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The Latest In Financial Advisor #FinTech (May 2019)

May 6, 2019 07:06 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the May 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 Schwab’s PortfolioConnect is now available – for free – to all RIAs on its platform. Thus far, PortfolioConnect is a downscale portfolio performance reporting system that is meant to appeal to "smaller" RIAs, with less than $100M of AUM, for whom the other performance reporting tools may be too costly and who may be attracted to the Schwab platform for the potential cost savings of a free alternative. But the real question is what happens if and when Schwab adds more features to PortfolioConnect and it becomes a more head-to-head competitive offering to the likes of Orion and Black Diamond… but available for free, because Schwab can profit indirectly from its core custodial business simply by attracting RIAs and their clients’ assets to the platform.

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

Envestnet launches a new Credit Exchange to facilitate independent advisors offering mortgages and eventually business loans to clients as a part of a more holistic advice offering (and providing Envestnet yet another means to monetize transactions that occur across its platform)
Fidelity announces a further expansion of its Integration XChange as the company continues its shift towards a more open architecture approach (building around Consolidated Data as its unique value proposition instead)
MoneyTree financial planning software is acquired by Accutech as the company goes deeper into wealth management in the bank and trust channel (and raising questions about the fate of MoneyTree’s traditional financial advisor user base)
The former TradeWarrior leadership team relaunches as AdvisorPeak rebalancing software after a falling out with Oranj
Vestwell raises a massive $30M Series B round from Goldman Sachs to scale up its digital 401(k) platform for independent advisors (and giving Goldman Sachs another toe-hold into the RIA channel)

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including Invent.us partnering with Envestnet to bring cloud-native software design to replace legacy broker-dealer technology systems, Allianz invests into Halo Investing’s tools for designing custom structure notes (and perhaps in the future, custom indexed annuities?), FINRA established a new Office of Financial Innovation to support FinTech developments, and “cash” becomes the new battleground to compete for assets as Wealthfront boosts its AUM by 8% in just a few months by offering a competitive cash yield over 2% (while RIA custodians continue to scrape the bulk of their profits from advisors’ client cash 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 (May 4-5)

May 3, 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 latest tracking report on mergers and acquisitions of advisory firms, that finds firms in the first quarter of 2019 doing deals at a near-record pace... but at a volume that is still ultimately a minuscule fraction of the total number of advisory firms in the marketplace, and with storm clouds looming that advisory firm sales could quickly grind to a halt if a bear market emerges (and firm owners may not want to sell at depressed valuations on reduced AUM revenues). Also in the news this week is the somewhat surprising revelation that the Department of Labor is working on a new fiduciary rule... but this time, one that will from-the-start be written to conform to whatever the SEC puts forth in its final Regulation Best Interest rule.

We have several other regulatory-related articles as well, including a look at how the SEC is stepping up its scrutiny on Chief Compliance Officers (and whether RIAs really have a bona fide compliance oversight program in place for their firm), the new expectations that the SEC is setting forth for advisory firms working with seniors (including establishing policies for the firm about how to handle senior clients experiencing cognitive decline), and a recent high-profile case of an RIA that was fined $150,000 by the SEC for failing to disclose over the span of a decade its revenue-sharing solicitor arrangement with Fidelity's custodial referral program.

From there, we have several articles on advisor marketing and specifically websites, from the reasons why most advisory firm websites are useless (as even when they laud the benefits of the firm, they typically do so in the exact same undifferentiated way as every other advisory firm), updates to focus on first to make an advisory firm website look more modern, common blogging mistakes of advisors who are creating fresh content for their websites but aren't necessarily distributing or leveraging it properly, and an interesting look in what Baby Boomers really search for online using Google's Search tools (and why advisors are less likely to get clients with "10 Reasons Why Fiduciaries Deliver The Best Objective Transparent Financial Advice" and more likely to find prospects with "The Best Retirement Cake Inscriptions" instead... with, of course, the advisor's contact information in the byline at the end!).

We wrap up with three interesting articles, all around the theme of how the advisory industry is forever growing and changing: the first looks at how entrepreneurs may actually be better off by launching their firms alone rather than starting with a team of 2-3 co-founders (at least, as long as they're ready and willing to hire outside help in the areas they need it when they do need help); the second explores the evolution of the famous Andreessen Horowitz venture capital firm, and how the company is restructuring itself into an RIA (rather than a traditional VC firm) to have even more flexibility to make big focused bets with their client assets; and the last is a fascinating deep-dive into the evolution of Charles Schwab, and how the company grew from a discount broker for do-it-yourselfers into a mega-firm that's increasingly focused on the full range of financial services... including a growing footprint in financial planning as well.

Enjoy the "light" reading!

NY Insurance Regulation 187: Are Life Insurance Policy Illustrations Too “Misleading” For Comparison Purposes?

May 1, 2019 07:04 am 4 Comments CATEGORY: Insurance

On July 18^thof 2018, the New York Department of Financial Services (NY DFS) issued a new Best Interest Rule (Regulation 187) that (re)defines the meaning of “clients’ best interests” for life insurance product recommendations effective February 2020, including the due diligence obligations that apply to life insurance recommendations. Previously, due diligence for life insurance product recommendations was governed by the National Association of Insurance Commissions (NAIC) Life Insurance Illustrations Model Regulation #582 (as adopted by each State).

And perhaps surprisingly, NY DFS Regulation 187 prohibits such life insurance policy illustration comparisons as due diligence for product recommendation (despite attorneys for the life insurance industry lobbying to “expressly include” illustration comparisons, which NY DFS rejected). The Rule's omission of illustrations comparisons is also consistent with guidance from other financial, insurance, and banking industry authorities warning against illustration comparisons as “misleading”, “fundamentally inappropriate”, and unreliable. Instead, NY DFS Regulation 187 requires product recommendations be based on a careful, skilled, prudent, and diligent evaluation of costs, performance, and risks relative to benefits.

In this guest post, Barry Flagg, an insurance expert and founder of Veralytic (which publishes pricing and performance research on life insurance policies), explores the details of the new NY DFS Regulation 187, the fundamental problems with life insurance policy illustrations (especially when used for comparison purposes), what Regulation 187 will require for life insurance due diligence in the future, and how fiduciary advisors must adjust when doing their own due diligence on behalf of clients.

The key issue, though, is simply that because of the number of “moving parts” that underlie life insurance policy illustrations for cash value life insurance, it’s not enough to merely look at which policy is projected to have more cash value, or requiring less in premiums, in the long run. Because underlying those projections are assumptions about returns (which may not be realistic relative to the company’s actual general account investments or historical results), along with assumptions about costs (which may not be guaranteed nor even stable and consistent with the company’s historical costs). And in fact, because life insurance policy illustrations have historically been used as a point of comparison, insurance companies have had unhealthy incentives to ‘game’ their policy illustrations to project cash value more favorably… without necessarily acknowledging the underlying risk of what may be very tenuous assumptions.

More broadly, the NY Best Interest Rule is also significant given the broad efforts to more clearly define clients’ best interests (e.g., the DOL Rule and the SEC Best Interest Rule), and given NY DFS “reputation as a first mover on important insurance regulation matters”, there is now an increased likelihood of additional state-level fiduciary regulation on life insurance, matching the recent trend of state fiduciary rules on investment advice and recommendations as well. And given the predominant use of illustration comparisons as supposed due diligence, the questionable use of illustration comparisons for product recommendations, the growing legislative and regulatory activity around re‑defining clients’ best interests for product recommendations, and NY DFS’s standing as first-mover on important insurance regulation, the NY Best Interest Rule for life insurance raises significant ethical and practice management considerations for CFP professionals and other fiduciaries advisors – both in and outside New York - about how advisors should do basic due diligence to determine whether one proposed life insurance policy is really better or worse than another.

#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!