Nerd's Eye View blog

Advisor’s Guide To The Best Online Meeting Scheduling Tools

May 22, 2017 07:01 am 25 Comments CATEGORY: Technology & Advisor FinTech

Playing phone tag and e-mailing back and forth to find the best meeting time for you and your existing or prospective clients eats into otherwise productive time, and can be frustrating for both parties. By implementing a meeting scheduling software solution in your practice, you can reduce some of the headache by automatically giving the client a list of available times drawn from your calendar, and allowing them to pick (and immediately book) a time that works best for both of you!

In this guest post, Dan Kellermeyer, President of New Heights Solutions, LLC, a practice management and technology consulting firm for financial advisors, provides an overview of the leading online scheduling tools for financial advisors, including Calendly, ScheduleOnce, Acuity Scheduling, TimeTrade, Bookafy, and YouCanBook.Me.

Along with highlighting the features of each of the tools, Dan shares his insight on the relevant factors to consider when looking for the right solution for your individual practice – from unique features and available integrations, to ease-of-use for the client, the company’s customer support, and of course, pricing.

And so, whether you’re looking to add a little more efficiency to your practice by cutting down on the hassle of back-and-forth meeting scheduling, improving your “digital experience” for clients, or are already using online scheduling software but looking to switch to an alternative, then hopefully you’ll find this guest post helpful!

Weekend Reading for Financial Planners (May 20-21)

May 19, 2017 03:05 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that Focus Financial, the RIA roll-up aggregator that is fresh off having a majority stake acquired for nearly $2B, just acquired a pair of ultra-HNW independent RIAs with a whopping $18.5B of AUM, with rumors that the intention is not merely to keep growing and rolling up advisory firms, but aiming to cross-sell those ultra-HNW clients with estate tax problems potentially lucrative life insurance policies... and raising questions of the product-independent nature of getting advice from an RIA (and whether the existing Focus Financial RIAs will even be willing to support the sale of insurance products).

From there, we have a number of investment-related articles this week, from a look at what it really takes to run an ETF index (it's harder than it looks!), to a series of studies suggesting that SRI/ESG investing may adversely impact performance (ironically perhaps because eschewing vice and sin stocks appears to give them a relative bonus on performance that SRI/ESG funds then miss out!), a look at how risk tolerance questionnaires for investing might change in the world of big data (where at a click of the button, you might be able to see exactly how clients invested/behaved in prior bear markets), and a discussion of whether it's time to transition to "behavioral finance 2.0", which stops just looking at broad-based trends in how consumers behave sometimes irrationally, and instead boil it down to what's going on at an individual level, and what it actually takes to help them change their behavior for the better.

We also have several practice management articles, including: how to spot warning signs that a client may be thinking about leaving (and what to do about it); how to conduct surveys of your ideal clients to figure out what it really takes to get more of them (and differentiate your services and expertise for them); the problem with the "I Know Better" fallacy of trying to prescribe what your clients want, instead of just asking them (not everyone has the intuitive genius to just "figure it out" the way Henry Ford and Steve Jobs did!); and some great advice on how to reframe and "reset" your relationship with accumulator clients who are now preparing to retire, so they realize you can be just as relevant and valuable for them in the coming years of retirement as you were in the process of helping them to get there.

We wrap up with three interesting articles, all around the theme of behavioral finance and financial psychology: the first examines a new research study on why retirees tend to spend less as they age, suggesting that it may not just be a matter of slowing discretionary expenses, but a rising pessimism that makes us more concerned and less optimistic about the risks and return potential of markets; the second looks at various mental accounting mistakes we make when thinking about retirement spending (including the challenge that those who are frugal in accumulating for retirement often have trouble re-tooling their thinking to be able to enjoy their money in retirement); and the last looks at the way clients answer the question "would you prefer to have $1,000,000 in retirement, or a $5,000/month (guaranteed) income", and how some retirees appear to suffer from an "illusion of wealth" or an "illusion of poverty" that causes them to believe one is substantially more or less valuable than the other (even though, according to current annuity rates, they're approximately equal in value).

Enjoy the "light" reading!

What’s The Best Way To Raise Your Advisory Firm’s Fees?

May 18, 2017 10:23 am 5 Comments CATEGORY: Practice Management

The standard commentary about financial advisors is that, with the rise of robo-advisors, there will be fee compression as advisors cut their AUM fee schedules to keep up with the competition. Yet the reality is that industry benchmarking studies show the median advisory firm's fees haven't dropped, at all, in the past six years. In fact, advisory firms are more likely to be raising their fees than lowering them, both for some higher net worth clientele, and to ensure that all clients pay an economically viable minimum fee.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss how to go about raising advisory fees in your firm, and specifically how to break the news of a fee increase to clients.

It may be surprising to hear that advisory fees have actually going up for many, but the reality is with the rising competition in price, there has also been increasing competition in services. In other words, it is true that as financial advisors, we have to do more than ever to justify our fees. Yet by bolstering everything from our service levels to our deliverables and our expertise, many are finding that they're doing so much more, they can actually charge more than they have in the past. So, if you find yourself needing to have this conversation, what is the best way to have it?

First, recognize that there are better and worse times to have this conversation. Ideally you want to have this conversation when the market is up, because clients will feel better about handling a fee increase when the market, their incomes, and their net worths have already been trending higher. Next, be sure that you first reinforce your value. Sometimes clients genuinely need a reminder of all of the things we do for them, especially over time. And then, you can hit the key elements: start with a positive message, explain why you're going to raise fees, state that you are going to increase fees in the future, and be confident and transparent in communicating your new fee.

In fact, if you want to successfully raise your fees, the last point about confidence cannot be overstated. Successful fee increases are usually more about the advisor's confidence in their own value, than whether clients perceive the value. Because the reality is that if clients didn't perceive the value, they wouldn't likely have stuck around so long in the first place. But if you don't believe in yourself and your value proposition enough to believe in the fee you are asking for, then clients won't believe it either!

Emerging Software Solutions To Illustrate Safe Withdrawal Rates To Pre-Retirees

May 17, 2017 07:01 am 8 Comments CATEGORY: Retirement Planning

The so-called “4% rule” safe withdrawal rate is one of the most popular ways to talk about the sustainability of retirement income, yet ironically no financial planning software solution has ever been created to illustrate the safe withdrawal rate approach. In part, that’s simply because most financial planners jump straight to the stage of collecting detailed client spending goals, and illustrating their actual financial plan’s probability of success in retirement. And in part, it’s because the original safe withdrawal rate research used very simple assumptions – from a two-asset-class portfolio, to ignoring the impact of fees, and a fixed 30-year time horizon – which just doesn’t hold for a wide swath of retirees.

To fill the void, though, two new software solutions have recently emerged for financial advisors, specifically to illustrate the safe withdrawal rate approach, and be able to model the impact of varying assumptions, from a wider range of asset classes, to the impact of investment expense ratios and advisory fees, and time horizons that may be longer or shorter than 30 years.

The first, dubbed the “Big Picture App”, draws on available historical investment returns from the Center for Research in Security Prices (CRSP) and Global Financial Data (GFD), to show how ongoing withdrawals would have sustained (or not) for any time horizon (and any ongoing expense ratio) the advisor wishes to assume. The second solution, called “Timeline”, goes further, and can even illustrate the impact of various dynamic spending strategies, from Guyton’s “Guardrails” approach, to the Kitces “Ratcheting” rule for retirement spending, and show how much wealth is often left over at the end of the 4% rule time horizon.

Ultimately, software like Timeline and Big Picture won’t realistically replace full-blown financial planning software to analyze the details of an individual client’s situation, but can be a powerful solution to facilitate client conversations around what is a “sustainable” withdrawal rate (or not), the consequences of sequence of return risk, and the impact that diversification and managing investment costs can have on retirement outcomes. The software may be especially for beginning to educate prospective retirees, or outright prospects who haven’t yet engaged the advisor for a full financial plan in the first place.

But the bottom line is simply to recognize that the safe withdrawal rates approach can actually be adapted to far more client-specific circumstances than just assuming a 2-asset class portfolio and a 30-year time horizon (with no investment costs) for every client. And now the software exists to actually illustrate it, and have productive conversations with prospects and clients about sustainable retirement income!

#FASuccess Ep 020: Building A Successful Business By Giving Away 99% Of What You Do For Free with Michael Kitces

May 16, 2017 07:01 am 9 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the twentieth episode of the Financial Advisor Success podcast!

This week’s guest is… me! In celebration of our twentieth episode of the podcast, I decided to fulfill what has been, by far, the most popular request from our podcast listeners… to hear my own story. And so Alan Moore, my co-host on the XYPN Radio podcast, serves as our guest host for the week as I talk about my own journey through the world of financial planning and how I got to where I am today.

In this episode, I go all the way back to my start in the industry, and share why it was the job my grandmother took, almost 50 years ago after my grandfather unexpectedly passed away, that ultimately got me into the financial services industry straight out of college at the peak of the tech bubble as a pre-med Psychology major and Theater minor. And how my first job – as a life insurance agent – turned out to be a colossal failure, to the point that I couldn’t even get a position as a paraplanner for $24,000/year, and the path I eventually found that turned it all around.

In addition, we talk about how I made the transition from working full-time in an advisory firm to my current path as a blogger, speaker, and serial entrepreneur, why I think digital marketing is so much more effective at building a business than traditional marketing (especially for an introvert like me!), and the highly strategic philosophy that I’ve used to build my entire business model: by trying to give away 99% of what I do entirely for free.

And be certain to listen to the end, where I talk about my “big rocks” approach to time management, and how I handle allocating my time across what are now half a dozen different businesses, from XY Planning Network, to New Planner Recruiting, our advisory firm and outsourced investment management services for other RIAs… on top of speaking at more than 60 industry conferences, podcasting, and publishing this Nerd’s Eye View blog!

So if you’ve ever been curious to hear my own path through the advisory world, why I do what I do, how I manage my time, and the “secret” to my business model that allows me to give away so much of what I do for free (and still ultimately make the money I need to raise a family and put my kids through college)… I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Why Most Financial Advisor #FinTech Companies Can’t Be Platforms (And Will Fail If They Try)

May 15, 2017 07:01 am 18 Comments CATEGORY: Technology & Advisor FinTech

The ongoing commoditization of investment products is driving a fundamental shift in today’s financial advisor platforms, as broker-dealers and custodians transition from being primarily about financial services products, to instead trying to operate as the technology hubs around which financial advisors build their businesses.

The transition is appealing because ultimately broker-dealers and custodians are a form of platform business model, which takes a small slice of all the assets and transactions that flow across the platform. Which means in the end, the more successful the financial advisors on the platform are, the more successful the platform itself will be.

The challenge, however, is that the rising demand from financial advisors for better technology is driving a number of advisor FinTech software providers to build increasingly comprehensive solutions, aiming to compete directly with the often-proprietary platforms of today’s broker-dealers and custodians. From the growing portal platforms of Orion Advisor Services and eMoney (before it was acquired by Fidelity), to the launch of Salesforce Financial Services Cloud and Black Diamond’s acquisition of Salentica, it’s “game on” for independent FinTech providers to build comprehensive solutions for financial advisors.

Unfortunately, though, this transition has set financial advisor software companies on a collision course with broker-dealer and custodian platforms themselves, and it’s a collision that many of the independent FinTech companies cannot survive. Because the reality is that in the end, financial advisors will only pay “so much” for a software solution, and independent software proivders simply cannot compete with the size and scale of a true platform business – as companies like Garmin navigation quickly learned when Google Maps showed up, or the entire CD music business learned when iTunes showed up.

Notably, this doesn’t mean that all financial advisor technology will inevitably consolidate around broker-dealer and custodian platforms. Because those platforms really only need to “control” the technology that is integral to their platform itself. But it does mean that the most successful advisor tech companies in the future may not be the ones that are the most comprehensive - unless they can truly pivot to not just platform software, but a platform business model - and instead will be the ones that stay focused in their core competency, and are most effective at building flexible APIs to integrate most easily with other real platforms (and their often-legacy existing technology infrastructure).

Or viewed another way, the future of independent financial advisor FinTech software companies is to become the best “Apps” in the App Store of custodian and broker-dealer platforms. Not to try to become App Stores themselves… a transition that most will inevitably lose, because they cannot outcompete and replace the true platforms that advisors still need to invest their clients' actual portfolio dollars.

Weekend Reading for Financial Planners (May 13-14)

May 12, 2017 02:57 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the article generating the most "buzz" in the world of financial advisors this week: a takedown of the DALBAR behavior gap study by Morningstar's David Blanchett, who, similar to Wade Pfau in recent months, and this blog several years ago, finds that the DALBAR methodology does not accurately measure (amnd substantially overstates) the actual size of the investor behavior gap caused by bad-market-timing investment decisions. (Though Blanchett still affirms that the behavior gap exists, albeit at a far small magnitude than the nearly-600-basis-points that DALBAR suggests). Also in the news this week was a recent social media guidance update from FINRA, in Regulatory Notice 17-18, which should dramatically expand the adoption of social media for registered representatives working under broker-dealer firms.

From there, we have a number of articles about industry trends this week, from a major announcement that Merrill Lynch is stepping back from the "recruiting wars" amongst broker-dealers and instead is going to focus on hiring advisors with 3-8 years of experience and their CFP certification and pay them a stable salary for three years, to the latest M&A activity for RIAs (which hit an all-time high in the first quarter of 2017, but appears to be rotating to "smaller" firms with $100M to $1B being sold), a substantial increase from advisors and their clients in socially responsible investing (with a desire for SRI up from barely 20% to over 40% in just one year!), and a look at the accelerating growth of Vanguard and Schwab's tech-augmented-human advisor services, which at their current pace could siphon off as much as 2% of the aggregate growth of the entire RIA community in 2017.

Other articles on industry trends this week include: an in-depth Barron's profile on Morningstar, its new CEO Kunal Kapoor, and its controversial decision to begin offering nine mutual funds in its Managed Portfolios solution for advisors, despite its history as an independent rater of mutual funds; Bogle's "dire" forecast for the mutual fund industry, that funds shouldn't even bother trying to compete on price (because they won't win), and that at best they should just focus on their core competencies and try to win where they can, or simply enjoy the profits while they can get them until their funds wind down; the parallels between what Vanguard did to mutual funds, and what robo-advisors might do to human advisors, and where the silver lining may be; and a look at how, as more and more advisors become "fiduciaries", there will be a growing awareness that not all fiduciaries are the same, and some simply don't have the competency to execute as fiduciaries... which could even lead to a backlash against the term.

We wrap up with three interesting articles, all around the theme of consumer financial stress and financial advice behaviors: the first looks at how financial literacy programs are not only failing to make a lasting impact when actual outcomes are measured, but could actually cause harm by making people overconfident in their actual financial capabilities, and fail to recognize the impact their circumstances may have on their financial situation; the second looks at the growing base of research on how financial stress of employees impacts the workplace, which appears to be spurring a growing interest in employers to support financial planning and financial wellness programs; and the last is a fascinating look at the latest FINRA financial capability study to try to identify who is more likely to seek out financial advice (or not), and finds that one of the greatest inhibitors to hiring a financial advisor may be the consumer's fear about whether they're hiring a good one (or not)!

Enjoy the "light" reading!

Do Financial Advisors Work With Customers Or Clients?

May 11, 2017 12:30 pm 2 Comments CATEGORY: Practice Management

Historically, "success" as a financial advisor was all about building a book of business, to generate ongoing revenue, and perhaps even the possibility of selling that book of business at the end. Yet the caveat the value of a book of business - and what you provide them, and where the value really lies - depends on whether the people you work with in the end are really your "clients", or simply your "customers".

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss what the difference is between a customer and a client, and why the terminology advisors use really does matter in the value of a book of business, and the value that's provided to the people we work with.

For many, the idea of differentiation between customers and clients will probably seem like minor semantics, but the reality is that the words we use truly do matter. Just consider for a moment what comes to mind when you think of a "customer", and then a "client". For most, the images are not going to be the same.

A customer buys a product from an order-taker or salesperson. A client buys advice from a professional. The key distinction is that when engaging with customers, the value isn't actually the advisor (or the salesperson in general); the value is in the product. Good customer service may create repeat customers, but if you eliminated the product from the equation, the business would vanish. By contrast, when a client buys advice from a professional, it's not reliant on the product implemented at the end. The value is the advice itself, and the advisor is a core part of the value proposition.

And the difference is reflected not only in the value proposition provided to clients, but the value of the book of business itself. After all, the origin of a "book of business" in the first place was a book of customer names - people who could be contacted, who had been sold a prior product, and could perhaps be sold a(nother) product in the future. Which is still a tenuous relationship at best... and is why a book of customers rarely sells for more than one times trailing revenue (if that). By contrast, clients have an ongoing relationship with the business - and typically pay ongoing revenue - and it's that distinction, between a customer who buys a product, and a client who is engaged with the business and its professionals themselves, that helps a client-oriented advice business get twice the valuation of a customer-oriented book.

So when you're working with people in your advisory business, consider carefully whether you call them "customers" or "clients". Because the terms we use to refer to the people we work with truly matter. Whether we call them "clients" or "customers" is not just a matter of semantics, but an important indication of the services we provide and where the value truly lies. If you work with customers, the value is in the product you sell. If you work with clients, it is in the advice you provide. So, as you build your business, consider what you really want to build. Is the name you use really reflective of the relationship you have... or want to have?

Calculating Accurate Regulatory AUM Vs Reporting Assets Under Advisement (AUA)

May 10, 2017 07:01 am 7 Comments CATEGORY: Investments

In today’s increasingly competitive landscape for advisory firms, financial advisors are looking for any way they can to differentiate. Whether it’s their experience and credentials, specialization or depth of services, or simply the sheer size of the firm, based on its assets under management. After all, the reality is that – justified or not – a sizable reported AUM does imply a certain level of credibility and represents a form of social proof (the firm “must” be good, or it wouldn’t have gotten so much AUM, right!?).

As a result of this trend, though, advisory firms are increasingly pushing the line in counting – or potentially, over-counting – their stated assets under management. Which is important, because not only is overstating AUM a potential form of fraudulent advertising, but the SEC has very explicit rules to determine what should be counted as AUM (or not) for regulatory purposes.

Specifically, the SEC states in its directions for Form ADV Part 1 that regulatory AUM should only include securities portfolios for which the advisor provides continuous and regular supervisory or management services. And while most financial advisors today are regularly working with clients regarding their investment securities, not all advisors are necessarily providing “continuous and regular” services on their client accounts. In fact, if the advisor doesn’t have direct authority to implement client trades (either with discretion or after the client accepts the advisor’s recommendation), it’s virtually impossible to include the account as part of regulatory AUM.

The greater challenge, though, is that the increasingly common offering of comprehensive financial planning services – where advisors provide holistic financial planning advice on all of a client’s net worth – does not mean the advisor can claim all of those assets as regulatory AUM. In fact, most of the time the advisor should not include outside 401(k) plans and other non-managed assets that were advised upon as part of the financial plan, nor the value of brokerage accounts holding mutual funds and various types of annuities (unless the advisor truly provide ongoing management services), nor TAMP or SMA assets (unless the advisor retains the discretionary right to hire/fire the manager and reallocate to another one). In fact, even having discretion over an account doesn’t automatically ensure it being counted as regulatory AUM, particularly if it’s a passive buy-and-hold account, unless the advisor can actually substantiate that monitoring and due diligence is occurring outside of any ad-hoc or periodic client review meetings!

Fortunately, for advisors who want to report some number representing the total scope of their advice – including the amount of assets that don’t count as regulatory AUM – it is permissible to report on Assets Under Advisement (AUA) in the advisor’s marketing and in Part 2 of Form ADV, as long as the advisor can document and substantiate the calculation process. But the fact that it’s permissible to report both AUM and also a (typically large) AUA amount doesn’t change the fact that, when reporting regulatory AUM itself, it’s crucial to report the right number!

#FASuccess Ep 019: The Evolution And Emergence Of A True Financial Planning Profession With Bob Veres

May 9, 2017 07:01 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the nineteenth episode of the Financial Advisor Success podcast!

This week’s guest is Bob Veres, the publisher of the Inside Information newsletter on practice management for financial advisors, and a long-time industry commentator on the world of financial planning. In fact, Bob has been covering financial planning as a journalist for more than three decades now, going all the way back to when he first became editor of “The Financial Planner” (now Financial Planning magazine) in 1982!

In this podcast, Bob shares his perspective on how financial planning has evolved over the decades, from “Needs-Oriented Selling” in the 1980s – when financial advisors largely sold life insurance, mutual funds, and real estate limited partnership tax shelters – to the 1990s when the availability of personal computers gave advisors superior access to investment information and stoked the growth of the mutual fund model, to the rise of the AUM model in the 2000s, and where Bob thinks it will go from here: a world where financial planners simply get paid a fee for financial planning services.

In addition, we also look at how marketing for financial planning has shifted (from cold calling scripts, to seminars, to client appreciation events, and now digital marketing), the evolution of the membership associations that support financial planners, and why – as he details in his new book, The New Profession, the coming decade may finally be the one that leads to the emergence of a bona fide financial planning profession, on par with medicine and law.

And be certain to listen to how Bob helped me get my own start in publishing The Kitces Report, and why this Nerd’s Eye View blog wouldn’t be in existence today without his early help and support!

So if you’ve ever been curious about why the IAFP merged with the ICFP to form the FPA, how what financial planners do really has shifted over the years, and want some perspective on where it may all be going from here… I hope you enjoy this latest episode of the Financial Advisor Success podcast!