Nerd's Eye View blog

How Financial Advisors Should Manage LinkedIn Endorsements

August 27, 2013 07:05 am 11 Comments CATEGORY: Practice Management

As financial planners slowly incorporate social media into their marketing and business growth plans, LinkedIn has been one of the more popular and widely adopted platforms, given its bent towards professionals that provide a fertile ground for advisors looking to network. Yet even as LinkedIn (and other platforms) have grown in popularity, advisors must still be cautious to use social media in a compliant manner - which is no small tasks, given that many of the platforms routinely launch new features that can be difficult to evaluate in the context of decades-old rules and regulations that long predate the kind of technology to which they're now being applied.

In this guest post, marketing and social media consultant Amy McIlwain of Financial Social Media shares her thoughts about navigating one of the most common questions about regulations and LinkedIn: the endorsement. In a world where advisors are prohibited from having client testimonials and are highly regulated regarding how they advertise their investment performance and results, how are advisors supposed to handle LinkedIn endorsements in a compliant manner?

While many compliance officers have simply decided that the easiest solution is to ban endorsements altogether - which can now be easily done using the tools of the LinkedIn platform itself - McIlwain notes that ultimately the regulations really only prohibit the use of endorsements that are from clients or related to financial services and your ability to manage money (assuming your firm's own social media compliance policy isn't more restrictive). Accordingly, while some have simply eliminated endorsements from their profiles altogether, the alternative is to only hide endorsements related to specific people (e.g., clients) and/or specific skills (e.g., investment performance), both of which can now be done on the LinkedIn platform. According, McIlwain provides a walk-through of the exact steps that have to be taken to make the appropriate and compliant changes for LinkedIn endorsements, and shares some thoughts about how to communicate your actions - especially to those clients who may have provided an endorsement that you've subsequently be forced to hide - to ensure that every endorsement you receive still has a positive outcome!

The Growing Marketing Inequality In Financial Planning Firms

August 26, 2013 07:01 am 11 Comments CATEGORY: Marketing

Given that the core of financial planning is the delivery of personalized, customized financial advice, there have always been limited benefits of scale for financial advisory firms; no matter how good the technology, operations, and staff support, advisors only have so many hours available and so much mental "bandwidth" to serve clients, ultimately limiting the scalability of an advisory firm.

Yet while advice itself may not be conducive to scale, the marketing of financial advice certainly is. In fact, recent industry studies are beginning to show that larger firms seem to be driving more referrals than smaller ones, and many of the largest advisory firms are generating a huge volume of new clients by leveraging the value of relatively few dedicated full-time marketing staff.

Accordingly, this suggests the environment for smaller advisory firms may become increasingly challenged, as the larger firms grow larger while the smaller firms remain "stuck" small, unable to reinvest enough into marketing the practice to accelerate its own growth. While this may not be the end of small firms and solo practitioners, it will make such firms increasingly reliant on scalable marketing strategies (e.g., social media) or focused niche markets to carve out a space where they can remain differentiated and truly competitive.

Weekend Reading for Financial Planners (August 24-25)

August 23, 2013 12:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with some turmoil between NAPFA and the CFP Board, which have split on the definition of "fee only" and created the awkward scenario where some "fee only" planners under NAPFA actually don't qualify as "fee only" CFP certificants.

From there, we have several practice management articles this week, including some ideas from Bob Veres about how to fix the industry's regulatory woes, some tasks to target for outsourcing in your firm, and a discussion of whether we need to reframe "succession planning" as "continuity planning" instead (to recognize that many advisors want a more continuous and ongoing role in the transition). We also have a few articles related to technology topics, including a look at how to make sure your client data is safe when you're using your laptop and mobile devices on (public) WiFi networks, and a nice summary of Susan Weiner's "Virtual Book Tour" with a long list of great articles on blogging for financial advisors (great tips whether you're thinking about getting started, or trying to get better).

There are also a few technical articles this week, including on from Ed Slott about the latest proposals for changes to retirement accounts under President Obama's budget (some beneficial for clients, some not so much), and another article about the rising specialty of helping clients through health care and health insurance issues in retirement.

We wrap up with three interesting final articles: the first is from the Research Puzzler blog, suggesting a fresh way to look at the active vs passive debate is to distinguish between "maximzers" and "satisficers" instead; the second about the concept of "negative selling" and reverse psychology, where sometimes clients are more engaged by telling them what they can't have than what they can; and an intriguing discussion by financial planning blogger Ronald Sier about the fact that in the end, most clients don't have financial goals, they have real world goals that have financial ramifications, and we as advisors need to adjust our conversations accordingly. Enjoy the reading!

Nerd’s Eye View Is Reborn

August 22, 2013 06:01 am 27 Comments CATEGORY: Nerd's Eye View

Almost 6 years ago, the Kitces.com website launched, and along with the new site, this Nerd's Eye View blog was born. At the time it was launched, I was quite proud of the site. It was "sharp" and "cutting edge" for its time, and early readers of the blog were quite complimentary (and I'd like to think they weren't just being polite!).

As the years have gone by, though, the technology underlying the site grew more and more aged, and failed to keep pace with the great leaps in blogging and website platforms that have exploded forth since 2007. The visual look of the site began to feel a bit dated, and the explosion of mobile devices turned what was already a "not very large" default font size into reading that was painfully too small.

Accordingly, the time had come this year for an overhaul to bring the Nerd's Eye View up to current standards, and I'm thrilled to announce that today is the fresh launch of the new site. You'll see a number of changes immediately, with many further enhancements to roll out in the coming months as well! I hope you enjoy what you see, and please don't hesitate to share your feedback (good or bad!) as we work out the final kinks!

An Alternative Reason Good Investment Managers Struggle To Persist

August 21, 2013 11:06 am 8 Comments CATEGORY: Investments

Earning an income is a fundamental incentive to work. It starts with just earning enough for the essentials of food, clothing, and shelter. From there, it grows to a desire for a greater lifestyle, the “nicer things” of life, and perhaps even the opportunity to accumulate enough to not need to work in the future (i.e., to retire), which in turn incentivizes trying to further grow income and advance a career.

Yet the reality is that the incentives of this “game” change over time; taking a high-stakes risky “stock-like” approach to career is great in the early years, when the upside is great and the downside is limited, but becomes less appealing as the years go by. Wealth is accumulated, goals are achieved, lifestyle is increased, and at some point the game of life changes to be less about getting more and instead is more about enjoying (or at least, not losing) what you’ve got. Accordingly, good career management shifts from treating the career less like a risky stock to something more like a conservative bond.

These dynamics of how the career management game is played, though, impacts career incentives as well, and in the context of investment management can result in a material change in career/performance incentives. This may be particularly true in the world of investment management, as the desire to build a great fund or firm gives way to a new desire to ensure it's not (quickly) lost. And as the incentives to excel potentially decline for many as success comes, the risk rises that even the best managers will lose the willpower and desire to continue to be the best… which ironically means that perhaps the best investment managers most likely to persist are the ones we often lambast - those who are the most money-obsessed, who keep driving for more and more and more despite the fact they probably could have checked out of the game long ago, and who never wane in their desire (or lose their incentive) to keep playing the game to be persistently great.

9 Ways A Virtual Assistant Can Streamline Your Financial Advisor Blogging

August 20, 2013 11:05 am 20 Comments CATEGORY: Practice Management

Getting started with blogging as a financial advisor can be a challenging task. While there's a lot of appeal in a blogging-and-social-media-based marketing strategy - including the fact that it's very inexpensive marketing, and can be an especially good way for a small firm to differentiate itself - most advisors aren't exactly sitting around with a lot of spare time in their day to take up a new marketing initiative.

In this guest post, Investment Writing blogger Susan Weiner - author of the newly released "Financial Blogging" book for advisors - shares some insights about how advisors can leverage the services of a virtual assistant, at a low cost, to help get started with a new blogging effort. As someone who uses a virtual assistant (VA) to help with some of her own blogging, Susan has excellent perspective "from the trenches" about what does and doesn't work in hiring a VA.

So if you're an advisor who's been thinking about trying to start blogging but realizing you'll need some help - or perhaps an advisor who's already making the effort but would like some inspiration about how to more effectively leverage your time - today's guest post should be helpful for you with some tips and guidance about how to go down the virtual assistant road yourself. Who knows, you might even find that virtual assistant can help you with some other parts of your busy work life, too?

Price Saliency, Value Saliency, And Getting Paid For Shadow Work

August 19, 2013 11:03 am 1 Comment CATEGORY: Practice Management

In an ever-busy world, our brains can only keep track of and manage a limited amount of information; the rest, that's less salient, just slips by. In the best of circumstances, we make good choices about what to pay attention to, and use that information to make the best decisions, but in reality the things that are most salient are not always the best bits of information. On the one hand, this leads to a lot of bad decisions; but on the other, it also creates an opportunity to help shape people's decisions by making key information more or less salient.

In fact, planners have increasingly been using this technique in recent years, engaging in the practice of charging separate financial planning fees, in an effort to make the financial planning more salient, assuming that "clients value [more] what they pay for" and may better appreciate all the behind-the-scenes "shadow work" done on their behalf if they write a separate check. Yet a deeper look reveals that ultimately this is a rather crude way of justifying the financial planning value proposition; drawing attention to the price forces people to consider what they're getting for their money, and therefore to think about its value, but focusing on fees is not always a positive. After all, in most industries charging separately for fees is a nuisance and a negative - it's actually designed to discourage people from utilizing the service, from overdraft fees to baggage fees to insurance copayments and deductibles! Is it really a good idea to risk putting clients into the same mindset about their financial planning "fees" too?

Instead, if the true goal is to make the value of financial planning more salient, then perhaps the focus would be better directed towards that goal itself. For instance, by creating more/better deliverables for the client beyond just the financial plan itself, perhaps including a mind map of their financial picture or a personal organizer for their financial files. Alternatively, financial planning value might be emphasized by making a conscious effort to always direct focus in client meetings towards the planning, with a meeting agenda that explicitly highlights the financial planning "check-in" and ongoing action items. Some firms even provide clients with a list of the financial planning "shadow work" tasks (printed directly from the CRM!) being done on their behalf. Ultimately, the goal shouldn't actually be to make financial planning fees and costs more salient, but to minimize the saliency of the costs and maximize the saliency of the value itself!

Weekend Reading for Financial Planners (August 17-18)

August 16, 2013 05:05 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with an announcement by the CFP Board at their recent Program Directors conference that they intend to offer a "massive online open course" (a "MOOC") to help draw new potential professionals into the field of financial planning (and ultimately to pursue their CFP designation). Also in the news this week was the latest data from Schwab Advisor Services on advisor mergers and acquisitions, showing a notable slowdown in activity in the first half of 2013, and a look at the new investment data solution YCharts that is aiming to become the Bloomberg terminal for advisors (at a more reasonable price point, and with Morningstar as one of its venture capital financiers)!

We have a few technical articles this week, including a discussion about Social Security benefits estimates and the fact that they don't take into account the "Windfall Elimination Provision" for those who spent a period of years working in a job that wasn't covered by Social Security, a look at a recent IRS ruling on Self-Cancelling Installment Notes (SCINs) that may have a chilling effect on their use as an estate planning technique, and a Journal of Financial Planning article that provides a good overview of some of the research on asset location and determining after-tax asset allocation decisions.

From there, we have a few practice management articles this week, including two compliance-related articles: one on the importance of business continuity and disaster recovery plans, and the other on why the custody rule matters for financial advisors and how to avoid or manage it (hint: just using a third-party custodian is not enough). There's also an article from Bob Veres envisioning how financial planning firms may shift in the future, with a less asset-centric focus and more attention to the human capital aspects of planning for clients.

We wrap up with three interesting final articles: the first is from marketing guru Seth Godin, about the idea of "if there are people who are an accident just waiting to happen... what's the opposite?" suggesting the answer is to be "formidable" and what it takes to live up to the label; the second is from the blog of Stephen Wershing, and makes the excellent point that just because advisory firms are growing doesn't mean they're good at marketing, when in truth they may just be good at selling; and the last from practice management consultant Angie Herbers, suggesting that in the end we may be attaching far too much stigma to the decision of advisors to "downsize" their firms and that ultimately success is about how the business owner measures it, not what everyone else thinks. Enjoy the reading!

MailBag: Why There Will Never Be A Successful Financial Advisor Review Site In The Foreseeable Future

August 15, 2013 11:03 am 6 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at a question about why "advisor review sites" - which aim to gather client reviews about advisors to help consumers choose a good one - just won't work in the financial advisory world anytime soon... as great as it would be to have a consolidated source for financial advisor reviews to help consumers!

Renaming The Outcomes Of A Monte Carlo Retirement Projection

August 14, 2013 11:03 am 8 Comments CATEGORY: Retirement Planning

Over the past decade, Monte Carlo analysis has been slowly replacing its retirement planning predecessor - the straight-line projection - which was overly reliant on a single distant outcome, with no acknowledgement of the potential impact of volatility on the final results and the success of the plan. By contrast, the virtue of Monte Carlo analysis is that it shows a range of possible outcomes, and quantifies results not with a single and inevitably inaccurate estimate of final wealth decades from now, but instead a probability of success/failure that captures how many of a wide range of outcomes are projected to be successful or not.

However, as Monte Carlo analysis has become increasingly popular, the focus has unfortunately shifted once again towards a single projected outcome - the probability of success/failure - without fully acknowledging the range of outcomes and their nuances, such as the fact that a plan with a higher probability of failure may actually be the more appealing option if it's accompanied by a less severe magnitude of failure. Perhaps most significant, though, is simply that the labels "success" and "failure" do little to connote the true reality - that "success" actually means an excess left over, and that failure merely means that some kind of mid-course adjustment may need to occur.

Yet the reality is that while these differences are arguably mere semantics and nuance, how results are framed matters, and can significant impact real world client behaviors, given the difficulty our brains have in trying to interpret Monte Carlo's probabilistic results. Which means if the truth is that "failures" merely require mid-course adjustments and that "successes" actually leave over excesses, perhaps it's time to relabel Monte Carlo results accordingly as "probability of adjustment" and "probability of excess" to ensure clients are making the proper decisions!