Kitces.com - Advancing Knowledge in Financial Planning

#FA Success Ep 317: From Individual To Partnership: Managing The Merger Transition From Solo Practices, With Jennifer Climo

January 24, 2023 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Jennifer Climo Podcast Featured Image FAS

Welcome back to the 317th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jennifer Climo. Jennifer is the CEO and a Senior Advisor for Milestone Financial Planning, an independent RIA based in Bedford, New Hampshire, that oversees $360 million in assets under management for 225 client households.

What's unique about Jennifer, though, is how, after more than a decade of building her own successful solo practice, she intentionally decided to merge her practice with another solo practitioner when an unusual crisis opportunity presented itself, and handle the more complex business management dynamics that followed, so that she could fulfill her goals of scaling and growing her practice beyond her and building an enterprise that would outlive her.

In this episode, we talk in-depth about how, after the sudden passing of a successor for a close friend and solo advisor that she met through a local study group of NAPFA advisors, Jennifer decided to merge their practices so that she could not only help her advisor friend and the clients she served, but create a positive opportunity for Jennifer’s own practice to scale up, how, during the first year after the merger, Jennifer realized her new partner still needed a needed a succession plan, and created a unique buyout structure that offers a 40% down payment and retirement payments of 15%-of-profits for life (which also helped to entice future partners who only needed to cover 40% of the purchase price buy-in themselves), and how Jennifer’s unique succession structure has now attracted another of her NAPFA study group partners who was also looking to retire, which prompted a second merger and has allowed her to grow and scale her business even further.

We also talk about how, in addition to her unique succession structure, Jennifer created an operating agreement for her firm (based on the teachings of Philip Palaveev and Mark Tibergien) when she added a partner, that outlines the financial management of their P&L as targeting 40% advisor compensation, 35% overhead expenses, and 25% in profit margins, how, though the merging of the practices created several pain points for Jennifer and her partners (as they all used different advisor technology and had differing fee schedules), she leveraged these issues as opportunities to find the right technology for the blended practice to develop better, easier, and more efficient processes, and eventually was able to incrementally raise fees and increase the firm’s overall profitability as they served clients more effectively, and how, even though Jennifer’s initial intention to join her NAPFA study group was to glean insight on practice management techniques and processes from other advisors, her continued connections with those advisors over the years created a close-knit and trusted community that has proven to give Jennifer even greater opportunities for her business in the long run.

And be certain to listen to the end, where Jennifer shares how she was surprised at how far she has come in her career and business as though she admits she put in the hard work and dedication, she never realized it would lead to her running a multi-million-revenue practice and doing so as a female business owner, how, after discovering a valued, long-time employee was unhappy and struggling, Jennifer learned the hard way the importance of dedicating time to not only teach and train employees, but to also listen and communicate properly so that she can create a better work environment and happier employees to aid retention, and why Jennifer feels it’s important for newer, younger advisors to not be deterred by naysayers in life and in the financial services industry, and instead, should focus on the skills they do have and how they can use those skills to advance in their own careers.

So, whether you’re interested in learning about how Jennifer handled the logistics of merging two practices in just 7 years, how Jennifer structured ownership agreements and profit splitting, or how Jennifer plans to continue to scale and grow her business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jennifer Climo.

Repurposing Digital Marketing Content: How I Grew My RIA Revenue To $16K/Month In Less Than 14 Months

January 23, 2023 07:03 am 0 Comments CATEGORY: Marketing

An important truism about marketing is that to be effective, the marketer’s message needs to connect with the audience it intends to reach. Traditional forms of marketing used by financial advisors – including networking with one’s friends and family members, cold-calling, and paid advertising – have been effective at reaching a ‘typical’ client base of older, wealthy retirees. However, for advisors looking to reach a different type of client – such as those in younger generations like Millennials, who often have an aversion to such straightforward sales tactics – finding a message that resonates often requires a more tailored approach that speaks to the specific audience and what they are going through.

One way to provide such a message is to create educational content, in the form of a blog, podcast, or social media posts (or a combination of the three), on topics that are relevant to the financial lives of the types of clients the advisor is trying to reach.

In this guest post, Thomas Kopelman, financial planner and co-founder of AllStreet Wealth, writes about the keys to becoming an effective content marketer, including building skills at creating multiple forms of content, repurposing content to use in multiple ways, and tracking progress to gauge the performance of content over time.

While good educational content can be a powerful way to generate interest from potential clients, it comes with its own challenges. Because not only does the advisor need to keep up a steady stream of content to engage with their audience, but the content also needs to be good – that is, to be relevant and interesting enough for the audience to want to come back for more. Furthermore, with the sheer number of available outlets for content marketing, it can also be easy for advisors starting out with content marketing to try producing content in too many places at once, ultimately spreading their resources too thin and failing to hone their skills with any one form of content.

A better approach may be to introduce each form of content one at a time – in other words, to initially focus solely on one form of content long enough to build up skill and confidence in that medium, then add another form and learn to do that one well, and so on. Not only does this approach help advisors ensure they have a solid grasp of each form of content before moving on to the next one, but it can also build up a sizeable foundation of content that can be repurposed in the future (e.g., reposted or reshared on social media). This can maximize the potential return on the time and effort it takes to create each blog post, podcast, or newsletter.

Ultimately, what’s important to remember is that it often takes time for the effects of quality content marketing to come to fruition, meaning the most important lesson is to stick with it. A good piece of content, whatever its form, might not immediately convince someone to become a client... but what it can do is cause the advisor’s name (and expertise) to stick in their head so that when they do come to a pain point that requires an advisor’s expertise, they know who to reach out to.

Weekend Reading For Financial Planners (Jan 21-22)

January 20, 2023 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 several states are considering a series of tax hikes targeting higher-income and ultra-high-net-worth residents after similar proposals failed to pass at the Federal level. While it remains to be seen whether the measures will actually be enacted, proposed measures include raising income and capital gains tax rates, instituting wealth taxes, and reducing the state estate tax exemption, potentially creating future planning opportunities for advisors with clients in those states.

Also in industry news this week:

While the number of RIA M&A deals increased in 2022, the size of these deals declined, perhaps reflecting challenging market and economic headwinds
A recent survey suggests that nearly half of financial advisory clients have changed advisors or have considered doing so since the start of the pandemic and that portfolio performance has become a primary consideration in their decision-making process

From there, we have several articles on practice management:

Why advisory firms might first consider whether they are using their current tech stack optimally before looking to new software solutions
How advisory firms can better organize and track their data to avoid drowning in a sea of numbers
Why firm culture and opportunities for career advancement could be more important than starting salary for many financial planning job candidates

We also have a number of articles on cash flow and spending:

A review of several key psychological factors that drive clients’ spending decisions
How consumers are potentially losing money by keeping significant cash in savings accounts at major banks, and the opportunity for advisors to create cash management strategies for clients
How advisors can support clients whose children suffer from ‘failure to launch syndrome’

We wrap up with three final articles, all about the financial advice industry:

Why the competition for talent, a pullback in private equity funding, and firms balancing efficiency with effectiveness could be key trends within the financial advice industry in the coming year
How consumers could benefit from fee-only advice within the insurance industry
The benefits of taking on leadership positions within financial planning industry associations

Enjoy the ‘light’ reading!

Is Private Debt Worth Considering As An (Alternative) Asset Class In Client Portfolios?

January 18, 2023 07:07 am 0 Comments CATEGORY: Investments

Many investors are familiar with private equity as an alternative asset class, which is popular with certain high-net-worth and institutional investors as a vehicle for diversification and a source of potentially higher risk-adjusted returns than what is available on the public market. However, less well-known is the related but distinct asset class of private debt, which, like private equity, focuses on opportunities outside of what is traded on the public market but deploys its capital in the form of credit rather than taking equity stakes in companies. And in the midst of a rough market for publicly traded debt, high-net-worth individuals (and their advisors) who might be seeking alternatives for the fixed-income portions of their portfolio may be curious about what private debt might have to offer.

While public market and private equity asset classes are much more thoroughly researched, research on private debt providing reliable data on returns, volatility, fees, and other characteristics has been relatively scarce. However, a recent paper by Pascal Böni and Sophie Manigart in the Financial Analysts Journal sheds new light on how private debt has performed over time and provides insight into what factors advisors and their clients should focus on when considering private debt for their portfolios.

One of the paper’s key takeaways is that although private debt as an asset class has delivered higher risk-adjusted returns compared to traditional fixed-income investments, there is a wide range of outcomes between individual private debt funds, with a relatively small cluster of top-performing funds delivering much of the asset class’s overall outperformance. And while the maxim “past performance does not indicate future results” holds true for traditional asset classes, the reverse has proven at least somewhat true for private debt: Among private debt funds and the General Partner who manages them, prior performance was a significant indicator of future performance, with funds having a good performance history being the most likely to outperform in the future. Funds with GPs who had no history of prior private debt fund management had some of the worst performance, suggesting that not only do past returns but also the skills and experience of General Partners have much to do with which private debt funds are likely to have the best returns.

For advisors, examining the management and culture of a private debt fund can be an important way to provide value to clients through a thorough due diligence process. This can include assessing the experience and performance history of the fund’s GP and how the fund has achieved its returns (e.g., by making concentrated bets or through a more diversified approach). And while the choice of a fund may be the most significant decision regarding private debt, advisors can add value in other ways as well, such as by incorporating private debt into a client’s existing asset allocation strategy, optimizing the asset location of a private debt fund, and analyzing the fund’s fee structure.

Ultimately, what’s most important is that clients have a solid understanding of the risks involved with investing in private debt versus remaining in the public markets. Namely, the illiquidity of private funds (which can keep clients’ funds locked up for 10 years or more) makes them most appropriate for clients with a long-term investing horizon and with other liquid funds for short-term and unexpected needs. Advisors who can help their clients navigate these important considerations, and keep the client’s focus on the long term, can be an invaluable aid in ensuring those clients can realize the potential advantages that private debt can make possible!

#FA Success Ep 316: Building A COO Society To Help Advisory Firms Scale Up Their Efficiency, With Matt Sonnen

January 17, 2023 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 316th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Matt Sonnen. Matt is the founder & CEO of PFI Advisors, a consulting firm based out of Redondo Beach, California, that assists wirehouse advisors with the operational transition support they need to break away, and trains and consults with the COOs – the Chief Operating Officers – of independent RIAs to better build their own infrastructures, processes, and culture to scale up their advisory businesses.

What's unique about Matt, though, is how he and his wife have translated the years of hands-on support they’ve provided to independent advisory firms to improve their operations, tech stack, and overall scalability, into creating an entire community for the industry’s Chief Operating Officers – aptly dubbed as PFI’s “COO Society”.

In this episode, we talk in-depth about how Matt and his team first learned what it really takes to stand up an established independent advisory firm ‘from scratch’ when it breaks away from a wirehouse and has to quickly implement an entire operational infrastructure from office space and phone systems to CRM, investment, and custodial technology, how Matt and his team adapted their stand-up-from-scratch breakaway experience to help RIA owners by implementing their own 10-page “Operational Diagnostic” questionnaire to fully understand each advisory firm’s operational strengths and gaps across a wide range of domains from better onboarding with the firm’s custodian to refining its systems to deliver financial planning to clients, and how Matt ultimately built his COO Society, an online coaching program and community for those Operations professionals within independent RIAs who are focused on those key technology, human resources, and business administration issues, to help them to navigate growth at their own RIAs… and become better more well-rounded COOs themselves.

We also talk about how Matt stumbled into his own advisory career in the late 1990s as a 22-year-old recent college graduate after a recruiter found him a job as an operations point person for an ultra-high-net-worth top-producing team of four brokers at the Beverly Hills branch of Merrill Lynch, how after admittedly making the mistake of leaving Merrill to sell insurance on his own, Matt was recruited back by his former Merrill team in 2008 to help them found and launch Luminous Capital, one of the very first breakaway independent RIAs which began with $1.7 billion of client assets, and how, after years of working closely with RIAs affiliated with Focus Financial to consult on their operational efficiencies, Matt was inspired (and with a little nudging from his very entrepreneurial wife) to launch PFI Advisors so that he could offer his wealth of operations knowledge to consult with a wider range of breakaway brokers and RIA owners… and gain the flexibility and control that independence provides to run his consulting business however he wished as he started his own family.

And be certain to listen to the end, where Matt shares how the unexpected illness (and subsequent tragic death) of his daughter Layla impacted Matt and his wife while they were still in the early stages of launching PFI Advisors, how Matt has learned through trial and error that as a consultant and business owner, gaining new business is more than just stating what your firm does for those it serves, and instead is about explaining how those service offerings can solve for the specific pain points they’re looking to solve, and how Matt stays motivated through the words of the successful basketball coach from his alma mater that success can’t be sustained by simply looking at whether you’re winning, and instead is ultimately about finding self-satisfaction in knowing that you’re pushing your own limits by truly doing the best that you’re personally capable of.

So, whether you’re interested in learning about how Matt and his team help advisors break away from wirehouses to stand up their own RIAs, and RIA owners develop more efficient, scalable processes, why Matt and his wife decided to launch their own consulting firm and subsequently, the COO Society, or how the COO Society has developed a community to foster grow and knowledge to make better COOs in the advisory industry, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Matt Sonnen.

Can Time Blocking Make Advisors Happier And More Efficient?

January 16, 2023 07:02 am 0 Comments CATEGORY: Practice Management

One of the most important aspects of emotional wellbeing is having a feeling of control over one’s time. Indeed, financial advisors often describe one of the benefits of financial planning as helping people take control of their time by giving them the financial freedom to do what they enjoy. And likewise, for advisors themselves, one of the ways to stay happy and thriving is to have the ability to spend time doing what one finds is most valuable or fulfilling.

The 2021 Kitces Research Report on What Actually Contributes To Advisor Wellbeing reinforced the idea that the happiest advisors feel in control over their time. Study data showed that ‘Thriving’ advisors – those who reported high levels of overall wellbeing – spent more time on ‘core’ client activities (such as client meetings and developing financial plans) and less time on other activities like administration and back-office tasks when compared to ‘Struggling’ advisors who reported lower wellbeing. Thriving advisors also worked fewer hours each week than their struggling counterparts, suggesting that they not only spent more time on fulfilling client work but also had more time to devote to fulfilling pursuits outside work.

But it wasn’t just the hours spent on each task that mattered for advisor wellbeing. The amount of autonomy that advisors felt over how they spent their working hours – that is, their ability to choose what tasks they worked on over the day – led to them being able to actually spend their time doing work they enjoyed. And while the ability to enjoy this autonomy might be dictated by some factors (like experience) that are out of the advisor’s control, there are methods that all advisors can use to optimize how they manage their schedule, which could make enough of a difference to see a meaningful improvement in wellbeing.

One strategy advisors can use is time blocking – i.e., blocking off stretches of time in one’s calendar for specific tasks or even for a single project. Creating this focused time not only helps eliminate distractions and inefficiencies caused by frequently bouncing between tasks; it can also make the advisor more efficient and effective at their tasks when they are immersed and engaged in their work without interruption.

There are several ways that advisors can implement time blocking in their work. ‘Theme Days’ give each day of the week a specific purpose, so tasks can automatically be sorted into the day they ‘belong’ to. Alternatively, the ‘Ideal Week’ method incorporates business and personal goals for advisors who want to work less than the traditional workweek. And ‘Surge Meeting’ schedules block off certain months or weeks of the year for advisors to get in all their client meetings, freeing up the rest of the year for other projects or even for time off.

Regardless of the method, time blocking works best when the advisor can remain undistracted by other tasks. This might require some creativity in finding ways to eliminate distractions and organize tasks to ensure they are dealt with at an appropriate time rather than buried in an inbox. Ultimately, though, it may require some fine-tuning (and practice!), time blocking can be the path to achieving greater autonomy – and better wellbeing! – in the year ahead.