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Weekend Reading for Financial Planners (Sep 30 – Oct 1)

September 29, 2017 02:55 pm 5 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a good recap of the Winners and Losers in President Trump's new Tax Reform proposal, which appears to be "good" news for those who don't itemize deductions, high-income individuals, and especially owners of pass-through businesses (including many financial advisors themselves!), but bad news for those who live in high-tax-rate states, those with large homes and mortgages, high-wage employees, and people with large medical (or more recently, natural disaster) deductions.

From there, we have several advisor technology articles, from this week's blockbuster deal announcement that Envestnet is acquiring FolioDynamix (to form a combined entity that will support nearly $2 trillion of advisory and nonadvisory TAMP assets), to new reviews of the wealth management technology platform AdvisorEngine and a new Medicare enrollment solution for financial advisors (and their clients) called i65, and a nice listing of software solution that financial advisors can use to help improve their digital marketing presence and connect with prospects online.

There are also several practice management and marketing articles this week, including: why offering a "free first appointment" is not necessarily a good way to approach prospects; how telling your personal story, including the tough times in your life, can help you connect with prospects; how to shift your business towards a niche and strategies to refine it further; and a look at some recent research that reveals a new factor driving which clients refer their advisors: the extent to which they feel knowledgeable about their own investments.

We wrap up with three interesting articles, all about changing our own habits and mindset as financial advisors: the first explores how, if you really want to change and improve your habits, it's not just about making a commitment to do so, but actually trying to change your own self-identity and especially your environment to make it more conducive to the new habit; the second takes a challenging look at what it really means to be "open-minded" and the ideals to strive for (though they're difficult for anyone/everyone to achieve!); and the last is a fascinating look at how, despite the increasingly popular discussion of pursuing "work/life balance", that most people actually find their greatest moments of happiness when they are most deeply engaged, suggesting that perhaps the better prescription is not to be more balanced, but to be deliberately unbalanced and more focused, but with the internal self-awareness to recognize when it's time to hit the "pause" button or make a change.

Enjoy the "light" reading!

Why Is it So Hard to Ask For Referrals As A Financial Advisor?

September 28, 2017 03:01 pm 8 Comments CATEGORY: Personal/Career Development

Growing a client base and acquiring more ideal clients is a challenge all advisors face, regardless of how successful they currently are. And although almost everyone in the industry has heard that asking for referrals is an important way to grow a business, many advisors struggle with this. Which raises the question, as recently posed by Ron Carson at a recent keynote presentation: "Why don't more advisors ask for referrals? Are advisors afraid to ask for referrals because they’re not proud of their own services?”

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk about why it is so hard to ask for referrals as a financial advisor, and how the many barriers – including our pride (or lack thereof) in the company or products we represent, our confidence in our own value, or even shame about the industry we are in – can make it hard to ask for referrals.

Of course, when financial advisors get started, it isn't feasible to ask for referrals, because you don't have any clients yet to refer you; instead, the only choice is cold calling, "cold knocking" (walking the streets and knocking on the doors of small businesses), or some other cold prospecting strategy. In fact, arguably for newer advisors, the whole appeal of being able to ask for referrals to generate new business is the opportunity to get away from cold calling and other types of prospecting!

Yet the caveat is that it's difficult to ask for referrals, if you're not actually proud of your company and its products. Because if you know, deep down, that your solutions aren't really the best for your clients, you'll likely self-sabotage your own behavior - as I experienced myself when starting out as a life insurance agent, struggling to prospect and ask for referrals because I was embarrassed about the sales tactics my company was using at the time!

Of course, ultimately becoming a real financial advisor is not about getting paid for your company's products, but getting paid for your own advice, knowledge, and wisdom. But that still means it's hard to ask for referrals until you're actually confident in yourself, and your own knowledge. And here, too, many struggle, because if we don't actually know anything about financial planning, and we know that we don't, then we can't confidently convey our value. Which is why professional designations like the CFP marks are so helpful... because often it's only after completing a designation that many will really start to feel confident that they can bring value to the table, and ask for referrals.

Although even once advisors have expertise and can truly add value as a financial advisor, it can still be hard to have confidence to ask for referrals, when telling people "I'm a financial advisor" risks making you a social pariah because so many consumers have had bad prior experiences with advisors! That's the challenge of trying to do business in a low trust industry. When metrics like the Edelman Trust Barometer finds that fewer than 50% of all consumers trust financial services companies, it’s literally an odds-on bet that if you say “I’m a financial advisor” and ask for referrals, that the person’s first and immediate impression of you will be negative!

The bottom line, though, is just to recognize that there really are a lot of barriers that make it hard for us to ask for referrals, all of which are built around our own fears and discomfort in what we do, the value we provide, or the company/industry we represent. Our fears hold us back. And often our fears are quite well-founded. It really is uncomfortable asking for referrals when you’re not proud of the company and products you represent. Or you're not confident in your own value. Or you're ashamed of the industry you're in. So, if you find yourself at one of these blocking points, figure what do you have to do to grow past it - whether it's leaving your company, reinvesting in yourself and your education, or differentiating yourself from the rest of the industry - or you won't have the confidence you need to ask for referrals!

Risk Composure: The Real Predictor Of Who Can Stick To Their Investment Plan

September 27, 2017 07:01 am 7 Comments CATEGORY: Investments

Regulators around the world require financial advisors to assess their clients’ risk tolerance to determine if an investment is suitable for them before recommending it. For the obvious reason that taking more risk than one can tolerate will potentially lead to untenable losses. And even if the investment bounces back, an investor who loses more money than he/she can tolerate in the near term may sell in a panic at the market bottom, and miss out on that subsequent recovery.

Yet the reality is that many investors end up owning portfolios that are inconsistent with their risk tolerance, and it’s only in bear markets that they seem to “realize” the problem (which unfortunately leads to problem-selling). Which raises the question: why is it that investors don’t mind owning mis-aligned and overly risky portfolios until the moment of market decline?

The key is to recognize that investors do not always properly perceive the risks of their own investments. And it’s not until the investor’s perceived risk exceeds his/her risk tolerance that there’s a compulsion to make a (potentially ill-timed) investment change.

Yet the fact that investors may dissociate their perceptions of risk from the portfolio’s actual risk also means there’s a danger than the investor will misperceive the portfolio risk and want to sell (or buy more) even if the portfolio is appropriately aligned to his/her risk tolerance. In other words, it’s not enough to just ensure that the investors have portfolios consistent with their risk tolerance (and risk capacity); it’s also necessary to determine whether they’re properly perceiving the amount of risk they’re taking.

And as any experienced advisor has likely noticed, not all investors are equally good at understanding and properly perceiving the risks they’re taking. Some are quite good at perceiving risk and maintaining their composure through market ups and downs. But others have poor “risk composure”, and are highly prone to misperceiving risks (and thus tend to make frequently-ill-timed portfolio changes!).

Which means in the end, it’s necessary to not only assess a client’s risk tolerance, but also to determine their risk composure. Unfortunately, at this point no tools exist to measure risk composure – beyond recognizing that clients whose risk perceptions vary wildly over time will likely experience challenges staying the course in the future. But perhaps it’s time to broaden our understanding – and assessment – of risk composure, as in the end it’s the investor’s ability to maintain their composure that really determines whether they are able to effectively stay the course!

#FASuccess Ep 039: Using Behavioral Assessment Tools To Really Understand A Client’s Wealth Building Potential with Sarah Fallaw

September 26, 2017 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-ninth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Sarah Fallaw. Sarah is the founder and president of DataPoints, a technology company that is creating behavioral science and assessment tools for financial advisors to use to better assess, understand, and coach their clients' financial behaviors.

What's fascinating about Sarah's work with DataPoints, though, is the way that they have applied research rigor to the fundamental question of: what are the financial behavioral traits that lead people to actually turn their income into wealth. As advisors, many of us are already familiar with the concept of the mild-mannered "Millionaire Next Door" who, through steady frugal savings behaviors, has managed to accumulate substantial wealth, without being flashy about it. Well, as it turns out, that original research was done by Thomas Stanley - who was Sarah Fallaw's father - and it's his initial work that she has now extended even further, and turned into a series of assessment tools for advisors to use with our clients!

In this episode, we talk about Sarah's research on how people build wealth, the key financial behaviors and traits - including conscientiousness, financial literacy, frugality, planning, responsibility, confidence - that lead to building wealth, why and how they measure "social indifference" (how sensitive you actually are to trying to keep up with the Joneses) to understand someone's wealth building potential, and the way that they've turned all of this research into a series of assessment tools that we as advisors can use... whether it's giving the assessment to young accumulator prospects to really understand how likely they are to save and accumulate wealth, or to give it to new or even existing clients just to better understand where their strengths are, and where their potential financial challenges will be in the future. We even explore how these kinds of behavioral assessment tools could even become a way to show the true value of financial advice - where we provide the assessment to clients year by year, and actually show them not just how they're accumulating wealth over time, but how we're actually helping them to change their financial attitudes and behaviors for the better!

And be certain to listen to the end, where Sarah talks about the challenges in actually launching a technology company that provides solutions for advisors, how "perfection can definitely be the enemy of good" when it comes to getting a new company launched (true for both technology and advisory businesses!), and why - even when it comes to starting a technology company - it's still all about focusing in on a narrow niche of the particular type of target clientele (or target financial advisor) that you want to serve.

So whether you've been curious to learn more about the research on what actually leads to wealth-building behavior, are curious about a new technology solution you could use to identify clients (or even prospects) with good wealth-building potential, or simply want perspective on what it takes to build a successful business, I hope you enjoy this episode of the Financial Advisor Success podcast!

Launching An ESG Shareholder Engagement Initiative As An Advisory Firm Value-Add

September 25, 2017 07:01 am 0 Comments CATEGORY: Investments

Historically, socially responsible investing (SRI) has been about a fundamental decision: whether to hold a “traditional” diversified portfolio, or to screen out companies for various environmental, social, or governance (ESG) criteria in order to meet an SRI mandate. The end result has been an endless debate about whether a portfolio that used ESG screens will subsequently produce returns that are better, worse, or the same as the traditional portfolio.

Yet the reality is that an SRI approach doesn’t have to be a choice between traditional portfolio investing or using ESG screens. An alternative approach is to try to shape the stocks in a traditional portfolio to better adhere to an SRI mandate, by leveraging the proxy voting and shareholder engagement process to steer the company’s management itself in a more SRI-focused direction.

In this guest post, Justina Lai and Ria Boner of Wetherby Asset Management share how they implemented an ESG shareholder engagement initiative within their own advisory firm, leveraging the outside resources of an external non-profit called “As You Sow” that works with institutions (including advisors) to mobilize shareholder resolutions.

The end result of their ESG shareholder engagement initiative was a deeper engagement with clients themselves, for what was ultimately a fairly modest financial and logistical cost for the firm. However, because there are specific requirements that must be met for clients to vote proxies, including owning individual securities directly, affirming their ownership, and delegating proxy voting authority to a third party, advisory firms must be certain to implement a proper process to ensure their shareholder engagement efforts with clients are successful!

Weekend Reading for Financial Planners (Sep 23-24)

September 22, 2017 02:57 pm 7 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a recap from the recent "Deals and Dealmakers" Summit on mergers and acquisitions in the advisory industry, which suggests that demand remains strong for advisory firms, though buyers are increasingly focusing on the largest ($1B+ AUM) sellers. Also in the news this week was a fascinating interview with Matt Lunch of Strategy & Resources about the future of the Independent Broker-Dealer (IBD) model, and the announcement that the CFP Board's Center for Financial Planning is finally launching its new academic journal, dubbed "Financial Planning Review" (FPR), and will have a Call For Papers in October to be considered for the inaugumidral issue coming mid-2018.

From there, we have several technical planning articles this week, including a look at the projected Social Security COLA for 2018 (which will ironically increase payments for upper-income individuals, but likely not for lower- and middle-income households due to the looming unwind of Medicare Part B's Hold Harmless provisions from 2016-2017), strategies to reduce clients' state income taxes by changing their state of residence (and what it takes for HNW clients to really substantiate their change in address), and what affluent clients should bear in mind as the IRS increasingly targets its resources on focused examinations of high-income individuals (but with fewer full-tax-return audits).

We also have several practice management articles, from a discussion of whether the traditional A/B/C client segmentation approach is actually just a relic of the old commission-based world and needs to be re-designed for modern advisory firms, to a look at the concept of "Client Journey Mapping" and why there are many opportunities for advisory firms to innovate by focusing on how technology can be used to improve the client's experience in interacting with the firm, and a fascinating discussion from advisor consultant Stephanie Bogan about how for many advisors the best strategy for handling prospects who ask for discounts or exceptions to the advisor's minimums is simply to have a stringent "no exceptions" policy.

We wrap up with three interesting articles, all focused on thinking about the ways the advisory industry is changing: the first looks at how the recent Equifax breach was actually an excellent "micro-moment" opportunity for advisors to demonstrate their value and relevance for clients beyond just their investment portfolios... yet few seem to have stepped up to provide proactive guidance to their clients on issues like credit freezes; the second is a look at the real-world consequences of "non-fiduciary" conflicted advice, where the problem is not just that occasional "bad actors" make highly questionable (but still "suitable") sales to clients, but the fact that because of a current lack of fiduciary standard, they get away with it and keep doing it over and over again; and the last is a good reminder that ultimately, in trying to help clients stick to their investment plan, the best solution is not just about trying to change the portfolio to fit the client's investment behaviors, but also figuring out how to use the behavioral finance research to help clients adjust their behaviors so they are less stressed about (or focused on) their portfolios in the first place!

Enjoy the "light" reading!