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The Challenges When Using A Funded Ratio To Track Progress Towards Retirement

September 6, 2017 07:00 am 8 Comments CATEGORY: Retirement Planning

Saving and accumulating for retirement takes decades. As a result, most people will spend a very long time working towards the goal with only small, incremental progress along the way. And it can be very hard to stay focused and motivated to achieve a long-term goal when there’s no sense of progress.

Fortunately, the most straightforward indicator of forward progression is simply to see a retirement account balance that grows over time. But the challenge is that just viewing the balance gives no context to where it stands relative to the retirement goal being pursued. It’s just an abstract number.

An increasingly popular strategy to give context to the progress of saving towards a (retirement) goal is the funded ratio – where the current account value is presented as a percentage of the total savings necessary to achieve the goal (or at least, be on track for the goal with an assumed growth rate).

The virtue of the funded ratio is that it takes an abstract account balance and relates it directly to a goal or outcome, and can give savers a sense of accomplishment as the percentage slowly and steadily climbs towards 100%. The bad news, though, is that once account balances grow large, the funded ratio itself can become highly volatile as markets move up and down, and the discount rate used to calculate the funded ratio can unwittingly turn into an indirect absolute return benchmark that is difficult to keep up with.

Unfortunately, the sensitivity to assumptions means the funded ratio can ultimately be just as problematic as many other approaches to quantify investment results and progress towards goals. Nonetheless, the rising focus on trying to benchmark portfolios against the goals they’re meant to achieve means it may become an increasingly popular approach in the coming years, notwithstanding its flaws!

#FASuccess Ep 036: Turning A Utilities Niche And A Radio Show Into A National Advisory Firm with Scott Hanson

September 5, 2017 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

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

My guest on today's podcast is Scott Hanson. Scott is a co-founder in Hanson McClain, an independent RIA based in the Sacramento area that manages nearly $2.5 billion of assets under management for nearly 4,500 clients, most of which are telecom and utility workers.

What's fascinating about Scott's firm, though, is not merely that they managed to turn a niche in working with Pacific Bell retirees into a mega-RIA, but how their steady focus on reinvesting into marketing has allowed Hanson McClain to build an advisory firm where none of the advisors are responsible for their own marketing and business development, and instead can focus entirely on serving their clients - which in turn has led Hanson McClain to achieve a stunningly high Net Promoter Score of 85 with its clients!

In this episode, we talk about how Hanson McClain markets itself, what it took to get established in their initial niche working with Pac Bell employees, how they expanded successfully into marketing with a call-in radio show (although Scott isn't very upbeat on the potential of marketing through radio today!), why direct mail for seminars and other marketing events still works for business development, and the depth of the marketing team that Hanson McClain maintains to sustain its growth.

In addition, Scott shares his own journey as an advisor, from starting out at a financial-planning-centric life insurance firm, to transitioning to work at an independent broker-dealer while building his hybrid RIA, why he eventually decided to let go of his FINRA licenses to focus solely on the RIA, and the challenges in managing and maintaining growth in an ever-larger advisory firm.

And be certain to listen to the end, where Scott shares why he decided with his partner to sell 70% of Hanson McClain to a private equity firm – despite the fact that he thinks the firm can grow to double or even quadruple its size in the coming years – because ultimately, the reality is that growth requires cash, and in the end it can still be a better deal to own a smaller slice of an ever-growing pie... and have the benefit of taking a few chips off the table as well!

And so whether you’ve ever been curious to know how a startup RIA ultimately grows to become $2.5B under management, are looking for marketing ideas and perspective on the benefits of having a radio show, or simply want to understand why an experienced and successful advisory firm would decide to sell to private equity (even when there’s no desire to retire), I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (September 2017)

September 4, 2017 07:01 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2017 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 Personal Capital has crossed $5B of AUM, and raised another $40M of venture capital as it looks to expand by hiring more financial advisors in multiple major cities across the US, as the revenue growth of “cyborg” (tech-augmented human) advisors continues to outpace pure robo-advisors, and Personal Capital’s revenue continues to stay ahead of all other major robo-advisors combined, thanks in large part to its innovative Personal Financial Management (PFM) app that serves as the company’s client acquisition funnel (even as banks continue to struggle to monetize PFM software solutions at all!).

And also in the big news this month is the announcement that Canadian financial planning software company PlanPlus has acquired risk tolerance assessment provider FinaMetrica, raising the question of whether PlanPlus is about to make a push into the US financial planning software market to compete against the likes of eMoney Advisor, MoneyGuidePro, and NaviPlan.

From there, the latest highlights also include a number of major new partnership announcements this month, including:

JemStep picks up two major enterprise deals, with the Advisor Group broker-dealers, and KeyBank’s Investment Services division, as its efforts to integrate with the Pershing platform is finally beginning to pay dividends with its Invesco parent backing;
Apex Clearing announces yet another partnership, this time with tech-savvy TAMP provider FolioDynamix, setting up a new RIA custodian pricing war in 2018;
Advicent’s NaviPlan rolls out a new integration with Envestnet, and expands the APIs in its Narrator platform; and
Envestnet’s Tamarac announces a new in-depth integration available in the Salesforce App Exchange, despite the fact that Tamarac’s own Advisor CRM is built on Dynamics!

You can view analysis of these announcements and more trends in advisor technology in this month's column, including Vestwell being selected as the winner of the recent XY Planning Network FinTech competition, WealthAccess rolling out a new Business Intelligence dashboard to roll up advisor/client PFM data into a consolidated business reporting tool, TD Ameritrade rolls out a Facebook Messenger Chatbot as a sign of the future of client service and communication, and the emergence of a new category of “client financial profiling” tools, including ROL Advisor, DataPoints, and Whealthcare, that aim to deepen the client relationship far beyond what a mere risk tolerance profile alone can reveal about a client’s attitudes about money.

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 (Sep 2-3)

September 1, 2017 02:56 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of big news, including that the Department of Labor has received OMB approval to issue a formal proposal to delay the full enforcement date of the fiduciary rule by another 18 months until mid-2019 (but will still have to collect and consider public comments before making it final), the IRS is loosening rules on hardship distributions and employer retirement plan loans for those impacted by Hurricane Harvey, a Federal judge has struck down the Obama administration's overtime pay rules (which could have impacted a wide range of financial advisor trainees and paraplanners), HUD has announced new rules that will increase costs and reduce borrowing limits for HECM reverse mortgages, and this weekend Wall Street will be finalizing the switchover to shift most trade settlements from T+3 to T+2 instead.

From there, we have a number of articles on marketing for financial advisors, including: new research on how the financial services industry is using social media (and that even though LinkedIn is the most adopted platform, Twitter is actually the one with the most advisor activity!); the rise of text messaging as a way of communicating with clients; a guide on Facebook marketing and advertising for financial advisors; guidance on the key information that must be on your advisor website to communicate both your costs and your value; and a look at how and why most financial prospects slip through the cracks (and what advisors should do about it).

We wrap up with three interesting articles: the first explores the concept of "nonlinear" thinking, why it's so much better to improve a car's fuel efficiency from 10 Miles Per Gallon to 20MPG (instead of improving from 20MPG to 50MPG), and how such nonlinear concepts translate to other parts of the business world; the second explores the critical thinking concept of "inversion", where instead of focusing on your goals and what it takes to succeed, you focus on what could ruin the outcome (and identify that as something concrete to avoid!); and the last takes a fascinating look at the true difference between an "amateur" and a true "professional", which is all about the mindset of how you approach problems and try to create solutions.

Enjoy the "light" reading!

New SEC Custody Rule Requirements For Advisors With Third-Party SLOA Authority

August 30, 2017 07:01 am 5 Comments CATEGORY: Practice Management

In an effort to provide premium service to clients, it’s common for financial advisors to be granted a standing letter of authorization – or “SLOA” – to enact money movements in and out of a client’s account. The use of SLOAs and other disbursement authorizations effectively allows advisors to act based on a client’s verbal requests, without “troubling” them for additional paperwork and signatures every time.

Yet the caveat is that while providing such conveniences is appealing from a client service perspective, from a regulatory perspective, the ability of an advisor to transfer money out of a client’s account – especially to a third party that isn’t the client – creates the risk that the advisor could abuse their authority. Accordingly, in this “age of Madoff”, the SEC has decided it’s necessary to issue additional compliance rules to protect consumers when it comes to advisors with standing letters of authorization (SLOAs) to make client disbursements.

In this guest post, Chris Stanley, a compliance consultant and the founding principal of Beach Street Legal, shares his perspective on the recent issuance of an SEC No-Action Letter, and supporting FAQ and IM Guidance Update 2017-01, which deems that advisors who have SLOA authority will be treated as having custody of client assets. Which means not only will those assets and accounts need to be reported for custody purposes on Form ADV, but those investment advisers who don’t comply with certain new safe harbor provisions will also be subjected to the requirement for an annual surprise exam under the custody rule as well!

Fortunately, the SEC will allow RIAs to continue to use SLOAs to support clients in limited (but still useful) circumstances, and provide additional guidance on how RIAs can avoid the custody rule if their only standing authorizations are for “first-party” transfers (i.e., moving money amongst accounts that are all the client’s, with the same account registration). Nonetheless, the reality is that most advisors will at least need to work with their RIA custodian to update account agreements and/or some of their SLOA paperwork with clients to remain compliant and avoid surprise exams under the custody rule!

#FASuccess Ep 035: Investing In Your CRM And Your Team To Systematically Grow Your Advisory Business with Cheryl Holland

August 29, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

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

My guest on today's podcast is Cheryl Holland. Cheryl is the founder of Abacus Planning Group, a private wealth management firm located in Columbia, South Carolina, that manages more than $1B of assets under management for just over 200 affluent clients.

What's fascinating about Cheryl's firm, though, is the way that she has systematized the processes of the firm - in a way that actually helps them be even more high touch and customized for their clients. From automating workflows, tasks, and reminders of client needs, to building a templated meeting agenda for every client meeting that covers check-ins, celebrations, investment, financial planning, and administrative tasks, to refining an investment process around model portfolios with DFA funds, Cheryl's firm has invested heavily in systematizing the business... and invested heavily into customizing Salesforce as their CRM to facilitate the process.

In this episode, Cheryl shares how her firm structures its blended AUM-plus-planning fee structure, why Abacus sets a minimum fee - rather than an asset minimum - in deciding which new clients to work with, why the firm decided to make a shift towards focusing on a niche of closely-held family businesses after already growing successfully for nearly 20 years, and how the firm markets with a combination of COI referrals, national board volunteerism, and client referrals, to drive its growth.

In addition, we talk about Abacus' approach to reinvesting into its team – because as Cheryl puts it, "you can't grow your firm if your people aren't growing" - with everything from sending employees out to conferences, bringing in psychologists to teach active listening and empathy skills, management training classes for emerging leaders (including Cheryl herself!), and how every the Operations and Administrative team members at Abacus have a chance to take the Registered Paraplanner course and advance themselves in the firm.

And be certain to listen to the end, where Cheryl shares the two key advisory business books that she re-reads every year to advance the firm, how she decides when it's time to make a change and evolve the firm and her role, and her advice to young women who are trying to grow their own advisory careers and manage the competing demands of work, home, and family.

So whether you're curious about how to balance the dynamic between systematizing your firm's processes and procedures without losing the sense of high-touch customization, or simply want some ideas of what, exactly, you might standardize, or are looking for ideas on how to deepen the training and education of the advisors (and emerging leaders) in your firm, I hope you enjoy this episode of the Financial Advisor Success podcast!