Nerd's Eye View blog

Weekend Reading for Financial Planners (Oct 23-24)

October 22, 2021 02:28 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with Charles Schwab CEO Walt Bettinger’s comments at this week’s virtual Schwab IMPACT conference that direct indexing is a ‘freight train’ that is coming for the mutual fund and ETF industry and that advisors can survive and thrive by offering increasing personalization to their clients… just as Schwab has indicated that it is working on its own “Personalized [Direct] Indexing” solution, and signaling that it is hoping and expecting RIAs using its platform to use Schwab’s new Personalized Indexing solution with their own clients (in lieu of ‘traditional’ ETFs and mutual funds?) in the years to come. Which given Schwab’s sheer size and reach, could further amplify the adoption of direct indexing and its likelihood of success in the first place?

Also in the industry news this week:

A new RIA industry event, Future Proof, is attempting to upend the traditional conference with beachfront stages and a more festival-like atmosphere.
Reports this week suggested that the size of President Biden’s proposed infrastructure legislation could be shrinking, and with it potentially some of the proposed tax increases intended to pay for it (putting financial advisors on their toes about which planning opportunities will remain on the table, or not, in the final version).

From there, we have several articles on the first Bitcoin Futures ETF that debuted this week, including:

How the new Bitcoin Futures ETF makes it easier for advisors to get Bitcoin exposure in client portfolios.
Why some advisors are skeptical of the purported benefits of the futures-based Bitcoin ETF.
A warning that the structure of the Bitcoin Futures ETF could make it susceptible to destabilizing volatility.

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

How financial advisors can provide value to clients considering changing jobs during the ‘Great Resignation’.
Why getting a raise can have dramatically positive compounding effects on an individual’s lifetime financial situation.
Why people judge other’s budgets, and how advisors can facilitate communication regarding budgeting priorities.

We wrap up with three final articles, all around the theme of managing productivity and stress in the new virtual/hybrid work environment:

The tactics companies are using to try to manage employee burnout in a semi-virtual world.
Why companies might need to redefine how they measure productivity in a hybrid office environment.
How individuals can use mindfulness to recognize the difference between being (dangerously) overwhelmed and ‘just’ being challenged in a more healthy way.

Enjoy the ‘light reading!

Kitces & Carl Ep 71: When You Want To Delegate But Don’t Want To Manage

October 21, 2021 07:04 am 1 Comment CATEGORY: Kitces & Carl Podcast

Many long-time solo financial advisory firm owners with successful practices are eventually faced with the choice either to continue growing their practice into a larger-scale business, or to deliberately level growth so that they can maintain a solo ‘lifestyle’ practice. Owners who choose not to further grow their firms tend to target a different set of goals in comparison to growth-oriented owners looking to increase revenue and clientele, as these lifestyle practice owners often have goals that involve having more time and flexibility to enjoy life outside of the firm. For these owners, this can mean that they will eventually need to consider hiring team members or using outsourced solutions to help them with the tasks that they may dislike or consider too time consuming. However, small firm owners who may not have had to rely on other employees may be concerned about the extra work that comes with hiring employees, and how it might detract from their flexibility and ability to maintain their ideal vision of a lifestyle practice.

In our 71^st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how firm owners can approach the hiring decision by first considering their own goals and then deciding what kind of assistance they need to maximize their freedom while maintaining a healthy practice.

The first step for the owner is to be clear on how they want to maintain their firm. This introspection can help the owner identify their priorities so that their actions align with the right goals, and can serve as a check against ill-suited goals that might simply be based on what other businesses may be doing. This exercise can also help the firm owner draw out what exactly makes them happy, which, for many firm owners, can simply be to have a certain level of flexibility between their professional and personal lives.

Then, depending on how they want to operate their firm and the goals they have in place, firm owners can prioritize the range of responsibilities they want to keep for themselves and those they are willing to delegate. For some advisors, this could mean figuring out how to free up space in their schedule, whether it be through extending the interval between investment performance reports or finding ways to reduce time spent on email during the day. If the owner decides to hire a new employee to manage some of the firm's responsibilities, they do not necessarily need to spend more time in the office working with the new hire or grooming them to take on ever-increasing responsibilities. Technology provides opportunities for fully virtual employees, and firm owners might be surprised to find out how many potential candidates would thrive at the tasks the owners themselves do not enjoy!

Another option to help owners delegate responsibilities is to outsource tasks, potentially giving them to a part-time virtual employee or by tucking into a larger firm that can handle back-office responsibilities. This can allow the firm owner to spend more time on client-facing activities that may be the most enjoyable part of their work, while getting the back-office support they need to sustain those client relationships as well as their desired level of work-life balance.

Ultimately, the key point is that by first considering their own goals and the range of tasks to keep or delegate, firm owners who are considering outside help may find it easier to decide if they should hire a new employee or outsource the work. Regardless of the reason – whether it be a firm owner who chooses to maintain a small lifestyle practice or to transition from a solo practice to a business enterprise – prioritizing the most important work processes and streamlining (or getting rid of!) those that are unproductive are helpful exercises for any advisory firm!

Adjusting Monte Carlo Success Thresholds By Tolerance For Spending Volatility

October 20, 2021 07:03 am 8 Comments CATEGORY: Retirement Planning

Monte Carlo simulations are an important part of an advisor’s toolbox when constructing a client’s financial plan, as they demonstrate the wide range of potential outcomes that a retiree might experience. These simulations inform the retiree of how much they can spend in the short-term to avoid plan failure in the future, and they also suggest corrective spending levels along the way as plans get updated – an immensely difficult task given that no one knows precisely what will happen. Advisors can assess a number of important variables through Monte Carlo simulations, the most important of which is the frequency of accomplishing the client’s financial goals.

However, when constructing plans that are guided by probability-of-success outcomes, advisors walk a delicate line. Creating a plan with a 100% chance of success, for example, may assume that the retiree has no flexibility in spending and thus will not recommend spending increases… which would present a risk that the retiree may die with too much of their money remaining in the bank, having missed out on experiences, memories, and comforts they could have had. On the opposite side, creating a plan with a higher chance of failure can make clients uncomfortable, given the uncertainty of the future. Accordingly, advisors strive to find the right balance between these two scenarios, and while practices vary in the industry, many advisors tend to target a fixed threshold— say 90% – to determine whether a plan is strong enough to actually implement.

One key assumption of the 90% threshold is that clients should accept a 10% probability that they may need to course-correct at some point in the future to achieve their goals, should investment returns prove unfavorable. While a 90% success threshold might be a suitable threshold for many clients, advisors should recognize that every client has a different willingness and ability to take corrective action when needed, and perhaps a one-size-fits-all approach should be reconsidered. Some clients may prefer a plan that requires course correction 50% of the time, while others may shy away from any chance of failure at all.

Fortunately, advisors can adopt simple processes to identify appropriate (and uniquely customized!) target success thresholds for their clients. Conversations with clients about risk management can evolve, such that advisors shift away from a focus on the unpredictable movements of the market and, instead, move toward more controllable variables within a financial plan (e.g., discretionary spending categories), assessing the corrective actions that a client would be willing to take if needed. By identifying a client’s willingness and ability to modify spending, advisors can utilize a more appropriate and customized Monte Carlo success rate that reflects the client’s true tolerance for risk.

Ultimately, a client’s retirement plan will be more effective when it largely comes down to their comfort with risk, rather than the advisor’s comfort with risk. Because if the scenarios have been discussed and both parties are comfortable with the plan – along with the adjustments that may be needed to stick to that plan – then clients will feel more confident and willing to take the necessary steps to deal with the market fluctuates in the short-term. And, of course, markets can also exceed expectations… not all adjustments need to be negative!

#FA Success Ep 251: Accelerating Inbound Referrals By Planting Better Seeds With More (Radical) Relevance, With Bill Cates

October 19, 2021 07:02 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 251st episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Bill Cates. Bill is the founder of Referral Coach International, which helps financial advisors attract more of their ideal clients through referrals.

What's unique about Bill, though, is that he teaches his financial advisors clients how to generate more (and better) referrals from their clients by focusing their communication and messaging in such a way that makes them more referrable in the first place, and then not following that up by asking for referrals but seeking “introductions” instead.

In this episode, we talk in depth about why Bill makes a clear distinction between a (less meaningful) referral where a client gives their advisor someone’s contact information, and an introduction, where the client actively introduces someone to their advisor, the two main reasons Bill says that clients are reluctant to give introductions and how advisors can proactively address those concerns by communicating with clients how referrals are handled internally, and how Bill suggests that advisors can plant the seed for clients to be receptive to providing introductions by periodically checking in with clients to ask for their honest feedback not just on whether they’re satisfied with the advisor’s service but whether it is meeting their expectations.

We also talk about Bill’s advice on the importance of making sure that, when asking clients for introductions, that the conversation frames the discussion in such a way that clients can visualize the specific types of people that would be a good fit, why Bill recommends that advisors put some effort into not only helping clients reach their more traditional financial planning goals but also discovering what’s on their bucket lists and helping them work towards those goals as well, and how, by marrying a target market with a specific client category, advisors can hone their messaging in such a way that they can achieve, as Bill calls it, “radical relevance”.

And be certain to listen to the end, where Bill shares why, despite his own anxiety around the sustainability of his own business early on, he decided to double down on his own niche of serving financial advisors (and how keeping a narrow focus ended out being the right decision for both him and his business), Bill’s perspectives on how financial advisors should actively own the value that they offer to their clients when helping them make good financial decisions that they wouldn’t have otherwise made without their help, and why, in a post-pandemic world, the need for financial advisors to have messaging that is as clear and relevant as possible is more important than ever.

So whether you’re interested in learning how Bill honed his business process by turning “asks” into proactive promotions, how he frames his own skillset to clients to cultivate better referrals, or how he makes clients come to him, rather than the other way around, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Bill Cates.

The One-Page Financial Plan: Focusing Advice On What Matters Most

October 18, 2021 07:05 am 10 Comments CATEGORY: General Planning

In the delivery of “the financial plan,” advisors have traditionally presented the thick, leather-bound, firm logo-embossed, three-inch binder to clients. On top of being a tool to present “the plan” to clients, this also was an outward demonstration of the sheer depth of analysis the advisor completed to compile this plan; a physical manifestation of the advisor’s “value”. Yet while that depth of meticulously compiled information can be helpful, it also comes with drawbacks. As, in practice, the especially thorough financial plan can be overwhelming to clients, if they open it at all. And at the end of the day, in-depth financial planning analyses can also quickly become out-of-date. To address this challenge, several years ago financial advisor and client communication guru Carl Richards made the alternative case – in his book The One-Page Financial Plan – that all of a client’s “need to know” information ought to be distilled into just a single page instead. In other words, the advisor would simply deliver a One-Page Financial Plan.

It’s worth noting that a One-Page Financial Plan (OPFP) doesn’t mean that the three-inch binder’s worth of information doesn’t exist; the OPFP is an alternative for a deliverable, not an alternative to the work itself. It’s about making a distinction between what advisors could share with a client, versus what a client needs (and really wants?) to know. Which means the creation of an OPFP is all about focusing that limited space to hone in on what each client truly needs to see and wants to talk about.

Beyond the sheer time savings of not producing such a lengthy physical financial plan deliverable, one of the major advantages of the OPFP is its ability to be a “living plan”. Because the traditional financial plan is often so long and time-consuming to produce, most firms only update it once every several years. By contrast, the OPFP can easily be updated on an ongoing basis every year, or even at every check-in meeting with the client throughout the year – which makes it easier for an advisor to pivot in unforeseen circumstances and disruptions (such as, for example, a pandemic!). Rather than reacting to a few years’ worth of changes, advisors can proactively adjust and update the plan as life happens.

Because the OPFP is a living document, a first draft can be constructed as soon as an advisor begins meeting with a new client, simply using standard Document and Spreadsheet tools (e.g., Word and Excel in Microsoft, or Docs and Sheets in Google). As while the Plan will shift a lot over the first few weeks, it nonetheless provides a framework that advisors and clients can work through together to reach mutual clarity. And once an OPFP has been refined and has buy-in from both an advisor and client, it can even become the centerpiece of meetings, because both parties agree that the OPFP has the most important information in order to make informed decisions.

Simmering down a financial plan to one page may be a hard adjustment at first, but it is certainly worth pursuing as a time- and information-efficient option to show clients what they need to know. Many advisors also refine their OPFP strategies over time, opting for more graphics (built from templates to ensure they’re easy to update), or building in automations to make the Plan even easier to compile and comprehend. But ultimately, the OPFP is useful as a tool to drill down to a client’s two biggest questions: “Am I doing OK?” and “What should I do next?” Providing a one-stop-shop to answer these two questions nudges clients (and advisors!) to stay focused on the right things—and work together to keep heading in the right direction!

Weekend Reading for Financial Planners (Oct 16-17)

October 15, 2021 02:47 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the announcement from Schwab Advisor Services that it will be requiring the 13,000 RIAs on its platform (including those migrating from TD Ameritrade) to hold at least $1 million of Errors & Omissions (E&O) insurance coverage, in the latest attempt by a major custodian to reduce its own liability risk by requiring its advisors to better protect themselves against money movement errors and wire fraud... though, of course, E&O coverage can also be beneficial to the advisors themselves by sheltering their assets from legal claims resulting from any mistaken advice they give, making E&O coverage a good idea for advisors even before Schwab’s mandate to hold it.

Also in the industry news this week:

In a reversal of Trump-era regulations, the Department of Labor is proposing a new rule allowing ERISA-covered retirement plan fiduciaries to consider Environmental, Social, and Governance (ESG) factors in their investment selections after all
SEC Chair Gary Gensler confirms that the SEC will be looking into the psychological ‘nudges’ that online brokerage firms (e.g., Robinhood) use to suggest trades, and when those practices constitute a ‘recommendation’ or ‘advice’ (and trigger a higher standard of care)

From there, we have several articles on different fee structures used by RIAs, including:

A study showing that fee-only RIAs experienced double-digit percentage growth in 2020, both in the total number of firms and in the total amount of assets under management, higher than any other channel of advisors
A profile of several firms successfully using a flat-fee model instead of (or in addition to) AUM, and how those firms use the flat-fee model to focus their own value proposition around financial planning
A commentary on the value of financial planning in the accumulation and decumulation phases of life, and why the increasing complexity of the decumulation phase suggests perhaps advisors should be charging more for their advice to retiring clients in that phase?

We've also included a number of Social Security-related articles:

A research study showing that the framing of media coverage around the financial health of Social Security can affect individuals’ decisions on when to file
How to incorporate Social Security into financial planning for clients (particularly younger ones) who are concerned about the long-term viability of the Social Security system
New research showing that the percentage of individuals filing for Social Security benefits early has declined significantly in the last two decades

We wrap up with three final articles about managing the flood of email in our lives:

The problems with sending “after-hours emails”, which can stress out the recipient when they mistakenly interpret it as urgently requiring an immediate response, even if the sender doesn’t expect one
The ways that time spent on email increases our anxiety, and how some ‘hacks’ and the use of other means of communication can decrease our everyday reliance on email in the first place
Quantifying the time we spend on email every day (particularly the ‘wasteful’ tasks like searching and filtering out irrelevant emails) and a list of practices to increase the effectiveness of the time we do spend on email.

Enjoy the 'light' reading!

Overcoming The Unique Communication Challenges Of Advising Couples

October 13, 2021 07:04 am 0 Comments CATEGORY: Client Trust & Communication

Financial advisors who work with couples (or families) may generally find that their clients often require a special set of communication skills not just to avoid moments of alienation but also to help the couple or family experience a sense of unity as they consider their financial goals. Yet, given the current state of evolving financial planning curricula, these communication skills are not generally included in training provided to financial planners. While advisors may be taught technical skills such as helping clients set savings and retirement goals and creating tax and investment strategies for those clients, they aren't taught how to get two (or more) different individuals in a relationship or family unit to agree on those goals and to successfully execute them together.

Fortunately, there are resources for advisors to learn, develop, and hone relationship and financial therapy skills that can help them communicate effectively with their clients. For instance, researchers James Grubman and Dennis Jaffe created a hypothetical curriculum for individual financial advisors and financial planning firms to use that helps them to identify the most relevant and useful communication skills for their practices and also to design and implement strategies to use with their client couples and families. Additionally, a variety of case studies can be used by advisors to think through the communication needs of their clients, especially when helping them work through financial goals that elicit sensitive and emotional relationship challenges.

Ultimately, the key point is that working with client couples and families presents unique challenges that often require special communication skills to be solved effectively. And while most traditional financial planning curricula do not address financial therapy or relationship skills to prepare advisors to face these challenges, there are resources available for advisors to identify, develop, and practice the skills needed to work proficiently with these clients. Honing the communication skills to address the needs of client couples and families can improve not just the dynamics and flow of client meetings but also the relationship between the advisor and clients, as well!

#FA Success Ep 250: Connecting Better With Prospects By Sharing Stories Instead Of Expertise, With Deirdre Van Nest

October 12, 2021 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 250th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Deirdre Van Nest. Deirdre is the founder of Crazy Good Talks, a communication coaching firm that helps financial advisors be better communicators, in both private and public settings, in order to help their clients and prospects actually take that next desired step.

What's unique about Deirdre, though, is that she has developed a very specific process that she uses to teach advisors how to employ a variety of foundational stories that in turn lets them make a deeper connection with those they’re trying to reach and connect with.

In this episode, we talk in depth about why Deirdre feels that it’s less important for advisors to worry about whether or not the people they’re communicating with “get” what they’re saying (and how it’s far more important to focus on making an emotional connection instead), how Deirdre teaches financial advisors to take the technical body of content that every other advisor (as well as the public) has access to and present it in such a way that prospects will be more inclined to take a specific next action, and why Deirdre feels that every financial advisor can learn to be a highly effective and emotionally compelling communicator, even for advisors for whom public communication doesn’t come naturally.

We also talk about the key question that Deirdre recommends that advisors should ask in the first 30 minutes of a prospect meeting in order to get, as she puts it, “into their hearts instead of their heads”, why, after getting the answer to that question, advisors should avoid showing prospects how they can solve whatever issue it is that a prospect is dealing with and instead use that opportunity to create empathy by sharing one of their own foundational Why, Desire, or Teaching stories, and why Deirdre believes that advisors who truly feel that the service they’re offering is in the best interest of the people they work for have a duty to learn how to be as persuasive, inspiring, and compelling as possible.

And be certain to listen to the end, where Deirdre shares how advisors can make the intangible service they offer more tangible in the eyes of prospects by emphasizing (and even naming) their planning process (rather than focusing on their service alone), the key mindset shift that Deirdre made in prospect meetings that helped her focus on simply helping the person she was meeting with rather than feeling pressured to do everything perfectly in order to close the sale, and why Deirdre feels it’s so important for advisors to look at their words, message, and stories as business assets that they need to invest their time and efforts into over time.

And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast, with Deirdre Van Nest.

Taking Agency Of Your Time For High-Performance Income, Growth, And Advisor Happiness

October 11, 2021 07:03 am 2 Comments CATEGORY: Practice Management

Financial advisory firm owners face a variety of demands on their time, from working directly with clients, to growing their business, and achieving goals outside of work as well. Trying to address all of these demands can lead owners to feel like they don’t have enough time, their days don’t go as planned, and they can never quite get to the goals they’re trying to reach. A problem that most financial advisors try to solve by seeking out and adopting better tools and technology for time efficiency. But the truth is that everyone has the exact same number of hours to use during the day; breakthroughs in professional and personal fulfillment come not by making those hours more efficient, but by making more conscious decisions about how those hours are spent in the first place.

The key, then, is for firm owners to gain agency—the capacity to act independently and make their own free choices—over their time. Similar to saving enough money to gain financial independence, gaining agency over our time requires an intentional framework that regulates where one’s attention flows, to ensure that it is used in ways that best align time with goals, which in turn drives our growth, income, and happiness.

Creating a system to take agency over one’s time starts with understanding the difference between being available and being accessible. Being available is generally viewed as a best practice, as it means advisors can provide services to clients whenever they need to be served. But as a result, being available also means being at someone else’s disposal. This can lead to a seemingly infinite number of distractions and disruptions that can derail even the most well-scheduled day. In other words, being always available to clients means that a firm owner is never actually in charge of their time.

On the other hand, being accessible means being able to be reached. A firm owner who is accessible still provides services to clients that need to be served, but sets the terms for communication that work for both themselves and their stakeholders. Creating a model of accessibility requires the advisor to set clear expectations about how and when they will be accessible, though. Doing so, however, creates more calendar space and allows the advisor’s time to be more intentionally aligned with the experiences they want to have.

Once a firm owner has adopted a mindset of accessibility (and not just availability), it is important to create clarity about what they really intend to do with their time at work, once that time will be more consciously allocated. The key questions the owner needs to answer include how big they want their firm to be; who the ideal client is; what lifestyle they want to enjoy; and finally, how they can best invest their time based on the previous answers.

It is then time for the firm owner to connect this vision to reality by using time management models and techniques to make it clear to everyone what gets their focus, how their time is allocated, and what actions are assigned along the way. These tools include an annual firm calendar (which first spells out lifestyle goals and then lets the business decide how to use the remaining time), a model weekly schedule (which lays out how the owner spends their time each week), and personal productivity techniques (including morning routines, personal rituals, and professional routines).

Ultimately, moving to an accessible-not-available mindset and creating structures to manage this accessibility can help firm owners gain control over their time and better position themselves to achieve their personal and professional goals. Because at the end of the day, time can be neither created nor destroyed, but it can be wasted if it is not consciously allocated!

Weekend Reading for Financial Planners (Oct 9-10)

October 8, 2021 02:25 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the global financial services industry buzz of the “Pandora Papers”, the latest leak of the so-called “shadow financial system” used by certain ultra-high-net-worth households (including world leaders, other politicians, celebrities, and more), highlighting the ways the system is used to hide assets (sometimes legally, and sometimes not), and the surprising extent to which the US has actually become the ‘offshore’ haven for those in other countries looking to hide assets in US trusts… which in turn has already spawned proposed legislation in Congress this week to crack down on the unreported flows of assets through certain US trusts and the lawyers and accountants who facilitate them.

Also in the industry news this week:

As social media becomes increasingly popular for financial services – from meme stocks to testimonials, and the rise of “Finfluencers” – FINRA is taking an increasingly hard look at how social media is used within broker-dealers
Regulators are focused more and more on advisors getting ‘trusted contacts’ for all their clients to serve as the first line of defense to spot diminishing capacity and financial elder abuse

From there, we have several articles on the ongoing rise of (fee-based) annuities, including:

A new Stand-Alone Living Benefit (SALB) offering from RetireOne that allows RIAs to wrap annuity guarantees around their existing managed accounts (without actually being required to liquidate and transfer the assets into an annuity)
A survey from DPL showing that advisors are increasingly looking to use annuities as a bond substitute
A research study from David Blanchett highlighting the risks of using Fixed Indexed Annuities in particular as a bond substitute, and the hazards of comparing historical FIA returns to those that would be purchased today at current (much-lower-than-historical) interest rates.

We've also included a number of marketing-related articles:

Tools that advisors can use to expedite email communication with clients, from recording quick personalized videos to easily catching grammatical errors
The rise of “Local Service Ads” on Google and why they may be better suited than traditional Google Ads for advisors that have a geographic reach beyond their local zip code
A study highlighting how more and more consumers are vetting their advisors on social media before engaging, with 1-in-5 stating that an advisor’s social media presence was the deciding factor in who to work with!

We wrap up with three final articles, all around the theme of investing in ourselves:

Why believing in yourself and building your own self-confidence is foundational to career success
The benefits of hiring a coach, not only when you’re struggling, but whenever you’re trying to get to the next level
Why it’s better to think of your career as a “call option” than simply a stock, because of the significant upside potential that can come from switching careers, launching a business, or simply reinvesting in yourself to make a stretch for that next job (and the outsized rewards that can come if that leap goes well)!

Enjoy the 'light' reading!