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Kitces & Carl Ep 90: Standing Out On Social Media By Finding The ‘Minimum Viable Audience’

July 14, 2022 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

In recent years, many financial advisors have turned to social media as a marketing tool to connect with prospective clients. Its ease of use and potential to reach large audiences have made it a very attractive channel to generate potential leads. But as a highly competitive venue with an excess of information, personal finance personalities, trends, and products, social media is rife with individuals all vying for everyone’s attention. Faced with what can feel like overwhelming competition and messaging, many advisors are left trying to figure out not only how to get noticed by potential clients, but also how to stay connected enough to gain their trust and business.

In our 90th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the importance of being increasingly relevant to find the minimum viable audience as an effective way to capture attention, drive interest, and grow a following on social media.

As a starting point, it’s important to recognize that social media engagement is usually better when the content is relevant to a specific audience. Though social media has the potential to reach mass audiences, delivering generalized content to reach everyone doesn’t work nearly as well as narrowly targeting a very specific audience. Even if a user is reticent to agree with a particular message, if the message is clear and specifically relevant to them, they will be more likely to pay attention to and engage with the message because of its relevance.

Importantly, the best way for advisors to develop narrowly targeted messaging is to determine their 'minimal viable audience'. Just like figuring out which niche to serve, finding the minimum viable audience means finding the specific demographic subset of people that would not only be remunerative for the advisor, but that the advisor wants to serve over time. Understanding who the messaging is for will allow the advisor to connect with their audience more specifically and meaningfully, creating more of the right connections.

Ultimately, the key point is that finding the minimum viable audience will allow the advisor to develop messaging that is highly relevant to a specific target audience. And while choosing a smaller demographic target might feel counterintuitive and scary (as it means fewer people will be targeted), creating connections with a smaller group of the ‘right’ people can actually be more lucrative, resulting in warmer leads and more new business. And connecting with more of the right types of clients upfront (versus making more connections with anyone) can help advisors develop longer-lasting relationships with the clients who they will be happiest working with over the long run!

Why Tax-Loss Harvesting During Down Markets Isn’t Always A Good Idea

July 13, 2022 07:09 am 9 Comments CATEGORY: Taxes

During market downturns, tax-loss harvesting is often considered a ‘silver lining’ to an otherwise undesirable situation. In theory, the strategy allows investors to convert their capital losses into a tax deduction while staying invested so they can benefit when markets recover – ostensibly a win-win for the investor and, consequently, a popular strategy for advisors who are often eager to find ways to provide extra value to their clients in volatile markets.

But contrary to this no-lose framing, there are situations where tax-loss harvesting results only in a net neutral outcome for the investor, and can even leave the investor worse off than if they had done nothing to begin with! This is because when losses are harvested, the investor’s cost basis in their portfolio is reduced by the amount of the loss. Which means that when the investment is ultimately sold (after it has recovered to or above its original value), there will be an additional capital gain equal to the loss that was harvested earlier – potentially negating some (or all!) of the initial benefit of harvesting the loss in the first place.

Whether tax-loss harvesting benefits the investor or not, then, depends highly on the investor’s tax rate when they deduct the initial loss, as well as the rate at which they realize the later gain that the initial loss created. If the investor is taxed on future gains at a lower rate than losses harvested today, the resulting ‘tax bracket arbitrage’ can create a net tax benefit. But the effect can also work in the opposite direction, and when the future gain is taxed at a higher rate than the loss today, the investor might be better off doing nothing (and not harvesting the loss), as in some cases, the additional capital gains created by harvesting losses could themselves push the taxpayer into a higher future tax bracket.

Additionally, when the goal of the investor is to build wealth, harvesting losses can be counterproductive if the investor doesn’t reinvest their initial tax savings because – along with losing out on the potential growth of that savings – spending it all upfront potentially requires the investor to pull additional funds out of their portfolio later on in order to pay for the extra capital gains created by harvesting the loss. And when the investor has large carryover losses from previous years that potentially won’t get used during their lifetime, tax-loss harvesting might potentially just create additional carryover losses, which are lost when the taxpayer dies and the cost basis is stepped down.

Ultimately, the value of tax-loss harvesting has a lot to do with an individual’s current and future circumstances, and financial advisors can take advantage of their knowledge of their clients’ financial pictures to identify when harvesting losses might be (or not be) a good idea. By taking the time to analyze the value of tax-loss harvesting – beyond the upfront tax deduction – advisors can help clients make well-thought-out choices about tax-loss harvesting that make them more likely to benefit from it in the long run.

#FA Success Ep 289: Coming Together As A Partnership To Serve Your Collective Community, With Kamila Elliott

July 12, 2022 07:04 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 289th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kamila Elliott. Kamila is the CEO and Founder of Collective Wealth Partners, an independent RIA based in Atlanta, Georgia, that oversees nearly $25 million in assets under management for almost 175 client households.

What's unique about Kamila, though, is how she and her partners built an independent advisory firm, comprised entirely of Black CFP professionals, dedicated to supporting the creation of wealth for BIPOC and other underserved communities with a model that simply charges them for advice… even if they don’t have assets (or at least, not yet).

In this episode, we talk in-depth about how, after years of working in an environment where she saw first-hand how ultra-high-net-worth clients keep and grow their wealth (and the lack of diversity among those clients), Kamila decided to build a practice that focused on providing holistic financial planning to communities of color with emerging wealth, how Kamila and her partners serve their clients collectively with a team approach where each team member focuses on different areas of specialized expertise such as employee benefits, tax planning, and equity compensation, and why Kamila and her partners feel they can better serve their clients as advisors of color because they have a deeper understanding of both the cultural competencies necessary to serve different communities and the values those communities want to see represented in their investments and financial planning recommendations.

We also talk about why Kamila intentionally shifted her career focus to build an independent practice after years of working with clients and realizing how few looked like her, how despite working hard, Kamila was frustrated she was not receiving the recognition and compensation she felt she deserved and ultimately decided to follow the advice she gives her clients by advocating for herself and leaving her prior firm, and how Kamila explains the value of hiring a financial advisor to her clients (as many in communities of color have never had an advisor before) by likening it to hiring a personal trainer as financial advisors help clients stay focused, motivated, and accountable.

And be certain to listen to the end, where Kamila shares how she was surprised by how much time it takes to manage aspects of her business, like compliance, technology, and having time to learn new industry information in order to build a successful practice, how Kamila now recognizes risk and fear are part of growth and wishes she could have taken more risks early in her career, and why she believes in the importance of taking multiple career steps across different domains of the financial services industry that build upon one’s expertise (especially leadership skills) over time, even if that means having a more circuitous career… as not everything in life is linear.

So, whether you’re interested in learning about how working with ultra-high-net-worth clients at her former firm gave Kamila the insight to help others grow and retain wealth, why Kamila and her partners chose to create a firm with an equal partnership, even dividing responsibilities to ensure they are serving their clients to the best of their expertise, or how being comprised of entirely Black CFP professionals gives Kamila's firm the leverage to better serve and connect with clients of color with emerging wealth, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Kamila Elliott.

3 Aspects Of Identity Covering And How It Impacts Advisors’ Happiness At Work

July 11, 2022 07:03 am 3 Comments CATEGORY: Personal/Career Development

Financial advisors are often responsible for working with a wide range of individuals, both among their client base and coworkers, who each have their own personality, beliefs, and style of communication. While it can be rewarding to build a large breadth of relationships, it can also be challenging to appeal to and feel accepted by so many different people all at once. One way that some advisors cope with this challenge is to 'cover' – that is, to downplay or conceal aspects of their own personality or values in order to fit in.

Research has shown that covering is a common phenomenon in the general population, and the most recent Kitces Research study on wellbeing has shown that it is also common among financial advisors: Approximately 40% of advisors responded that they hide aspects of their personal lives from both their coworkers and clients. Importantly, advisors who strongly agreed that they cover in the workplace also reported lower quality-of-life scores, presumably because spending so much time in an environment where they feel they cannot express their true selves would understandably cause a decline in wellbeing.

While covering is a universal phenomenon, Kitces Research suggests it is more prevalent among advisors at larger firms (defined as those with seven or more members) than those at smaller firms. While it makes intuitive sense that advisors at a larger firm might feel more pressure to downplay personal traits among their coworkers, what is notable is that advisors at larger firms are also more likely to do so with their clients. Which suggests that covering might not just be an issue of an advisor's personal insecurity, but may also be rooted in the culture of larger firms. And this may encourage advisors to suppress their unique personalities and fit in with the crowd.

In addition to firm size, several other factors are also associated with covering. Advisors whose personality traits do not align with stereotypical gender roles – e.g., confidence and assertiveness in males; gentleness and deference in females – may feel pressured to conform to what they think is expected of them. Likewise, advisors with more junior roles and less experience also feel less confident in expressing themselves than their more senior colleagues.

Ultimately, most everyone feels pressure to cover at some point, but when that pressure is present in one's work environment every day, it can have a detrimental impact on wellbeing. It's important for advisors to find ways to authentically express themselves – whether by building deeper relationships with work colleagues or clients, or seeking out mentors or study groups – and also for firms to provide a culture where employees feel comfortable doing so. Allowing advisors to openly share what makes them unique can help create a more diverse, inclusive, and happier financial planning industry!

Weekend Reading For Financial Planners (July 9-10)

July 8, 2022 02:06 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with a recent study indicating that 15% of employee advisors at wirehouse firms and 7% of independent advisors affiliated with a broker-dealer are considering leaving their firm in the next one to two years. Of those most likely to stay, retention was driven primarily by the quality of the firms’ technology offering, the breadth of its products and services, and the corporate culture set by the leadership of the firm. Though notably, dissatisfaction among employee advisors tended to increase with industry tenure, suggesting that some firms could potentially lose advisors with the largest books of business, potentially creating an opening for competing firms to bring on seasoned talent (and client assets)!

Also in industry news this week:

How advisors are planning to grow despite the current bear market’s negative impact on assets under management
Two years after its implementation, the SEC is planning to draft additional guidance to help advisors better understand Reg BI and ensure it delivers on its investor protection goals

From there, we have several articles on practice management:

How setting Objectives and Key Results (OKRs) can help ensure all employees are working toward common firm goals
How advisors can leverage the Entrepreneurial Operating System (EOS) to systematically manage and grow their firms
What it takes to build lasting influence, and why it has little to do with social media follower counts

We also have a number of articles on cash flow management:

How advisors can work with younger clients who want to financially support their parents or other loved ones
How to prevent money issues from derailing a friendship
The importance for advisors of recognizing the different preferences clients have for spending and saving their money

We wrap up with three final articles, all about psychology:

Why setting “process goals” can help advisors create routines that endure after their larger goal is achieved
Why advisors might not want to worry the next time they start (literally) sweating a stressful situation
Why chosen suffering is an important part of achieving a life of happiness and meaning

Enjoy the ‘light’ reading!

Minimizing Advisor-Client Value Conflicts Using The Principles Of Aikido

July 6, 2022 07:02 am 2 Comments CATEGORY: Client Trust & Communication

Advisors occasionally encounter situations where their recommendations conflict with a prospect’s or a client’s opinions or beliefs. When encountering this resistance, the advisor has a choice to make: either to alter their recommendation to make it more acceptable to the client’s way of thinking, or to dig in and attempt to change the client’s mind on the subject (or, in the most extreme cases where the difference cannot be resolved, to re-evaluate the engagement and perhaps end it altogether).

In some cases, it is clear to advisors that it would be inappropriate to try to persuade a client to go against their values. For example, when a client and advisor are divided on a subject stemming from the client’s religious beliefs (e.g., a client who is requesting to use Shariah-compliant funds), few advisors are going to try and talk a client out of those beliefs. And if the advisor is not familiar enough with such religious funds to advise on, the advisor may simply refer the client out to another advisor who is a better fit. But in other cases, such as when a prospect or client wants to follow the advice of a popular financial guru, the advisor may be more tempted to push back.

For advisors in this situation, the Japanese martial art aikido can provide perspective on how to respond. In aikido, rather than fighting or resisting an attack, a defender redirects the attacker’s energy, rendering it harmless. Likewise, when advisors receive pushback from clients which they feel could be harmful to the client if carried out, rather than arguing or persuading the client to change their mind, it may be helpful instead to think about how they could redirect that energy in a harmless (or even beneficial) direction.

While many financial advisors may disagree with the opinions espoused by pundits like Dave Ramsey and others (e.g., their views on asset allocation or paying down debt), nonexperts often find them very compelling. Furthermore, in some cases, following the advice of a financial guru might have had a real positive impact on a client’s life – meaning that, for the advisor, convincing a client to simply ignore a popular pundit’s advice and start following the advisor's (possibly conflicting) recommendations might be a difficult and even unrealistic proposition for the client.

Advisors in this situation can consider using the lessons of aikido. Instead of trying to change their clients’ beliefs, it may be possible to channel them in a more productive manner. For example, if a client wants to follow a pundit’s asset allocation advice, an advisor could – rather than taking a hard line – try to see what it is about the pundit’s advice that appeals to the client, and then construct a portfolio that aligns with those values (while still being sound from the advisor’s perspective).

From this perspective, building the portfolio becomes an exercise that is similar to any other values-based investment philosophy (e.g., Socially Responsible Investing). In order to best align with the client’s values, the advisor may need to operate from a slightly limited fund universe – which, despite not being 100% optimized from the advisor’s perspective, can still be a worthwhile compromise as a way to build a portfolio that aligns with a client’s bigger-picture values (and that they, therefore, may be more likely to stick with in the long run).

Ultimately, the key point is that for financial advisors, understanding and appreciating a client’s values can make all the difference between working with an engaged and enthusiastic client, and one with whom the advisor might fight long and hard to ‘detox’ of their beliefs (and potentially end up losing the battle anyway). This is the core of investment management aikido – instead of fighting the client’s values, an advisor can redirect their energy in as beneficial of a way as possible!

#FA Success Ep 288: Transitioning From (Divorce) Attorney To (Divorce-Specialized) Financial Advisor, With Patrick Kilbane

July 5, 2022 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 288th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Patrick Kilbane. Patrick is a Partner and the Director of the Divorce Advisory Group for Ullmann Wealth Partners, an independent RIA based in Jacksonville Beach, Florida, that oversees $800 million in assets under management for 350 client households.

What's unique about Patrick, though, is how he stepped away from a successful career as a family law attorney to transition into becoming a financial advisor who specializes in divorce, with a unique value-add of being able to work collaboratively with his former legal colleagues to provide support services for new clients going through a divorce process.

In this episode, we talk in-depth about how and why, after almost a decade of practicing family law and helping clients through divorce, Patrick made the transition to a financial advisor to better help his clients navigate the financial challenges that come with divorce, how Patrick leverages the professionalism, trust, and the connections he built as a lawyer to gain referrals for him and his advisory firm, and, while he doesn’t give any formal legal advice to his clients, how Patrick is able to utilize his knowledge of the law to offer specialized assistance to divorcing clients so they can better prepare for meetings with their lawyers during divorce proceedings.

We also talk about how, after reading Rich Dad Poor Dad while in college, Patrick realized his interest in personal finance and the ways passive income can impact one’s life (going so far as investing his excess student loan money into a Vanguard S&P 500 fund), how Patrick tired of the grind as a lawyer (especially dealing with divorcing clients when they're at their worst) and the immense pressure he felt as a lawyer to bill thousands of hours a year to clients (and be collecting on those bills), and why Patrick walked away from his law practice, just two weeks after becoming a partner at his firm, so he could pursue a career as a financial advisor… while still retaining his status as an accomplished lawyer.

And be certain to listen to the end, where Patrick shares why, even though he is appreciative of his years as a lawyer (as he could not be where he is today without it), he wishes he could have begun his career as a financial advisor much sooner in life, how Patrick understood that despite being an accomplished divorce lawyer, it was incredibly important to have a mentor who could guide him as he transitioned into his new career as a financial advisor, and how Patrick has lived a philosophy of trying to give his best effort every day to help his clients realize their financial goals, with the confidence that when you work hard and do your best each day for your clients, your own finances tend to get taken care of, too.

So whether you’re interested in learning about why Patrick decided to change careers after many years as a successful divorce lawyer, how Patrick utilizes connections and trust he built in his former profession to build his financial advisory practice, or why Patrick feels he can better guide his clients through the worst of times as a financial advisor rather than as a divorce lawyer, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Patrick Kilbane.

The Latest In Financial #AdvisorTech (July 2022)

July 4, 2022 07:02 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the July 2022 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 big news that Charles Schwab agreed to pay a whopping $187M to settle charges from the SEC that it misled investors by advertising that its Schwab Intelligent Portfolios robo-advisor was “free” when in reality Schwab not only was profiting on investor cash that was being swept to its affiliated Schwab Bank, but set its cash allocation targets in client portfolios at above-typical levels specifically to ensure it achieved its desired level of business revenue from its robo-offering (reducing long-term client returns by an amount equivalent to the advisory fee it said it wasn’t charging but indirectly generated anyway).

The significance of the Schwab settlement is not only its sheer magnitude– at $187M, it is likely enough to wipe out virtually all profits that Schwab ever earned on its robo-advisor in 7 years (equivalent to the profits on $375B of AUM assuming a 25bps fee and a 20% profit margin, while Schwab’s robo-advisor itself was reportedly ‘just’ $65B of AUM last month!) – but that it raises questions about whether Schwab’s other lines of business, including its RIA custodial offering, may also face regulatory scrutiny, given Schwab’s “Pledge” to not charge RIA custody fees while profiting from the cash sweep to Schwab Bank is remarkably similar to the marketing tactic it just settled with the SEC about for its “no-fee” robo-advisor.

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

Bento Engine raises $1.1M to implement a ‘Next Best Conversation’ for advisors by integrating with their CRM to prompt client outreach based on key age milestones
RIA In A Box integrates with InvestorCOM to launch a new DoL PTE 2020-02 RolloverAnalyzer solution
Pershing X signals the launch of an MVP of its new ‘All-In-One’ advisor technology platform… while questions remain about what its long-term business goals are for the new technology offering

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

FutureProof and XYPN LIVE both announce new AdvisorTech Demo events where newer/startup technology companies can submit applications to be seen by a large advisor audience (without being required to pay a big sponsorship fee!)
Fruitful raises $33M to launch a new financial-planning-app-plus-CFP-guide subscription offering for a $100/month fee, and raises the question of whether there’s a market for ongoing advice services in the ‘middle’ market between do-it-yourselfers and traditional full-scale advice relationships?

In the meantime, we’ve also made several updates to the beta version of our new Kitces AdvisorTech Directory, to make it even easier for financial advisors to look through the available advisor technology options to choose what’s right for them!

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” 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 (July 2-3)

July 1, 2022 02:04 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that RIAs experienced growth across a range of metrics in 2021, from the number of SEC-registered firms (up 6.7%), to assets under management (up 16.7%) and clients (up 6.4%). Combined with shrinking numbers of broker-dealers and their registered representatives in the latest FINRA Snapshot, this RIA growth signals the continued shift from product-based to advice-centric planning, as more and more advisors restructure their firms from broker-dealer to RIA!

Also in industry news this week:

At a time when more than one-third of financial advisors are expected to retire in the next 10 years, a quarter of these advisors are still unsure about their succession plans, raising the question of whether they will begin internal succession plans soon or simply wait to be acquired by a larger firm when it’s time to retire
Why the SEC’s first enforcement action under Regulation Best Interest disappointed consumer advocates by focusing on sales behavior that would have even been questionable under the prior suitability standard

From there, we have several articles on retirement:

How advisors can successfully guide clients from the accumulation phase to the decumulation stage of their financial lives
Why it is important to treat financial independence as a journey rather than a destination and how advisors can support clients on this path
Why retirement often means a shift to new activities and routines rather than a total absence of structure

We also have a number of articles on practice management:

Why it is important for firm leaders to take a personal interest in the lives and professional success of their employees
Why setting expectations, regular communication, and mutual respect for company cultures are key to ensuring a successful relationship between advisory firms and their strategic partners
The range of compensation structures firms can consider implementing to attract and retain employees during the current tight labor market

We wrap up with three final articles, all about vacations:

Why taking vacations is important to advisor wellbeing and how to set expectations with clients and coworkers to make the time off more relaxing
How new advisors can prepare for their first vacation, from informing management well in advance to creating how-to videos for co-workers covering their responsibilities
Why crafting an effective out-of-office message can make or break a vacation

Enjoy the ‘light’ reading!

Kitces & Carl Ep 89: From Financial Plan Software To One Page Financial Planning

June 30, 2022 07:05 am 9 Comments CATEGORY: Kitces & Carl Podcast

Many financial advisors have traditionally aimed to present the financial plan as a thick, bound, all-encompassing document to be used as a tool to help clients achieve their financial goals. But beyond providing an in-depth roadmap for clients, the financial plan also demonstrates the expertise and value financial advisors offer. To help streamline the financial planning process and shift the emphasis from creating a one-time financial plan to providing ongoing financial planning guidance more easily, Carl Richards authored his book The One-Page Financial Plan, which focuses on the most important information a client needs to know in a one-page report. Even though it was originally faced with some opposition in the financial advisory industry, the one-page financial plan has increasingly become adopted among many advisors in recent years to the extent that financial planning software companies now incorporate tools to help advisors easily develop one-page financial ‘snapshots’ for their clients.

In our 89th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how the one-page plan has helped advisors present clear goals to their clients while still presenting their value proposition, how changes in the financial advisory industry have led to broader adoption of a one-page plan, and what it means for financial advisors now that financial planning software companies are adopting shorter reports as a tool.

As a starting point, it’s important to understand that financial snapshots don’t replace the work of creating a full financial plan itself. Rather, a one-page plan is an alternative to the deliverable for the client that not only saves the advisor (and the client) time, but also provides a living document for the advisor and the client that is easily updated over time throughout the advisor-client relationship. A full, traditional financial plan can be long and time-consuming to create. Which means that it may only be updated once every several years, if at all. A shorter snapshot version, on the other hand, is easier to update on an ongoing basis, which helps the advisor and the client change course (if need be) and helps keep the financial plan on track. The ability to make more frequent changes to the financial plan gives the advisor opportunities to provide proactive changes to the plan, while sustaining the client relationship over time.

Importantly, while advisors may have been likened to ‘mapmakers’ solely responsible for creating a plan, changes in technology and digital communication have enabled financial advisors to do full, in-depth analyses while connecting with clients to update their plans more dynamically and, in the process, serving more as ‘guides’ on their clients’ financial journeys.

Ultimately, the key point is that as financial planning software companies continue to offer automated tools that help advisors keep track of progress alongside their clients, advisors can focus more on building more dynamic relationships with their clients instead of just creating a static path for clients to reach their financial goals. Because going on the journey together with clients can increase touchpoints throughout the relationship, which increases trust and deepens relationships!