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Paid Solicitation Under The SEC Marketing Rule: Using Third-Parties For Lead Generation And Prospecting

February 1, 2023 07:04 am 0 Comments CATEGORY: Regulation & Compliance

Financial advisors who pay third parties to solicit or refer prospective clients to generate new business have historically been subject to the SEC’s Cash Solicitation Rule. However, that rule was drafted in an era where most paid referral relationships were between individuals, such as a financial advisor who paid a third-party accountant to refer clients their way. In recent years, though, the growing use of lead-generation services, advisor networks, and ‘advisor-matching’ tools, referred to as “operators” in the Marketing Rule’s Adopting Release, has given rise to third-party solicitation activity that often looks more like advertising directly to prospective clients. Which, in fact, often meets the definition of an ‘endorsement’, subjecting many third-party relationships to the Marketing Rule’s compliance regulations.

In response to this shifting landscape, the SEC has scrapped its old Cash Solicitation Rule and folded the regulations for third-party solicitation into its new Marketing Rule, which had a mandatory compliance deadline for SEC-registered advisers of November 4, 2022. In the new rule and subsequent Adopting Release, solicitors have been redesignated as “promoters”, referring to anyone who provides a testimonial or endorsement for an investment adviser, whether or not any compensation was paid. And when an advisor provides compensation for a testimonial or endorsement, the testimonial or endorsement is considered an advertisement under the SEC Marketing Rule. Which means that third-party solicitors providing such advertisements will require a greater investment into due diligence and oversight going forward than under the previous rule.

The upshot is that any paid solicitation agreements between advisers and third parties are now required to comply with the SEC Marketing Rule’s advertising regulations for testimonials and endorsements. These requirements include ensuring that promoters are eligible to receive compensation for testimonials or endorsements (i.e., they are not disqualified by the SEC from acting in any capacity under Federal securities law), entering a written agreement between the adviser and promoter (unless a de minimis compensation threshold, generally $1,000 during the preceding 12 months, is not met), making specific disclosures to prospective clients about the terms of the solicitation agreement and any material conflicts of interest, and, for the adviser, taking reasonable steps to ensure that promoters themselves are complying with the Marketing Rule’s requirements. Additionally, investment advisers should ensure they disclose the promoter relationship in their Form ADV Part 1 and Form ADV Part 2A.

The key point is that all paid solicitation agreements – including both existing and new relationships between advisers and promoters – are generally considered to involve advertisements and will be subject to the Marketing Rule, so for all SEC-registered advisers who are in (or are considering) such relationships, it’s crucial to review all aspects of the relationship in order to ensure compliance. And given the fact that advisers are ultimately responsible for ensuring the compliance of the promoters they utilize – including advisor networks and advisor-matching services that have gained popularity in recent years – using third-party solicitors might require a greater investment into due diligence and oversight going forward than under the previous rule, which could have long-term implications for the cost versus benefits of using such arrangements in the future!

#FA Success Ep 318: From So Many Clients To So Few: Transitioning From Retail Brokerage To The Multi-Family Office, With Ali Swart

January 31, 2023 07:06 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 318th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Ali Swart. Ali is a Partner and the Managing Director for Waldron Private Wealth, a multi-family office based in Bridgeville, Pennsylvania that oversees nearly $3 billion in assets under management for 280 ultra-high-net-worth family households.

What's unique about Ali, though, is how she transitioned from a retail brokerage firm where she served nearly 400 clients (and was still responsible for business development to get more of them), to a multi-family office serving clients through specialized client relationship teams that keep advisor capacity to no more than 10 clients per advisor at any given time.

In this episode, we talk in-depth about how Ali and her firm serve their ultra-high-net-worth families with client relationship teams of wealth planning, investing, and client service, to delve into the full depth of their financial complexities while delivering a ‘white glove’ service, how Waldron instituted an in-depth upfront financial plan offering for prospects that can take 3 weeks to 6 months to develop and deliver (with the intention of building their relationship so well during that time that when it's time to decide whether the firm will be hired to implement the recommendations, a prospective client would feel like they are already so involved that they would be firing Waldron if they were to say no), and how Waldron implements four potential career tracks internally for their advisor team that focuses separately on people development, client relationships, business development, and technical expertise, so that employees can choose the path that is right for them, allowing them to hone their natural skills and grow their income doing what they do best.

We also talk about how Ali didn’t fully realize until after leaving her position at Fidelity the great opportunity she was afforded there to learn from and be surrounded by strong female leaders who were supportive of her, how, while Ali was pregnant with her first child, she started to contemplate her career path and the future of her family, and even though she was happy working for her previous firm, she realized she did not enjoy business development, and decided to take a chance with a recruiter who ultimately connected her with Waldron Private Wealth, and how, before accepting an offer to work with Waldron, Ali made them aware that she intended to continue to grow her family and negotiated that they implement a formal maternity leave policy as a contingency for her to accept their offer.

And be certain to listen to the end, where Ali shares how she struggled with the uncertainty that laid ahead after she decided to leave her former firm to work for Waldron (as she recognized that by taking a non-business-development role she would have to accept an initial reduction in salary), but ultimately decided to view it as an opportunity to take one step back in order to take two steps forward and gave herself a goal to become partner by the age of 40 (which she ended up achieving 4 years ahead of goal!), why Ali feels that it is important for newer, younger advisors to define their personal ‘mission’ to advance within the financial services industry (with the recognition that it will evolve over time just as people and professionals do) and keep that mission as a center of motivation and decision-making with confidence that success will follow, and why Ali believes the key to success for her is keeping her three core values of family, finance, and fitness in alignment… where she is present with her family at every opportunity, continues to advance in her career and support her firm in its growth, and maintains a healthy lifestyle to remain to be able to stay present for her family and her firm.

So, whether you’re interested in learning about how Ali handled transitioning from so many clients to so few, how Ali provides white glove service to her ultra-high-net-worth clients, or how Ali negotiated a maternity leave policy be implemented before she was officially hired at Waldron, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Ali Swart.

Achieving Career Growth With An Ownership Mindset And Finding Where To Create The Most Positive Impact

January 30, 2023 07:03 am 0 Comments CATEGORY: Personal/Career Development

From the sudden changes to everyday life brought on by the pandemic to navigating the new world of hybrid or remote work, employees have endured a challenging few years. At the same time, this shock to the system has led many individuals to reflect on where they are in their careers today and where they want to go in the future. But thinking about career goals is not necessarily enough; instead, employees need to take ownership of their careers to achieve the career goals they seek.

In this guest post, Stacey McKinnon, Chief Operating Officer (COO) of Morton Wealth, discusses her career path and the steps employees can take to build their own desired careers.

The first step to career advancement is to understand your current mindset. For instance, an individual with a sense of curiosity or open-mindedness will likely be better prepared to take ownership of their circumstances than one who is merely trying to protect their current position. In addition to understanding mindset, it is vital to understand your personal ‘why’ or purpose. Defining your personal ‘why’ helps give meaning to your work, serves as a North Star that offers direction when making big decisions, and provides motivation to keep pursuing your goals during tough times.

The next step is to discuss career intentions with personal stakeholders, including friends and family. For example, if your spouse knows your ‘why’ and understands what you are trying to achieve in your career – and how that will impact your family life – they are more likely to accept when you have to stay late at work or spend extra hours studying for a designation. But when personal stakeholders in your life do not understand what you are trying to achieve, it can become much harder to grow a career because of the increased likelihood of conflict and disagreements.

Building a professional community is another important step in advancing your desired career path. Such a community could include a sponsor (a leader who has direct influence over your career and will give you advice that leads to advancement), a mentor (a person who has been where you want to go and will be a safe space for you to seek guidance), and a confidant (someone unrelated to your company that will be there to help you work through issues and solve problems). These people will make up your team of coaches and provide you with specific advice that will lead to better decision-making around your career.

Also, because companies typically look for people who will go above and beyond to improve the company, seeking ways to add value can help you advance within the firm. This could include creating a proposal to enhance the firm’s growth, resiliency, profitability, or client experience and sharing ideas with your direct manager before moving it up the leadership chain to understand better how upper management might respond to the idea. You can also be proactive about gaining expertise by pursuing relevant designations or training in soft skills like leadership.

Ultimately, the key point is that successful careers rarely just ‘happen’ to individuals; instead, the most meaningful careers typically result when people take the initiative regarding their professional development. From finding ways to add value to your firm to building your expertise and network, there are many ways to claim ownership of your career and move toward your goals in the coming year!

Weekend Reading For Financial Planners (Jan 28-29)

January 27, 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 CFP Board announced this week that it is splitting into two separate organizations with the same leadership but different nonprofit statuses. By switching to 501(c)(6) nonprofit status, the new CFP Board of Standards will have expanded abilities to advance the planning profession through lobbying and more targeted advertising messages to grow the ranks of CFP professionals.

Also in industry news this week:

Why cash management strategies could become increasingly important parts of an advisor’s value proposition in a higher-interest-rate environment
Why improved returns on cash products could be a double-edged sword for some advisory clients following last year’s market volatility

From there, we have several articles on practice management:

Why advisors could be the big winners when it comes to competition among custodians and the entry of software providers into the space
Why rising interest rates might not be a major hindrance to RIA M&A activity in the year ahead
How consumer behavior research can help advisors pick the best strategy for raising their fees

We also have a number of articles on cash flow and budgeting:

Why spouses can benefit from having different views on money and how advisors can help foster positive communication between partners on financial issues
How advisors can help clients shift the spending paradigm from ‘wants versus needs’ to considering the best strategies for achieving their spending priorities
How advisors can help clients (and their children) understand the potential risks of using ‘buy now pay later’ services

We wrap up with three final articles, all about time management:

Why trying to optimize downtime can lead to burnout
A strategy for ensuring that relationships don’t fall by the wayside
How remote workers can shake up their work from home routines

Enjoy the ‘light’ reading!

Kitces & Carl Ep 104: How Do You NOT Grow (And Finding The Constraints To Help Say No)

January 26, 2023 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

For many financial advisory firm owners, growth is often the primary goal in the early years of launching a business. However, at a certain point, initial business growth goals will have been met, leaving the business owner at a crossroads of deciding where to take the business next – should they maintain the firm’s current size or continue the growth trajectory and adapt to the firm’s growing needs to bring on more clients? Even though the business may be doing well, deciding to grow past a certain point can bring on a whole new set of challenges, as with an expanding business, the capacity for advisors and other employees becomes more limited and can strain the firm’s resources. Some advisors, though, may choose not to continue growing the business further, and this choice will inevitably involve the challenging task of saying “no” to future growth opportunities.

In our 104th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how financial advisors can recognize and define what ‘enough’ growth looks like for their firm and how to create limits to help them say “no” to future opportunities that may create unwanted strain on the business.

Advisory firm owners can start by assessing how growth would impact themselves, their employees, and the firm. Typically, growing a firm involves adding more responsibilities, which can create more procedures and processes and requires time, staff capacity, and resources across the firm. To handle these additional responsibilities and projects, firm owners often have to decide whether to delegate tasks, automate them, save them for later, or refuse them altogether. And for many advisors who choose to keep their teams smaller and are not interested in hiring and training more employees, determining when to reject new opportunities and how to communicate their choice can be key to finding and maintaining their desired balance. This is because some advisors may not want to take on new clients and additional projects that may overload staff and take away time that could otherwise be spent on keeping current clients happy. Whatever the constraints may be, understanding when – and why – to stop growing can help advisors learn how to say no to unnecessary opportunities that may cause unwanted growth and strain on the firm, staff, and resources.

Ultimately, the key point is that while saying no to growth can feel scary (because we sometimes tend to fear that not continuously striving for growth and staying busy will somehow lead to inevitable failure), protecting the time, capacity, and resources of the firm by turning down unnecessary opportunities can be the best thing for the firm whose goals don’t involve growth. And by defining – and honoring! – the firm’s constraints, the process of intentionally declining these opportunities can become easier and more efficient (e.g., through automated processes and templates to respond to such opportunities). Over time, respecting the constraints of the firm can help the firm owner and the team make better choices and even open up new opportunities that are more relevant to the firm’s future direction, offering a positive impact on the overall goals of the business!

Creating A (Just In Case) Game Plan For Clients Facing Layoffs

January 25, 2023 07:01 am 0 Comments CATEGORY: General Planning

With the U.S. economy predicted by many experts to slow down in the near future, many people’s thoughts have turned to the prospect of a recession. And along with those expectations may come concerns for those still in the workforce about the possibility of layoffs, and needing to get by without income for an unknown period of time. Such periods can be fraught with anxiety, since beyond 'just' the fear of losing one’s livelihood is the realization that there is little way to control whether or when one is laid off. This uncertainty makes it difficult to prepare for the possibility of a layoff, since there is often little real knowledge of what to prepare for.

Financial advisors with clients who are worried about being laid off can play a role in alleviating those worries by helping the client regain a sense of control over their future. And while there are many things to consider when planning for a layoff, these considerations can be grouped into two distinct types of conversations.

First, the advisor can help the client take stock of their current situation to assess their current preparedness for a layoff. This can include inventorying the client’s ‘safety net’ (i.e., the asset and debt options they have available to use if they aren’t employed), listing their essential expenses, and using those figures to estimate how long of a layoff they could potentially sustain. Additionally, there are some actions that may be best to get done before the client loses their employee benefits, such as getting medical work done, using FSA funds, and obtaining individual life and/or disability insurance.

Next, the advisor and client can make a ‘game plan’ which would take effect if the client is actually laid off. These actions can go in order from most to least urgent: starting with immediate concerns (like setting up sources of liquidity, finding new health insurance, and reducing expenses), moving to less-urgent but still time-sensitive tasks (like exercising employee stock options), and finally taking advantage of potential tactical planning opportunities (like making Roth conversions to take advantage of a low-income year or rolling over assets from an undesirable 401(k) plan).

The key point is that although advisors can’t reduce the probability of a layoff themselves, they can reduce some of the feeling of stress and anxiety felt by clients who fear a layoff is coming. Because, even though the game plan for being laid off will ideally never be used because the client is never laid off to begin with, there is peace of mind in having a strategy for when things go wrong. And if the worst case does happen, having a plan already set up to ensure the client's financial security can help ensure they can focus on finding their next opportunity!

#FA Success Ep 317: From Individual To Partnership: Managing The Merger Transition From Solo Practices, With Jennifer Climo

January 24, 2023 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 317th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jennifer Climo. Jennifer is the CEO and a Senior Advisor for Milestone Financial Planning, an independent RIA based in Bedford, New Hampshire, that oversees $360 million in assets under management for 225 client households.

What's unique about Jennifer, though, is how, after more than a decade of building her own successful solo practice, she intentionally decided to merge her practice with another solo practitioner when an unusual crisis opportunity presented itself, and handle the more complex business management dynamics that followed, so that she could fulfill her goals of scaling and growing her practice beyond her and building an enterprise that would outlive her.

In this episode, we talk in-depth about how, after the sudden passing of a successor for a close friend and solo advisor that she met through a local study group of NAPFA advisors, Jennifer decided to merge their practices so that she could not only help her advisor friend and the clients she served, but create a positive opportunity for Jennifer’s own practice to scale up, how, during the first year after the merger, Jennifer realized her new partner still needed a needed a succession plan, and created a unique buyout structure that offers a 40% down payment and retirement payments of 15%-of-profits for life (which also helped to entice future partners who only needed to cover 40% of the purchase price buy-in themselves), and how Jennifer’s unique succession structure has now attracted another of her NAPFA study group partners who was also looking to retire, which prompted a second merger and has allowed her to grow and scale her business even further.

We also talk about how, in addition to her unique succession structure, Jennifer created an operating agreement for her firm (based on the teachings of Philip Palaveev and Mark Tibergien) when she added a partner, that outlines the financial management of their P&L as targeting 40% advisor compensation, 35% overhead expenses, and 25% in profit margins, how, though the merging of the practices created several pain points for Jennifer and her partners (as they all used different advisor technology and had differing fee schedules), she leveraged these issues as opportunities to find the right technology for the blended practice to develop better, easier, and more efficient processes, and eventually was able to incrementally raise fees and increase the firm’s overall profitability as they served clients more effectively, and how, even though Jennifer’s initial intention to join her NAPFA study group was to glean insight on practice management techniques and processes from other advisors, her continued connections with those advisors over the years created a close-knit and trusted community that has proven to give Jennifer even greater opportunities for her business in the long run.

And be certain to listen to the end, where Jennifer shares how she was surprised at how far she has come in her career and business as though she admits she put in the hard work and dedication, she never realized it would lead to her running a multi-million-revenue practice and doing so as a female business owner, how, after discovering a valued, long-time employee was unhappy and struggling, Jennifer learned the hard way the importance of dedicating time to not only teach and train employees, but to also listen and communicate properly so that she can create a better work environment and happier employees to aid retention, and why Jennifer feels it’s important for newer, younger advisors to not be deterred by naysayers in life and in the financial services industry, and instead, should focus on the skills they do have and how they can use those skills to advance in their own careers.

So, whether you’re interested in learning about how Jennifer handled the logistics of merging two practices in just 7 years, how Jennifer structured ownership agreements and profit splitting, or how Jennifer plans to continue to scale and grow her business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jennifer Climo.

Repurposing Digital Marketing Content: How I Grew My RIA Revenue To $16K/Month In Less Than 14 Months

January 23, 2023 07:03 am 0 Comments CATEGORY: Marketing

An important truism about marketing is that to be effective, the marketer’s message needs to connect with the audience it intends to reach. Traditional forms of marketing used by financial advisors – including networking with one’s friends and family members, cold-calling, and paid advertising – have been effective at reaching a ‘typical’ client base of older, wealthy retirees. However, for advisors looking to reach a different type of client – such as those in younger generations like Millennials, who often have an aversion to such straightforward sales tactics – finding a message that resonates often requires a more tailored approach that speaks to the specific audience and what they are going through.

One way to provide such a message is to create educational content, in the form of a blog, podcast, or social media posts (or a combination of the three), on topics that are relevant to the financial lives of the types of clients the advisor is trying to reach.

In this guest post, Thomas Kopelman, financial planner and co-founder of AllStreet Wealth, writes about the keys to becoming an effective content marketer, including building skills at creating multiple forms of content, repurposing content to use in multiple ways, and tracking progress to gauge the performance of content over time.

While good educational content can be a powerful way to generate interest from potential clients, it comes with its own challenges. Because not only does the advisor need to keep up a steady stream of content to engage with their audience, but the content also needs to be good – that is, to be relevant and interesting enough for the audience to want to come back for more. Furthermore, with the sheer number of available outlets for content marketing, it can also be easy for advisors starting out with content marketing to try producing content in too many places at once, ultimately spreading their resources too thin and failing to hone their skills with any one form of content.

A better approach may be to introduce each form of content one at a time – in other words, to initially focus solely on one form of content long enough to build up skill and confidence in that medium, then add another form and learn to do that one well, and so on. Not only does this approach help advisors ensure they have a solid grasp of each form of content before moving on to the next one, but it can also build up a sizeable foundation of content that can be repurposed in the future (e.g., reposted or reshared on social media). This can maximize the potential return on the time and effort it takes to create each blog post, podcast, or newsletter.

Ultimately, what’s important to remember is that it often takes time for the effects of quality content marketing to come to fruition, meaning the most important lesson is to stick with it. A good piece of content, whatever its form, might not immediately convince someone to become a client... but what it can do is cause the advisor’s name (and expertise) to stick in their head so that when they do come to a pain point that requires an advisor’s expertise, they know who to reach out to.

Weekend Reading For Financial Planners (Jan 21-22)

January 20, 2023 02:02 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 several states are considering a series of tax hikes targeting higher-income and ultra-high-net-worth residents after similar proposals failed to pass at the Federal level. While it remains to be seen whether the measures will actually be enacted, proposed measures include raising income and capital gains tax rates, instituting wealth taxes, and reducing the state estate tax exemption, potentially creating future planning opportunities for advisors with clients in those states.

Also in industry news this week:

While the number of RIA M&A deals increased in 2022, the size of these deals declined, perhaps reflecting challenging market and economic headwinds
A recent survey suggests that nearly half of financial advisory clients have changed advisors or have considered doing so since the start of the pandemic and that portfolio performance has become a primary consideration in their decision-making process

From there, we have several articles on practice management:

Why advisory firms might first consider whether they are using their current tech stack optimally before looking to new software solutions
How advisory firms can better organize and track their data to avoid drowning in a sea of numbers
Why firm culture and opportunities for career advancement could be more important than starting salary for many financial planning job candidates

We also have a number of articles on cash flow and spending:

A review of several key psychological factors that drive clients’ spending decisions
How consumers are potentially losing money by keeping significant cash in savings accounts at major banks, and the opportunity for advisors to create cash management strategies for clients
How advisors can support clients whose children suffer from ‘failure to launch syndrome’

We wrap up with three final articles, all about the financial advice industry:

Why the competition for talent, a pullback in private equity funding, and firms balancing efficiency with effectiveness could be key trends within the financial advice industry in the coming year
How consumers could benefit from fee-only advice within the insurance industry
The benefits of taking on leadership positions within financial planning industry associations

Enjoy the ‘light’ reading!

Is Private Debt Worth Considering As An (Alternative) Asset Class In Client Portfolios?

January 18, 2023 07:07 am 0 Comments CATEGORY: Investments

Many investors are familiar with private equity as an alternative asset class, which is popular with certain high-net-worth and institutional investors as a vehicle for diversification and a source of potentially higher risk-adjusted returns than what is available on the public market. However, less well-known is the related but distinct asset class of private debt, which, like private equity, focuses on opportunities outside of what is traded on the public market but deploys its capital in the form of credit rather than taking equity stakes in companies. And in the midst of a rough market for publicly traded debt, high-net-worth individuals (and their advisors) who might be seeking alternatives for the fixed-income portions of their portfolio may be curious about what private debt might have to offer.

While public market and private equity asset classes are much more thoroughly researched, research on private debt providing reliable data on returns, volatility, fees, and other characteristics has been relatively scarce. However, a recent paper by Pascal Böni and Sophie Manigart in the Financial Analysts Journal sheds new light on how private debt has performed over time and provides insight into what factors advisors and their clients should focus on when considering private debt for their portfolios.

One of the paper’s key takeaways is that although private debt as an asset class has delivered higher risk-adjusted returns compared to traditional fixed-income investments, there is a wide range of outcomes between individual private debt funds, with a relatively small cluster of top-performing funds delivering much of the asset class’s overall outperformance. And while the maxim “past performance does not indicate future results” holds true for traditional asset classes, the reverse has proven at least somewhat true for private debt: Among private debt funds and the General Partner who manages them, prior performance was a significant indicator of future performance, with funds having a good performance history being the most likely to outperform in the future. Funds with GPs who had no history of prior private debt fund management had some of the worst performance, suggesting that not only do past returns but also the skills and experience of General Partners have much to do with which private debt funds are likely to have the best returns.

For advisors, examining the management and culture of a private debt fund can be an important way to provide value to clients through a thorough due diligence process. This can include assessing the experience and performance history of the fund’s GP and how the fund has achieved its returns (e.g., by making concentrated bets or through a more diversified approach). And while the choice of a fund may be the most significant decision regarding private debt, advisors can add value in other ways as well, such as by incorporating private debt into a client’s existing asset allocation strategy, optimizing the asset location of a private debt fund, and analyzing the fund’s fee structure.

Ultimately, what’s most important is that clients have a solid understanding of the risks involved with investing in private debt versus remaining in the public markets. Namely, the illiquidity of private funds (which can keep clients’ funds locked up for 10 years or more) makes them most appropriate for clients with a long-term investing horizon and with other liquid funds for short-term and unexpected needs. Advisors who can help their clients navigate these important considerations, and keep the client’s focus on the long term, can be an invaluable aid in ensuring those clients can realize the potential advantages that private debt can make possible!