Nerd's Eye View blog

Why Robo-Advisor Technology Still Won’t Help Most Financial Advisors Reach Millennials

September 7, 2015 07:01 am 32 Comments CATEGORY: Technology & Advisor FinTech

While much has been written about the disruptive “threat” of the robo-advisors, the reality is that even after several years, their market share is still a miniscule fraction of 1%. Robo-advisors have had limited success, even in areas with little or no head-to-head competition against traditional financial advisors, like working with Millennial clients.

In fact, the struggles of most robo-advisor platforms have been so significant, they’ve been increasingly pivoting to work with established financial services firms, or to become available to individual financial advisors, in the hopes that such partnerships will allow robo-technology firms to gain the volume and scale they need to succeed.

Yet the caveat is that individual financial advisors rolling out web-based “robo” tools to reach Millennial clients will probably be even less successful than the pure robo-advisors have been! After all, the challenge of client acquisition costs is equally difficult for human advisors as it has been for robo-advisors, yet most existing advisory firms are even less attuned to the challenges of how to effectively execute a digital marketing plan!

Ultimately, this doesn’t mean that “robo-advisors-for-advisors” solutions will be worthless for all, but the key point is to recognize that advisors who want to serve Millennials must start by crafting a service model that is actually relevant and valuable for Millennials, have a means to market to Millennials, and then add a robo-technology solution on top to aid with the implementation. Advisors won’t be able to “out-robo” a robo-advisor; at best, the opportunity is to leverage robo-advisor technology as a part of a broader holistic service offering for Millennials, where advisors can focus on their strengths, and use technology to improve the efficiency of the process... but only for advisors who can solve the marketing challenge first!

Weekend Reading for Financial Planners (Sep 5-6)

September 4, 2015 02:25 pm 17 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big news that Edmond Walters, founder and CEO of the popular eMoney Advisor financial planning software, has abruptly resigned from the company, barely 6 months after being acquired by Fidelity, in what is rumored to have been a significant culture clash between the aggressive entrepreneur and Fidelity's more conservative and traditional corporate culture. In the wake, questions now abound regarding the future fate of eMoney Advisor, in the hands of Fidelity's leadership to execute, but without eMoney's visionary founder.

From there, we have a few more articles on industry technology news and practice management advice, from an announcement that account aggregation provider Quovo just raised a fresh $4.75M round of venture capital to expand its solutions for advisors, to a look at the "new" (to North America) financial planning software Figlo, a great reminder from Mark Tibergien that if your advisory firm's greatest asset is its people then the firm should be investing in them that way, and a discussion from Kelli Cruz reinforced the point by noting that most firms have a remarkably mediocre process for recruiting and hiring new staff members despite the incredible importance of building a good team!

We also have a couple of technical planning articles this week, including: a reminder of the prohibited transaction rules for IRAs and how a small mistake can not only trigger a small distribution but disqualify an entire IRA account; a look at some of the latest research and policy discussions in Washington about retirement, including a growing recognition that solutions may need to become more sophisticated given the significant gap in life expectancies across higher vs lower income individuals; and a look about whether it's really possible for an investment strategy that produces favorable returns to continue to "work" even after it is widely known and "everyone" starts doing it.

We wrap up with three interesting articles: the first looks at a new book by Barry Schwartz entitled "Why We Work" and whether the idea that human beings are "lazy" and unmotivated to work and will only do so when financially incentivized to do so could actually be the very thing that is damaging our motivation to work and leaving us so disengaged; the second is a brief reminder of the importance of balancing work and rest, and that while working excess hours is a fine way to get through a crunch, but on a sustained basis can actually result in less total productivity even with more hours; and the last is a 'mea culpa' from Bob Veres on behalf of all industry journalists, noting that our industry media may have become so obsessed with the idea of growing the biggest advisory firm that it has failed to remember that we all have our own definitions of success, which may be as much about what happens in our personal lives, and the quality of the service we provide our clients, beyond just trying to finish with the largest pile of AUM.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the 'surprise' announcement that eMoney Advisor's founder and CEO Edmond Walters has resigned, and big news about account aggregation provider Quovo that both raised $4.75M of venture capital this week and also announced a major integration with financial planning software provider Advicent (makers of NaviPlan and Figlo).

Enjoy the reading!

MailBag: Asking Clients To Do Business After A Webinar/Seminar, & Finding Niches Using Psychographics Vs Demographics

September 3, 2015 07:01 am 12 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis, of course!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at whether it’s best to ask people to schedule an appointment or engage with you immediately at the end of a webinar (or seminar) versus just following up with them later. And we also look at whether it’s best to define a target niche clientele based on their background and demographics, or to focus on their “psychographics” instead!

Don’t Just Focus On Risk Tolerance For The Portfolio, Because Goal Risk Tolerance Matters Too!

September 2, 2015 07:01 am 16 Comments CATEGORY: General Planning

The traditional approach to risk tolerance is fairly straightforward – determine how much risk clients can tolerate, and give them a portfolio consistent with that risk tolerance level.

Unfortunately, the problem with this approach is that it can produce a portfolio disconnected from the reality of the client’s goals. Sometimes the portfolio will be more aggressive than it needs to be to achieve the goal. In other situations, a conservative client may end out with a conservative portfolio that will just doom an aggressive goal to failure.

To avoid such mismatches, then, the real key is that risk tolerance should first be applied to the goal itself, and determine whether the goal – and the portfolio necessary to achieve it – is consistent with the client’s risk tolerance. If the “goal risk” is too high, the real solution is not finding a portfolio to achieve the goal, but finding a new goal that isn’t too risky for the client to tolerate in the first place!

Essentialism And The Paradox Of Success As A Financial Advisor

August 31, 2015 07:01 am 24 Comments CATEGORY: Personal/Career Development

Building a business as a financial advisor (or really, almost any business) is a constant effort of getting “more” – more clients, more revenue, more staff to serve them… in a process that can often leave the advisor feeling less and less in control as the demands of the business become overwhelming.

In the new book “Essentialism”, Greg McKeown makes the case that this “Paradox of Success” – the focus that makes entrepreneurs succeed becomes their undoing as the demands on their time increase due to the very success they created – can only be resolved by taking a systematic approach to creating focus on what is truly essential for the advisor to be doing. The classic approach of doing more and more – of multitasking and multifocusing – just leads to less and less productivity. Which means it’s actually the disciplined pursuit of less – what McKeown calls living the life of an “Essentialist” – that leads to more in the long run.

And ultimately, the lessons of Essentialism translate not only into personal success, but the entire design and focus of a business, where in a similar manner a strategic “focus” that goes in too many directions at once leads to little progress at all. By contrast, it’s the focused “Essentialist” business that puts all of its energy towards a single niche or specialization that can make the most progress and gain the momentum that sets the stage for future success as well.

Weekend Reading for Financial Planners (Aug 29-30)

August 28, 2015 01:31 pm 18 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big news that the world's largest asset manager, Blackrock, decided to buy the #3 robo-advisor FutureAdvisor for $150M, with plans to pivot the company from its current direct-to-consumer focus to instead become a robo-advisor-for-advisors solution for Blackrock's institutional partners (i.e., banks, broker-dealers, insurance companies, and perhaps RIAs).

From there, we have a few articles on this week's market turmoil, including a discussion of the unusual market volatility in ETFs that occurred on Monday morning (when many ETFs traded at materially different prices than their intrinsic NAV), a second article from ETF.com looking at the details of how an "ETF flash crash" occurs (important to understand if market volatility picks up again soon!), and a separate article discussing the unrelated but also problematic technology outage this week at BNY Mellon that left hundreds of mutual funds and ETFs unable to properly price their value for several days this week!

We also have several practice management articles this week, including: a discussion of a smarter marketing (or "smartketing") process that integrates both prospecting and sales efforts in an advisory firm; a look at how some advisors are adopting video as a part of their marketing and/or client communication process; a discussion of some practice management "gotchas" to watch out for that can undermine the value of your business (e.g., remember that unlike talking to a compliance attorney, communication with your compliance consultant is not privileged and can be used against you!); a warning that growth rates, referrals, and profitability are declining at many advisory firms (and how it can be resolved by focusing on a narrower target clientele to differentiate); and a reminder of how important it is to communicate complex concepts to clients visually and not just verbally (and better yet, make a standardized graphic to illustrate key concepts that you can use over and over again!).

We wrap up with three interesting articles: the first provides some good reminder tips of what to do and what to say when market volatility occurs (hint: proactive communication and active listening are essential!); the second provides an interesting look at the history of the Investment Company Act of 1940 (which just recently celebrated its 75th anniversary!); and the last is an article from the Harvard Business Review reporting on an interesting study that finds the rise of technology is actually making social skills more important than ever for career success (and the best jobs are those that require social skills and include high-level cognitive challenges, like financial planning!).

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the announcement that Blackrock is acquiring the robo-advisor FutureAdvisor, the Salesforce launch of their new Financial Services Cloud, and the latest practice management white paper "X-Cell" from Kaleido.

Enjoy the reading!

Blackrock Acquires FutureAdvisor For $150M As Yet Another Robo-Advisor Pivots To Become An Advisor #FinTech Solution

August 27, 2015 11:31 am 19 Comments CATEGORY: Technology & Advisor FinTech

Yesterday, Blackrock announced that it was acquiring FutureAdvisor, one of the three original and “pure” robo-advisors who have been gathering assets and managing ETF portfolios directly for consumers. And despite FutureAdvisor having “just” $600M of AUM, and an estimated $3M of revenues, Blackrock’s purchase was rumored to be in excess of $150M.

However, it appears that Blackrock’s strategy was not simply to buy FutureAdvisor to expand its direct-to-consumer solution, but instead to pivot FutureAdvisor to become a robo-advisor-for-advisors solution, and license/offer the technology platform to a wide range of broker-dealers, insurance companies, banks, and custodians to turn their human advisors into tech-augmented "cyborg" advisors. In this context, as the world’s largest asset manager and a leading player in the ETF space already, the Blackrock deal appears to be visioned primarily as a means to further grow the size of the ETF pie and the Blackrock (iShares) market share by driving distribution to its ETFs through this new technology platform. The robo-advisor is now a distribution channel.

For financial advisors, the “good” news of the Blackrock deal is that “robo” tools may soon become increasingly available to a wider and wider range of advisor platforms. And ironically, because iShares – like Schwab’s Intelligent Institutional Portfolios – can profit from the underlying ETFs held in the portfolio, the future Blackrock FutureAdvisor solution may even undercut existing robo-advisor platforms, as the established financial services industry players continue to apply more and more pressure to the direct-to-consumer robo-advisor solutions. In other words, advisors and established firms are now driving the cost of robo-technology down to zero, relying on their ability to profit from the ‘traditional’ channels of manufacturing investment products (e.g., ETFs) and delivering personal financial advice, and out-commoditizing the robo-advisor commoditization.

Social Security And Medicare Claiming Strategies To Navigate The Looming 52% Medicare Part B Premium Spike

August 26, 2015 07:01 am 43 Comments CATEGORY: Retirement Planning

Under Social Security and Medicare rules, the “Hold Harmless” provision is a special rule intended to protect most Social Security recipients from experiencing a decrease in their (net) benefit payments, by limiting the (dollar) amount of the annual Medicare Part B premium increase to the (dollar amount) of Social Security’s cost-of-living adjustment. And due to negative inflation from the recent fall in energy prices, the 2016 Social Security COLA is on tracked to be “floored’ at the minimum 0.0%, which in turn means that Medicare Part B premiums will be locked in for a 0.0% increase in 2016.

However, the "Hold Harmless" provisions only apply to approximately 70% of currently Medicare enrollees for the protection. Which means that the entire magnitude of Medicare's rising costs must be borne by just the other 30% of Medicare enrollees, as well as any who planned to enroll in 2016, resulting in a project 52% spike in Part B premiums next year!

Given the looming Medicare Part B premium increase, those who are not eligible for the Hold Harmless provision - for instance, those enrolled in Medicare but delaying Social Security benefits, or those who haven't yet enrolled in either but could - should carefully consider whether it is really still worth delaying Social Security benefits (and/or delaying enrollment in Medicare), given that those who begin the process by October of this year still have the potential to get started in time to be eligible for Hold Harmless and shelter themselves from the 2016 increase.

And in practice, it appears that slightly accelerating claiming may in fact be appealing, especially for those who otherwise anticipated starting Social Security and Medicare Part B in 2016. On the other hand, higher-income taxpayers who are subject to the Medicare Part B premium surcharge cannot protect themselves (or do anything else about it, since the calculation would be based on income from 2014 and that tax year is long since closed). And for those who still plan to delay Social Security benefits for many years to come, the reality is that delaying Social Security benefits is still so valuable, that even the projected Medicare Part B premium spike is still not nearly enough to deter the long-term value of generating Social Security’s Delayed Retirement Credits for those who anticipate living well past the breakeven period.

Are The Licensing And Other Requirements To Become A Financial Advisor Too Easy?

August 24, 2015 07:01 am 53 Comments CATEGORY: Planning Profession

Virtually all financial advisors today follow one of three paths in becoming a financial advisor – either as a registered representative of a broker-dealer, an insurance agent with an insurance company, or an investment adviser representative of an RIA. And each path has its own licensing and exam requirements.

Yet the sad commonality of all paths to becoming a financial advisor is that the actual exam and educational requirements to be an advisor are remarkably low. In fact, the licensing exams for financial advisors do little more than test basic product knowledge and awareness of the applicable state and Federal laws, and none require any substantive education in financial planning itself before holding out to the public as a comprehensive financial advisor who will guide consumers about how to manage their life savings!

Given the roots of financial advising in the world of insurance and investment product sales, this isn’t entirely surprising. The licensing requirements to become a financial advisor, along with the suitability standard to which most advisors are subject, are built around the concept that “advisors” are really just product salespeople. And the bar to determine if someone is "capable" of selling a product isn't very high.

Ultimately, though, if financial advisors hope to actually be recognized as bona fide professionals, the requirements to become a financial advisor must become harder, and require actual education and experience to demonstrate competency as a financial advisor (not just compliance with the laws that apply to salespeople!). Otherwise, the reality is that even if a uniform fiduciary standard is implemented that requires all brokers and investment advisers to act in the best interests of their clients, consumers may still be harmed by advisor ignorance and the sheer lack of competency that would result from raising the fiduciary duty of loyalty but ignoring the equally important fiduciary duty of care – to only give advice in areas in which the professional is actually educated and trained to give advice in the first place!

Weekend Reading for Financial Planners (Aug 22-23)

August 21, 2015 02:01 pm 13 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the second edition release of the CFP Board’s “Financial Planning Competency Handbook”, a nearly-1,000-page tome that aims to capture the entire comprehensive financial planning body of knowledge (for both students learning financial planning and practitioners to use as a reference).

From there, we have several practice management and technology-related articles this week, including a review of digital estate planning software solution EverPlans, a first look at a new “matchmaking” site for consumers to find a financial advisor (where advisors pay to be listed and featured on the site), and a review of the new T. Rowe Price “MarketScene” app designed to provide market insights and information that advisors can use with their clients. There’s also an article about time-saving tips and ‘productivity apps’ for advisors, a discussion of the issues to be aware of if you’re looking to merge your advisory firm (from the perspective of other advisors who have gone through the process), and some advice from practice management consultant Angie Herbers about the experience of merging a firm after she merged her own with marketing consultant Kristen Luke to form their new advisor consulting business Kaleido.

We also have a few technical planning articles, from a discussion of the new regulations from the IRS and Treasury Department cracking down on sales of a Charitable Remainder Trust (CRT) income interest, to a look at the recent expansion of the Repaye program that can adjust student loan repayment amounts to be a smaller percentage of (discretionary) income, and a look at the estate planning considerations of the emerging new 529A ABLE accounts for disabled and special needs beneficiaries.

We wrap up with three interesting articles: the first is from Professor Robert Shiller, who explores the concept of the “Financial Singularity” (where markets potentially become perfectly efficient with technology automation); the second is a discussion from experienced angel investor Tucker Max about why angel investing is really not a good idea for most investors; and the last is a discussion from industry commentator Bob Veres about how advisory firms who want to serve younger clients and the middle market must go further than “just” adding in robo-advisor technology tools on their website.

And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, covering the latest news and developments from this week's LaserApp technology conference!

Enjoy the reading!