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Weekend Reading For Financial Planners (Aug 27-28)

August 26, 2022 02:21 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 the Biden Administration has released a series of long-anticipated Federal student loan relief measures. And while the announced $10,000 of debt forgiveness for some borrowers made the most headlines, advisors will also want to be mindful of a new Income-Driven Repayment plan that could help some clients with student debt reduce their monthly payments and the planning implications of the resumption of student loan payments in January!

Also in industry news this week:

An industry survey suggests that advisory firms are prioritizing growth despite a slower pace of client acquisitions so far in 2022 and rising labor costs
How Charles Schwab and other advisor custodians are competing to offer a more seamless digital onboarding experience for advisors and their clients

From there, we have several articles on practice management:

New rankings show what it takes for RIAs to make it into the top 100 by AUM, and why seeking out ‘smaller’ clients can spur firm growth
The range of considerations and potential consequences for RIAs considering going public
How advisory firm owners can take advantage of a newly expanded range of available sources of liquidity

We also have a number of articles on investing:

Why some advisors and their clients might want to consider taking RMDs this year ‘in-kind’ rather than in cash
How fixed annuities have become more popular among consumers amid rising interest rates and turbulent markets
New research shows how ‘free’ stock trades potentially cost consumers billions of dollars each year

We wrap up with three final articles, all about career development:

Why building a personal brand is more about consistency than a large social media following
How to construct a ‘personal board of directors’ who can help guide and advance your career
Best practices for advisors (or their clients) who want to take a sabbatical away from work

Enjoy the ‘light’ reading!

Kitces & Carl Ep 93: Getting An ROI From Your New Associate Advisor (In Less Than 6 Years)

August 25, 2022 07:05 am 3 Comments CATEGORY: Kitces & Carl Podcast

Kitces Carl Ep Getting An ROI From Your New Associate Advisor In Less Than Years Featured Image

Historically, the career path for newer financial advisors has followed a commission-based model that was focused on sales and business development first and learning the technical aspects of financial planning along the way. As the financial advisory industry has evolved, though, it has shifted to a business model that focuses more on teaching new advisors how to provide good financial planning services first, and to focus on business development later. With that shift, the timeline for how long it takes for an associate advisor to manage their own client relationships and develop new business for the firm has changed from just a few months to an average of 6 to 7 years. This shift has led the current generation of advisors to wonder if the return on investment in developing new associate advisors is worth the extended time and effort it takes to fully train them to become lead advisors.

In our 93rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explain how the time and resources it takes to elevate an associate advisor can benefit a firm, and what the current generation of new advisors can do to be successful in their roles.

As a starting point, it’s important to recognize that since many of the business models that financial advisory firms follow have become more service-oriented, determining how newer advisors can add meaningful value has also changed, as evaluating newer advisors based on the value they bring through sales and business development is no longer as relevant. Though it may take longer for associate advisors to reach a point where they will bring in their own new clients and generate revenue, they can still add value to the firm in as little as 6 months. While they are getting up to speed, associate advisors can attend meetings, take notes, input data into CRM systems and planning software, and even help prepare the financial plan. The more time spent working on such tasks helps the associate advisor to understand and learn these important processes, doing them in a way consistent with the firm culture. Because, by delegating these tasks to an associate advisor, the lead advisor can spend more time focusing on providing better service to clients by spending more face time in client meetings, prospecting for new clients, and following up more diligently with client referrals.

Ultimately, the key point is that while there may be a significant investment of time and money into training associate advisors to become lead advisors, the meaningful value they create along the way in supporting lead advisors and learning firm culture can still have a great impact on the business now, even if they aren’t generating new business for the firm right away. Because when lead advisors have the support to enable them to focus more time on developing client relationships, not only will clients be more inclined to stay, but advisors will also have the capacity to bring even more clients to the firm (and generate more revenue) along the way!

Drafting RIA Advisory Agreements: Best Practices And Essential Elements To Include

August 24, 2022 07:08 am 1 Comment CATEGORY: Regulation & Compliance

Advisory agreements for Registered Investment Advisers (RIAs) contain many sections that are important both for the purposes of complying with SEC and state securities regulations, and for constituting a valid agreement between the RIA and the client.

In his latest article for the Nerd’s Eye View blog, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal, laid out the statutory requirements for RIA advisory agreements and what to include in the agreement when describing the RIA’s services and fees. In this follow-up guest post, Chris expands upon the best practices for drafting advisory agreements and covers numerous other essential elements for advisory agreements to contain, including identifying the client and effective date of the agreement, disclosure responsibilities for the RIA and client, the language around both parties’ rights and responsibilities in the event of a dispute, and how the agreement can be modified or terminated.

To start, the agreement should contain basic information about the adviser-client relationship, including who the client is (e.g., a single person, a couple, a business, or a retirement plan) and the date on which the agreement will become effective.

The agreement should also lay out some acknowledgments for the client to review. These include the acknowledgment that the adviser has provided required disclosure documents like Forms ADV Part 2A/B and Form CRS (and, importantly, has obtained consent to have those documents delivered electronically), acknowledgment of the client’s responsibilities to provide complete and accurate information needed by the adviser in a timely manner and to communicate any changes relevant that might affect the advice given by the adviser, and an acknowledgment that investment and financial planning recommendations involve risk and that there is no guarantee of future performance.

Another important section of the agreement concerns the resolution of disputes between the adviser and the client. While many IRAs include a clause in their advisory agreements limiting their liability in giving financial advice in good faith, the SEC and state regulators have recently been scrutinizing such ‘hedge clauses’ to the extent that they may be found impermissible going forward. At a minimum, the agreement should describe in detail how and where such disputes should be resolved (including which state’s laws the proceedings would be pursuant to).

Finally, the advisory agreement should include provisions for how it may be amended, modified, or terminated, as well as standard legal ‘boilerplate’ language and, of course, a space for the adviser and client to sign the agreement (either physically or electronically).

The key point is that, while the specific requirements for advisory agreements required by the Advisers Act may be fairly narrow in scope, in reality, there are many contractual best practices that advisers can follow to fully comply with Federal and state securities regulations. And even though many advisory agreement provisions can be standardized, agreements should still accurately reflect the advisory relationship with each client (meaning they shouldn’t be so broadly worded as to not reflect the specific services provided and fees charged by the adviser). And while it may not be necessary to have an attorney review every individual agreement signed by a client, it may be wise to obtain some legal advice to aid in the drafting of template agreements (especially given the many state-specific nuances in securities regulation that may diverge from the broad provisions of the Advisers Act).

#FA Success Ep 295: Systematizing A Planning Process To Maximize The Return On Life For Clients, With Shari Greco Reiches

August 23, 2022 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Shari Greco Reiches Podcast Featured Image FAS

Welcome back to the 295th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Shari Greco Reiches. Shari is the Co-Founder and Chief Visionary Officer of Rappaport Reiches Capital Management, an independent RIA based in Skokie, Illinois, that oversees more than $800 million in assets under management, for 350 client households.

What's unique about Shari, though, is how after a life-changing experience she went through in trying to get clear in articulating her own most important values, she created a 5-step “Maximize the Return on Life” framework to use with her clients, and then created what she calls her “CFO Family Checklist” as a form of living financial plan to help clients stay focused on whether they’re not just on track with their financial plan but that their plan is consistent with their values.

In this episode, we talk in-depth about how Shari developed her 5-prong “Maximize the Return on Life” approach with clients and how she and the rest of the advisors in her firm iteratively built over time their “CFO Family Checklist” of planning issues to discuss with clients, how Shari’s firm uses the Diamond Teams approach to both more clearly establish roles for each team member, and outline pathways for promotion to help grow the firm from within, and how Shari and her firm leverage their financial planning plus passive investment approach as a way to gain more referrals, including from other financial advisors who have higher asset minimums, by highlighting how their passive investment philosophy means a referrer will never get embarrassed by having the firm they referred to deliver returns that are significantly below benchmark (because by definition, Shari’s passive approach is to own the benchmark in the first place).

We also talk about how Shari was first inspired to create the “Maximize Your Return On Life” framework after attending a workshop for advisory firm owners where the attendees were prompted to find the values that mean the most to improving their own lives as business owners (which also helped her rediscover what she values most), how Shari leverages a weekly newsletter, social media, webinars, and her book to attract and connect with prospective clients, and the internal three-times-a-week meeting structure Shari and her firm use to not only discuss client planning strategies as a team, but to also connect with one another and deepen team collaboration.

And be certain to listen to the end, where Shari shares the early struggles that she had in hiring and turnover (especially when the firm was so small that one person leaving could really pull everyone down), how Shari eventually became comfortable with letting go of having control over all the aspects of the firm and found she didn’t really have to touch every client relationship for them to get the quality experience that she wanted every client to have, and the challenges that Shari faced by having taken on every client they could (regardless of fit) because the firm was just so anxious to get any clients early on, to the point that eventually Shari found the frustration was dragging down her team members, and that it was better to lift team morale by just starting to refer out the bad-fit clients instead.

So, whether you’re interested in learning about how Shari’s 5-prong approach to financial planning helps her better align her clients’ financial goals to their values, why Shari and her firm incorporate a “CFO Family Checklist” to systematize processes and meeting cadences, or how Shari’s “Road to a Billion” vision has molded every business decision made along the way, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Shari Greco Reiches.

Client Cash Management: Why It’s Important, And The Next Generation Of Technology To Make It Better

August 22, 2022 07:02 am 8 Comments CATEGORY: General Planning

Cash tends to exist at the forefront of individuals' day-to-day lives for many reasons: as a stable savings vehicle for near-term goals, a safety net for unforeseen emergency expenses, and, of course, to pay for daily living expenses, just to name a few. And this nearness to daily life means that cash - and how it is used - is also often at the forefront of individuals' minds. In general, this means that people are more likely to be more aware of how much cash they're holding than the other numbers in their financial life, like the balances on their retirement accounts (which, being less 'immediate' in their intended purpose, are not often at the forefront of most people's minds to the same extent that cash is).

However, despite the impact that cash may have on a person's mindset, advisors have traditionally spent little time advising clients on what to do with their cash - except simply to tell them not to hold too much for risk of losing value to inflation. With recent economic changes, though, there are renewed opportunities for advisors to help clients manage their cash more effectively. For example, bank account balances have increased sharply in the last three years due to governmental programs in response to the pandemic and also to generally rising wages and salaries. At the same time, the Federal Reserve has recently raised key interest rates, which has resulted in higher yields on bank accounts, CDs, and other cash-like assets. Which means that, for the first time in years, individuals might start earning non-trivial yields on their cash, and potentially have a higher amount of cash on hand to manage as well. And so advisors have an opportunity to add value in new ways by advising clients on the questions of how much cash to hold and where to keep it!

While high-yield savings accounts at online banks have been a popular place for storing cash for the last decade, in more recent years the FinTech world has developed more options that could create more value for advisors and their clients. One example is cash management accounts developed by digitally-focused broker-dealers and robo-advisors, which while similar to savings accounts from a customer's perspective, provide key features (like higher FDIC coverage limits and a streamlined experience with the customer's existing investment accounts) that distinguish them from traditional savings accounts.

Though many of these accounts exist primarily to serve retail customers of broker-dealers and robo-advisors (which might make advisors hesitant to recommend them for fear of introducing customers to a potential competitor), there are also multiple options for cash management accounts developed solely for clients of financial advisors. With these options, advisors can offer a cash management service within the rest of their financial planning 'ecosystem', offering competitive yields on cash and FDIC coverage limits of up to $25 million, without having to send clients out to other financial institutions that might want to lure them away from the advisor!

Ultimately, the key point is that while the current economic environment provides a particular opportunity to focus on cash management, the reality is that the value of cash management can be ongoing despite the ebb and flow of economic conditions. For advisors looking to be paid directly for this value, a small, flat cash-management fee might be feasible without eating up too much of the yield on clients' cash. However, in most cases, cash management may actually be a worthwhile 'free' service – both only as a differentiator for prospects, but also as a way to renew existing client relationships and continually provide ongoing value!

Weekend Reading For Financial Planners (Aug 20-21)

August 19, 2022 02:04 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 the FPA is planning to leave the Financial Planning Coalition (which also includes the CFP Board and NAPFA) at the end of the year. This follows the FPA’s announcement that it plans to pursue title reform for the term “financial planner”, and signals that there may be coordination challenges or divergent strategies among the three organizations that could make title reform more challenging, as regulators are likely to receive pushback on any significant title reform from the financial products industry that will want to see its salespeople also permitted to use the popular title.

Also in industry news this week:

A recent study shows that many financial advisors want to spend more time on comprehensive planning and are looking at automated solutions to help them reduce the time they spend on investment management
Why consumers see both human advice and technological solutions as key parts of their financial success

From there, we have several articles on advisor marketing and sales:

The questions busy advisors can add to their calendaring software to filter (and refer out) unqualified prospects before spending time on a meeting
Why it is valuable for advisors to create an archetype of their ‘ideal client’ and the process they can take to do so
Three high-value questions advisors can use to connect with prospects and convert more of them into clients

We also have a number of articles on client psychology:

How “temporal discounting” can help explain why clients put off difficult decisions
Why those with a longer “mental time horizon” tend to be more successful financially and how advisors can help their clients plan further into the future
Why the “End Of History Illusion” suggests that creating future financial flexibility for clients might be more valuable than pursuing specific goals that are decades away

We wrap up with three final articles, all about workplace trends:

Recent data points show how workers have been adjusting their presence in the office, from only going in a couple of days per week to working in the office for a few hours each visit
While companies might be tempted to use worker-tracking software to gauge productivity in the remote work environment, doing so can create a lack of trust and low morale among the workforce
How companies have adjusted their workplace rituals in the remote environment to promote employee engagement

Enjoy the ‘light’ reading!