Nerd's Eye View blog

Kitces & Carl Ep 127: Creating Value Through Presence (And The 50 Fires Podcast)

December 14, 2023 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

In the world of financial advisors, tradition often emphasizes technical numbers, structure, and a firm focus on solving financial problems. However, in practice, forging a human connection – such as sitting around a fire and having a conversation, digging into emotions, feelings, and fears – and tying it to a client's mindset surrounding their financial priorities and goals can be a powerful way to encourage individuals to explore and reassess their perspectives on finances.

In our 127th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards delve into Carl's latest project – the "50 Fires" podcast. This project, in partnership with the creative team behind "The Big Bang Theory" and featured on Chip & Joanna Gaines's Magnolia Network, centers on 'campfire conversations'. In these sessions, Carl engages in heartfelt discussions with his guests about their personal relationships with money, with the goal of providing financial advisors with ideas for integrating meaningful communication prompts into their own client meetings.

While conversations between financial advisors and their clients often focus on the quantitative aspects of a client's financial life (e.g., balance sheets, investment portfolios, and retirement projections), "50 Fires" aspires to demonstrate how the qualitative aspects of a person's relationship with money can reveal personal values and priorities that provide an advisor with important situational context of a client's financial goals. Through these discussions, Carl explores the stories and wisdom embedded in religious beliefs and family practices, uncovering poignant experiences from recognizing one's socioeconomic status in junior high school because they only owned 1 pair of jeans, to symbolic moments like cherishing an unopened can of Coke because of its representation of financial prosperity in India. These narratives not only shed light on the root of a person's financial mindset but also help to understand their financial behaviors, revealing the deeper lessons learned from these experiences.

Additionally, these conversations underscore an important takeaway: clients often value the personal connections formed with their financial advisors that are based on discussions that go beyond sharing just financial concerns. While these intangible personal connections may be challenging to market, the ability to guide clients into meaningful conversations to identify the big goals and values they have regarding money is universally appreciated. Everyone has financial concerns and yearns for genuine connections with others, even when they may not be consciously aware of these things. And experiencing such a connection with a financial advisor can significantly enhance a client's willingness to engage in the financial planning process.

Ultimately, the key point is that the ability to successfully connect with prospects and clients on an emotional level, using soft skills to navigate their relationship with money, is crucial to build trust and develop stronger relationships with clients. Carl envisions "50 Fires" as a catalyst, providing the spark to ignite millions of genuine discussions about money around the world. This initiative aims to normalize everyday conversations about money while facilitating deeper connections with clients, potentially influencing not only their thought process around finances but also shaping the financial outlook of future generations!

Preserving HSA Eligibility And Maximizing Contributions After Age 65

December 13, 2023 07:03 am 0 Comments CATEGORY: Retirement Planning

Although numerous tax-advantaged vehicles are available for retirement savings, Health Savings Accounts (HSAs) have particular benefits for individuals saving for retirement. Specifically, HSAs offer a "Triple Tax Benefit" that includes tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. This can allow individuals to save a significant amount that can be withdrawn tax-free for medical expenses later in retirement. Therefore, for workers looking to boost their savings towards the end of their working years, HSA contributions can be the most tax-efficient vehicle available.

The caveat, however, is that to be eligible to contribute to an HSA, an individual must be covered by a qualifying High-Deductible Health Plan (HDHP) with no other non-HDHP coverage. And because government-funded health insurance options such as Medicare are not considered qualifying HDHP coverage, enrolling in Medicare – either directly through its website or by applying for Social Security benefits (which automatically enrolls someone in Medicare once they reach age 65) – means that an individual will no longer be eligible to contribute to an HSA.

For retirees, self-employed workers, and others who rely on Medicare as their sole option for health insurance after reaching age 65, this means there is effectively no way to contribute to an HSA after age 65. However, people who continue working beyond age 65 (or whose spouse does so) and have access to an employer-provided HDHP can continue making HSA contributions as long as they don't enroll in Medicare or apply for Social Security benefits. And because there's no age cap on HSA contributions, it's possible to keep contributing for as long as the person is still working and remains on a qualifying HDHP (although retiring and subsequently enrolling in Medicare will ultimately end HSA eligibility).

Advisors can help their clients who want to keep contributing to HSAs after age 65 by planning strategies that help to preserve their eligibility and maximize the amount they can contribute. For instance, if someone has applied for Social Security benefits and inadvertently enrolled in Medicare (which would make them ineligible for HSA contributions), they may be able to withdraw their Social Security application within 12 months and cancel their Medicare coverage to restore their eligibility – although doing so would require paying back any Social Security benefits actually received.

Additionally, when married couples have one spouse with HDHP coverage, the other spouse can enroll in Medicare without affecting the HDHP-covered spouse's HSA eligibility (and if the HDHP covers both spouses, one spouse can still contribute up to the higher family contribution limit even if the other spouse is covered by Medicare and ineligible to contribute to their own HSA).

And when someone working past age 65 does decide to retire, they will need to navigate the "6-month rule", where Medicare coverage is considered to begin 6 months before applying for benefits. This means the individual will need to plan carefully to calculate their maximum allowed HSA contribution to avoid inadvertently overcontributing to their HSA, since they may become ineligible for contributions well before they actually retire and apply for Medicare!

The key point is that while it's possible to contribute to an HSA after age 65, the specific rules around HSAs and Medicare introduce an additional layer of planning that's needed once an individual crosses the age-65 threshold. But given that the point of working past 65 is often to boost retirement savings, and given the tax-efficient benefits of HSAs as a retirement savings vehicle, the extra planning can ultimately be worthwhile on account of the additional tax-free savings for those who can navigate the challenges of doing so!

#FA Success Ep 363: Finding The Best Networking Approach For Prospects (And New Career Opportunities), With Christa Madison

December 12, 2023 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 363rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Christa Madison. Christa is the Managing Director of Financial Planning and Business Development at Sebold Capital, a fee-only RIA based in Chicago, Illinois, which manages $300M across more than 100 client households.

What's unique about Christa, though, is how she used her business development and networking skills to overcome the challenges that sprung up when, through a combination of personal and professional shifts, she found herself building her book of business from scratch, 3 separate times, and how she leveraged those pivots as an opportunity to account for how her own skills and competencies had changed and grow into larger (and more lucrative) opportunities.

In this episode, we talk in-depth about how Christa's start in insurance sales at Northwestern Mutual brought both successes in building a book of younger clients just beginning their career journeys, and challenges as she struggled to hit sales goals when her young clientele were more interested in starting Roth IRAs and didn't need much insurance yet, how Christa's intensive networking event schedule and simple but uniquely branded way of following up allowed her to feed into a '10-3-1' prospecting pipeline (in which on average, for every 10 prospects she approached, 3 were interested, and 1 became a client) and continually rebuild her book of business when she transitioned roles, and how despite her skillset at networking, Christa still found after having to start over 3 times that it takes 3 years, on average, for her prospecting to start to grow from scratch into its own robust referral network.

We also talk about how Christa overcame the unique challenge of maintaining professional momentum while building a family, which prompted her to step into contracting roles when she needed more flexibility and out of them when she needed more stability, how when faced with the need to find a new opportunity Christa leveraged her networking skills to find and then just walk into the lobbies of 20 local-area firms until she found one that was interested in hiring her (and got the job!), and the reason that Christa ultimately decided that as she approached her 3rd time building a book of business, she wanted to build it in the RIA channel instead.

And be certain to listen to the end, where Christa discusses why she feels that her background and early experience in the insurance channel made her a stronger financial advisor (and why she worries that advisory firms today may be underestimating the value of those experiences), how Christa's willingness to 'start over' as a paraplanner in a fee-only firm led her on the promotional fast-track to become the director of 2 departments, and how Christa found that no matter where she went, her people-first prospecting approach helped her grow a client base, especially amongst those in need of financial guidance who lacked support because they weren't 'top of the top' financial prospects for other financial advisors but were more than able to allow her to successfully grow her own practice.

So, whether you're interested in how Christa successfully navigated a reboot of her own career multiple times, how Christa adapted her services to meet the needs of young clientele who don't fit a 'traditional' client mold, or how Christa maintained career propulsion while her personal life demands evolved over time, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Christa Madison.

Announcing More Webinars And IAR CE In 2024 And The State Of The (Nerd’s Eye View) Blog

December 11, 2023 07:03 am 0 Comments CATEGORY: Nerd's Eye View

For most financial advisors, 2023 was a year of rebound and reinvestment, as markets bounced back from the turbulence of 2022, and expanded profit margins allowed advisory firms room to reinvest back into the services and value they're providing clients to make sure their retention stays strong in the future. Here at Kitces.com, we've similarly been in the midst of a reinvestment process in 2023, setting the foundation so that we can give even more back to the Financial Advicer community, as we continue to expand our "Team of Nerds" beyond just myself with more writers and more speakers, and develop and refine our Q-N-R standards to ensure that everything you get from Kitces.com is Quality, Nerdy, and Relevant… a standard for all Kitces content, even if it's not created by Michael.

And in the coming year, we're going to make sure that even more of that Kitces content is eligible for not only the full range of CE credit for CFP, CPA, and the other various professional designations, but also the ever-expanding IAR CE obligation. Which, thanks to the new rollouts in both California and Florida in 2024, will mean nearly half of all financial advisors who are IARs will need to fulfill the new IAR CE requirement in 2024… as once an advicer has half a dozen clients in any of the 17 states or the District of Columbia, they have to comply with the new IAR CE rules. And a lot of advicers have more than 5 clients in Florida!

In practice, this means that we'll be bringing back our popular IAR Ethics CE Day in 2024 (save the date for August 29th!), expanding IAR CE credits to apply to our monthly live webinars (in addition to our written blog content and recorded webinars), increasing the cadence of our webinars from monthly to offering 2 every month (on the 1st and 3rd Tuesday of each month… with the recording still available for those who can't attend live), and continuing to cross-apply our Kitces content for all the other types of CE you may need as well (so you can check all the boxes at once!). Though we are implementing a small $20/year increase (from $169 to $189 per year) in the price of the Members Section to help manage the cost of rising staff salaries in the midst of inflation over the past 2 years, and to further reinvest into our Platform team to make site improvements so our content is faster to load and easier to navigate.

In the meantime, we remain committed to delivering the ongoing cadence of content that you've become accustomed to from Kitces. In 2024 we'll again feature our Marketing Summit (save the date for April 25th!) and our Financial Planning Value Summit, we'll be rolling out 2 new Advicer Research studies (on Marketing and on Productivity, as we wrap up the 2023 study on Wellbeing in the coming weeks), and we'll be building a new Kitces Course on Optimizing Roth Conversions (to complement our course on Optimizing Social Security) to be released in mid-2024.

If you (or anyone you know) wants to join our Team of Nerds, stay tuned for more openings in 2024 as well, as we anticipate hiring a new Associate Financial Planning Nerd, an Operations Associate, a new Director of Product and Platform, and a Director of Advisor Research. We'll be listing these as they become available on our Kitces Career Opportunities page, or you can sign up for our separate Career Opportunities mailing list (via that Opportunities page) to be notified when new positions open up!

Ultimately, though, the focus remains the same as it always has been – on our mission to "Make Financial Advicers Better, and More Successful" – through our 4 strategic pillars of creating Navigational resources, insightful Education, original Research, and skills Development for financial advisors (and yes, our organizational strategy really does spell out N-E-R-D 😊). I hope you'll continue to come along with us on the journey in 2024!

Weekend Reading For Financial Planners (December 9-10)

December 8, 2023 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 new study from research firm Cerulli has found that investors' willingness to pay for financial advice has risen over the last 15 years, with more investors reporting using a financial advisor (and a decreasing share considering themselves "self-directed"), in spite of the proliferation of DIY investing options in the internet era – which highlights the value that advisors provide in giving advice on client's financial decisions beyond the investment portfolio itself.

Also in industry news this week:

In a new whitepaper, industry consultant Mark Hurley predicts that the environment for wealth management firms will grow much more competitive amid higher interest rates and greater PE funding of advisory firms, although opportunities exist for RIAs that can successfully attract and serve younger clients at scale
According to Charles Schwab's most recent Compensation Report, RIA firms are increasingly concerned about retaining their top talent, and seeking to articulate the value they provide to their employees in a written Employee Value Proposition document

From there, we have several articles on practice management:

As the pace of retirements in the RIA industry exceeds the number of experienced advisors who can replace them, advisory firms will need to focus on developing and training less-experienced advisors, or risk going to war with other firms in a competition for more experienced talent
Mergers and acquisitions activity in the industry has remained strong in 2023, defying expectations for a major slowdown as interest rates rise – and PE investors see more room for continued acquisitions as the pace of new firms being established exceeds the number of firms being acquired
A growing number of investors are buying minority stakes in RIA firms, which in theory could be a win-win in that it provides capital for firms to grow and scale while allowing the existing owner to keep their majority control; however, some minority owners may demand more of a say in how the company is run than majority owners may be willing to give them

We also have a number of articles on investments:

With cash and short-term T-bills providing positive returns over inflation for the first time in more than a decade, it can be tempting to "chill" in short-term assets for their risk-free return – however, history suggests that the relatively high returns of short-term assets (at least compared to riskier assets like stocks and longer-term bonds) aren't likely to persist for the long term
3 years after Dimensional Fund Advisors introduced ETF versions of its most popular investment strategies, it has become one of the biggest active ETF providers in the industry – although questions remain about whether DFA can keep pace with Vanguard and Blackrock's passive ETFs (which advisors can combine to implement their own DFA-like strategies, at a lower overall fee)
Investors in diversified portfolios have found themselves lagging the S&P 500 for over a decade, which serves as a reminder that the overall cost of diversification is missing out on the best-performing assets (while also avoiding the worst-performing ones)

We wrap up with 3 final articles, all about gift-giving:

How advisors can find unique gifts for their clients without going over the $100 limit for FINRA-registered broker-dealer representatives
How giving clients non-"stuff" gifts like experiences or donating to charities of the client's choice can be a powerful way for advisors to show their appreciation
Which "luxury" gifts high-net-worth clients might be buying as the holidays approach

Enjoy the 'light' reading!

When Does A Financial Coach Need To Register As An Investment Adviser? The “ABCS” Test To Determine Status

December 6, 2023 07:01 am 0 Comments CATEGORY: Regulation & Compliance

Over the past several years, the financial services industry has undergone a tremendous evolution in how financial advisers deliver and charge for their services. While commission-based models remain in use, fee-for-service models (including AUM, hourly, retainer, and subscription) have become increasingly popular. And because many service offerings have traditionally focused on areas like investments and securities recommendations, there has been little debate about the need to register as an advisor. However, the more recent rise of financial coaching models has introduced complexity, particularly for those offering advice on financial topics adjacent to investments where the need to register as investment advisers with the SEC or state securities authorities isn't always obvious.

In this guest post, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal, explores the specific conditions under which a financial coach must register as an investment adviser. He introduces the "ABCS Test", a mnemonic designed to help financial coaches and advisors grasp the fundamental elements that define an investment adviser.

According to the Investment Advisers Act of 1940, anyone in the business of rendering advice about securities for compensation is, absent an exclusion or exemption, required to register as an investment adviser. Thus, Advice, Business, Compensation, and Securities (ABCS) are the key elements in this definition. Notably, while many financial coaches satisfy the majority of these requirements – they are in the business of offering advice to clients and are compensated as such – they often steer clear of making specific securities recommendations, focusing instead on areas like budgeting, debt management, savings, and retirement planning.

Nevertheless, the 'securities' component of the definition has several nuanced exceptions. Financial coaches can address topics such as real estate, commodities futures, non-variable insurance, and government securities (none of which are included in the Investment Advisers Act's definition of a security), offer non-specific advice about investments to a general audience, and even obtain industry designations (like the CFP marks) without the need to register as an investment adviser. But once a financial coach addresses specific questions from clients around actual securities (e.g., how they should invest their savings or why one particular asset is better suited for their specific circumstances than another), they will need to register as an investment adviser.

Ultimately, the key point is that understanding the intricacies of what it means to be an investment adviser, including the exceptions within the 'securities' component of the definition, is critical for financial coaches navigating the fine line between offering advice to clients and needing to register as an investment adviser. This insight can be invaluable in shaping their services while staying within regulatory boundaries, allowing them to confidently guide those in need of financial advice. And with the clarity provided by the ABCS Test, financial coaches will be better positioned to support the financial wellbeing of their clients, regardless of whether they need to register as investment advisers!

#FA Success Ep 362: Developing Associate Advisor Compensation Plans And Career Tracks To Scale Capacity Past $1.5B AUM, With Jeff Brown

December 5, 2023 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 362nd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jeff Brown. Jeff is the President of Stratos Private Wealth, an RIA based in San Diego, California, that oversees almost $1.5 billion in assets under management for just over 350 client households.

What's unique about Jeff, though, is how his firm has developed associate advisor compensation plans and career tracks, with well-defined Level 1, Level 2, and Level 3 performance indicators of exactly what those advisors should be able to accomplish at each stage of their career progression towards becoming a lead advisor (which is allowing the firm to train and develop its future senior advisors from the ground up).

In this episode, we talk in-depth about why Jeff decided on a growth strategy of having the firm generate prospects for its lead advisors and how it allowed them to hire and develop advisors that better connect with and serve (and retain) clients instead, the unique performance review plan and scoring system that Jeff implemented to both highlight when his associate advisors were ready for a promotion and is used to calculate their bonuses, and how the firm has leveraged client referrals, content creation, social media, and M&A to bring in clients for its advisors on the way to growing to nearly $1.5 billion of AUM (and is now increasing the firm's marketing budget and hiring a dedicated marketing professional to help further expand his firm's reach).

We also talk about how Jeff transitioned from the wirehouse world to start his own RIA and how, after feeling initially overwhelmed by everything from selecting technology to leasing office space, he chose the supported independence model offered by Stratos Wealth Partners, the mental shift from focusing on income to enterprise value that led Jeff to sell a minority stake, and subsequently a majority of his firm to Stratos, and how becoming an employee of the firm Jeff previously owned has actually been energizing for him as he works to expand the opportunity beyond his own firm and build out an entire unified private wealth platform under the Stratos umbrella.

And be certain to listen to the end, where Jeff shares how a bad partnership breakup earlier in his career has changed the way he views and creates partnership and operating agreements today, why Jeff wishes he had set bigger goals for himself earlier in his career and revels in how many different ways there are to build a successful advisory business (despite naysayers who say "you can't do it that way"), and why Jeff recommends that young advisors decide early on in their careers whether they want to pursue an employee advisor path or build a firm of their own as they evaluate their own career risk and return preferences.

So, whether you're interested in learning about how to build associate advisor compensation plans and career tracks, how to leverage a multi-faceted marketing approach to generate client leads, or what it looks like to roll up into a larger RIA, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jeff Brown.

The Latest In Financial #AdvisorTech (December 2023)

December 4, 2023 07:04 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the December 2023 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 Black Diamond has announced the launch of its own CRM system, targeting advisors at mid-size firms who have data complexity and workflow needs greater than what more basic CRM options can accommodate, but who don't yet need (and don't want to pay for) the Salesforce-based options – like Black Diamond's existing Salentica CRM software – that offer the most customizability.

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

Nitrogen CEO Aaron Klein and TIFIN President Jack Swift have announced their departure from their respective firms, the latest in a wave of founder/CEO departures from AdvisorTech firms after a 7+ year cycle of rapid PE-funded growth – raising questions about whether investor demands for growth and profitability in AdvisorTech firms is realistic (or whether it places an undue burden on firms' employees and leadership) given the reality that advisors tend to be slow to adopt new technology in the first place.
Envestnet has announced a partnership with Empower to offer a turnkey 401(k) plan management solution for advisors with small business owner clients – but it isn't clear whether making 401(k) plan management 'easier' will actually convince more advisors to manage 401(k) plans, given how advisors have largely been averse to 401(k) plan management when it isn't a core part of their business
Elements, the financial health-focused tool for engaging prospects and clients, has announced a new RIA partnership model to serve clients who don't have enough assets to meet an advisor's minimums – but given the struggles of previous attempts to expand access to smaller clients, it isn't clear how the program will bring in enough small clients to create sustainable revenue (especially given that advisors generally aren't marketing themselves to small clients to begin with)

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

Digital marketing platform FMG has announced a new premium website design service, responding to the desire of financial advisors for a unique advisor-specific website to stand out to prospective clients for less than the cost of a custom-built site
As technology providers have struggled to achieve wide distribution among advisors who remain reluctant to change out their technology, an increasing number have turned to "tech-facilitated marketplace" (where the technology facilitates connections between buyers and sellers, and is 'free' for the advisor while taking a cut of the transaction) and "tech-enabled services" (where a service is provided in a technology wrapper to be less costly than a standalone service ) – which on one hand, creates more options for advisors to find solutions to meet their needs, but on the other, can create confusion about what the advisor is actually paying for (and whether they really need it)

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 (December 2-3)

December 1, 2023 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 the U.S. Supreme Court heard arguments this week in the case of SEC v. Jarkesy, which in a narrow sense focuses on the SEC's use of in-house Administrative Law Judges to hear securities law cases rather than traditional Federal jury trials, but in a broader sense could call into question the SEC's (and other government agencies') authority to make rules and enforce laws in the absence of specific guidance from Congress in how to do so, making it of great significance for financial advisors regulated by the SEC.

Also in industry news this week:

As part of its proposed (revised) fiduciary rule, the Department of Labor is seeking comment on whether professionals using titles like "financial planner" and "wealth manager" are considered to hold themselves out in a position of trust and confidence (and therefore ought to be automatically treated as an ERISA fiduciary for the purposes of retirement investing advice)
A new study from Advisor360 finds that the majority of "next generation" advisors welcome the use of AI tools for communicating and collaborating with clients, but firm restrictions and regulatory concerns are holding many of them back from using AI in practice

From there, we have several articles on practice management:

Although advisor benchmarking studies are common ways to gauge advisory firm performance, the answer to whether a firm is truly successful lies in how it is meeting the goals set by the firm's own leaders
Newer advisors who find their careers (and compensation) stagnating at the firm that initially hired them are increasingly leaving to seek better opportunities, putting pressure on firms to offer higher pay and a clear path for career advancement
When an advisor moves from one RIA to another, a non-compete or non-solicit agreement can make it difficult to rebuild the advisor's business; however, there may be ways to settle between old and new firms in a way that keeps everyone happy

We also have a number of articles on money and family relationships:

Why many couples' arguments about money often stem from far deeper disagreements (and what advisors can do when they get caught in the middle of arguments that go beyond money)
Although talking to family members about wealth and estate planning can help ensure one's wishes are carried out after they are gone, some people end up regretting the conversation if it's spontaneous and unplanned – making a more structured and intentional conversation (or series of conversations) a better way to communicate the meaning and purpose of family wealth
Data show that the majority of heterosexual couples in the top 1% of net worth have the husband as the sole breadwinner (with the wife not earning any income), echoing a power imbalance between men and women both at home and in the workplace

We wrap up with 3 final articles, all about financial wisdom:

Why people are so driven by desire for the things they can't have (and why that isn't always a bad thing)
The lessons that real estate investor Sam Zell, who passed away in May, can teach about spotting opportunities and managing risk
A reminiscence on the legacy and wisdom of Berkshire Hathaway vice-chair Charlie Munger, who also passed away this week

Enjoy the 'light' reading!

Kitces & Carl Ep 126: The Best Ways To Boost Advisor Productivity: New Tech Efficiencies Vs Old Fee Increases

November 30, 2023 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Financial advisors looking to increase their firm's productivity may often start by choosing either to hire more employees as a way to delegate their workload, or to implement new technology solutions to increase the efficiency of their work processes. While the expectation is often that investing in these solutions will enhance efficiency, advisor capacity, and margins without proportionally increasing costs, the reality is that they typically have a modest impact on profitability (with no more than an estimated 10% margin of improvement). This suggests that technology alone may not be the panacea for scalability and profitability many advisors hope for. Yet, a more direct and potentially immediate revenue-boosting solution is for advisors to adjust their firm's fee structure, aligning their fees with the true value of their services – which often results in significantly higher profitably!

In our 126th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how raising one's advisory fees may perhaps be the most efficient strategy for growth and scaling, and how advisors can justify and execute a fee increase for their own services.

As a starting point, the positive math of raising advisory fees is relatively straightforward, primarily because it avoids the same resource-intensive investment and ongoing costs that accompany other growth strategies, such as implementing new technology solutions or hiring additional staff. However, while the work of raising fees may be as 'simple' as sending an explanatory email to announce fee increases to clients, there are often psychological barriers that prevent some advisors from charging appropriately for their services. For example, many advisors may hesitate to raise fees for long-time clients who have been with them since the beginning – the ones who took a gamble on a fledgling practice and practitioner. Others may face deep-seated beliefs that clients will react badly to increased fees, and some advisors may even struggle with asserting their own value proposition.

Nonetheless, clients are willing to pay for perceived value – especially when that value goes beyond the technical aspects of financial planning (including personalized attention such as goal clarification, behavioral coaching, and empathetic listening). Which means that when advisors find themselves ready to take their next steps to growth, hiring more people or implementing new technology are not the only solutions to consider. Instead, raising fees to accurately reflect the true value of an advisor's services might be the best solution to help advisors realize their growth goals.

Ultimately, though, the key point is that whatever fee structure an advisor may choose, it is important not to underestimate one's own growth and value. By reflecting on their value, recognizing and acknowledging the complex narratives that might have limited their past pricing strategies, and embracing the worth of their services, advisors may develop a new perspective on raising fees as a growth strategy – recognizing that this approach not only serves to increase growth, but also ensures the firm's success and sustainability, serving as a win-win situation for both advisors and clients!