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Weekend Reading for Financial Planners (Aug 19-20)

August 18, 2017 02:01 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of announcements about major broker-dealer mergers and acquisitions, including LPL acquiring National Planning Holdings (and its four subsidiary broker-dealers) from Jackson National, Kestra acquiring H. Beck from Securian and Minnesota Life, and Cetera folding in Girard Securities from being an independent subsidiary broker-dealer into a regional super-OSJ instead... a sign that as DoL fiduciary implementation looms large, broker-dealers are feeling the pressure to merge for economies of scale, and insurers are simplifying their distribution by eliminating their captive broker-dealers altogether!

We also have several compliance-related news and articles this week, including the SEC's latest Risk Alert regarding the results of its Cybersecurity initiative for broker-dealers and RIAs, a separate announcement from the SEC that RIAs can delay some of the new Form ADV updates if they have any intra-year amendments to make after October 1st (though all RIAs will still need to comply when annual ADV season rolls around next spring!), and a look at what RIAs need to remember when hiring a new (experienced) advisor and going through the registration and compliance process of onboarding.

There are also a few advisor technology articles, including a look at the new technology initiatives rolling out from the leading RIA custodians as "advisor FinTech" becomes the primary differentiator for custodians, a look at the latest updates of the Capitect client portal (and increasingly, performance reporting and rebalancing) software, and a review of the Folio Connexion (AcX) platform that advisors can use to create their own white-labeled "robo-advisor-for-advisors" solution.

And given the summer vacation season, we wrap up with three articles all focused on how to better maximize your own vacation enjoyment: the first looks at whether a mandatory scheduled vacation policy is better than a flexible or open vacation policy when it comes to actually boosting employee creativity, productivity, and happiness; the second looks at why a 2-week vacation isn't actually any better than a 1-week vacation when it comes to boosting happiness; and the last provides some (research-backed) tips and tactics about how to actually maximize the happiness of your vacation experience... for those who still have a little summer vacation left, or perhaps are already beginning to look forward to their winter holiday vacations instead!

Enjoy the "light" reading!

The Challenges Of Integrating Advisory Fee Schedules And Billing During A Merger Or Acquisition

August 17, 2017 08:24 am 4 Comments CATEGORY: Practice Management

Periscope Office Hours Cover Image August 15 2017 The Challenges Of Integrating Advisory Fee Schedules And Billing During A Merger Or Acquisition

There are many challenges in navigating a successful advisory firm merger or acquisition, from ensuring that the firms align on investment, financial planning, and service philosophies, to finding an agreeable valuation and terms to the transaction, and navigating the post-transaction integration process. Yet in practice one of the biggest blocking points is simply figuring out how to effectively align the advisory fee schedules and fee calculations of the two firms - for instance, when one advisory firm charges substantially more or less than the other - to the point that one of the biggest blocking points of an otherwise-well-aligned merger or acquisition is simply whether it's feasible to integrate their billing processes (especially when the firms have differences in their underlying business model, such as an AUM firm acquiring a retainer-fee firm).

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the major issues to consider when integrating advisory fee schedules and billing processes, from strategies to adjust when one firm has an advisory fee schedule that charges more (or less) than the other, to reconciling differences in billing timing (i.e., billing in advance versus in arrears), and the unique acquisition problems that arise when trying to acquire retainer-fee firms.

For most, though, the biggest challenge is simply reconciling differences in fee schedules between the two firms. In situations where the acquirer charges more than the firm being acquired, there's typically a desire to lift the newly acquired clients up to the fee schedule of the existing firm - which can make the transaction a strategically positive deal for the acquirer, if it can generate more revenue from the same clients, but also increases the risk that clients will reject the new fee schedule and not transition at all (which means it may be a good idea to leave the original fee schedule in place for a year or two, to allow clients the time to adjust, and build a relationship with the new firm). On the other hand, when the acquirer charges less than the firm being acquired, it gets even messier, as if the acquirer pays "full price" for the new firm's revenue and then immediately cuts their fee schedule, the acquirer faces a substantial loss on the transaction (unless they can bring down costs in the merger business by even more than the loss in revenue!).

Even where advisory firms reasonably align on fee schedules, though, it's also necessary to consider whether they have the same billing timing - in particular, whether both firms consistently bill in arrears or in advance. Because differences between the two firms in their billing process can lead to substantial disruptions in cash flow for either the acquirer, or the newly acquired clients! After all, if the acquirer needs to switch the new firm from billing in advance to billing in arrears, the firm could be forced to wait up to six months without receiving any new revenue from the new clients! And if the acquirer needs to switch in the other direction - from billing in arrears to billing in advance - then the first invoice to the clients may have to be a "double-billing" of the last arrears fee and the first advance fee all at once (which increases the transition risk for the acquiring firm!). In fact, even differences in the billing calculation process - such as when one firm bills on end-of-quarter balance, and the other uses average daily balance - can create billing gaps between expected and actual revenues!

And of course, this all assumes that both the acquiring and selling firms were both charging AUM fees in the first place. In the case where the acquiring firm charges AUM fees but the acquired firm charged retainers, it can be even more challenging to transition the retainer clients onto the AUM firm's fee schedule (especially since many retainer-based firms proactively "sell against" the disadvantages of AUM fees, which effectively chases away potential buyers who may want to convert the business to their own AUM fee schedule). In turn, this means the marketplace of potential acquirers for retainer fee firms is drastically smaller, and retainer fee firms may have more difficulty finding an acquirer that will pay them a "fair" price - particularly for firms that charge retainer fees to clients who do have assets and "could" pay AUM fees (as the situation is different when using retainer fees to serve younger clients, or other "non-AUM" types of clientele).

Ultimately, though, the key point is simply to recognize how important differences in advisory fee schedules and billing processes can be when you’re looking at a potential merger or acquisition. As a result, doing detailed due diligence on advisory fee schedules is crucial. In particular, advisors should be evaluating any differences in the level of fees charged to clients, the timing of those fees, how those fees are calculated, and whether two firms have fundamentally different approaches to billing altogether. Of course, fee schedules don't need to be identical in order to successfully navigate a merger, but approaching a merger with a clear understanding of the potential risks and opportunities involved is crucial!

How The Human-to-Human Connection Helps Facilitate Positive Behavior Change

August 16, 2017 07:01 am 1 Comment CATEGORY: Client Trust & Communication

As financial advisors, we understand that one of the most important (and difficult) things we can do for our clients is help facilitate positive behavior change. And not just change that keeps clients from doing “bad” things (like selling at a market bottom), but also change that enables them to do “good” things (like saving more for retirement).

Unfortunately, behavior change is hard, but the good news is that the difficulty of enacting behavior change also means it is one of the most valuable things we can do as financial advisors. And the human-to-human connection – and the social commitments we feel – provide some powerful incentives to enact behavior change… which means financial advisors serving as an “accountability partner” to their clients have the potential to drive more successful behavior change than what clients can do on their own.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – analyzes some existing research in the contexts of weight loss and alcoholism to explorer the power of the human-to-human connection in holding us more accountable (than we can be to ourselves alone) to accomplish our goals and behavior our behavior.

In other words, the unique power of the human-to-human connection means clients can achieve better behavior-change outcomes with a financial advisor than they may be able to achieve by themselves or through the use of technological tools. Because when a human is involved, we often have few options for totally avoiding the unfavorable perceptions we think others may have about us if we don’t follow through on our goals… which can be highly motivating. In the case of technology, while it may provide useful behavior change reminders… we can always just turn off the technology, and feel very little guilt. But it’s far harder to just “turn off” an existing relationship with another person.

Of course, this still doesn’t mean that enacting behavior change is easy. It is very difficult, but by acknowledging the social pressure that exists within an advisor-client relationship, we can use strategies – such as setting clear action items for clients based on “SMART” criteria, and encouraging clients to leverage social forces in contexts outside of the advisor-client relationship – to can help clients improve their financial well-being. Ultimately, we human beings are herd animals, and as financial advisors we should keep that in mind as we develop strategies to help clients achieve their financial goals!

#FASuccess Ep 033: Building An Online Marketing Machine That Takes Over Your Advisory Business with Jeff Rose

August 15, 2017 07:01 am 9 Comments CATEGORY: Financial Advisor Success Podcast

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

My guest on today's podcast is Jeff Rose. Jeff is the founder of Alliance Wealth Management, a solo financial planning firm with just one support advisor that oversees more than $40 million in client assets in Carbondale Illinois, a rural town of barely over 25,000 people.

What's fascinating about Jeff's advisory business, though, is not just that he's been able to successfully grow his firm in an area with a far more limited natural market than being in a dense metropolitan city, but that recognizing the constraints of his local geography, Jeff decided to develop an online blogging strategy to get more prospects. And after 9 months of toiling away with nothing to show for it, he landed his first "digital" client – a widow with $2M who had simply Googled "certified financial planner in Illinois" – and become obsessed with digital marketing. Nearly 10 years later, Jeff's online marketing efforts have been so successful, he's generating more than $100,000 per month in revenue from his online efforts, and is powering leads not only to his own advisory firm, but is also providing a high volume referrals to an outside insurance business for people who just need term insurance, as well as referring additional prospects to a number of other financial services firms as well.

In this episode, Jeff talks about how he built his digital marketing platform, the setbacks he's had along the way, and how it powers his advisory firm, which he has made so efficient that he's able to spend only 1-2 days per week to keep it running, with a combination of Redtail CRM, Blueleaf, InStream Wealth, and Slack, while he continues to leverage his blogging platform to grow new revenue streams.

And be certain to listen to the end, when Jeff talks about the major move he's about to make – literally, moving over 150 miles away from his own advisory firm – where he goes for inspiration and new ideas, and why, despite or perhaps because of his financial success, his primary focus is now on getting even more efficient about the work that he does, so that he can spend more time with his four kids as well.

And so whether you’ve been curious to know what it takes to successfully build a blog and digital marketing presence that generates new clients, or want to see how success online can bring new opportunities beyond just the advisory business alone, or simply want a glimpse into a hyper-efficient solo advisor’s firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

Self-Publishing Your Own Book As A Financial Advisor In 6 Months

August 14, 2017 07:01 am 9 Comments CATEGORY: Marketing

In an increasingly competitive landscape of nearly 300,000 financial advisors, it's hard to stand out and differentiate by simply providing great service and offering comprehensive financial planning advice. For more and more advisors, the path to differentiation is by pursuing some kind of niche or specialization... but even then, it's still difficult to prove that you're a "recognized expert"... even for those who have been working in a niche for an extended period of time.

One effective way to communicate and "prove" an advisor's expertise is by publishing your expertise in the form of a book - to literally be the one who "wrote the book" on the subject! Unfortunately, though, for most advisors the idea of writing a book is truly daunting. Successful advisors are already busy enough as it is, and those who don't have the level of success they want need to spend more time trying to find new clients. How does anyone possibly find the time to write an entire book... especially if you're not naturally a skilled writer?

As it turns out, though, there is a method to writing a book as a busy professional (even if you're not writing-inclined to begin with!). In this guest post, Zach Obront of Book In A Box shares some of his own thoughts, tips, and best practices for financial advisors who are interested in writing and publishing their own book, including a detailed timeline of the process, as well as the costs associated with each step. Because it turns out an advisor can publish their own book in "as little" as about 6 months of time, and under $6,000 of outsourced help on everything from interviewing, writing assistance, editing, layout, and design!

And the path is particularly appealing for financial advisors, as the reality is that for clients that pay ongoing revenue for ongoing financial planning services, it can take as little as one or two clients to more than recover the entire investment cost to create your own book. In fact, the upside business potential of generating "just" another 1-2 leads per month, and improving your close rate by 10%, is so significant, that most financial advisors will profit far more by getting clients from publishing a book than they will ever get in book sales anyway. Which means it's actually quite effective to simply give the book away for free - a glorified business card that can instantly establish your credibility as an expert!

The bottom line, though, is simply to recognize that the process of writing a book is not nearly as daunting as most fear... as long as you know how to break it up into manageable pieces, and outsource the tasks that are outside of your expertise (as the truth is that there are ample freelancers available for you to hire to help with every step of creating your own financial advisor book!). So if you've been thinking about writing a book for some time, or are just curious to explore new marketing ideas for demonstrating the unique value you provide to clients, I hope that you find this guest post from Zach to be he helpful!

Weekend Reading for Financial Planners (Aug 12-13)

August 11, 2017 02:57 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the Department of Labor's announcement that it is working on a new delay proposal for the full implementation of the fiduciary rule, that could extend the current transition period by as much as 18 months to July of 2019... though it remains unclear what legal basis the DoL has for postponing full implementation so much further, and whether OMB will actually approve its proposal.

In the meantime, DALBAR's Lou Harvey has proposed a new "Seller's Exemption" that would make it easier for salespeople to avoid the fiduciary rule - on the condition that they do not provide any actual advice, nor hold out to the public as "advisors" - and given that the delay would still just delay full implementation (but not repeal the fiduciary rule itself), we also feature coverage on what procrastinating advisors should do to get caught up on their upcoming DoL fiduciary compliance obligations.

From there, we have several practice management and personal productivity articles, including: how to achieve a state of "Flow" and peak productivity; the ways that we as financial advisors sometimes sabotage our own growth as we try to change our businesses to better fit our own lives; what to focus on if you're a "reluctant manager" who just wanted to serve clients but now increasingly find yourself in a managerial role with your advisory team; common conversational traps that advisors fall into with clients; why it's crucial to understand your financial planning "weaknesses" and limitations on your technical knowledge (and don't say you're "comprehensive" when you're really not!); and a reminder that financial planning can take an emotional toll on us as advisors, which means it's especially important to have strategies to manage your own stress!

We wrap up with three interesting articles, all looking at emerging trends in the advisory landscape: the first looks at whether advisory firms need to stop focusing on increasingly commoditized investment (and even comprehensive financial planning) advice, and instead try to figure out how to expand their services to also include solutions their clients more proactively seek out; the second examines the aftermath of the "new" fiduciary rules (and outright commission bans) that rolled out in the UK and Australia in the past 5 years, which ultimately did not disrupt financial advisors (but did force them to shift their business models); and the last is an interesting look at whether the new term for advice-centric advisors to differentiate themselves is to not just be "fee-only" but to be an "advice-only" fee-for-service advisor, where by definition the only thing the client pays for is the advice itself (and nothing else)!

Enjoy the "light" reading!