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#FASuccess Ep 404: The Evolution Of Specializing In College Planning To Work With Mid-Career Professionals Who Save, With Ann Garcia

September 24, 2024 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 404th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Ann Garcia. Ann is a partner of Independent Progressive Advisors, an RIA based in Portland, Oregon, that oversees approximately $115 million in assets under management for 120 client households.

What's unique about Ann, though, is how she crafted a nationally recognized expertise in college financial planning, and the ways that specialization has evolved as Ann’s advisory business itself has evolved its focus on serving mid-career professionals balancing the competing priorities of saving for college and their own retirements.

In this episode, we talk in-depth about Ann’s path to becoming a recognized college planning expert, which started by becoming the in-house expert within her firm by researching answers to common client questions about funding college for their children, how Ann leveraged the emails she had already been sending to clients to answer their college funding questions to compose the initial articles of a blog on college planning (and how the blog’s singular focus on its college planning specialization allowed Ann to relatively quickly earn acknowledgement and hyperlink traffic back from national publications like the The New York Times), and how Ann has further leveraged this expertise and media exposure to publish a book and build an online course on college planning, allowing her to serve families that she knows need her help but aren’t necessarily a fit for her advisory firm’s core wealth management services.

We also talk about how Ann’s media appearances and college planning expertise have helped her attract clients and grow her firm by serving mid-career professionals balancing college planning with other financial goals (to the point where Ann and her business partner are navigating capacity constraints as they reach 120 client households), how Ann started out on her own as an advisor by buying the practice of a retiring advisor (retaining all but one of her clients in the process) and using that as the foundation to build the practice Ann ultimately wanted it to become, and how Ann’s decision early on in her career to take as many prospect meetings as possible, even if she knew they wouldn’t likely become clients, helped her get in the repetitions necessary to refine her communication and sales process to the point where now prospects who are a good fit almost always become clients after meeting with her.

And be certain to listen to the end, where Ann shares her advice for families going through the college planning process, including the importance of starting these conversations with kids early in their high school years to set expectations for how much the family can afford to pay for college in the first place, how Ann’s volunteer service as a NAPFA study group leader not only helped her connect with advisors with a wide range of experiences, but also enabled her to build a valuable network of COIs in her local community to support her clients, and why Ann decided to leave a firm that did offer her career growth and prestige opportunities to start out on her own instead… so that she could work exclusively with clients that she wanted to work with, who shared her own values.

So, whether you’re interested in learning about how to build nationally recognized expertise in a client niche, helping client families plan for college, or how acquiring a retiring advisor’s firm can jump-start an advisor’s own practice, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Ann Garcia.

7 New Lessons Learned Building A Fee-Only RIA From Scratch: Years 3–5

September 23, 2024 07:01 am 0 Comments CATEGORY: Practice Management

Starting a new firm can be a nerve-wracking time for an entrepreneurially minded financial advisor, as making the jump involves a significant amount of professional and financial risk. Nonetheless, after a year or 2 in business, some firm owners will find that their plate is becoming full and their available time is shrinking as they balance servicing current clients with marketing for new ones and also possibly managing staff. Which presents an opportunity for the firm owner to step back and assess whether they want to change any of the practices that they've established in their first years in business to make the next several years both professionally and personally rewarding.

In this guest post, Jake Northrup, founder of Experience Your Wealth, LLC, discusses 7 lessons he learned in years 3–5 of building his RIA and the changes he subsequently made to his service model, client base, and daily schedule, offering guidance to firm owners who may need to navigate some of the same challenges that come with scaling their advisory business.

When an advisor opens a firm, they might have little to no revenue but a good deal of time to manage their practice. Which means that when their first clients come on board, they might be tempted to overservice them to demonstrate the value that they can provide. Nevertheless, as a client base grows, maintaining such a level of service can take up more time that the advisor may have available, particularly given the added responsibilities of running their growing business. In Jake's case, after deciding that he was overservicing clients during the earlier years of his practice, he started scheduling fewer standard meetings and limited the number of after-meeting action items, freeing up his time and mental bandwidth for other activities to grow and run his firm.

In addition, he also found that he preferred working with certain types of planning clients over others, leading him to refine his niche and ideal client persona over time. While Jake had originally worked with equity compensation clients, current or aspiring business owners, and young professionals with student loans of $100,000 or more, he realized that he didn't care as much for student loan planning, which led him to make the difficult decision to transition 20% of his client base who primarily needed student loan planning.

Jake also learned key lessons on managing daily schedules. For instance, because he disliked the traditional 9–5 work schedule, he offered his team significant flexibility in deciding when they worked. However, this lack of structure actually put more pressure on team members because it didn't allow for sufficient collaboration time, leading him to implement a more standard work schedule that still offered some flexibility during the day and virtual coworking sessions for the team. For himself, Jake time blocked his schedule to ensure that he prioritized his personal life and wellbeing (e.g., taking vacations) and organized his workday to leverage the times of day when he has the most energy. He also conducted a "time audit" based on Dan Martell's 2-dimensional DRIP Matrix system to help him identify tasks based not just on their revenue potential but also their ability to energize and light him up.

Ultimately, the key point is that a new financial advisory firm owner's original vision for their practice is likely to change over time, which can create challenging decision points (e.g., when to hire new staff and whether to adjust the firm's ideal client persona). Nevertheless, as Jake has found, there are strategies to help firm owners mold their business to meet personal and professional needs, which can help them support greater wellbeing for themselves and a more sustainable business in the long run!

Weekend Reading For Financial Planners (September 21–September 22)

September 20, 2024 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that the North American Securities Administrators Association (NASAA) released the latest edition its annual survey outlining the state of state-registered RIAs, showing that the number of state-registered firms and their assets declined slightly in 2023 (perhaps due to many firms seeing their AUM hit the $100 million mark amidst strong market performance and organic growth and moving up to SEC registration, or being acquired by an SEC-registered firm). Further, the survey showed the continued predominance of the AUM fee model amongst state-registered firms (at the same time, more than half of firms said they charge on a fixed-fee or hourly basis, suggesting many firms utilize multiple fee models) and identified the most common areas of regulatory enforcement during the year, with failure to register as an investment advisor or investment advisor representative and fraud topping the list.

Also in industry news this week:

A coalition of organizations representing financial advisors is pressing Congress to include tax breaks for financial advisory fees amidst expected negotiations to address the pending expiration of several provisions of the Tax Cuts and Jobs Act
A recent survey indicates that client referrals remain the chief source of new clients for many financial advisory firms, many of which have expanded their client geographic footprint during the past few years

From there, we have several articles on investment and tax planning:

As the cost of implementing a direct indexing strategy continues to drop, financial advisors can play a valuable role in helping clients determine whether it is a valuable opportunity
How considering the transition costs involved in moving to a direct indexing approach can help advisors avoid creating a potentially costly tax bill for certain clients with significant embedded gains
Why a "segmented ETF" strategy could be simpler and less expensive to implement than a direct indexing approach

We also have a number of articles on advisor marketing:

A research-backed list of potential opportunities for advisors looking to attract next-gen clients, from encouraging online reviews and testimonials to crafting a consistent message to deploy through digital marketing channels
Why assessing (and potentially adjusting) a firm's client value proposition could drive more client growth than additional marketing spending in isolation
How firms can craft an effective client survey to reveal the firm's strengths and potential areas to improve to promote client retention and referrals

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

8 tips to make it easier to read more books, from creating a more conducive home environment to establishing accountability measures
How to decide whether to move on from an unfinished book or whether to see it through until the end
Why it's often hard to retain details when reading non-fiction books and how including opportunities for regular, interactive feedback could lead to greater comprehension

Enjoy the 'light' reading!

Kitces & Carl Ep 147: Preparing An Advisory Firm For The Risk Of A Market (And Revenue) Decline

September 19, 2024 07:02 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Preparing An Advisory Firm For The Risk Of A Market (And Revenue) Decline

Given the general trend of advisory firms charging on some percentage of assets under management, market growth can also be a strong indicator of advisory firm growth. For firms with revenue tied to portfolio performance, the additional income that can accompany a healthy market outlook allows firms to dedicate more resources to marketing and other processes to help grow the firm. However, while this business model has worked well with the strong markets that have dominated the last 15 years, there is also an inherent risk that comes with inevitable market corrections, bear market years, and recessions, which poses the question: How can advisors structure their firms to protect against market corrections?

In the 147th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors (especially those who joined the industry after the last correction) can protect their business against the market volatility risk inherent to a business model that uses AUM fees.

As a starting point, a firm's profit margin is usually the first line of protection against a bad market. The average established firm has a profit margin of 20–30% after employee, technology, and operational expenses during 'good' market years. During bear market years (or quarters), any AUM-correlated profit margin will have a corresponding drop, and that profit margin may then drop to 0%. However, unless the profit margin drops below 0%, an advisory firm will likely be able to remain operational as is, without being forced to make difficult decisions to shrink the business. While maintaining a 0% profit margin for a quarter or few may not be pleasant, the advisory firm that is aware of this 'feast-and-famine' cycle and is prepared for it can situate itself to pull through bear markets with minimal business adjustments.

To better visualize how a recession would impact a firm's long-term growth, advisory firm owners may want to model how their business would be affected by several quarters of 'bad markets' and consider how they would need to answer these questions: How would payroll get impacted? What expenses would need to be adjusted? How would several quarters of bad markets impact the firm owner's ability to pay themselves and maintain their lifestyle? These considerations can help advisors better understand their options and the adjustments that would need to be made in the short- and long-term.

Importantly, it's essential to be mindful of the emotional toll along with the logistical side of bracing for a recession. In a bad market, advisors are constantly required to absorb client uncertainty and fear – often while they are equally unsure of what will happen. And, for advisors who are also firm owners, the toll grows as employees are also emotionally stretched to absorb the chaos of an uncertain market – and even more so if owners need to let an employee go to keep the business afloat. Emotional preparation usually poses a different challenge than reviewing a business plan. However, much as how a firm needs a certain level of profit margin to ensure that it will have the resources it needs during tough times, so too can advisors ensure they have the resources they need to maintain their own emotional wellbeing. Even basic self-care practices like maintaining a healthy diet, getting enough sleep, and exercising can provide a crucial barrier against the emotional and physical strain of stress.

Ultimately, the key point is that market corrections, slow years, bear markets, and recessions are inherent risks for firms with revenue models that rely on assets under management. However, advisors who are mindful of the effects of these trends can proactively make small adjustments before an emergency strikes – better protecting their clients and their firms in the long run!

AI May Transform Your Advisor Practice In 10 Years, But It Still Won’t Do Much In 2 Years

September 18, 2024 07:03 am 0 Comments CATEGORY: Technology & Advisor FinTech

In the nearly 2 years since the launch of ChatGPT, there has been an explosion of new technology solutions incorporating Artificial Intelligence (AI). Today, AI is now almost ubiquitous across many of the tools that we use, from smartphone cameras to search engines to office productivity software. For financial advisors, too, a ballooning number of new advisor-focused AI tools has appeared over the last 24 months, purporting to save advisors' time and staffing needs by automatically performing previously manual tasks like creating meeting agendas, generating marketing materials, and even analyzing and recommending financial planning strategies.

And yet, despite the flood of new AI tools and the assurances that advisors hear from software providers and AI proponents that AI will soon prove to be life-changing in its ability to 'intelligently' perform any task that the user asks of it, the impact that AI will have in the long term is still unclear. Much like how other forms of technology in the past 30 years (such as online shopping in the early internet era and blockchain solutions in the late 2020s) went through early hype phases only to have the bubble burst when many of the business models based on the new technology proved to be unsustainable, AI is going through its own speculative phase where new AI solutions are popping up for nearly every use case imaginable – except, as the lessons from previous technology bubbles have shown, many of the use cases currently being offered for AI won't actually prove valuable enough to build successful solutions.

But the likelihood that many of today's AI solutions may fall flat in the short term doesn't necessarily mean that AI won't ultimately bring significant benefits for advisors; it just means those benefits may take a long time –possibly a decade or more – to become evident. At least to some extent, this will be the result of generative AI's ability to grow over time, as AI technology itself becomes more reliable and capable of a broader range of functions. Additionally, as it becomes clearer which AI use cases provide real value, those applications will gradually gain traction among advisors and may even become integral to how they serve clients and manage their businesses.

For the time being, however, it may be helpful for advisors to take a realistic approach to the value that AI tools will provide, especially in an environment where technology providers often make bold claims about their solutions' ability to save time and reduce costs. Some of the capabilities of today's AI tools (e.g., automating workflows or retrieving client information using a chatbot) may be useful to some extent, but if the processes that they replace don't take that much time to begin with, then the tools' benefits may not justify the additional cost to implement them. On the other hand, if the tool really does help advisors meaningfully cut the time they spend on inefficient tasks – such as client meeting preparation and follow-up – then they're more likely to be worth the cost outlay.

The key point is that, like any technology, AI itself isn't the solution to making advisors better and more successful; rather, it's a foundation on which solutions can be built to help advisors address specific challenges while maximizing the technology's current capabilities. For now, getting the most out of AI may mean focusing on more narrowly targeted AI solutions (rather than those offering a mosaic of tools, only some of which may hold real value) – as these are more likely to address the advisor's actual needs, instead of trying to be the "One Solution" for everything, regardless of whether the problem truly needs solving!

#FASuccess Ep 403: Carving Your Path As An Investment Nerd By Building A Fractional CIO Solution For Other Advisory Firms, With Eric Stein

September 17, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 403rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Eric Stein. Eric is a partner at East Bay Investment Solutions, a firm that provides fractional Chief Investment Officer services based in Charleston, South Carolina, that supports over $6 billion in assets under advisement across 26 advisory firms they serve.

What's unique about Eric, though, is how he has chosen not to utilize the investment expertise he's built throughout his career to gather individual clients and manage their portfolios as a 'traditional' financial advisor with investment expertise, but instead to really stay focused on being an "investment nerd" by landing his current role as a partner with East Bay, where he gets to serve as a fractional Chief Investment Officer for multiple advisory firms and all of their clients instead.

In this episode, we talk in-depth about how it works when advisory firms hire Eric's fractional Chief Investment Officer service offering, including conducting investment research, designing model portfolios, and producing written market commentaries for advisors to use with their clients, how Eric's firm differs from the Outsourced Chief Investment Officer (or OCIO) services that have emerged for institutions, and how a fractional CIO also differs from a TAMP by still leaving the actual portfolio implementation responsibilities up to the advisor (which allows Eric's firm to charge a flat fee as a fractional CIO rather than a basis point charge based on client assets that allows it to serve mid-sized independent advisory firms in a cost-effective manner), and Eric's suggested considerations for advisors considering working with a fractional CIO, including most importantly finding a fit with respect to the firm's investment philosophy.

We also talk about Eric's own unique career journey, which started in commercial banking with stops along the way that included a variety of roles at Goldman Sachs Asset Management and working as an internal full-time Chief Investment Officer for a large national RIA before starting his current fractional CIO role, how Eric has leveraged recruiters over the years to both discover new opportunities and to quickly find a new position after being unexpectedly let go when large-firm investment departments go through downsizing (which is more of a hazard for those in investment roles than traditional financial advisor roles), and how Eric went through a metaphorical 'dating' process in approaching his current business partner and why their open discussions of business management contingencies before partnering up ensured their visions were aligned and has allowed the business to now grow and thrive for years.

And be certain to listen to the end, where Eric shares his views on working in massive national businesses versus smaller local firms, including balancing the opportunity to explore multiple positions within the same company with feelings of being 'just' a cog in a much larger system of gears, how Eric's experiences as a manager and the journey he went through in learning how to start letting go and not micromanage team members, and how it was a tennis coach who ultimately taught Eric the value of remembering to pause from time to time to celebrate successes while also learning and moving on quickly from failures, that helped Eric navigate the ups and downs of his own career in financial services.

So, whether you're interested in learning about navigating a career in the financial services industry as an "investment nerd", what it means to hire a fractional Chief Investment Officer, or how to successfully create a business partnership that meets both partners' visions, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Eric Stein.