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#FASuccess Ep 053: How Compassionate Communication Makes Us “No Longer Awkward” With Grieving Clients with Amy Florian

January 2, 2018 07:01 am 4 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 53rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Amy Florian. Amy is the founder of Corgenius, a consulting firm that teaches and trains financial advisors about how to work better with grieving clients.

What's fascinating about Amy, though, is that she actually is a trained Thanatologist – one who studies death, loss, aging, transitions, and the various forms of grief. A path that first started for her when she unexpected become a young widow herself at the age of 25 with a 7-month-old son after a tragic car accident, and ultimately evolved into running a support group for widows, getting a Master's degree and becoming a Fellow in Thanatology, and over the decades has expanded into conference presentations, workshops, a master class, and a series of books, with a primary specialization in working with us as financial advisors.

In this episode, we talk in depth about the real challenges as a financial advisor when trying to work with clients who are grieving, why the grieving process isn't just about death and dying but any time someone has a break with an attachment – which can even include the break from the attachments of existing social relationships and personal identity when someone retires – and how in the end our job as advisors working with grieving clients isn't about trying to make them feel happier, but simply to comfort them as they go through their own healing process. Even if that means there's a lot of crying.

Unfortunately, though, in practice this isn't what most of us tend to do when faced with situations of death, dying, and grief. Because these are situations that most are never trained to handle in the first place. Accordingly, Amy shares her expert perspective on how to be "No Longer Awkward" with grieving clients, what we should do and say to really comfort them, why saying "How are you holding up?" or "Is there anything I can do?" is not actually helpful for those who are grieving, why it can be even worse to try to hand a box of tissues to a crying client in your office, and why it's better instead to ask "What do you wish people knew about what this is like for you?" or simply "What kind of a day is this for you?".

And be certain to listen to the end, where Amy talks about how even though we as financial advisors aren't meant to be professional grief counselors, that ultimately we can be "grief companions" that provide our support... beyond just trying to help with the financial issues that arise in times of grief.

So whether you have been curious about how you can be less awkward around grieving clients, the specific challenges financial advisors should expect when working clients suffering a break with some type of attachment, or curious about the role advisors can play beyond just addressing financial issues that come during times of grief, I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (January 2018)

January 1, 2018 07:01 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the January 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 that the Center for Research in Security Prices (CRSP) is working with Vanguard to put its Total Stock Market Index (along with several others) on a publicly available blockchain… which makes it feasible to instantly (and evenly) distribute updated index information to all market participants at once, and facilitate index implementation and maintenance at a far lower cost than today. For all the buzz of blockchain, this may be the start of an actual wave of new applications to put the cost-reducing technology to use in the advisory industry.

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

Quovo launches PFM modules to make it easier for financial institutions to quickly deploy client-facing account aggregation tools
Risk tolerance assessment provider RiskPro is gaining traction with mid-sized broker-dealers by focusing on the compliance monitoring aspects of ensuring that client portfolios remain in line with client risk tolerance
Fi360 launches an expanded version of its Fee Benchmarking tool for retirement plan advisors
RetireUp announces that it is finalizing a patent on its real-time collaborative retirement projection tools… raising the question of whether the company is trying to patent a technique that is already in common use anyway, and the spectre of a years-old lawsuit between Wealthcare and MoneyGuidePro over a similar type of patent infringement case

This month’s Advisor FinTech news also includes a look at several new categories of emerging advisor technology, including industry-specific social media and digital marketing tools from Hyperchat Social, account-aggregated business intelligence tools from AdvisorClarity, and custom white-labeled chartbooks for advisors from Clearnomics.

And be certain to read to the end, where we take a retrospective look at just what a big year 2017 was for Financial Advisor FinTech from the perspective of new venture capital inflows, and what are likely to be some of the hot trends of 2018, including Direct Indexing 2.0 solutions, the rise of advisor technology as a product distribution channel, and the increasingly disparate demands of planning-centric versus investment-centric advisory firms when it comes to technology solutions.

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]!

Weekend Reading for Financial Planners (December 30-31)

December 29, 2017 02:50 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the stunning revelation from a Wall Street Journal investigative report that a substantial number of the Public Comments submitted against the Department of Labor's fiduciary rule (and supporting its delay) were actually fake comments posted in the names of real people who didn't even know their names had been used (and more often than not were actually in favor of the fiduciary rule as written). In the meantime, with the DoL fiduciary rule is delayed, New York's Department of Financial Services has released its own proposed regulation to subject insurance and annuity agents in New York to a state-level fiduciary rule instead (after Nevada implemented a similar rule a few months ago). Also in the news this week was the release of updated "guidance" from the IRS clarifying that deducting a prepayment 2018 property taxes in 2017 is only permitted if the county had actually assessed (i.e., the homeowner had become liable for) the tax.

From there, we have investment related articles this week, from a look at the rise of "digital marketplaces" for alternative investments like iCapital and CAIS that aim to make it easier for independent uses to use alternatives, to a discussion of technology tools that are being developed to allow "direct indexing" (where clients own an index by using software to manage a portfolio of the underlying components of the index, without needing to pay a mutual fund or ETF), and a comparison of some of the most popular "model marketplaces" that gives advisors the opportunity to use third-party models by retain control of (and responsibility for) implementing the trades themselves.

We also have several retirement planning articles, from an interesting discussion on the hazards of investing in the markets with the plan to buy "safe" (e.g., annuity) income later, Wade Pfau on strategies to manage sequence of return risk in retirement, and a discussion from Bill Bengen on how to monitor retirees' ongoing current withdrawal rates to identify those who may be in trouble.

We wrap up with three interesting articles, all around the theme of the way our economy is being reshaped: the first looks at the rise of robots and automation in sectors that were previously thought to be less exposed (e.g., restaurants and hotels), finding that while some jobs may be eliminated, new ones are also being created, and the net job impact could actually still be positive; the second is an interesting 10-year retrospective look from the Cleveland Fed at the factors that led to the financial crisis, the impact of the aftermath, and how the Fed looks differently at the banking system and its risks today; and the last is a fascinating discussion of how in the past, local areas of economic opportunity could create "boomtowns" that attracted those in search of jobs and higher wages (e.g., Chicago grew from 30,000 people to over 2 million in just a few decades), but in today's world interstate mobility is actually down, and the reason appears to be local housing policies in major metropolitan areas that have made it so expensive to move that people are not able to take advantage of the job opportunities there... which ultimately may help to explain why the U.S. has experienced more sluggish GDP growth in the aggregate over the past two decades!

Enjoy the "light" reading, and have a Happy New Year!

Are Broker-Dealers Drowning In Their Own Lowest Common Denominator Compliance Standards?

December 28, 2017 02:01 am 11 Comments CATEGORY: Planning Profession

Earlier this month, TD Ameritrade did a survey study of breakaway brokers – specifically asking those who were breaking away why they were leaving – and overwhelming, the top challenge that breakaway brokers cited for the broker-dealer world is the current regulatory environment. In essence, the compliance and regulatory burden of working at a broker-dealer is slowly but steadily driving advisors to the independent RIA channel. Which is interesting given that the broker-dealer community maintains that a fiduciary rule (e.g., from the Department of Labor) is unworkable due to the regulatory and compliance burdens it creates... even as leading advisors at broker-dealers continue to leave and transition to the fiduciary RIA model!?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the interesting trend of advisors leaving broker-dealers to become fiduciary RIAs, why fiduciary regulation is actually easier to comply with than broker-dealer suitability, and why the real problem at broker-dealers is not the compliance burden of a fiduciary rule but the lax recruiting standards at many broker-dealers (which have brought them reps that don't have the requisite training and experience to be fiduciary advisors!

There has been much discussion in the industry in recent years about how the fiduciary standard is a higher standard than "just" suitability. There’s more scrutiny on conflicts of interest, and an RIA’s Form ADV has a lot more required disclosures and cost details than typical broker-dealer agreements. And the Department of Labor’s fiduciary rule outright bans a lot of conflicted compensation arrangements. But indirectly… that’s the point of why it's actually easier to comply with a fiduciary rule! When firms are required to disclose more details about their conflicted compensation, many simply stop doing it, and the result is business model that is much simpler to comply with the regulations. In fact, under principles-based fiduciary regulation, it's not exactly clear where the line is between appropriate and inappropriate behavior... so advisors tend stay far away from that line, which ironically leads to fiduciary advisors often having lower E&O insurance costs than brokers. By contrast, under rules-based suitability regulation, in which FINRA lays out a clear line, brokers are invited to get really close to the line, and even allowed to be incentivized to step over the line. Which then means FINRA must focus a huge amount of its regulatory energy in trying to keep people right on that line, and punishing them whenever they do respond to incentives and step over the line.

In the end, there are actually two problems with this kind of regulatory approach. The first is that the industry is inevitably going to have a lot of people who do step over the line, which means a lot of regulatory fines, lawsuits that go to arbitration, and higher E&O costs. The second problem that crops up with this kind of regulatory approach, though, is what I call the lowest common denominator (LCD) compliance problem. In the broker-dealer context, lowest common denominator compliance means the compliance department writes all their rules and regulations for the lowest common denominator. Basically, whatever the one biggest idiot under the entire broker-dealer umbrella could possibly do to cause harm… the broker-dealer writes compliance rules to ensure that one person is "properly" overseen. Which means for everyone else – all the normal, high-quality honest and ethical advisors – are stuck complying with the rules written for the biggest idiot in the organization! And this problem is exacerbated by the fact that as the best advisors are driven away by LCD compliance standards, the quality of the average rep that stays behind is reduced, which means the broker-dealer has to tighten the compliance screws even further, and the problem just spirals downward.

Fortunately, I don’t think this necessarily means we’re at the beginning of the end of the broker-dealer model. While historically (and from a legal perspective) broker-dealers only exist to serve as an intermediary to facilitate the sale of commission-based brokerage products, broker-dealers have increasingly provided a second value proposition as well – they’re essentially "advisor support networks". Many advisors are not interested in building their own business from scratch, and broker-dealers can continue to fill this void by providing tools, resources, and a platform. However, it will require broker-dealers to improve their recruiting standards, so that LCD compliance standards don't make it so miserable for good advisors to stay in a broker-dealer!

But the bottom line is just to recognize that the regulatory woes of the broker-dealer environment aren’t really about the potential for a fiduciary standard to apply to them. What it’s really about is the fact that many broker-dealers have cast such a wide net in their recruiting process, that they’ve brought in some very low-quality reps. Which compels their compliance department to make lowest common denominator compliance rules, that make the lives of their best advisors miserable, and leads those advisors to leave and find “advisor support networks” that don’t come with the broker-dealer’s regulatory baggage. Which means broker-dealers need to find ways to screen out low-quality reps, get rid of bad ones, and lift themselves to a higher standard, so that they can retain good advisors who don’t like to be dragged down to LCD compliance standards!

Volatility Drag And Its Impact On (Arithmetic) Investment Returns In Monte Carlo Analysis

December 27, 2017 07:01 am 15 Comments CATEGORY: Investments

In the investment world, it’s common to discuss average rates of return, both in a backward-looking fashion (e.g., to report investment results), and in a more forward-looking manner (e.g., to project the average growth rate of investments for funding future goals in retirement planning software). However, the reality is that because returns are linked to each other – the return in one year increases or decreases the available wealth to compound in the subsequent year – it’s not sufficient to simply determine an “average” return by adding up all the historical returns and dividing by how many there are.

Instead of this traditional “arithmetic mean” approach to calculating an average, in the case of investment returns, the proper way to calculate average returns is with a geometric mean, that takes into account the compounding effects of a series of volatile returns over time. Which is important, because in practice the geometric average return is never as high as its arithmetic mean counterpart, due to the fact that volatility always produces some level of “volatility drag”, which can be estimated by subtracting ½ of the investment’s variance (standard deviation squared) from its arithmetic return.

Fortunately, the reality is that most investment returns, as commonly discussed by financial advisors, are already reported as geometric returns, typically stated as either a Compound Average Growth Rate (CAGR), an annualized return, or some similar label. Which means, intended or not, most financial advisors already project future wealth values in a retirement plan using the (proper) geometric return assumption.

However, the variance drain on a sequence of volatile returns still matters when financial advisors use Monte Carlo analysis, which by design actually projects sequences of random volatile returns (based on the probability that they will occur) to determine the outcome of particular retirement strategies. Because the fact that volatility drag is already part of a Monte Carlo analysis means that the return assumption plugged into a Monte Carlo projection should actually be the (higher) arithmetic return, and not the investment’s long-term compound average growth rate. Otherwise, the impact of volatility drag is effectively counted twice, which can understate long-term returns and overstate the actual risk of the prospective retirement plan!

The good news is that some Monte Carlo software tools, recognizing that most financial advisors report returns using the industry-standard geometric averages, already adjusts advisor-inputted return assumptions up to their arithmetic mean counterparts. However, not all Monte Carlo software automatically makes such adjustments. Of course, in many cases, financial advisors may wish to use lower return assumptions in today’s environment, given above-average market valuations and below-average yields. Nonetheless, advisors should be cognizant of whether they are unwittingly entering lower-than-intended return assumptions into their Monte Carlo retirement projections, compounding geometric returns in a manner that double-counts the impact of volatility drag!

#FASuccess Ep 052: Why Today’s Technology Tools Are The Golden Age Of Advisor FinTech with Joel Bruckenstein

December 26, 2017 07:01 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 52nd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Joel Bruckenstein. Joel is one of the industry's leading advisor technology gurus, publisher of the Technology Tools for Today newsletter, and runs the popular T3 Advisor and T3 Enterprise technology conferences for the financial advisory industry.

What's fascinating about Joel, though, is his nearly 20-year history of writing about and covering advisor technology trends, from publishing regular columns in Horsesmouth, Morningstar Advisor, Financial Advisor, and Financial Planning magazines, to his own newsletter and now his latest platform the T3 Tech Hub... which gives him an incredible perspective on the evolution of advisor technology tools over the years, and where the gaps still remain.

In this episode, we talk in depth about recent trends in advisor technology, the results of the latest Advisor Software Survey that Joel administers along with Bob Veres' Inside Information, why Joel views today as the "Golden Age" of advisor technology, and what kinds of new trends in advisor technology we're likely to see in the coming years.

We also talk about the real-world challenges of implementing advisor technology in the typical firm, why data migrations from one piece of software to another are so painful, and why many advisors may actually be trying too hard to find the best technology for their firm... when the real problem is a need for the firm to focus and systematize what it does just to make it possible for technology to help more in the first place.

And be certain to listen to the end, where Joel talks about the biggest areas where advisors can get better ROI from their technology... particularly when it comes to better utilizing CRM software for business intelligence purposes.

So whether you have been curious about the latest trends in advisor technology, are curious why Joel thinks we are living in the “Golden Age” of advisor technology, or have been wondering how you can better utilize your CRM and get a better ROI from your technology, I hope you enjoy this episode of the Financial Advisor Success podcast!