Nerd's Eye View blog

Why (Virtual) Experiential Learning Is The Future Of Financial Planner Training

May 31, 2021 07:07 am 1 Comment CATEGORY: Personal/Career Development

As the total number of CFP certificants crosses 90,000 – nearly 1/3^rd of all financial advisors – and the number of undergraduate and graduate school CFP Board registered programs continues to grow, the pathway of a college degree plus CFP certification is increasingly becoming the way new financial planners learn how to do financial planning. Yet the reality is that while a theory-based education may provide the “book smarts” and an understanding of the regulatory and legal sides of the practice, it doesn’t necessarily give future financial advisors the full scope of understanding and skills needed to thrive as emerging professionals. While at the same time, ‘on-the-job’ training is still far too often focused on teaching the sales skills it takes to get new clients… but not necessarily what new financial planners need to learn to deliver good advice that clients will actually implement. Which means, simply put, that the emerging pathway for training new financial planners may not be providing the full base of knowledge and education really needed to be successful as a financial planner.

Fortunately, though, other established professions have long since determined an alternative approach to teaching and training new professionals to figure out how to actually apply their book knowledge in real-world situations: experiential learning. From veteran craftsmen to train apprentices, to experienced doctors who train residents, to simply getting an internship with an experienced professional, getting an opportunity to learn by “seeing how it’s done” in practice remains a remarkably effective way to learn. In the context of financial planners, in particular, this means shifting from a purely technical-focused training or one that only practices sales techniques to turn prospects into clients, into an experiential learning approach that allows for the practice of advice techniques to convince clients to actually implement the advisor’s advice.

However, experiential learning opportunities have been limited in practice. Conferences can be costly and take time to vet out which ones are genuinely applicable to people who have not truly entered the industry yet. Internships, while useful (at least when well implemented), are limited in number and often only provide the scope of how one particular firm does financial planning. And few firms have the depth of team or capability to implement a systematized apprenticeship-style training program for a large number of aspiring financial planners.

The good news is that the rise of the pandemic has driven such a newfound focus to online learning, that it is also creating new opportunities and best practices for experiential learning to go online as well. A case-in-point example is the FPA Externship, which launched in 2020 as an 8-week intensive online experiential learning program. Similar to an internship, the goal of the FPA Externship is to provide new financial planners an opportunity to get exposed to the real-world practice of financial planning. However, the virtual environment makes it possible to give participants exposure and experience to many different firms’ styles and strategies, while ensuring a rotation through all the different areas of financial planning (not just the one area that one particular firm is focused on). In other words, aspiring financial planners get to see a wide range of what it actually looks like to be a financial planner and do financial planning for various types of clients with varying needs delivered by experienced advisors with a wide range of planning styles.

The significance of programs like the FPA Externship is that the financial services industry is in the midst of a shift from sales-based “financial advisors” to advice-based financial planning, but new financial planners often can’t tell which jobs are which until it’s too late. Consequently, a break can emerge between what new advisors saw in education and what they witness in practice. Which in turn can lead to disillusionment and many talented financial planners leaving the profession… not because of lack of interest, but because they never get to see what the financial planning profession is truly capable of at its best.

Ultimately, the key point is that technical and sales training can take future advisors far, but without experiential learning to understand what the financial advice business is really about, new financial advisors will at best be under-trained when they first begin to work with clients, and at worst can face disillusionment as they begin their careers (and potentially leave the profession before they even really start!). Fortunately, though, programs like the FPA Externship – which is soon to close its summer 2021 enrollment! – are emerging that can fill this gap and provide advisors an understanding of the true power of financial planning, thus developing a stronger generation of financial advicers for years to come!

Weekend Reading for Financial Planners (May 29-30)

May 28, 2021 02:59 pm 62 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the big industry headline that Bank of America is banning new Merrill Lynch advisors from cold-calling, in what many are calling the "end of an era" of how financial advisors are recruited into the business, as the company looks to shift to a combination of digital marketing (through LinkedIn) and internal referrals of bank clients into its wealth management division, in what Bank of America says it hopes will reduce advisor churn, better support paying advisors viable starting salaries to avoid the hazardous "eat-what-you-kill" approach of the past, and expand advisor diversity by not needing to hire advisors who already have their own natural market... and also improve Bank of America's own client retention and reduce future advisor breakaways by hiring 'less entrepreneurial' advisors who are more likely to be reliant on the bank for their clients and support in the first place?

Also in the industry news this week are a number of other interesting headlines:

President Biden unveils the blueprint for his $6 trillion Federal budget for the coming year... though, in the end, the real question is what Congress will pass (or not)
A new study finds that wealth preferences are shifting, with fewer people viewing wealth as "peace of mind" and more associating wealth with happiness, success, and influence instead

From there, we have several interesting articles on investing:

Vanguard launches a new private equity investment option for its own retail clients (or at least those who are accredited) as the firm continues to move 'upmarket' to a more affluent clientele (who historically may have hired an independent advisor instead?)
Why the growing focus on ESG is leading to newfound scrutiny on how the "Big 3" index providers (Vanguard, Blackrock, and State Street) are proxy voting for their massive $15 trillion in investable assets
How I Bonds are getting some 'fresh love' as the government bond yields 3.54% (consisting of a fixed 0% rate and 3.54% inflation rate) in the current environment (albeit with a cap of just $10,000/year in new purchases)

We've also included a number of articles on broader industry investing trends:

The ongoing evolution of 529 plans to include more automated glidepath funds (that make changes in smaller, more gradual increments over time)
Why Millennials are actually not poorer (in terms of income or wealth) than prior generations, though student loan burdens have been especially damaging to a subset of Millennials
The launch of a new "Onramp Invest" platform to help advisors support their clients who are choosing to invest in cryptocurrencies (by facilitating integrations from popular crypto platforms to the advisors' own software systems)

We wrap up with three final articles, all around the theme of investing in oneself as an expert:

Why and how to position yourself as a "Visible Expert" to both attract more clients and be able to command higher advisory fees
How the primary benefit of being curious is often to discover opportunities you weren't even looking for (but never would have found without being curious)
Why the best bet you can make is often to 'bet on yourself'... which sometimes means being willing to take the scary leap into the unknown and believe in yourself that it will work out (which is what provides the courage and focus for the prediction to become a self-fulfilling prophecy!)

Enjoy the 'light' reading!

Maintaining Client Progress By Normalizing Lapses And Encouraging Self-Efficacy

May 26, 2021 07:04 am 0 Comments CATEGORY: Client Trust & Communication

As bestselling author, Sean Covey says, “We become what we repeatedly do.” Advisors who have been helping their clients through the various stages of change will (undoubtedly!) be very proud of their clients for reaching the Action stage, when the client is finally able to take action on making whatever change is needed to implement their financial plan, but they will also recognize that developing habits in the Maintenance stage is what will ultimately get their clients the rest of the way to their financial goals.

Yet, sustaining new actions until they become habits can be a challenge for most individuals. Clients who may have started out strong may find themselves unable to sustain new habits that once seemed so easy, as continually and consciously sticking to new habits can be exhausting. Accordingly, it is very normal (and common!) for us to ‘mess up’ by giving in to temptation or, when things get harder than we had prepared for, by simply taking a much-needed break. These temporary setbacks to maintaining habits are referred to as “lapses”, and helping clients recognize the triggers that may cause a lapse and developing tools that enable them to deal with those triggers can be a powerfully effective strategy for advisors to help clients stay the course and successfully reach the Maintenance stage.

Fortunately, The Transtheoretical Model of Change offers advisors a framework to help clients reach the Maintenance stage, when their sustained actions finally become regular habits. First and foremost, advisors can help clients by normalizing lapses, which will help clients to acknowledge them, discuss what is happening and how they are feeling, and finally to recover from them when they do occur. Because when lapses happen, they can make the client feel awful and demoralized simply by having to face the fact that they lapsed, which can be a powerful deterrent to maintaining habits.

Second, advisors can help clients to increase their financial self-efficacy by finding opportunities to explicitly recognize their growth and ability to sustain change. Importantly, while advisors cannot build up financial self-efficacy for their clients – the client alone develops self-efficacy – they can support the client by recognizing their efforts and offering honest, heart-felt compliments (which go a long way!).

#FA Success Ep 230: Showing Financial Planning Value As An AUM Advisor By Focusing The Conversation, With Dan Moisand

May 25, 2021 07:05 am 2 Comments CATEGORY: Conferences Financial Advisor Success Podcast

Welcome back to the 230^th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Dan Moisand. Dan is a Principal of Moisand Fitzgerald Tamayo, a fee-only RIA headquartered in Melbourne, Florida that manages over $800m in assets for 650 households.

What’s unique about Dan, though, is his ability to communicate the value and power of financial planning to clients in a straightforward and compelling manner, illustrating in the process that if an advisor really focuses their communication on the planning issues, at every meeting, then their clients will view them as a planner… regardless of how their advisory fees are structured.

In this episode, we talk in depth about why Dan feels that there’s nothing wrong with offering the “average” advisory firm services for the average advisory fee and why their firm doesn’t discount, why Dan sees the concerns about fee compression as overblown and that the AUM fee model remains a perfectly viable method of charging clients, and why the trajectory of financial planning itself shouldn’t be gauged on the outlook of technology forces trying to simplify the advisor’s value proposition, but rather on the direction of complexity of the typical consumer’s financial life… which isn’t getting any simpler these days, and is just driving even more of them to seek financial advice.

We also talk about Dan’s views on why it’s the relationships the advisors forge with their clients that ultimately matter the most (and why technology may be an invaluable tool but it’s not a competitor for advisors because it just doesn’t care about the client the way another human being does), why it’s more important to simply be of service to clients than to try to always be the smartest person in the room (especially when Dan’s clientele literally include rocket scientists from the central Florida space programs), and the way Dan structures his initial conversations with clients around assessing their confidence levels in all the different aspects of their financial lives because, as Dan puts it, the real value of financial planning at its core is helping people to become or remain confident in all those areas for the rest of their lives.

And be certain to listen to the end, where Dan discusses his firm’s recent addition of a team member who’s exclusively in charge of building out workflows, automations, and software integrations so that their financial planners can spend more time serving their clients, how, despite all the changes in the industry and the ways in which advisors spend their time, the one thing that hasn’t changed in 30 years is that financial planning is about relationships and helping people, and why, being a good financial planner is less about the compensation or business model that we choose, and more about being skilled enough at communication to be able to explain to someone why they’d be better off going through the financial planning process.

So whether you are interested in learning how Dan communicates the value of financial planning to his clients, how he assesses a client's confidence level in the various aspects of their financial lives, or why he continues to view financial planning as a terrific career path, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Dan Moisand.

Announcing The New Kitces CFP Certification Scholarship List

May 24, 2021 07:08 am 0 Comments CATEGORY: Nerd's Eye View

As huge swaths of the financial planning industry have shifted from focusing on commission-based sales to providing client-centric comprehensive planning as true financial ‘advicers’, proving one’s chops to break into the financial planning industry has only become more difficult. CFP certification, which was once considered the industry ‘gold standard’, is increasingly becoming a base-level minimum requirement as firms strive to hire better and more capable new advisors. While this shift has served to create a legitimate 'barrier to entry' with higher minimum standards for competency, and has arguably elevated the overall service provided to clients, the fact that many employers now require having one’s CFP certification as a prerequisite for employment means that many new and aspiring financial planners now face costly intensive requirements just to enter the profession.

In other words, the struggle to attain CFP certification, along with completing the robust education requirements, is not just a matter of mastering the academic challenges of the subject material; it also involves managing large expenses that cover tuition (not just for the 6 specific financial planning classes required by the CFP Board, but also for coursework to obtain an undergraduate degree as well, which are often taken by students as two separate curricula), registration for CFP exam fees, and costs associated with CFP exam preparation programs (not to mention the ‘soft’ costs of taking time off from work and sacrificing personal and family time to study and prepare for the CFP exam!).

For those already in the financial planning profession, there is a chance their firm will agree to cover some (or perhaps all) of the costs required for gaining CFP certification. Yet because the CFP marks are increasingly required in order to apply for paraplanner and associate advisor jobs in the first place, employer assistance is less and less feasible as a means to support pursuit of the CFP marks. Accordingly, for those who have not yet entered the industry (or whose firms will not finance the cost), CFP scholarship programs are becoming a key resource to help the individual manage expenses. Scholarship funding for those pursuing the CFP marks generally focus on three areas: 1) Tuition or expenses related to the CFP Board’s 6-course education requirement (which is what the majority of current scholarships provide funding for); 2) CFP exam preparation courses; and 3) Registration fees for the CFP exam itself.

Ironically, though, while scholarships are offered by a wide range of organizations - from the membership associations, to corporate scholarship programs, to educational institutions themselves - there is a paradoxical challenge that more and more aspiring CFP certificants struggle to find dollars to cover the costs of CFP education and certification, even as a large number of CFP scholarship programs struggle to find enough applicants for their available scholarships!

Enter the Kitces.com CFP Certification Scholarship Database, which has collected all the available information on 186 CFP scholarship awards across 39 CFP scholarship programs available for aspiring CFP professionals trying to break into the industry (as well as seasoned financial advisors looking to earn their CFP marks). The database is structured to help prospective planners filter by background and location to find the scholarship that fits their needs, from merit-based programs to needs-based scholarships and those designed to support under-represented populations.

For scholarship applicants, winning an award can make a measured difference not only in their capacity to take the CFP exam, but also in future networking and career opportunities. This is because many scholarship applications are reviewed by a committee of practitioners who are actively looking for future employees. And since the application can impact both immediate and long-term opportunities, creating a strong, memorable submission is essential. Depending on the scholarship, many aspects may be considered, but good academic performance, solid references, and basic professionalism can go a long way.

Ultimately, as the financial planning industry grows, it will not only become more competitive for prospective financial advisors, but also for hiring employers looking to find the best of the best. While there are still many gaps in the scholarships available to aspiring financial planners, firms have the opportunity to create their own scholarships to help fill these gaps. Which can be beneficial not only for the firms creating scholarships (as they provide good branding opportunities to increase a firm’s visibility and can also help firms attract high-achieving and motivated employees), but for aspiring CFP professionals and students of financial planning as well. And with the introduction of the Kitces.com CFP certification scholarship list, we also aim to help bridge the gap by guiding those who are looking to join the profession to the support they need to realize their educational and professional goals!

Weekend Reading for Financial Planners (May 22-23)

May 21, 2021 02:53 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 'upstart' RIA custodian Altruist has raised a huge $50M of fresh investment capital to fuel its ongoing growth, even as questions arise as to how quickly the platform is actually growing and whether Altruist is ultimately really an RIA custodian, or a platform TAMP, or a technology firm that overlays custodial services... though arguably Altruist's ongoing growth (and ability to attract investor capital to fuel that growth) despite the murkiness of its 'categorization' may simply highlight how the traditional dividing lines between each are continuing to blur as advisors expect more and more from their advisor platforms (whatever they may be labeled)?

Also in the industry news this week are a number of interesting studies:

The latest Charles Schwab "Modern Wealth" survey finds that consumers have substantively reined back what it takes to be "wealthy" and "financially happy" as expectations adjust in a post-pandemic world
A T. Rowe Price study highlights how next generation clients are interested in financial advice, but want to talk about different topics (that are more relevant to them) and prefer flat- and subscription fees over the AUM model when seeking a financial advisor

From there, we have several interesting articles on mergers and acquisitions and advisory firm valuations:

How often the best way to increase an advisory firm's valuation is to simplify and do less (which makes it easier for an acquirer to quickly integrate the firm and thus be willing to pay more)
As large advisory firms look more like platforms and platforms provide more advisor-support services, the lines between "selling" and "being recruited" are beginning to blur

We've also included a number of articles on financial advisor marketing:

How to apply Donald Miller's "StoryBrand" approach to show the value of financial planning to prospects (by highlighting how the financial planning process will transform them)
Why advancing technology is making it easier for any advisory firm to become a "storyteller" using online tools for easy-to-create videos
The benefit of marketing an advisory firm's services (i.e., actually focusing on the services the firm will provide) over simply trying to highlight its intangible value

We wrap up with three final articles, all around the theme of how even "small" advisory firms can be very financially successful:

Why advisor platforms struggle to be profitable supporting advisors until they're at least $100M of AUM but advisors themselves can be wildly profitable at less than half that amount of AUM
The importance of doing an "audit" on your own client roster to identify who the really profitable clients are (and those who aren't)
How growth usually does not lead to economies of scale in advisory firms, which means greater profitability is not about adding more clients in the hopes that margins improve, but about getting smaller and more focused instead

Enjoy the 'light' reading!

Kitces & Carl Ep 60: The Training That Service Advisors Need To Get To The Next Level

May 20, 2021 07:02 am 0 Comments CATEGORY: Kitces & Carl Podcast

For most of the financial advice industry’s history, financial advisors’ success first hinged on survival… which meant getting enough clients to generate enough revenue to survive. Which meant those who survived typically had exceptional “people skills”, which gave them a leg up when convincing people to purchase whatever financial products their companies sold (even with limited industry experience). However, as the industry has become less about financial products sales transactions and more about ongoing advice relationships, financial advisory firms have increasingly needed to hire “support” advisors whose job isn’t to bring in new business, but rather to service (and be awesome for) existing clients. The good news is that these pathways have led to wider opportunities for people to enter the profession (even and especially if they aren’t necessarily business-development oriented). But because bringing in new clients is harder than keeping existing ones, those who do the former inevitably earn more than the latter. Which means that support advisors who decide that they want to level up their careers often have to learn the interpersonal skills necessary to develop (and lead) client relationships.

In our 60th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss some steps that support advisors with limited client experience can take to learn how to communicate effectively, habits they can adopt to develop their own approach when taking point on client relationships, and ways they can position themselves within their firm to get the opportunity to expand their role.

As a starting point, it’s important to recognize the amount of progress that the industry has made in prioritizing ongoing relationships with clients and that there's no longer just one pathway into financial planning as a career. And it’s equally important to acknowledge the fact that advisors can craft a very rewarding career as a support advisor without worrying about bringing in new business. However, for those support advisors who do want to move into a lead role, developing solid communication skills is key. And while not everyone is born with the proverbial gift of gab, the good news is that striking up a conversation, listening actively, asking good questions, and building rapport are all skills that can be learned.

Accordingly, initial steps that advisors can take include joining groups and taking courses designed specifically to help get people comfortable speaking with (and in front of) strangers, communicating effectively in professional settings, and thinking quickly to respond in real-time to the unexpected (or incongruous). Some examples include Toastmasters and Dale Carnegie (for public speaking and professional training, respectively), as well as improv classes, where advisors can practice responding genuinely to what’s happening “in the moment”.

Other proactive measures service advisors can take to learn how to lead client relationships is to seek out opportunities to sit in on meetings with lead advisors (especially discovery meetings where the client/advisor relationship is just taking shape), not necessarily with an eye towards participating in the meeting, but rather simply as a silent observer to listen and absorb as much as possible. From there, advisors can look for opportunities to develop a ‘mini-specialization’ proficiency in a particular planning topic (think ESG investing, equity compensation planning, or student loan planning) and become their firm’s internal expert for a subject that’s impactful for their clients (which can help get them invited into more client meetings!).

Ultimately, the key point is that there are specific actions that support advisors can take to give themselves the tools they need (beyond “just” solid technical chops) to move into a lead advisor role. Becoming a good communicator is an essential first step, and lead advisors within the firm can be great resources to learn from as well—but developing unique expertise and bringing additional value to clients can really give those looking to advance their careers a big leg up!

Reducing Retirement “Outrage” Risk With Adjustment-Based Planning And Communication

May 19, 2021 07:02 am 3 Comments CATEGORY: Retirement Planning

Financial advisors often seek to help clients understand the range of outcomes they might experience when following a given financial plan, and frequently rely on statistical probability outcomes derived from Monte Carlo simulations to report on what outcomes the future may hold. In turn, some researchers and practitioners have suggested extending the analysis even further, by accounting for related statistics, such as Magnitude of Failure and Expected Failure, to shore up the weaknesses of Probability of Failure and further enrich the breadth of information that prospective retirees have when considering the best plan to pursue. However, a focus on ever-deepening statistics alone ignores other important aspects of how retirees perceive risk.

Peter Sandman, in his book Responding to Community Outrage: Strategies for Effective Risk Communication, suggests an updated definition of risk that includes not just an objective component – “Hazard”, which measures probability and magnitude of failure – but also a subjective component, which Sandman calls “Outrage”. In Sandman’s framework, “outrage” accounts for an individual’s emotional reaction to risk. For instance, if a plan’s Magnitude of Failure is relatively low, we may think that this will calm retirees’ fears; however, including statistics based on failure in client communications may highlight low-probability-but-catastrophic and dreaded plan outcomes that are involuntary and uncontrollable. Rather than calming fears, these factors may instead amplify outrage and, therefore, heighten the perception of risk. And because Sandman finds that outrage can weigh just as much on our evaluation of risk as the hazard itself, advisors who frame their planning process and communication to reduce their clients’ negative “outrage” emotions can potentially help clients better understand what their plan’s outcomes really mean, and make better choices.

In practice, this means moving away from outrage-inducing failure-based statistics and language, and instead counseling towards dynamic adjustments over time (e.g., spending more if they can and less if they must) as circumstances change and the risk landscape evolves. This also allows advisors to reframe retirement risk in more adjustment-based and even-less-outrageous terms that emphasize what is voluntary and controllable, with a process to manage a chronic (not catastrophic) risk, focusing more on questions like: “What would need to happen to trigger an increase or decrease in income?”, “If we find ourselves in such a situation, how large would the increase or decrease be?”, and “What would we expect a household to experience in a good/bad financial environment when following this plan?”

Ultimately, the language we use to describe risky outcomes – and the potential “outrage” it can induce – plays an essential role in the conversation around retirement risk, as much as discussing the hazards (objective risks) of retirement itself. By moving away from the concepts and language of Failure and Success, the financial advisor can lessen the emotional reaction clients may have in response to their financial plan. Similarly, when advisors present adjustments as a natural and necessary part of the plan, clients will be more likely to accept and proactively implement the changes that may be required for a successful plan outcome. By adopting Sandman’s updated definition of risk, and accounting for both objective Hazard and the more subjective Outrage components of risk, advisors may find that clients are not only more open to having conversations about their financial plans but also more willing to listen to their advisors, follow their financial plans, and make changes when action is needed!

#FA Success Ep 229: Navigating The Evolution Of Financial Planning Over 50 Years Of Building, With Alexandra Armstrong

May 18, 2021 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 229^th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Alexandra Armstrong. Alex is the Founder and Chairwoman Emeritus of Armstrong, Fleming, and Moore, a hybrid RIA in Washington, D.C. that she launched in 1983 and ultimately sold to four successors after a career of over 40 years as a financial advisor.

What’s unique about Alex, though, is that she’s one of the true pioneers in the industry, earning her CFP in 1977 as one of the first CFP classes in the country (and the first person in Washington DC to earn the designation), serving for seven years as the first woman chairperson of the International Association for Financial Planning (which would later become the FPA), championing the initial formation of a group of independent broker-dealers that would eventually become the Financial Services Institute, and serving as a chairperson for the Foundation of Financial Planning, a board that she continues to sit on to this day.

In this episode, we talk in-depth about Alex’s journey through the financial services industry at a time when there were even fewer women in the industry than there are today, her appreciation for the fact that she was mentored by two women who were both top producers at their firms in the 1970s (demonstrating that even early on, women could find success in the industry), Alex’s early recognition that providing comprehensive financial planning was a competitive advantage and a way to differentiate herself beyond “just” selling investment products, and the camaraderie that Alex found amongst other early financial planners from around the country who shared a passion for helping people with their entire financial picture in an industry that was still entirely focused on selling limited partnerships and other financial services products.

We also talk about how Alex’s natural ability as a delegator was (as she puts it) the real secret to her success (as it allowed her to spend more of her time on client-facing activities), the importance of involving both spouses of a client couple in the planning process (going so far as to send each spouse a separate copy of the financial plan before the review meeting so they would each have time to think about any questions they might have), and how having the ability to be picky about who Alex chose to work with helped her foster the formation of lifelong client relationships.

And be certain to listen to the end, where Alex shares why she believes a career in financial planning is ideally suited to women (because it allows them to utilize their emotional intelligence, and gives them the opportunity to do work where they can use their intellect, make a real difference in people’s lives, and earn a good living), how Alex struggled emotionally when it was time to transition out of her own career that meant so much to her (and how she’s found purpose and satisfaction serving on various boards, including her ongoing service to the Foundation for Financial Planning), and how Alex found that transitioning to retirement ultimately wasn’t all that disruptive because of the wisdom that her clients shared with her about retirement after starting their own next chapters.

So if you’re interested in learning about Alex’s pioneering career in financial planning, some of the key lessons she’s learned along the way, or how her clients’ experiences entering retirement helped her with her own transition, then we hope you enjoy this episode of the Financial Advisor Success Podcast with Alexandra Armstrong.
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Managing Client Variability As A Pathway To Scalable Efficiency

May 17, 2021 07:04 am 0 Comments CATEGORY: Practice Management

As financial advisory firms grow and accumulate more and more clients over time, the increased client load creates a growing pressure to find ways to be more efficient to scale the business. Yet the challenge is that with an ever-growing client base, where each different client has different needs – and where advisory firms often differentiate themselves by providing individualized and customized services to the differing needs of every client – it becomes increasingly difficult to systematize the business, precisely because the level of variability from one client to the next makes it difficult or impossible to scale efficiently.

Rather than trying to figure out how to gain efficiency when serving an ever-widening range of clientele, though, an alternative approach is to actually try to tackle the issue of “client variability” itself, recognizing that having clients with a wide range of needs is itself a choice of the advisory firm… as is the firm’s decision of whether or how much to accommodate those varying needs (and/or whether or how to charge more for the service of greater individual customization).

In her Harvard research on “Breaking the Trade-Off Between Efficiency and Service”, Dr. Frances Frei highlights two alternative strategies to manage client variability between just “doing more and charging more” or “doing less and charging less”: low-cost accommodation where the firm offers flexibility to clients but ‘only' within a fixed range of choices, and uncompromised reduction where the firm doesn’t make compromises in the services it offers but instead reduces the breadth of who the firm serves in order to have a more focused clientele where their ‘customized’ services can still be delivered as repeatable expertise.

These techniques to manage client variability can then be applied across each of the domains where client variability occurs: manage ‘arrival variability’ (when clients meet) by offering them incentives to meet during quiet times of the year and/or using flowcharts, checklists, or other client educational materials to handle common client questions without a meeting; manage ‘request variability’ by rolling out a portal for clients to access their own reports/requests on demand, or by purchasing more specialized tools and then systematically rolling out analyses or solutions for all clients who might be interested in a similar service; manage ‘effort variability’ by implementing tools like Knudge or and e-signature to make it easier for clients to get through the process, or consider rolling out a service to turn a challenge into an opportunity (e.g., converting the data gathering meeting into a “Get Organized” meeting); and manage ‘subjective preference’ variability by either creating a standardized solution for more common client preferences (e.g., a set of ESG models for SRI-oriented clients), or by systematizing their higher-level service requests (e.g., creating a standard [email protected] that top clients get to have their needs handled quickly by anyone on the team who gets/sees the request first).

Ultimately, though, the key point is simply to recognize that the challenge of having an ever-widening range of clients with an ever-widening range of demands – and the challenges of efficiently scaling across such a wide range of needs – is itself a choice that an advisory firm has. Which means it’s not only a matter of either doing-more-and-charging-more or doing-less-and-charging-less, as there’s also an opportunity to either find more scalable low-cost accommodations to make that also enhance efficiency, or to choose a less-variable range of clientele in the first place in order to create room to provide a deeper service for those clients’ unique needs.