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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!

Reframing Monte Carlo Results To Increase Trust In Dynamic Retirement Spending

June 29, 2022 07:05 am 1 Comment CATEGORY: Retirement Planning

Financial advisors often use Monte Carlo simulation in their financial planning process, which (as is commonly found in major financial planning software packages) traditionally presents the results of the projection in terms of probability of success or failure (with ‘success’ being defined as an iteration of the plan where the client doesn’t run out of money, and ‘failure’ signifying the opposite).

However, some commentators have taken issue with this framing, particularly as it concerns the way that Monte Carlo results are presented to clients. Most significantly, the ‘success/failure’ framing fails to capture the reality that retirees, when facing an unlucky sequence-of-returns scenario which could result in their running out of money, can and often do make adjustments to their spending that allow them to avoid that unfortunate outcome.

To better reflect this reality, the phrase “probability of adjustment” has emerged as a commonly suggested alternative to “probability of success”. While representing an improvement over the original, however, “probability of adjustment” itself can be prone to ambiguity and misinterpretation without being clear about what type of adjustment might be needed, and what the outcome might be if that adjustment weren’t made.

A Monte Carlo simulation can tell us, with the benefit of hindsight, exactly which iterations of a plan would have ended with the retiree running out of money. But in reality, retirees do not have the ability to know which iteration (if any) they are on, and in many instances will likely make adjustments in cases where, in hindsight, no adjustment was strictly necessary. As a result, simply replacing “probability of success” with “probability of adjustment” when communicating Monte Carlo results can significantly underestimate the likelihood that a client will actually make an adjustment at some point, since clients (and advisors) do not have the benefit of knowing when an adjustment is ‘truly’ necessary.

Likewise, if an advisor were to recommend a dynamic spending strategy based on Monte Carlo simulations (such as adjusting spending to maintain a constant probability-of-success level), the “probability of adjustment” framing can skew even further from reality, since preserving a consistent probability of success often calls for relatively frequent adjustments in spending. For instance, maintaining a 70% probability of success level – implying only a 30% probability of adjustment – would in reality have required downward spending adjustments in nearly 100% of all historical scenarios, which would understandably have caused confusion for many clients if the advisor had used the standard “probability of success/adjustment” framing!

Ultimately, the key point is that outcomes, not probabilities, are what matter to clients, and any way of communicating Monte Carlo results should be clear about what those results mean in terms of real spending to the client. Though “probability of adjustment” is an improvement over “probability of failure”, it can still greatly underestimate the probability of actual spending adjustments, especially when dynamic spending strategies are involved. In those cases, it may make sense to avoid framing Monte Carlo results in terms of probabilities entirely, but rather to communicate in terms of the actual dollar spending adjustments that would be triggered in specific scenarios – which is what really matters to the client in the end.

#FA Success Ep 287: Finding Solo Efficiency To Serve 50 Great Clients With $100M AUM, With Jennifer Murray

June 28, 2022 07:03 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 287th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jennifer Murray. Jennifer is the owner and founder of Stonebridge Financial Advisors, an independent RIA based in Morristown, New Jersey, that oversees $100 million of assets under management for 50 client households.

What's unique about Jennifer, though, is how she built on her personal tragedy of losing her husband to colon cancer to build a practice that specializes in recent widows, and intentionally works with a limited number of widowed clients to provide a more intimate service without needing to hire up staff around her.

In this episode, we talk in-depth about how, after becoming a widow herself and facing all the financial challenges and questions after losing a spouse, Jennifer realized she had the expertise to help other women going through the same difficulties and decided to focus solely on newly-single women, how a combination of referrals from friends and family and offering advice in her specialization through seminars, bereavement groups, and local hospital foundations helped Jennifer gain clients in her early years, and why Jennifer very intentionally only works with no more than 50 clients so that she can provide her desired level of attentive service to her clients without needing to hire up or feel the pressure of expanding and moving outside of her own comfort zone.

We also talk about how Jennifer realized after years as a lending officer at a private banking institution working with high-net-worth individuals she could have a much greater impact on clients' lives by working with them more holistically as a financial advisor, how even though Jennifer was a well-prepared CFP and had experience in finance, she learned as she experienced widowhood that as a single person there is always a need to have a thinking partner like a financial advisor, and how networking at financial conferences and receiving positive feedback from her clients early in her career gave Jennifer the confidence to eventually launch her own RIA to build her own ideal practice.

And be certain to listen to the end, where Jennifer shares how developing a well-targeted website early on in launching her practice helped increase its growth exponentially (and why it continues to support her growth even though she hasn’t updated it in nearly 10 years now), why Jennifer eventually had to stop taking new financial planning clients and how she handles prospects that she doesn’t have the capacity to serve, and how fulfillment as a financial advisor comes not only from the good that we do for clients, but the feeling that we as financial advisors are valued by our clients and are being paid well for the good work that we do.

So, whether you’re interested in learning about how facing the challenges of widowhood and being a single parent herself gave Jennifer the perspective to truly help her single women clientele, how networking and offering advice to specialized groups helped Jennifer realize her niche and gain referrals to launch her own RIA, or why Jennifer purposefully limits the number of clients she works with so she can provide higher attention and time for her clients to make the best financial decisions for them, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jennifer Murray.

How To Take More Vacation: An Advisor’s Guide To Balancing Work And Time Off

June 27, 2022 07:01 am 0 Comments CATEGORY: Practice Management

Taking time away from the office can have many benefits for advisors, from the personal (e.g., spending time with family and exploring new places) to the professional (e.g., resting and recharging to help prevent burnout). At the same time, being away from work (whether it is working fewer hours during the week or taking full vacation days off) means having less time for client engagement, business development, and other firm activities. This raises the question of how advisors can most effectively balance their work obligations with the benefits of taking time off.

According to the latest Kitces Research study on Advisor Wellbeing, the median number of weekly hours worked and annual vacation days taken vary by position, where associate advisors tend to work more hours than lead advisors or executives, and where lead advisors tend to take more vacation than their counterparts. Further, median hours worked and vacation days taken also vary based on the advisor's status within the firm. For example, firm owners and employees work a median of 45 hours per week, while solo producers work a median of 40 hours per week. In addition, solo producers also take more vacation days than owners and employees.

These differences could be related to job experience and tenure, but they may also be related to differences in job function of each role, which can have a large impact on how advisors feel they can regulate their work hours and vacation time. For instance, even though some advisory firm executives may have fewer client advisory responsibilities, their job responsibilities include managing their staff and the office itself, which could be one reason why they take fewer vacation days than lead advisors.

Further, work hours and vacation days appear to be correlated with adviser wellbeing. For instance, the Kitces Research study found that advisors who reported very low quality-of-life scores took about 15 vacation days each year and worked about 43 hours per week. Advisors with very high quality-of-life scores took 29 vacation days each year and worked 38 hours per week, suggesting that advisors who work long hours may not be offsetting their regular work hours with vacation days, which could be a source of relaxation.

Given the various benefits of having time away from work, advisors have several options to reduce their weekly work hours and add vacation days to their calendar. For instance, designating a schedule based on realistic working hours can help them structure their time in a way that will help them meet their goal. Also, setting expectations for clients is especially important, both in terms of vacation days (by letting them know at the beginning of the engagement that the advisor will not be available during certain vacation periods) and during the workweek (which advisors can do by including their availability for replies in their email signature). In addition, bringing on new employees to share the work burden can free up time for firm owners, but they need to be careful not to allow this newfound time to be consumed by management responsibilities!

Ultimately, the key point is that taking time away from the office is a key contributor to an advisor's overall wellbeing. And for advisors who would like to work fewer hours per week or take more vacation days (or both!), setting clear expectations with clients and co-workers is an important first step toward creating more high-quality free time!

Weekend Reading For Financial Planners (June 25-26)

June 24, 2022 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 the Senate has passed companion bills to the House’s “SECURE 2.0” proposals that would represent the most noteworthy changes to retirement savings since the original SECURE Act was passed in 2019. While changes could be made to the proposals as the Senate and House bills are reconciled, strong support for the measures in both chambers suggest that there could be major changes to the retirement landscape by the end of the year (from increasing the age when RMDs begin, to the ability to use retirement distributions to fund long-term care insurance), that could come with significant planning implications in the years that follow!

Also in industry news this week:

The SEC is considering extending its regulation of advisors to ‘information providers’, such as index providers and model portfolio makers, which could clarify the roles and responsibilities of these companies while further stretching the SEC’s inspection bandwidth
A recent survey suggests that clients of financial advisors have more confidence in their financial situation than consumers without advisors across a range of measures, from saving enough for retirement to controlling the amount of risk in their portfolios

From there, we have several articles on tax-planning strategies:

While tax-loss harvesting has gained newfound attention during the current market downturn, other tax-planning strategies, including asset location and Roth conversions, can also provide significant value to clients
Amid proposals to move the RMD age back further, advisors and their clients can consider the potential value of strategic withdrawals and Roth conversions before reaching RMD age
Why direct indexing is gaining in popularity among a broader base of advisors, and why its uses for clients go beyond tax management

We also have a number of articles on investing:

Why retail investors are increasingly turning to private-market investments and the potential benefits and risks of doing so
The implications for advisors of a recent study exploring the characteristics that make it more likely someone will ‘panic sell’
Why alternative investments could potentially be valuable additions to client portfolios in the current market and economic environment

We wrap up with three final articles, all about the drivers of professional success:

Why specialists often have a leg up on generalists as an industry matures and what this means for financial advisors
Why emotional intelligence and organization are more important than ‘book smarts’ for achieving success in the 21^st century
Why personal experience is necessary to gain understanding and mastery of a profession, including financial planning

Enjoy the ‘light’ reading!