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#FASuccess Ep 059: Systematizing The Financial Life Planning Process To Increase Your Money Quotient with Carol Anderson

February 13, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 59th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Carol Anderson. Carol is the founder of Money Quotient, a 501(c)(3) non-profit organization in Portland, Oregon that provides financial life planning training to advisors.

What's unique about Carol and Money Quotient, though, is the way they have systematized the process of doing financial life planning for clients.

In this episode, we talk in depth about the 5-meeting financial life planning process that Money Quotient has developed, built around their 5-E stages of Explore, Engage, Envision, Enlighten, and Empower, how advisors can use standardized survey tools regarding a prospective client's financial well-being and potential life transitions eto set a more holistic tone to a financial planning engagement from the start, the way Money Quotient segments the qualitative data gathering process into Satisfaction and Values, Biography, Transitions, and Goals, and the meeting templates they've developed to systematize every step of the process along the way.

We also talk about the psychology and sociology research and theoretical framework that underlies the Money Quotient approach – as they are a uniquely research-based organization in developing their financial life planning framework – the 3-day training program they've developed to teach advisors about their communication tools, and why Carol doesn't consider financial life planning to be an alternative to traditional financial planning, and instead simply views it as a better way to help clients develop the self-awareness they need to truly identify the goals that will really improve their own well-being.

And be certain to listen to the end, where Carol shares her own story about developing Money Quotient, the challenges she faced when her initial partnership didn't work out well, how her daughter ultimately pulled her back into the business, and how Money Quotient is now seeking to grow its own footprint. Because the reality is that the challenges of building a business are equally applicable to both us as financial advisors, and the service providers who work with and train us, too.

So whether you are interested in learning more about Money Quotient's financial life planning process, curious what insights psychology and sociology may have for financial planners communicating with clients, or want to learn more about building a business servicing financial advisors, I hope you enjoy this episode of the Financial Advisor Success podcast!

12 Tips To Survive Your First 12 Months As An Independent Financial Advisor

February 12, 2018 07:01 am 12 Comments CATEGORY: Practice Management

While the average financial advisor with 10+ years of experience makes nearly triple the median US household income, the caveat to becoming a financial advisor is that most don’t survive their first few years, and the pressure of getting all your own clients (and persuading them to actually pay you for advice!).

In this guest post, first-year financial planner Shawn Tydlaska shares his own survival tips for having gotten through his first year, on track for more than $100,000 of recurring revenue(!), which he achieved in large part by heavily reinvesting in himself throughout the first year. Of course, reinvesting means that Shawn spent more than many advisors do in trying to start their advisory firms on a low budget… yet at the same time, by focusing on reinvesting his income as it came in, he was able to do so while limiting his actual out-of-pocket costs.

Shawn also shares exactly what kinds of conferences and courses he put himself through to accelerate his growth, how he structured his marketing (and what materials he takes into a typical prospect meeting today), what he tracks in his business, how he leverages his study group, and more!

So whether you’ve been thinking about going out on your own as an independent advisor but aren’t certain what to do, or you’re already in your first few year(s) and looking for fresh ideas about how to better focus, or are an experienced advisor and just want some fresh perspective, I hope you find today’s guest post to be helpful!

Weekend Reading for Financial Planners (February 10-11)

February 9, 2018 02:02 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with some potential talking points to clients about the recent market volatility (and a good reminder that while it's stressful, this is a time to reinforce your value with clients, and even encourage them to refer other friends and family who may be nervous as well).

Also in the news this week are some new regulatory initiatives around advisory fee disclosures, including both the latest exam priorities from the SEC that are targeting both advisory fees and any less-transparent behind-the-scenes compensation advisors may be earning, and a new standardized "fee table" that Massachusetts may soon start to require all RIAs to use to clearly (and consistently) disclose their compensation.

From there, we have several additional investment-related articles, including a discussion of the implosion $XIV (the short/inverse VIX fund that may have accelerated/amplified the market decline), a look at why the Shiller CAPE ratio deserves more credit than it has being given in recent years, why the rising interest in using actively managed bond funds to deal with potentially rising interest rates may be misplaced, and a strikingly candid discussion from Morningstar on how its new Analyst Ratings have been performing over the past 5 years (and where they can still be improved).

We also have several articles specifically on marketing and business development, from a look at the research on the psychology of referrals and word-of-mouth marketing (hint: it's all about what the referrer believes he/she can gain in social capital by making the referral, not about helping the advisor being referred!), a good discussion on how closing online prospects who find you via your website is different than the traditional sales process for new clients, and why advisors need to be very careful when promoting any awards or rankings that the firm receives.

We wrap up with three interesting articles, all around the theme of looking differently at common problems: the first looks at how, when we compare income inequality across multiple countries, many of the common explanations for why it is occurring (e.g., decline of unions, rising immigration, etc.) don't hold up, and that instead it may be the rise of regulatory barriers that are actually insulating and compounding income inequality (especially in professional services, health care, and the financial industry); the second explores how becoming an expert may actually make you more referrable than "just" being a specialist in a niche (though becoming a recognized expert is also arguably harder than "just" focusing on a niche); and the last raises the question of whether the traditional industry mantra "life insurance is sold, not bought" may simply be because historically insurance was so opaque and so hard to buy, and whether the rise of "InsurTech" tools will lead even fee-compensated advisors to increasingly implement insurance recommendations directly for clients, as it becomes easier and easier to actually do so!

Enjoy the "light" reading!

What This Week’s Market Volatility Teaches About Making Customized Portfolios For Every Client

February 8, 2018 12:57 pm 3 Comments CATEGORY: Practice Management

The big news this week was the "record-breaking" drop (at least in absolute point decline) in the stock market on Monday, the incredible blow-out of the VIX, and the challenge that inevitable comes when market volatility rises: the need to check in with clients, talk them through what’s happening in the markets, evaluate whether it’s necessary to make any portfolio changes, and try to talk them off a ledge if they’re really freaking out. But the reality is that being able to proactive communicate with clients, and have effective client meetings, during times of market volatility, is actually heavily impacted by how you construct your client portfolios in the first place, and the extent to which you customize those portfolios for each client.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we examine the problem with financial advisors customizing every client portfolio, particularly once we experience volatile markets, and how financial advisors (and asset managers) should look at "customization" going forward!

In a world where advisors are trying to become less product-centric and add more value to clients, there does appear to be a nascent trend of advisors trying to create more customized portfolios for clients. Though this idea isn't exactly new (it has occurred for decades in the form of selecting stocks and mutual funds for clients and adapting at every client review meeting), the rise of rebalancing software (or “model management” software tools more broadly), has made it easier to systematize the process of customizing individual client portfolios, while still being able to monitor and manage them centrally.

But I think this week’s market volatility is actually a really good example of the problem that arises with trying to create drastically customized and different portfolios for every client: if every client has their own “customized” portfolio, then it is really hard to keep track of all of your different clients and their portfolios. And so, instead of being able to easily send out broadly applicable communication to your client base, you’ll end up spending an hour to prep for every meeting and write every personalized client email during volatile market times. Simply put, customizing every client portfolio isn’t scalable for the client relationship itself (regardless of the scalable back-office technology to support it).

The challenges of the trend towards customization is notable with respect to asset managers as well. Because asset managers are – justifiably, I think – afraid of their future in a world where advisors are less product-centric, and looking to retool their own businesses. And the discussion I’m hearing more and more from those asset managers is “if advisors don’t want to use standard mutual fund products anymore, then we have to pivot and go the other direction. From products to customization instead!” But here’s the problem: when we look at the advisory firms adopting ETFs and eliminating mutual fund products, they’re not really customizing that much anyway. Even advisory firms that have dropped mutual funds and are building model ETF portfolios, not customized ETF portfolio (allowing them to keep charging their 1% fee while disintermediating the cost of the mutual fund manager, and effectively turning themselves into portfolio managers). So the real shift is that the client buys the investment “product” from the advisor and the advisor’s firm, not from the mutual fund company or other asset managers. The opposite of product isn’t customization. The opposite of product is advisor. When our value proposition is based on what we do, we don’t want to sell a third-party product, of any type. We want to sell ourselves!

So where does all of this leave us? From the advisor’s perspective, and particularly for those of you who are now struggling to figure out how to assess the damage of this week’s market volatility because all of your clients have "customized" portfolios... let this be a call-to-action for you of how not scalable you’re making the client relationship management needs of your business. There are a lot of firms that are growing just fine without customizing every single portfolio differently for every client. There may be times when some customization is still needed, but it is better to customize from a planning perspective (e.g., for tax purposes) rather than an investment perspective.

And for Asset Managers, particularly mutual fund managers, trying to figure out how to reach advisors and stay relevant… I can only caution you that the push towards making more customized solutions is not likely to work out well for you. If you want to stay relevant as financial advisors transition from salespeople to actual advisors, figure out how to make better products that cost less and are truly best in class at what they do. Because as advisors, if you can pass our screens and get to the top of the list, you get all of our money in that fund or category. And if you can’t, you’re never going to get in the door in the first place anymore.

The bottom line, though, is just to recognize that customizing portfolios for every client is simply not a scalable model, not because of technology limitations but in light of the stress and communication challenges that come with trying to help our clients through volatile markets. Which means this may be a great opportunity to begin the process of standardizing your investment process (if you haven't already) so that you can actually be more proactive with clients, when you’re not spending all that time re-analyzing every client’s portfolio one at a time!

Why Good Financial Behavior Isn’t Achievable Until You Believe That It Is

February 7, 2018 07:01 am 3 Comments CATEGORY: General Planning

As almost all financial advisors have experienced, instilling behavior change in clients can be a tough task. Though we can easily see ways in which clients could improve their behavior for the better (which are often known by clients as well), the reality is that merely telling clients about how they can improve their behavior is rarely enough to actually get them to do so. While there are many reasons why this could be the case, one common barrier to behavior change is that if the client isn't self-confident in his/her own ability to successfully make the change in the first place – lacking the "self-efficacy" to be successful – then the change simply doesn't happen.

In this guest post, Dr. Derek Tharp – a Kitces.com Researcher, and a recent Ph.D. graduate from the financial planning program at Kansas State University – examines the concept of financial self-efficacy (i.e., one's confidence in their ability to complete a financial task), and looks at how research might suggest that financial advisors can help their clients build greater levels of confidence in their own ability to actually engage in (and therefore adopt) better financial behaviors.

Though it is not a term that is as popular outside of academic circles, "self-efficacy" is a broader concept which refers to one's confidence in their ability to engage in a particular behavior. Growing out of research related to positive psychology (the study of what makes people flourish), self-efficacy has been found to be an important concept related to promoting good behavior in many areas of life. Though research specifically within a financial planning context is still limited, some early findings suggest that promoting the practice tenets of positive psychology captured within the PERMA framework – which posits that Positive emotions, deep Engagement in activities, worthwhile Relationships, finding Meaning in one's life, and Achieving a sense of accomplishment – may be ways in which financial advisors can help clients improve their financial self-efficacy.

Additional research on self-efficacy more generally suggests that performance accomplishments (e.g., helping our clients develop skills that they need to be confident in taking action), vicarious experience (e.g., serving as a good financial role model for our clients), verbal persuasion (e.g., providing encouragement when our clients need some financial coaching), and emotional arousal (e.g., encouraging/discouraging financial decision making when clients are in ideal/non-ideal levels of emotional activation) may all be effective ways that financial planners can help their clients build financial self-efficacy. As a result, financial planners who wish to help their clients implement better financial behaviors should not ignore the potential power of promoting financial self-efficacy. When it comes to helping clients make good decisions, helping clients believe they can accomplish the financial behavior in the first place is crucial!

#FASuccess Ep 058: Custom Designing Your Office For A Better Data Gathering Experience with David Armstrong

February 6, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 58th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is David Armstrong. David is the co-founder of Monument Wealth Management, a hybrid RIA in the Washington DC area that serves 120 families and oversees nearly $300 million of assets under management with a team of 11 people.

What's unique about David's business, though, is the way that he's evolved the business over time, having built his early career under a broker-dealer, then shifting to a hybrid arrangement with an outside SEC-registered RIA that is separate from his broker-dealer, and steadily dialing down his amount of broker-dealer business over time as he shifts increasingly towards an AUM-based wealth management model to serve his clients.

In this episode, we talk in depth about the way that David has focused the firm over time towards clients who have created their wealth through a business or other liquidity event, their Ensemble approach where every client is truly a client of the firm and not just a particular advisor, the way Monument Wealth Management has structured their team into Client Services, Financial Planning, and Asset Management, and how the firm has systematized everything from their financial planning deliverables, to their path to partnership, the using of an engagement letter before taking on a client, and even their data gathering process.

In fact, we talk in depth about the way David structures his data gathering process with clients in particular, by creating an interactive experience using a series of conference room white boards to collect information – and help clients actually see and visualize their own financial situation – in a physical space in his office that was first built as a "thinking room" and then become the planning and discovery room specifically to support this process with clients... culminating in a physical deliverable to clients that David calls their "Monument Blueprint", and becomes the basis for subsequently building out the client's entire financial plan.

And be certain to listen to the end, where David also shares his unique hiring process to find great staff to join the firm, which includes a job description that explains not only the nature of the job and the tasks that it entails, but an in-depth discussion of the values of the firm that every candidate should be interested in before they work there, and a lengthy list of all the reasons that a potential candidate should not take the job... just to ensure they really screen out those who wouldn't be a good cultural fit anyway!

So whether you are interested in learning more about transitioning away from a broker-dealer business to an AUM-based RIA business, curious how you can grow your business through a more interactive data gathering process, or simply want to learn more about how you can find great staff to join your team, I hope you enjoy this episode of the Financial Advisor Success podcast!