Nerd's Eye View blog

Kitces & Carl Ep 61: Taking The Leap To Launch When You Don’t Have The Capital To Finance It

June 3, 2021 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Up until the last twenty years or so, it was relatively uncommon for financial advisors to strike out and launch their own practice without the support of a larger advisor platform (e.g., a broker-dealer or insurance company). However, technological advances, a shift towards holistic financial planning (versus the more traditional transactional model to which broker-dealers and insurance companies were historically attached), and evolving fee models, have come together to make it exponentially easier for advisors to become entrepreneurs (particularly under the independent RIA model). However, one thing that hasn’t changed is that, even for advisors who are starting from zero, there is still a need to be sufficiently capitalized, not only to actually open shop, but to survive the first few years with little-to-no income as the advisory business ramps up. Which means that insufficient starting capital remains a common blocking point for advisors who may otherwise be ready to launch their own practice.

In our 61st episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss why a lack of capital may not always be the root cause for an advisor’s reluctance to start their own business, a key mindset shift advisors can make to get a little more comfortable with the risks associated with being an entrepreneur, and some practical tips for sourcing the necessary funds to launch.

As a first step, it’s important to consider that, for advisors who have never done it before, the thought of starting a business can be scary. As while a lack of capital may actually be a blocking point, sometimes the real reason advisors are reluctant to begin the process of starting their own practice is simply that they’re scared that they’ll fail. Which, of course, is perfectly normal. Being ultimately responsible for every aspect of running a business is daunting for many, and it’s important to understand that there’s more than one way to have a successful and fulfilling career as a financial advisor that doesn’t involve starting a business from scratch.

However, advisors who are ready to take the entrepreneurial fork in the road, but are still concerned about not succeeding, can always take a moment to consider what the worst-case scenario really would be. After all, advisors who are ready to “go solo” should already have the technical and interpersonal skills to both bring in new business and provide great service to clients. Which means that, at the very worst, if the business proves to be unsuccessful, then the next logical step is to simply go find a job as an experienced advisor at an established firm (for which there is only a growing demand for hiring and a shortage of talent to fill the roles), and earn a healthy salary to get back on financial track!

And when it’s time to solve the “not enough capital” puzzle, there are a few options. As a first step, advisors can leverage their skills (and natural proclivities) to plan for their goal of saving and/or raising the necessary capital. And if time is of the essence, then they can follow in the footsteps of other successful advisors who have either taken out a loan, found someone to partner with, or taken on equity partners.

Ultimately, the key point is that the reason that advisors hesitate when launching their own firm is often less about not having enough capital, and more about being worried about things not working out. But, by acknowledging that it’s perfectly normal to be anxious about starting a business, and considering the worst-case scenario (and how there’s often still a very strong fallback choice!), advisors can make a more informed decision about whether or not they truly want to hang their own shingle. And if they do, there are several ways to source the necessary capital for those who conclude that they really do want to scratch that entrepreneurial itch.

Accelerating 2021 Business Sales To Navigate Biden’s Proposed Capital Gains Tax Increase

June 2, 2021 07:01 am 2 Comments CATEGORY: Taxes

When investments appreciate in value, their capital gains are subject to preferential tax rates, which were first established to incentivize taxpayers to invest their available savings for growth. However, President Joe Biden’s recently proposed American Families Plan, calling for substantial tax reform, includes a number of changes that would dramatically reshape the taxation of capital gains. In particular, the proposal would – at least for high-income individuals – eliminate the preferential rates for long-term capital gains, reverting their tax rate to the top ordinary income tax bracket (which itself would rise from the current 37% to a new 39.6% rate under the proposal).

Notably, the new 39.6% rate on long-term capital gains would only apply directly to taxpayers with income in excess of $1 million, allowing most to avoid the new capital gains bracket. However, because assets can appreciate substantially over very long periods of time, and potentially be taxed all at once in the year they are ultimately sold, the newly proposed capital gains tax rate could also potentially impact other taxpayers who don't annually earn anywhere near $1 million, but do have a once-in-a-lifetime (or few-in-a-lifetime) taxable event(s), such as the sale of a business, that can temporarily push their income over the $1 million mark (if only due to the capital gains event itself).

While the recent Biden budget proposal for Fiscal Year 2022 assumes the capital gains changes are made retroactively to April 2021, the reality of both the political climate and the practical challenges associated with such a retroactive change means that the most likely outcome would be a January 2022 effective date for any changes. Accordingly, business owners who are considering the potential sale and exit of a business – that may potentially have a ‘lifetime’ of growth all taxed in a single year of sale – will seriously want to consider liquidating the business before year-end, in an effort to ‘harvest’ capital gains at current 20% top capital gains tax rates, and avoid potentially substantial capital gains income from being subject to the proposed 39.6% top tax rate in the future (which at the margin, is a 19.6% tax rate savings on what could be one or several million dollars of appreciated business value!).

Additionally, business owners selling in 2021 whose sales may qualify for the installment method may wish to proactively opt out of such treatment, and instead report all gain from the sale in 2021, to avoid having capital gains spill into future years, where they may again be taxed at the newly proposed higher rate. Opting out of such treatment, however, could leave certain business owners with liquidity challenges that should be proactively addressed.

Ultimately, the price of liquidating capital gains (or having them treated as liquidated upon death) is likely about to be dramatically increased for high-income taxpayers (and others with highly appreciated assets that they will sell). And while most will be able to avoid the capital gains exposure – simply because they don’t earn $1M+ per year in the first place – those contemplating the sale-of-a-lifetime (e.g., a business whose value has been built over years or decades) in the coming years will want to seriously consider whether to accelerate (or not) the sale in 2021 given the sizable one-time tax savings that may be available! Which, notably, not only includes the clients of financial advisors, but even financial advisors themselves considering retirement and the potential sale of their own advisory firms!

#FA Success Ep 231: From CPA Lifestyle Practice To Billion Dollar Multi-Generational RIA Enterprise, With Michael Goodman

June 1, 2021 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 231^st episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Michael Goodman. Michael is the Founder and President of Wealthstream Advisors, a fee-only RIA headquartered in Manhattan that manages over $1b in assets for 350 client families.

What’s unique about Michael, though, is that he used his early experience as a CPA to transition into a career as a financial planner, starting first as a solo practitioner before making a deliberate decision to build out a large ensemble firm that can persist and sustain even after he retires.

In this episode, we talk in depth about the convergence of the tax planning and financial planning professions, how early CPAs pioneered the wealth management model by running what were essentially family offices offering affluent clients comprehensive tax and financial planning that expanded into RIAs helping with investment management as well, how the breadth of business knowledge that CPAs obtain as part of their stringent education offers a unique perspective on the planning process (and as Michael put it, “a bigger lens to work from”), and how working with a consultant was the catalyst to help Michael change his mindset from maintaining a CPA lifestyle practice to building an enduring RIA enterprise (and how building and being part of a larger team ended out being the aspect of business ownership that Michael enjoys the most!).

We also talk about Michael's own journey through the financial services industry, why doing audits of small- to mid-sized business as a young CPA gave him the equivalent of an MBA education in business management (while getting paid to do the work that was giving him such an invaluable education), how Michael moved to what at that time was a Big Six accounting firm but ultimately found the work unsatisfying because he lost the human element he enjoyed so much, and how Michael’s involvement with the AICPA’s Personal Financial Planning membership was the pathway to finding mentors that he could model after as a planner and business owner.

And be certain to listen to the end, where Michael shares the specific hires he made as his practice began to expand (including a lead advisor as well as a COO to free up his time to work on the business rather than in the business), the specific types of traits and experience Michael was looking for as he filled those roles, the mechanics of the valuation process Michael went through in order to bring in shareholders in order to build for the next generation, and how changing Michael’s mind around hiring younger planners just out of college has turned out to be a hugely satisfying professional experience.

And so whether you're interested in learning more about Michael's journey from starting out as an accountant and ending out as a financial planner, the deliberate steps he took to transition from a lifestyle practice to a multi-generational firm, or how he structured the sale of equity in his firm, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Michael Goodman.

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!