Nerd's Eye View blog

Questions Advisors Can Ask To Help Clients Take Action By Exploring Their Money Memories

April 6, 2022 07:07 am 1 Comment CATEGORY: Client Trust & Communication

In recent years, understanding and applying concepts of financial psychology have become increasingly important skills used by financial advisors. While technical knowledge can help advisors develop objectively sound financial strategies, turning those strategies into advice that the client will actually follow often requires some knowledge of the client’s personality, culture, and background, so the advisor can deliver their advice in a way that is meaningful and motivating to the client.

One powerful tool for better understanding a client’s financial behavior and psychology is an exploration of their “money memories” – the key moments in a person’s past that can shape their current beliefs and actions around money. By encouraging clients to reflect on these influential events from their past, advisors can help them examine their current behaviors more objectively and recognize the reasons for feeling so stuck (their change inhibitors), which can make it easier to identify workable strategies that will help their clients get ‘unstuck’ in challenging areas of their financial plan.

However, money memories can be a very sensitive topic for many people given the emotions (both positive and negative) that these conversations can elicit, and clients may feel deeply vulnerable when talking about their money memories and past decisions. If an advisor asks about money memories too early in the relationship – without first having built a deep foundation of trust – the client could feel as if they are being judged on their past or present actions and become put off or defensive, shutting down the conversation until their trust can be rebuilt. Which means that money memory conversations that are approached deliberately and respectfully can make them more productive and insightful.

Advisors can prepare their clients for the conversation by providing an agenda outlining the discussion topics well in advance, which can give clients an opportunity to contemplate their responses ahead of time. And keeping the conversation as an open-ended exploration of attitudes and feelings (rather than using it to diagnose specific problems or behaviors, which can feel overly judgmental to some clients) can help clients feel more comfortable about having a candid discussion of their money memories.

Ultimately, money memory conversations are about giving clients the space to explore their own perspectives and perceptions of their experiences. The simple question “What’s your earliest money memory?”, followed by respectful and open-ended follow-up questions to explore the client’s thoughts and feelings more deeply, can help clients recognize for themselves the ways that past experiences may manifest into current behavior. At the same time, helping clients uncover these memories for themselves can give advisors deeper insight into the client’s psychological approach toward money – helping the advisor give advice that aligns with what matters most to the client (and that can help them tackle their most challenging obstacles)!
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#FA Success Ep 275: Growing Organically Past $4B Of AUM With A Shared Ownership Mentality, With Michael Chasnoff

April 5, 2022 07:05 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 275th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Michael Chasnoff. Michael is the founder and CEO of Truepoint Wealth Counsel, an independent fee-only RIA based in Cincinnati, Ohio that oversees $4.5 billion in assets under management for 750 client households.

What's unique about Michael, though, is how over a 30-year span, he has grown Truepoint entirely organically through a focus on working with business owners and corporate executives, and has scaled his team by creating a distributed ownership structure with a broad equity participation plan.

In this episode, we talk in-depth about how Michael has structured his firm with specialty teams that provide not only financial planning but also in-house tax and estate planning advice in order to provide a more one-stop-shop experience for his clients, the way the firm has been able to leverage its truly higher-touch service offering into a steady flow of referrals with an average household of $6M in AUM, and how Michael’s firm has designed its career tracks with the ultimate goal of offering select team members an opportunity to buy into company equity through the sale of his own founder shares.

We also talk about how, early in his career, Michael was turned off by the marketing and sales-centered financial industry and was inspired to start his own firm that concentrated on offering fee-only financial planning back in the early 1990s, how Michael used a three-tiered approach of writing expert pieces for financial media, establishing relationships with Centers of Influence with a more relationship approach with working together on their joint clients, and becoming an active participant in industry organizations to build his reputation, and how Michael has ultimately gotten comfortable with selling down his founder equity shares as the firm has continued to grow.

And be certain to listen to the end, where Michael shares how being told his ideas for starting a fee-only advice firm would never work motivated him even more to be successful and prove them wrong, how Michael incorporates his values of doing what is right above all in his everyday practices with clients, and why Michael believes giving back to others to create a better life-balance is the key to happiness and fulfillment.

So whether you’re interested in learning about how Michael balances his higher overhead costs by recruiting top-dollar clients, how he built on positive client experiences and business growth to create a culture of client referrals rather than asking directly, or why he believes that the baseline principles of doing what’s right, working hard, and treating others with respect are the foundation of the pathway to success, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Michael Chasnoff.

The Latest In Financial #AdvisorTech (April 2022)

April 4, 2022 07:04 am 3 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the April 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 Wealthbox has raised a new $31M Series B round to capitalize its efforts in moving further ‘upmarket’ to challenge Redtail and especially Salesforce’s hold on the largest advisor enterprises. (As advisor adoption of CRM systems is now so high, it’s a virtual certainty that current CRM systems can only grow by capturing market share away from competitors!)

From the broader industry perspective, though, the real shift that’s underway is the transition of advisor CRM systems from their roots as the tool that captures client contact information and communication history, into one that drives the advisory firm’s key workflows. Because as advisory firms provide increasingly broad and holistic advice to clients, it’s no longer feasible for the firm to run ‘just’ from its RIA custodian or broker-dealer investment platform as the hub; instead, the advisor CRM system is becoming the hub, around which the rest of the firm’s systems and processes are built. Which is expanding the opportunity set for advisor CRM.

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

Summit Wealth Systems raises a $20M Series A round, as its founder Reed Colley (who previously founded Black Diamond) aims to build the next generation of performance reporting for clients
Advyzon launches a new TAMP offering for the advisor users of its portfolio management + CRM system

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

Goldman Sachs reveals that it is still not quite ready to launch its competing RIA custodian, nearly 2 years after it acquired Folio Institutional to speed up the process, highlighting just how hard it really is to compete in the RIA custodial business
Savvy Wealth raises $7.3M to fund its own tech-based advisory firm (in the hopes of out-competing advisory firms that are struggling to build their own tech?)
IndyFin raises $2.2M of capital to become the next ‘Yelp-for-advisors’ platform as the SEC greenlights client testimonials… but raising the question of whether Yelp itself may still be best positioned to be the Yelp for advisors?

In the meantime, we’ve also launched a 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 (Apr 2-3)

April 1, 2022 02:04 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 Securing a Strong Retirement Act (a.k.a. SECURE 2.0) has passed the House of Representatives with strong bipartisan support, meaning that after a long wait since the bill’s introduction, more tax and retirement planning opportunities may be on their way before the end of the year. Though with the legislation still pending review and passage in the Senate, it may take until the end of the year before it is actually signed into law?

Also in industry news this week:

A judge has ruled against the state of Massachusetts in its enforcement action against the brokerage firm Robinhood, and in doing so invalidated parts of the state’s fiduciary rule for broker-dealers (underlining the need for regulators to more clearly distinguish the line between sales and advice and to uniformly regulate firms on both sides of the divide)
RIA Mergers & Acquisitions activity continued at a strong pace in 2021, with the median firm valuation reaching 9x EBITDA – though the growing number of sellers may result in slowing valuation growth in the coming years (even while the total number of deals continues to increase)

From there, we have several articles on the regulation of RIAs and broker-dealers:

The SEC has published its 2022 list of examination priorities for broker-dealers and RIAs, including ESG factors (and concerns about “greenwashing”), crypto, private funds, and managing conflicted compensation models in compliance with Regulation Best Interest
In a new Staff Bulletin, the SEC has reiterated some of the standards of conduct that apply to both broker-dealers and RIAs when making account recommendations, namely the requirement to consider costs to the client (and justify and document the reason for recommending wrap accounts when lower-cost alternatives are available)
As private markets grow in size and influence, the SEC has proposed new rules increasing its oversight and enforcement over private equity and hedge funds and imposing new rules and reporting requirements on private fund managers

We also have a number of articles on retirement:

How clients with health insurance coverage through Medicare might get a mid-year reprieve on their Part B premiums due to price changes in one very-high-cost Alzheimer’s drug
Why some retirees choose to live on cruise ships, and the planning considerations for doing so
Six strategies advisors can use to reduce retirement income risk for clients, including asset-liability matching, dynamic spending, buckets, and more

We wrap up with three final articles, all about career planning:

A survey shows that while current and aspiring advisors agree on the importance of client communication in addition to technical skills, the biggest blocking point for many new advisors is simply the financial burden of jobs that require them to get their own clients from scratch (with little income until they manage to do so)
Why exploring a range of jobs and experiences early on (rather than becoming a specialist right away) can lead to a more fulfilling career
Why time and creating financial flexibility for oneself are two of the most important drivers of success when taking a career risk

Enjoy the ‘light’ reading!

The ‘Yield-Split’ Method Of Asset Location To Improve Tax Efficiency Of Index Funds

March 30, 2022 07:05 am 12 Comments CATEGORY: Taxes

Financial advisors have many ways to add value to clients’ investment portfolios, from selecting an appropriate asset allocation to rebalancing when appropriate. However, because the investor ultimately only gets to spend what they can keep after taxes, another important way advisors can add value to a portfolio is to improve its tax efficiency; after all, if the same returns can be generated in a more tax-efficient manner, in the end, investors will generate more spendable wealth (a form of ‘tax alpha’). And when it comes to individual investors and their typical mix of investment accounts and retirement accounts, one of the best ways to enhance portfolio tax efficiency is through strategic asset location, where the advisor places assets into taxable or tax-advantaged accounts depending on the assets’ specific characteristics.

Implementing an asset location strategy begins with identifying the yield, tax rate, and potential tax drag of each investment in an individual’s portfolio. The investments are then sorted into an asset location priority list based largely on tax efficiency, which can be used to help identify where to house each type of investment, with the least tax-efficient holdings being placed into the most tax-advantaged account. Which means a stock fund with a low yield (and low tax drag) might be placed in a taxable account, whereas a high-yield bond fund (with high tax drag) might be placed in a tax-deferred account, thereby reducing the amount of taxable investment income in the current year.

In addition to using asset location to strategically place investments, advisors can further enhance tax efficiency by replacing the use of broad-based index funds with a corresponding pair of funds – one low-yield tax-efficient fund and another higher-yield, tax-inefficient fund. This process, called “yield splitting”, emulates broad-based index funds in such a way that allows for their component (low- and high-yielding) parts to be invested into separate accounts by tax efficiency.

For example, with a yield-split asset location strategy, rather than investing in a single total-stock-market index fund, an advisor would instead invest in both a low-yield growth index fund and a higher-yield value index fund. The intent would be to maintain a similar return overall, but also to allow the advisor to invest the funds separately, placing the higher-yield value fund in a tax-advantaged account and the low-yield growth fund into a taxable account. Similarly, replacing a total-bond-market fund with a high-yield corporate bond fund invested in a tax-deferred or tax-exempt account and a lower-yielding Treasury bond fund invested in a taxable account would potentially reduce the tax drag while maintaining comparable expected returns.

Over time, asset location can reduce the ongoing tax drag of the portfolio by nearly 10 basis points per year (of hard-dollar tax savings!), and layering the yield split methodology on top can double the asset location tax alpha by another 10 basis points (to a total of 20 bps). Cumulatively, this can add up to a 6% increase in long-term wealth accumulation over an investor’s multi-decade time horizon, simply by restructuring (i.e., yield-splitting) their core index holdings into the component parts for better asset location.

Ultimately, the key point is that while asset location is already a beneficial strategy to create tax alpha, the tax efficiency of a portfolio can be further improved upon with a yield-splitting approach to allow for even more-finely-tuned asset location implementation… all while maintaining a substantively identical overall risk/return profile for the portfolio as a whole. This not only leads to potentially significant tax savings for clients – particularly those who have the capacity for both tax-advantaged and taxable account holdings, and who pay a high Federal tax rate (and/or who live in states with high tax rates) – but also provides a tangible way for the advisor to demonstrate their own value!

#FA Success Ep 274: Succession Planning Vs Continuity Planning In A Seller’s Market, With Maria King

March 29, 2022 07:08 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 274th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Maria King. Maria is the co-founder of Transcend PM, a practice management consulting and coaching firm based in Concord, Massachusetts.

What's unique about Maria, though, is how she not only helps advisors with hiring and compensation plans for next-generation advisors but goes even deeper into constructing legacy plans for advisors to outline not only a plan for succession, but to detail how their firms and clients should be handled if something happens to them along the way.

In this episode, we talk in-depth about how Maria helps advisors focus on their firm’s values from business culture and client experience, to investment philosophy and business strategy, to ensure they choose a well-aligned successor to purchase the business; how Maria utilizes four pillars of consulting, coaching, human resources design and development, and internal firm growth programs to create bespoke legacy plans for advisory firms; and how Maria helps advisors understand why it is important to recognize that their business succession decisions have such a ripple effect that impacts family, staff, colleagues, and clients.

We also talk about how Maria was drawn to working with advisors on succession planning issues after seeing first-hand that only about a third of advisors had a succession or continuity plan in place (not necessarily as a result of lack of planning, per se, but because of how connected succession is to the psychological hurdle of facing our own mortality), how Maria helps advisors distinguish between being in the business for themselves as opposed to just by themselves, and how, with the help of advisor friends, and her entrepreneurial husband and his complementary skills, Maria gained the confidence to start her own consulting business after working nearly 20 years for a large broker-dealer.

And be certain to listen to the end, where Maria shares how after leaving her former career, she entered a period of self-reflection to decide what was next and realized she still had the drive to continue to share her knowledge and expertise, why Maria believes it is so important to have self-awareness when mapping out the bigger picture in building an advisory career, and why Maria views work-life balance as truly a balance to be crafted, rather than as a binary concept where you’re just ‘working’ or not.

So whether you’re interested in learning about how Maria helps advisory firms establish and implement succession and continuity plans, why Maria concentrates on aligning values over a firm’s potential purchase price, or how, after decades in one career, Maria found faith in herself to start a new career path helping others, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Maria King.

10 Key Performance Indicators For Financial Advisory Firms To Compare With Industry Benchmarking Studies

March 28, 2022 07:09 am 4 Comments CATEGORY: Practice Management

Industry benchmarking studies can be a valuable tool for advisory firm owners to make better business decisions. By compiling and publishing data on firms across the industry, the studies enable owners to compare their firms’ performance side-by-side against that of their peers, giving the owners an expectation for how their firms should perform and insight into where they might be outperforming or underperforming the competition.

But despite the potential benefits, many firm owners choose not to use benchmarking studies. For some, this may be because the firm owners’ financial data might not be organized in a way that is compatible with participating in the survey and comparing to the results. For others, the sheer amount of data a benchmarking study provides may make it difficult to determine exactly which data points are most effective to track. And for still others, the amount of time required – from aggregating and submitting the firm’s financial information, to reading the study and comparing the firm’s performance with its results – can represent an obstacle to using benchmarking studies.

All three of the above issues, however, can be resolved with a systematic approach towards participating in and using industry benchmarking studies. By organizing the firm’s financial data to efficiently compare them with data from major industry benchmarking studies, focusing on a few key metrics that are the most relevant to the firm’s goals (rather than trying to compare every individual data point the survey provides), and – perhaps most importantly – knowing what the comparison with the benchmarking data actually says about the firm’s productivity, efficiency, and profitability, a firm owner can effectively use benchmarking studies to make decisions on how to further strengthen their business.

Furthermore, technological tools are emerging that can help reduce some of the time and resource burden on firm owners to track and analyze their financial data. Two such tools – AdvisorClarity and Truelytics – automate different parts of the process, and (depending on which part of the process the firm owner prefers to automate) either tool allows the firm owner to glean insight from benchmarking comparisons with less of an investment in time and resources.

Ultimately, the point of using benchmarking data is to better understand how an owner can improve their business. Because, while most advisors want to make their firms better in one way or another, they may not always understand which areas are already strong, and which could benefit most from improvement. By having an ‘average’ to compare against, it is possible to quickly see where these improvements can be made – meaning that the initial time investment of using benchmarking studies could ultimately save the firm owner a lot of time and effort in making their firm more profitable!

Weekend Reading for Financial Planners (Mar 26-27)

March 25, 2022 02:05 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with new research showing that average asset-based advisory fees increased from 2020 to 2021, suggesting that the phenomenon of “fee compression” from low-cost competition like robo-advisors not only is failing to play out, but may be entirely reversing itself as human advisors create even more value on top of their portfolio management services by offering more and deeper services (and justify charging the same or even higher fees).

Also in industry news this week:

Massachusetts Secretary of State William Galvin is pushing broker-dealers and RIA custodians to increase the interest rates paid on cash sweep accounts in response to the Federal Reserve’s recent rate hike
Despite the popularity of the idea of replacing twice-per-year time changes with a permanent daylight savings time, many sleep scientists believe that such a change could be even worse for our bodies than the current system

From there, we have several articles on retirement planning:

How part-time retirement programs from employers are increasingly available, and how advisors can support clients interested in a phased retirement
How Social Security claiming strategies are becoming more important amid a wave of pandemic-related retirements
Why a 401(k) ‘bridge’ could be a useful strategy for retirees to cover their expenses while delaying Social Security and allowing their benefits to grow

We also have a number of articles on advisor training:

How firms can design training programs that employees will actually implement in their daily work
What goes into effective advisory firm training programs for junior employees, and why consistency is one of the most important elements
How external training programs provide structure and fresh ideas that are more difficult to generate through internal firm training programs

We wrap up with three final articles, all about the way we set and perceive our expectations for the future:

How even the most optimistic predictions sometimes underestimate the eventual outcome of a situation (or vice versa in negative situations), since our tendency to think in linear terms undershoots exponential events
Why people often feel emptiness when they achieve a long-awaited goal, and how focusing on progress towards that goal (and when achieving a goal, setting a new one that can be progressed towards) can lead to greater happiness in the long run
Why setting reasonable expectations is key to maintaining happiness (especially when working toward ambitious goals with a low probability of success)

Enjoy the ‘light’ reading!

Kitces & Carl Ep 82: Balancing The Desire To Serve With The Financial Demands Of Growth

March 24, 2022 07:04 am 0 Comments CATEGORY: Kitces & Carl Podcast

When an advisor first opens their own firm, they are often eager to take on any willing client in order to generate enough revenue to ‘keep the lights on’. But after getting through the first few years of business, many find that the time they spend working with early clients hinders their ability to bring on new, more profitable, clients. This leaves the advisor with the option of hiring additional staff members to handle the growing client base (and perhaps taking on debt in the process) or of terminating the relationship with less profitable clients… both of which involve very difficult decisions for the advisor.

In our 82^nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can ‘upgrade’ less profitable clients by referring them to other advisors, why they might need to overcome the scripts in their heads to achieve better growth, and how they can use different models to help underserved populations.

As a starting point, it’s important for advisors to recognize that, given the limited number of hours in the day, they cannot serve every potential client who might need help. While serving others is often one of the primary motivations of advisors, this must be balanced with the need to run a sustainable business (because if their firm goes out of business, the advisor wouldn’t be able to serve any clients!).

For advisors who want to continue serving at least some of their less profitable clients, one option is to set a fixed number of clients in this category. Another option is to set aside a certain number of hours each week to work with clients on a pro bono or low-cost basis. These strategies can help the advisor continue serving clients in need while also keeping enough time in their schedule to serve more profitable clients (and to keep themselves in business).

Clients who the advisor can no longer serve profitably can be ‘upgraded’ to a new advisor who can meet their needs profitably. While it can sometimes be difficult for advisors to move on from long-time clients (particularly those who were willing to work with the advisor when they were first starting out), it is important to recognize that these clients might actually get better service when referred out to a different advisor who specializes in their particular needs and who has the capacity to give them more attention.

Another option for advisors who want to grow their firm but have hit a capacity ‘wall’ is to consider hiring additional staff to help service their growing client base. In cases where the advisor’s current revenue might not initially support new hires, taking out a loan can be a viable option to cover the costs. And while taking on debt to pay employees could trigger an automatic script in the advisor’s mind that they are making a bad financial move, actually running the numbers can confirm whether this option (which would potentially allow the firm to bring in new and more-profitable clients) would result in greater overall profits in the long run!

Ultimately, the key point is that while the desire to help others is one of the primary motivating factors for many financial advisors, time constraints and the need to run a sustainable business often mean that advisors can’t always serve every potential client. But this doesn’t mean that advisors have to ‘fire’ every unprofitable client; instead, advisors can choose to continue serving some of these clients while referring others to advisors who might be a better fit, or else consider options that allow them to expand their capacity (such as hiring additional staff). Which can help advisors grow their firm profitably while at the same time ensuring that all of their clients receive the level of service they deserve!

The 30-Minute Prospect Meeting: A Framework And Agenda That Convert By Focusing On The Prospect’s (Immediate) Problem

March 23, 2022 07:09 am 1 Comment CATEGORY: Client Trust & Communication

In recent years, financial advisors have increasingly recognized that making a personal connection with prospective clients early in the process (as soon as the very first introductory meeting) can make it more likely that the prospect will eventually become an engaged, motivated client. And so advisors often get personal with prospects early – in many cases asking them questions about their personal memories, attitudes, and psychology around money (e.g., “What is your earliest money memory?”) – with the aim of showing interest in the prospect as a person beyond the numbers on their balance sheet (which would theoretically serve to build an open, trusting relationship, and the kind of personal connection that the advisor wants to develop).

But in reality, asking such personal questions in an initial meeting (before any foundation of trust is built) can ironically have the opposite effect of what the advisor intended. Because diving into personal psychological profiles when the prospect may already feel anxious and vulnerable about meeting with an advisor could – from the prospect’s perspective – feel overly intrusive and ultimately put them off toward the advisor.

Furthermore, prospects also may have priorities on their minds going into the initial meeting other than their psychology around money. Often, there is a significant, concrete problem in their financial life that has pushed them to reach out to a financial advisor. And when solving this problem is foremost in a prospect’s mind, having the conversation shift to money psychology can feel to the prospect as though the advisor is not listening to what they have to say – the exact opposite of the feeling of open communication that most advisors hope to invoke in prospective clients.

In the initial prospect meeting, then, all that really matters is answering this question for the prospect: “Can – and how – will this advisor solve my problem?” The advisor can help the prospect answer this question by focusing on that problem for the entire meeting: first, by learning what caused the prospect to initially reach out and exploring that problem in depth; then by describing the advisor’s services and planning process as it relates to solving the problem. And by focusing solely on the prospect’s problem, advisors can hold an efficient initial prospect meeting – lasting around 30 minutes – that gets to what really matters for the prospect and gives both parties the information they need to decide how to move forward.

Ultimately, it’s important to remember that prospective clients often want to talk about the problem that has caused them to reach out – after all, that’s what pushed them to overcome any fears and schedule a meeting with a financial advisor in the first place! And keeping the conversation centered around that problem helps to keep the prospect talking, continually reinforcing that they have a problem that indeed needs to be addressed (and that the advisor can help them solve it!). Letting the prospect talk freely about what is important to them in that moment – with the advisor listening empathetically and reflecting that information back to them – can establish the strong personal connection that many advisors seek, creating a foundation of trust to build on, which can – at the right moment – include discussions of money psychology… but only after building up enough trust and preparing the client for having those conversations!