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Ambiguous Loss: Helping Clients To Grieve Even Before A Loved One Passes Away

September 25, 2019 07:03 am 1 Comment CATEGORY: Client Trust & Communication

Loss is an experience that all humans share at one point or another, and when a loved one dies, the grief is undeniably and devastatingly certain. But what about the grief that we might feel for a loved one who is still alive, only physically separated from us? Or for one who is mentally incapacitated, but who no longer has the capacity to recognize us? These feelings of grief for someone who is still alive, but no longer present (either physically or psychologically), are referred to as ‘ambiguous loss’. For example, some clients might have relatives who are no longer mentally lucid (psychological ambiguous loss), and some may have loved ones who need full-time care provided by an assisted living facility (physical ambiguous loss). And as would be expected with extended human lifespans and increasing cases of mental incapacity that comes with a growing, older population, feelings of ambiguous loss are on the rise.

Because the average human lifespan has increased over the last several decades, we are now at a point where family members are commonly expected to take on the responsibility of caring for elderly parents or spouses, many of whom are afflicted with neurodegenerative diseases such as Alzheimer’s and dementia. Accordingly, advisors may find themselves dealing with clients suffering from ambiguous loss, especially when conversations are raised around incapacity planning and estate planning.

While most financial advisors don’t have formal training in grief management, there are some basic guidelines that can be effective in working with clients suffering from ambiguous loss. As a starting point, mentally preparing for client conversations, for example, can include a series of questions that advisors ask themselves about their own personal attitudes around grief and loss in general, and also around understanding the situational causes of their clients’ ambiguous loss. Understanding the daily routines and relationships that the client may be struggling with can also help the advisor relate more empathetically with the client. And starting any incapacity discussion as early as possible to give clients ample time to process their feelings of ambiguous loss while adjusting to their new responsibilities can prove helpful for the client to transition through change.

Additionally, the advisor can support clients by acknowledging their feelings of ambiguous loss, and helping them adjust to the ambiguity they face by planning for a broad range of financial scenarios. This can help clients attain a level of certainty over what they have control over versus what variables in their situation will inevitably remain unknown, and that may eventually need to be addressed. And last, the advisor can play an important role in their client’s life by helping them through the difficult process of understanding and accepting what is happening to them, by simply giving them time and space to share their stories when they are ready to do so.

Ultimately, the key point is that ambiguous loss is commonly experienced by many people, and advisors should be prepared to work with clients and their issues in a sensitive yet productive manner. The conversations will be difficult and may be highly charged with emotion, but offering compassion and providing support can have a huge impact on the client’s ability to make sound financial decisions, as well as establish trusting relationships not only between the advisor and the client, but with the client’s support system as well.

#FASuccess Ep 143: Getting Local Clients Via Google Search With A Niche Of Serving Independent Women, with Cathy Curtis

September 24, 2019 07:01 am 9 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 143rd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Cathy Curtis. Cathy is the founder of Curtis Financial Planning, a solo independent RIA in Oakland, California that oversees nearly $60 million of assets under management for 52 client households.

What's unique about Cathy, though, is the way she's positioned her business into a niche of serving women, and in particular, single, independent-minded women who specifically want to work with a female financial advisor as their financial partner, to the point that the majority of Cathy's new clients find her through a Google search.

In this episode, we talk in-depth about why Cathy chose to build into a niche of serving women as a way to better stand out and attract clients in the crowded San Francisco advisor marketplace, how she refined her website to the point that even new prospects compliment her on how it spoke to them, the way she's been able to generate most of her new clients from organic Google search traffic, even though she focuses on working with local in-person clients, and why the business development success of focusing into her niche eventually has forced Cathy to implement a minimum fee requirement just to better determine which prospects were really qualified to do business with her or not.

We also talk about Cathy's financial planning process itself. How her targeted marketing has helped her to get clients who are willing to go through a lengthy, detailed 20-page data gathering questionnaire, why she includes a draft financial plan meeting with clients and uses eMoney Advisor's Decision Center instead of printing out any details of a financial plan, the reason she chose HiddenLevers and Kwanti to be her risk tolerance and investment research tools, and the surge meeting approach that Cathy is using to cluster all of her regular client meetings into just 3 different months throughout the year.

And be certain to listen to the end, where Cathy shares how she got over the impostor syndrome struggles she faced early on as a career changer entering financial planning. Why she thinks new entrants to the profession today should work for another advisory firm for several years before going out on their own, and how the industry pressure to consolidate led her to merge into another advisory firm, only to realize that she really did prefer being an independent entrepreneur, and now simply leverages technology and outsourcing solutions instead to make herself even more successful.

Serving Small Business Owners With 3(21) And 3(38) Retirement Plan Fiduciary Services

September 23, 2019 07:02 am 3 Comments CATEGORY: Practice Management

In today’s highly competitive job market, many industries have more openings than there are qualified employees to fill them. Which means that many workers are finding that they have the luxury of being able to choose amongst a number of potential employers. And in an effort to recruit (and retain!) top talent, it’s important for employers to not only offer competitive pay but a compelling benefits package as well, including, in particular, a generous retirement plan. In many cases, a 401(k) plan is the retirement plan of choice, as it offers substantial contribution limits, allows employees to defer taxes on income contributed to the plan and gives employers the option to offer profit sharing and matching contributions as well (that they can deduct themselves from their business income).

The caveat, however, is that many employers (especially small business owners) lack the knowledge and time it takes to properly administer a retirement plan as a plan sponsor, which is important not only to prevent penalties and fines but also to maintain a plan’s qualified tax status. And given that there were over 83,000 ERISA-related lawsuits in the past decade alone, liability risk when offering a 401(k) plan is understandably a significant concern, as plan sponsors have a fiduciary responsibility to act prudently and in the best interest of the plan participants (i.e., the employees enrolled in the plan). This entails offering a diverse mix of investment options, ensuring that the plan expenses are reasonable, and following the documents as written for the plan.

The good news, though, is that advisors can help employers manage these responsibilities by providing various fiduciary services. More specifically, advisors may provide plan sponsors with investment-related services by serving as either an ERISA “3(21) Fiduciary” or a “3(38) Fiduciary” (named after the sections of ERISA that define a fiduciary). In addition, advisors can help plan sponsors find a reliable “3(16) Fiduciary” to provide administrative and operational support.

An advisor offering 3(21) Fiduciary services, for instance, provides a plan sponsor with investment recommendations (i.e., which funds should be included in the plan lineup), though the plan sponsor still ultimately makes all final decisions and is the party responsible for actually taking action. Thus, while a 3(21) Fiduciary’s advice should, in theory, help a plan sponsor to reduce their risk (as the 3(21) Fiduciary should have more investment experience and knowledge than the plan sponsor), the plan sponsor still retains liability for investment-related decisions. By contrast, a 3(38) Fiduciary advisor not only recommends investment options but serves as an investment manager, approving and implementing the recommendations made into the plan. When engaged as a 3(38) Fiduciary, the liability for investment management is largely shifted to the advisor and away from the plan sponsor (though the sponsor can't fully delegate the fiduciary obligation, and remains liable for prudently selecting the 3(38) Fiduciary in the first place). Finally, advisors can educate plan sponsors on the value of a 3(16) Fiduciary, who provides plan administration services. Notably, the 3(16) Fiduciary acts on behalf of the plan sponsor with respect to administrative functions and also assumes the liability for such functions. It’s important to note that both 3(21) and 3(38) Fiduciaries are generally provided by Registered Investment Advisers (but not by broker/dealers), while 3(16) Fiduciaries are typically specialized “Third Party Administrators”, and are not generally investment professionals.

Ultimately, the key point is that advisors have an opportunity to provide employers options to help them manage not just their retirement plans but their fiduciary liability in making the plan available to their employees, effectively shifting much (but not all) of the fiduciary responsibility (as well as liability) from the plan sponsor over to the Fiduciary advisor themselves. Regardless of how administrative or investment liability may be shared or shifted, though, the plan sponsor will always have the liability of due diligence in vetting and selecting appropriate Fiduciaries for the plan. Nonetheless, depending on what level of involvement the employer wants to have in their retirement plan, advisors can provide one or more types of fiduciary services to provide for the plan sponsor’s needs to balance limiting their liability, while providing the retirement plan they want to offer that helps them attract and retain top talent!

Weekend Reading for Financial Planners (Sep 21-22)

September 20, 2019 02:35 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a big cover story from Investment News about the upcoming 50th anniversary of the financial planning profession from its humble beginning in December of 1969, and the ways that both the delivery and regulation of financial planning have evolved over the years. Also in the news this week is the announcement that Vanguard is preparing to launch a new "Digital Advisor" service, which will be a 'true' no-humans robo-advisor offering (as distinguished from its Personal Advisor Services solution with hundreds of human CFP professionals) charging just 15 basis points with a $3,000 account minimum.

From there, we have several articles around the ever-growing buzz of advisory firm mergers and acquisitions, including a look at the recent "Deals and Dealmakers Summit" that finds there are still far more interested buyers than there are prospective sellers, a recent DeVoe & Company study finding that as many as 50% of advisory firms may be willing to sell a stake in their firm (but for many, it's only so they can raise capital to become buyers themselves), an analysis finding that so many of the largest RIAs have already been bought in recent years that advisor M&A is now moving 'downmarket' to mid-sized firms with $100M to $500M of AUM, and what to be aware of if you're considering whether to sell to an RIA consolidator.

We also have a number of marketing articles this week, from a look at the factors to consider to avoid picking the 'wrong' niche when choosing to better focus the firm's target clientele, tips on how to turn the ephemeral differentiation of "we provide better service" into something more tangible for prospects, tips about what it takes to actually grow successfully with online/digital marketing, and how some advisory firms that are cutting fees in the face of fee pressure may just be negotiating against themselves.

We wrap up with three interesting articles, all around the theme of understanding and quantifying the value of financial planning: the first examines a recent Russell Investments study finding that the value of financial planning is a combination of A (Annual rebalancing) + B (Behavioral mistakes) + C (Cost of getting it wrong with asset allocation) + P (Planning advice) + T (Tax-smart investing) and may add up to as much as 4.4%/year; the second covers a recent consumer study in the UK finding that the primary value of an advisor is derived from trust in the advisor themselves; and the last is a new Vanguard study further affirming the value of a financial advisor, and finding that, based on direct consumer surveys, nearly half of the perceived value of a financial advisor specifically comes from the non-financial 'emotional' benefits of having someone the client can trust, who understands them, and can reassure them during difficult times.

Enjoy the 'light' reading!

When Heuristics And Biases May Actually Improve Financial Decision-Making

September 18, 2019 07:24 am 1 Comment CATEGORY: Client Trust & Communication

Making good financial decisions should be based on a thorough analysis that is free of influence from the use of behavioral biases or heuristics… or so we’re told. We should strive to adopt an objective point of view and choose the best path forward based on factual data, avoiding gut-instinct, rules of thumb, and other biases that could influence our behavior. This perspective has become so common that many financial advisors now market one of their key value-adds as their ability to 'de-bias' their clients and provide an objective point of view. While there are certainly cases where bias and heuristics can interfere with good client decision-making, is it possible that we’ve adopted too negative of a stance towards bias and heuristics when making financial decisions?

In this post, Derek Tharp – lead researcher at Kitces.com, and an assistant professor of finance at the University of Southern Maine – explores this question and the research summarized by Gerd Gigerenzer and Henry Brighton, which finds that not only can bias and heuristics be potentially valuable tools from a cost-benefit perspective, but they can, under the right circumstances, even improve decision-making beyond what could be achieved with extensive data collection and analysis. Of course, it has always been acknowledged that there is a cost associated with gathering and analyzing data. It’s no surprise that at some point the costs of further analyzing a decision are not worth the benefits. But the insight highlighted by Gigerenzer and Brighton is that, in some cases, less truly is more!

Under the right circumstances, bias and heuristics can help us make better decisions by allowing us to avoid 'overfitting' historical data and making the most efficient use of our limited cognitive resources. Similar to intuitively knowing how to catch a ball, a skill based on heuristics developed and ingrained over a long history of evolution and natural selection (despite the fact that no human can, in the moment, do the calculus necessary to compute a ball’s trajectory and then precisely position their body to complete the catch), some heuristic techniques allow us to ignore what otherwise might seem to be important factors, but still arrive at a solution not only equal to what we might have accomplished via a more cognitively demanding route, but actually better instead!

Interestingly, the conditions under which bias and heuristics are the most efficient (i.e., an environment where data is lacking, or where the data appears to be too random or 'noisy' to be considered useful) are precisely the conditions under which we make many financial decisions, which could explain why there are so many best practice ‘rules of thumb’ (e.g., the 10% savings rule, the 70% replacement ratio in retirement rule, and the ‘cost-per-use’ strategy to make purchasing decisions) that are still remarkably pervasive in society and effective in helping people achieve their financial goals.

Of course, there’s danger in relying on a rule of thumb that is inappropriate for one’s circumstances. Few people who start saving at 55 are going to be successful saving 10% of their income. But, at the same time, it’s possible that our attempt as financial advisors to rely on in-depth analyses of a client’s situation (and the use of parameters, such as safe withdrawal rates based on historical data) may 'overfit' a client’s situation and miss out on some of the wisdom embedded in heuristics and biased decision-making. This perspective may also help explain why, despite nearly consistent proclamations that Americans aren’t saving enough, no epidemic of elderly poverty has actually come to fruition. It’s possible, and there are studies which have found, that the failure to account for factors such as Social Security income in retirement or the declining spending throughout retirement have systematically overstated how much savings many Americans need.

Ultimately, though, the key point is that we’ve perhaps been too negative towards bias and heuristics. Bias and heuristics are not inherently good, but they aren’t inherently bad either. It is crucially important to acknowledge the ‘ecology’ in which heuristics and biased decision-making can be rational, as well as the environment in which greater data gathering and analysis may be useful. By effectively using (and refining) heuristic techniques when it is appropriate to do so, we can develop an arsenal of useful decision-making tools to better help our clients!

#FASuccess Ep 142: Creating A Structured Relationship-Building Calendar To Enhance Trust With Affluent Clients, With Matt Oechsli

September 17, 2019 07:04 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 142nd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Matt Oechsli. Matt is the founder and CEO of The Oechsli Institute, which does primary research into affluent investors and how they select advisors, and then provides financial advisor marketing and sales consulting and coaching on how to leverage those research insights to grow their firms by reaching more affluent clients.

In this episode, we talk in depth about how to reach and connect with affluent clients by forming better relationships with them. From why knowing the names of a client's children and pets really is so important in the relationship-building process, to the reason why having non-business social lunches with clients, or what Matt calls a $1,000 per hour activity and are so effective to deepen the relationship and get more referrals, the importance of doing intimate events with a small number of key clients at a time, in addition to broad-based client appreciation events, and how in the end, the point isn't merely to become friends with clients, but that social interactions with clients are really all about having opportunities to demonstrate that you're worthy of their trust, to continue working with you and hopefully to refer you as well.

We also talk about how to bring better structure to your client relationship-building efforts. From developing a relationship calendar of the key activities you intend to engage them with your top clients throughout the year, why it's so crucial to focus relationship building activities on a subset of your top clients instead of trying to reach everyone at once, why you should target one surprise and delight opportunity with key clients every week, the right way to ask for referrals without just asking for a referral, and how even as advisors try to engage in more social relationship-building activities with clients, it's still important to go into those meetings with strategic intent for success.

And be certain to listen to the end, where Matt talks about what he calls the three C's of good client communication: be concise, conversational, and confident, the reason that advisors tend to get stuck in their businesses, and his advice to new advisors entering the business on what it will take to be successful in the future.