One of the strategies that many financial planners use to differentiate themselves is to communicate that they are fiduciaries: legally bound to put their clients' interests before their own. In fact, as the debate about the fiduciary vs suitability standards has increased in recent years, more and more advisors who are subject to fiduciary regulation are promoting it as a differentiator in the marketplace. Yet in reality, most people generally assume that anyone they're doing business with will treat them fairly - at least until proven otherwise. Which means that claiming you're a fiduciary isn't necessarily a differentiator - unless you actually go so far as to bash your competition and accuse them, implicitly or explicitly, of being liars and cheaters. Could this be part of why the fiduciary message doesn't really connect in the marketplace? Because it's turning into a giant negative advertising campaign where you bash the competition instead focusing on the value you actually deliver?
Could Stock Options Be A Practice Management Tool?
Learning about stock options is a staple of investment education; whether it's the investment section of the CFP certification curriculum or the Series 7, virtually all planners learn about the basics of stock options. However, in practice, options are very rarely used for hedging the typical client portfolio, due to a number of reasons. Nonetheless, there is perhaps an even better use of options for hedging - not to protect a client portfolio from the next bear market, but to protect the profit margins of the financial planning practice!Read More...
Common – And Wrong – Assumptions about the Safe Withdrawal Rate Research
As safe withdrawal rate research gains in popularity, it is both increasing used - and misused - by financial planners and the press. Although the research does have its limitations - which I discuss frequently in my presentations at various financial planning conferences throughout the year - and is built on many assumptions that deserve to be challenged, a rising number of safe withdrawal rate critics appear to criticize the approach based on inaccurate statements. So let's clear up a few points of confusion about safe withdrawal rate assumptions. Read More...
6 Ways A Planner Loses New Clients Before Ever Meeting Them!
There is a perception in the financial planning world that the process of acquiring a new client begins at the first meeting - the so-called "approach talk" - and therefore any firm that does a good job at converting prospects into new clients in those early meetings must have an effective business development process. Firms that want to grow more/better/faster are encouraged to refine their process, materials, and techniques used in the approach talk to improve the rate at which prospects convert into clients.
Yet the reality is that from the client's perspective, the process actually starts much earlier; and because the "pre-meeting" parts of the process are so ignored by most planners, the reality is that many (or even most!?) potential clients may be lost before you ever have a chance to meet them!Read More...
Should Fiduciary Planning Firms Have Minimum Capital Requirements To Protect Consumers?
Should fiduciary wealth management firms have minimum capital requirements, to ensure they can make good to clients if they do fail in their fiduciary duties? One of the professed strengths of the RIA model is the fact that such firms are held to a fiduciary standard, providing a higher level of legal accountability for firms that fail to put their clients' interests ahead of their own. But strictly speaking, that really only holds as a consumer protection if the firm has the financial wherewithal to actually pay damages, should they arise. Read More...
Are You Looking To Hire A "Mini-Me" For The Future Of Your Firm?
When hiring new planners for associate planner positions, many firm owners say they want to find someone just like them; in the words of Peter Lynch, they “buy what [they] know.” It is human nature after all – we prefer staying in our comfort zone and don’t operate as well with the unknown. However, in practice this is often exactly what a firm does NOT need; if the firm owner skill set is strategic visionary, relationship manager, and primary rainmaker, then the firm should strive to find candidates with complementary skill sets to fill in gaps. Especially in a small organization, too much overlap will lead to inefficiencies. Nonetheless, some business owners choose to go this route anyway. So if you are going to hire a 'mini-me', what should you be aware of?
Has The Financial Planning Profession Bet Its Future On The Stock Market?
If there's one staple of financial planning wisdom that virtually everyone will agree upon, it's stocks for the long run. Sure, we all acknowledge that markets can be volatile in the short term, but we all seem to still agree that in the long run, stocks are still where it's at. So as long as you have a long enough time horizon - whether you're a young person still accumulating, or a retiree looking at a multi-decade spending phase - stocks are still a material portion of the portfolio. But within the past hundred years alone, there was nearly an entire generation - who grew up during the Great Depression - that gave up on stocks for their entire lives. What if that happened again? Has the financial planning profession hitched itself to the stocks-for-the-long-run wagon so tightly that if stocks fall off a cliff, so too will the profession?Read More...
Are We Being Too Forward With Our Clients?
In the dating world, being "too forward" generally means trying to advance a relationship at a pace that is too fast for comfort; being too confident and direct in what is said, to a point that may not be socially acceptable. The general remedy in the dating world, then, is to "take it slow" and allow the relationship to build trust before trying to advance a relationship to the next stage. Of course, building a trusting relationship is not unique to the dating world; many of the exact same dynamics apply in building the planner-client relationship. Yet in practice, because financial planning relationships must move to an implementation stage after “relatively” few meetings, planners often must be very forward during the sensitive relationship-building phase. But how far is too far? Have you been asking your clients to get naked on the first date?
Should Planners Have A More Active Role in Setting Reasonable Spending Policies For Clients?
Some financial planners consider budgeting and cash flow the cornerstone of a client's financial plan; for others, the focus is on long-term planning, and they let client cash flow sort itself out. In many situations, planners seem to be uncomfortable in giving spending guidance to clients; as the saying goes, "It's their money; who am I to tell them how to spend it?" Yet at the same time, most would probably agree that clients can't just save their way out of their fiscal woes; you only free up money to save by first determining what to NOT spend it on.
So does that mean in the end, planners can't have a broader impact until they are more active in helping clients actually set spending policies?Read More...
Why Is It ALWAYS Bad To Get Out Of The Markets In Times Of Risk?
The prevailing wisdom in financial planning is that clients should stay the course... always. It's "never" appropriate for clients to get out of stocks (even a little bit), and the eternal chiding to any so-called market timer is that even if you can figure out when to get out, you'll never figure out when to get back in again, and you'll miss any rally that might follow a market decline. But does this miss the point? If you actually sell BEFORE a severe market decline (as opposed to after), you don't even NEED to get back in until the market recovers anyway!Read More...
