Kitces.com - Advancing Knowledge in Financial Planning

Weekend Reading For Financial Planners (May 6-7)

May 5, 2023 02:30 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 House Financial Services Committee unanimously passed a bill that would direct the SEC to conduct a study and carry out a rulemaking on the definition of a "small entity" to reduce the compliance burden on small businesses, presumably including RIAs.

Also in industry news this week:

Legislation working its way through Congress would allow for electronic delivery of documents to clients of advisors and other financial services firms by default, though it has been met with some opposition
While RIAs have outpaced wirehouses in terms of client asset growth and headcount, industry consolidation has led to a decline in the number of RIAs, according to a study from Cerulli Associates

From there, we have several articles on practice management:

Why serving 'non-ideal' clients is seen as the top productivity challenge for advisors, according to one survey
How putting in the extra time to practice ahead of client meetings or seminars can pay off for advisors
Why stressed-out firm owners might consider downsizing their client base rather than selling their firm

We also have a number of articles on investments:

While tax-adjusting a client’s portfolio can be a valuable service, doing so accurately can be challenging
The potential benefits and risks of investing in funds that engage in securities lending
Why holding on to stocks, rather than moving to cash, could be a smart move, even if a recession is expected to occur

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

Why LinkedIn could be a valuable 'one-stop shop' for social media users
How ChatGPT and other AI tools have come under fire for using published content on the Internet to train their models
How 'passkey' technology introduced by Google and other web services could lead to the end of passwords

Enjoy the 'light' reading!

Kitces & Carl Ep 111: Who To Hire First As Your Advisory Firm Grows (And Why Do You Even Want To)

May 4, 2023 07:07 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces Carl Ep Who To Hire First As Your Advisory Firm Grows And Why Do You Even Want To

One of the biggest challenges faced by solo financial advisory firm owners as their firms grow and encounter capacity issues is deciding whether (and when) to hire an employee. While hiring staff members can offer a helpful lift in reducing capacity constraints for the firm owner, it also comes with its own burdens such as managing, training, and supervising employees, which many firm owners may have never considered when first launching their firms. Furthermore, determining the right time to hire an employee and which role to hire first can also be challenging decisions for solo firm owners.

In our 111th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how getting clarity on the reasons why hiring someone is necessary for the firm can help advisory firm owners determine what role to fill first, which business metrics to examine to understand when to hire, and which attributes to look for in a candidate.

Before making the commitment to hire a staff member, it’s important for advisory firm owners to understand if doing so is really necessary in the first place. By listing out what the advisor does on a daily basis and sorting the list in order of what the advisor enjoys most, the advisor can decide if the tasks they don’t enjoy can be eliminated to relieve capacity constraints (e.g., getting rid of multi-step tasks, rightsizing clients, or slowing growth by saying "no" to prospects), or if they are tasks that can be delegated. If there are enough delegable tasks to justify hiring an employee, it may be a signal that hiring additional support makes sense.

Once the reasons for hiring a new employee are clear, the next step is determining if doing so is affordable for the firm (for many advisory firms, hiring the first staff member tends to occur between $150,000–$250,000 of revenue and 40–50 clients). If revenue can support a new hire, the firm owner can then refer back to their least enjoyable tasks as a starting point to create a job description. This will help the advisor be more specific in defining the role they need to fill. By seeking candidates with complementary (not necessarily similar) working styles to the advisor, well-rounded teams can be established that are more likely to excel at problem-solving and developing functional processes.

Ultimately, the key point is that hiring, when done thoughtfully, can benefit advisory firms and their future growth. And by understanding the reasons for hiring someone and how they can support the firm before beginning the hiring process, firm owners can create job descriptions that will keep the search for a candidate much more focused on what will actually benefit the firm the most. And finding the right candidate who enjoys their role helping with the tasks that firm owner least enjoys will inevitably create a better work environment for both the employee and the owner – providing a sustainable role for the employee and a more enjoyable task list for the firm owner!

Foster More Productive Client Meetings By Mitigating Interruptions Based On (Conversational) ‘Intensity Level’

May 3, 2023 07:02 am 0 Comments CATEGORY: Client Trust & Communication

While interruptions within conversations occur frequently, the type of interruption can affect the content and flow of the dialogue that follows. For instance, if an interlocutor interrupts a speaker with a totally unrelated question or line of thought, the interruption not only has the potential to frustrate the speaker but can also cause them to lose their train of thought. Interestingly, different people have been found to have unique conversational 'intensity levels', where a 'high-intensity' speaker perceives interruptions in the form of simultaneous talking as a natural way of showing interest in what the speaker has to say, and a 'low-intensity' speaker might find such an interruption rude and distracting, even if it wasn't the interrupter’s intention to disrupt the conversation. Further, these dynamics can be even more challenging when speaking in a virtual environment, as it can be harder to tell when one person is finished speaking. And by understanding these varying levels of conversational 'intensity', advisors can hold more productive client conversations by taking measures to reduce or mitigate the impact of interruptions during client meetings.

In financial planning relationships, interruptions by an advisor can be exponentially more impactful due to the fact that prospects and clients tend to be uncomfortable with jargon and feelings of being judged. When a person is interrupted, even when the interruption is made with no ill intent (e.g., because a client’s comment sparks a potential planning opportunity in the advisor's mind), the conversation can come to a sudden end. Notably, this can work the other way as well, as an advisor might be interrupted by a curious client who is a high-intensity speaker seeking clarification (and not trying to be a jerk!).

One way for advisors to minimize unnecessarily interrupting prospects or clients during meetings is to take notes while their interlocutor is speaking. Using this tactic, the advisor can ensure they remember key facts and potential follow-up questions without interrupting the speaker (another helpful practice is to first ask the client's permission to take notes before doing so, which can enhance the client's confidence by giving them some degree of power and control over the meeting). Yet interruptions are sometimes inevitable – whether they are deliberate or not. For inadvertent interruptions, advisors can 'recover' simply by apologizing and letting the client know they want them to continue speaking (which also potentially reduces the chances that the advisor comes off as rude to the client). For interruptions that need to be made (e.g., to correct a wrong assumption), advisors can phrase their interjection using "Yes, and…" thinking, which conveys acceptance and agreement instead of contradiction and judgment. Alternatively, simply asking for permission or using body language cues can also buffer the impact of interruptions.

Ultimately, the key point is that given the sensitive and personal nature of conversations related to financial planning, advisors can help prospects and clients feel more understood by avoiding and mitigating interruptions during meetings. And by taking measures to reduce the number of interruptions and conveying they didn't mean to be rude when interruptions do happen, advisors not only foster more productive conversations but also make their prospects and clients feel more empowered in the process!

#FA Success Ep 331: Getting Comfortable Hiring Advisors ‘Early’ As The Advisory Business Revenue Grows, With Jake Northrup

May 2, 2023 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Jake Northrup Podcast Featured Image FAS

Welcome back to the 331st episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jake Northrup. Jake is the Founder of Experience Your Wealth, an independent RIA based in Bristol, Rhode Island, that advises 78 client households with a 3-person team supporting more than $550,000 of ongoing revenue.

What's unique about Jake, though, is how he’s been able to grow to over $550,000 of revenue in just 4 years since launching from scratch, and how he realized that because of how his rapid growth was going to impact future capacity and time constraints, he would need to hire employees sooner rather than later… and decided to hire an associate advisor in the 2nd year after launching his firm before he even had $200,000 of annual revenue.

In this episode, we talk in-depth about why Jake decided to hire an associate and then a lead advisor within the first few years of what was originally intended to be a solo practice because he felt his practice was too completely dependent on him, how Jake and his team implement a 4-meeting financial planning process that includes creating a life planning timeline, using MindMeister to develop a mind map to visualize a client’s goals, and creating a client dashboard in MeisterTask where clients can track their progress as well as mark off tasks that need to be completed to move them along their financial journey. We also talk about why despite being a CFA charterholder Jake outsources investment management to First Ascent – for which clients pay an entirely separate additional fee – because it both allows him to simplify compliance to not manage investments in-house, and takes away the cost pressure of having to hire a separate employee to just manage clients' investment portfolios.

We discuss how Jake attributes much of his fast-growth success to launching with an $8,000 website that focuses on his values-based niche of "travel-loving young families that don’t buy into the traditional '9-5, work-until-you-are-65' concept" and then leveraging on Google reviews to enhance his SEO, the way Jake stuck to and didn't compromise his niche from the very start when he launched but was more flexible about the financial criteria early on and only started setting higher fee minimums after his 1st year in the business. We also discuss why Jake and his team not only create long-term financial plans for their clients, but also focus on a 10-year vision to help his younger, travel-loving clientele start achieving more of their immediate goals so they're more likely to retain as clients by feeling like they're making near-term financial planning progress.

And be certain to listen to the end, where Jake shares how he's struggled over the years with perfectionism, control, and a fear of failure that led him to remain a solo advisor, yet realized that by focusing on those issues, he was potentially missing out on more, how Jake invested heavily to get his CFA early in his career and in retrospect wishes he spent more time learning about life planning and money scripts. He also shares why he feels fulfilled in how he consciously built and staffed his practice because it allows him to have more flexibility and time to spend with his wife and start a family, while also creating an environment for his employees to thrive and be present for their families, lives, and helps his clients enjoy their money and pursue their passions now instead of waiting for retirement.

So, whether you're interested in learning about the business metrics Jake relied upon to know when to hire, why Jake charges a flat annual a fee so clients don't have to deal with constant fee changes, or why Jake decided to niche-focus from the launch of his firm, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jake Northrup.

The Latest In Financial #AdvisorTech (May 2023)

May 1, 2023 07:07 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the May 2023 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 news that robo-advisor Betterment entered into a $9M settlement with the SEC for misrepresenting its tax-loss harvesting practices in its client agreements and marketing materials compared with its actual practices (e.g., 'only' checking client portfolios for tax-loss harvesting every other day, after having advertised daily checks) – a first for the SEC in scrutinizing an RIA not for failing to execute its investment promises to clients, but for failing to execute tax-loss harvesting promises instead. Which may raise questions for other RIAs (including smaller firms) who promote their tax-loss harvesting practices as part of a 'tax-efficient' investing strategy about whether their own practices (and the technology they use to implement it) really align with what they claim to provide.

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

Altruist has announced a $112 million Series D fundraising round to expand its capabilities to meet the needs of larger advisory firms, the latest in a series of high-profile moves (including becoming a fully self-clearing broker-dealer and acquiring its rival custodian SSG) positioning Altruist to compete directly with the likes of Schwab and Fidelity for established RIAs.
GeoWealth has acquired its fellow TAMP First Ascent Asset Management, marrying GeoWealth’s tech-forward, open-architecture investment management platform with First Ascent’s 'concierge'-style investment and service-oriented solution (and its flat-fee TAMP business model).
T. Rowe Price has acquired Retiree Income, the parent company of popular retirement income planning software SSAnalyzer and Income Solver, to put its resources behind developing and distributing the company’s planning tools (albeit perhaps more to its retail and employee retirement plan clients than to advisors?).

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

Business support software provider Benjamin shuts down its operations, which may say less about the demand for workflow support tools (which appears to remain strong) and more about Benjamin's positioning itself as an "AI-driven digital assistant" in an environment where advisors may not trust AI technology enough to pay for it as a solution.
A look back at the evolution of advisor technology as we come up on the 5-year anniversary of our Financial AdvisorTech Solutions Map, which reflects not only the increasingly crowded landscape with a proliferating number of solutions on the market, but also how shifting technology needs of advisors themselves are eliminating whole categories of advisor technology… and spawning new ones as well.

And be certain to read to the end, where we have provided an update to our popular "Financial AdvisorTech Solutions Map" (and also added the changes to our AdvisorTech Directory) 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 (April 29-30)

April 28, 2023 02:01 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 following previous guidance regarding obligations under Regulation Best Interest (Reg BI) regarding account recommendations and conflicts of interest, the SEC released a new bulletin this week focusing on the duty to care. The guidance highlights the importance of brokers considering investment alternatives for their customers as well as taking costs into account when making recommendations that are in their best interests, and the need to do so proactively rather than as a 'box-checking' exercise after making a recommendation — a message from the regulator that could be significant for fiduciary investment advisers as well.

Also in industry news this week:

A U.S. House of Representatives committee this week approved legislation that would expand the pool of individuals who would qualify as accredited investors able to access certain private offerings
Proposed bipartisan legislation would allow individuals to use funds in 529 plans for expenses associated with acquiring or maintaining postsecondary credentials, which would include the CFP certification

From there, we have several articles on advisor marketing:

How advisors can use Google reviews to maximize their search engine optimization and increase their visibility online
The key features to include on an advisory firm's website to demonstrate 'social proof' to prospective clients
How advisors can use ChatGPT to spend less time on content marketing

We also have a number of articles on retirement planning:

Statistics on where American retirees currently stand, from their average net worth to how they spend each hour of the day
Why 1 FIRE pioneer who retired in his 30s is planning to return to the workforce
How many business owners report that they never plan to retire, and the planning opportunities for advisors working with these clients

We wrap up with 3 final articles, all about achieving goals:

Why 'showing up' is often the most important part of achieving a goal
5 key factors that can increase the chances that a goal will be completed
Why giving up on a goal can sometimes be a good choice, and how to objectively make the decision to do so

Enjoy the 'light' reading!