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How Do Financial Advisors Actually Spend Their Time And The Limitations Of Productivity?

March 18, 2019 07:03 am 10 Comments CATEGORY: Practice Management

Financial advice, like so many forms of advice, is a uniquely human endeavor. While the internet has a virtually unlimited depth of raw information to access and apply to one’s self, the opportunity to get perspective on your situation from someone else, who can read between the lines and help you recognize what you may not even understand about yourself, requires another human being (ideally one who has a little more expertise than you to help with such realizations). Which, along with the human-to-human accountability that is hard-wired into our brains as herd animals, is what helps financial advisors withstand the threat of robots.

Yet notwithstanding the fact that financial advisors are paid to give advice to their clients in meetings with clients, the latest Kitces Research study reveals that the typical financial advisor spends no more than about 50% on direct client activity-related tasks, and barely 20% of their time actually meeting with clients! In fact, the typical financial advisor spends as much time searching for the next new client (i.e., prospecting and marketing for business development) as he/she does meeting with all their existing clients from week to week. A phenomenon that has only recently begun to shift with the rise of the recurring-revenue fee-based model, that puts less emphasis on continuous business development for new clients relative to the ongoing servicing (and retention) of existing clients.

Still, the fact that so much of an advisor’s time is not spent directly on client activities, and that even the majority of client-related tasks are more “back office” in nature (e.g., client servicing, meeting preparation, and doing various analyses) suggests that there is room for a significant increase in advisor efficiency, either through delegation to staff, better technology, or both.

And fortunately, the data reveals that advisors who delegate to support staff are able to generate significantly more revenue and generate a higher income… except as it turns out, this is largely accomplished by providing more time and more services to clients in the aggregate (between the advisor and his/her support staff), which allows the advisor to move “upmarket” and attract more affluent clients (who each pay a greater fee). Similarly, the rising use of more capable financial planning software amongst advisors doesn’t appear to be generating any time savings efficiencies and instead is being leveraged by financial advisors to go deeper with clients and do more in their financial plans (rather than simply doing the plans faster).

All of which raises the question of whether the limitation on a financial advisor’s time and client-facing activities is really a matter of technology and staff efficiency in the first place or a more “human” limitation on how many relationships any one person – or any one advisor – can manage in the first place. As thus far, the inexorable rise of technology continues to not lead financial advisors to service more clients, but instead to provide more and deeper services to their clients. Which suggests, in the extreme, that ongoing technology efficiencies may not increase advisor productivity, and instead will simply bring down the cost of financial advice and make it more accessible… which in turn will only further exacerbate the existing talent shortage of financial advisors in the coming decade?

Weekend Reading for Financial Planners (Mar 16-17)

March 15, 2019 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the mega-news that Envestnet is buying PIETech, the maker of MoneyGuidePro, for a whopping $500 million as Envestnet seeks to further expand itself into a holistic "financial wellness" technology platform.

Also in the news this week was the news that the SEC's "Share Class Selection Disclosure" initiative has culminated in 79 investment firms agreeing to return $125 million in inappropriately collected or improperly disclosed 12b-1 fees in their hybrid broker-dealer relationship with the client, another study reinforcing that while consumers still don't trust the financial services industry they overwhelmingly (97%) trust their own individual financial advisor, the revelation that this week's College Admissions scandal actually emerged as a tip-off to Federal investigators from someone seeking leniency in a securities fraud case, the news that Ameriprise is getting ready to launch a retail bank (so their advisors will be able to offer banking products to their clients), and a new advisory firm loan platform from SkyView Partners that will allow firms looking to merge, acquire, or complete a succession plan to bid out their loan needs to more than a dozen different banks at once.

From there, we have several insurance-related articles this week, including the news that Genworth (the largest long-term care insurer) is indefinitely suspending sales of traditional long-term care insurance through advisors and instead will rely solely on direct-to-consumer telesales instead (a potentially chilling trend for the availability of long-term care insurance to advisors from other carriers in the future), a good primer on the rise of "structured annuities" with various Buffer and Guard strategies to partially protect against downside, and an interesting look at how a decade of "unexpectedly low" interest rates have caused life, annuity, and long-term care insurers to make changes to their policies and premiums that have adversely affected both advisors and their clients.

We wrap up with three interesting articles, all around the theme of the brain and how it works: the first takes an interesting look at the connection between our brains and exercise, particularly running, and the ways that running appears to stimulate our brain functions (for which we may have had an evolutionary bias in the first place); the second explores the emerging research on why the brain is so "noisy," and how the difficulty in being able to silence our brains may not necessarily be a result of "faulty wiring" but instead part of the brain's learning mechanisms and how it is able to take in so much information in a wide range of contexts; and the last looks at how, because human beings must take in information to survive, but also exist as "herd animals," that sometimes our need to be right can conflict with our need to feel socially connected... thus helping to explain why sometimes we'll ignore factual information that might otherwise change our beliefs (because it would also disrupt our social connections), and how the key to really changing someone's mind is to start by being more connected to them socially so the "leap" to new information doesn't require such a socially disruptive leap of faith as well.

Enjoy the "light" reading!

How Can FPA National Account For Its Chapters When It Can’t Account For Itself?

March 14, 2019 01:55 pm 0 Comments CATEGORY: Planning Profession

When the Financial Planning Association recently announced its OneFPA Network initiative to consolidate its chapters, a key aspect was to gain operational efficiencies and leverage the FPA’s economies of scale by fully centralizing the accounting of all 86 of its chapters. The systems overhaul would require a substantial initial investment – estimated at more than $300,000 – but with the end result of all chapters being relieved of the burden of chapter accounting and instead simply receiving monthly financial reports directly from National.

Yet part of the controversy of the OneFPA Network initiative is that FPA has been experiencing its own deterioration of financials over the past decade, with revenue down by millions of dollars since the financial crisis impacted the financial advisor community, raising questions of whether the FPA is simply trying to consolidate its chapters finances so it can get access to available chapter cash reserves and annual surpluses.

To rebut concerns about FPA’s financial state of affairs, the organization conducted in late January a first-ever “Overview of National Finances” to its chapter leaders, which did candidly acknowledge that the organization’s revenue has dropped by nearly $4M from a decade ago, but noting that membership revenue is actually up over that time period, and emphasizing that FPA’s finances have stabilized since the downturn. Except, as it turns out, the historical trends that the FPA presented didn’t even match its own published Audited Financials, to the tune of nearly $1.5M revenue per year for several years, and a cumulative mismatch of nearly $8M of 'missing' revenue over the past decade.

In addition, it’s notable that since 2015, the FPA stopped distributing its Audited Financials to members altogether – ironically a self-violation of the FPA’s own “Information and Transparency Policy” – and only began distributing a more limited financial summary in its Annual Report. Which itself was excluded from its just-released 2018 Annual Report, leaving FPA’s own membership entirely in the dark about its current financial state (except, again, for a recent webinar that reported numbers failing to match FPA’s already-published Audited Financials to the tune of $8M of missing revenue). Even as the webinar did concerningly highlight a substantial $700k drawdown in FPA’s available cash over the past year, which appears to be attributable primarily to a significant decrease in the FPA’s deferred revenue… a potential signal that its actual revenue is about to deteriorate further.

Fortunately, the reality is that the FPA does have a demonstrated track record of managing its expenses (i.e., cutting staff and costs) in-line with its revenue, and as a result, its available reserves have remained stable throughout its financial turmoil of the past decade. Which suggests that the FPA may not literally be in any kind of “financial distress,” but simply that the organization’s revenue is declining more substantially than it has previously implied… which should be a concern for a National Board that, thus far, has not held its staff leadership accountable for the decline.

More broadly, though, the key question is simply this: how can the FPA move forward with the OneFPA Network and confidently and transparently account for its chapters – which is at best an extremely time- and labor-intensive tasks when committed to monthly reconciled reporting – when the National organization can’t even effectively (and transparently) account for itself?

How The Tools Of Financial Therapy Can Improve The Delivery (And Follow-Thru) Of Financial Planning Advice

March 13, 2019 07:03 am 0 Comments CATEGORY: General Planning

The fundamental purpose of financial planning is to help clients make better financial decisions to achieve their financial goals – and hopefully to feel happy or empowered along the way by having made those decisions. Yet as most financial advisors know from experience, getting clients to make better decisions (and ones that they feel happy about) is not so easy in practice.

Clients do not always listen. Clients don’t always follow through on the advice they are given. And sometimes clients even do things that truly worry us, and actually endanger their financial health in the process. And unfortunately, there is remarkably little training on what financial advisors should actually do in such instances!

In this guest post, Meghaan Lurtz, our Senior Research Associate at Kitces.com, explores how the tools and techniques of Financial Therapy could be that research-based solution that financial planners may want to give some serious consideration to for training on how to deliver better advice that actually sticks, and to learn to better help clients actually help themselves. Perhaps even more so than the recently in-vogue Behavioral Finance research, which in practice is more focused on categorizing the problem behaviors that clients tend to express, than what financial advisors can and should actually do about it.

For instance, Financial Therapy utilizes techniques like Solution-Focused Therapy (SFT) to help clients figure out what skills they may already possess to overcome their own (financial) challenges. Financial Genograms provide a means to unearth clients’ financial family history and how the relationships around them may be influencing their money behaviors. And exercises like “What Do You Believe” help to unearth and explore money scripts that may cause clients to get stuck in a financial rut, as their sometimes subconscious limiting beliefs sabotage their ability to make good financial decisions.

Of course, the reality is that at some point, problematic financial behaviors cross the line from something that a financial planner can help with (even one trained in financial therapy techniques), into a bona fide psychological disorder that merits a referral to a qualified mental health professional. Nonetheless, a wide range of financial therapy tools and techniques can be applied by financial planners in their routine work with clients, in an effort to help ensure clients actually follow-through on the advisor’s recommendations, and the client’s own financial decisions and commitments.

And fortunately, with the rise of organizations like the Financial Therapy Association, and new educational programs like the Certified Financial Therapist (CFT) designation, there are more opportunities than ever for financial planners to explore the tools and techniques of financial therapy and how they can be applied in a financial planning context with clients!

#FASuccess Ep 115: Building The Confidence To Turn A Personal Mission Into An Advisory Firm Niche, With Hilary Hendershott

March 12, 2019 07:07 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 115th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Hilary Hendershott. Hilary is the founder of Hendershott Wealth Management, an independent RIA based in San Jose, California that oversees nearly $75 million of assets under management.

What's unique about Hilary, though, is the way she's crafted a niche of not just serving, but trying to empower women clients, with a combination of both her traditional financial planning offering, a coaching program for women trying to accumulate wealth, and a very successful podcast focused on empowering women to take control of their finances.

In this episode, we talk in depth about how Hilary has been able to bring in an average of nearly $20 million of assets per year for the past 3 years through her podcast and website. What she talks about on the podcast to connect with her listeners and who it is she tries to attract, how she set up and launched her podcast, even though she's not a techie herself, and how she overcame her impostor syndrome fears to launch the podcast in the first place.

We also talk about the initiatives that Hilary has launched to try to further scale her services to clients. From a series of one-to-many online courses to teach wealth building skills, to a service called Ignite Investing that heavily leveraged technology to support working with smaller client accounts, to her current coaching program called the $50K Wealth Multiplier Experience, where Hilary does deep-dive coaching with women building wealth and is successfully charging $10,000 per year for her financial coaching services, entirely outside of her traditional financial planning offering.

And be certain to listen to the end, where Hilary shares how her own role as a business owner has evolved over the years. How she built her own self-confidence as a financial planning professional, why Hilary no longer works with a business coach herself and what she's doing instead, and why she continues to stay rooted in her financial planning practice, even as she continues to try to build more courses and grow her coaching clients as well.

Navigating the Financial Planning World as a Person of Color

March 11, 2019 07:07 am 2 Comments CATEGORY: Planning Profession

Despite the financial services industry’s ongoing efforts at improving racial diversity, only 3.5% of CFP professionals are black or Latino… a revealing statistics for not only the underrepresentation of people of color in the industry but that simply trying to expand awareness of financial planning and invite more diversity into the industry is not enough to move the needle.

In this guest post, Eugenié George, a prospective new financial advisor studying for her CFP certification to enter the industry, shares her own perspective on the real-world challenges in entering financial planning as a person of color. Starting with the understanding that, due to a history of financially-related racial discrimination in the US over the past 200 years, many communities of color do not have the same accumulated wealth and positive connection to the financial services industry in the first place. And it’s hard to enter financial planning – and have support from family, friends, and your community to enter financial planning – when the community’s history with the financial services industry is so negative in the first place.

In addition, Eugenié shares her own path and journey into the financial services industry, how she has built a “network map” of people to reach out to and connect with to mentor and find opportunities, how to identify your own “superpower” skills that will help you get your foot in the door for a job opportunity, how to navigate the financial challenges of taking one step back to take two steps forward into the industry, and how to manage the fact that, as a person of color, you will inevitably “stand out” in an industry that is still more-than-90% white.

Fortunately, though, a growing understanding of the historical context and challenges of communities of color with the financial services industry provides a foundation for today’s existing advisors to become “allies” and help to build more effective pathways and support for people of color to become CFP professionals of color in the future.