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#FASuccess Ep 122: Splitting Client-Facing Duties From The Mid- And Back-Office With A “Supported Independence” Model, with Jeff Concepcion

April 30, 2019 07:18 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 122nd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Jeff Concepcion. Jeff is the founder and CEO of Stratos Wealth Partners, a corporate RIA and super OSJ under the LPL platform that oversees more than $13 billion of assets under advisement across nearly 300 advisors in 100 different locations. What's unique about Jeff, though, is that he built Stratos as a support platform for independent advisors, effectively operating as the back- and middle-office for his affiliated advisors, providing everything from compliance and HR support to IT support and consulting on mergers and acquisitions in what he calls a "supported independence" approach.

In this episode, we talk in depth about the ways that the demands on an advisory firm owner's time shifts as the business grows, how advisory firm tasks can be split into back, middle, and front office roles and why advisors do best to spend the bulk of their time in the front office roles and not mired in the rest, the crossroads that advisory firms reach when they have to decide whether to insource or outsource additional tasks and responsibilities as they grow, and why for growing firms the whole decision about whether to insource and outsource goes far beyond just the investment management process of whether you use a TAMP or not.

We also talk about the details of Stratos' own supported independence model in particular. The way their typical 85% and 66% payout grids work and what advisors actually get in return for not taking a typical 90% payout rate directly from an independent broker-dealer but needing to pay their own overhead instead, the math of how a lower payout compares to the overhead cost of hiring staff internally to fulfill all those key mid- and back-office roles that are necessary in a growing firm, and the ways that larger firms at scale like Stratos can potentially provide a wider range of services to a larger number of independent advisory firms that would be cost-prohibitive for those firms to get on their own, at least one advisory firm at a time.

And be certain to listen to the end, where Jeff talks about the challenges that he faced in launching Stratos himself. How even though the business is incredibly successful today with more than $13 billion of AUA and nearly 300 advisors, Jeff still didn't get a paycheck out of the business for the first 3 years. How he worked through those challenging early years with the combination of conviction, transparency, and a little faith, and how despite the challenges of perhaps overinvesting into his infrastructure in the early years, he's now learned the bigger risk for a dynamic growing enterprise is still failing to invest enough into the team early enough to stay ahead of the growth curve in the first place.

Announcing The Latest Kitces Research Survey: Client Acquisition Costs And Best Practices In Financial Advisor Marketing

April 29, 2019 03:07 pm 7 Comments CATEGORY: Marketing

For most of its entire history, the hardest thing about becoming a successful financial advisor wasn’t actually learning the financial information necessary to give good advice, or the process of delivering financial advice… it’s the challenge of simply getting clients to give that advice to in the first place. Which in the past has led the advisory industry to have an attrition rate as high as 70% in the first 3 years. Because most people who try to become financial advisors never succeed at convincing a critical mass of prospective clients to actually pay them for that advice (or to buy their company’s insurance and investment products) in the first place.

Which, not surprisingly, has created an immense focus on trying to figure out what the “best” marketing strategies are for financial advisors to get clients, and has led marketing practices in the industry to evolve over the years, always in search of "the next best thing," from cold-calling to seminar marketing, radio shows to blogging and podcasting.

Yet there’s been remarkably little research about what, exactly, are the best practices in financial advisor marketing, and which strategies are the most cost-efficient to grow an advisory firm. Which is crucial, given that most advisory firms have relatively little budget to spend on marketing in the first place (typically no more than 2%). Although perhaps the reason so few advisory firms spend on marketing is simply that they can’t figure out what to spend on in the first place, given the lack of data.

Accordingly, we’re excited to announce the latest Kitces Research initiative – a deep dive into what financial advisors are really doing that works (or not) when marketing for new clients, what tools, technology, and systems advisors use, best practices in the most popular advisor marketing techniques, and what advisory firms really spend on marketing (including hard-dollar marketing costs, tools and technology, and staff support).

The ultimate goal? To figure out, truly, what the “client acquisition cost” really is for the typical advisor when considering both the hard-dollar costs, staffing costs, and simply the “cost” of the financial advisor’s own time in the sales and marketing process. Because in the end, there’s no way to figure out what the “best” financial advisor marketing strategies really are, until there’s a standard metric like client acquisition costs (CACs) – that considers all the costs – for the various strategies to be compared on an apples-to-apples basis in the first place!

Weekend Reading for Financial Planners (Apr 27-28)

April 26, 2019 02:56 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a release from the CFP Board of their new "Roadmap" guide on what CFP professionals must do to comply with the new Code of Ethics and Standards of Conduct taking effect in October... and trying to clarify the confusing separation that the CFP Board has created between "financial planning" and non-financial-planning "financial advice," both of which are subject to a fiduciary duty, but which have different Practice Standards and very different disclosure obligations to clients. Also in the news this week was the announcement that Schwab has put its new Portfolio Connect solution into general release, providing an entirely free portfolio performance reporting and billing solution for advisory firms... at least, for the ones that are willing to bring 100% of their assets to Schwab (as Portfolio Connect is not multi-custodial).

From there, we have a number of articles around client communication, including a look at how to better talk to clients about money (and why it's so important to recognize that there's no one "right" solution to solve someone's financial issues), an interesting mental model to consider your own communication style as an Explainer (focused on knowledge), an Elucidator (focused on understanding), or an Enchanter (focused on wisdom), a behavioral finance discussion about why storytelling is so compelling to us as humans (to the point that we'll make up a narrative just to explain the facts around us), and why it's so hard for us to talk about money in the first place (hint: it's often used as a status symbol, which makes it impossible to talk about money without talking about the sensitive issue of our personal perception of our own status in society).

We also have several articles on marketing, including a powerful reminder that it's often impossible to get someone to sign up for comprehensive financial planning services when they have a pressing problem to solve (until/unless you agree to a more limited-scope engagement to solve that problem first), how to increase your conversion rate with prospects by focusing on how to make it easier for your prospects to engage you in the first place, and some good reminders about the importance of etiquette in building trust with clients (including why it's really important to actually say "You're Welcome" when someone says "Thank You" to you!).

We wrap up with three interesting articles, all around the theme of how pervasive technology is becoming in our lives: the first looks at how the pace of disruptive innovation, especially from large tech companies, is creating a backlash against the "move fast and break things" philosophy and towards an era where companies are expected upfront to not only build solutions for customers but also consider how they'll remain accountable for their solutions not being used in harmful ways; the second is a look at how, with recent discussions of income inequality and the societal risks of mass unemployment due to automation, company executives are publicly downplaying their efforts towards artificial intelligence... even as they invest heavily into it anyway, if only because they're terrified that if they don't, a competitor will do so and disrupt them anyway; and the last looks at the rise of new technology companies like Sift and SecureAuth that are gathering data about all of our online activities in order to create a new kind of "trust score" that verifies whether we're a “normal” human, a malicious bot, or a fraudster, except that unlike a credit score, consumers don't have access to their trust scores (raising concerns about what happens when technology “scores” us unfavorably and limits our ability to use modern technology and websites, and we have no way to know, much less fix the situation)... even as some companies are finding that the tools may be reducing costs by making it easier to link together data across the internet to identify and eliminate fraudulent activity, and make the internet more trustworthy in the process?

Enjoy the "light" reading!

Kitces & Carl Ep 06: Building Resiliency For The Stress Of Being A Financial Advisor

April 25, 2019 10:41 am 7 Comments CATEGORY: Kitces & Carl Podcast Personal/Career Development

A big part of a financial advisor’s job is to be a release valve for their clients’ financial anxieties… it’s an essential aspect of how we add value in helping them manage their “behavior gap” and avoid making poor financial decisions for themselves. Because unfortunately, no matter how well we prepare our clients conceptually about the importance of keeping an even keel during the inevitable bouts of market volatility (or worse), the concept of “market risk” (and how clients will react to it) often feels purely theoretical until it actually happens… or as Mike Tyson so eloquently put it, “Everyone has a plan until they get punched in the mouth.”

And when market turmoil happens, it creates a huge amount of stress for clients, who oftentimes will then turn towards their advisors as they look for someone to blame. But while that can serve as the foundation for memorable “war stories” that advisors can bond over at industry events, the dynamic that isn’t discussed nearly as much is mental and emotional toll we as advisors face ourselves in serving our clients during severe market corrections or even deep bear markets. In fact, in the aftermath of the financial crisis, one study found that advisors ended out experiencing symptoms also associated with post-traumatic stress disorder! Which, in turn, raises the question: How can advisors prepare themselves mentally and emotionally to help not only their clients, but also themselves, cope with the stresses inherent in serving clients through their own times of stress?

In our sixth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss proactive steps advisors can take to prepare themselves to deal with and manage the stresses inherent in being a financial planning professional, some common but less-well-known sources of advisor stress, and how a subtle shift in mindset can help advisors make self-care a priority.

As a starting point, the best way to put yourself in a place where you’re able to deal effectively with the inevitability of stress is self-care, which only gets more important as we age and includes (among other things) diet, exercise, and rest (both physical and mental). Meanwhile, as an “accountability partner” who’s there to support and guide clients towards reaching their goals, you also need to have a support system that you can reach out to when things get tough, including family, colleagues, a mentor, and other industry peers. Because, just as your clients need someone they can vent to when it seems like everything is falling apart around them, you also need to have a group of folks you can turn to when you need to express your frustrations and anxiety. It also may mean allocating a part of your personal budget towards hiring your own “accountability partners” to help you stay (get?) fit, eat right, and establish a healthy work-life balance… which will almost certainly end out providing a positive ROI for you both personally and professionally.

Ultimately, the key point is simply to realize that as a skilled financial advisor, you are still no good to your family, friends, and colleagues if you’re stressed and unhealthy yourself, and you certainly won’t be able to provide the level of service that your clients expect… and deserve. And in order to do that, perhaps a smart approach might be to stop treating things like rest and recreation as a “reward” for working hard, and instead start thinking about those things as a prerequisite (that needs to be actively scheduled for on your calendar) for doing good work in the first place!

Key Tax Considerations When Advising Non-US Citizen Clients

April 24, 2019 07:02 am 1 Comment CATEGORY: Taxes

Benjamin Franklin famously quipped, “In this world, nothing can be said to be certain, except death and taxes.” For as long as anyone claims the rights and privileges of their sovereign nation in which they are citizens, the governments of those countries reserve the right to tax their citizens in order to provide the government’s services and infrastructure. Except, sometimes, in the case of people who are citizens of one country, but live – temporarily or permanently – in another… taxation is suddenly not so certain after all.

Because the reality is that countries generally only have a right to those people who reside within their borders, and/or who generate income within their borders. While, by limitations of jurisdiction, or coordination of treaties, those who are neither citizens nor residents, generally don’t have to pay taxes on any income not earned within the country’s borders.

In this guest post, Sahil Vakil, founder of Myra Wealth, which specializes in working with immigrants to the US (who may or may not be US citizens or residents), provides guidance on what advisors need to know about navigating the rules of non-US citizens, who may or may not be residents of the US, and who may have income both within and outside the US.

When it comes to non-US citizens living in the US – known as “aliens” by virtue of being non-US citizens – the key question is whether that person at least qualifies as a “resident” of the US, either by meeting the Green Card Test or the Substantial Presence Test. Those who do are resident aliens, and must declare and pay taxes on all their income worldwide (similar to US citizens), and are also subject to special Foreign Bank Account Report (FBAR) and must follow the Foreign Account Tax Compliance Act (FATCA), which can introduce substantial additional tax reporting burdens.

By contrast, nonresident aliens are generally not subject to FBAR and FATCA, and only must report and pay taxes on their income earned in the US (either by being Effectively Connected Income to the US, or be Fixed or Determinable, Annual, or Periodic (FDAP) income (e.g., passive portfolio income). Which in turn may be eligible for special tax rates (at least on FDAP), but also special tax withholding rules.

And ultimately, these rules are important not only for the taxation of resident and nonresident aliens themselves but also the tax strategies that emerge (e.g., resident aliens contributing to US retirement accounts to receive the deduction at current US tax rates on worldwide income, but liquidating them after returning to the home country when they will only be taxed on US income as nonresident aliens). On the other hand, the limitations on tax rules for resident and especially nonresident aliens can also complicate traditional tax planning strategies (e.g., the unlimited marital deduction is not available for nonresident alien spouses, forcing the use of a Qualified Domestic Trust [QDOT] instead).

The bottom line, though, is simply to understand that, while for US citizens, there may be nothing more inescapable than death and taxes, when it comes to non-citizen “aliens,” the rules in fact are far more nuanced and the situation is less clear… presenting both opportunities, and traps, to be aware of!

#FASuccess Ep 121: Crafting A Differentiated Investment Process By Engaging Clients And Community, with Rachel Robasciotti

April 23, 2019 07:04 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 121st episode of Financial Advisor Success Podcast!

My guest on today's podcast is Rachel Robasciotti. Rachel is the founder of Robasciotti & Philipson, an independent RIA in the San Francisco area that oversees $140 million of assets for more than 100 individual clients.

What's unique about Rachel, though, is the way that her firm built its own unique proprietary investment process, dubbed RISE for Return on Investment and Social Equity, by going beyond just doing socially responsible investing and actually engaging her local community to develop the screens that they would use to decide what companies would or wouldn't be in their client portfolios.

In this episode, we talk in depth about Rachel's journey through the socially responsible investing and ESG evolution over the past 15 years, why she ultimately moved away from traditional SRI mutual funds and ESG screens, how she developed her local RISE Community to ongoing quarterly feedback on her investment process, the tool she uses to take the feedback from her community and implement it into a portfolio of individually screened stocks, and the way that her engagement with the RISE Community she's created has also become her biggest driver of marketing and business development anyways.

We also talk about Rachel's own path through the financial services industry. How she was incredibly successful starting in a major insurance firm at a young age but ultimately decided to go out on her own as an independent at the age of 25, how the driver of her shift was not the financial opportunity of the independent channel but simply the ability to create the particular vision that she had about how to serve the clients that she wanted, the way that she wanted, while hiring the team and creating the culture she wanted, the way she survived in her early years of relative isolation and found community as a solo advisor until her firm grew, and how her approach to marketing and the way that she communicates with clients has changed over the years as she's gained experience and professional credibility.

And be certain to listen to the end, where Rachel shares some of the unique challenges that she faced starting her firm not only as a young advisor, but as a young black female who came from a poor upbringing, who had no safety net or family to fall back on as she launched her firm from scratch, the sometimes stifling pressure on people from different cultures to act and talk certain ways to conform to the industry standard expectations of financial advisors, and how the reality is that everyone needs help from time to time, and often the biggest differentiator of success is not whether you need the help or not but how helpable you make yourself to receive that assistance and how easy you make it to be helped or not in the first place.