Nerd's Eye View blog

Weekend Reading for Financial Planners (Apr 8-9)

April 7, 2017 02:56 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 the DoL fiduciary rule was in fact delayed this week, not only with a 60-day delay to the applicability date itself, but also including a further delay until the end of the year for complying with the full-BIC, the need to acknowledge fiduciary duty to clients, and the application of the Best Interests Contract Exemption to annuities... though the debate is on as to whether this is still the beginning of the end of the DoL fiduciary rule, or if the extended delays for key provisions will actually make it harder to eliminate the rule now that the industry has been granted more time to accommodate! Also in the news this week is the launch of the CFP Board's new "I'm A CFP Pro" campaign to encourage more people to become CFP professionals (particularly amongst Millennials, women, and people of color, who are all currently under-represented amongst financial advisors), and a 'heads-up' from the SEC that it is increasingly scrutinizing RIAs who have 'independent' investment adviser representatives affiliating with them as 1099 contractors.

From there, we have a few articles about industry trends, including: a look at how regardless of the DoL fiduciary rule and its prospective delay, the biggest broker-dealers are in the process of reinventing themselves for a fiduciary-advice future; how advisors who are considering changing broker-dealers in this environment should scrutinize how the payouts really work, as some broker-dealers who offer 90%+ payouts also have higher costs (from trading charges to custody fees to compliance and technology fees) that may mean the advisor actually finishes with less on the bottom line; and a look at how a new "breakaway" trend is starting to emerge, not amongst the brokers who are breaking away to form RIAs, but amongst independent RIAs themselves, where advisor teams are breaking away to form their own new independent RIA firms.

We also have several more technical articles this week, from a new study by David Blanchett on the interplay between the amount of a retiree's guaranteed income and their ability to sustain a higher "safe" withdrawal rate from the portfolio that complements that guaranteed income (especially for retirees who have at least a little income flexibility), to discussion of another study that finds mutual funds holding ETFs tend to have inferior performance to those that hold stocks and bonds directly (whether due to bad market timing, or adding a layer of ETF fees while acting as a closet indexer), and an explanation of how conservation easements work and why they can be an appealing tax planning strategy for high-net-worth clients that have substantial positions in (undeveloped) land.

We wrap up with three interesting articles about personal development and learning: the first is an overview of the latest research on how we actually learn, and what we should do as adults to try to learn better; the second is a fascinating series of short interviews with prolific readers about how they read, and what strategies they engage in to get the most out of their reading material (hint: it's ok and normal to read for a while, then skim, then lose interest before getting to the end and picking up another book instead); and the last is a fascinating look at how the Pareto Principle, also known as the 80/20 rule, comes about naturally, and why it is that you don't have to be twice as good to get twice the results... it's only necessary to be 1% better, and do so persistently over an extended period of time.

Enjoy the "light" reading!

Key Questions To Ask In A Financial Planning Job Interview

April 6, 2017 08:10 am 7 Comments CATEGORY: Personal/Career Development

When interviewing for a financial planning job opportunity, it can be easy to get caught up in the process. Especially if it's your first job interview. You want to answer the questions "right"... You want to put your best foot forward... And you want to make a good impression. But the reality is, a job interview should be a two-way street. The firm interviews the candidate, but the candidate is also interviewing the firm! Unfortunately, though, few prospective financial planners really interview the firm they're applying to work at. And as a result, too many new financial planners wind up in bad first jobs – whether it is a sales job, an admin job, or something else that involves little real financial planning – all by failing to ask good questions of the firm during their interview process!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss the 10 best questions that you, the financial planning job seeker, should be asking the prospective firm before you take the job, and what answers you should be looking for in response! And why just looking for a fee-only RIA is not actually the best way to find a good financial planning job opportunity!

First and foremost, though, if you want to find a good financial planning job, you will need to do due diligence on the firm yourself. To start out, there are three particularly valuable sources of information. First, check out the firm's website. Realize that some great firms may not necessarily have a great website, but see what you can learn about them online. Who are they? How do they work with clients? What can you learn about the founder and the firm's leadership? Second, look up their regulatory information, via BrokerCheck or IAPD. Do they have any infractions? If they are an RIA, look up their Form ADV Part 2 and see what you can learn about them from this document. Finally, get a copy of the actual job description itself, and really read through it. It stuns me the number of times I hear new advisors unhappy in their jobs, but then I see a copy of the job description, and it says they were going to do exactly what they're doing now (but they didn't really read it themselves before saying 'yes'!)!

The next step is the interview itself. If you've done your due diligence well, not only will you be prepared to ask great questions, but the prospective firm will likely be impressed you took the time to look up information about them. When the opportunity comes in the interview, be ready to speak up and ask your questions. A few important questions to ask include asking about the software the firm uses, how often they update financial plans for clients, whether they're growing and where their new clients come from, what a typical week looks like (for someone in the position you're applying for), and whether they think it's important to get the CFP marks?

Notably, it's not necessarily about whether the firm is a fee-only RIA, but whether they really put a focus on financial planning, regardless of their business model. In fact, the value of these questions isn't just the exact answers that the firm provides, but what the answers reveal about the overall attitudes and culture of the firm (regardless of whether it's under a broker-dealer or at an RIA), whether they're really serious about financial planning, and whether the job you're applying for is really a good way to get CFP experience, or if it's just an admin or sales job instead!

In the end, the reality is that there are no perfect answers to all of these questions. Most advisory firms are small businesses, and the truth is that this may be a new scary process for them, too. But, ultimately, the sense you should get from the interview is that the position is really about financial planning and it's not simply a sales job. And if it's a growing firm, and they take planning seriously, it may be a great first job, even if it's not the perfect job! So, if you find yourself interviewing for a new financial planning job, hopefully you'll find these questions helpful, because ultimately a successful interview is not just about the questions you answer, but also the questions you ask!

Financial Planning Research Highlights From The 2017 CFP Board Academic Research Colloquium

April 5, 2017 07:01 am 10 Comments CATEGORY: Planning Profession

From February 7^th through February 9^th, the CFP Board’s new Center for Financial Planning hosted their inaugural Academic Research Colloquium (ARC) in Washington D.C. The event brought together 215 academics from 130 colleges and universities to share and discuss research relevant to the financial planning profession, as a part of the CFP Board Center's longer-term goal of establishing itself as the “academic home” for the financial planning profession (and the research that supports it).

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – provides a recap of the 2017 CFP Academic Research Colloquium, and highlights a few of the latest research studies with particularly relevant takeaways for financial planning practitioners.

The 2017 CFP Academic Research Colloquium had a strong showing from some core financial planning academic programs, with scholars from Texas Tech, Kansas State, Georgia, and The American College serving as lead authors for nearly 50% of all research presentations and poster sessions. Additionally, the colloquium was successful in drawing in scholars from outside of the core financial planning programs, featuring lead authors from 27 other academic institutions, including Wharton School of Business, Harvard Medical School, and Yale.

The colloquium featured a wide range of topics. Some particularly relevant themes for financial planning practitioners ranged from diversity issues within financial planning (including an analysis of the experiences that increase female likelihood of pursuing a career in financial planning, as well as an examination of the predisposition of women to use the services of a financial planner), to client trust and communication (including the use of solution-focused financial therapy techniques to help clients set financial goals, and an investigation of how different types and frequencies of communication are associated with client satisfaction, trust, and commitment), and the always important topic of retirement planning (including a detailed examination of the use of QLACs in retirement income planning).

Overall, the inaugural CFP Academic Research Colloquium was an objective success. Attendance was strong from a wide range of educational institutions (including many not traditionally known for financial planning), research submissions were higher than expected, and the Center for Financial Planning was successful in recruiting a diverse group of academics and practitioners, above and beyond even what the FPA has been able to achieve in recent years with its partnership with the Academy of Financial Services. In the coming years, we will see whether the Center for Financial Planning is successful in their pursuit to become the academic home of financial planning research, but so far it's off to a very strong start.

#FASuccess Ep 014: Validating Your Advisor Value Proposition And Overcoming Imposter Syndrome With Carl Richards

April 4, 2017 07:01 am 11 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back for the fourteenth episode of the Financial Advisor Success podcast!

This week’s guest is Carl Richards, a financial advisor who has successfully grown and sold his own advisory firm, but to most financial advisors is best known as the creator the famous “Behavior Gap” sketch (of the difference between investment and investor returns), and an industry writer and speaker on how to better communicate with clients about complex financial issues.

Carl has a career that many people would be envious of. He’s worked for top-notch financial planning firms, built his own RIA, written two books, publishes a column for The New York Times, and travels internationally to speak to financial advisors around the world about financial planning. Yet ultimately, like so many of us, Carl still faces his own self-doubts about whether the value he provides is really worth what he charges (despite all evidence to the contrary!), a phenomenon known as the “imposter syndrome” that can threaten anyone’s success.

In this episode, Carl shares his story, from accidentally falling into the securities industry, to building an advisory firm, starting his Behavior Gap platform and getting a regular column in the New York Times, how his speaking career built to the point that he’s now paid $10s of thousands of dollar to give a speech, and what he’s learned about the imposter syndrome, and why many great financial advisors constantly question whether or not they’re providing enough value for their clients given what they pay (despite the fact that our client retention rates suggests the overwhelming majority of clients are happy with what we deliver to them!).

And be certain to listen to the end, where Carl talks about how he sees the future of financial planning changing, to a world where technical competency is just the minimum tables stakes to be a financial advisor, why communication skills will be the real key to success going forward, and his number one tip on what any advisor can/should do to get better at this themselves.

So whether you’re struggling to achieve success because you doubt your own value to clients, or if you’re already successful but still nervous that you may not be providing enough value to keep your clients in the long run… or you’ve simply been curious to hear the story of Carl Richards himself, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (April 2017)

April 3, 2017 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the April 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 announcement that Schwab has fully rolled out its "Un-Robo" Schwab Intelligent Advisory solution, pairing investment technology with human CFP certificants providing personal financial planning advice in time to capture market share opportunities with the looming applicability date of the DoL fiduciary rule... ironically pivoting away from its pure Schwab Intelligent Portfolios robo solution, just as Merrill Lynch, Wells Fargo, and T. Rowe Price have all announced the launch of their own pure robo-advisors, and raising the question of whether the others will ultimately follow suit by un-robo'ing their robo-advisors into tech-augmented human solutions as well. And, in the meantime, pure "robo" advice itself may also be undergoing a pivot, as a major new pilot program between IBM Watson and H&R Block aims to shift "robo" solutions from investments to tax preparation and tax planning instead.

From there, the latest highlights also include:

A slew of advisor FinTech platforms shutting down, including NerdWallet (ending its Ask An Advisor service), AdviceIQ (acquired by FMeX), WealthMinder (acquired by AdvisorEngine), and PrairieSmarts (acquired by Covisum).
Trizic aims to reboot its robo-advisor-for-advisors platform with a $3.3M VC round, and its first major enterprise deal (with John Hancock)
Blooom raises $9M of capital for its B2C "robo" solution in the 401(k) channel, one of the few bright spots of robo tools that are still growing
Oranj rolls out a major new release of its client portal solution
PocketRisk rolls out its 2.0 version of risk tolerance solution, expanding into a two-dimensional risk tolerance assessment process

You can view analysis of these announcements and more trends in advisor technology in this month's column, including whether advisors have missed the boat on PFM (Personal Financial Management) solutions that are now being adopted and rolled out directly by banks instead, how Quovo is trying to position itself as the glue that holds together the future of account aggregation with a new Authentication API, and the latest in estate planning software solutions such as Wishlife, another tool that aims not to facilitate estate tax planning strategies, but the transition of the estate itself and the stories, wishes, and guidance that the decedent wishes to leave behind to his/her heirs.

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 (Apr 1-2)

March 31, 2017 02:54 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the latest news that the Department of Labor has submitted its official 60-day fiduciary rule delay, and sent it along to OMB for final approval... although fiduciary supporters are already raising the question of whether the delay might face a legal challenge, as it's not clear whether the DoL could have realistically read and thoroughly considered in just two weeks the over-1,100 comment letters that were submitted. Also in the news this week is a new FINRA Rule 2165, that would obligate financial firms (and their advisors) to make "reasonable efforts" to get contact information for a trusted third party (or even to stop disbursements from an account) if there is suspicion that a senior client may be getting financial exploited, while also providing a safe harbor against privacy breach or other legal consequences for endeavoring to do so.

From there, we have a few practice management articles, including a look at "what's next" in the world of financial advisor marketing (as we continue the evolution from cold-calling to seminar marketing to client appreciation events and now digital marketing), an important reminder that as financial advisors we use too much industry jargon (often without realizing it), and an interesting way to think about how the client relationship evolves over time from being "just" a customer, to a true client, to a friend, and finally to an advocate (which is food for thought about what you might do to evolve your own clients along that continuum!).

We also have several more technical articles this week, from a discussion by Wade Pfau of "time segmentation" (i.e., bucketing) strategies in retirement (as differentiated from systematic withdrawals from total return portfolios, or various essential-vs-discretionary income approaches), common estate planning mistakes that financial advisors can help their clients avoid, and a look at the recent Tax Court case of Ozimkoski, which provides several valuable reminders of what not to do when handling an inherited IRA!

Towards the end, we have three interesting articles on the theme of retirement, and whether it's all that it's cracked up to be, from a look at the global research on happiness and wellbeing that finds being employed is consistently associated with greater life satisfaction than being unemployed (with white-collar jobs consistently scoring better than blue-collar jobs as well), a look at the real-world challenges that early retirees face in transitioning to retirement when all of their peers are still working, and the results of a fascinating survey from the Wall Street Journal that asked new/recent retirees what they found to be most surprising in retirement, to which they said... almost everything.

We wrap up with the sad news that this week, financial planning visionary Dick Wagner passed away unexpectedly. Wagner has long been recognized as a thought leader in the profession (since long before the term was popular), and was both a former practitioner, former volunteer leader at the chapter and national level in various FPA-predecessor organizations, co-founder of the Nazrudin Project (from which much of the life planning movement emerged), and a tireless advocate of advancing financial planning into a true profession around a broader garden of knowledge that he dubbed the study of "finology". Fortunately, Wagner was able to publish his book, "Financial Planning 3.0", just a few months before he passed away, and in today's weekend reading, we highlight what many view as the seminal article on how financial planners must evolve to truly become a recognized profession... an article he first published in the Journal of Financial Planning in 1990, that we are all collectively still trying to live up to today. Rest in peace, Dick Wagner.

Enjoy the "light" reading!

Marketing Lessons Learned From NerdWallet Ask An Advisor Shutting Down

March 30, 2017 08:30 am 9 Comments CATEGORY: Marketing

As an advisor, one of our most crucial but difficult challenges is figuring out how to get new clients to grow the business. In recent years, several new digital platforms have emerged with the aim to bring consumers and advisors together - allowing advisors to showcase their knowledge by answering consumer questions, with the hope of acquiring new clients. However, as I've warned advisors before, building your digital marketing presence on third-party websites can end badly, and this week's abrupt shutdown of NerdWallet's Ask An Advisor platform is a case-in-point example of what can go wrong!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss marketing lessons learned from the news that NerdWallet's Ask an Advisor Platform is shutting down - particularly the risks associated with building your digital marketing strategy on "borrowed land", and what you should do instead to succeed in the long run.

For financial advisors that were using the platform, NerdWallet's announcement to shut down their Ask an Advisor platform came as an abrupt surprise. The personal finance site had started out providing credit card comparisons back in 2009, but in more recent years had branched into other channels, from bank accounts and mortgages, to offering a platform where consumers could ask financial questions and financial advisors could respond to those questions, in the hopes of gaining some visibility and possibly even a new client. But, with only three days notice, NerdWallet suddenly announced resources were being allocated towards other company priorities, and advisors will lose the ability to respond to questions, or even directly edit their profiles, after March 31st.

Notably, this is precisely the type of risk that I've warned advisors about for some time when it comes to building your digital marketing strategy on someone else's platform. Advisors who have poured their heart and soul into the Ask an Advisor platform suddenly have to start their digital marketing strategy all over again from scratch. And the reason they have to is because they built on someone else's platform. If you're an advisor on NerdWallet, you just lost all of your equity value from the content you built, even though NerdWallet can continue to monetize your content by placing ads for their products, their solutions, and their advertisers next to it. That's the risk when you create value but don't retain control of it because it's on someone else's platform!

Now, certainly digital marketing can be an effective strategy for advisors, but the ultimate point of all of this is that if you want to succeed in the world of marketing online, it's not just about creating content to demonstrate your expertise, but retaining control of it so you can build on it over time. Which not only avoids the risk of having the content disappear when some other company decides to "reallocate resources" elsewhere, but also ensures that you have the ability to control how the prospect experiences the content, and the call to action they get at the end! Which is what really drives new client results!

In the end, building on your own websites means that you own the traffic, you own the SEO value, and you can create the call to action that turns readers into bona fide prospects – all without worrying whether you are going to lose control of the platform or your ability to engage a prospect in the future. Don't be a digital sharecropper. Build a foundation you own, you control, and that you can leverage to turn your audience into real new client business!

Evaluating Phi: Is Motivation Really The Hidden Variable Of Organizational Performance?

March 29, 2017 07:02 am 2 Comments CATEGORY: Investments

In November of 2016, a joint 18-month study from the State Street Center for Applied Research and the CFA Institute, which combined 200 in-depth interviews with global industry leaders and a survey of 3,300 "investment professionals", was released, and claimed to have discovered "the hidden variable of [organizational] performance". Dubbed "Phi", the research suggested that a combination of the motivational forces of Purpose, Habits, and Incentives was associated with superior organizational outcomes; specifically, the results showed that a one-point increase in Phi was associated with 28% greater odds of excellent organizational performance, 55% greater odds of excellent client satisfaction, and 57% greater odds of excellent employee engagement.

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – analyzes the Phi study and delves deeper into exactly what it is, how it is measured, and what conclusions should (and shouldn't) be drawn from this study.

Because while the researchers did find a statistically significant relationship between Phi (as measured by self-reported purpose, habits, and incentives), and organizational outcomes, client satisfaction, and employee engagement, it's not entirely clear what the results actually prove.

The challenge, in part, is that the study itself didn't actually evaluate organizational performance, client satisfaction, or employee engagement! Instead, the researchers evaluated self-reported assessments of organizational performance, client satisfaction, and employee engagement, and compared them to self-reported statistics on Phi (for the entire organization). And this distinction is meaningful, because it isn't exactly clear that employees make valid or reliable assessments of company-wide motivational forces, nor the entire company's organizational performance, client satisfaction, or employee engagement — and especially when these employees may not actually even know if clients' goals are being met (how "organizational performance" was defined), whether clients or satisfied, or whether other employees within a large multinational financial services firm are actually even engaged!

In addition, there's the fundamental challenge that a correlation between two data points doesn't necessarily prove causation either. In other words, the fact that high-performing organizations also report higher Phi doesn't mean the higher Phi caused the better results. Perhaps organizations that are already outperforming simply attract more motivated employees (which means the causality goes the other direction).

In the end, the Phi study did ask some interesting questions and set out with some lofty ambitions to evaluate the impact of motivational forces - a question that is admittedly not easy to study. But until further research can tie Phi to actual outcomes or provide evidence that the self-reported measures are assessing something meaningful in a valid and reliable way, then the conclusions we can actually draw from the Phi research are limited.

#FASuccess Ep 013: Succeeding As A Serial Financial Advisor Entrepreneur Serving Ultra-HNW Clients With Steve Lockshin

March 28, 2017 07:00 am 6 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirteenth episode of the Financial Advisor Success Podcast!

This week’s guest is Steve Lockshin, a founder of AdvicePeriod, a Los Angeles-based advisory firm that serves ultra high net worth clients. So if you’ve ever been curious to hear what’s involving in serving clients with tens of millions of dollars of net worth (or more!), and charge financial planner retainer fees that could start at $100,000 and go up from there, you won’t want to miss this episode!

What’s fascinating about Steve, though, is not simply his success in serving ultra high net worth clientele, but his path as a serial entrepreneur who has founded several businesses in the advisory industry. His prior advisory firm Lydian Wealth Management, which also served ultra high net worth clientele and had more than $7B of AUM, was acquired by City National Bank. And the performance reporting software solution he co-founded, Fortigent, was acquired in 2012 by LPL Financial. And currently, Steve is also a part of AdvicePeriod for Advisors, which gives independent advisors access to AdvicePeriod’s branding, tools, and resources, for those who want to use his tools while maintaining control of their own advisory businesses.

In this episode, you’ll hear how Steve first created and sold a software company without a background in programming, and then got started as a financial advisor without any experience in the field either. In fact, his story is a fascinating example of true entrepreneurialism – of someone who sees problems and gaps to be solved, and then marshals the resources necessary to create a solution (and a business around it!), while continuously looking for new opportunities as a lifelong learner.

And be certain to listen to the end, where Steve shares his thoughts on what he thinks is the single most important choice an advisor has to make in building their own advisory business (or shaping their own career trajectory), to be successful in the long run.

So whether you’re curious to get a glimpse of what it takes to serve ultra high net worth clients, or just want to hear the perspective of a true financial advisor entrepreneur, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

The Business Benefits Of Transitioning From Commissions To Fee-Based Advisory Accounts

March 27, 2017 07:01 am 1 Comment CATEGORY: Practice Management

Since the late 1990s, the broker-dealer community has been increasingly transitioning away from traditional commission-based accounts, and towards fee-based alternatives instead. Facilitated first by a proposed 1999 exemption under Rule 202 that would allow broker-dealers to offer fee-based accounts without being registered as investment advisers, and then transitioning fully to dual-registered or hybrid RIA arrangements (after the proposal was struck down in 2007), the shift has been substantial, with leading broker-dealers going from less than 10% of fee-based revenue to more than 50% today.

For any individual advisor, though, the reason to transition to doing fee-based advisory accounts isn’t just because the broker-dealer prefers it, but simply because it allows for building a bigger and more successful advisory business. The reason is rather straightforward: because commission-based business is transactional, and will always be constrained by the number of clients the advisor can personally see and sell, while a recurring revenue advisory business makes it possible to separate “selling” clients from the less-expensive process of servicing them. Or stated another way: after several years of commission-based business, your income on January 1^st of a new year is still $0 until you get a new client, while with an advisory business, after a few years you can be financially successful with no new clients, as long as you give quality service to the ones you already have.

The challenge, though, is that transitioning to fee-based advisory accounts is not easy. As an advisor, it’s necessary to redefine your value proposition to justify charging an ongoing advisory fee, and persuade clients to make the change with you. And those reinvestments into the business have to happen just as revenue declines in the transition – because even if advisory fees may be more stable in the long run, in the near term it’s just less money coming in the door.

Nonetheless, with the regulatory winds around the globe blowing increasingly towards no-commission fiduciary advice, arguably the transition to fee-based advisory accounts may be inevitable anyway. But given that recurring revenue advisory fees are facilitating the growth of bigger advisory businesses, which also get better valuations in the marketplace, it’s a good shift to make, regardless of whether the regulators ultimately require it or not!