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Weekend Reading For Financial Planners (July 6-7)

July 5, 2024 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a recent U.S. Supreme Court decision shifting authority to interpret laws passed by Congress from Federal agencies to the judicial system could have significant impacts on regulation of the financial advice industry, including the potential for additional legal challenges to regulations from the Securities and Exchange Commission (SEC), the Department of Labor (DoL), and other agencies, with new groups already joining a lawsuit against the DoL's new Retirement Security Rule following the decision.

Also in industry news this week:

A separate Supreme Court decision struck down the SEC's use of in-house judges to adjudicate cases involving civil penalties (unless both parties in the matter agree to it), likely setting up more settlement offers from the regulator to avoid a drawn-out legal process in the Federal court system
At a time when it has seen an increased staff headcount and budget, FINRA, the self-regulatory agency for broker-dealers, has issued a smaller total dollar amount in fines as well as fewer press releases regarding enforcement actions during the past several years, raising questions about the extent of its enforcement of Regulation Best Interest and other regulatory measures

From there, we have several articles on retirement:

Why some clients have a hard time spending down their assets in retirement while others are more spendthrift
5 ways that can help financial advisors give hesitant clients 'permission' to spend more in retirement
An updated study suggests that for retirees, investment assets generate about half of the amount of additional spending as wealth held in the form of 'guaranteed' income (e.g., Social Security benefits, a defined-benefit pension, or a private annuity), offering a potential opportunity for advisors to help nervous clients boost their spending

We also have a number of articles on practice management:

The 3 types of firms looking to acquire RIAs and why the attractiveness of a deal goes well beyond a firm's valuation
How advisory firm owners can tell the difference between solicitations from M&A brokers solely focused on the financial bottom line of a potential sale and advisors who understand the full implications of a sale, including the importance of a solid cultural fit, for the selling firm owner
The considerations for firm owners considering selling a minority stake in their firm, including the importance of understanding what the investor brings to the table, in terms of the capital and industry knowledge they offer as well as their expectations for a financial return

We wrap up with 3 final articles, all about vacations:

How to set up proper boundaries at work before going on vacation to ensure needed work gets done without having to answer emails or phone calls while away
How to stop 'overplanning' vacations, from setting up loose guideposts for each day rather than strict itineraries to avoiding the rabbit hole of travel review websites
Why vacations that aren't particularly relaxing can still offer value, including the opportunity to have a 'fresh start' on work practices after returning to the office

Enjoy the 'light' reading!

Why Quality Factor ETFs Have Seen Large Inflows Over The Last Year – And How Advisors Can Use Them In Client Portfolios

July 3, 2024 07:01 am 0 Comments CATEGORY: Investments

Over the past few decades, technological advances and plummeting transaction costs have facilitated the emergence of a dizzying variety of ways to gain exposure to very specific areas of the market. As a result, advicers have more options than ever to add value for their clients by tailoring investment portfolios that are specific to their unique needs, goals, and risk tolerance. One approach that has become increasingly popular is the use of factor-based ETFs, which are designed around certain shared characteristics of assets that go beyond the more traditional attributes (e.g., size, industry, location) of early mutual funds. While there are literally hundreds of identifiable factors, the most well-known are Quality, Value, Momentum, Small Size, and Minimum Volatility.

In this guest post, Robert Hum, a Managing Director and U.S. Head of Factor ETFs at Blackrock, discusses why Quality factor ETFs have seen large inflows over the last year, the characteristics that define Quality, and how advicers can implement Quality ETFs in their clients' portfolios.

As we head towards the second half of 2024, investors continue to grapple with many of the same issues that have influenced the overall market action for the past several quarters. While inflationary pressures have continued to trend lower and the jobs market seems to have tightened somewhat, the Federal Reserve remains in a wait-and-see mode in regard to any potential rate cuts, international tensions remain elevated, and the level of concentration in a handful of (arguably overvalued) stocks persists.

As a result, this macroeconomic and market uncertainty has ostensibly driven a preference for overweighting higher-quality companies in investment portfolios. Specifically, 'high-quality' companies share several similar fundamental characteristics. For instance, research has shown that companies whose revenue is driven by their core business functions (versus temporary accounting transactions) tend to have more sustainable earnings and higher future stock returns. Leverage also comes into play, as firms with lower debt-to-equity ratios are less risky, particularly in high-interest-rate climates. Moreover, companies that are more profitable (as measured by their return on equity) tend to outperform their less-profitable peers, even after accounting for the higher price multiples they often carry… and that relative outperformance has tended to increase with longer holding periods!

With those factors (no pun intended!) in mind, there are 3 primary ways that advicers can use Quality ETFs in portfolios. First is from a tactical perspective, where quality strategies that focus on companies with lower debt-to-equity ratios have lower total interest expenses and may be better positioned to weather the current higher-for-longer rate regime. Second, advicers can use Quality ETFs strategically. Quality ETFs tend to have a lower 'tracking error' in comparison to other factor-based products and, therefore, can be used as a large-cap blended fund. Finally, Quality ETFs can be an effective diversifier, particularly in portfolios that are tilted toward the Value factor.

Although Quality ETFs have already shown solid relative performance year-to-date, the longer-term case for Quality may still be compelling, given persistently high interest rates and the ongoing macroeconomic headwinds. Advicers can add value for clients who may be concerned about a possible economic slowdown by maintaining their overall portfolio mix consistent with a strategic focus on an area that tends to show relative strength during downturns. Ultimately, by offering clients strategies to respond to changes in the economic cycle, advicers can help clients stay disciplined and focused on their long-term goals!

#FASuccess Ep 392: Crafting Your Specialization When There Is No Standard Playbook To Learn It, With Kristopher Heck

July 2, 2024 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Kristopher Heck Podcast Featured Image FAS

Welcome everyone! Welcome to the 392nd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kristopher Heck. Kristopher is a Founding Partner of Tanager Wealth Management, an RIA based in London, England, that oversees approximately $1.1 billion in assets under management (AUM) for 630 client households.

What's unique about Kristopher, though, is how his firm has scaled to more than a billion dollars of AUM while specializing in working with clients whose personal and financial lives touch both the United States and the United Kingdom, a niche for which there is no set 'playbook' to learn the tax, estate, and other planning expertise needed to serve these clients, which makes the expertise they've crafted for themselves over the past decade to be instantly differentiated in the marketplace!

In this episode, we talk in-depth about how Kristopher chose his unique cross-border specialization, in part due to his own experience as a US expatriate navigating the financial issues that come with living and working in the UK, why Kristopher's firm emphasizes the ability to teach other team members about technical planning topics (since team members have to learn most of the specialized knowledge on the job) as a key criterion when hiring and evaluating new staff members to join Tanager Wealth, and how Kristopher's firm uses an internal blog, videos, and regular lunch-and-learns to further transmit their specialized knowledge across all advisors in the firm.

We also talk about how Kristopher's firm has attracted clients within its cross-border US-UK specialization, including by establishing relationships early on with accountants and estate attorneys who were also just starting their practices and working with similar expatriate clients (creating a healthy system of cross-referrals as each of those professionals' own practices have grown over the years), how Kristopher's cross-border specialization has evolved into several sub-niches, including expats who work specifically in the technology, financial, and legal sectors, and how Kristopher's firm's specialized expertise gives them an edge even and including against much larger firms in the broader market for financial advice.

And be certain to listen to the end, where Kristopher shares how his firm's separate advisory and planning teams not only help build and maintain his firm's knowledge base, but also provide separate career tracks for employees who want to be client-facing and those who want to dig deeper into the technical aspects of financial planning, how starting his firm with 2 other partners gave Kristopher the added confidence needed to overcome feelings of impostor syndrome when working with clients in his chosen-but-still-developing specialization, and why Kristopher believes RIAs are, in reality, HR and technology platforms that simply monetize with financial expertise (which emphasizes the importance of having the 'right' people and tech to successfully scale a firm).

So, whether you're interested in learning about how to develop a successful client niche when there is no 'playbook' to learn it, how to organize a firm to ensure institutional knowledge stays within the business, or how to nurture relationships to generate referrals from centers of influence, even when just starting out, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Kristopher Heck.

The Latest In Financial #AdvisorTech (July 2024)

July 1, 2024 07:02 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the July 2024 issue of the Latest News in Financial #AdvisorTech – 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!

This month's edition kicks off with the news that AI meeting support solution Jump has raised $4.6 million in venture capital, as meeting support has increasingly shown itself as a leading use case for AI as it applies to financial advisors given the sheer amount of time advisors spend on meeting preparation and follow-up tasks between multiple systems and the ability of AI tools like Jump to quickly scan through meeting notes and transcripts and produce meeting summaries, draft follow-up emails, and assign tasks.

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Digital prospecting solution AIdentified has raised $12.5 million in Series B funding as it looks to further develop and scale its solution for finding qualified prospects for referrals among an advisors' network in order to drive more organic growth – though it remains to be seen how many advisors are ready to engage in a more proactive prospecting approach to the extent that it makes sense to adopt a new technology solution for doing so.
AI-driven investment research solution Brightwave has raised $6 million in seed funding for its digital "investment analyst" – although in a tech landscape where solutions tend to cater either towards 'active' advisors who seek out investment opportunities on their own or 'passive' advisors who focus more on educating clients to keep them in the markets, it isn't clear where on the divide Brightwave lies (or whether advisors will want to pay for a solution that seeks to do both, given that most advisors fall in either one camp or the other)
The state of Missouri has joined Washington state in scrutinizing advisors' use of third-party technology like Pontera to access and trade in clients' held-away accounts – which on the one hand, is striking in that those tools seem to be widely popular among clients and advisors alike due to their ability to give advisors secure access to client accounts, making it confusing that regulators would choose to scrutinize them; but on the other hand may be understandable given how quickly the technology to trade held-away assets has emerged, leaving regulators to find any way they can to pump the brakes on further development until they can come up with an acceptable regulatory framework

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

A new technology solution, RIA Growth Catalyst, has launched as a tool for firms to identify potential Mergers & Acquisition partners by using current and historical public Form ADV data to gauge which firms actually have a solid track record of organic growth and productivity metrics
A new survey shows that around 21% of advisors use direct indexing in their practice, which on the one hand, indicates that a large majority of advisors and clients aren't yet sold on the tax efficiency and other benefits of direct indexing (at least enough to make up for the added complexity it introduces), but on the other hand reflects how at least some advisors see direct indexing as a way to more effectively serve high-net-worth clients and values-based investors, leaving the question about whether it will eventually see more widespread adoption than those specific use cases

And be certain to read to the end, where we have provided an update to our popular "Financial AdvisorTech Solutions Map" (and also added the changes to our AdvisorTech Directory) as well!

*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 (June 29-30)

June 28, 2024 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that a recent study found that at a time when the number of SEC-registered broker-dealers and their registered representatives is declining, the number of SEC-registered RIAs, their assets under management, and the number of clients they serve all grew in 2023, reflecting the attractiveness of the RIA model to both advisors and clients alike and the ability for firms across the size spectrum to profitably serve clients.

Also in industry news this week:

How the SEC could target dually registered firms for enforcement of their duties to care for and manage conflicts of interest under Regulation Best Interest and the Investment Advisers Act to send a message to the industry and to clarify its expectations for these "dual-hatted" firms and their advisors
Why a shift in IRS priorities away from specifically focusing on taxpayers with more than $10 million in income for audits could result in more clients with incomes above $400,000 being audited in the coming years

From there, we have several articles on investment planning:

5 ways advisors can 'fix' the portfolios of new clients, from unwinding unintentionally concentrated positions to maximizing asset location
While concentrated investment strategies offer the promise of higher returns, the specter of unpredictable risks and, in the case of concentrated funds, misaligned incentives between fund managers and investors, can make them risky propositions
How a "total wealth approach" for portfolio management that takes a client's human capital and other non-investment assets could mitigate the downside risks to their wealth

We also have a number of articles on client meeting note-taking:

Strategies for advisors to take more effective notes in client meetings, from adopting structured frameworks to leveraging software tools
Client meeting note-taking software has emerged as one of the first AI use cases for advisors, though its use comes with compliance and security considerations
A review of available AI-enabled client meeting note-taking software, broken down by price, accuracy, security, integrations with other AdvisorTech tools, and more

We wrap up with 3 final articles, all about productivity:

How the "weighted shortest processing time" strategy can help advisors prioritize their to-do lists and why one of the best ways to boost productivity could be to shorten the list to only include what truly needs to be done
Amidst a work culture that often prioritizes time spent at the computer, why stepping away from the desk for unstructured thinking could boost workers' creativity and productivity
Why the concept of "entrenchment" suggests that achieving a "flow state" can sometimes lead to reduced productivity and wellbeing

Enjoy the 'light' reading!

Kitces & Carl Ep 141: Creating The Space To Have More Meaningful Money Conversations With Clients

June 27, 2024 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Creating The Space To Have More Meaningful Money Conversations With Clients

The practice of asking questions has always been an integral part of the financial planning process. In the early days of the advicer industry, those questions almost exclusively dealt with facts around a client's or prospect's financial situation to determine (ultimately) what products the adviser should recommend. However, given the industry's ongoing transition away from being primarily transaction-focused and towards being relationship-based, advicers have had to learn how to develop meaningful connections. One of the best ways to accomplish this is by having deeper conversations that go well beyond basic data gathering. Which, naturally, gives rise to the question: How can advicers foster an environment where these conversations can develop, and what are some ways that they can help their clients go deeper?

In our 141st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore some key concepts around facilitating meaningful conversations, ways advicers can help clients take time to focus on more foundational topics (so they can have a clearer picture around where they want to go), and some conversational strategies to give clients the 'permission' to open up.

Since much of an advicer's work centers around finding (and communicating) concrete answers to help solve problems and issues (like, "How big of an emergency fund do I need?" or "When can I retire?"), it's not too surprising that many view the process of facilitating meaningful money conversations from an analytical perspective (e.g., "Just tell me the best questions to ask and give me a flowchart to navigate the rest!"). However, finding the perfect questions and being skilled at asking them can also be cultivated through a sense of curiosity and a space where vulnerable conversations can happen. As while an advicer might want to implement the sort of life planning questions pioneered by George Kinder, the process may feel awkward in a more traditional "financial institution" setting and/or without a genuine interest in what the client has to say.

It's also important to recognize that clients typically don't seek out an advicer so they can explore their dreams, goals, and desires or to discuss their deep-seated feelings around money. Instead, meetings (especially initial meetings) happen because there's some 'presenting problem'. And that's where an advicer is in a position to create the space where meaningful conversations can happen by expressing empathy ("Mr. and Mrs. Client, I hear you. That is a real issue, and just to make sure we get to the best answer, can we back up a bit? Tell me why this is important for you?") and showing what a real financial planning relationship looks like.

The key point is that advicers who can develop their conversational skill set will not only do a better job of getting their clients to buy into their financial plans, implement the advice they're offered, and (ultimately) achieve their goals, but they'll also be better equipped to stand out in an increasingly crowded marketplace. And by greeting a client with genuine empathy, an advicer can create space in a conversation for the client where they can both explore deeper issues, arrive at impactful decisions, and engender a long relationship built on trust and meaningful human connection!