Kitces.com - Advancing Knowledge in Financial Planning

Step-By-Step Guide To Hiring A Great Client Service Associate

September 10, 2018 07:07 am 0 Comments CATEGORY: Practice Management

Given how much a good and efficient financial advisor must rely on a team for support, making a good decision on hiring a new client service associate is critical. Unfortunately, though, finding a good – or better yet, great – client service associate can be a real challenge, and getting it wrong with a hiring mistake is inconvenient at best (and disastrous at worst). Which makes finding the right client service associate – either to fill a vacant spot on the team or because you’ve reached capacity and need to expand further – a rather high stakes proposition.

In this guest post, practice management consultant Teresa Riccobuono of Simply Organized shares the most important factors for successfully hiring a great administrative employee, including developing not only an effective job description and also a functional job posting (which is not the same thing and can help save a tremendous amount of time). She also provides tips on how to give detailed instructions for candidates to submit their applications, where the best places are to post the opening, and some pitfalls to avoid in the process.

From there, Teresa gives guidance on what to do once the resumes start pouring in (because there are usually a lot of applicants for administrative positions), how to stay focused on the end-goal even in the initial phase when you may see a lot of resumes from unqualified candidates, and when to be critical (but not too critical!) in reviewing and screening resumes from qualified candidates.

Finally, Teresa walks through an actual interviewing process, from preliminary preparation, to setting up initial phone interviews, conducting face-to-face interviews (including some possible pitfalls and yellow lights to watch out for along the way), and ultimately making your final decision (and how to then let the others on your “short list” know that you’re moving forward with a different candidate).

While hiring may not ever be particularly easy (or enjoyable for advisors who set out to serve clients, not hire and manage people!), and it might turn out to be a better decision to outsource the process to a recruiter, there are strategies you can use if you’re doing the hiring process yourself to become more efficient and effective (and make the process a little less painful). By doing so, you can increase the odds of finding a great candidate, lessen the chances of making a hiring mistake, and get back to what it is you and your team do best… helping your clients!

Weekend Reading for Financial Planners (Sep 8-9)

September 7, 2018 02:51 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the recent announcement that President Trump has issued an Executive Order for the IRS and Department of Labor to review (and ease) the rules around Multiple Employer [retirement] Plans (MEPs) as a way to expand small business access to employer retirement plans, ideally bringing down costs through greater economies of scale, and at the least giving 401(k)-centric advisors a new way to work with small business owners (by creating and offering their own Open MEP solution?!).

From there, we have several articles about advisor marketing this week, from a look at how it's not enough to just have a good value proposition for clients if you can't also explain the process you'll use to achieve it and provide some "proof" (e.g., sample deliverables) to show your results, to how to engage in a formal "marketing makeover" for your firm (which starts with crafting your own one-page marketing "messaging brief" before you hire anyone to help you implement it, why it's so important to keep asking "why" (literally, over and over again) to prospects to truly understand their needs, and the reason that advisory firms doing in-person seminar marketing are now turning to Facebook digital advertising as a more cost-effective path to get prospects to attend their seminars in the first place.

We also have a few practice management articles, including: how to think through different types of financial advisor business models based on what's actually being provided to clients (e.g., investment-only, investments with some planning as needed, planning with some investments as needed, or financial consulting only); why it's crucial for advisory firm owners to separate out their compensation for the work in the business from their profit distributions for the income from the business; what it takes to successfully take a 6-week sabbatical away from your own advisory firm; and the issues to consider when your multi-advisor partnership actually has to "vote a partner off the island" and remove a partner from the business (without collapsing the business itself in the process!).

We wrap up with three interesting articles, all around the theme of better understanding our own motivations and focus: the first explores fascinating research that finds one of the best ways to help people improve their situation is not for them to receive good advice but actually for them to give it to others, which actually cements their own confidence in their knowledge and helps them formulate a specific plan of action (the one they're recommending to others as well!); the second looks at how, in the end, there really are no "natural born salespeople," just people who have a natural desire to help others and learn the very learnable sales skills and conversations it takes to succeed; and a fascinating look at how the popular wisdom to "find and pursue your passion" is awful advice, because, in reality, passions are more likely to evolve from something we actively do, not be something that already exists that we decide to pursue and do more of (which means it's better to just start doing something you're interested in and let the passion develop, rather than trying to intuit your passion in the first place).

Enjoy the "light" reading!

Why President Trump’s Executive Order on Multiple Employer Retirement Plans May Not Improve Access to Retirement Plans

September 6, 2018 01:45 pm 0 Comments CATEGORY: Retirement Planning

Last week, President Trump signed an executive order, which directed both the IRS and DoL to review existing rules and limitations regarding how small businesses can team up to offer retirement plans to their employees through a shared (and hopefully more cost-effective) arrangement known as a Multiple Employer Plan (or “MEP” for short).

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1 PM EST broadcast via Periscope and guest hosted this week by Jeff Levine, we discuss what multiple employer retirement plans (MEPs) are and their current challenges, how President Trump's recent executive order would change MEPs and at least potentially improve retirement plan access for employees of small businesses (or not) , and why these proposed changes might ultimately have some concerning unintended consequences.

A relatively lesser-known arrangement, a multiple employer retirement plan (MEP) is an agreement between two or more unrelated business to band together to offer a 401(k) plan to their employees. The big benefit of MEPs is the opportunity to achieve lower costs through the economies of scale of banding multiple small plans together into one larger one. As small businesses have long struggled to find a way to effectively offer retirement plans to their employees due to historically higher investment costs, potentially burdensome administrative costs, and concerns about fiduciary responsibilities and liability. By pooling their resources, a group of employers can ideally utilize a MEP to streamline plan administration, bring down costs, and shed (by shifting to the MEP provider) some of their fiduciary obligations.

Unfortunately, up until now, there have been some big downsides to MEPs that have prevented them from gaining wider adoption. Because they are tax-deferred plans, they fall under the purview of both the IRS and the DoL, and that, in turn, has created some unique regulatory challenges. For instance, the IRS views a MEP as a single plan, which means that if any single employer within the MEP fails to meet its requirements to qualify for the plan, then the entire plan can be disqualified, also known as the “bad apple” rule. Meanwhile, the DoL does not automatically treat every MEP as a single plan, particularly if there’s no “nexus” (or commonality between employers), which can necessitate each plan still filing its own Form 5500 and significantly increase related administration costs for each of the employers in the MEP.

It’s these regulatory headwinds that the President’s executive order seeks to mitigate, by calling on both the IRS and DoL to clarify and expand the circumstances under which an employer can adopt a MEP, to issue new regulations to clarify when a group of employers can be viewed as a single employer under ERISA, and (maybe most importantly) to issue new regulations to narrow or eliminate the so-called “bad apple” rule so that the plan can remain in effect even when individual employers fail to meet their individual-firm obligations.

Nominally, the purported goal of these efforts is to make it cheaper and easier for small businesses to offer 401(k) plans to their employees and increase access to employer retirement plans for the nearly 1/4^th of full-time workers who don’t currently have one. Which should be feasible if MEPs really do become more attractive to small businesses, and the increased adoption even further reduces the administrative costs for the plans (especially if the DoL joins the IRS in treating participants in a MEP as a single employer for reporting purposes).

However, even if these changes happen, there are still some downsides to MEPs that employers must consider. For instance, under current law, it’s quite difficult for MEP participants to terminate their participation in the plan. Businesses that offer their own 401(k) plans are able to terminate that plan whenever they want, allowing employees to then roll their money into other tax-deferred vehicles (e.g., an IRA). However, while an employer can technically terminate their participation in a MEP, that termination does not create a distributable event for the employees, meaning that their money stays “stuck” in the MEP (and cannot be rolled over unless in-service distributions are permitted), while the employer continues to have a fiduciary responsibility as long as there is at least one employee still in that plan (even if the employer otherwise no longer offers it)!

Meanwhile, there is also the risk that when a large number of disparate small businesses come together into a shared plan, it becomes harder for any of them to individually negotiate for better terms, and that plan providers could ultimately be able to increase plan costs if they can gather enough MEPs under their umbrella, given the substantial burden on employers and their participants to switch providers. Also, paradoxically, by making MEPs a more viable option (if they really do end up being lower cost), it could make IRA rollovers a relatively less attractive option for employees (which benefits 401(k) plan providers but adversely impacts those who rely on IRA rollovers to build their businesses).

Ultimately, we should see some specific proposals from IRS and DoL within the next 6 months or so, and given the bipartisan support for these changes, it’s likely that we will see some changes to MEP rules that really do make them more feasible. But whether it actually leads to lower costs and greater access remains to be seen. Although at the least, it could eventually produce some interesting new opportunities for financial advisors to expand their services and offer their own multiple employer retirement plans as a service to their clients!?

Why (Prudent) Spending Rates Matter More Than Savings Rates

September 5, 2018 07:05 am 0 Comments CATEGORY: General Planning

The media provides no shortage of articles giving recommendations of how much households should save to afford retirement, from rules of thumb like “save 10% to 15% of your annual income” to more detailed research studies providing "precise" savings guidelines based on age, income level, and targeted retirement income replacement rates. The caveat to all of these tools, though, is that they presume the household has flexible discretionary dollars available to save in the first place.

Yet in reality, most households struggle to save because there is no money left at the end of the month to save in the first place. Because technically their problem isn’t a savings rate that’s too low; it’s a spending rate that’s too high, in one or more categories, that is causing all of the available household income to be consumed before the end of the month is even reached!

And sadly, there is remarkably little guidance available to households about what a prudent spending rate should be in the first place. In some of the largest categories, which tend to be financed with debt – e.g., homes and automobiles – lender guidelines place some restriction on the maximum amount of spending in each of those key categories. With the caveat that lenders don’t lend based on what is prudent for the borrower, but what will result in a permissible level of defaults and losses for the lender. Or stated more simply, borrowing guidelines are based on what the lender believes will extract the maximal amount of interest with an acceptable level of defaults… despite the fact that many of those borrowers will be in over their heads and struggling just to make their repayments!

A somewhat better data set for households to evaluate the prudence of their spending comes from comparing an individual’s spending to the Consumer Expenditure Survey from the Bureau of Labor Statistics, which details what households spend in various categories, segmented by income level (as fixed expenses not surprisingly consume far more of a lower-income household’s budget than those with higher income levels).

Of course, comparing one’s spending by category to average spending rates (by income level) still doesn’t necessarily reveal what is prudent and what a household should spend, especially when recognizing that the national savings rate is already a dismally low 3.2% (which means comparing to CES data in the end simply compares to a national set of households that already are spending “too much” and not saving enough!).

Nonetheless, focusing on spending rates at least puts the focus back on what households can control – what they spend, and what they earn – rather than focusing on or criticizing a savings rate that ultimately is more a result of other decisions than a decision unto itself. And also helps to recognize that, for most middle-income households where spending is challenging, it is actually far better to focus on housing and transportation costs than trying to trim vacations, clothing, lattes and avocado toast from the budget.

But the question still remains: what is a prudent spending rate for typical household expenses, and how do you figure out what is or is not an appropriate amount to spend in the first place (that “lives within your means” and leaves an available dollar amount of savings left over)?

#FASuccess Ep 088: Learning A More Genuine Sales Conversation Approach To Better Turn Prospects Into Clients with Nancy Bleeke

September 4, 2018 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 88th episode of the Financial Advisor Success podcast!

This week's guest is Nancy Bleeke. Nancy is the founder of Sales Pro Insider, a sales training platform for financial advisors that teaches how to better turn prospects into actual clients.

What's unique about Nancy, though, is her somewhat non-traditional sales training approach, which isn't about pushing features and benefits and going for the hard close, but simply about having a structure to the conversation that occurs in an approach talk with the prospect to ultimately help them make a decision or take an action at the end. Because the reality is, even if you're in the business to get paid for your advice and not to sell your company's products, you still have to sell someone on the reason why they should hire you and pay your fee in the first place.

In this episode, we talk in depth about Nancy's WIIFT structure to the sales conversation, which is both focusing on the "what's in it for them" of the WIIFT acronym, but also a five-step conversation process of wait and prepare, initiate, investigate, facilitate, then consolidate. The importance of asking more questions to really understand a prospect's context so that you can refine and right-size the information that you give them, and the dangers of giving prospects more information than they actually need in a manner that can just put them into analysis paralysis instead of helping to motivate them to take an action or make a decision.

We also talk about the actual key questions to ask a prospect throughout the meeting process. From setting an agenda with them in advance of every meeting to ensure you're really discussing what they want to discuss, asking what it is that brought them to the meeting to begin understanding what their real problems, opportunities, wants, and needs are, asking prospects for feedback about how your services and proposal sound to them as you describe it to them, and being certain at the end of a meeting to actually ask for their business and making it crystal clear what the next step would be in order for them to proceed.

And be certain to listen to the end, where Nancy explains why the biggest and most common problem that financial advisors make in trying to get new clients is our tendency to try to convince clients that they need a financial plan in the first place, instead of listening to what they actually want and need and relating the benefits of financial planning to their problems and concerns.

So whether you're interested in learning about building a more effective framework around your conversations with clients, how to demonstrate your expertise in a way that builds trust, or how to structure meetings to increase conversion rates, then we hope that you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (September 2018)

September 3, 2018 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2018 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 big news from Schwab that, after years of promising that it is working on a next-generation multi-custodial replacement to PortfolioCenter, the new PortfolioConnect solution will only work directly with the Schwab custodial platform… but will be more deeply integrated, and more importantly free to Schwab advisors, in what could become a major inducement to advisory firms to join or consolidate with Schwab given that portfolio accounting software is the most expensive line item in most RIAs’ technology budgets. In the meantime, for those who want to remain multi-custodial, Schwab noted that PortfolioCenter will also be receiving an upgrade this fall, to ostensibly remain as the multi-custodial server-based alternative that independent RIAs can choose to purchase separately.

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

JPMorgan Chase launches a new “YouInvest” trading platform that will provide 100 trades for free with no account minimums, and indefinite free trades to those in its Private Client group, putting newfound pressure on independent RIA custodians to justify why their advisors should be at a competitive disadvantage.
RightCapital launches the first dedicated student loan planning module in a financial planning software package
MoneyGuidePro deepens its integration with WealthAccess as advisors and clients apparently prefer the third-party PFM solution to MGP’s own client portal
Galileo Processing announces a new debit card structure that can allow clients to spend directly from an investment account that stays fully invested without the need to hold any cash aside in advance

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Orion adding its own “planning light” tool in partnership with FinMason, UBS deciding to wind down its internally built SmartWealth robo platform and go all-in with its SigFig partnership, FMGSuite acquires Platinum Advisor Strategies to build out its “HubSpot for Advisors” content marketing platform (as ousted former Platinum co-founder Robert Sofia spins up his own HubSpot-for-Advisors competitor SnappyKraken), and the CFP Board demonstrates a novel application for applying blockchain in financial services: a public ledger to verify who is a CFP certificant, replete with an authenticated “digital CFP certificate” that advisors can use on their websites and in their email signatures.

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]!