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Weekend Reading For Financial Planners (May 11-12)

May 10, 2024 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 recent analysis from Morningstar suggests that the Department of Labor's (DoL's) new Retirement Security Rule (aka Fiduciary Rule 2.0) could save retirement plan participants $55 billion over the next 10 years (due to an expectation of more low-cost fees being offered in plans) and those rolling over workplace plans into IRAs to purchase annuities another $32.5 billion (thanks to expected reductions in commissions and the embedded costs in these annuities). Nonetheless, for these potential benefits to come to pass, the rule will likely have to survive legal challenges, including a lawsuit filed led by an insurance industry lobbying group seeking to halt implementation of the rule (which is set to take effect in September), which argues that the rule violates the U.S. Congress' intent in passing ERISA and that the DoL overstepped its authority in adopting it.

Also in industry news this week:

The latest Social Security trustees report offered a slightly rosier picture for the health of the various Social Security trust funds thanks to improved economic conditions, though they warned that time is running out for legislators to take action to ensure the system will be able to pay out full benefits beyond the early 2030s
RIA custodian Altruist has raised $169 million in its latest funding round, giving it a $1.5 billion valuation and added capital to fund technology and staffing upgrades as it seeks to challenge Schwab and Fidelity in the RIA custodial space

From there, we have several articles on retirement planning:

Why considering a client's retirement time horizon and spending flexibility could lead to more accurate (and often higher) safe withdrawal rates than the simpler "4% rule"
While many financial advisors focus on preventing clients from depleting their portfolios in retirement, they might be overlooking the 'risk' that clients might underspend and not achieve their retirement lifestyle goals
How the creator of the "4% rule" is now incorporating inflation and equity valuations when calculating safe withdrawal rates

We also have a number of articles on advisor marketing:

A 4-step process that can help financial advisors craft better stories to use with clients
The best and worst times to use emotional storytelling to communicate an important message to clients
How effective storytelling can increase the likelihood that an advisor's message will resonate with clients amidst a sea of potential information sources

We wrap up with 3 final articles, all about vacations:

How taking a vacation can provide a sense of clarity that can lead to positive changes in one's 'normal' routine
How to decide how much to spend on a vacation, from planning out a year's worth of trips in advance to being aware of "luxury creep'"
Why money spent on vacations and other shared experiences could be considered an investment in an appreciating asset

Enjoy the 'light' reading!

5 Questions Using Risk Assessment Data That Help Advisors Understand Clients’ True Concerns About Risk

May 8, 2024 07:03 am 0 Comments CATEGORY: Client Trust & Communication

Measuring a client's tolerance for risk is an essential (and required!) step when onboarding a new client, as making any sort of recommendation is impossible without first understanding how comfortable clients may be when their portfolios inevitably experience volatility. Over the years, 2 types of measurement tools have emerged as the standards for assessing risk tolerance: 1) psychometric tests, which feature a series of questions (such as, "What amount of risk do you feel you have taken with past financial decisions?") that are designed to measure risk based on past behavior, and 2) econometric tools, which involve questions based on a particular scenario (such as, "Suppose you can invest $100 and this time, there is a 50% chance you could receive $207 and a 50% chance you'd receive nothing. Would you agree to this investment?"). These tools provide critical insight into a client's preferences and attitudes, but as is the case with every subjective assessment, the results may not always reflect a client's true feelings about risk.

As many advicers have experienced, a client who might claim that they can tolerate a high level of risk may, in fact, behave quite differently during periods of higher volatility. The reality is that a client's true relationship with risk can only be partially uncovered through the results of a questionnaire alone. Like any other data point that an advicer may collect, there are stories behind the numbers, and the true power of a risk assessment is in its ability to help an advicer begin a conversation that encourages clients to share their stories. And when advicers take the time to listen to those stories, they begin creating long-lasting bonds with their clients.

And while few (if any!) risk assessment tools include suggestions on how to discuss the results with clients, advicers can use a series of questions to have meaningful conversations with their clients. To start, open-ended questions that use a command-style approach (such as, "Share with me what these results mean to you.”) can avoid setting an expectation that there is a 'right' answer. These questions also set the stage for follow-up questions that help advicers better understand if the client's main concerns around risk are focused on either fear of losing money or anxiety around missing out on growth potential.

From there, an advicer can ask how the client has reacted to prior bouts of market volatility. As while past behaviors can have a strong influence on current and future reactions, the advicer can peel back additional layers of the proverbial onion by exploring what (if anything) the client might wish they had done differently. Lastly (and perhaps most significantly), the advicer can ask (again using the command-style approach), "Tell me how I can best serve you when the market is rising and when the market is falling". Using this approach, the advicer can highlight one of the real values in a true financial planning relationship and start to set expectations around the working relationship as a whole.

Ultimately, the key point is that, while determining a client's risk tolerance is a critical step during the onboarding process and while developing an appropriate portfolio, the true usefulness of risk assessment tools lies in creating stronger bonds with clients. Because the opportunity for advicers to start meaningful conversations not only helps them understand their clients' true concerns, but also demonstrates the value of a real financial planning relationship while clarifying how they can best serve their clients!

#FA Success Ep 384: Growing An Advisor Career From (Bank) Assistant To Partner While Also Growing A Family, With Hannah Provost

May 7, 2024 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Hannah Provost Podcast Featured Image FAS

Welcome everyone! Welcome to the 384th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Hannah Provost. Hannah is a partner and financial advisor at Lomanto Provost Financial Advisors, a hybrid advisory firm based in Plattsburgh, New York, that oversees approximately $150 million in assets under management for about 380 client households.

What's unique about Hannah, though, is how she began her career in retail banking, where she rotated positions from lending to working as a teller and eventually becoming a bank-based financial advisor, and then, after realizing she would benefit from time spent learning from a more senior advisor than just continuing to work with her bank clients, took a step back to work as an assistant under an experienced advisor, which ultimately led to becoming a lead advisor with his firm, and eventually a joint partner of their firm.

In this episode, we talk in-depth about how Hannah embarked on this career journey while also building a family, including how Hannah balanced work, family, and the educational demands of building the credentials needed to effectively serve clients (by reminding herself that the demanding workload was a temporary stop on the way to more long-term rewards), how Hannah found that the path towards attaining her CFP certification was able to serve as a north star while navigating her career path through the industry, and how Hannah was able to jump-start the process to becoming a lead advisor by finding an opportunity where she could sit in on client meetings from day one (and be treated as a peer by her mentor).

We also talk about how Hannah and her partner have leveraged referrals and visibility in their small-town community to drive client growth, how Hannah uses email and calendar automations to more efficiently manage their growing client base while still maintaining a personalized touch using email merge fields in MailChimp, and how Hannah has structured her week to treat Wednesdays as "flex days" that give her the opportunity to spend time with family, go for a hike, or get some catch-up work done, and how she holds that space for herself despite averaging 20 client meetings per week between her and her partner.

And be certain to listen to the end, where Hannah discusses the importance for those getting into the financial advice business not just to avoid 'red flags' but to find 'green flags', or people who will see and support their human value from Day 1 as a new advisor, how Hannah's reflections on how her experiences with mentorship and rotational work were the key to leveling up her skills and presence and kickstarting her advisor career, and how Hannah has found that the investments she made in herself earlier in her career, including 5AM wakeups to study for the CFP Exam, have paid off today in the form of a successful practice and strong work-life balance.

So, whether you're interested in learning about entering the financial advice industry as a career changer, how to build a partnership with a more senior advisor, or how to maintain work-life balance while advancing in your career, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Hannah Provost.

The Latest In Financial #AdvisorTech (May 2024)

May 6, 2024 07:03 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the May 2024 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 self-directed retirement planning software provider NewRetirement has raised a $20M Series A round as the company demonstrates that its DIY tools really do turn a subset of consumers into bona fide prospects for financial advisors. Which positions the software as either a white-labeled solution for advisory firms that want a way to engage a high volume of prospects in their funnel, or simply a solution to convert its own 70,000+ active users into paying clients of NewRetirement's own financial advisors. Especially given that NewRetirement has already managed to get some sizable 401(k) providers and recordkeepers to offer the software on a paid basis to their own plan participants… which means NewRetirement is effectively getting paid to market its own advice services (a marketing funnel that pays for itself!?).

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

Betterment Premium raises fees for its human CFP service to 0.65%, putting it remarkably close to the 0.70% average revenue yield of the typical advisory firm, as the robo-advisor ends up emulating the human advisor service and pricing model it once sought to disrupt
Trust & Will announces a strategic partnership with LPL and its 22,000 advisors, as more and more advisory firms look to include estate document preparation as part of their suite of value-added services to clients (while outsourcing the actual legal work)

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

A pair of new research studies (one from Cerulli, another from Fidelity) highlight how "tech-savvy" firms with high technology adoption are outgrowing the rest… not by attracting more clients with a better digital experience for clients, but simply by finding more of their own operational back-office efficiencies to be able to scale faster
The SEC serves up a series of very sizable fines to make examples of financial services firms that didn't do enough to supervise their employees' use of texting and other messaging apps (e.g., WhatsApp), in a reminder to all advisory firms that all business-related communication must be archived (and reviewed!)
As the buzz and hype continue around AI, a warning (coupled with a pair of enforcement actions) from the SEC not to engage in "AI-washing"… advisory firms that promote how they're using artificial intelligence in their practices need to be certain that they are actually doing so

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 (May 4-5)

May 3, 2024 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 recent study indicates that nearly a third of advisors in the independent broker-dealer channel have considered transitioning to the RIA channel during the past year as they seek higher payouts and not just "independence" but greater autonomy over how they run their businesses and serve their clients. At the same time, the study found that potential breakaway brokers view the operational and compliance requirements of transitioning to and doing business as an RIA as a major concern, which could lead some of them to either leverage the growing number of service providers available to RIAs, or perhaps join an existing corporate RIA platform to take advantage of its existing infrastructure.

Also in industry news this week:

Large asset managers offering hybrid digital-human advice services are eating into the market share of purely human advisors, signaling that a smaller firm's ability to offer a differentiated value proposition could be a key to success in the coming years
A recent study indicates that tech-forward advisory firms not only are seeing greater client and AUM growth than are other firms, but also are associated with greater advisor income and job satisfaction

From there, we have several articles on healthcare planning in retirement:

Why framing Health Savings Accounts (HSAs) as "Medical IRAs" could lead clients to better leverage their potential for tax-advantaged, compound returns and have more money available for healthcare spending in retirement
How financial advisors can help clients evaluate the health insurance options available in early retirement, from staying on their previous employer's plan through COBRA to obtaining a (potentially subsidized) plan on their state health insurance exchange
How advisors can adapt clients' financial plans to account for the unpredictable healthcare expenses they will experience in retirement

We also have a number of articles on practice management:

How the ongoing competition for advisor talent and a lack of viable successors at many firms could drive a flurry of RIA M&A activity in the coming years
Instead of pursuing an outright sale, a 'merger of equals' can give owners of firms with similar sizes and compatible cultures an opportunity to boost profitability and scale relatively quickly while maintaining a high degree of control, though successfully consummating a deal requires delicate negotiations between the potential partners
A review of the revenue and profitability metrics that are most often used to value RIAs, and how selling firm owners can maximize the ultimate payout they receive by negotiating the underlying terms of the deal

We wrap up with 3 final articles, all about handling challenging political conversations:

How preparation and empathetic listening skills can help a financial advisor prevent political conversations from derailing client meetings
How advisors might respond when clients want to make major portfolio changes based on the upcoming presidential election
How teams can create ground rules to promote constructive discussion on political issues and other challenging topics

Enjoy the 'light' reading!

Kitces & Carl Ep 137: When Does Your Career Transition From Saying “Yes” To Opportunities And Focusing More On “No” Instead

May 2, 2024 07:02 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep When Does Your Career Transition From Saying Yes To Opportunities And Focusing More On No Instead

A career as a financial advicer can be remarkably rewarding, as it offers the opportunity to have a meaningful impact on clients' lives all while making a good living. However, the main hurdle that almost every advicer faces, particularly those who launch a practice from scratch, is that the early years are often a struggle as new advicers try to attract clients, generate revenue, and start to build their businesses. And, even for those advicers who have deliberately identified a particular niche to serve, the need to generate cash flow can sometimes mean onboarding clients that might not ideally fit into their long-term vision. However, many advicers successfully navigating those first few years can find that they've reached a point where they've taken on too much and need to be more selective about using their time and the clients they serve.

In our 137th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the most important factor that determines an advicer's eventual success, issues that can arise from early-stage dynamics in their career, and strategies to implement once they've reached their own professional capacity.

The financial advice industry is notorious for having a high failure rate among new entrants, which makes getting through the first few years crucial. In fact, research shows that the single greatest determinant of an advicer's success is the number of years in the profession, and it's often the case that the only way to stay in the game long enough to get through those difficult early years is to say "yes" to any source of revenue they can generate. For many advicers, though, the challenge isn't always about taking on the 'wrong' clients; instead, it's more often about making unsustainable promises around pricing and relationship length; advicers who have successfully built viable businesses can feel guilty about having to break promises made to early clients who might be better served elsewhere.

Meanwhile, targeting a particular niche is one of the most important decisions an advicer can make to help them focus on serving ideal clients and transition out of those initial difficult years. While newer advicers might chafe at the notion of marketing to a smaller audience, the reality is that, while growth rates for advicers who niche versus those who don't are similar over the first 3 years, over the ensuing years, the niching advicers tend to grow much faster, not because they decided that they wouldn't serve anyone who wasn't their ideal client, but because they put all their marketing 'eggs' in their niche 'basket'!

Figuring out where an advicer's own personal capacity tipping point lies can also be a challenge. Instead of determining where that point is ahead of time, advicers often realize that they've reached their limit only after they've blown past it and are starting to feel uncomfortable. It's at that point where implementing some sort of filtering mechanism can be most helpful, whether it be creating a "stop-doing" list, getting accustomed to saying "no" to tasks that don't benefit their business and wellbeing, or implementing an "automate, delegate, or delete" framework.

Ultimately, while many advicers face the same initial challenges, those who avoid making unrealistic promises early on and focus on serving a niche often transition out of those first few difficult years more easily. The key point is that, by being intentional about the market they serve and the work they do, advicers can put themselves in the best position they can to offer their clients the excellent service they deserve!