcome back to the 363rd episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Christa Madison. Christa is the Managing Director of Financial Planning and Business Development at Sebold Capital, a fee-only RIA based in Chicago, Illinois, which manages $300M across more than 100 client households.
What's unique about Christa, though, is how she used her business development and networking skills to overcome the challenges that sprung up when, through a combination of personal and professional shifts, she found herself building her book of business from scratch, 3 separate times, and how she leveraged those pivots as an opportunity to account for how her own skills and competencies had changed and grow into larger (and more lucrative) opportunities.
In this episode, we talk in-depth about how Christa's start in insurance sales at Northwestern Mutual brought both successes in building a book of younger clients just beginning their career journeys, and challenges as she struggled to hit sales goals when her young clientele were more interested in starting Roth IRAs and didn't need much insurance yet, how Christa's intensive networking event schedule and simple but uniquely branded way of following up allowed her to feed into a '10-3-1' prospecting pipeline (in which on average, for every 10 prospects she approached, 3 were interested, and 1 became a client) and continually rebuild her book of business when she transitioned roles, and how despite her skillset at networking, Christa still found after having to start over 3 times that it takes 3 years, on average, for her prospecting to start to grow from scratch into its own robust referral network.
We also talk about how Christa overcame the unique challenge of maintaining professional momentum while building a family, which prompted her to step into contracting roles when she needed more flexibility and out of them when she needed more stability, how when faced with the need to find a new opportunity Christa leveraged her networking skills to find and then just walk into the lobbies of 20 local-area firms until she found one that was interested in hiring her (and got the job!), and the reason that Christa ultimately decided that as she approached her 3rd time building a book of business, she wanted to build it in the RIA channel instead.
And be certain to listen to the end, where Christa discusses why she feels that her background and early experience in the insurance channel made her a stronger financial advisor (and why she worries that advisory firms today may be underestimating the value of those experiences), how Christa's willingness to 'start over' as a paraplanner in a fee-only firm led her on the promotional fast-track to become the director of 2 departments, and how Christa found that no matter where she went, her people-first prospecting approach helped her grow a client base, especially amongst those in need of financial guidance who lacked support because they weren't 'top of the top' financial prospects for other financial advisors but were more than able to allow her to successfully grow her own practice.
So, whether you're interested in how Christa successfully navigated a reboot of her own career multiple times, how Christa adapted her services to meet the needs of young clientele who don't fit a 'traditional' client mold, or how Christa maintained career propulsion while her personal life demands evolved over time, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Christa Madison.
For most financial advisors, 2023 was a year of rebound and reinvestment, as markets bounced back from the turbulence of 2022, and expanded profit margins allowed advisory firms room to reinvest back into the services and value they're providing clients to make sure their retention stays strong in the future. Here at Kitces.com, we've similarly been in the midst of a reinvestment process in 2023, setting the foundation so that we can give even more back to the Financial Advicer community, as we continue to expand our "Team of Nerds" beyond just myself with more writers and more speakers, and develop and refine our Q-N-R standards to ensure that everything you get from Kitces.com is Quality, Nerdy, and Relevant… a standard for all Kitces content, even if it's not created by Michael.
And in the coming year, we're going to make sure that even more of that Kitces content is eligible for not only the full range of CE credit for CFP, CPA, and the other various professional designations, but also the ever-expanding IAR CE obligation. Which, thanks to the new rollouts in both California and Florida in 2024, will mean nearly half of all financial advisors who are IARs will need to fulfill the new IAR CE requirement in 2024… as once an advicer has half a dozen clients in any of the 17 states or the District of Columbia, they have to comply with the new IAR CE rules. And a lot of advicers have more than 5 clients in Florida!
In practice, this means that we'll be bringing back our popular IAR Ethics CE Day in 2024 (save the date for August 29th!), expanding IAR CE credits to apply to our monthly live webinars (in addition to our written blog content and recorded webinars), increasing the cadence of our webinars from monthly to offering 2 every month (on the 1st and 3rd Tuesday of each month… with the recording still available for those who can't attend live), and continuing to cross-apply our Kitces content for all the other types of CE you may need as well (so you can check all the boxes at once!). Though we are implementing a small $20/year increase (from $169 to $189 per year) in the price of the Members Section to help manage the cost of rising staff salaries in the midst of inflation over the past 2 years, and to further reinvest into our Platform team to make site improvements so our content is faster to load and easier to navigate.
In the meantime, we remain committed to delivering the ongoing cadence of content that you've become accustomed to from Kitces. In 2024 we'll again feature our Marketing Summit (save the date for April 25th!) and our Financial Planning Value Summit, we'll be rolling out 2 new Advicer Research studies (on Marketing and on Productivity, as we wrap up the 2023 study on Wellbeing in the coming weeks), and we'll be building a new Kitces Course on Optimizing Roth Conversions (to complement our course on Optimizing Social Security) to be released in mid-2024.
If you (or anyone you know) wants to join our Team of Nerds, stay tuned for more openings in 2024 as well, as we anticipate hiring a new Associate Financial Planning Nerd, an Operations Associate, a new Director of Product and Platform, and a Director of Advisor Research. We'll be listing these as they become available on our Kitces Career Opportunities page, or you can sign up for our separate Career Opportunities mailing list (via that Opportunities page) to be notified when new positions open up!
Ultimately, though, the focus remains the same as it always has been – on our mission to "Make Financial Advicers Better, and More Successful" – through our 4 strategic pillars of creating Navigational resources, insightful Education, original Research, and skills Development for financial advisors (and yes, our organizational strategy really does spell out N-E-R-D 😊). I hope you'll continue to come along with us on the journey in 2024!
Over the past several years, the financial services industry has undergone a tremendous evolution in how financial advisers deliver and charge for their services. While commission-based models remain in use, fee-for-service models (including AUM, hourly, retainer, and subscription) have become increasingly popular. And because many service offerings have traditionally focused on areas like investments and securities recommendations, there has been little debate about the need to register as an advisor. However, the more recent rise of financial coaching models has introduced complexity, particularly for those offering advice on financial topics adjacent to investments where the need to register as investment advisers with the SEC or state securities authorities isn't always obvious.
In this guest post, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal, explores the specific conditions under which a financial coach must register as an investment adviser. He introduces the "ABCS Test", a mnemonic designed to help financial coaches and advisors grasp the fundamental elements that define an investment adviser.
According to the Investment Advisers Act of 1940, anyone in the business of rendering advice about securities for compensation is, absent an exclusion or exemption, required to register as an investment adviser. Thus, Advice, Business, Compensation, and Securities (ABCS) are the key elements in this definition. Notably, while many financial coaches satisfy the majority of these requirements – they are in the business of offering advice to clients and are compensated as such – they often steer clear of making specific securities recommendations, focusing instead on areas like budgeting, debt management, savings, and retirement planning.
Nevertheless, the 'securities' component of the definition has several nuanced exceptions. Financial coaches can address topics such as real estate, commodities futures, non-variable insurance, and government securities (none of which are included in the Investment Advisers Act's definition of a security), offer non-specific advice about investments to a general audience, and even obtain industry designations (like the CFP marks) without the need to register as an investment adviser. But once a financial coach addresses specific questions from clients around actual securities (e.g., how they should invest their savings or why one particular asset is better suited for their specific circumstances than another), they will need to register as an investment adviser.
Ultimately, the key point is that understanding the intricacies of what it means to be an investment adviser, including the exceptions within the 'securities' component of the definition, is critical for financial coaches navigating the fine line between offering advice to clients and needing to register as an investment adviser. This insight can be invaluable in shaping their services while staying within regulatory boundaries, allowing them to confidently guide those in need of financial advice. And with the clarity provided by the ABCS Test, financial coaches will be better positioned to support the financial wellbeing of their clients, regardless of whether they need to register as investment advisers!
Welcome back to the 362nd episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Jeff Brown. Jeff is the President of Stratos Private Wealth, an RIA based in San Diego, California, that oversees almost $1.5 billion in assets under management for just over 350 client households.
What's unique about Jeff, though, is how his firm has developed associate advisor compensation plans and career tracks, with well-defined Level 1, Level 2, and Level 3 performance indicators of exactly what those advisors should be able to accomplish at each stage of their career progression towards becoming a lead advisor (which is allowing the firm to train and develop its future senior advisors from the ground up).
In this episode, we talk in-depth about why Jeff decided on a growth strategy of having the firm generate prospects for its lead advisors and how it allowed them to hire and develop advisors that better connect with and serve (and retain) clients instead, the unique performance review plan and scoring system that Jeff implemented to both highlight when his associate advisors were ready for a promotion and is used to calculate their bonuses, and how the firm has leveraged client referrals, content creation, social media, and M&A to bring in clients for its advisors on the way to growing to nearly $1.5 billion of AUM (and is now increasing the firm's marketing budget and hiring a dedicated marketing professional to help further expand his firm's reach).
We also talk about how Jeff transitioned from the wirehouse world to start his own RIA and how, after feeling initially overwhelmed by everything from selecting technology to leasing office space, he chose the supported independence model offered by Stratos Wealth Partners, the mental shift from focusing on income to enterprise value that led Jeff to sell a minority stake, and subsequently a majority of his firm to Stratos, and how becoming an employee of the firm Jeff previously owned has actually been energizing for him as he works to expand the opportunity beyond his own firm and build out an entire unified private wealth platform under the Stratos umbrella.
And be certain to listen to the end, where Jeff shares how a bad partnership breakup earlier in his career has changed the way he views and creates partnership and operating agreements today, why Jeff wishes he had set bigger goals for himself earlier in his career and revels in how many different ways there are to build a successful advisory business (despite naysayers who say "you can't do it that way"), and why Jeff recommends that young advisors decide early on in their careers whether they want to pursue an employee advisor path or build a firm of their own as they evaluate their own career risk and return preferences.
So, whether you're interested in learning about how to build associate advisor compensation plans and career tracks, how to leverage a multi-faceted marketing approach to generate client leads, or what it looks like to roll up into a larger RIA, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jeff Brown.
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