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Weekend Reading for Financial Planners (May 17-18)

May 16, 2014 02:53 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a great overview of the current landscape of CFP Board registered programs and the ongoing efforts to raise the profile of financial planning in colleges, from shifting programs into business schools, to boosting funding and alumni/corporate giving, to simply building more awareness of financial planning on campuses. Given the industry demographics, the opportunity for young people entering financial planning today is tremendous, but only if they know about it in the first place! There's also an article looking at how a number of large firms are entirely retooling their advisor training programs to make the entry path for young financial advisors more appealing, and a brief look at some how firms are bringing in junior advisors to work with clients.

From there, we have a long list of practice management articles this week, including: the rise of "bogus" award/recognition programs for advisors and an increasing volume of "advertorial" solicitations (where advisors can pay to be featured in a major publication's "top advisors" list or have a profile article written about them); tips for solo advisors who are looking to sell their practices (from two solo advisors who recently did sell their firms); a discussion of some of the latest advisor outsourcing trends around investment and back-office support; a look at the decision to become a hybrid RIA and when it's better to use a broker-dealer's corporate RIA rather than create an independent one; and a sample template for building your business plan as a new financial advisor (or perhaps an existing one planning on launching a new advisory firm).

We wrap up with four interesting articles: the first looks at the rise of social media in wirehouses and large broker-dealers, who have been 'laggards' with social media in the past, but are now accelerating adoption with some highly capable (and compliant) enterprise social media tools; the second is an RIABiz profile of Motif Investing, which has now raised an astonishing $86M of venture capital, despite having only about $86M in managed assets, raising the question of what the tremendous opportunity really is that the VCs see in Motif's future; the third examines some recent criticism of the famous Dalbar research regarding the investor behavior gap, suggesting that while there are still investors who harm themselves, the Dalbar methodology of calculating returns may be drastically overstating the issue in the aggregate; and the last is an interesting recent interview with Sebastian Thrun, founder of the first MOOC, who has now acknowledged that a purely free technology-driven open education just doesn't work very well because students don't follow through, and that charging a little more to add a human service layer component may ultimately be the superior model... which has very interesting implications for the current traditional-vs-robo-advisor environment as well!

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!

How Rising Interest Rates Will Impact Far More Than Just The (Bond) Portfolio

May 14, 2014 07:01 am 3 Comments CATEGORY: General Planning

There has been a growing fear in recent years that we may soon, “finally” face a rising interest rate environment again for the first time in over 30 years. While the catalyst to trigger such a rate increase is uncertain – first it was anticipated with rising inflation due to the Fed’s QE policies, and now it’s expected as a result of the tapering that slowly ends them – it’s hard to argue against the view that from a long-term perspective, rates are likely to be higher at some point in the future.

While the ramifications are quite straightforward – and not very good! – for bond prices, and at least raise concerns for other asset classes like stocks and real estate, it’s notable that there are also many ‘secondary’ impacts of rising rates that are equally notable for financial planning purposes. In fact, for many clients, the most profound impacts of rising rates may be the planning issues most clients are not even thinking about right now!

For instance, while higher rates are negative for retail bond investors, it can be very good news for insurance companies, who invest the overwhelming majority of their assets into bonds that match their liabilities. With higher rates, insurance companies need less in premiums to secure the requisite cash flows for their future claims, potentially providing much needed relief to the premium pricing pressure on everything from long-term care insurance to secondary guarantee universal life policies. On the other hand, higher interest rates are also higher discount rates for other strategies, which can reduce the value of everything from a pension lump sum, to the benefit of delaying Social Security, to the borrowing limits on a reverse mortgage. On the other hand, the sustainability of safe withdrawal rates may be improved!

Perhaps the most significant shift with higher rates, though, will simply be the fact that once again, “cash” will actually pay something. For companies that offer money market funds – including the major RIA custodians – this represents a potentially significant financial boon, as rates rise to the point where companies don’t have to subsidize and can actually profit from their money market offerings. Yet given how much easier it is to now manage “cash” electronically, from a mobile device, and move money across accounts or even financial institutions to seek out a better yield, the coming rise in interest rates may open up a whole new world of “digital cash management” as well!

Best Practices In Time Management & Productivity Tips For Financial Advisors

May 12, 2014 07:01 am 9 Comments CATEGORY: Personal/Career Development

For all those financial advisors who feel like they are struggling with their time management and productivity in the face of an increasingly complex advisory business, there's good (or at least affirming) news: you are not alone. As the results of the latest FPA Time Management and Productivity Study show, only a mere 13% of advisors report that they feel in complete control of their time, while 3-in-4 advisors are working more than 40 hours a week, and more than 1/3rd are working 50+ hours every week!

So how can advisors regain some control of their time and productivity? The FPA's research finds that strategies for success are focused around three broad categories: strategic focus, structural efficiency, and personal productivity. The first category is about having a clear plan for where the business is going (and what you want to get out of it personally); the second category is all about process, workflow, and team support; and the key to the last is creating structure to your daily and weekly life to regain control of your schedule. And notably, while many advisors seem to focus on the last two categories, it's the first that may actually be the most important; in other words, just as with our own clients, it's hard to implement effective steps to improve our (business or financial) lives if we don't have a good (business or financial) plan to help guide us where we're going in the first place!

Ultimately, the FPA research finds that the key to time management is not merely about spending less time in the business, but instead is about spending more time on the right tasks in the business; in fact, advisors "in control" of their time actually schedule significantly more meetings throughout the year - to the tune of another 50 client meetings, 10 prospect meetings, and 5 center-of-influence meetings - and do so by effectively focusing their business, their infrastructure and support, and their personal time, in the direction of those "highest and best use" tasks; the rest are either eliminating with business focus, delegated with team support, or managed with some structure to the day to avoid letting those necessary tasks become overwhelming. For those still struggling to figure out how to make these improvements, the FPA study provides a healthy list of tips and strategies to try to improve your situation. Overall, though, the clear theme of the research is to recognize the simple fact that for advisors, it's "control your business, or your business will control you."

Weekend Reading for Financial Planners (May 10-11)

May 9, 2014 02:44 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a fascinating story looking about whether better adoption of financial planners by the military could help stem the pace of military suicides, and help more soldiers get and maintain their security clearances, as financial troubles are actually a leading cause of both military suicides and soldiers losing clearance. Unfortunately, though, thus far the military has been resistant to allowing personal financial advice to be delivered to soliders beyond general financial education, due in large part to an unfortunate history of questionable "financial advisors" taking advantage of and abusing soldiers with high-commission investment products.

This week's articles also include a number of technology-related articles, including two about some of the latest technology and productivity tools for advisors striving for greater efficiency and scalability in their firms or simply running a "pared-down" practice with fewer (or no) staff, a look at some of the "high-touch" technology trends emerging to better engage interactively with clients, a "surprise" announcement by Orion Advisor Services that it is turning the bulk of its portfolio management software platform into open source code to better support integrations from partners and enhancements to its offering, and the announcement that online brokerage platform Motif Investing is rolling out an advisor platform that will allow unlimited client trades for $20-$50 per month (per client) and raised another $35M of venture capital to continue fueling its growth.

We also have a few financial planning articles that are more technical in focus, including a look at best practices in measuring and evaluating risk tolerance, a new software solution called PocketRisk for measuring client risk tolerance, and an interesting discussion of how newly-minted ultra-high-net-worth clients often experience the transition to wealth as though they are "immigrants" in a new land, with all of the challenges common to most immigrants, from how to adopt to a new environment to the difficulty of raising children effectively in a culture in which they did not grow up themselves.

We wrap up with three interesting articles: the first is an interesting look from Mitch Anthony at just how artificial the "retirement" finish line really is, and whether the whole concept of retirement may actually be a relatively limited and short-term phenomenon that is already unraveling; the second is a great overview from technology consultant Bill Winterberg of the major trends in advisor technology, from CRM to rebalancing tools to financial planning software and more; and the last is a fascinating look from Bob Veres at how the next generation of financial planners are beginning to set roots for a very different kind of financial planning world than their predecessors, in everything from how they deliver their services, to what services they deliver, and even how their practices are structured and how their clients pay them in the first place!

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!

Should We Forget Shiller CAPE Ratios And Focus On E/P Instead?

May 7, 2014 07:01 am 14 Comments CATEGORY: Investments

In recent years, there has been a growing debate about the relevance of P/E ratios, especially the Cyclically-Adjusted Price-Earnings (CAPE) ratio popularized by Nobel Prize winner Robert Shiller. Are stock P/E ratios really elevated in today's environment? And what does that really mean anyway? Could P/E ratios simply have reached a new permanently high plateau?

Yet when the standard P/E ratio is flipped upside down, a different conclusion quickly emerges: stocks with a high P/E ratio have a low E/P ratio. And a low E/P ratio means the markets in the aggregate (or some stock in particular) simply are not producing very much in earnings relative to their current price. Which means regardless of whether the earnings are ultimately paid as dividends or reinvested for future growth for price appreciation, there just isn’t as much return available on the table.

Viewed from this perspective, perhaps the oft-maligned P/E ratio deserves more credit after all. No one would debate that bonds with a yield of 4% will likely have a lower return than bonds yielding 8%, or that rising bond yields can further dampen a bond’s total return. So if we examine equities based on their E/P ratios, and look to their earnings yield as well, is it really so controversial to expect that below-average earnings yields (and correspondingly high P/E ratios) may well lead to below-average returns in the future?

How To Find Your Niche As A Financial Advisor

May 5, 2014 07:01 am 13 Comments CATEGORY: Marketing

As more and more people earn their CFP certification and become financial planners, the mere fact that one is a financial planner is no longer the differentiator that it once was. In turn, financial planners find themselves increasingly compelled to focus into a niche where it's easier to stand out and win clients... being a generalist may bring a lot of prospects but few clients, while settling into a niche may narrow the field of prospects but results in an incredibly high likelihood that clients (in the niche) will say yes and choose to do business.

Of course, a niche is not just conceived overnight; in practice, it's established and refined over time. It starts with a target clientele, which leads to developing a unique expertise for working with those clients and the problems they face, and that in turn leads to the development of services and a business model to fit the clients and their needs. As services are delivered, new ways to focus on the clientele emerge, new expertise is acquired, the business model is further refined, and the process continues to iterate until a finely honed niche emerges.

However, that still leaves open the key question: how do you find or choose a niche in the first place? In truth, there are many paths to finding a niche, from focusing on a passion, to an area where you already have an affinity or connections, to your existing clients or even former colleagues in a prior line of business. For those who truly have "no idea" what to do, the easiest path may simply be to start taking anyone you know out to lunch, asking them what their needs and issues are, and beginning to define a vision for your business accordingly. By asking people what's important to them and unique about their concerns, you can find a niche of your own, and may even discover that your interviewees become the first people to refer clients to your new business.