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Weekend Reading For Financial Planners (July 1-2)

June 30, 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 NAPFA has announced that it will no longer exclude advisors who receive up to $2,500 in annual trailing commissions from previous product sales, if they agree to donate that money to a non-profit organization and are otherwise fully dedicated to fee-only principles with their clients going forward. The change has led to strong pushback from some of the organization’s own members, who argue that allowing any level of commissions is a step away from NAPFA’s “fee-ONLY” roots, and will dilute the organization’s brand as being the home of fee-only advisors when they’re not purely fee-only anymore… while others suggest that the policy simply recognizes the practical challenges that previously commission-based advisors face when making the transition to fee-only models (including that sometimes it’s virtually impossible to get insurance companies to stop paying trails on old policies!).

Also in industry news this week:

Concerned about the (insufficient) frequency of its examinations of RIAs, an SEC committee has recommended that the regulator allow third parties to conduct these examinations and to request Congressional authorization to charge investment advisers under its purview a ‘user fee’ that would provide steady funding to the SEC’s examinations division
A recent report has found that 72% of new advisors drop out of the industry, creating an incentive for firms to invest in their recruiting, onboarding, and training practices to be able to grow their headcount amidst a wave of expected advisor retirements in the coming years

From there, we have several articles on cash flow and spending:

How individuals can balance the desire to spend on small luxuries today with the need to save for the future
How advisors can help younger clients get on a sustainable spending and savings path
While research has found that, broadly, greater income can lead to increased happiness, a variety of mediators, from an individual’s baseline happiness level to the amount of free time they have, can affect this relationship

We also have a number of articles on retirement planning:

Why advisors and their clients entering or in retirement might consider income annuities as a replacement for the bond portion of the client’s portfolio
How advisors can support workplace retirement plan sponsors in deciding whether to include annuity options and, if so, which to choose
While a proposed hybrid annuity/long-term care insurance product could help consumers and insurance companies mitigate their risk, it has yet to get traction

We wrap up with 3 final articles, all about the relationship between hard work and success:

While those who have reached the top of their fields might appear to perform effortlessly, getting to that point likely took thousands of hours of practice
Why finding meaning in one’s career could be superior to seeking wealth for its own sake
How luck (both good and bad) shaped the course of 1 advisor’s career path

Enjoy the ‘light’ reading!

Kitces & Carl Ep 115: Setting The Right Minimum Fee Per Client And The Revenue Model Generator

June 29, 2023 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces Carl Ep Setting The Right Minimum Fee Per Client And The Revenue Model Generator

For most financial advisory firm owners, ensuring that their business or practice is remunerative and that it can remain viable is often a key priority. And while there are many factors that help owners determine whether their firm is making enough money to profitably sustain itself, one common variable that can help them adjust their net revenue is the fee they charge to clients for financial planning services. By adjusting their clients’ minimum fees, advisors have a way to ensure they are being fairly compensated for the time they spend with each client, and that the revenue generated collectively by all clients will be enough to cover overhead, employee salaries, and other costs to run and grow the firm. However, as every firm’s structure, priorities, and growth goals are different, determining the appropriate minimum fees for clients can be challenging.

In our 115th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisory firm owners can determine appropriate fees for clients by taking a close look at their current business metrics, their desired business metrics, and their desired lifestyle as an advisor.

Balancing the amount of personal income that advisory firm owners want to earn with how many clients they want to serve can help them decide how to adjust their fees to maintain a satisfying and sustainable business model. As while serving more clients can mean more compensation, setting realistic boundaries can keep solo advisors (who want to stay solo advisors) from exceeding their limits and relying on support staff (which can compromise profit margins) to ensure that all clients receive exceptional service. Once advisors determine their desired income and client-base size, the minimum fee can be calculated by dividing the target revenue that would cover all business expenses (including the advisor’s desired income) by with the number of desired clients.

For advisory firm owners who want to grow their business, deciding how to scale their operations is important to assess how they will need to adjust their minimum fees to accommodate growing costs and expanding services while also growing profit margins for further growth. As while a growing practice will have evolving objectives, its advisory firm priorities will need to be reassessed periodically to ensure a sustainable revenue model for the changing needs of the firm. And having a clear strategy to decide how client fees can be adjusted to provide sufficient revenue can facilitate the growth process more seamlessly.

Ultimately, the key point is that having a systematic approach to determine minimum fees per client will help firm owners ensure they target an appropriate revenue level to earn a fair and satisfying income, maintain the health of their practice or business, and support a healthy work-life balance. Most importantly, finding the appropriate minimum fee per client can help the advisor create a sustainable business and increase the chances of the business lasting for the foreseeable future – helping even more clients in the long run!

Flip ‘Plan Presentation’ Into ‘Plan Engagement’ Meetings To Generate More Focus And Reflective Questions From Clients

June 28, 2023 07:02 am 0 Comments CATEGORY: Financial Psychology

One of the key steps in the financial planning process is presenting the plan to the client, which has traditionally been done as part of a single 'plan presentation' meeting that takes place once the advisor has gathered and analyzed all of the client's data. While this approach may have made sense in a time when the 'plan' itself was mostly limited to investment recommendations (which the advisor would be able to go on and implement themselves since they were managing the client's assets), financial planning has come to cover more and more areas of clients' lives, with a widening breadth of financial planning recommendations in kind – to the extent that trying to cover the entire plan in 1 session can result in an exhausting and overwhelming ordeal for both the client and the advisor.

In this article, Kitces Senior Research Nerd Meghaan Lurtz writes about what the most recent Kitces Research study on Advisor Productivity reveals about how advisors deal with the challenge of delivering more and more information to clients, and how it's possible to keep clients engaged in the process of presenting financial plans… without resorting to longer planning meetings.

As the latest Kitces Research reveals, advisors are increasingly turning to collaborative financial planning software, which – at least in theory – can help to keep clients engaged by turning the planning meeting into a back-and-forth discussion versus a 1-sided lecture. However, the danger of relying on software to facilitate collaborative financial planning is that if either the advisor or the client isn't familiar enough with the software to leverage its features, the software can instead be a blocking point for the advisor in delivering the information (making it less likely for the client to implement the advice, since they may not fully understand it in the first place) while eating up valuable meeting time focused on the technology… and not the client or their plan.

One approach that can help create a more engaging and productive plan presentation is to 'flip' the meeting so that some (or most) of the information is presented in advance rather than during the meeting itself. By sending meeting materials (including recommendations) in advance up front, clients can absorb and reflect on the information on their own time, freeing up meeting time to focus on questions the client has (which will presumably be more thoughtful and relevant after spending some time to think about them, versus 'on-the-spot' questions that arise immediately after the advisor presents the information). Not only can sending user-friendly materials (such as short video clips recorded in apps such as Loom) help clients better engage with the financial planning recommendations, but they can also help clients establish a baseline knowledge of the technology required for key analyses (e.g., Monte Carlo analysis) that might otherwise be difficult to understand when first encountered in a plan presentation meeting. This allows the advisor to focus on the client's plan and recommendations instead of on how the tech is used.

Ultimately, sending planning and educational materials to clients in advance helps advisors transform the plan 'presentation' meeting into a plan 'engagement' meeting. And because materials sent in advance only need to cover the basics, they don't necessarily need to be personalized – meaning that the advisor can create a handful of broadly applicable videos to use over and over again to educate clients before diving into the details in the meeting itself. The net outcome, then, can be not only to reduce the amount of time needed for meetings themselves, but also to make the time spent in the meeting more engaging and valuable for the client!

#FA Success Ep 339: Resetting The Business For Its Next Stage Of Growth After Hitting The 10-Year Capacity Wall, With Eric Roberge

June 27, 2023 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 339th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Eric Roberge. Eric is the Founder and CEO of Beyond Your Hammock, an independent RIA based in Boston, Massachusetts, that oversees $47 million in assets under management for more than 80 client households.

What's unique about Eric, though, is how, 10 years after launching his firm and enjoying strong and steady growth, he hit a capacity wall as a solo advisor and suddenly found the business going backwards, as a $4 million client decided to relocate, and market volatility caused several other clients to leave his firm (which meant a loss of $100,000 in recurring revenue), all while he and his wife had their first child… leading Eric to go through a year of rebuilding multiple components of his business from staffing to technology to their client service calendar to get back on track again.

In this episode, we talk in-depth about how, in 2022, Eric and his wife Kali faced a tumultuous year the firm dipped from $600,000 to $500,000 of revenue run rate in just the first few months and because it coincided with the arrival of their first child they didn’t have the bandwidth and capacity to adapt, how, to help with capacity constraints, Eric decided to ramp up part-time outsourced assistance (from Nifty Advisors for a part-time virtual assistant and East Bay Financial for a part-time virtual Chief Investment Officer), and how, to create even more lift in capacity constraints, Eric changed the firm’s meeting cadence from meeting with clients 3X per year to only twice a year, utilizing a surge meetings structure to both give him months of time back to focus on the firm as a whole (and also to be able to respond more quickly to client needs throughout the year as they arise).

We also talk about how Eric’s decision to get a formal valuation from FP Transitions not only helped crystallize the significance of what he’d built (when he saw the valuation from a third party) but also created a new perspective on where to focus his time to best increase enterprise value going forward, how Eric is focusing on increasing connections with prospects by creating content on his website and hiring a PR firm to help him get guest podcast appearances and then drive traffic back to his website and grow the firm’s marketing funnel, and why Eric offers a fee calculator on his website (that allows clients to enter their assets and see exactly what the fee will add up to be in actual dollars) because he’s found that prospective clients knowing exactly how much they would be paying in fees is helping build trust early on.

And be certain to listen to the end, where Eric shares why, even though he experienced a lot of challenges in 2022, he is grateful for the opportunities it brought him as he feels it helped better his communication with his wife, how Eric came to realize that in building a business, the solution to challenges early on was to work harder, better, and more efficiently, but that eventually there comes a point where you have to re-tool the business’s systems and processes or you just run out of time and energy, and how living through the challenges of 2022 has helped Eric become more intentional in how he builds his firm, with a newfound appreciation of the benefits that come from focusing – really focusing – on changing what you can control and letting go of the rest.

So, whether you’re interested in learning about how Eric struggled to find a lead advisor that was both a good fit and was willing to take on some business development which led him and his wife to revamping their processes instead, how, even though Eric and his wife experienced a downturn in the business, he was prepared economically as he had saved a large amount of money in case of emergencies, or how Eric leverages his FP Transitions’ subscription service to receive benchmarking data that helped him realize he not only has a younger clientele than most firms of his size, but that his average fee per client is larger than other firms, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Eric Roberge.

Learning Experiences Advisor Firm Owners Wished They Knew Before Merging Or Selling

June 26, 2023 07:02 am 0 Comments CATEGORY: Practice Management

One of the biggest challenges for small, independent RIA firms is that they are self-reliant with respect to designing, choosing, and implementing the systems, technology, and processes that they use. Some firm owners relish the responsibilities of building and maintaining a firm from the ground up, but others – who may be happier with simply advising and building relationships with clients – might find it more appealing to merge with or sell to a larger firm that has the resources to handle the back- and middle-office support and leave the advisor to the work that they enjoy most. However, advisors who choose to merge or sell may end up regretting the decision if they find themselves tasked with new and unexpected responsibilities, mismatched with the new firm’s culture, or missing the freedom that they had enjoyed as an independent operator.

In this guest post, industry commentator and Inside Information author Bob Veres relates the stories of advisors who relinquished their independence – often for sensible reasons, such as succession planning or to solve challenges of firm growth and complexity – and what they learned about the experience that they wished they had known beforehand (that other would-be sellers may want to know before they face a similar decision).

The first major lesson about selling an advisory firm is the sheer amount of work involved in doing so, from finding (and doing due diligence on) potential buyers to migrating systems and technologies over to the new firm. For a firm owner who expects the sale to make their life simpler, the enormous project of transitioning can often be the opposite of what they expect.

Second, once the merger is complete, firm owners often discover that the culture of the new firm clashes with their expectations. Firms seeking acquisitions may talk up their values prior to the sale, but the reality is that at a firm that is rapidly acquiring other businesses – particularly when funded by private equity ownership – the focus is often on the growth of assets and profitability, no matter what the core values are purported to be. And when the acquiring firm is much larger than the selling firm, the much more rigid structure of the larger firm (particularly relating to compliance and personnel management) will almost inevitably conflict with a previously independent firm owner who is used to making their own decisions.

The third major lesson is that RIAs that acquire independent advisory firms are sometimes acquired themselves by still larger firms. Independent firm owners who have taken pains to ensure that their acquisition partner is a good fit in terms of culture, processes, and services have gone on to see their work being undone when the partner is subsequently eaten up by a bigger firm with little interest in preserving the original independent firm owner’s vision.

Ultimately, many of these issues are simply tradeoffs inherent in selling an advisory firm, which necessarily involves the owner giving up some (or all of) the control that they're accustomed to. However, for advisors who are considering a sale – which, despite the potential pitfalls, still can be an important part of the journey for succession planning and growing the firm beyond an individual advisor or owner – the key point is that the reality of going through an acquisition often doesn't match up with the owner’s expectations. And while it's common for media to focus on the success stories, it can be just as helpful to hear about advisors' experiences when their acquisitions don't go just as planned, so future advisors can learn from the benefit of hindsight!

Weekend Reading For Financial Planners (June 24-25)

June 23, 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 amid a flurry of SEC-proposed rules for investment advisers, the Investment Adviser Association this week called on the regulator to assess whether the compliance burden these regulations would put on advisers outweighs the potential benefits and, if adopted, to consider rolling them out on a staggered basis to give advisers sufficient time to implement them.

Also in industry news this week:

A recent study found that financial advisors get significantly more social media engagement from posts on LinkedIn and Facebook compared to Twitter and highlighted the importance of posting original content for engagement
Why RIAs have struggled to find a solid footing in the IPO market

From there, we have several articles on behavioral finance:

While advisors cannot provide clients with absolute certainty about their financial lives, they have the opportunity to add value by helping them manage risk and build resilience
How advisors can support clients worried about the "crisis du jour"
How helping clients connect with their future selves can spur them to action

We also have a number of articles on practice management:

How advisory firm owners can save time and energy by empowering employees to lead themselves
How firms can run more effective team meetings and offsites
Why recruiting 'superstars' often requires different tactics compared to a firm’s typical hiring process

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

A review of research demonstrating why exercise might be the key to a healthier, and longer, life
How to structure a workout when there are only 15 minutes available
Why investments in one’s health can be just as important as financial investments when it comes to having a longer and happier retirement

Enjoy the 'light' reading!