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#FA Success Ep 256: Living On The Cutting Edge Of Advisor Technology To Build A Better Client Experience, With Vincent Barbera

November 23, 2021 07:09 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 256th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Vincent Barbera. Vince is the founder of Newbridge Wealth Management, an independent RIA based right outside of Philadelphia that oversees nearly $120M of assets under management for 75 client households.

What's unique about Vince, though, is the way he stays on the cutting – or sometimes bleeding – edge of advisor technology by continuously experimenting with new tech tools for his advisory firm, setting a new strategic focus every year to identify a new category of solutions to try out, either internally with his team, or externally with his clients.

In this episode, we talk in depth about the new technology tools that Vince has been trying this year with a theme of improving his Client Experience, including using Knudge to keep track of and collaborate with his clients on their financial planning tasks, Pulse360 to keep his meeting agendas and post-meeting notes more organized, and Hubley to help systematize the firm’s workflows above and beyond what his CRM alone can accomplish.

We also talk about how Vince manages his technology choices and budget to avoid having the cost spiral upwards out of control by just adding more and more technology, how Vince compares the cost of new technology tools to his financial planning software to determine if it’s a ‘reasonable’ price (because if it costs more than his planning software, he’d better be using it more than his planning software!), how Vince regularly assesses how often he’s logging into his technology tools to decide what to prune, and where Vince goes to find the latest and greatest tools to try out (and the gaps he still can’t find a solution for!).

And be certain to listen to the end, where Vince shares his own journey through the financial services industry, from starting out at a major asset manager’s HNW advice department but finding that the advice was still too focused on the firm’s asset management products and not the rest of the client’s financial advice needs, how Vince made the transition to go out and launch his own independent firm (with an eye towards using all the technology tools that are available today to stay competitive without an asset manager’s size and scale), and why Vince ultimately decided that he did not want to try to build the next billion-dollar firm and has actually felt even happier in his business by consciously deciding to take his foot off the gas and grow a little slower for a while.

And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast, with Vincent Barbera.

Navigating Minimum Net Capital And Surety Bond Requirements For State-Registered RIAs

November 22, 2021 07:03 am 3 Comments CATEGORY: Practice Management

State-Registered Investment Advisers (RIAs) are subject to numerous regulations in the state(s) where they do business, which, though they vary from state to state, generally have the goal of protecting investors from fraudulent sales practices. These rules require RIAs to file documents (such as Form ADV) with the state, maintain books and records, provide disclosures to clients, and act in the clients’ best interests whenever providing financial advice. Additionally, many (but not all) states set minimum financial requirements – in the form of minimum net capital and/or surety bond requirements – that RIA firms must maintain in order to become (and remain) licensed, to protect consumers from both the risk of fraud, and simply the consequences of negligent or inaccurate advice that could cause them harm. Because of the many differences between each state’s requirements, though, it’s important for RIA owners (especially the founders of new firms) to know their state’s particular rules and how to comply with them.

In this post, Kitces Senior Financial Planning Nerd Ben Henry-Moreland discusses how owners of state-registered RIAs can better understand their minimum net capital and surety bond requirements, and what protection they do (and don’t) provide for both clients and financial advisors themselves.

In states that set minimum net capital requirements, an RIA must hold a certain level of assets over its liabilities. This amount varies not only from state to state, but also often within states, depending on whether the RIA holds custody of client assets and/or has discretionary trading authority over client funds. In practice, states most commonly require RIAs to hold $35,000 of net capital if they have custody, $10,000 if they have discretionary trading authority (but not custody), and to have at least a $0 (i.e., positive and not-negative) net worth if they are an advice-only firm (no custody or discretion), which must be satisfied by holding cash or other marketable (i.e., liquid) investment assets.

In lieu of maintaining a certain amount of capital, though, some states permit RIAs to cover some or all of their net capital requirements with a surety bond instead. State rules for surety bonds can also vary widely, with some states requiring RIAs to hold a surety bond, others allowing firms to purchase a surety bond in lieu of maintaining the state’s net capital requirements, and some choosing not to sanction the use of surety bonds whatsoever. In states that do allow (or require) surety bonds, RIA owners need to know how surety bonds function, what the potential risks of having a surety bond may be, how their state’s surety bond and net capital bond requirements interact (and how to decide whether or not to buy a surety bond if they have a choice), and how to find the best surety bond provider to meet their needs. Though ultimately, surety bonds are appealing relative to net capital requirements because of their significantly lower cost – typically about 1% of the face amount, which means paying $100/year for a $10,000 surety bond.

While net capital and surety bond requirements provide some level of financial protection to RIA clients, that protection is minimal compared to what many clients may actually stake on their advisors’ recommendations. In practice, a legal claim by a dissatisfied client could result in a liability for the RIA that is many times greater than the state’s minimum financial requirements. Accordingly, RIA owners can protect themselves with additional layers of coverage (such as Errors & Omissions insurance) above the minimum amounts that may be required by the states in which they operate. Especially since a surety bond provider has the right to collect any client claims from the advisor, which means it does help ensure a client is made whole – similar to E&O insurance – but doesn’t actually protect the advisor’s own assets the way E&O coverage does!

The key point, though, is simply that because financial advisors are expected to give good advice, and can be held financially liable for advice that results in undesired financial outcomes for their clients, they must have the financial wherewithal available to cover any liabilities resulting from a client’s legal claims. State minimum financial requirements are one of the few ways to ensure that RIAs have assets available (or a surety bond in lieu of assets, where permitted) so clients can be compensated for any damages. But part of being a trusted professional is taking full accountability for the consequences of professional advice… which means it’s essential for the RIA to know not just how much coverage they need to secure to meet their state’s requirements (and in what form), but also how much additional coverage they may need to fully protect themselves (and their clients)!

Weekend Reading for Financial Planners (Nov 20-21)

November 19, 2021 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 CFP Board is increasing its efforts to enforce its requirement for CFP certificants to report information about their own misconduct or ethical violations… by increasing the sanction for failure to report the information from a private to a public censure. Notably, however, CFP Board will not (yet?) be imposing a fine or “administrative fee” on certificants for failure to report, as was proposed earlier this year. But it is reportedly still evaluating the measure, which would have broad implications, since imposing a fine positions the CFP Board as more of a regulator, and not “just” a standards-setting nonprofit organization?

Also in industry news this week:

The House Financial Services Committee approved a bill that would end the practice of mandatory arbitration clauses in brokerage and advisory client agreements, but the bill faces stiff opposition from the financial industry and Republican lawmakers (that makes its passage unlikely at this point)
FINRA released an overhaul of its Continuing Education requirements, increasing the frequency of its Regulatory Element requirement from once every three years to once per year, and creating a new program enabling individuals who temporarily terminate their registration to reinstate their qualifications within 5 years by completing CE requirements

From there, we have several articles on (the hidden costs of) investing, including:

How “free” investment services often obscure hidden costs, as highlighted by the recent class-action lawsuit against Schwab’s Intelligent Portfolio recommendation of high allocations to its proprietary (and profitable) cash sweep account
Why the practice of Payment-For-Order-Flow remains controversial and highly scrutinized by regulators, even when (as brokerage firms argue) it may actually result in better trade pricing for retail investors
How mutual funds can (and sometimes do) choose benchmarks that make their own performance look better by comparison, and even switch benchmarks to boost their relative historical returns after the fact, potentially misleading investors yet without violating any existing securities regulations

We also have a number of articles on how advisors can approach the upcoming holiday season:

A rundown of the types of gifts different advisors give to clients, from custom-made chocolate to donations to a client’s favorite cause
Why giving experiences rather than “stuff” is more likely to provide a happiness boost to the client who receives the gift
How advisors can write an effective and engaging holiday letter to clients

We wrap up with three final articles, all about the wide range of experiences Americans from different backgrounds have with money and the financial industry:

How culture and identity can impact an individual’s attitudes and behaviors toward money
A survey showing the disparate experiences individuals of different races have with the financial services industry
A study showing how the racial wealth gap could expand in the future, and potential ways advisors can improve financial outcomes for historically underserved groups

Enjoy the ‘light’ reading!

Kitces & Carl Ep 73: Introducing Financial Planning To Clients Who Previously (Only) Bought A Product

November 18, 2021 07:08 am 1 Comment CATEGORY: Kitces & Carl Podcast

Financial advisors who offer comprehensive planning services often attract prospective clients in a variety of ways – through their websites, with content creation, and by referral, to name a few. In these cases, prospects are generally aware of the types of services the advisor offers. However, for an advisor who buys a book of business from a life insurance agency, clients who have had policies sold to them may not be looking to work with an advisor on an ongoing basis, let alone be aware of comprehensive financial planning services at all.

In our 73rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how financial advisors who take over a book of business from a life insurance firm (or other product-sales-based business) can work with clients who may only be familiar with advisors working on commission, primarily focused on product sales.

Advisors who are concerned that such clients may consider a pitch for comprehensive planning as too ‘salesy’ can approach the situation by not pitching planning services right away. Instead, they can help shift their new clients’ mindset by simply helping the client assess whether the product they were originally sold is still appropriate for their situation. And by asking good questions and listening to the client, refraining from doing most of the talking themselves, advisors can engage in conversations that not only generate client trust but also provide valuable information about the client’s personal situation. Which helps advisors gradually introduce the concept of service (that will truly benefit the client) beyond sales, without coming across as too ‘salesy’.

Additionally, taking the time to discover a client’s potential pain points in their financial lives (e.g., worrying about running out of money in retirement or supporting a child’s education), can help the advisor demonstrate how they can add value by showing clients how to resolve those pain points, either in meetings with the client or through other resources provided by the advisor (e.g., emails, blog posts, or other marketing channels). While advisors might not get an immediate return from these efforts, they still ensure that clients are aware of how a comprehensive planning relationship can be helpful when they become ready to engage in one.

Ultimately, the key point is that when working with new clients who are only familiar with previous advisors focused on product-based sales, financial advisors can help shift clients’ mindsets about their role by generating trust and demonstrating to the client that they have their best interests at heart. Advisors can accomplish this by asking the right questions, listening closely, and identifying how their services can help solve the client’s unique and specific pain points. Importantly, because such clients may not be seeking a comprehensive relationship at first (at least initially), advisors should be prepared to play the ‘long game’ of consistently demonstrating their value!

Using Medicaid Annuities To Protect Retirement Assets When A Spouse Requires Long-Term Institutional Care

November 17, 2021 07:03 am 12 Comments CATEGORY: Insurance

According to the latest 2021 Genworth Cost of Care study, a private room in a nursing home costs almost $300/day, or nearly $9,000 per month. Fortunately, individuals in need of such institutional health care, who don’t have the means to pay for such care themselves, can generally rely on Medicaid to cover at least most of those long-term institutional care costs. However, as a means-tested program operated as a Federal-state partnership, Medicaid places extremely low limits not just on an individual’s income, but also on their “Countable Assets” that they are entitled to keep before they can qualify for coverage. Accordingly, those who will eventually rely on Medicaid to cover their cost of care must ‘spend down’ their own income and assets first… which can have a significant impact on the individual’s (and their families’) standard of living. Which raises the question of what planning can be done to help protect at least the other members of the family in situations where a Medicaid spend-down must occur.

While the limits on Countable Assets (including most of an individual’s assets such as cash, investments, bank accounts, and real estate) vary by state, the most commonly observed is a mere $2,000 in 2021. However, to allow a healthy spouse (with an ill partner applying for Medicaid) to maintain at least a minimal level of the couple’s assets and income to live on, the Medicaid rules include standards that set the amount of income and assets that can be maintained from the couple’s assets (and the institutionalized individual’s income) to maintain the healthy spouse’s standard of living without an obligation to spend them down for the ill spouse’s care.

To prevent couples from simply trying to ‘impoverish’ themselves to qualify for Medicaid, though, Medicaid rules include a five-year “Look-Back Period” (2½ years for California), which prevents recipients from simply giving away assets to (non-spouse) family members to meet Medicaid’s asset limits. Notably, though, when it comes to spousal income, the treatment is different, with the healthy spouse’s income generally being left out of the eligibility calculation altogether.

As a result, one strategy for married couples to preserve assets in light of the Look-Back Period for asset transfers, but the exclusion of the healthy spouse’s income, is to purchase a “Medicaid Annuity”. Essentially, assets in excess of the Countable Asset limit are used to purchase a Medicaid Annuity (such that the couple’s assets are within their allowed Countable Asset limit); then, annuity payments are made payable only to the healthy spouse. In doing so, the Countable Assets that would have otherwise been required to have been spent down to pay for the care of the institutionalized spouse are removed – but not as a gift, avoiding a look-back penalty period – and instead become income of the healthy spouse (which are effectively ignored for purposes of Medicaid eligibility).

Notably, though, not all states currently permit the use of Medicaid Annuities. And in states that do, to be Medicaid-compliant, the Medicaid Annuity must name the State (in those states that permit their use) as the remainder beneficiary for no less than the amount of Medicaid benefits it paid on behalf of the institutionalized individual. Which doesn’t limit the healthy spouse’s ability to leverage the Medicaid annuity for their own standard of living… but does mean that at least if both spouses do not survive the Medicaid annuity payout period, the State can recover Medicaid benefits it paid before those assets are bequeathed to subsequent heirs.

Ultimately, the key point is that for seniors or chronically disabled individuals who may need Medicaid benefits for their long-term care but fear the impact that spending down assets will have on their healthy spouse’s own standard of living, the Medicaid Annuity is a useful tool (at least in the states that permit them) to help the couple preserve assets by converting them into an annuity income stream. Which can be a valuable option to consider, especially in light of the last-minute ‘crisis’ nature that is often characteristic of Medicaid planning, when it’s too late to simply gift assets to family members by the time it’s necessary!

#FA Success Ep 255: Using An Advice-Only Approach To Quickly Grow With DIY Validators, With Cody Garrett

November 16, 2021 07:04 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 255th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Cody Garrett. Cody is the founder of Measure Twice Financial, an independent RIA based in Houston, Texas, who has managed to quickly grow to nearly $150,000/year in annualized financial planning fees in barely more than 6 months since launching.

What's unique about Cody, though, is his “Advice-Only” approach to financial planning, where clients don’t have the obligation, expectation, or even the option to have their investment managed by Cody’s firm… which has allowed him to quickly attract a waiting list of clients who may be Do-It-Yourselfers when it comes to implementation but are not Learn-It-Yourselfers and are happy to pay Cody for more personalized education.

In this episode, we talk in depth about how Cody first came to the Advice-Only model after talking to a frustrated prospect who had interviewed 10 fee-only advisors looking for someone who would just charge him for financial advice and couldn’t find anyone who would do the plan without an expectation of also managing his money, how Cody has managed to find a niche with a certain segment of Do-It-Yourself consumers who are quite ready and willing to pay financial planning fees for advice and education, and how Cody has been able to quickly generate a steady pipeline of new clients by immersing himself into Facebook Do-It-Yourself FIRE communities of extreme early retirees.

We also talk about what Cody actually does in his financial planning process for DIY clients, the 3-month 3-meeting process for which he charges a $6,400 planning fee, why Cody eschews using traditional financial planning software in order to earn his planning fees, and the 25-plus ‘one-pagers’ that Cody provides as his educational financial planning deliverables to clients.

And be certain to listen to the end, where Cody shares how building an Advice-Only model has allowed him to build the ideal practice for his own lifestyle, the way he’s quickly systematized his process to the point that he doesn’t need to work any more than 10 hours per week to generate nearly $150,000/year in financial planning fees, how his lean approach to building his practice with high-value clients means he’s able to take home more than 90% of his gross revenue after all business expenses, and what he’s looking to do with the rest of his time in giving back to the advisor and consumer communities he’s involved with now that he’s been able to achieve his lifestyle goals.

So whether you are interested in learning how Cody provides advice-only services to DIY investors, how he gains referrals by "giving it all away", or why he charges all of his clients the same amount, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Cody Garrett.

The 11 ‘Best’ Financial Advisor Conferences To Choose From In 2022

November 15, 2021 07:03 am 5 Comments CATEGORY: Conferences

The COVID-19 pandemic has forced a number of dramatic changes for the typical financial advisor, who suddenly found themselves meeting with all their clients virtually, managing their entire team virtually… and trying – usually unsuccessfully – to network with other financial advisors at virtual conferences. As in the end, while the transition to Zoom-based conferences was ‘reasonably’ successful at delivering content for advisors, it’s done very little to alleviate the sense of isolation that has come with 18+ months of a work-from-home environment and the near-total shutdown of financial advisor conferences.

And so as vaccination rates continue to rise across the country – now accelerating as age 5–11 vaccines begin to roll out – advisors are steadily returning to the office, conferences are preparing to re-open their doors for in-person events in 2022… and a lot of advisors are expressing a newfound desire to get out from their 4 walls, take a trip (or an extended vacation!), and reconnect with other financial advisors and get some fresh ideas and inspiration about ‘what’s next’ for their own advisory businesses. Which just raises one key question: if you’re going to go back out for a conference in 2022, for the first time in nearly 3 years… what’s the best conference to attend?

As someone that has been speaking at 50-70 conferences a year for almost 15 years myself, I’ve seen the good and bad of our wide range of industry events, which are spread across membership associations, broker-dealers, insurance companies, RIA custodians, product manufacturers, media companies, private events, and more. And as a result, I am often asked for my own suggestions of what, really, are the industry’s ‘best’ conferences to attend.

Accordingly, back in 2012, I started to craft my own annual list of 'best-in-class' top conferences for financial advisors, allocated across a range of different categories (as what’s best for solo advisors isn’t the same as what’s best for larger advisor enterprises, what’s best for fee-for-service advisors isn’t the same as what’s best for AUM firms, more technically oriented advisors will prefer different conferences than those seeking practice management or marketing ideas, etc.).

Having updated our annual conference list in every year since, I’m excited now to present my newest list of “Top Financial Advisor Conferences” for the upcoming 2022 year, including both some technical conferences, a wide range of practice management conferences, and highlighting a few never-before-seen events that are emerging for the first time in the coming year.

In addition, we've also launched a new "Master Conference List" of all financial advisor conferences in 2022, for both advisors looking for a wider range of events to attend, and for vendors looking for more conferences to exhibit at!

Of course, because of the disruption of the pandemic, it’s not entirely clear whether some events will show up in 2022 differently than they did the last time they were in person (which for most, was all the way back in 2019!). Nonetheless, as long as you find the conference that is the right type for you, the odds are good that your experience will be good when the content is more relevant, and the other attendees are similar to you (because they, too, were looking for the same thing!).

So I hope you find this year’s 2022 conferences list (and our new Master Conference List) to be helpful as a guide in planning your own conference budget and schedule for next year, and be certain to take advantage of the special discount codes that several conferences have offered to all of you as Nerd’s Eye View readers!
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Weekend Reading for Financial Planners (Nov 13-14)

November 12, 2021 02:07 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with a report from NASAA finding that the SEC’s Regulation Best Interest rule that took effect on June 30, 2020, has so far failed to achieve its stated goals of requiring broker-dealers to act in their clients’ best interests while making investment recommendations. Among other things, the report found that broker-dealer firms actually offered a higher number of “complex, costly, and risky” investment products than before the rule was implemented (and failed to discuss less costly or risky alternatives when recommending those products), still offered contests to incentivize advisors to sell more products (and thus creating a conflict of interest when recommending strategies to clients), and failed to fully update their policies and procedures to comply with the new rule. But ongoing confusion about Reg BI’s provisions means that the SEC will likely need to provide more guidance to enable more broker-dealers to come into compliance.

Also in industry news this week:

The SEC issued a Risk Alert detailing the issues it found with RIA firms’ advisory fee billing, which included inaccurate fee calculations, inadequate disclosures, and (a lack of) policies and procedures to ensure clients were charged the correct amount
In a different Risk Alert focusing on so-called 'robo-advisors', the SEC stated that it had found deficiencies in nearly every digital advisory firm it had examined, including the failure to collect enough client information to truly make (and monitor) recommendations in the client’s best interests

From there, we have several articles on practice management, including:

Why it is important for advisors to systematize their processes, even if it takes time to implement the new systems, and how to get started
How financial advisory firm owners can get their firms out of a ‘rut’ by focusing on staffing, technology, and reflecting on their own purpose
Why it is important for firm owners to take time to meet directly with their staff, and how to make those conversations more effective

We also have a number of articles on retirement planning:

How the flexibility financial independence provides can benefit both parents and their children
How a personal family crisis led one advisor to shift from focusing on the quantitative aspects of retirement planning with clients to embracing the qualitative impacts of the decision to retire
How the “End of History Illusion” shows that an individual’s interests and goals ten years from now might be very different from their preferences today, which makes it especially hard for clients to predict what they may enjoy in retirement until they’re almost already there.

We wrap up with three final articles on the themes of charitable giving, selflessness, and gratitude:

How generous acts like charitable giving actually produce physiological changes in our bodies and brains that make us happier and healthier
New research shows that people really do become more generous with age
How reflecting on the abundance we have – and challenging ourselves to occasionally live without it – can help restore the gratitude that declines as we accumulate more of the things we want

Enjoy the ‘light’ reading!

Making Fulfilling Financial Choices By Remembering Past Experiences

November 10, 2021 07:01 am 0 Comments CATEGORY: Client Trust & Communication

When individuals make decisions, they rarely weigh all possible outcomes to make their choice. Instead, while we may like to think that this is how we make decisions, the reality is that our brains simply don’t have the capacity to consider all of the possible variables and outcomes involved in most decisions. Further, sometimes our decisions are based on fleeting recollections of how we felt while experiencing something, which often has little to do with how much we are actually enjoying what it was we were experiencing (e.g., remembering that a movie was good because of the fun experience we shared with friends, as opposed to the movie actually being good). While neoclassical economics has examined theoretical models of effective decision-making involving what we should do and how we should calculate whether to make one choice or another, behavioral economics suggests that what we actually do is quite different because we generally can’t really make calculated decisions in an unbiased manner, given the (strong) influence of our feelings and emotions.

Researchers have developed a decision-making framework based on three ways that individuals can make use of “Utility”, which describes the potential happiness that can be brought about by a particular choice. Expected Utility considers whether an individual thinks they will be satisfied by a potential future outcome, and decisions are essentially made based on pure conjecture and subjective opinion (e.g., I want the vanilla ice cream because I think it sounds good right now). Experienced Utility, on the other hand, is based on how an individual remembers the feelings when they experienced the decision being considered in the past, though it does not generally involve the actual experience itself (e.g., I want the vanilla ice cream because I remember how I had so much fun with my friends when we went out for vanilla ice cream last week). Thus, Experienced Utility is not often a useful tool to make important, objective decisions. On the other hand, with Remembered Utility, we remember the choice itself when we made it in the past, and its specific aspects that actually brought us pleasure or displeasure (e.g., I want vanilla ice cream because I remember how delicious it was and how much more I enjoyed it over the chocolate ice cream), which makes it particularly effective as a decision-making framework.

Researchers have also established that when we use Remembered Utility, we tend to remember experiences in three discrete phases (the starting event, the ‘peak’ positive or negative event, and the end event), and our decisions are generally only influenced by the peak and end events. This phenomenon, called the “Peak-End” Rule, has shown that the way an experience associated with an unpleasant ‘peak’ is recalled is more positive when the end event can be perceived more positively relative to the peak (i.e., “it was bad for a while, but it turned out better in the end”). This difference in how these two events are perceived (the end relative to the peak) can have a significant impact on how we later feel about the event and our willingness to do it again. For example, even though the peak event of giving birth can be excruciatingly painful, the end event of holding the baby after it is born is so positive for most new mothers that they would be willing to have a second child.

In financial planning, the Peak-End Rule can be used to help clients overcome challenging tasks that they imagine will have negative outcomes (potentially due to their irrational use of Expected Utility) by helping them identify similar challenges that were resolved positively and comparing the peak and end events to the current situation, which helps clients realize that positive outcomes are possible. Additionally, clients who aren’t sure whether they are choosing realistic goals for their future plans might consider testing out their options to have an appropriate basis for using Remembered Utility (e.g., suggesting that a client who wants to budget for an annual 3-month European vacation during retirement try it out now, to see if the location and length of time is something that they will actually enjoy before they create a long-term plan committing to such a large budget item).

Ultimately, by understanding how individuals tend to make decisions, financial advisors can help clients plan their futures by using the Peak-End Rule and Remembered Utility not just to help their clients to formulate suitable financial goals that will be most likely to bring them happiness, but also to find workable solutions to attain those goals!

#FA Success Ep 254: Maximizing A Firm’s Human Capital To Better Scale Its Financial Advice, With Eliza De Pardo

November 9, 2021 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 254th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Eliza De Pardo. Eliza is the founder of her eponymous advisor consulting firm, with a particular focus on working with mid-to-large-sized independent advisory firms.

What's unique about Eliza, though, is the focus she takes on the human capital issues that arise as advisory firms try to scale up, recognizing that a financial advice business is first and foremost a service business, which means attracting, retaining, and developing the firm’s people is the biggest key to long-term success.

In this episode, we talk in depth about the unique challenges that advisory firm founders face as they grow and scale their advice businesses, including how the ability to attract and serve clients is so fundamental to growing the first $1M of revenue but takes a back-seat by the third million of revenue (and all the growth thereafter), why it’s the advisors who are most effective at moving away from the client-facing work to develop their team management skills instead that tend to have the most success at scaling their firms, and why even as advisory firm founders take on a greater focus in management as they grow, the long-term key to scaling is about getting comfortable with the scariest hires of all – dedicated management, including a COO and eventually a CEO that isn’t the founder – to create the infrastructure necessary to grow the firm to the next level.

We also talk about some of the key business productivity metrics that advisory firm owners should monitor as they grow, including their average revenue per advisor (which across all firms averages about $500,000 per revenue-generating professional), their average revenue per staff (which leads advisory firms to hire a new team member every $250,000 of new revenue), and how one of the biggest keys to scaling up is about shifting the ratio of non-revenue-producing to revenue-producing team members from a 1:1 ratio when the firm is small, to a 2:1 ratio as it approaches $1B of assets under management.

And be certain to listen to the end, where Eliza shares her own 15-year journey through the advisory business in building her career as a practice management consultant, the parallels between the challenges in the consulting business and the advisory business when you lose out on a big prospect (and why you have to learn not to take those misses personally), and why most advisory firms need to learn to hire sooner but not necessarily faster (because no matter how much you need the next hire, it’s still crucial to ensure you find someone who will represent the firm well to the end clients it serves).

So whether you are interested in learning how hiring a COO affects advisor well-being, how to know when to scale up and hire, or how to leverage "non-revenue" staff for firm growth, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Eliza De Pardo.