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The Latest In Financial #AdvisorTech (June 2023)

June 5, 2023 07:02 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the June 2023 issue of the Latest News in Financial #AdvisorTech – 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!

This month's edition kicks off with the news that Riskalyze has completed its previously-announced rebranding, and will now be known as “Nitrogen”, a ”growth platform” for advisory firms – which represents less of a shift in the platform’s core function (given that Riskalyze’s risk tolerance tool was always more about providing a clear way for advisors to generate a proposal that demonstrates their value to prospective clients and facilitating their conversion into paid customers, than it was ‘just’ about quantifying risk tolerance for compliance purposes), and more of an acknowledgment of its true value proposition as a ‘sales enablement’ tool which has allowed it to achieve dominant market share (despite spawning numerous low-cost risk tolerance assessment competitors).

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

InvestCloud, a TAMP and all-in-one advisory technology platform which has undergone rapid growth in recent years through the acquisition of numerous disparate technology tools in order to compete with its more-established competitor Envestnet, has announced the departure of 7 senior executives (including the CEO), suggesting that the platform’s execution of a growth-through-acquisition hasn’t paid off as hoped for by its private equity owners
Marketing automation technology platform Snappy Kraken has rolled out Freedom360, an outsourced marketing service running on the same technology that it builds and sells to advisors to implement themselves, highlighting an emerging opportunity for technology providers to sell ‘fractional’ services to advisors craving a cost-effective way to outsource the tasks that the technology can facilitate (without having to hire their own internal staff)
Health and longevity software maker Genivity has been acquired by Lumiant to join its suite of holistic life planning tools, raising questions about whether the wave of individual specialized planning options in recent years is beginning to encounter the reality that advisors can’t realistically adopt (or at least don’t want to separately pay for) every specialized tool on the market

Read the analysis about these announcements in this month’s column, and a discussion of more trends in advisor technology, including:

CRM platform Redtail has announced a significant overhaul of its pricing model by switching to a per-user fee (rather than its previous model of including up to 15 advisors on one database license) – which, while equating to large price increase for midsized advisory firms, may in fact go to show just how much it has underpriced its software under its current model, which will now be aligned with (and even still cheaper than some) other providers in the CRM category
Retirement income planning platform Income Lab has released a new ‘Retirement Stress Test’ feature allowing clients to see how their retirement plans would have fared during various historical worst-case scenarios, continuing the platform’s push to move retirement conversations beyond abstract Monte-Carlo-style probability-of-success numbers

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” (and also added the changes to our AdvisorTech Directory) as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit them to [email protected]!

Weekend Reading For Financial Planners (June 3-4)

June 2, 2023 02:03 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that a recent study found that advisory forms working with a younger client base tend to have relatively stronger growth in assets under management and revenue over time. In addition, the researchers found that referrals from centers of influence were one of the strongest drivers of new client growth, with client referrals playing an important role as well.

Also in industry news this week:

How Goldman Sachs’ RIA custodial platform is leveraging the resources of its parent company as it seeks to build momentum amidst a highly competitive environment among custodians
How NASAA has changed the substance and/or scoring of the Series 63, 65, and 66 exams

From there, we have several articles on college planning:

How the college financial aid landscape is changing this year, from a redesigned FAFSA form to new planning opportunities for grandparents
How the newly-updated College Scorecard tool can help advisors and their clients better understand the costs and potential benefits of attending certain colleges
How advisors can help clients decipher college financial aid letters, which can vary significantly across different schools

We also have a number of articles on investments:

Why financial planning clients might not be clamoring for the personalization that direct indexing offers
Why investing in today’s largest companies and holding the shares for an extended period might underperform a more dynamic index
A study has found that advisors often invest client assets more conservatively than what their client’s risk tolerance might allow

We wrap up with 3 final articles, all about resilience:

How a series of mental exercises can help individuals build resilience and overcome challenges they face
Why taking ownership of the inevitable pain that comes in life can lead to greater personal resilience
How adopting a “gift-giving” mindset can help an individual live their best life both today and into the future

Enjoy the ‘light’ reading!

Kitces & Carl Ep 113: What Does It Really Mean To Be A Lead Advisor?

June 1, 2023 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

While advancing a career in any industry can be challenging, the lack of formal career development programs offered in the workplace for associate advisors can make it particularly difficult for them to gain the experience they need to become lead financial advisors. And since managing the client relationship – a key responsibility for lead advisors – relies so heavily on nuanced ‘soft’ skills that are gained only through direct experience, finding ways to get hands-on experience is crucial for associate advisors to demonstrate their value and gain the skills to advance in their careers.

In our 113th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss what it means to be a lead advisor, the paths associate advisors can take to advance into a lead advisor role, and how to communicate career growth goals with senior advisors.

While different firms may use different titles, the common theme of all lead advisor roles goes beyond providing advice to the client to managing the client relationship. This means actively engaging with clients to create an exceptional client experience, managing expectations, ensuring that questions are answered, and resolving issues in a timely manner. And even though there may be numerous books on managing relationships, there are few resources that actually offer associate advisors the opportunity to apply the information in the workplace. Which means it’s essential for them to take a proactive approach to find those opportunities, most often in the forms of hands-on experience (e.g., working with clients directly) and observation (e.g., participating in client meetings led by senior advisors).

For associate advisors who don’t (yet) have the opportunity to work directly with clients, communicating their career goals and positioning themselves as an asset that lead advisors find valuable can benefit both the associate and lead advisor. For example, the associate can ask to gain experience by attending meetings and taking meeting notes; this allows the lead to focus more on the client, who can also ask the associate to draft follow-up emails. And by asking for increasing responsibility to handle tasks that smaller clients may need, associate advisors can eventually gain the confidence of lead advisors to be permitted to gradually take over those relationships, freeing the lead advisor’s time to focus on the more complex needs of larger clients.

Ultimately, the key point is that a proactive approach to seek hands-on experience can position associate advisors for a successful transition into the role of a lead advisor. Becoming more involved in client relationships can demonstrate their dedication to the firm while gaining the valuable experience they need to advance in their careers. And by clarifying and communicating their goals for professional growth, associate advisors can also assess how the firm will support their growth aspirations or whether considering opportunities elsewhere might make more sense… helping them to create a better, more fulfilling career as a financial advisor!

Pass-Through Entity Taxes: Mechanics, Considerations, And Planning Opportunities For Navigating SALT Cap Workarounds

May 31, 2023 07:02 am 0 Comments CATEGORY: Taxes

The 2017 Tax Cuts & Jobs Act introduced a $10,000 limit on the State And Local Tax (SALT) deduction that was previously available for taxpayers who itemized their deductions. In response to the new deduction limit, many states enacted laws creating a new Pass-Through Entity Tax (PTET) designed to help owners of pass-through businesses (partnerships, LLCs, and S corporations) avoid the limitation and preserve the deductibility of their state tax payments. With IRS giving its blessing to this approach through Notice 2020-75, 33 states now have some sort of PTET available and, as a result, owners of pass-through businesses who live (or do business) in those states may be considering whether to make a PTET election.

At a high level, PTETs work by allowing business owners to elect to pay state taxes on their business income – which are traditionally paid on their individual tax returns – from the business itself. This shifts the business owner’s state tax payments from being a personal expense (and subject to the $10,000 SALT deduction limit for Federal tax purposes) to being a business expense that is fully deductible from Federal income. Finally, the business owner gets a state tax credit against their individual tax liability to partially or completely offset their share of the tax paid by the business.

But while the simple description of PTETs might make the decision to elect one seem like a no-brainer, in reality there are myriad considerations at play that mean a detailed analysis is generally required before deciding to make an election or not. First, PTETs often result in paying higher state taxes; while some states tax pass-through entities at a higher rate than individuals, others may not provide a 100% tax credit for taxpayers to fully offset their share of the business’s PTET paid (meaning that a portion of that income is effectively double-taxed). However, even though the PTET can result in higher state taxes, the savings in Federal taxes that can result from being able to deduct the PTET as a business expense (including not just income tax but potentially self-employment taxes, net investment income tax, and additional Medicare taxes as well) might still make the election worth it overall.

Another set of considerations involves owners of businesses that operate in multiple states, which can compound the complexity of electing a PTET. With multiple, often conflicting state laws at play for business owners, deciding whether or not to elect the PTET in any given state involves weighing not only the impact of the state’s PTET on any potential Federal tax savings, but also additional factors involved in electing a PTET across state lines. Some of these can include whether there are additional filing requirements (e.g., a business owner who previously wasn’t required to file a nonresident return in a state where they do business may be required to do so if the business elects that state’s PTET) and whether the taxpayer’s home state will give them credit on their individual tax return for entity-level taxes paid to another state (which might result in the business income being taxed by 2 states at once if the credit isn’t allowed).

Ultimately, for a subset of taxpayers – namely high-income owners of pass-through businesses in high-tax states, who preferably only do business in 1 or a small number of states to reduce the overall complexity – PTETs can provide an opportunity for significant Federal tax savings. Advisors who can help their clients with tax planning strategies to take advantage of PTETs – starting with determining when it’s really worthwhile to do so – can provide significant value given the complexity of the decision. And with the SALT deduction limit currently set to expire after 2025, there’s no time like the present to start delivering that value!

#FA Success Ep 335: Systematizing Succession And New Partner Transitions In A $1.5B Ensemble Enterprise, With Timothy Wyman

May 30, 2023 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 335th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Tim Wyman. Tim is a Managing Partner for the Center for Financial Planning, a hybrid advisory firm based in Southfield, Michigan, that oversees $1.5 billion in assets under management for 1,000 client households.

What's unique about Tim, though, is how, as a second-generation partner, he helped redesign the firm’s organizational structure from siloed advisors to an ensemble practice, both restructuring the firm’s compensation, and in the process systematizing future partnership opportunities to both next-generation financial advisors and key non-advisory team members to ensure continuous internal ownership of the firm for the long term.

In this episode, we talk in-depth about why Tim and another G2 partner decided to transition the firm from a siloed advisor structure to an ensemble to both fulfill the vision of first-generation partners to evolve the firm into an enterprise and also create equitable partnership opportunities for all employees of the firm, how Tim and his firm worked with Philip Palaveev to develop their "Center for Financial Planning Path to Partnership" document to outline buy-in options and the quantitative and qualitative criteria employees must meet to become a partner, and why Tim and his firm implement a monthly scorecard called the "State of the Center" and a bi-annual report using Moss Adams benchmarking ratios to monitor the financial health and productivity of the firm.

We also talk about why Tim and the firm don’t assign a dedicated CSA for each lead advisor but instead ensure that each client has a dedicated CSA to keep the client relationship consistent (even and especially as planner and ownership transitions occur), why Tim and the firm ensure their newer associate planners are involved in all client-facing activities instead of just working on back office support so that they can learn different relationship-management skills in real-time from the senior advisors themselves, and how Tim leverages the firm’s proprietary CRM and its integration into Tamarac to automate tasks and compile data for their Annual Review Reports for clients – cutting down his total meeting prep time to just 15 minutes per client.

And be certain to listen to the end, where Tim shares how he was surprised by how much complexity is involved in growing and scaling a firm past 10 and then 20 employees but feels rewarded by seeing how much of an impact the firm makes, why Tim feels that it’s important for younger, newer advisors to find a mentor they truly respect as a person and as an advisor early in their careers (even if it’s not a formal mentorship) to build better career opportunities for themselves, and why Tim believes that developing a successful career path doesn’t always have to be complicated and can be built upon working just a little bit harder than others and focusing on mastering a few core skills like writing, speaking, and treating clients well.

So, whether you’re interested in learning about why Tim is considering instituting lower capacity limits for CSAs than lead planners, how Tim and the firm’s other partners structured partnership opportunities and buy-ins, or how 2 of the Center for Financial Planning’s founding partners, 3 of the current partners, and 40% of financial advisors are women, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Tim Wyman.

Accelerating Firm Growth With A Niche: How I Built A $48M AUM Advisory Firm In 3 Years

May 29, 2023 07:03 am 0 Comments CATEGORY: Practice Management

When a financial advisor starts their own firm, they face many important choices. One of the key decisions is determining the type of clients they want to serve. Some advisors may choose to take a generalist approach that leaves the door open to working with the broadest possible pool of prospective clients. But with hundreds of thousands of financial advisors competing for the same prospects, it can be challenging to build a generalist advisory business from scratch. Alternatively, many advisors select a client niche to serve and specialize in these individuals’ specific needs, which not only helps clients feel understood but also helps the advisor improve the efficiency of their practice.

In this guest post, Ryan Townsley, founder of Town Capital, an independent RIA, explains how he made the transition from nuclear power plant employee to financial advisor and the process he went through starting out as a generalist who transitioned into a niche where he now works with clients from his former profession.

When Ryan first opened his firm after 15 years in the nuclear power industry, and only a few months working as an advisor, he marketed himself to the broadest range of potential clients possible, using generic marketing and content creation. But after experiencing tepid business growth, he soon realized that he did not stand out in the sea of generalist advisors. So he decided to pivot and serve a niche with which he had significant experience: the nuclear power industry. As a former nuclear engineer, Ryan’s access to specialized knowledge – from understanding how workers in the industry think, to the challenges of their careers, and the financial considerations that come with employment in the industry – helped him decide that this was a niche market he could serve very well.

Ryan’s first step was to redesign his website. He replaced his generic graphics with themes that would be relevant to nuclear power plant employees and made it clear that he would be the go-to planner for those in the industry. His next step was to systematize his planning process to help him work more efficiently as a solo firm owner. And because nuclear power is a process-driven industry, the use of standard workflows was familiar ground for many of his prospective clients. He also built redundancies into his planning process (e.g., using two different risk tolerance assessments), which resonated with his target clients accustomed to built-in redundancies as a key part of operating nuclear power plants. Finally, Ryan created a private Facebook group exclusively for nuclear power workers, where he posts webinars that demonstrate his expertise in addressing the group members’ specific financial needs. And while many members view the free content for their own educational purposes, nearly 20% of the group’s members have become clients!

Ultimately, the key point is that serving a niche has allowed Ryan to build a growing solo practice that allows him to have a solid work-life balance. His experience demonstrates the benefits of using specialized knowledge to create a planning experience that resonates with a firm owner’s target market and creates a more efficient and enjoyable practice!

Weekend Reading For Financial Planners (May 27-28)

May 26, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that while banks have been able to attract a younger and more diverse set of financial advisors compared to the rest of the industry, thanks in part to their built-in referral stream, a relative lack of independence and dated technology could lead some of their advisors to explore options with independent RIAs.

Also in industry news this week:

How consumer concerns about the stability of the banking industry could present independent advisors with an opportunity to add value by managing client cash
Why an advisor’s fiduciary duty can sometimes come into conflict with the best insurance options for their clients

From there, we have several articles on marketing:

While many firms have grown in the past several years thanks to market performance and M&A, a recent study shows that the average RIA had negative organic growth during the past 5 years
How firm owners can develop a “business development culture” throughout their firms
The differences between client referrals and word-of-mouth marketing and how advisors can use each to attract prospective clients

We also have a number of articles on retirement:

How retirees (and their advisors) can use “mastermind” groups to learn from and build a community with their peers
A survey of what people tend to care about less as they age, from trying to impress others to prioritizing their career over other interests
How the choice of where to live in retirement can impact a retiree’s longevity

We wrap up with 3 final articles, all about creativity:

How the most effective companies encourage innovative ideas among their employees
Why better sleep might be the ultimate ‘hack’ for achieving better productivity and creativity
Why persistence can be the key to turning a good idea into a great one

Enjoy the ‘light’ reading!

5 Screening Questions To Assess Client Readiness And Appropriateness (And Why It’s Especially Useful For Some Firms)

May 24, 2023 07:02 am 0 Comments CATEGORY: Client Trust & Communication

Screening calls are a common part of the prospecting process for financial advisory firms, particularly those that receive a large number of inquiries, and can help determine whether a prospective client might be a good fit. At the same time, these calls can be awkward for both the prospect and the advisor, as the prospect might be asked to discuss personal information about their finances with someone they have never met before, and the advisor has to ask potentially thorny questions, such as whether the prospect meets the firm’s minimum asset requirements. And so, given the high stakes of screening calls (as not only do they serve as a first step for a prospect to become a client, but they also help the advisor save time by screening out unqualified prospects), preparing a prospect and asking thoughtful screening call questions during the interaction can make the process more productive and less awkward.

One way to help alleviate the potential anxiety associated with a screening call is to prepare prospects in advance. For example, advisors using online software tools to schedule screening calls could provide prospects in advance with a more detailed description of the meeting (including a list of questions that will be asked) and could explicitly note the firm’s asset and/or fee minimums (which could allow prospects to screen themselves out before scheduling a meeting rather than finding out they are unqualified during the call itself). In this way, the prospect will be less likely to be surprised by any questions during the meeting, and the advisor can confirm that the prospect meets their minimums rather than bring up the issue without warning. In addition, providing questions in advance (giving the prospect time to think about their answers) can help keep the screening call on track, which is particularly important because they are designed to be short, often scheduled for only 15-20 minutes.

Some questions an advisor might ask the prospect during a screening call are how they think the firm could be helpful for their needs (to help the advisor ensure that the prospect really wants financial planning services and fits the firm’s ideal target client profile if it has one); whether they have ever worked with a financial professional before (to gauge whether they’ve worked with an advisor in the past and to help get a sense of the prospect’s expectations for the relationship); if they have any questions about the advisor’s onboarding and planning processes and confirming that the firm’s asset and/or fee minimums work for the prospect (to get a sense of the prospect’s readiness and desired timeline to get started with a planning relationship).

Ultimately, the key point is that screening questions can be useful tools not only for financial advisors but also for prospects – because knowing whether the relationship will be a good fit without having to spend an hour or more is helpful for both parties involved. And while screening calls may be uncomfortable and awkward, letting prospects know what to expect can help ease these feelings by promising respect, directness, and information. Which could help get what could become a long-term relationship off on the right foot!

#FA Success Ep 334: Finding Clarity On Fees And Clients By Allowing The Business To Evolve Over Time, With Meg Bartelt

May 23, 2023 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 334th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Meg Bartelt. Meg is the Founder and Lead Financial Planner for Flow Financial Planning, a virtual RIA serving mid-career women in tech that oversees almost $60 million in assets under management for 60 client households.

What's unique about Meg, though, is how, over the span of 7 years since launching her firm, she has evolved the business by repeatedly adapting her niche focus, iterating on different fee models, experimenting with various client meeting cadences, and both increasing and decreasing her staff headcount with various support team structures, all in the journey of honing in on the ‘right’ type of practice that Meg will enjoy running, and serving clients with, on an ongoing basis.

In this episode, we talk in-depth about how, when Meg launched her firm, she began with a $150 per month minimum fee but quickly realized that it was not enough to sustain the business she wanted to build and began to raise her fee minimums to what ultimately became $10,000 per year minimum (after her business coach helped her realize that is what her financial planning is really worth to her clients), why Meg evolved her niche focus from working mothers in tech to early to mid-career women in tech with a specialization in pre-IPO and IPO planning as she realized by being more specific, she could create better efficiencies in her own practice by simplifying what she did (and didn’t) need to focus on for her clients, and how, after a year of experimenting with surge meetings, Meg decided to go back to annual review meetings because she found the structure didn’t allow enough flexibility for the unique complexity of her clientele… and created challenges in finding the ‘right’ time to take on new clients.

We also talk about why Meg chose her niche focus of women in tech because she believes that what makes a niche market really powerful is finding clients with a shared identity (as that makes it easier to find where they gather to reach them), why Meg feels strongly about setting fees in explicit dollar amounts and actually locks her clients’ annual AUM fees at a fixed dollar amount that resets once each year, and why Meg views evolving her firm over time as a comfort, not a frustration, because it allows her to keep finding better ways to serve her clients while also creating more space for herself and a better experience in managing her practice.

And be certain to listen to the end, where Meg shares how she sought advice from her business coach, therapist, and colleagues to come to terms with having to let a staff member go to relieve some of the economic constraints her practice was experiencing after a year of market volatility and changes in the tech industry in 2022, why Meg feels comfortable with evolving her fee model, service model, and other aspects of her business because she feels that as long as she holds true to being there for her clients when they need her, she is continually building a successful business despite any ongoing changes, and why Meg feels that she is now transitioning to a second stage of her life where she prioritizes less on maximizing the income of the business and more on creating more space and freedom in her business to foster deeper relationships with her clients, those around her, and especially, her 2 daughters.

So, whether you’re interested in learning about how Meg adjusted to changing family dynamics when she became a business owner, how Meg handled the unfortunate situation of having to let a staff member go which was not due to performance issues, or why, as a business owner, Meg feels it’s sometimes better to experience when something doesn’t work to better understand why, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Meg Bartelt.

Best Practices For Running A Financial Planning Internship Program (And Creating A More Productive Outlook)

May 22, 2023 07:07 am 0 Comments CATEGORY: Planning Profession

Traditionally, financial planning internship programs have offered students who are aspiring financial planners a way to prepare for entering the workforce by gaining real-world experience in advisory firm settings (as well as a way to get their foot in the door with prospective employers). But when the COVID-19 pandemic arrived in 2020, many firms shut their offices and went fully remote, which forced them to either rapidly reconfigure their internship programs or – as was more commonly the case – to suspend their internships or end them entirely.

Recognizing the potential impact that a lack of internships for a generation of planners could have on the industry, in 2020 the Financial Planning Association (FPA) launched "The Externship", a virtual program that provided participants with access to mentorships with financial planning practitioners, technology commonly used in financial planning, and the opportunity to apply hours from the program towards the experience requirement for CFP certification. And while the original vision for The Externship was to provide a 1-year stopgap solution for a few hundred attendees, ultimately over a thousand students signed up in 2020 – because as it turned out, the virtual structure of The Externship opened up opportunities to participate not only for students whose internship opportunities had been disrupted by the pandemic, but also for those who (due to working, caretaking, and other commitments) would have never had the ability to participate in a traditional internship in the first place!

In this Guest Post, Hannah Moore, the creator of The Externship, offers her perspective on how lessons learned from The Externship (which is now entering its 4th year) can inform advisory firm leaders on how they structure and implement their own internship programs to create potentially better outcomes for interns, employees, the firms themselves, and the industry as a whole.

In the wake of the pandemic, many advisory firms have adopted a ‘new normal’ of either hybrid or fully-remote work, providing an opportunity for them to rethink how they conduct their internship programs. While adopting a ‘business-as-usual’ mindset towards internships makes little sense when business as usual has changed so dramatically since 2020, the success and growing popularity of The Externship has suggested that even before the pandemic, the traditional internship model wasn’t working as well as it could have, either for interns or the firms they worked for.

For interns, a good internship can increase the chances of getting a job offer, from either the firm that they interned with or other firms who value the experience that the intern received from the program. But firms benefit as well, with the opportunity to thoroughly vet and observe potential employees and to showcase themselves to prospective talent. And there are even advantages for the firm’s existing employees who mentor the interns: the opportunity to train, teach, and manage interns can provide valuable leadership experience to benefit their own career development.

Ultimately, the key point is that today’s interns – whether they participate in industrywide programs like The Externship or in internships at the individual firm level – represent future generations of leaders in the financial planning industry. The ways that firms implement their financial planning internship programs not only influence the financial planning philosophies and practices that interns develop throughout their careers, but can also impact how diverse and equitable the profession will be in the future. Which means that internships play an instrumental role in moving the profession forward, and by creating internships that are better, more intentional, and more accessible, firms can make for a more productive outlook not just for the benefit of their own businesses and employees, but also for students and the industry at large!