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Weekend Reading for Financial Planners (Feb 19-20)

February 18, 2022 02:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that, according to population and moving data with increased relocations during the pandemic’s era of remote work, the states that lost the most population in 2021 were those with the highest personal income tax rates (and likewise, the states that gained the most population were those with the lowest tax rates), which, while not definitively proving that tax rates were a primary factor for remote workers taking advantage of the freedom to live and work anywhere, does show that Southern and Western states (which make up the majority of lower-tax states) continue to hold allure for workers seeking a lower cost of living or better economic opportunity.

Also in industry news this week:

The CFP Board issued new guidance and case studies focusing on satisfying their “fiduciary-at-all-times” duty of care, navigating the seven-step financial planning process as a solo advisor, and managing conflicts of interest in compliance with the Code of Ethics and Standards of Conduct that has been in force since June 2020
A new research study from TIAA concluded that high school coursework on personal finance has no impact on a student’s likelihood to eventually save for retirement or own a home (though previous research has suggested that financial literacy education can at least improve young adulthood credit and debt behavior)

From there, we have several articles on client communication:

An extensive new study from FPA concluding that advisors may overrate their own communication skills, as compared to how clients view them, suggesting the need for a more systematic approach to gathering both quantitative and qualitative client data to understand clients’ personal and financial priorities in more depth
Why, when clients of financial advisors fail to act on recommendations, it may not be a sign of their being unwilling to act so much as not (yet) being ready to act – and how pushing the client to take the “right” action can actually have the opposite effect (and cause the client to even further delay a needed course correction)
How the nature of financial advice is expanding beyond the strictly financial aspects of clients’ lives (although clients may not yet be willing to go too far beyond the boundaries of their financial lives)

We also have a number of articles on retirement:

How data from both the United States and United Kingdom show that average annual spending after inflation declines throughout retirement, and the implications for creating financial plans
Why mini-retirements can not only be relaxing, but also create significant tax planning opportunities in the low-income years (that can even help to offset the long-term cost of taking extended time off from work!)
How advisors can apply the lessons of those pursuing financial independence at an accelerated pace, not just in terms of savings habits, but the mindset it takes to FIRE early (from ignoring social comparisons to getting clearer about what is ‘Enough’)

We wrap up with three final articles, all about how negative emotions can actually lead to self-improvement:

How experiencing sadness, anger, and anxiety can actually make you happier and smarter in the long run
Why learning to get comfortable with the loss of the known (as opposed to reducing future uncertainty about the unknown) may be the key to getting comfortable with change
How addressing, rather than avoiding, regrets can lead to self-growth, and perhaps fewer regrets in the future

Enjoy the ‘light’ reading!

The Four Types Of Direct Indexing And Technology Solutions For Advisors

February 16, 2022 07:01 am 8 Comments CATEGORY: Investments

First introduced in the 1970s, index funds have grown in popularity over time thanks to their ability to provide broad-based diversification at (typically) very low costs, making their benefits available to investors of any level of wealth. And while mutual funds and Exchange-Traded Funds (ETFs) have been the dominant way for investors to get index exposure, thanks to improved technological capabilities and reduced trading costs, direct indexing – buying the individual component stocks within an index – has emerged as an alternative tool with a range of potential use cases.

Historically, direct indexing was developed as a means to unlock the tax losses of individual stocks in an index – even if the index itself was up – and was primarily used only by the most affluent investors (who had the highest tax rates and benefitted the most from the available loss harvesting). However, direct indexing can be used not only to harvest tax losses but also to harvest capital gains (particularly for those taxpayers in the 10% and 12% tax brackets). In addition, direct indexing can provide tax benefits to investors who are charitably inclined by allowing them to donate the underlying shares within an index that have the largest gains, thereby helping them to maximize their tax savings.

For those whose primary goal is to benefit from a more personalized indexing strategy that still gains broad market exposure while specifically adjusting for personal preferences, using a personalized index can ensure the investor’s capital will support the exact industries or companies they wish to support (while also saving on the management fees otherwise charged by more packaged ESG/SRI mutual funds and ETFs).

The direct indexing framework also is relevant for advisors whose default strategy is to own “the market” (i.e., broad-based index funds), but who also want to overlay various rules that subsequently modify or tilt the allocations based on their own (or their clients’) investment preferences or outlook, such as over- (or under-)weighting certain sectors, factors, or segments of the market.

Finally, direct indexing can be used to help a client with a large, highly appreciated or concentrated investment position, or one whose human capital is tied up in one company or industry. For these clients, an advisor can build around the holdings committed to an existing company or industry by diversifying the remaining assets into an index, better positioning the client away from exposure to a potential downturn in their company’s (or its industry’s) performance.

The distinctions between the four types of direct indexing are important, as the various uses of direct indexing necessitate very different capabilities from the platforms themselves. Which in turn means that more than multiple different indexing providers can each have the potential for breakout success, by building the best-in-class solution for a particular direct indexing approach… while recognizing that what it takes to be most successful in one direct indexing category may be very different from what it takes in others.

Ultimately, the key point is that the value of direct indexing is no longer limited to tax benefits for high-net-worth clients. The developing uses for direct indexing – personalized indexes, rules-based advisor investment strategies, and customized completion portfolios – can benefit a wider range of clients. And while it remains to be seen whether direct indexing will start to displace mutual funds and ETFs in advisor-managed portfolios, its expanded uses, increased outside funding into direct indexing providers, and growing platform capabilities, suggest that direct indexing’s value to advisors is likely to expand in the future!

#FA Success Ep 268: Centralizing Departments To Systematize And Scale A $2B AUM Advisory Business, With Patti Brennan

February 15, 2022 07:07 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 268th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Patti Brennan. Patti is the CEO of Key Financial, an independent RIA based in the Greater Philadelphia area that oversees more than $2 billion in assets under management for nearly 800 client households.

What's unique about Patti, though, is how she has scaled her firm by centralizing her departments into a unique team structure, and systematizing processes amongst her client service team – not lead financial advisors – to create a high-touch experience for her clients.

In this episode, we talk in depth about how Patti adopts the “Starbucks” model where her advisors create tailor-made plans for each client by utilizing customizable templates, how Patti has designed a concierge-style client services department that she refers to as ‘key’ client services (a play on the name of her firm, and because she wants her clients to feel like they are key), and how Patti has, in the vision of KFC’s Colonel Sanders, leveraged her personal image and reputation as a symbol of her brand and marketing, even if she is not the forerunner of each client’s relationship with the firm anymore.

We also talk about how The 4 Disciplines of Execution by Sean Covey motivated Patti to form systems to get past just visualizing her business goals and move toward actualizing them, how Patti was inspired to increase her firm’s yearly goal after hearing an advisor describe bringing in $50 million in AUM in one year when she wasn’t growing at even half that rate, and how she focuses on optimizing her team’s individual talents to create a well-oiled organization.

And be certain to listen to the end, where Patti shares how she realized that to truly scale her business, she needed to let go of fear and learn to trust her team to implement her plans and vision, how Patti feels newer advisors would benefit most from working at a firm that is growing and has potential to keep growing, and why it is important as a leader to show vulnerability, admit mistakes, and master the art of apology.

So whether you’re interested in learning about how Patti organizes the departments in her firm to create an efficient workflow, why Patti places importance on cultivating deep, long-lasting relationships with both her employees and her clients, and how Patti stays inspired to continue setting and achieving goals, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Patti Brennan.

Financial Advisor Office Hours: A Step-By-Step Guide To Maximizing Your Time

February 14, 2022 07:03 am 2 Comments CATEGORY: Practice Management

For financial advisors in the early phases of starting their own practice, especially in the fee-only part of the industry, being successful often comes down to the resources and advice available to the advisor. A call with a mentor or peer to ask something as simple as, “Was this hard for you, too?” or “Is this a good choice?”, or even just to ask for references and resources can provide not only monumental comfort but also affirm an entrepreneur’s choices, thus allowing them to take the next step forward – and hopefully to become a successful advicer in the meantime! However, the advisors on the other end of the call, who are eager to give back to the community that originally gave them support and mentorship, often face their own challenges as they look to provide support to up-and-coming advisors without overwhelming their own calendars and potentially stalling the growth of their own firms.

In this article, Meg Bartelt, founder of Flow Financial Planning, explains how (and why) she developed her own “Office Hours/Ask Me Anything” system, how she prevents time creep, and how advisors can develop their own systems of mentorship and trust.

From an overarching perspective, Meg’s Office Hours structure – 45 minutes, every Friday, with up to three people – starts from a time management perspective. Many advisors looking to give back begin with a very open structure. For example, Meg started by setting aside 30 minutes each Friday to have one-on-one discussions with whoever wanted to talk to her. However, more advisors began to reach out, and more slots were added – plus, conversations occasionally went over 30 minutes and ate into even more time! Designating a set block of time for Office Hours for multiple people at the same time helps manage both expectations and time for advisors on the call. And, of course, advisors are not obligated to hold weekly Office Hours. Biweekly or even just monthly meetings can be more than sufficient.

Once an advisor has decided how frequently to hold Office Hours, all that’s left is to get started. Initial set-up doesn’t have to be complex: a sign-up system, such as ScheduleOnce (which Meg uses) or Calendly, and a social media post or email broadcasting the service may be sufficient depending on how much of a following the advisor already has. Preparation can also be minimal; Meg asks participants for their contact information only, and often enters Office Hours without having done any research or advance preparation for the session.

Ultimately, the key point is that giving back to the advisor community doesn’t have to be hard, complicated, or time-consuming. Sometimes, it’s as simple as lending expertise, empathy, and community when an advisor needs it most. One connection, insight, or aid can be all it takes to help transform a young advisor’s career – but first, one has to start by opening the door!

Weekend Reading for Financial Planners (Feb 12-13)

February 11, 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 Financial Planning Association, under new Executive leadership and a renewed Board focus, is now explicitly stating that its ‘core member’ will be a CFP professional. In addition, leaders of the organization reiterated the importance of the FPA’s local chapters, which had come under threat in a proposed 2018 restructuring plan. Together, these measures signal a return to the organization’s roots as a ‘home’ for CFP professionals with strong local chapters, as the beleaguered membership association tries to reignite its growth against a backdrop of strong and steady growth of CFP professionals themselves.

Also in industry news this week:

The SEC has proposed a new rule that, if it comes to pass, would require investment advisers to significantly beef up their cybersecurity planning and reporting
More than a year after Regulation Best Interest was implemented, a FINRA report has found that many broker-dealers are failing to live up to many of its requirements designed to protect consumers

From there, we have several articles on broker-dealers:

How FINRA will start to identify “high-risk” broker-dealers under its new Rule 4111 after June 1, 2022, providing the first significant test of whether it will truly incentivize firms to rid themselves of their problem brokers
How major independent broker-dealers like LPL Financial and Commonwealth Financial Network have changed their recruiting incentives to align with the industry’s broader shift to advisory services over product sales (by providing forgivable loans based on AUM, not the advisor’s trailing-12 GDC)
How the headline payout rate offered by many independent broker-dealers often obscures hidden costs paid by both advisors and clients, and can frustrate advisors who want to offer more fee transparency and keep a higher percentage of the revenue they earn

We also have a number of articles on investing:

Why investors are pouring money into ultra-short-duration bond funds in anticipation of the Federal Reserve’s expected interest rate hike
How ETFs in model portfolios that are affiliated with the model portfolio provider themselves are likely to have higher fees and lower performance than those that are not similarly conflicted
How Legos as an asset class outperformed the S&P 500 over a nearly 30-year period (at least for those who managed to hold on to their original, unopened sets!)

We wrap up with three final articles, all about attracting and retaining talent:

How the current tight labor market has led to a ‘Great Upgrade’ in which many employees are leaving their current jobs… for new ones that offer better pay and work-life balance
Why the recipe for happiness on the job goes beyond quantitative measures such as compensation and into qualitative aspects, including a feeling of earned success and being able to serve others
How to identify the ‘Non-Fungible People’ in a company, and why these employees are the most important to retain

Enjoy the ‘light’ reading!

Kitces & Carl Ep 79: Finding Your Future Specialization By Interviewing Your Current Clients

February 10, 2022 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Traditionally, financial advisors built their clientele by working with anyone who had the financial wherewithal to buy whatever products or services they had to offer. And as advisor platforms have become increasingly open architecture, advisors have had an increasing number of offerings available to work with an ever-widening range of clientele. However, at the same time, the fact that ‘any’ advisor can offer almost ‘any’ product has made it more difficult for a particular advisor to differentiate themselves from other advisors. For many advisors, the solution to this challenge is to get more focused – which means choosing a specific niche or a specialization and differentiating themselves by offering an even more specific offering for their particular clientele. The idea may seem simple in concept, but implementation of a niche or specialization can feel daunting, risky, and even downright scary!

In our 79th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to begin the process of finding a niche, ways advisors can conduct research to decide if a chosen niche is a good fit for their firm, and, once a niche is chosen, how to begin attracting new clients.

As a starting point, it’s important for advisors to understand the types of clients they already serve. Compiling a list of existing clients and differentiating them through qualifiers such as occupation (and whether they have enough revenue to be financially viable) can give clarity as to whether a potential niche already exists. From that list, advisors can then choose 5-10 (reasonably remunerative) clients they like working with and decide if they would like to work with more of that same type of client. A good way to approach this is to consider whether there is a common problem these clients face, and if the problem would be interesting for the advisor to solve for more prospective clients who face the same challenges.

Once a set of clients has been chosen, advisors can set up meetings over coffee or lunch with the intention of learning more about the types of issues these clients face, and what it would take to attract more clients like them. By interviewing these clients and asking a predesigned set of questions, advisors can gain an understanding of the viability of the proposed niche. Taking this a step further, information gathered can be used to write a white paper that can serve as both a reference for market research, and as a handout back to the interviewed clients so that they may share it with others potentially within the same niche to help attract future clients.

Ultimately, the key point is that financial advisors considering a change in their business focus may not have to look far to find their niche or specialization. Communicating with current clients gives an opportunity for advisors to discover how they can not only help them, but future clients with similar financial planning issues. Which means choosing a niche doesn’t have to be a grandiose declaration that feels foreboding and irrevocable; it can be as simple as just taking a renewed focus on a segment of clients that are already “working” for the business and pursuing more clients just like them!

The Power Of Follow-Up Questions: How Advisors Can Build Rapport With Prospects And Clients

February 9, 2022 07:09 am 2 Comments CATEGORY: Client Trust & Communication

Asking good questions is an essential tool for financial advisors. From building rapport with prospects, to gathering information needed to create a plan, and to offering support for nervous clients during market downturns, effective conversation skills – including asking good follow-up questions – can enhance not only an advisor’s value but also the client’s experience. But while advisors are used to asking questions of prospects and clients to get a conversation started, they might think less often about crafting follow-up questions once they receive a response. Which is potentially the most important part of the data-gathering process, as it turns out that effective follow-up questions can not only lead to more productive client conversations but also help make the advisor more likable!

One of the distinguishing features of a true follow-up question is that the question is asked with the singular goal of learning more about the speaker – there are no hidden agendas (intentional or subconscious) to talk about oneself or anything else, as tempting as that can sometimes be. For advisors, that means that good follow-up questions solicit information about the client’s experience from the client’s own point of view.

Another way to characterize a good follow-up question is to think of data-gathering questions. Advisors very commonly get surface answers from clients when they ask initial questions to open a conversation, but good follow-up questions can draw out the client’s deeper concerns. For example, an advisor working with a client who says they are worried about being able to afford retirement could ask a series of follow-up questions exploring issues such as when the client plans to retire and what plans they have for retirement that might be unaffordable. These follow-up questions dig deeper into the retirement picture and aim to understand the fear the client has expressed.

Not only can good follow-up questions help an advisor gather data, but they also demonstrate responsiveness to prospects and clients. In fact, a 2017 Harvard Business School study found that follow-up questions that are more responsive to the person being asked questions are generally more valued than other questions and statements that fail to focus on the person individually. So for advisors, follow-up questions can be an effective way to validate a client’s concern and show understanding without judging (positively or negatively) what the client has said. In other words, great follow-up questions allow advisors to connect with clients, gather information without placing judgment, and can create more likability even during tough conversations, regardless of whether the advisor agrees with the client.

Ultimately, the key point is that follow-up questions can be just as important as the questions used to kick off a conversation. Effective follow-up questions not only help advisors gather better client data, but also demonstrate responsiveness to prospects and clients alike. And because asking good follow-up questions is a skill that can be developed, it can be helpful for advisors to practice frequently, both inside and outside of the office!

#FA Success Ep 267: Making The Business ‘Fun’ Again By Focusing On Your Core And Outsourcing The Rest, With Jared Siegel

February 8, 2022 07:06 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 267th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jared Siegel. Jared is a partner of Delap Wealth Advisory, a fee-only RIA based in Portland, Oregon, that oversees nearly $260 million of assets under management for more than 70 client households.

What's unique about Jared, though, is how he outsources middle- and back-office operations to help his firm concentrate on creating a high-quality, high-touch financial planning experience for its clientele of affluent business owners and real estate investors.

In this episode, we talk in-depth about how Jared expanded his firm’s offerings beyond accounting services and into financial planning and asset management to do more work for their existing accounting clients, the way Jared leverages Jay Hughes’ “Qualitative Capital” framework to have better non-financial conversations with new clients, and how Jared focuses his financial planning conversations to help his clients use their money to delegate household tasks and leverage their wealth to create more time for themselves.

We also talk about how Jared was reaching a point of unhappiness when he realized he was spending far too much of his own time on tasks he didn’t enjoy (and wasn’t very good at), how Jared’s self-awareness motivated him to center his career on doing the client-facing financial planning he loves rather than dealing with the everyday back-office minutiae, and how Jared was inspired by the outsourcing success of other financial advisory firms to hire a TAMP for himself and outsource his own investment operations.

And be certain to listen to the end, where Jared shares how he was inspired by Angela Duckworth’s book on “Grit” when he was faced with his own challenges in the early days of his business, how Jared eventually got comfortable with the good that comes from adversity and gained an appreciation for how the early failures in his life ultimately shaped him for the better, and the metaphor that Jared learned from a tech entrepreneur about the importance of “finding your tennis ball”… a recognition that like the Labrador that loves to retrieve a tennis ball, when you find the work that truly fits you, it just comes naturally and feels more like play.

So whether you’re interested in learning about how Jared refocused his firm to center his efforts on his financial planning strengths, how Jared concentrates on why money matters to his clients to develop deeper relationships and better outcomes, or how he uses the lessons he learned to motivate him to spend more time on the work he loves, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jared Siegel.

The Latest In Financial #AdvisorTech (February 2022)

February 7, 2022 07:01 am 3 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the February 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 robo-advisor Wealthfront has been sold for $1.4B… to UBS, an acquirer from amongst the ‘traditional’ financial services firms that Wealthfront once proclaimed it would disrupt, which has indicated it will pair Wealthfront’s technology with UBS human advisors that Wealthfront sought to displace. In fact, it’s notable that Wealthfront’s $1.4B sale is ‘just’ double its $700M valuation back in late 2014… which means the company’s valuation didn’t even keep pace with the broader growth of the stock market since then (with the S&P 500 up over 150% over the same time period).

Though perhaps most significant in Wealthfront’s exit is the fact that despite Wealthfront being the first to turn direct indexing into a technology solution, it’s actually other direct indexing platforms over the past few years that have been achieving even higher growth rates and valuations than Wealthfront, by eschewing Wealthfront’s direct-to-consumer approach and working with financial advisors instead – an industry nod to how powerful the advisor-client relationship really is in the end.

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

Gemini acquires BITRIA in an attempt to create an end-to-end crypto solution for financial advisors (though it remains unclear whether advisors will be eager enough to implement crypto that they’re willing to add another custodial platform to the mix?)
RIA compliance technology is becoming increasingly popular, as ComplySci acquires RIA In A Box as Dynasty and MarketCounsel make strategic investments into SmartRIA
Helios Estate Planning is relaunching as EncorEstate while Trust & Will raises a fresh round of capital to expand its services to financial advisors
Junxure CRM is rebranded and relaunched as AdvisorEngine CRM, with expanded capabilities to support the growing complexity of advisory firm workflows
Redtail expands its “Speak” text-messaging platform to non-Redtail users who want to centralize one-to-many text messaging with clients
F2Strategy launches a new “Outsourced Chief Technology Officer” (OCTO) solution for mid-to-large-sized independent firms that need help weaving together an increasingly complex technology stack

In addition, this month marks the debut of the inaugural Kitces Independent Advisor Technology Study, showing the latest trends in what advisors are adopting (or not) and which technology tools they’re most satisfied with (or not). As in the end, it’s the independent advisors who control their own technology decisions – and can most readily ‘vote with their feet’ about what is really the best technology or not – that provide the best insight into what will become the most popular advisor technology tools in the future.

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 (Feb 5-6)

February 4, 2022 02:11 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 Department of Labor has (at long last) begun enforcement of its Fiduciary Rule, and how (despite multiple pandemic-related delays in the rule’s implementation) many broker-dealers (and even some small RIAs) may still not be in compliance – perhaps because of confusion over how the DOL’s rule differs in practice from the SEC’s already-in-force Regulation Best Interest, but ultimately exacerbated by the DOL’s failure to set a clear framework on how to handle conflicted compensation in the context of a fiduciary standard for everyone who gives financial advice on retirement rollovers.

Also in industry news this week:

M&A activity in the RIA industry continued at its record pace in 2021, and an increasing supply of funds from private equity firms continues to drive deals with a focus on building and acquiring in-house wealth technology solutions
A new AdvisorTech Directory launches to allow advisors to search for and browse the full range of advisor technology solutions, and create their own personalized tech stack.

From there, we have several articles on practice management:

How compensation costs rose for RIAs between 2016 and 2020, particularly amongst experienced employee advisors, and why it takes more than a strong salary to motivate and retain top advisor employees
Why outsourcing certain tasks to contractors can be more cost- and time-efficient than hiring a full-time employee
Why cultivating next-generation leadership is an important part of succession planning for RIAs, and the emergence of new training programs to help develop next-generation leaders

We also have a number of articles on taxes:

Why it may be a good idea for taxpayers to file their 2021 tax returns early, both to receive refunds earlier, and to avoid the processing delays that have plagued the IRS since the start of the pandemic
How the IRS’s new process for creating an online account is causing a backlash due to its stringent identity verification process and use of facial recognition technology
Why Vanguard came under criticism after its Target Retirement fund share classes generated a higher-than-expected capital gain distribution in 2021 (though the risk is far from limited to Vanguard funds, as all mutual funds distribute their capital gains each year, especially when faced with net outflows in or after a bull market)

We wrap up with three final articles, all about the benefits and challenges of remote work:

Why workers are craving flexibility in their work location and hours, and how managers can help promote transparency and equity
How remote work has blurred the lines between home and work life, and how you can maintain boundaries between the two
Why a challenging role at work can be superior to having an ‘easy’ job

Enjoy the ‘light’ reading!