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#FASuccess Ep 140: Transforming Your Advisory Business By Shifting Your Mindset After Hitting The (10-Year) Capacity Wall, with Adam Cmejla

September 3, 2019 07:01 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 140th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Adam Cmejla. Adam is the founder of Integrated Planning & Wealth Management, an independent RIA based in Carmel, Indiana that oversees approximately $45 million in assets under advisement for nearly 100 financial planning clients.

What's unique about Adam, though, is the incredible transformation his practice has gone through over the past 2 years, as a shift in mindset has led him to grow revenue by nearly 80% over what he had built the first 10 years cumulatively by both raising his financial planning fees and going all-in on a niche of serving optometrists.

In this episode, we talk in depth about how Adam's marketing process has evolved over the years, from starting out at Waddell & Reed where he immersed himself in local networking groups like BNI and Indianapolis Rainmakers, to beginning to shift his focus towards working with VDOCs, veterinarians, doctors, optometrists, and chiropractors, by focusing his marketing on white coat professions and launching a podcast, to further narrowing down his focus to just serve optometrists after realizing it's actually easier to market it and grow his firm as the target clientele narrows, which in turn has led him from charging as little as $400 a year for financial planning for his legacy clients, to charging $595 per month plus $1,000 upfront or over $8,000 a year in planning fees for his ideal target client.

We also talk about the mindset shifts that Adam went through to reinvent his practice over the past 2 years after hitting the wall from his first 10. From moving away to setting his value in terms of the time he spends on clients and instead looking more directly to what his clients say they value the most, which wasn't the depth of his financial planning data analysis, the steps he took to raise his financial planning fees by as much as 100% to 300% over the past year to fix legacy clients that were being undercharged, and the way he balanced bringing in new ideal clients along with raising fees on existing clients as a way to overcome his own fears that clients might terminate him for the fee increases, even though in the end, virtually none of them did.

And be certain to listen to the end, where Adam shares his top advice to fellow financial planners. If you're really wondering if you should raise your fees, the answer is already yes. How the transformation of his advisory firm enabled a transformation with his wife and children by allowing the entire family to reallocate the time they spend together, and how Adam has institutionalized the processes and workflows he's developed in Redtail CRM to the point that he's now also beginning to consult other advisors on how they can adapt and implement the same efficiencies in their own advisory firms.

So whether you're interested in learning why narrowing your focus can help grow your advisory business, ways to systematize your business processes, or why the answer to the question, "Should I raise my fees?" is almost always, "yes," then we how you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (September 2019)

September 2, 2019 10:50 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2019 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 news that Wealthfront is acquiring financial planning monthly subscription startup Grove… but as part of the deal, is selling off all of Grove’s clients to Facet Wealth, leaving the industry wondering whether Wealthfront is about to pivot into the monthly subscription model to mimic their competitor Schwab Intelligent Portfolios, wanted Grove’s financial planning technology to expand Wealthfront’s own Path financial planning software, or simply wanted to “acquihire” the Grove technology and product talent to advance Wealthfront’s own mission. And raising concerns about why Grove, which just last year raised an $8M Series A round to begin to scale its monthly subscription fee financial planning solution, decided to walk away barely a year later.

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

United Income’s virtual-CFP-for-Baby-Boomer-retirees model gets acquired by Capital One as digital advice expands beyond just serving Millennials
Snappy Kraken raises a $2.5M seed round to begin ramping up its marketing technology built to both generate leads for advisors and convert them
Aivante launches a new health care cost calculator for prospective retirees that helps to project out health care costs based on a client’s health and geographic location
ScratchWorks announces the open of its third season of Shark-Tank-meets-FinTech-Accelerator for advisor technology

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Ladenburg acquiring the NewDay impact investing robo-advisor to create more customized ESG portfolios for advisors instead, BrightPlan launches adds an artificial intelligence “financial coach” to its digital wellness platform as a way to upsell complex clients to its affiliated PlanCorp RIA, PreciseFP launches new data-gathering forms specifically to facilitate TD Ameritrade client onboarding with reduced NIGOs, both Envestnet and MoneyGuidePro launch expanded life insurance modules as interest grows from insurers in using financial planning software to facilitate life insurance sales, and Ric Edelman suggests that part of the challenge of advisor adoption of cryptocurrency may be a PR/perception problem and accordingly rebrands his Advisor Blockchain and Cryptocurrency Council into an “RIA Digital Assets Council” instead.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!

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 (Aug 31 – Sep 1)

August 30, 2019 02:56 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a look at the various Democrat plans beginning to emerge that may shift the US tax system from being heavily income-based to a blend of income- and wealth-based instead... as regardless of an advisor's political affiliation and belief in Democrats' policy goals, a major shift in tax policy in the U.S. will have substantial impact for many advisors' clients, and is already an increasingly common topic of conversation with clients, which means it's crucial to be aware of the leading proposals and what they entail. Though given the increasingly political environment, it's notable that also in the news this week is a new effort from the Investment Advisers Association (IAA) to make it easier for at least smaller RIAs to be more politically active with campaign contributions (if they wish to) without becoming buried in the burdensome "pay-to-play" compliance rules that RIAs must follow to ensure their political contributions don't result in working with "prohibited" clients in government.

From there, we have articles around spending behaviors, including one study finding that a whopping 30% of clients still hide at least some spending decisions from their financial advisors (ostensibly out of a fear of being judged for their decisions), the ways that affluent clients sometimes "buy" privacy not for luxury but simply to protect themselves from the public eye, the emergence of the "subscription monthly-pay model" in the world of luxury travel for affluent clients, and the ongoing rise of "medical tourism" where some companies are even paying their employees to have surgical procedures done in foreign countries (even if it's necessary to fly a U.S. surgeon there to do the procedure) as a way to lower health care costs for the business.

We also have a few marketing articles this week, from a look at how to use and leverage Google Reviews (without running afoul of anti-testimonial compliance rules), how to set up Goal Tracking in Google Analytics to actually figure out where new prospects are coming from (and what actually connects with them on your website), and some tips for experienced advisors whose growth has stalled to re-ignite their prospecting efforts.

We wrap up with three interesting articles, all around the theme of the ever-evolving profession of financial planning itself: the first is an "Open Letter" on diversity from a financial planner who is a woman of color about the real-world challenges that emerge in being a "pioneer" in what is still a predominantly white industry; the second looks at what the CFP Board must do from here to shore up its credibility after the recent Wall Street Journal article suggesting the organization wasn't effectively enforcing its own standards; and the last takes an interesting retrospective look at the financial planning profession itself as it approaches its 50th anniversary this December, whether the profession is really living up to its promise as a profession, and concerns of whether financial planners really have the advocacy organizations in place that are necessary to carry the torch of higher standards into the future.

Enjoy the "light" reading!

Kitces & Carl Ep 15: Why Are We So Afraid To Just Listen

August 29, 2019 09:05 am 1 Comment CATEGORY: Client Trust & Communication Kitces & Carl Podcast

Although gaps in a conversation are often awkward and uncomfortable, when used effectively, they can become power tools for financial advisors to foster deeper connections with their clients. Because, beyond just hearing what financial concerns a client may have, advisors can use the opportunity to give space to the conversation, which helps to establish empathy and build trust, and in the process sometimes bringing to light the unique roadblocks clients may have in executing their plan.

In our 15th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the value of really listening to clients, and how, by simply talking less and listening more in client meetings, an advisor can improve the chances that a client will stick to their plan.

In general, financial advisors are trained to be knowledge experts and to communicate that knowledge to clients. But even though clients seek out financial advisors for their technical expertise (after all, the main value-add financial advisors offer are the recommendations that help clients down the path of achieving their financial goals), what may not be so obvious are the reasons that clients will (or will not) successfully follow those recommendations. Reasons that can’t be discovered… unless the advisor gives the client the space to reveal them.

Because no matter how perfect and comprehensive a plan may be, it will offer little value if the client does not know how, or is unable, to follow it. Like a swimming instructor teaching a fearful student how to swim, it may be very clear to the advisor what steps the client needs to take and how to communicate what those steps are. Yet it may be harder to see the doubts and fears that the client may be holding on to – or about whether they can even trust the advisor in the first place – which, in turn, can give rise to a client’s hesitation and reticence to follow through… in essence, a “gap” between what the client knows (i.e., what you tell them), and what a client actually decides to do. But by encouraging clients to fully talk through their concerns – and by using silence as an opportunity for the client to reflect deeply on the questions asked – advisors can empathetically understand what a client’s true priorities are, and particularly, what may be creating the knowledge/action gap for the client.

In the end, the key point is simply that it’s okay, and maybe even potentially valuable, to have some silence during a client conversation, because it can lead to a better balance between the delivery of knowledge and the discovery of nuances that make the client a unique individual. Ultimately, by asking probing, relevant questions, and leveraging silence, advisors can become better listeners and strengthen their relationships with clients, and in doing so, may even identify the obstacles that are keeping them from sticking to their plan in the first place.

New PLR Allows RIA Advisory Fees To Be Paid Pre-Tax Directly From Non-Qualified Fee-Based Annuities

August 28, 2019 07:13 am 5 Comments CATEGORY: Annuities

It’s a long-standing principle of the tax code that expenses incurred for the production of income or management of assets (e.g., an investment advisory fee) is a cost that can be applied against the income produced – in other words, deducted as a pre-tax expense. Unfortunately, though, under the Tax Cuts and Jobs Act of 2017, the entire category of “miscellaneous itemized deductions subject to the 2%-of-AGI floor” was repealed… which included the deduction for investment advisory fees, making them no longer able to be paid directly on a pre-tax basis.

However, the ability to pay for the cost of an advisor on a pre-tax basis is still preserved in situations where the fee can be paid directly from a tax-preferenced account or product. As a result, advisory fees deducted directly from an IRA are still pre-tax, and commissions subtracted directly from the net asset value of a mutual fund (or the cash value of an annuity) are still pre-tax as well. The caveat, of course, is that registered investment advisers charging fees cannot receive commissions from mutual funds or annuities in the first place, making it effectively impossible to charge clients on a pre-tax basis.

When it comes to annuities in particular, the fundamental challenge is that even though there’s a cash value from which advisory fees could be paid – roughly akin to deducting advisory fees directly from an IRA – annuities have historically been subject to a peculiar wrinkle in the tax code: any amount received from an annuity that isn’t received as an annuity (i.e., as annuitized income payable at regular intervals for life or a period certain) will be treated as a withdrawal, and taxable to the extent that there are any gains in the annuity contract. Which includes not only traditional distributions from an annuity to the owner, but any amount paid by an annuity on behalf of its owner… effectively rendering advisory fees from an annuity to not only fail to be a pre-tax payment, but even worse to actually trigger tax consequences as a taxable distribution. Even though, again, the same advisor could receive a 1%/year commission trail from the annuity for the same net compensation without triggering a taxable event.

The key distinction is that while the IRS deems a 1% per year advisory fee that’s paid from the cash value of an annuity to be a taxable distribution to the annuity owner (who then ostensibly pays his or her advisor), any trailing commission paid to the broker who sold the annuity is instead deemed to be an expense paid by the annuity company (and deducted from the value of the annuity), and therefore is not technically a taxable distribution.

This standard treatment could be undergoing a significant shift, however, after a coalition of insurers banded together to submit a series of Private Letter Ruling (PLR) requests, asking the IRS to change its position and consider advisory fees on so-called “fee-based” annuities to be treated like any other retirement account or internal mutual fund expense ratio (i.e., as expenses paid by the account itself, rather than as a distribution to or on behalf of the owner). And, given that these contracts are specifically designed to be fee-based (and therefore RIA-supported), the IRS acquiesced and ruled that, since the payment on ongoing fees for advice are “integral to the operation of the contract,” those fees should be considered to be an expense of the annuity itself, which are authorized by the owner, withdrawn by the annuity company, and paid directly to the (registered investment) adviser.

It’s important to note that these are “only” private letter rulings, not an actual change in the tax code, and include several key stipulations that, if not followed, could make it difficult for other annuity carriers to receive similar treatment. Specifically, the PLRs stipulate that in order to receive the favorable tax treatment, annuity advisory fees can’t exceed 1.5% per year, must be paid by the annuity carrier to the RIA, should only pertain to the advice on that particular annuity, and must be explicitly authorized by the owner.

Still, while the new ruling is a major breakthrough for the annuity industry’s attempts to create more RIA-friendly annuity solutions, it remains to be seen whether fee-based annuities will gain wider adoption with advisory firms. As the reality is that there are still numerous operational and technical issues that must be addressed, including facilitating graduated advisory fee schedules (that also don’t exceed the 1.5% per year cap), integrating annuity sub-accounts into existing RIA portfolio model management tools, the ability to open new accounts at scale (for existing RIAs with a sizable base of existing clients), and being able to coordinate various distributions (leveraging an annuity’s available living benefit guarantees) amid a much more complex asset mix that includes non-annuities the advisor manages as well.

The key point, however, is that the recent PLRs from the IRS are at least a step in the right direction, bring important parity and tax law consistency between advisory fees for tax-qualified retirement accounts and advisory fees for non-qualified annuities, and provide another potential tool that advisors can use to better serve their clients… particularly in unique situations where a client specifically needs an annuity, or wants to replace an existing annuity. From a systems and practical perspective, though, there are numerous challenges that still must be addressed, particularly for larger advisory firms operating at scale, before fee-based annuities gain wider acceptance among RIAs.

#FASuccess Ep 139: Plugging In For Large Firm Support To Refocus Your Time On Clients Instead, with Michele Clark

August 27, 2019 07:06 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 139th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Michele Clark. Michele is the senior portfolio manager for Acropolis Investment Management, an independent RIA based in the St. Louis area that oversees nearly $1.1 billion of assets under management for more than 800 clients.

What’s unique about Michele, though, is that until very recently, she ran her own independent hourly financial planning practice and only recently decided to tuck in or, as she puts it, to “plug in” to a larger firm so that she could worry less about the hassles of being a business owner, from bookkeeping to IT, and simply focus more on what she enjoys the most, which is connecting with and servicing her clients.

In this episode, we talk in depth about Michele’s somewhat nontraditional journey through the advisory industry, from starting out selling mutual funds door-to-door with Edward Jones, to switching to Charles Schwab and becoming a regional investor education specialist until she was so successful the travel overwhelmed her and she decided to switch and become a branch financial consultant instead, and then growing her base of Schwab private clients so large that it once again overwhelmed her to the point that she decided to go out on her own to structure the practice the way that she wanted, only to once again, over the span of 10 years, grow to the point that the business was consuming too much of her life and to make the decision to plug into Acropolis to, yet again, back off when the advisory practice got too big and rebalance both her business and the work she’s doing in it.

We also talk about how Michele built her independent firm, from the way she structured her project-based fees in her hourly business, to the challenges she discovered when trying to properly price renewal plans for ongoing clients, the trick she used to begin to systematize the processes and procedures in her firm as it grew, and what she learned about the changing ways that clients are finding a financial advisor in today’s environment by meticulously tracking her own sources of new business for nearly a decade.

And be certain to listen to the end, where Michele shares her own tips on how to stay lean when starting an advisory firm, the importance of developing an expertise or specializations so that you don’t have to rely on local business development opportunities and can attract clients no matter where they are, and the inevitable challenges of growth in the early years of starting out on your own, even when you’re experienced in business development.