Nerd's Eye View blog

Weekend Reading For Financial Planners (Apr 23-24)

April 22, 2022 02:14 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 CFP Board increased its annual recertification fee by $100 (along with an additional surcharge of up to $19/year for CE credits). Representing the first annual fee increase since 2017, the additional funds will be put toward a range of initiatives, including public awareness, talent retention, diversity, and enforcement. But given the non-trivial nature of the increase, CFP certificants are likely to expect real outcomes from these initiatives!

Also in industry news this week:

Portfolio management giant Orion announced this week that it is acquiring leading advisor CRM provider Redtail in a deal that will bring Redtail’s large base of advisors into Orion’s orbit
Some industry observers think RIA valuations might have peaked, perhaps signaling a slowdown in M&A activity and increased viability of internal succession plans

From there, we have several articles on retirement planning:

Why the creator of the ‘4% Rule’ says retirees might want to reduce their spending given the current market and inflation environment
An analysis shows why the reduced benefits associated with annuity contracts with lower-fee Guaranteed Lifetime Withdrawal Benefit riders could make them inferior to their higher-fee predecessors (and why delaying Social Security could trump both in creating guaranteed retirement income)
Why it is important for advisors working with clients nearing and in retirement to go beyond retirement income and consider their clients’ social connections, health status, and plans for the various stages of retirement

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

Why spending money on building friendships can pay dividends for one’s health and happiness
With statistics showing a significant number of individuals have engaged in financial deception with their partner or spouse, advisors can consider how to handle the financial and emotional impacts of these transgressions
Why clients in the wealth accumulation phase of their lives would be best served by finding ways to increase their income and putting money into the stock market as soon as it is available

We wrap up with three final articles, all about currencies and inflation:

Why cryptocurrencies might not have the inflation-prevention benefits touted by some of their proponents
Why a cryptocurrency skeptic argues that cryptocurrencies are primarily speculative assets rather than useful currencies and are unlikely to change the way we buy goods and services
How the ‘Cantillon Effect’ helps explain who wins and who loses from fiscal and monetary stimulus

Enjoy the ‘light’ reading!

Kitces & Carl Ep 84: How Do You Introduce Yourself If Not As A ‘Financial Advisor’

April 21, 2022 07:07 am 1 Comment CATEGORY: Kitces & Carl Podcast

Financial advisors have often been trained to perfect their ‘elevator pitch’ as a way of generating business development opportunities, and leveraging any social situation (even casual ones like a barbeque or a cocktail party) to prospect for clients. This approach created a long-standing negative reputation that financial advisors are only in the business to sell their ‘advice’ that purely serves their interests (and not necessarily those of their clients), ultimately ending with pushing their firm’s commission-based products on a consumer who may not even want or need the product. In more recent years, though, the term ‘financial advisor’ has progressed to refer to those professionals who are in the business to provide financial guidance and advice – not just sales products – and who are held to a higher fiduciary standard. Though there have been significant strides in changing what being a financial advisor means, this lingering sales-centric reputation has often made it difficult for financial advisors to introduce themselves (especially in more casual settings) as there can be an expectation that the elevator pitch is impending.

In our 84th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how lingering negative connotations of the label ‘financial advisor’ can impact introductions in social settings, how to change approaches to introductions and the relationships that follow, and when it is okay to shift the focus from prospecting for clients to simply talking to other people.

As a starting point, it’s important to understand that not all social settings are appropriate to prospect for clients. Once they introduce themselves, many financial advisors may feel pressured to immediately talk about how they can help the person with their finances. Even though many financial advisors genuinely want to do what is best for their clients and hold themselves to higher standards in the ever-changing financial advisory industry (and their own standards), those who may not be as familiar with the financial advisory world may have a difficult time discerning when they can trust the advisor, especially in light of negative media exposure (e.g., Bernie Madoff) that has tainted the reputation of the financial advisory industry. While an advisor may want to connect with others and have a genuine conversation about the good they do for their clients, the people with whom they are getting to know can feel biased by their negative impressions of financial advisors and may not want to engage in the conversation.

Ultimately, the key point is that there is no magic phrase or term to relieve the pressure an advisor may feel is necessary to defend what they do when introducing themselves as a financial advisor. Experimenting with different terms and descriptions, along with getting more specific as to what one does as an advisor (and clarifying who they serve), can connect the listener to more of the positive things and steer them away from the negative misconceptions about what a financial advisor does. For some, the stigma that surrounds the label ‘financial advisor’ won’t be dissolved any time soon, but by engaging in real conversations, advisors can attempt to at least change the perspective of those they interact with by simply focusing on creating better relationships (regardless of whether the goal is to prospect for clients)!

The RISA Framework: A Systematized Approach To Personalizing Retirement Income Strategies For Clients

April 20, 2022 07:07 am 19 Comments CATEGORY: Retirement Planning

As average life expectancy has increased over time, so too has the importance for retirees to ensure that they have sufficient income to cover their needs throughout what could be a 30-year (or longer) retirement. While some advisors may rely on a single ‘favorite’ income strategy to recommend to clients, recognizing that retirees actually have a range of preferences on how to source their retirement income can help advisors better develop sensible strategies that clients may be more inclined to follow. And the starting point for understanding a client’s income preferences to help them choose the right retirement income strategy is to identify the client’s retirement income style.

In this guest post, Retirement Researcher CEO Alejandro Murguía and Founder Wade Pfau share their recent research examining different retirement income styles that can be determined by assessing an individual’s preferences for growing and using their retirement assets. Their study identifies the two strongest constructs that help to determine a client’s income preference style, consisting of Probability (depending on market returns) versus Safety (sources of income less reliant on market returns), and Optionality (having flexibility to respond to economic developments or changing personal situation) versus Commitment (being dedicated to one retirement income solution). Together, these constructs were used to create a framework that can be used to identify an individual’s Retirement Income Style Awareness (RISA) profile.

For advisors, the RISA framework can be used to determine a prospect’s or client’s preferences, which can then help them design an appropriate and practical retirement income strategy. For example, an individual who expresses a preference for Probability and Optionality would likely appreciate the potential upside from strong market returns and the option to change course as necessary that are offered by a Total Return income strategy. Those who prefer Safety and Commitment may align better with an Income Protection approach, which would involve building a lifetime income floor with simple income annuities. And for those favoring Probability and Commitment, a Risk Wrap strategy (i.e., building a lifetime income floor with deferred annuities offering lifetime withdrawal benefits) could be more appropriate. Finally, those with preferences rooted in Safety and Optionality would likely appreciate a Time Segmentation strategy (e.g., bucketing strategies that use less volatile assets for shorter-term expenses, and more volatile assets offering higher growth potential for future expenses).

Ultimately, the key point is that by having a structured process around assessing retirement income preferences (whether by using a standardized RISA Matrix assessment or informally assessing where a prospect or client will be on the Matrix), an advisor can begin to develop a retirement income strategy that will most likely appeal to a particular prospect or client. By doing so, advisors can not only add value to current clients by ensuring that the client’s retirement income strategy matches their preferences, but can also attract new clients by offering a more personalized approach to generating retirement income!

#FA Success Ep 277: Crafting A More Unique Value Proposition By Investing Into A More Focused Clientele, With Lauren Oschman

April 19, 2022 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 277th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Lauren Oschman. Lauren is the CEO of Vestia Personal Wealth Advisors, an independent RIA based in Nashville, Tennessee, that oversees $600 million in assets for nearly 500 client households.

What's unique about Lauren, though, is how she and her firm not only serve a unique niche of physicians, but have also built practice groups within the firm that serve niches within the niche, including female physicians and orthopedic surgeons, and have developed hyper-specialized services for their unique clientele that allow them to truly differentiate.

In this episode, we talk in-depth about how Lauren and her partners built a firm dedicated to providing a high-touch, customizable client experience that still fits into the busy lifestyles of physicians, how Lauren’s firm developed services that help their physician clients with the unique challenges they face when it comes salary contract negotiations, and mortgages and disability insurance for doctors with highly variability income, and the way Lauren’s firm has further specialized in student loans and helping physicians understand when they may qualify for potentially six-figure Public Student Loan Forgiveness for their non-profit hospital work.

We also talk about how starting her career at a male-dominated advisory firm gave Lauren a better understanding of the importance of inclusivity and diversity for women advisors, how Lauren, immediately after having her first daughter, took a risk to leave the firm she outgrew and launch her own in order to pursue better leadership and ownership opportunities where she could have a much greater impact on change, and why Lauren believes learning to communicate and working on human connection as a financial advisor are equally as important as learning the technical skills in how to build a financial plan.

And be certain to listen to the end, where Lauren shares how she views the adversity she experienced in her career as learning opportunities and uses those moments as inspiration for her own future and for future generations in her firm, how building a team within her firm has helped Lauren feel more fulfilled by having more people around her that she can uplift and impact the lives of, and how, while Lauren is still striving to further improve the workplace that she has created, it’s looking back on how far you’ve come and how much you’ve achieved that really reflects the impact you’ve had on the world.

So whether you’re interested in learning about how Lauren integrates her “made for you” philosophy into her branding and marketing, how she simplified her fee structure to create scalability in problem-solving, and how Lauren fosters community and work/life balance with high demands on both sides, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Lauren Oschman.

Measuring The ‘Best’ Marketing Strategies And The Second Kitces Research Study On Advisor Marketing

April 18, 2022 07:07 am 3 Comments CATEGORY: Nerd's Eye View

One of the largest hurdles for many financial advisors is not in developing the technical skills to be able to give good advice to clients, but in learning how to engage effective marketing strategies that are essential to growing and sustaining a successful advisory firm. Unfortunately, this struggle to attract a critical mass of prospective clients to actually pay for an advisor’s services has resulted in a very high attrition rate in the advisory industry (as high as 70% in the first three years). Accordingly, there has been a great deal of attention on identifying the ‘best’ marketing strategies for financial advisors to help them grow their businesses.

However, there have been surprisingly few studies exploring effective marketing practices in the financial advisor industry over the past years. Which is why we launched the first Kitces Research Survey on Advisor Marketing in 2019, to identify the marketing strategies financial advisors are really using that work (or not), what tools, technology, and systems advisors use, best practices in the most popular advisor marketing techniques, and what advisory firms really spend on marketing (including hard-dollar marketing costs, tools and technology, and staff support). Our study revealed that, while some of the most popular marketing strategies actually being used by advisors were those that required a large investment of time (such as establishing relationships with COIs, social media, and other forms of networking), many of these popular time-based marketing strategies turned out to be among the least effective at using the firm’s resources (i.e., time and money) to generate new clients. Conversely, strategies with comparatively modest investments of time and dollars (like SEO strategies and paid web listings) were far less common among the advisors surveyed in the study, yet ended out having the lowest Client Acquisition Costs!

Accordingly, pursuing more resource-intensive marketing channels – that potentially involve both time and money – can be a worthwhile effort in helping advisors attract more clients (for instance, cultivating relationships with COIs with affluent client bases, which potentially requires many hours of an advisor’s time, could yield more high-net-worth prospects than less resource-intensive marketing strategies) by generating enough new revenue that makes the time invested worth the effort, even if they may seem less ‘efficient’ in terms of the acquisition cost per client than those requiring fewer resources. These considerations become increasingly important as an advisory firm grows in terms of clients and revenue, because the larger a firm grows, the more difficult it is to scale time-intensive marketing channels (like COIs and networking) with that growth, since the advisor’s time gets both more valuable and more scarce. Ultimately, investing into more efficient – and scalable – marketing strategies can be a key component of sustainably growing an advisory firm as it becomes easier to spend the resources on dollar-based strategies than on time-based strategies.

To dive deeper into the costs and efficiency of various marketing strategies, we are excited to announce the 2022 Kitces Research Study on Advisor Marketing, which will examine how advisors’ marketing strategies have evolved over the course of the COVID-19 pandemic and explore further what the fastest-growing advisory firms are doing to market themselves at scale. All advisors are invited to participate and help the advisor community better understand “What Actually Works In Advisor Marketing”– and hopefully gain some insight into how they can improve their own marketing efforts as well!

Weekend Reading For Financial Planners (Apr 16-17)

April 15, 2022 02:03 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 Vanguard is partnering with American Express to offer its Personal Advisor Services human CFP offering to AmEx cardholders, giving Vanguard access to a significant new base of potential clients (and combining low investment minimums with credit card perks to entice clients to hire Vanguard as their first – and perhaps only – financial advisor).

Also in industry news this week:

The SEC has issued guidance discouraging RIAs from using the term “fiduciary” to describe their standards of conduct on Form CRS, irking fiduciary advocates who believe RIAs should be allowed to highlight the differences between the standards that apply to them and those that apply to broker-dealers
The growth in RIA valuations may soon slow or even begin to decline, as Canadian financial conglomerate CI Financial is selling off 20% of its U.S. wealth management business in an initial public offering, which could raise newfound scrutiny of the prices they’ve been offering for RIA acquisitions and slow their demand.

From there, we have several articles on investments:

How I Bonds’ new interest rate will make them even more valuable for advisors and their clients in a world of high inflation
Why the rising interest rate environment is bringing a newfound focus on cash management for clients (from money market mutual funds to shopping banks for yield)
While bonds are often seen as a diversifier for equities in client portfolios, Treasuries have performed this function better than other types of bonds in recent years

We also have a number of articles on how advisors can communicate their value to prospective clients:

Why positioning financial advice as expert coaching to achieve a higher level of success – as a good athlete can use a good coach to reach an elite level – can help prospective clients better visualize the value of financial advice
Why justifying an advisor’s fees requires first understanding what a prospective client actually values in the first place, so the advisor can describe what they can do for the prospect in terms of what really matters to them
How advisors can create a brief and compelling value proposition that is consistent across multiple marketing channels (and can be expanded upon in conversations with prospects)

We wrap up with three final articles, all about email management techniques:

While instant messaging tools are often superior to email in the workplace, email can be a useful tool for personal correspondence and checking in with clients
How advisors can reduce the stress of dealing with emails that require complicated responses
Several methods advisors can use to spend less time dealing with email each day

Enjoy the ‘light’ reading!

Simplifying Retirement Income Planning Visualization Using The ‘Spending Risk Curve’

April 13, 2022 07:03 am 7 Comments CATEGORY: Retirement Planning

Retirement income planning is often one of the primary reasons prospective clients approach a financial advisor. In a world of increasing longevity and declining reliance on defined benefit retirement plans, being able to give clients an estimate of how much they can ‘safely’ spend each year, given their available assets, is a major part of an advisor’s value proposition. To do so, advisors often rely on Monte Carlo analyses, which provide the probability of a particular course of action being ‘successful’ (and, therefore, implying the corresponding probability of ‘failure’). However, the typical presentation of Monte Carlo results via a single probability-of-success outcome can make for a cumbersome process of guessing and checking plan results to get a sense of the range of plan outcomes for a client across different levels of spending.

A potential solution to ameliorate this problem and allow for easy comparison across various spending levels is to leverage technology to graphically display curves that relate a client’s spending levels with corresponding risk outcomes. These “Spending Risk Curves” can be far more insightful than a single probability-of-success result, and very useful for an advisor to gain a higher-level understanding of a client’s financial options by visually illustrating the trade-offs between a client’s spending choices and risk in retirement.

At their core, Spending Risk Curves show the trade-off between risk (framed in terms of probability of success or otherwise) and spending in retirement planning (i.e., as annual portfolio withdrawals increase, so does the spending risk level) based on a client’s particular circumstances (e.g., mixes of ages, longevity expectations, or Social Security benefits). In this way, Spending Risk Curves give advisors an idea not only of the full range of options for the initial risk/income levels, but, when combined with Spending Risk Curves at different portfolio levels, can also of the future adjustments to spending that might be needed (these could be to the upside or the downside, depending on portfolio performance) to keep the client at the desired risk level.

Ultimately, the key point is that Spending Risk Curves are highly versatile tools that can help advisors better conceptualize the range of outcomes associated with different spending levels for their clients, so that they can more easily design relevant and suitable financial plans. By understanding the full range of spending options at all levels of risk for a given client’s situation and being able to estimate future spending adjustments that might be needed to maintain a desired level of risk, advisors can not only give clients a more accurate view of their choices but also communicate what changes to spending might be needed down the line to keep their plan on track. In the end, this can lead clients not only to make better-informed decisions but also to have more confidence in their financial plan!

#FA Success Ep 276: Integrating Tax And Legal Services Under One Roof To Truly Scale A ‘One-Stop Shop’, With John Hagensen

April 12, 2022 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 276th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is John Hagensen. John is the founder of Keystone Wealth Partners, an independent RIA with offices in Arizona and North Dakota, that oversees $650 million of assets under management for nearly 1000 client households.

What's unique about John, though, is how he is one of the first non-lawyer financial advisors in the nation to build, own, and operate a law firm, which he then leverages, along with his own tax firm, to create a truly one-stop-shop wealth management experience of financial planning, tax, and estate, for his mass affluent clients.

In this episode, we talk in-depth about how the unrealized predictions of fee compression in the financial industry inspired John to concentrate on adding more measurable value for his clients with tax and estate services, how John has been able to leverage his all-in-one service offering to gain a faster pace of referrals, and how John has been able to grow to nearly 1,000 clients in barely more than a decade through a multi-prong education-based marketing strategy that utilizes informational webinars, in-person events, and making a big investment into a weekly radio show.

We also talk about how John transitioned from a career as an airline pilot but still incorporates the same systematized checklist-oriented mindset to build standard processes for his own businesses, how he has become comfortable with the idea of not being a right fit as an advisor for every prospective client, and how he found a sense of renewal after a trip to Ethiopia made him look internally and evaluate his purpose in life and the potential impact of his money.

And be certain to listen to the end, where John shares how the growth of his business led to a mindset shift to focus more on the collective team after realizing how dependent he had become on hiring the right people, how he believes in utilizing the talents and resources afforded to us to help uplift others rather than just himself, and how his plans for the future are centered on a potential merger to scale up even further to expand his all-in-one services across the country.

So whether you’re interested in learning about how John created a true one-stop-shop experience for his clients, how he uses slower, ‘older’ marketing techniques to attract prospects, or how he measures the success of new ventures and avenues explored, then we hope you enjoy this episode of the Financial Advisor Success podcast, with John Hagensen.

FPA Defines Its New Roadmap: Serving CFP Professionals And Building (Trust With) Local Chapters

April 11, 2022 07:08 am 3 Comments CATEGORY: Planning Profession

Leading up to the arrival of new CEO Patrick Mahoney in 2020, the Financial Planning Association (FPA) had experienced a rocky few years. From the continued decline in membership (including a 25% cut between 2018 and 2020) to the angry backlash among members regarding the OneFPA initiative (not to mention challenges brought on by the COVID pandemic), the FPA was in need of a fresh start. With this background in mind, Mahoney has taken several steps since his arrival to revive the FPA’s relationship with its chapters and members and could help the organization grow for the first time in years.

Mahoney’s efforts started with trade and national press outreach efforts, offering interviews to tell the FPA’s story and to communicate the value of the organization – and, more generally, financial planning – to the broader public, emphasizing the efforts made by FPA chapters to drive professionalism among their ranks. Mahoney then focused on rebuilding trust between local FPA chapters and the national FPA headquarters by meeting with FPA chapter boards across the country and reinforcing that the main goal of the FPA home office is to support its members and the profession (in stark contrast to the FPA’s previous message that its members existed to support the FPA). This shift in attitude prompted changes to the FPA staffing structure intended to better serve its chapters and members, and gave rise to a new Chief Membership Experience Officer position, as well as a new membership experience department and chapter experience team whose roles are to help chapters better serve FPA members on their level.

Perhaps most importantly, the new FPA Advisory Council (that originally arose from the initial OneFPA initiative) has brought the leaders of 80 FPA chapters together with Mahoney and key board members, who have been actively brainstorming ways to reverse the organization’s membership decline and put the FPA on what would be its first growth path since its inception. As a result of the Advisory Council’s recommendation to identify the organization’s core members, the FPA has determined that the FPA’s marketing and membership benefits will be oriented to making the lives of CFP practitioners – the organization’s formally defined ‘core member’ – easier and more convenient.

Ultimately, the key point is that while the FPA’s turnaround is going to take time, the first steps have been taken. By focusing on CFP professionals as its core members and restructuring the organization to focus on how it can serve its chapters and members (rather than on the support of members required to sustain the organization), the FPA and its leadership have built a foundation for the organization to grow and thrive in the years ahead!

Weekend Reading For Financial Planners (Apr 9-10)

April 8, 2022 02:03 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 the Biden administration will be extending the current moratorium on Federal student loan payments, originally scheduled to end on May 31, until August 31 (which, while welcome to many borrowers, also leaves many in financial limbo as they try to plan for when – if ever – the payments will restart).

Also in industry news this week:

A new study by Charles Schwab and Ariel Investments shows that participation in the stock market is near an all-time low among Americans amid declining trust in markets and financial institutions (with the effects most acutely seen with Black investors)
How focusing on client experience (rather than simply client service) can help firms generate more revenue by creating emotional engagement with the firm’s most important clients

From there, we have several articles on the current stock market environment:

What advisors can do to keep client investment portfolios on track in the current turbulent market and geopolitical environment
What the recent yield curve inversion means for stock market returns going forward and how advisors might respond
Why investing in international stocks could still provide diversification benefits even as they lag U.S. equities in performance

We also have a number of articles on direct indexing:

While the number of direct indexing platforms has proliferated, one industry observer is skeptical of several of its advertised benefits for advisors and their clients
In the latest sign of direct indexing growth (and its potential to disintermediate ETFs and mutual funds), Charles Schwab plans to launch its direct indexing offering for RIAs and retail investors in late April
Fidelity has gone live with its Fidelity Managed FidFolios direct indexing platform, and its $5,000 account minimum has the potential to bring direct indexing to a wider range of investors (who may not even benefit from it if they’re already eligible for 0% capital gains rates!?)

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

How the rise of remote work has created a late-evening “peak” of productivity for some workers (which on the positive side could mean more workers are optimizing their schedules to their preferred hours, or on the negative side could mean workdays are simply getting longer)
Why many employees spend at least half of their days “working on work”, including following up on tasks, giving status updates, and searching for information (which comes at the cost of actually getting work done and can prevent organizations from strategizing for the long term)
How workers can optimize their schedule for productivity by grouping meetings together and leaving the remaining time free to work without distractions

Enjoy the ‘light’ reading!