Nerd's Eye View blog

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!

Weekend Reading for Financial Planners (Mar 25-26)

March 24, 2017 02:53 pm 7 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with an interesting new consumer survey from J.D. Power (and a similar one from Spectrem) finding that the majority of consumers currently using commission-based investment accounts don't want to switch to a fee-based solution instead, even as studies also find that those who use fee-based accounts are more satisfied with what they pay... and reinforcing that while there may be some harm caused by inappropriate commission-based sales, there is a segment of consumers that don't want to pay ongoing fees and would prefer to just engage via commissions when they wish.

From there, we have a few practice management articles, from a look at how the biggest key to getting new clients may be "approachability" (which is far easier said than done!), to a discussion of what the real difference is between a TAMP and a "robo-for-advisors" solution (as the two increasingly converge towards each other), what to do (and not to do) when talking to the media as a financial advisor to get PR exposure, and what your website homepage must include in order to be appealing to prospects (even including the ones that were already referred to you, but are still checking you out online first!).

We also have several more technical articles this week, including: strategies for using bonds to meet retirement expenses; whether the rules limiting upside return projections on indexed universal life policies under Actuarial Guideline 49 went far enough; what to do when a retired couple applies for long-term care insurance but only one of them gets it (and the other gets declined); and an in-depth look at how the number of publicly listed stocks has dropped by almost 50% in just the past 20 years, as fewer and fewer companies choose to IPO in the public markets, even as M&A activity continues, resulting in a more-and-more concentrated number of publicly traded mega companies (and potentially less diversification even for the investor who buys a total market index fund).

We wrap up with three interesting articles about spending and saving behaviors: the first is a fascinating look at how a couple earning $500,000/year in a major metropolitan area can still spend "reasonably" (at least, relative to their income) yet find themselves living paycheck to paycheck; the second dives into how one Millennial blogger managed to accumulate $1M in investments in barely 5 years by converting his long-term savings goals into a daily savings effort (which so motivated him that as his income rose, he saved virtually all of it, accelerating his financial success); and the last looks at how anyone can get their financial life more streamlined and organized (which, notably, is something few financial advisors actually focus on directly, even though it could arguably be a complementary or even a separately paid service!).

Enjoy the "light" reading!

Does It Matter Whether You Get Your CFP From A “Top Ranked” Program?

March 23, 2017 08:36 am 9 Comments CATEGORY: Personal/Career Development

For parents these days, there's a huge focus these days on not just getting kids into college, but getting them into the "right" college. And whether it's realistic or not, many people by default want to plan for their kids getting into recognized Ivy League schools like Harvard, Yale, or Stanford, in the hopes that studying at a "top school" will help their kids' future career prospects. Accordingly, it's perhaps no great surprise that more and more people who are looking to study for their CFP certification are also asking the question of what the "best" or "top ranked" CFP programs are, and whether it matters where you go to get your CFP. Particularly in light of the fact that some of the largest CFP education programs are completely unknown outside of our industry.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss why for most people, it doesn't really matter if you get your CFP certification from a "top ranked" CFP program or not, and what criteria you should really focus on instead when getting your CFP education.

First and foremost, the primary reason that it doesn't matter where you get your CFP education is that most clients really don't care what school you went to school. They just rarely ask. And even when it does happen, it's not difficult to explain the credentials of an industry -specific educational institution like the American College or the College for Financial Planning - and then move on. Because ultimately, if of getting your CFP marks gives you expertise and confidence that you communicate accordingly, that is the primary benefit of CFP certification! Not getting the "right" institution at the top of your degree.

That being said, tt is worth noting that there are some situations where the school you get your CFP from may matter, at least a little. The first is when you are trying to get a financial planning job. Not a position where you need to go and get clients, but an internal position at a financial planning firm. Because when a firm is hiring someone, they have very little to look at... and as a result, having a school like Texas Tech or Virginia Tech on your resume – since these are schools known to have reputable CFP programs – can at least cast a positive "halo effect" on you. But don't count on that getting you the job. It might help you get an interview and tilt the scales in your favor a bit, but it ultimately comes down to what you learned in your CFP program. And that means if you ultimately want to land a job, focus on picking the program that allows you to learn the material best, because that is what will get you past an interview to an actual financial planning job!

The other time you may want to consider where you get your CFP is if you plan to go into academia. Although even in academia, it still isn't about where you get your six CFP education courses per se, but where you get a masters degree or a Ph.D. could truly matter. In this case, you aren't trying to win over consumers or persuade an employer to hire you, but in academia, school rankings simply matter more. Many schools like to have a good "academic pedigree" for their professors. Yet, even within academia, it's going to matter what type of job you ultimately want. If you want to help start a new CFP program or primarily teach undergraduates, then where you get your degree won't matter as much. If you want a tenure-track research position at an R1 research university or business school, then where you get your degree will be more important, even if it doesn't matter so much where you took your CFP courses.

The bottom line is, for most people getting their CFP certification – especially those who are just wanting to get a job or build an advisory firm getting clients – don't stress about where you get your CFP education. Instead, stress about finding a program where you can do well, and actually learn the content! Because, in the end, the biggest determinant of your success will be how well you actually learn the material and can confidently use it. Ultimately, this comes down to educational fit – not academic pedigree!

The Evolution Of The Four Pillars For Retirement Income Portfolios

March 22, 2017 07:00 am 14 Comments CATEGORY: Investments

The research on the optimal strategy to generate retirement income from a portfolio has been evolving for decades.

In the 1950s and 1960s, with the initial rise of a portfolio-based retirement, the leading strategy was simply to buy bonds and spend the interest (by literally “clipping the coupons” from the bearer bonds of the time). Until the inflation of the 1970s ravaged the purchasing power of bond interest.

The harsh consequences of inflation on bond portfolios led to a dramatic shift by the 1980s, as retirees increasingly purchased high-quality dividend-paying stocks instead, counting on the ability of businesses to raise prices and keep pace with inflation… which also helps their dividends to rise and keep pace with inflation as well.

The dividend strategy was popular until eventually retirees realized that owning stocks and focusing on the dividends, while ignoring the capital gains, just leads to large retirement account balances that could have been spent along the way. As a result, by the 1990s, retirement portfolio strategies shifted again, to consider a more holistic “total return” approach that incorporates interest, dividends, and capital gains as well.

Unfortunately, though, capital gains may be one of the largest drivers of total return in the long run, but it’s also one of the least stable, forcing the retiree to periodically rely on the portfolio principal as well. Of course, in the end, retirement principal that is unspent is arguably a wasted spending opportunity – where the “optimal” retirement portfolio is for the last check to the undertaker to bounce. On the other hand, given the uncertainty of a retiree’s time horizon – not knowing when you’re going to die – means in practice, the principal can and should be used more dynamically, spending from it in some years but leaving it untouched in others.

Which means ultimately, the modern retirement portfolio will really rely on four pillars for retirement income – interest, dividends, capital gains, and principal. Or stated more accurately, the four pillars of retirement cash flows – since the treatment of the pillars as “income” for tax purposes can vary depending on both the pillar itself (interest is taxable and principal liquidations are not), and the varying types of retirement accounts (from pre-tax IRAs to tax-free Roth accounts).

Nonetheless, the fundamental point is simply to recognize that a retirement portfolio has multiple ways to generate the desired cash flows for retirement. And in fact, in a low yield environment, it can be especially important to diversify across all four pillars – or retirees take on additional risks in stretching for yield, from interest rate and default risk (from longer-term or lower-quality bonds), to the concentration risks of buying just a subset of the highest dividend-paying sectors (which, as the financial crisis showed, can expose the portfolio to severe risk along the way!).

#FASuccess Ep 012: Delivering Profitable Financial Planning To Millennials For A Monthly Retainer Fee With Sophia Bera

March 21, 2017 07:00 am 19 Comments CATEGORY: Financial Advisor Success Podcast

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

This week’s guest is Sophia Bera, the founder of Gen Y Planning, a financial advisory firm that is successfully and profitably delivering financial planning to Millennials, by charging them an ongoing monthly retainer fee to access her financial advice.

Sophia’s path to launching her advisory firm was first the subject of a Nerd’s Eye View guest post back in 2013, when she launched her independent RIA for under $10,000 (in a world where most people said it wasn’t possible to get launched for so little!). So I decided to check with her to see how it’s going… and found out that she had replaced her prior job salary within 18 months of her new practice, and now after 3 full years, she’s already taking home $100,000 of profits after all expenses, and is growing rapidly with 2 new clients per month, almost all of whom are in their 20s and 30s.

Sophia’s firm is a great example of not only the fact that Millennials can be served profitably, but the power of having a niche. Because not only is Sophia’s firm actively growing, but her primary source of new clients is Google. That’s what happens when you have a niche. Just search for “Financial Planning for Millennials” yourself, and you’ll see that Sophia is at the top of the search results as the recognized expert in her niche!

In this episode, Sophia breaks down exactly how her fee structure and service model work, from how she charges a combination of upfront and ongoing advice fees, how she incorporates investment management for certain clients (using a “robo-advisor” platform to do it!), and what exactly it is she does for clients throughout the year (and why it’s not necessary to do something for them every month!). And Sophia goes into detail about what client retention looks like with a retainer model as well, and how she sees her business growing over time.

And be certain to listen to the end, where Sophia talks about how her practice has evolved into an entirely “location-independent” virtual advisory firm, and how that not only helps her to live the lifestyle she wants, but also to diversify her income streams across financial planning, speaking, writing, and even a new coaching service for other financial advisors who want to build a similar business for themselves.

So if you’ve been curious to know how exactly to serve young Millennial clients in your firm, or have been wondering what it would be like to “take the plunge” and start your own business to do it yourself, I hope you enjoy this latest episode of the Financial Advisor Success podcast!