Kitces.com - Advancing Knowledge in Financial Planning

#FASuccess Ep 148: Building A Small-Town LGBTQ Niche While Coming Out To Your Broker-Dealer, With Laura LaTourette

October 29, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 148th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Laura LaTourette. Laura is the founder of Family Wealth Management Group, a hybrid advisory firm in Dahlonega, Georgia that oversees $45 million of assets under management for 86 client households.

What's unique about Laura, though, is the way she's built her advisory firm to work primarily with the LGBTQ community in her rural Georgia town while navigating her own challenges of figuring out when and how to come out of the closet to her own broker-dealer.

In this episode, we talk in-depth about Laura's financial planning process. The series of four financial planning meetings she goes through with every client that includes a unique draft plan meeting, where she presents a tentative series of recommendations to clients not for their implementation, but simply for their feedback, how Laura sets her minimum of financial planning fee that's separate from what she's subsequently paid to help clients implement, and how in recent years, she's begun to refine everything from her website to her data gathering form to better speak to her core LGBTQ niche clientele.

We also talk about Laura's own journey through the financial services industry and building her firm. The way she started out trying to build a multi-advisor agency with centralized support but ultimately found it just wasn't profitable to do so, the path she took to shift away from the multi-advisor model after 10 years to operate a solo advisory firm that she's enjoyed far more, how a desire to build a succession plan is leading her once again to start building towards a multi-advisor ensemble practice, and why she recently decided to hire a new CEO to support her solo advisory firm, who specifically does not have client relationship or business development obligations.

And be certain to listen to the end, where Laura shares her perspective on why it's so important to be authentic to who you are when you're working with clients to build trust, what she's done to find support for herself through the challenging ups and downs of being a lesbian advisor in both a town and an industry that are still not very accepting of the LGBTQ community, and why she joined the Women in Financial Services organization and is now launching her own Rainbow Network to support LGBTQ advisors.

So whether you're interested in hearing about Laura's challenges (and successes) as a part of the LGBTQ community in a small town in northern Georgia, how she structures her entire financial planning process, or how she's developing a network for other LGBTQ financial advisors, then we hope you enjoy this episode of the Financial Advisor Success podast.

Differentiating Your Advisory Firm’s Brand By Finding The Opposing Category In Your White Space

October 28, 2019 07:12 am 0 Comments CATEGORY: Marketing

In the early years of the financial planning profession, advisors were able to effectively differentiate the brand of their advisory firms by relying on language such as “trustworthy”, “knowledgeable”, and even “fiduciary”, to distinguish themselves from often-poorly-trained broker-dealer and insurance company salespeople. But with the rapidly growing number of CFP professionals who provide fiduciary best-interests advice for their clients, built on their years of experience in providing customized financial planning advice, these terms no longer differentiate a financial advisor, and instead simply describe ‘table stakes’ – bare minimum requirements that any financial advisor is expected to possess. Which raises the question of how, with more and more financial advisors joining the industry or continuing to pivot away from products and into fiduciary advice, do talented advisors cope with this rising ‘crisis of differentiation’ and actually brand themselves in a way that stands apart from the rest?

In this guest post, Amy Parvaneh, Founder and CEO of Select Advisors Institute, explains the process she uses to help advisors develop an effective brand for their firm by identifying the valuable, qualitative factors that make an advisor (or their practice) unique, and targeting the right (not already overly saturated) client segment. By delving into these two key branding strategy elements, a financial advisor can create a strong, relevant message that can promote an individual (or their firm) and elicit client engagement from the exact type of clientele they’ve chosen to serve.

The first of these key branding elements is the firm’s "Opposing Category", which consists of the firm’s qualities that go beyond the mere ‘table stakes’ that all advisory firms must have, and distinguishes the advisor as unequivocally unique from others, such as a unique financial planning process that the firm uses or a specific field of expertise the advisor has.

The second key branding element is the firm's "White Space", which includes any client segments that are underserved by other competing advisory firms, which, by definition, means there would be little competition to serve such clients (and ideally, will include clients with whom the advisor would enjoy working in the first place!).

While Opposing Categories can be identified by an introspective assessment of services offered and qualities that an advisor feels are special, White Spaces are best determined by examining current client characteristics, such as demographic criteria and less frequently examined psychographic traits (which describe a client’s habits, beliefs attitudes, and values), to spot where the advisor may have already found some White Space that can be delved into further. Once the Opposing Categories and White Spaces are identified, the advisor can then create an appropriate, personal, and impactful brand, and then use the brand to synchronize the business image, marketing messages, and operations processes.

Ultimately, going through the process of developing a brand message is crucial for advisors who want to hone their existing client segment (or shift their focus to a different segment altogether). By investing the time and effort needed to develop a relevant, genuine branding message, financial advisors will find their marketing efforts are more effective, as they highlight their specific value proposition to a specific (White Space) clientele to grow a successful practice in an increasingly competitive marketplace.

Weekend Reading for Financial Planners (Oct 26-27)

October 25, 2019 03:35 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement that Charles Schwab will allow (free) fractional share trading on their platform, which not only fires a shot back at upstart stock trading platforms like Robinhood that also allow fractional shares, but raises the question of whether Schwab is positioning itself to compete against mutual funds (and ETFs) more directly by facilitating Indexing 2.0 solutions that allow investors to buy the stocks underlying an index fund directly in the exact (fractional) amounts and avoid the cost of the mutual fund or ETF wrapper altogether.

From there, we have several articles on spending advice for clients, from tips on how to help clients who are spending "like mad", a study finding that it may be easier to help clients actually change their savings behavior by engaging their emotionality rather than just trying to make them behave more rationally, understanding the limits of trying to be ever more frugal (or balancing out financial frugality with time frugality), and whether and to what extent advisors have a "moral obligation" to help clients that are on an unsustainable spending path towards portfolio depletion.

We also have a few articles on the trends of advisory firm mergers and acquisitions, including a look at whether the typical deals for RIAs are getting bigger or smaller (hint: it's both bigger over $5B, and smaller under $500M, that is seeing an uptick in deal activity), what to consider when trying to value your own advisory firm, whether advisory firms should be concerned that publicly traded RIA consolidators like FOCS and AMG are lagging the general stock market, and what prospective sellers should be thinking about if they're considering whether to sell their firms (and don't want to botch the deal in the process).

We wrap up with three interesting articles, all around the theme of how shifting generational preferences and experiences are changing consumer behavior: the first looks at the rise of 'group trips', which are going from large guided tour groups (that leave group members unduly beholden to one another) into premium small-group experiences that have become particularly popular with affluent individuals in their 50s and 60s; the second looks at overall Consumer Expenditure Survey data on how Millennial spending compares with Baby Boomers (and Gen X) in their mid-20s to mid-30s, finding that, overall, Millennials earn more and actually don't have to spend as much on 'luxuries' in clothing and entertainment... or can't afford to, because of their substantially higher student loan debt overhang that averages nearly 10X (even after adjusting for inflation) that of the Boomer generation; and the last looks at how Millennials and the subsequent Gen Z now entering the marketplace, are beginning to disrupt the nature of what it means to work in an office, as work changes from a 'place' you go, to a 'thing' you do (from wherever it happens to be convenient to do that work, which may or may not include a lot of physical office time).

Enjoy the 'light' reading!

Kitces & Carl Ep 19: Is Any Financial Advisor Business Model Truly Conflict Free?

October 24, 2019 07:35 am 15 Comments CATEGORY: Kitces & Carl Podcast

In any business relationship, there is a desire of the seller to convince the buyer to purchase their product or service, which presents a fundamental conflict of interest for the seller’s objectivity about whether his/her products or services are really in the buyer’s best interest. But beyond the inevitability of some conflict of interest simply by virtue of the seller/buyer relationship itself (which can never be fully eliminated), there lies a wide spectrum of how manageable (or unmanageable) additional conflicts of interest may be, which is influenced not only by the actual product or service being offered, and how it is compensated, but also by the stories that are told to justify the value of what is being offered.

In our 19th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about these conflicts of interest, and the dilemma that financial advisors face when determining where to draw the line between a ‘manageable’ conflict of interest and one that is ‘unmanageable.’

Advisors whose livelihoods are based on the commissions they generate by selling financial products are often held up as a case-in-point example for such ‘unmanageable’ conflicts of interest. For instance, it may be difficult for an advisor to avoid recommending an annuity with a higher commission payout rate, or the company product that counts towards a year-end bonus. This is not to say there is anything wrong with salespeople, as they do play an important role in facilitating the purchase of products for those who want to purchase one; however, consumers themselves can help manage this conflict with a clear understanding of the customer-salesperson relationship in the first place. It is clearly recognized from the start that the salesperson has very little, if any, stake in the customer’s best interest, and is simply trying to make a sale, and the prospective customer can judge accordingly.

Yet the reality is that sales-based compensation isn’t the only fee structure where conflicts of interest exist. For example, an RIA and its advisor’s compensation is typically based on the amount of assets they have under management, which can present a significant conflict of interest when advising a client to use some of their assets to pay down their debt (or not). Perhaps such conflicts are more manageable for an advisor who “simply” manages investments (since the relationship is generally clear – the asset manager’s objective is clearly to manage the client’s money, and earn the fees being charged accordingly). However, for the financial advisor who offers “comprehensive” financial planning services, the nature of the conflict of interest becomes more problematic. Because now, along with the advice that’s being provided comes the implied understanding that such advice will be in the client’s best interest (by definition of being ‘advice’). Which in turn can complicate the story advisors need to be able to tell their clients, because the asset management fees earned may not seem to reconcile with the financial planning advice they’re being asked to provide. Yet fiduciary advisors need to be comfortable with explaining that apparent gap, in the interest of honest, full disclosure.

Ultimately, the key point is that conflicts of interest will exist regardless of the models or methods financial advisors decide to use. But not all conflicts of interest represent the same depth of conflict, with some more easily managed than others. Which means it’s most important to determine whether the conflict of interest is manageable and still reasonably aligned with the fiduciary responsibility of the advisor, or not. Particularly as both practice models and fiduciary standards evolve, the discussion of what it means to do the right thing as a fiduciary is an important conversation for the financial services industry as a whole to have.

The ‘Behaviorally-Enlightened’ Fiduciary’s Dilemma In Serving Clients Best

October 23, 2019 07:04 am 1 Comment CATEGORY: Client Trust & Communication

While there has been ongoing discussion at both the Federal and state levels of how a fiduciary standard should be defined from a legal perspective, and to whom those standards should apply, there has not been much discussion on what it means to be a fiduciary from a moral perspective. Furthermore, this discussion has not addressed the ways in which acknowledging behavioral insights has complicated determining how a fiduciary ought to act, because, it’s actually simpler to determine the ‘best’ advice for a professional to give a client when the only considerations are financial in nature. If financial advisors, as fiduciaries, wish to incorporate behavioral considerations into how they advise clients, determining which course of action to suggest as ‘best’ becomes more complicated.

In this post, Derek Tharp – lead researcher at Kitces.com, and an assistant professor of finance at the University of Southern Maine – discusses his January 2018 Journal of Personal Finance research paper, “The Behaviorally-Enlightened Fiduciary: Addressing Moral Dilemmas Through a Decision-Theoretic Model of Moral Value Judgment”, where he examines whether a fiduciary has a duty to advise clients from a “behaviorally-enlightened” perspective (reaching a conclusion of ‘yes’), and explores some of the underappreciated moral dilemmas that result from advising clients from a behaviorally-informed perspective.

Why would a behaviorally-informed approach lead to an increase in moral dilemmas? Most importantly, advising clients based on something other than objective financial facts necessarily opens the door to acting paternalistically. Should a financial advisor tell a client about an ‘optimal’ solution if they think the mere process of doing so might lead to a worse outcome than just presenting a ‘realistic’ solution? What if they are just trying to nudge clients in the right direction? Where do advisors draw the line, or should they even be worrying about this in the first place?

Nevertheless, there are some circumstances where advisors are perhaps justified in acting paternalistically, but those circumstances are probably fairly rare and advisors should take seriously their duty of disclosure to clients. Specifically, if the potential upside of a non-disclosed strategy to a client is small, the potential down-side to a non-disclosed strategy to a client is large, and a fiduciary is reasonably justified in their beliefs regarding potential outcomes, then a fiduciary may be more likely to be justified in advising a client from a “behaviorally-enlightened” perspective.

Ultimately, the key point is that financial advisors, as fiduciaries, are faced with new moral dilemmas that arise from attempting to incorporate behavioral insights into how they advise clients. While much of the prior focus has been on the legal responsibilities that fiduciaries have to serve their clients, we need to spend time wrestling with moral considerations as well!

#FASuccess Ep 147: Developing Next-Generation Advisor Talent With An Internal 2-Year Mentoring Program, with Jeff Dobyns

October 22, 2019 07:09 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 147th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Jeff Dobyns. Jeff is the founder of Southwestern Investment Group, a hybrid advisory firm based in the Nashville area that oversees nearly $3.5 billion of assets under management.

What's unique about Jeff, though, is the way he's been able to develop next-generation talent in his firm, with a deliberate focus on not hiring experienced career changers or advisors with an existing book of business, but instead bringing in new advisors in their 20s and giving them the opportunity to learn alongside experienced advisors from day one in a 2-year mentoring program.

In this episode, we talk in depth about the two-year mentoring program that Jeff's firm has built. Why Jeff views it as so critical for new advisors to spend the bulk of their time sitting alongside a senior advisor in every client meeting. How they compensate their new advisors while they're effectively being paid to learn, how they split the cost of talent between the firm itself and the senior advisor who's being supported, and the tasks that they ultimately hand off to the new advisor to create value for the firm while the learning process is still ongoing.

We also talk about the marketing approach that Southwestern Investment Group has used to grow to nearly $3.5 billion of assets under management over the past 17 years. The way the firm got so deeply involved in Dave Ramsey's Endorsed Local Provider, ELP program, the effective return on investment that Jeff's firm has gotten by proactively spending money to get leads, and how Jeff handles the concern that Dave Ramsey is viewed as somewhat controversial by some within the advisor community itself.

And be certain to listen to the end, where Jeff talks about the way he structured leadership within the firm to handle the load of managing more than 100 employees, the way he involves senior advisors of the firm in leadership decisions by creating a Leadership Board, and why he continues to be so focused on attracting and retaining even more next-generation talent into the firm.