Nerd's Eye View blog

The Latest In Financial #AdvisorTech (March 2023)

March 6, 2023 07:04 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the March 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 Conquest, a Canadian financial planning software provider (founded by the prior founder of NaviPlan) has raised $24M (CAD) of private equity capital in preparation for expanding its reach into the US – for which it hopes its technology-aided ability to analyze a client’s plan and suggest “next-best decision” strategies for advisors to recommend to their clients will allow them to break into the crowded US market. Which at best will still be a substantial uphill battle, given the hassle of switching from one financial planning platform to another (and the fact that most advisors are generally satisfied with their current financial planning software in the first place!).

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

Asset-Map has raised $6M in Series B funding as it scales up its financial visualization tool for enterprise use amid growing demand for advice engagement tools
Wells Fargo Advisors debuts LifeSync, an app-based tool combining features of goal-based planning and monitoring of financial “vitals” as the megafirm moves further into its own advice engagement at scale
Orion launches BeFi20, a behavioral finance assessment to support client conversations around money psychology (and identify how financially “aligned” couples are in their money attitudes)

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

Merrill Lynch has rolled out a new turnkey video creation platform allowing its advisors to record short videos with a quick compliance sign-off (and more impressively, has apparently solved for the challenge of centralized compliance approval of individualized advisor content at scale)
The popularity of ChatGPT has opened up a discussion about the potential role of artificial intelligence in the advisory world – and while some predict it may replace advisors entirely, the evidence of past technological advances suggests it will prove to be one more tool to automate repeatable back- and middle-office tasks and allow advisors to focus on more planning at a higher level!

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 to [email protected]!

Weekend Reading For Financial Planners (March 4-5)

March 3, 2023 01:44 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 amid economic and market headwinds, the pace of RIA M&A activity was slower in January and February compared to the same period last year. If this trend continues, 2023 would be the first year in more than a decade to see fewer transactions than the year before, though some industry observers continue to see significant appetite for deals.

Also in industry news this week:

A recent FINRA arbitration ruling reaffirmed the ability of brokers operating in the independent broker-dealer model to take their clients with them when they change firms
A bipartisan group of U.S. Senators is considering potential ways to shore up Social Security, from raising the retirement age to 70 to creating a sovereign wealth fund

From there, we have several articles on practice management:

How advisory firms can leverage their CRM software to run a more efficient practice
Best practices for firms to consider when choosing training programs
Why getting back to basics, particularly when it comes to decision making, can help firms overcome challenging market conditions

We also have a number of articles on wealth:

What being ‘upper-middle class’ actually means in dollar terms
Why many consumers overestimate the size of the nest egg they will need to have a comfortable retirement
How advisors and clients might change their expectations for fixed-income investments as interest rates and yields have risen

We wrap up with three final articles, all about taking action:

Why trying to live a life with ‘no regrets’ can hinder self-improvement
Why it is important to not let major ‘events’ distract from the overall ‘journey’, whether it is an interpersonal relationship or a client’s retirement
How a willingness to take imperfect actions can help drive advisory firm growth

Enjoy the ‘light’ reading!

Framing Prospect Conversations Around What Motivates Them Today (And Not Their Future Goals)

March 1, 2023 07:06 am 0 Comments CATEGORY: Client Trust & Communication

When holding discovery meetings with a prospective client, financial advisors often ask the prospect about their goals. The hope is that these conversations will help the prospect ease into a positive frame of mind (by thinking about a vacation, retirement, or another future aspiration) and, at the same time, present the advisor with an opportunity to show how their services can help the prospect achieve their goals. However, the reality is that asking about goals has the potential to set prospects up for disappointment or dissatisfaction down the line, especially when achieving the goal is not financially attainable based on the prospect’s current situation, in which case the advisor might be seen as a ‘dream killer’. Even when a goal is achieved, it might not feel as good as the prospect imagined (e.g., feeling a lack of purpose after retirement). Consequently, finding meaningful ways to frame discovery-meeting conversations that don’t focus on the prospect’s future goals can sometimes be a better way to engage and motivate new clients.

By identifying a prospect’s current concerns and pain points and exploring strategies to address the issues that the prospect is facing now – instead of on future dreams that may still be far off into the future (and that are much vaguer to the client than the current situations faced today) – advisors can discover powerful motivators that can help the prospect to act more decisively (in fact, a particular problem the prospect has been struggling with might have been the reason they scheduled the discovery meeting in the first place!). Of course, diving right into a conversation to learn about a prospect’s particular pain points could make for an awkward discovery meeting. However, there are several ways to broach the subject indirectly, which can help advisors ease into the conversation more naturally. One approach is to ask the prospect about current concerns instead of pain points and explore what they would like to see as an outcome of working with the advisor (which could reveal pain points without framing the question in those terms). Another option for financial advisors is to solicit the client’s “anti-goals”, which are the things a person wants to avoid (e.g., financial regrets), as these can serve as powerful incentives for the prospect to take action (perhaps by becoming a client of the advisor!).

The first step to structuring discovery meetings that don’t address goals is to make a list of questions (e.g., “What do you want to ensure you won’t regret?”) that can be used to unearth a prospect’s pain points, anti-goals, current concerns, and aspirations. Lists can be important because asking non-goal questions can take some practice before asking them feels natural. In addition, advisors can consider sending some of the questions to the prospect in advance as part of an agenda for the discovery meeting (or perhaps adding a few questions to the meeting invitation itself) to help them be better prepared to respond. Further, in addition to the core questions the advisor wants to raise, asking appropriate follow-up questions during the meeting can also play a vital role in discovering what’s most important for the prospect to act on right now.

Ultimately, the key point is that while asking prospects about their financial goals might seem like a logical strategy for a discovery meeting, an alternative approach that indirectly brings out the prospect’s pain points can be more effective at motivating them to action. And for advisors, this method not only can help them identify what really matters to the prospect but also can potentially increase the chances that they will become a client!

#FA Success Ep 322: Developing New Advisors To Grow Their Books Of Business With A (Supported) Focus On Activity, With Kent Skornia

February 28, 2023 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 322nd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kent Skornia. Kent is the Founder of Krilogy, an Independent RIA based in St. Louis, Missouri, that oversees nearly $2 billion in assets under management for 1,800 client households.

What's unique about Kent, though, is how, to grow advisors within Krilogy, he created an internal training system that focuses on mentorship, education, and especially the core activities that newer advisors need to learn to gain deeper knowledge of financial planning and to get started in growing their own book of business over time.

In this episode, we talk in-depth about how Kent developed the Krilogy Advisor Development System (or KADS for short), a proprietary training system that pairs newer Krilogy advisors with senior advisor mentors to support the senior advisor’s client base while training on and practicing the activities it takes for them to grow their own book of business (to eventually become senior advisors themselves), how Kent and his firm implement a ‘Zero to One FA’ activity tracking sheet (based on a combination of concepts from the book “Zero to One” by Peter Thiel and the ’75 HARD Challenge’) which compiles a list of fundamental activities that newer advisors in the KADS program should focus on with the intent that, much like building muscles, the scheduling and repetition of the activities will build their business development muscles, and how to help train and grow newer advisors further, Kent and his firm have created Krilogy University, a once-per-week training session open to all advisors of the firm that highlights financial planning concepts (with the curriculum designed by an internal wealth intelligence committee that also teach as in-house experts).

We also talk about how senior advisors at Krilogy can take advantage of the KADS program to gain support for their own books of business and eventually to find a successor for their practices when they want to retire, how Krilogy has established two Director of Advisor Development roles to oversee the training and advancement of newer advisors in the KADS so that senior advisors can mentor their newer advisors in financial planning and relationship building with clients but don’t have to be responsible for managing the associate advisor, and how Krilogy offers liquidity options for its senior advisors to sell a portion or all of their book of business to Krilogy while still remaining as an advisor under Krilogy and continue to serve their clients while taking some chips off the table.

And be certain to listen to the end, where Kent shares how Krilogy sought to instill a values-based approach in the firm that focuses on dedication, abundance, leadership, and respect to create alignment with all employees of the firm, provide excellent service to their clients, and retain their employee talent, why Kent believes a good way for newer advisors to find the right firm for them is to interview other newer advisors at the firm they seek employment to understand if the firm is really a good choice and truly cares about advisor growth and development, and why Kent feels that even though a successful firm is dependent on growth and achieving goals, success for him is building relationships with clients, employees, and those around him, and seeing how those relationships impact the lives of so many as they grow and find success of their own.

So, whether you’re interested in learning about why Kent decided to create an internal advisor training program to grow his advisors within the firm, how the costs of hiring advisors is covered by Krilogy and the ways advisors are compensated, or how Krilogy implements optional succession plans for senior advisors that transitions the retiring advisor over a two-year period, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Kent Skornia.

CFP Misconduct Research (And The Challenge Of Counting How Many Financial Advisors There Really Are)

February 27, 2023 07:01 am 0 Comments CATEGORY: Planning Profession

Financial advisors are generally required to abide by ethical standards, such as the duty to act in a client’s best interests when giving financial advice. Advisors who attain the CFP marks are held to even higher standards, though, with all CFP certificants required to adopt CFP Board’s own more-stringent Code of Ethics and Standards of Conduct. It would stand to reason, then, that advisors who are CFP certificants would be less likely to engage in professional misconduct than their non-CFP counterparts, since they voluntarily adopt this higher standard of ethical conduct in order to use the CFP mark.

A forthcoming study by Jeff Camarda et al. in Journal of Financial Regulation, however, concludes the opposite. The paper’s authors state that based on their review of publicly available data, CFP certificants had higher levels of advisor-related misconduct than non-CFPs. Which, if true, would be a surprising and concerning revelation, particularly for CFP certificant advisors (as well as for CFP Board itself) who view the CFP marks as the ‘gold standard’ of financial planning – in large part because of the higher standards of conduct required – because of the risk to their reputation should those marks instead be associated with a higher likelihood of misconduct.

But a closer look at the data used in the study reveals issues with the authors’ conclusions. The paper examines advisory-related misconduct data for more than 625,000 FINRA-registered individuals (specifically those who have filed Form U4) and compares the rates of misconduct between CFP and non-CFP certificants. The issue, however, is that not everyone who files Form U4 is an advisor – many assistants, executives, researchers, traders, and other types of professionals are also required to register with FINRA. In fact, according to industry research, there were only about 292,000 financial advisors in total as of 2020, meaning it’s possible that less than half of the individuals used in the study were actually financial advisors. Meanwhile, the vast majority of CFP certificants are financial advisors – meaning it's hardly surprising that CFP certificants were found to be more likely to have histories of advisory-related misconduct than other U4 filers, simply because they were much more likely to be financial advisors in the first place!

Previous research by Derek Tharp et al. attempted to identify actual financial advisors and control for other non-certification-related factors, and found (among a smaller sample size) that CFP certificants were actually less likely to have engaged in advisory-related misconduct than non-CFP professionals. Which highlights a key issue in misconduct-related research, which is that researchers’ conclusions are only as trustworthy as the data that goes into the study. Because when similar research attempts to explore rates of misconduct using other variables – such as firm size, fee models, client types, etc. – without being careful to search for unrelated factors in the data that could inadvertently skew the outcome, it can result in similarly ‘surprising’ conclusions that are really just a reflection of spurious relationships based on poor data quality rather than reality.

The key point is that even – or especially – when looking at research based on big data, it’s still important to rely on logic when interpreting the results. Sound research may certainly produce conclusions that go against intuition, but when such surprising results do occur – such as finding that CFP certificants commit misconduct at higher rates despite voluntarily adopting a higher standard of conduct than non-CFPs – it’s often the case (after a closer look at the data) that the more logical conclusion is the correct one.

Weekend Reading For Financial Planners (Feb 25-26)

February 24, 2023 01:27 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 the SEC’s proposed “Safeguarding Rule” would significantly increase the number of investment advisers deemed to have custody of client assets and increase paperwork requirements for advisers and qualified custodians, though the contours of a final regulation remain uncertain.

Also in industry news this week:

Why the behavior of some TAMPs and investment advisers might have led the SEC to propose its new (and potentially burdensome) ‘outsourcing rule’
Why independent broker-dealers could become major players in RIA M&A in the coming year

From there, we have several articles on advisor marketing:

How to craft engaging calls to action on an advisory firm website
Steps advisors can take to grow and manage an effective marketing email list
5 features that can make an advisor’s website a more valuable marketing tool

We also have a number of articles on tax planning:

How advisors can help their clients avoid an IRS audit this tax season
How major life changes, such as a move or a new job, can affect a client’s tax returns
A review of the best tax preparation software tools for a variety of tax situations

We wrap up with three final articles, all about personal development:

Why showing poise, the combination of style and substance, is often at the heart of a successful career
Why it can be valuable to have “permission to suck” when it comes to trying new things
Why a little bit of self-doubt can help individuals make better decisions

Enjoy the ‘light’ reading!

Kitces & Carl Ep 106: Sharing ‘Real’ Examples Of Your Work To Show The Value Of Financial Planning

February 23, 2023 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

The increasing popularity of financial planning has led to a growing awareness of how important managing finances and planning for the future can be. Despite its growing popularity, though, financial planning remains a relatively mysterious concept for many people who don’t understand how financial advisors actually provide value. For most financial advisors today, a website is a critical tool that allows them to market their services and communicate their fees to potential clients. However, for prospects who are unfamiliar with financial planning and what financial planners actually do for their clients, a description of services and fees may not be enough to decide whether to conduct business with a financial planner.

In our 106th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can better connect with prospective clients by showcasing examples of their financial planning work on their websites, and how they can use simple ways to demonstrate what their financial planning process actually looks like.

As a starting point, it’s important to recognize that a website is often where a prospective client gains their first impression of a financial advisor and what they do for their clients. Though a menu of services and fees on a website can be informative, adding examples of work can be a better way to help convey to prospects the advisor’s skills, abilities, expertise, and work style. These work examples could highlight the include samples of actual deliverables, a calendar of events including meeting cadences and financial plan reviews, and even short videos demonstrating the advisor’s expertise and financial planning process (using appropriately anonymized client scenarios).

A different angle that some advisors may prefer is to share client experiences that financial planning has helped them to enjoy, whether it be taking a long-term sabbatical from work, experiencing once-in-a-lifetime destination vacations, or purchasing a dream home. Whatever approach financial advisors choose, showing examples of the financial planning experience for clients can help make the planning process more tangible and understandable, while building trust and credibility with potential clients before even meeting with them.

Ultimately, the key point is that sharing work examples that reflect how an advisor feels they offer the most value to clients not only shows prospects what the financial planning process would look like, but also makes the process easier to understand and more accessible to potential clients. This can help prospects decide whether the working relationship would be a good fit for them and give them greater confidence in the value of hiring the advisor. And by helping potential clients understand the true value of the relationship, advisors can create better opportunities to find more of their ideal clients and create longer-lasting relationships!

Form ADV Part 1: Common Missteps And Best Practices For RIAs

February 22, 2023 07:01 am 0 Comments CATEGORY: Regulation & Compliance

As a document required to be filed by all registered investment advisers, Form ADV is (at least in theory) a standardized description of each RIA’s services, fees, and business practices, presented in a series of four forms (Part 1, Part 2A, Part 2B, and Part 3) each comprised of a set of underlying sections. As the thinking goes, requiring each firm to file Form ADV with the SEC and/or state regulators (and making it available to the general public) gives investors a way to compare different RIAs in choosing with whom to entrust their savings.

Yet, there is no particular ‘standard’ way to complete some parts of Form ADV, which on the one hand allows RIAs to customize their Form ADV to their own specific firms’ practices, but on the other creates a significant amount of leeway for advisers to fill out each section, potentially resulting in the form being filled out incorrectly or in omitting important information. And although the SEC provides instructions and some guidance for RIAs in drafting their Form ADVs, the instructions allow for a wide latitude of interpretation that can make it difficult for advisers to know exactly how their firm’s information should be presented.

For advisers drafting their Form ADV, then, it can be valuable to understand where regulators expect specific interpretations of their terminology, and where there is more leeway. For example, in certain contexts, the terms “you” and “your” can refer solely to the advisory firm itself, while in others, the terms can encompass any of the firm’s related persons (e.g., directors and officers, partners, and employees of the firm). The answers to some of the questions on Form ADV can hinge on which interpretation of the terms is used.

Additionally, the ‘correct’ answer for some sections on Form ADV may depend to some degree on personal interpretation of questions that have not changed with evolving business practices. For example, the reduction (and often elimination) of trading commissions over time meant that the ‘soft dollar’ benefits of research, technology, and other products or services historically provided by broker-dealers to RIAs in exchange for directing clients to their platforms have become less of an explicit quid-pro-quo arrangement than they were in the past (since advisers now are more likely to merely recommend a client to use a specific broker-dealer or custodian, rather than selecting it for them). But because many broker-dealers continue to provide technology and other benefits to RIAs that use their custodial platforms, some might argue that this does constitute a form of soft-dollar benefit requiring a disclosure on Form ADV, even though it reflects a practice that is now far removed than the one that the soft-dollar disclosure requirement was created to address.

Ultimately, because of the many ways of interpreting the requirements of the parts and subparts of Form ADV, it can be hard to know where to begin. However, by addressing some of the key areas that commonly trip up advisers, it’s possible to avoid many unintentional misstatements or omissions that could trigger a deficiency from the SEC or state regulators, reducing the likelihood of additional time-consuming tasks that would otherwise divert the adviser from their more valuable (and likely more enjoyable) work of serving clients!

#FA Success Ep 321: Navigating The Financial Advisor Career Track In An Unfamiliar Culture, With Danqin Fang

February 21, 2023 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 321st episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Danqin Fang. Danqin is a Lead Advisor for Austin Asset, an independent RIA based in Austin, Texas that oversees more than $1.3 billion in assets under management for nearly 400 client households.

What's unique about Danqin, though, is how she planned and executed a very intentional career path in the financial services industry that involved her leaving her homeland China, embracing a new language and culture in the United States while achieving her Master’s degree in Financial Planning, and proactively creating opportunities for herself by getting involved with industry associations and networking to advance in her career.

In this episode, we talk in-depth about how after a few mentors in China suggested that Danqin look into private banking and wealth management (as they felt it better suited her than her initial accounting major), she began Googling potential career paths in China but instead came across the CFP Board website and immediately connected with the description of a CFP professional, how Danqin realized that to get her CFP marks, she would need to leave China and pursue her education at an accredited institution in the U.S. but saw it as an opportunity to satisfy her desire to explore other cities and different cultures, and to follow a clearer career path (as in China, career paths in finance are much more ambiguous), and how Danqin ultimately navigated the complexities of relocating to another country and acclimating to a new culture and language so that she could take advantage of better opportunities to marry together her love of math and talking to people to become a financial planner.

We also talk about how, to maximize her time and the number of opportunities she could gain in her education and career in the US, Danqin created a plan that worked backwards from her ultimate goal of becoming a lead financial advisor and was intentional about everything from the school she selected to the internships she took to eventually achieve that goal, how Danqin proactively looked for opportunities to network, attend industry conferences, and be involved in local chapters of industry organizations, so that she could increase her probability of making connections with the right people in the industry to find better jobs (and those that would be willing to sponsor her work visa), and how, even though Danqin was already somewhat familiar with the English language, she took advantage of every chance to immerse herself in American culture and better her English with the intention that she could improve her relatability and communication, giving her greater success with future clients.

And be certain to listen to the end, where Danqin shares how she was surprised that despite feeling like she needed to blend into American culture, it was in embracing her authentic self that allowed her to truly connect and cross-cultural barriers with her clients, why, even though Danqin admits that she would have benefitted from more confidence earlier in her career journey, she is appreciative for the experiences she gained as without them, she would not have attained the knowledge she has and gotten to where she is in life and her career, and why Danqin feels it’s important for younger, newer advisors to get clear on their vision of where they see themselves in the future… so that they can figure out what they can control between here and there and work backwards to find the next step forward.

So, whether you’re interested in learning about why Danqin was so adamant about becoming a financial advisor that she uprooted her life to move to a foreign country, how being intentional about what steps to take in her career helped Danqin achieve her goal of becoming a financial advisor, or how, through professional and social groups, Danqin found a sense of community and never truly felt like an outsider, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Danqin Fang.

Abandoning Surge Meetings To Better Meet Client Needs And Promote Advisor Well-Being

February 20, 2023 07:03 am 0 Comments CATEGORY: Practice Management

One of the most important parts of a financial advisor’s value proposition is time spent meeting with their clients. These meetings allow advisors to listen to their clients’ concerns, make planning recommendations, and chart a course for the coming months. And while advisors recognize the importance of holding regular client meetings, there is no consensus about the ‘best’ cadence for them. For instance, some firms spread these meetings out throughout the year while others bunch them into a limited number of months, or even weeks.

This latter approach, sometimes called Surge meetings, has gained increasing popularity among advisory firms in the past few years. Advisors who have implemented a Surge meeting approach have cited a range of benefits from doing so, including boosted productivity, a more systematic client experience, increased efficiency of client reviews and onboarding, and an overall smoother financial planning process for advisors and clients. At the same time, implementing a Surge approach can come with a range of challenges, such as the high level of endurance required of advisors to hold several client meetings every day for prolonged periods, the scheduling logistics needed to accommodate both the advisor’s agenda as well as the items on a client’s mind, and the capacity to preserve a meaningful and personal client experience throughout the process.

In this guest post, Meg Bartelt, Founder and Lead Planner at Flow Financial Planning, discusses how her firm implemented a Surge meeting schedule, and ultimately decided to use a different approach for their client meetings after 3 Surge seasons.

There were several issues with implementing Surge seasons for the firm, including challenges around many of their clients needing to reschedule meetings (resulting in a need to extend Surge seasons). Advisors often had insufficient time during the meetings to cover items on both the firm’s proposed agenda as well as those that the clients brought up, and there was an overall level of exhaustion from holding a concentrated set of meetings while maintaining the high level of personal connection and quick turnaround that the firm’s clients expect (and that the advisors enjoy providing!). Even after making some adjustments (from lengthening the time of meetings to 75 minutes to reducing the scope of technical work on the agenda), the need to meet with clients throughout the year to address high-stakes life changes as they arose (a common theme for many of the firm’s clients), and the desire to go deeper and broader with clients in a more freely structured format led the firm to transition away from the surge approach.

Now, the firm holds 2-hour Annual Renewal Meetings with clients while scheduling additional meetings as needed during the year. Though notably, non-emergency meetings are limited to certain days of the week and weeks of the month, and there are certain months of the year when no meetings are formally scheduled. The firm has also implemented a limited client service calendar, supporting clients on key issues when they occur during the year (e.g., tax letters in January and open enrollment period support in the Fall).

Ultimately, the key point is that just as no single planning strategy is applicable for every client, no single practice management technique is appropriate for every financial planning firm. And regardless of how successfully advisors may claim their particular meeting approach has worked for them, it’s far more important for advisors to experiment with what works best for their firm and how they choose to do business. As while all firms have unique needs and unique clients, finding the right balance between the desire for flexibility to focus holistically on each client and the need to streamline processes and procedures can be the key to identifying the best approach for the firm!