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Weekend Reading For Financial Planners (October 5–6)

October 4, 2024 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 a recent survey from Charles Schwab indicates that advisors see technology as the biggest driver of change in the RIA industry, with the growing number of AdvisorTech solutions as the most frequently cited tech-related driver of change. Further, Artificial Intelligence (AI) was the most cited factor driving industry growth during the next 3 years, with client data integration as a primary area for improvement, suggesting an opportunity for AI tools to help advisors make the most of the significant amount of client data they possess (possibly saving time in the process) and potentially offer a deeper planning experience for their clients!

Also in industry news this week:

A recent survey found that while 1/3 of advisory firms are currently using AI tools, another 1/3 are fearful of doing so, indicating that while some firms are eager to be early adopters of this technology, others are taking a wait-and-see approach, perhaps as regulation surrounding this technology evolves over time
National RIA Creative Planning recently received an eye-popping 23X earnings valuation in its sale of a minority stake to a Private Equity (PE) firm, indicating that some acquirers are prioritizing a firm's depth of integration and consistency (and the growth prospects it supports), and not just its size, when making investments and setting a value for advisory firms

From there, we have several articles on retirement planning:

Why now could be a good time for clients nearing and in retirement to trim their equity allocations (perhaps as part of a regular rebalancing strategy), despite the potential temptation to be overweight stocks in the current hot stock market
Why contingent deferred annuities could serve as a middle ground for advisors and their clients who want additional protection from longevity risk without giving up control over their assets
How a "bond tent" approach can help advisors and their clients reduce sequence of return risk without increasing longevity risk in the process

We also have a number of articles on client communication:

How advisors can craft effective stories that can help clients and prospects better understand technical planning topics and the value the advisor provides
Why individuals and companies that have the 'best' story sometimes prevail over those that might have better ideas or products
5 types of stories for advisors to have in their back pocket to deal with a variety of client circumstances

We wrap up with 3 final articles, all about spending on children:

Why some parents are cutting back on financial support for their adult children, and the strategies they are using to do so
How providing "helicopter money" can unintentionally stunt a child's path to financial independence from their parents
Why buying kids the highest-quality goods could give them a skewed perspective on what 'normal' purchases look like and the need to balance financial limitations with their 'wants'

Enjoy the 'light' reading!

Kitces & Carl Ep 148: Making It Easier To Get Started By NOT Building In Public And Focusing On Version 0 Instead

October 3, 2024 07:02 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Making It Easier To Get Started By NOT Building In Public And Focusing On Version Instead

"Building in public" is a common piece of advice for tackling new challenges – whether launching content, starting a business, or setting personal or professional goals – as public commitment fosters accountability and motivation, tapping into the human desire to avoid embarrassment. While this approach can be effective, it ultimately poses its own difficulties; for example, when stakes are public, advisors may feel pressured to endlessly perfect their offerings and over-commit their time and resources before knowing what really works. Alternatively, they may avoid public commitment altogether to sidestep this pressure.

In the 148th episode of Kitces and Carl, Michael Kitces and Carl Richards discuss how advisors looking to try something new can overcome mental roadblocks and take action… without feeling the pressure to publicly announce their plans first.

As a starting point, it may be helpful to remember that, for better or worse… few people pay attention to someone's early public efforts. For example, firm owners often spend an immense amount of time on marketing before referrals or prospects begin to flow in. Most new offerings don't come with a built-in audience. The reality is that, more often than not, recognition for one's 'new' offering tends to come long after the offering was launched, which is why we often hear the phrase about taking 10 years to become an overnight success. On the one hand, it may feel defeating ("What's the point if no one cares?"); on the other, it can feel liberating ("I can build anything I want, and few will notice if I fail.").

The benefit of this slow recognition is that it gives advisors time to refine their product… as long as they start. The desire to create a polished product that matches what clients want is important (and a part of how an advisor has gotten so far) but can also inhibit advisors from getting started in the first place. From that end, it may be helpful for advisors who struggle to start to create a "Version 0" – a version built with release in mind, but not a commitment to a finalized, perfected end product. For example, an advisor creating new video content may record "Version 0" videos, where rather than focusing on perfecting sound, light, and other design elements, they ‘just' turn on their camera and follow a brief script. After recording, they may find that Version 0 is actually good enough to release! And once "Version 0" is out, observing who shows up and engages can inform the advisor about what their audience truly cares about.

The key point is that if advisors can ‘just' begin by iterating new offerings, the process of releasing them gives the advisor space to refine what truly resonates with clients – ultimately leading to a great, relevant product!

Helping Nervous Clients Understand The (True) State Of The Social Security System And What It Means For Their Retirement

October 2, 2024 10:15 am 0 Comments CATEGORY: Retirement Planning

Given the frequent news headlines on the (un)sustainability of the Social Security system, many working-age financial advisory clients might harbor doubts about receiving their full estimated Social Security benefits (and many current Social Security recipients might be concerned that they will not continue to receive their full benefits throughout the remainder of their lives). In this environment, financial advisors have the opportunity to add value for their clients not only by giving a clear explanation about the current status of Social Security and the potential legislative changes that could improve its solvency, but also by modeling what (realistic) changes would mean for their clients' financial plans.

To start, while the state of Social Security's trust fund reserves often receives significant media attention, in reality, the bulk of funding for paying out Social Security benefits comes from Federal Insurance Contributions Act (FICA) taxes, more commonly known as payroll taxes (with workers and their employers each paying 6.2% on up to $168,600 of income in 2024 for the Social Security portion of FICA). Which means that even if the trust fund reserves were to become depleted (currently estimated to occur in 2035), the system would continue to pay the majority of benefits that are simply covered by the ongoing receipt of significant payroll tax revenue. In fact, according to the latest annual report of the board of trustees of the Social Security trust funds, Social Security would still be able to pay 83% of scheduled benefits in 2035 when it is expected to be depleted, though this figure would decline to 73% of scheduled benefits by 2098. Which might come as a surprise to clients who assume that the exhaustion of trust fund reserves would mean that no (or very little) benefits would be paid!

Nonetheless, given the disruption that a reduction of benefits would cause recipients of Social Security retirement benefits (particularly those who rely on such benefits for a significant percentage of their retirement income), policymakers have an incentive to enact measures that would allow the system to continue paying out full benefits for decades to come. Such options include single-policy solutions that would wipe out the entire 75-year shortfall (e.g., the board of trustees report estimates that a 3.33 percentage point increase in the payroll tax or a 20.8% reduction in benefits would cover the gap) or a (perhaps more politically feasible) combination of policies that address system revenues and/or costs (e.g., raising the payroll tax wage cap or increasing the Full Retirement Age) that would close the funding gap.

Ultimately, the key point is that financial advisors have the opportunity to add value for their clients by providing context on the state of Social Security (e.g., even if the trust funds are exhausted, the system would still be able to pay out the majority of scheduled benefits) and potential legislative fixes (which, depending on the legislation passed, might not be as severe as some clients assume), as well as leveraging financial planning tools to show the impact of the possible trust fund exhaustion and/or potential policy actions on each client's financial plan (both in dollar terms and how it changes the probability of success of their plan). Which, together, could provide clients with a more realistic picture of what changes to Social Security could mean for their unique situation!

#FASuccess Ep 405: When Being ‘Youthful’ Turns From A Liability To An Asset In Building Your (Long-Term) Advisory Business, With Gaetano Sacco

October 1, 2024 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Gaetano Sacco Podcast Featured Image FAS

Welcome everyone! Welcome to the 405th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Gaetano Sacco. Gaetano is a partner and senior financial advisor at Fountainhead Advisors, an RIA based in Warren, New Jersey, that oversees approximately $900 million in assets under management for 1,000 client households.

What's unique about Gaetano, though, is how after breaking away from an insurance broker-dealer with barely $5M in assets under management, he has been able to quickly build his practice to $75 million in AUM in just 5 years in part by turning what was originally a liability for him in his 20s – being a 'young' advisor who prospective clients didn't always think was credible – into an asset, where Gaetano is now quickly growing his client base of retirees by highlighting how his 'youthfulness' as a 30-something means he's been around long enough to show that he's going to be a financial advisor for the long run, and still young enough that he can do this for another 30 years and actually be their financial advisor for their entire retirement (or basically, the last advisor they'll have to worry about picking in their lifetime).

In this episode, we talk in-depth about Gaetano's experience working in insurance sales starting soon after he graduated from college, including why the need to cold-call for business as a relative newcomer was both a challenge and a confidence-builder as he started to gain traction selling insurance products and some standalone financial plans, the factors that ultimately led Gaetano to decide to make the switch from insurance to the RIA channel and leave friends and mentors he had made in the insurance world despite the success he was having there after winning "Financial Planner of the Year" in his region of the company, and how Gaetano, now in his late 30s, has found his age to be an asset, as getting married and having kids has given him new perspectives in life to be able to better related to his clients and prospects, his years of experience shows that he has credible success, and his relatively young age helps him reassure his older clients that he can really be there for them in the long run.

We also talk about how Gaetano has built his current practice up to $75 million in just 5 years in part through client referrals that came after he got really proactive in addressing client concerns (from phone calls to webinars to additional written commentary and even crafting an expertise on PPP loans while they were available) during the COVID-induced market downturn, how Gaetano has since used in-person client appreciation events, including restaurant crawls and entertaining clients at a popular horse race, to both build loyalty among his current clients and to generate warm introductions to the friends that his existing clients bring to these events, and how Gaetano expanded his capable to be able to serve his 150 clients in part by empowering a newer advisor to take on plan-building and client-facing tasks while building his own book of business.

And be certain to listen to the end, where Gaetano shares how joining an advisor study group, and its structured cadence of 2 multi-day meetings every year, has guided him through multiple changes that allowed him to level up his own practice, why Gaetano turned down his first potentially lucrative job offer with an RIA because of the bad vibes he got from the firm and its leadership, and how Gaetano's realization that he wanted to work in the financial advice business for the long run influenced his decision to pursue a more planning-centric career path… that gives him the opportunity to wake up every day excited to meet with his clients (while still being able to maintain a strong work-life balance).

So, whether you're interested in learning about gaining credibility as a 'young' advisor, driving client referrals through a proactive service experience, or the professional benefits of participating in an advisor study group, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Gaetano Sacco.

CEO Peer Groups: A Strategy For Financial Advisors To Build Trust With And Attract Business Owner Clients

September 30, 2024 07:04 am 0 Comments CATEGORY: Personal/Career Development

When it comes to focusing on a niche for financial advisors, business owner clients can be an appealing target as they can have complex financial planning problems ranging from cash flow management to tax planning to acquisition strategies. However, while business owners can be compelling clients, they can also be difficult to find and prospect in the first place. One component that feeds this dynamic is that business owners have many people vying for their attention; another is that business owners have limited time and resources. So, the dilemma for advisors looking to find business owners and convince them to become clients often comes down to finding business owners who can benefit from (and want) financial planning services and demonstrating expertise in a way that can build trust.

An effective strategy for attracting business-owner clients is to engage with a CEO Peer Group. These support groups, typically comprising 10–12 business owners, generally meet monthly and allow members to discuss issues, brainstorm solutions, and share resources. Most importantly, CEO Peer Groups provide space for business owners to work 'on' their businesses – rather than 'in' their businesses – with highly trusted peers.

Advisors have a few options for getting involved in a CEO Peer Group. One is to become a Strategic Partner (SP) and create a new group, serving as both sponsor and host. This option allows advisors to establish themselves as experts and resources for other Peer Group members, where they can also better understand what business owners want and need from the complex situations they discuss with their Peer Group. Additionally, when the advisor shows up and facilitates fruitful discussions every month, providing relevant resources as the group's SP, business owners begin to see the real value the advisor can offer. Group members get to know and trust the advisor in a non-sales environment, making them more likely to become prospects (and then clients) of the advisor.

Instead of engaging with a CEO Peer Group by serving as a Strategic Partner (which can be relatively time intensive), a second way for advisors who are firm owners to engage with peer groups is to become members themselves. This lets them reap the benefits of having both the support and guidance of a Peer Group and access to a level of prospective outreach through networking within the group as a group member. A third way for advisors to engage with a CEO Peer Group is to partner with a peer group moderator to serve as a Center of Influence for the group, allowing the advisor to connect their own network of resources with group members to help solve their various problems, or even providing members with resources through their own planning services to answer questions on issues such as taxes, insurance, and scaling.

Ultimately, the key point is that for advisors who work with (or would like to work with!) business owners, CEO Peer Groups can provide an organic way to connect with, market to, and ultimately onboard new clients. Whether serving as a Strategic Partner, a group member, or a Center of Influence, CEO Peer Groups can provide advisors with a valuable opportunity to learn from like-minded business owners to help them expand their own network of trusted peers!

Weekend Reading For Financial Planners (September 28–September 29)

September 27, 2024 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 a recent study by Cerulli has shown a sharp increase in the number of affluent investors willing to pay for advice, which on the one hand reflects the increasing financial complexity in peoples' lives (while they've also gotten busier than ever at work and at home) to the extent that they're more willing to work with someone to navigate those financial challenges; while also highlighting the progress advisors have made in providing more value beyond 'just' portfolio management – and in demonstrate that value to the public.

Also in industry news this week:

As brokerage firms have faced a wave of lawsuits regarding the low interest rates paid on cash sweep accounts, some legal experts believe that RIAs could also be targeted for legal action if they allow clients' uninvested cash to sit in a cash sweep account rather than investing it or moving it to a higher-yielding cash account
In a recent SEC panel discussion, the CFP Board pushed back against claims by the broker-dealer and insurance industries that a uniform fiduciary duty would impose a heavy cost burden on commission-based advisors (and therefore restrict access to financial products and advice for lower- and middle-income consumers) with data showing that CFP certificants, who are held to a fiduciary standard, actually earn more income on average while still serving lower-income clients

From there, we have several articles on investing in the wake of the Federal Reserve's recent decision to cut interest rates:

How the Fed's rate cuts will translate into lower interest rates on cash products like savings accounts, CDs, and money market funds (meaning cash may no longer be a 'free' source of 5%+ returns)
How markets have historically tended to fare surprisingly well following rate cuts, providing some comfort for long-term investors even in the midst of short-term economic uncertainty
Why there's little that investors can do today to take advantage of the recent rate cut (since it was already largely priced into markets) – but it may not ultimately matter much to investors with a longer time horizon, for whom a rate cycle is just a blip in the long-term picture

We also have a number of articles on Mergers & Acquisitions:

Why firms seeking to pursue growth inorganically via M&A will be more successful if they can first figure out how to achieve sustainable organic growth
What business owners (including RIA owners themselves, as well as business owners whom advisors serve) can consider when planning a business exit strategy, and why it's best to start planning several years before the date of the expected sale
How the headline "multiple" of an M&A deal can be misleading, since it may contain caveats like unrealistic performance-based incentives that make the true economics of the deal less attractive for the seller

We wrap up with 3 final articles, all about advisor dress and office decor:

Why the once-ubiquitous necktie has fallen out of fashion, even amid formal attire (although in the end it's not so much about what's in fashion as about what the advisor can wear to feel their best in front of clients)
How advisors use their office décor to project their unique attributes and spark conversations with clients, from personal mementos to an outdoor natural environment
Why even though advisors may feel most 'authentic' in casual attire, they may still find it easier to land clients (particularly if they have less experience or professional accomplishment) if they dress similarly to what clients may expect an advisor to wear

Enjoy the 'light' reading!