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Kitces & Carl Ep 57: Transitioning “Good” Clients Who Simply Can’t Be Served Profitably

April 8, 2021 07:05 am 1 Comment CATEGORY: Kitces & Carl Podcast

If there’s one thing that just about every financial advisor can agree upon, it’s that surviving the first few years in the advice business is very difficult. As a result, there’s a natural tendency for newer advisors to not be terribly picky about who they take on as clients, as getting any new clients that can generate any new dollars flowing into the business is often necessary for survival. However as advisers begin to find success, they have the opportunity to start building their practice with focused intent. For some, that means growing and scaling by hiring staff to support a growing number of clients. For others, that may mean remaining a ‘solo’ lifestyle practice and serving a (relatively) small number of (often highly profitable) clients.

But, no matter what a practice may look like, many advisors reach a certain point where the clients that helped them get off their feet early on are no longer a good fit… whether because they “can’t be serviced profitably” given new staff infrastructure, or don’t generate enough revenue to fit the more focused lifestyle practice, such that they can even become a drag on overall business results. In the case of no-longer-profitable clients who aren’t pleasant to work with in the first place, the solution is often straightforward. But what if they’re not unpleasant, just “unprofitable”? Which raises the question: How should advisors handle clients who they otherwise know they are helping and truly enjoy working with, but just aren’t profitable to serve?

In our 57th episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss how to determine if a client doesn’t meet the profitability goals of a business, how to think about serving unprofitable clients who are otherwise a pleasure to work with and need good financial advice, and how to communicate with those clients when there’s no other choice but to let them go.

As a starting point, it’s important to first identify which clients are actually unprofitable for the practice. Accordingly, a common rule of thumb is to take the average revenue per client across the firm (by taking total revenues of the firm and dividing that number by the total number of clients) and then dividing that number by three. Since most advisory firms have overhead somewhere in the neighborhood of 30-40%, those clients who are generating less than about a third of the average revenue per client simply aren’t covering their slice of the basic costs of running the business.

From there, advisors can make a deliberate decision to designate a certain number of clients as “pro bono” and continue to serve them. But after those proverbial pro bono seats are full, there may be even more clients that now need to be transitioned. At that point, the best way to handle that conversation is by being candid and honest, and by explaining that, because of the level of service that’s being provided, the firm needs to charge a higher fee commensurate with the services it’s providing… and that it wouldn’t be in the client’s financial interest to pay the firm’s (new, higher) minimum fees. At that point, the advisor is communicating that they aren’t a good fit for the client (rather than the other way around, in a manner that could hurt the client’s feelings), and can best help by finding a different advisor who is!

Ultimately, the key point is that advisors chose this profession because they want to help people, but it’s equally important to acknowledge that advisors can’t help everyone… and that there are also other advisors out there who do great work, and for whom one advisor’s unprofitable client could still be a very good client for them. In other words, just because a client can’t be served profitably by one advisor doesn’t mean they can’t be served well by any advisor (as one advisor’s “C” client may still be someone else’s “A” client!). Which means transitioning clients who aren’t a good fit isn’t simply about “rejecting” them or leaving them to fend for themselves… instead, it’s an opportunity to help them find the advisor who will want to service them at the level they need and deserve, for the benefit of all!

Making Monte Carlo Results More Relevant By Finding The Right Level Of Abstraction

April 7, 2021 07:04 am 8 Comments CATEGORY: Retirement Planning

When it comes to navigating the world and understanding our surroundings, abstraction (i.e., the process of extracting the higher-level essence of something to formulate general ideas of concepts) is very important. We are constantly formulating and updating mental maps of our world for the purpose of carrying out goals. Abstraction is particularly relevant in a field like financial planning, where we deal with abstractions that are not only more complex than simple, physical objects (e.g., a tangible concept like a chair), but also that represent concepts that are complex and abstract themselves (e.g., the concept of preparedness for retirement).

One difficulty with developing abstractions is that ‘ideal’ levels of abstraction are simply not self-evident. In one context, a ‘high-resolution’ abstraction (e.g., one with very specific information, like the scientific name for a certain species of rattlesnake, 'Crotalus atrox') may be ideal, whereas in another context a ‘low-resolution’ abstraction (e.g., a broader, less detailed description, such as ‘living organism’) may be best. Yet, in other circumstances, some middle-ground abstraction (e.g., ‘rattlesnake’) may be most useful. The level of abstraction that is ideal depends on many factors such as one’s environment, the knowledge level of those we are communicating with, and the need to convey certain pieces of information. This is why a group of advisors can communicate just fine using industry jargon, while that same industry jargon could be a barrier to communicating with a client.

Perhaps one of the best abstractions ever developed within financial planning is the Morningstar Style Box. By capturing two of the most crucial dimensions of equity returns within a single, easy-to-read graphic, the Morningstar Style Box conveys a tremendous amount of important information about a stock portfolio in a highly efficient manner. The Morningstar Style Box also has the advantage of reporting two primary dimensions, which lends itself to presentation in a two-dimensional graphic that remains easy for our brains to interpret. However, once we get out to three dimensions (and particularly four or more dimensions), the added complexity can actually diminish our understanding rather than enhance it.

Despite the success of abstractions such as the Morningstar Style Box, however, abstractions used for many other key concepts within financial planning are severely lacking. For instance, ‘probability of success’ – the primary metric used for conveying preparedness for retirement within most modern planning software – is known to have a number of issues. In particular, ‘probability of success/failure’ entirely misses the dimension of ‘magnitude of success/failure’, which is highly important for developing a rich qualitative understanding of a retiree’s plan dynamics. For instance, a plan with a high probability of failure and a low magnitude of failure is qualitatively different than a plan with a high probability of failure and a high magnitude of failure, but in a world where only ‘probability of success’ is reported, then these two plans will look identical.

Notably, the problem with many Monte Carlo-based retirement analyses is not necessarily with Monte Carlo itself, but with trying to find a better abstraction for communicating Monte Carlo results. At a minimum, an ideal abstraction likely needs to cover both relevant likelihood and magnitude of success/failure. Furthermore, an ideal abstraction should convey that success/failure themselves can be a bit inaccurate in a world where ‘adjustment’ can avoid the most extreme outcomes. And finally, we also want to consider what may even be most important to report to a client in the first place, as it is possible that Monte Carlo metrics can largely live behind the scenes while planning results can be reported in a manner that is more directly relevant to clients (e.g., How much can my portfolio go up/down before I have to make a change? How big of a change would I need to make?).

Ultimately, the key point is to simply acknowledge how financial advisors abstract results that are reported to clients matters. The ideal level of abstraction is not self-evident and varies by context, but it is quite clear that ‘probability of success’ leaves a lot to be desired. We’re still at an early stage of figuring out what those abstractions may be, and most dominant platforms currently have quite limited ability to report anything other than the focal point of ‘probability of success’. We, as advisors, should be thinking about developing better ways to communicate with clients and, if the current tools don’t provide ideal levels of abstraction, letting software providers know that we want more than ‘just’ probability of success!

#FASuccess Ep 223: Finding Success In Succession By Building Towards The Successor’s Vision, With Marianela Collado

April 6, 2021 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 223rd episode of Financial Advisor Success Podcast!

My guest on today’s podcast is Marianela Collado. Marianela is the CEO and majority shareholder of Tobias Financial Advisors, an independent RIA based in Plantation, FL, that services over $500 million of assets for just under 300 households.

What’s unique about Marianela, though, is that she is the next generation owner and leader of Tobias Financial, having successfully navigated an unexpectedly accelerated succession plan laid out by the founder, Ben Tobias, and in the years since has grown the firm from a one-person practice into a business with multiple lead-advisors and an eye towards developing a subsequent succession plan for the next, next generation… all while intentionally keeping the Tobias Financial name.

In this episode, we talk in-depth about how Marianela’s deep background and expertise in tax planning for ultra-high net worth individuals gave her instant credibility when coming into a practice where clients had only ever worked with the founder, how her vision for building out a larger advisory business with the capacity to serve more clients didn’t end out being a roadblock for the succession plan since she and Ben shared the same foundational values around client service and advice, and the subtle changes that Marianela made around client experience and branding ahead of the final execution of the agreement that helped foster a sense of natural transition from the client’s perspective.

We also talk about how Marianela identified early on after joining the firm that, in order to create a solid foundation for growth later on, she would have to formalize a development program to attract and retain talent, the tangible lesson everyone at the firm learned shortly thereafter about why a succession plan is such an essential element of servicing clients well, what it was like when Marianela realized the gravity of the role she assumed after she was handed the company checkbook and instantly responsible for her staff’s livelihoods, and how that led her to hire someone else to run the day-to-day operations of the firm so that she could focus on leading the business’s growth and its client service.

And be certain to listen to the end, where Marianela shares how she set out to create a cohesive culture within the firm, align employee compensation with firm goals, and formalized her advisors’ organization structure by implementing Angie Herber’s Diamond Team model, how she fosters relationships with CPAs and attorneys by conducting “sound checks” to get feedback on planning strategies she’s implementing with her own clients (and, in turn, making those outside centers of influence shine in the eyes of their own clients), and the industry recognition that Tobias Financial has earned for building out a diverse team of advisors and support staff (and the key insights around diversity and inclusion that helped Marianela create a structure to achieve such diversity with her team).

So whether you're interested in how Marianela executed a successful succession plan, how she's managed to 2x the size of the firm she took over in a little over three years, or how she's been able to build such a diverse team, then we hope you enjoy this episode of the Financial Advisor Success podcast with Marianela Collado.

The Latest In Financial #AdvisorTech (April 2021)

April 5, 2021 07:03 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the April 2021 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the big news that AssetMark has acquired UK financial planning software provider Voyant for $145M, with plans to bring the planning software as a new competitor to the US (in addition to likely deeply integrating it into AssetMark’s own technology stack), highlighting both on the ongoing rise of financial planning, the dearth of new financial planning competitors with enough market share for strategic acquirers, and the reality that financial planning software continues to be an appealing synergistic value-add not only to investment-centric firms offering financial planning but also asset managers and TAMPs trying to expand into working with more planning-centric advisors.

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Orion acquires Hidden Levers to not only expand their risk-centric proposal generation tools but also to overlay portfolio stress testing onto the risk management of advisory firms themselves
Tifin Group acquires Totum Risk and MyFinancialAnswers to bring together yet another emerging advisor platform with embedded financial planning
Outsourced IT managed service providers have become the latest RIA services play for PE firms looking to roll up in the RIA channel
AdvicePay rolls out mobile deposits for financial planning checks to cut down on overnight postage fees for large enterprises (no-longer-)overnighting paper checks

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

Envestnet fully acquires Apprise’s high-net-worth planning tools to feed its new Trust Services Exchange
Skience launches a new data warehousing solution for mid-to-large-sized advisory firms that want more control over their client data
Pershing beta tests a new digital repapering process that aims to take the pain out of breaking away from a broker-dealer
FP Alpha launches a new “Tax Snapshot” to compete against Holistiplan as technology-driven reviews of tax returns get increasingly popular

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Apr 3-4)

April 2, 2021 02:55 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the announcement that the CFP Board is updating the Principal Knowledge Topics of the CFP exam to reflect the ever-growing focus on behavioral coaching for clients that emerged from its latest Practice Analysis of what financial planners do in practice with clients, adding in not just a "behavioral finance" educational component but an entire "Psychology of Financial Planning" category that will become incorporated into CFP curricula (and the CFP exam itself) in 2022 and beyond.

In addition, there are several other notable studies about financial advisors and financial advice in the news this week, including:

The majority of consumers earning more than $100,000/year use a financial advisor, and a whopping 95% of them say the advisor is worth it (but more than half of consumers think financial advisors are far more expensive than they actually are!)
The overwhelming majority of consumers working with a financial planner agree that it's better to focus on the long-term and ignore short-term market volatility (though it's not clear how often financial advisors change their clients' minds to be more long-term, or simply attract long-term-oriented clients and then help them to stay on track?)

From there, we have several articles on advisor marketing:

Why it's important to "get mad" in speaking about the frustrations and 'financial injustices' in clients' lives to get them motivated to work alongside a financial advisor to solve those issues
Thinking differently about 30-second or even one-sentence "elevator pitches" to open the curiosity loop with prospects (or quickly figure out if they're not a fit and move on)
Why good branding isn't just about showing your value and Values but also tackling head-on the primary objections that result in not getting business the way you're currently doing it

We've also included a number of articles focused on retirement planning:

Who exactly will be eligible for the new "free" COBRA health insurance subsidy that just took effect at the start of April
How technology is changing the way we engage as we get older to "get more life from our longer lives"
5 different "types" of retirement savers based on their psychographic tendencies to save for and be optimistic about the future (or not)

We wrap up with three final articles, all around the theme of maximizing your own career and productivity:

How perfectionism is the enemy of delegation, and the way to break through if you're stuck trying to figure out what you're comfortable delegating
A framework to build your own career plan as a young financial advisor
Creating a system for and around yourself to pull your focus away from the $10/hour tasks that can be delegated and towards the $10,000/day tasks that only you can uniquely do to add the most value to the business

Enjoy the 'light' reading!

Helping Clients Change: From (Pre-)Contemplation To Implementation Action

March 31, 2021 07:06 am 0 Comments CATEGORY: Client Trust & Communication

Advisors hear them all the time: empty promises for change. And it is a struggle. It is a struggle for the client because they know they want to change and are paying their financial advisor to help them with that change. Yet, they do not move forward. It is also a struggle for the advisor because it is confusing and uncomfortable to ‘fight’ with a client about making a change when the client themselves was the one who said they wanted to implement the change… and now they just want to argue about seeing it through!

Yet, what the financial advisor and client are both often oblivious to is how change happens. And this is no one’s fault – no one teaches the Transtheoretical Model (TTM) of change except for psychology professors (although even 3^rd graders would benefit from learning about how to change – advocating for a better understanding of the change process would create a more change-friendly world!). But without understanding how change happens, it will be challenging to work with clients and figure out how to make it happen.

In the Transtheoretical Model (TTM), Pre-Contemplation is the first stage of the change process. In this stage, clients might not be aware that change is important, or more likely, they have identified the change and might even be able to recite a ‘why’ or two (e.g., retirement sounds fun… someday), but they still have no intention to see this change through (e.g., I have no intention to actually stop going out for coffee or to set up a savings plan). In other words, Pre-Contemplators not only don’t change… they aren’t even really thinking about what it would take to do it.

The central issue in the Pre-Contemplation stage is that clients often get stuck and resist change, even when they acknowledge they should change. Which can be confusing (and frustrating!) to the financial advisor after having just heard the client claim they want to implement changes to reach their goals, followed by the client actively defending their current behavior instead of working to implement the change!

So what should financial advisors do? Arguing with the client generally won’t help. And many times, more client education won’t help either. Enter James and Janice Prochaska, the authors of Changing to Thrive, who have written about what people need at each stage of the change process. Individuals in the Pre-Contemplation stage often feel ambivalent and are probably feeling somewhat disheartened by earlier attempts to change. This can result in anxiety over trying again, and defensiveness of current behavior to avoid having to try again.

The Prochaskas suggest some strategies that advisors can use to help clients, such as coming up with positive reasons for change (instead of the negative outcomes from not implementing the change), educating not on the ‘what’ but on the ‘how’ (because clients often don’t know what exactly they need to do), and spending time addressing clients’ deeper motivations for changing. The Prochaskas also developed worksheets to help people engage in change, which can be easily adapted to address changes that financial planning clients may need to make. These can give advisors a process-oriented strategy to address their clients’ issues, and can make having these potentially sensitive conversations with clients less intimidating.

Because the key point is that while change can be hard, it does have a process to it. If financial advisors understand the change process and what their clients are working toward, then they can implement a systematic way to discuss change with their clients. And by recognizing that action is not yet required in the Pre-Contemplation stage (instead, it is just about recognizing the importance of change and moving toward the Contemplation stage), advisors can help their clients more easily accept the changes they need to make. Change still won’t happen overnight, but that is okay. By guiding their clients through the steps of the change process, advisors will feel less confused and more empowered in their conversations with clients, and clients will be more likely to accept (and eventually take action on) the changes they need to make!

#FASuccess Ep 222: Scaling Growth By Separating Prospecting And Leadership From Client Advice, With Jonathan Kuttin

March 30, 2021 07:04 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 222nd episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Jonathan Kuttin. Jon is the founder of Kuttin Wealth Management, a hybrid RIA headquartered on Long Island, NY that manages over $3 billion dollars for about 5,500 clients.

What’s unique about Jon, though, is that as his firm grew to the point where it became necessary to separate client service from leadership and operation of the business, Jon did not hire a COO to run the firm, and instead made a deliberate decision to move himself away from a client-facing role of working in the business so he could spend all of his time working on the business and developing its systems and culture instead.

In the episode, we talk in-depth about how Jon has carved out three distinct roles within his firm that allow employees to focus solely on what they’re good at (creating both superior results and clarity around responsibilities within the firm itself), why Jon has found that the business is growing better by getting his advisors completely out of the prospecting business and focused on delivering an amazing client experience, and how Jon has powered the growth of the firm by separately building a CPA referral program to bring in prospects that his advisors then close by leveraging the “borrowed trust” they receive from the CPA referrals.

We also talk about the way the “entrepreneurial itch” influenced Jon’s decision to leave his salaried management role at Ameriprise to start his own practice, how once Jon achieved financial security for himself and his family his focus and drive shifted towards helping people within his organization get what they want out of life, how Jon has carried lessons that he learned early on around fostering a strong culture and developing leaders throughout his career, and the “WDYWFY” question of “What Do You Want For Yourself” that Jon has found to be the most effective way to build both loyalty and a culture that really cares about and values the people within the organization.

And be certain to listen to the end, where Jon shares the challenges that still come along the way of scaling an advisory firm by nearly 100X from $30M to $3B over the past 20 years, why Jon felt it was necessary to transition the firm to a vision-based culture that didn’t require him to make every key decision, how Jon learned that having integrity still isn’t a substitute for also having key legal agreements in place after a key partner broke up with the firm and took away a significant segment of clients and revenue, and the 5 levels of leadership that Jon tries to cultivate in all the leaders of the firm – including himself – as he looks to continue growing in the decades to come.

So whether you’re interested in how Jonathan forged productive relationships with CPAs who actively refer clients to his firm, why he’s focused so intently on culture as a key part of his organization, and why getting his advisors out of the business of prospecting has allowed his firm to scale even faster, then we hope you enjoy this episode of the Financial Advisor Success podcast with Jonathan Kuttin.

3 Types Of Advisor Teams And How To Leverage Each To Achieve Firm Goals

March 29, 2021 07:04 am 15 Comments CATEGORY: Practice Management

The ongoing growth of financial advisory businesses over the past decade, when combined with the shift to ongoing recurring revenue models (from assets under management to monthly subscription fees), has led to more and more advisory firms accumulating a critical mass of clientele that requires them to expand their capacity by shifting from the ‘solopreneur’ advisor model into forming an advisor team. The appeal of the team model is the potential to both improve operational productivity through delegation of tasks, expand service with a broader range of expertise, and train and develop next-generation financial advisors in the business. At least, if the advisor team can actually function effectively… as in practice, it’s not enough to simply form the team, it’s also important to ensure it’s the right kind of team to accomplish the business goals of the firm, and that the team develops the skills necessary for it to function successfully!

Because the good news is that, with the right design and training, an Operational Advisor Team can function to increase revenue productivity, an Expertise Advisor Team can offer a wider range of professional services for clients, and a Development Advisor Team can cultivate a deeper talent pool for the benefit of the firm’s future. However, because those teams require different designs and training for each, it’s first necessary to identify the specific bigger-picture goals that are most important to the firm, to ensure the firm selects, optimizes, and fully leverages the team’s structure and training protocols to suit their purpose more appropriately. In other words, by first considering the benefits and challenges inherent in each type of Advisor Team, firms can optimize their team designs to fulfill their desired purpose.

Operational Advisor Teams function mainly to increase revenue productivity and operational efficiency by establishing work roles (e.g., back-office paperwork, scheduling, financial plan research and preparation) that support advisors, allowing them to maximize their facetime with clients. Yet, an effective Operational Team generally requires team members to work together seamlessly and to rely on the work products of their co-workers. Accordingly, the primary challenges for Operational Advisor Teams are developing trust among all team members, and establishing accountability standards through the development of training protocols that ensure the team knows what and how to do the work that is expected of them. Providing opportunities for autonomy can help team members develop trust with other team members, and even assigning team members themselves to create training protocols can encourage a culture of trust and accountability.

Expertise Advisor Teams provide clients with more of a ‘one-stop-shop’ experience for their financial planning needs, and include multiple advisors across different areas of expertise (e.g., CFPs provide comprehensive financial planning, CPAs run tax analyses, CFAs oversee client portfolio management, and estate attorneys identify estate planning strategies and create appropriate legal documents). The main challenges for these teams revolve around composition and communication. It is critical to identify the specific services to be offered so that the right set of experts are selected for the team. Furthermore, the importance of establishing (and reinforcing!) good communication protocols will be important, especially with a team of experts, to ensure that messages delivered to clients remain professional (e.g., ensuring that team members are courteous and respectful to clients… and to each other, even when they professionally disagree!) and uniform (e.g., getting all team members on the same page with respect to client strategy, despite different expert opinions that may conflict with one another). Thus, developing good communication skills within the team by holding meetings to review client strategies in advance, rehearsing conversations through roleplay exercises, and, when hiring new team members, will ensure that all members of the team understand the reason in order to maintain positive morale.

Development Advisor Teams foster new and rising talent in the firm with a focus on investing for the firm’s future talent pipeline, whether the reason is to support succession planning needs, to offer more vacation time, or to deepen the firm’s next-generation talent pool. For Development Advisor Teams, one of the main challenges lies in establishing training programs, which can be both time- and labor-intensive. Delegating to less experienced team members is another challenge, which can be emotionally difficult for more seasoned team members who may be struggling with the idea of retirement or moving on to different roles, and mentally challenging for those who must remember that tasks which are easy for them (that they have carried out routinely for many years) can be complex and potentially difficult to master for newer team members who need detailed instructions. Yet, in order to develop effective training programs and to delegate the right tasks to the right individuals, it is important to crystallize the specific goals of the company. Accordingly, by setting goals that are SMART (Specific, Measurable, Achievable, Realistic, and Timely), firms can design Development Advisor Teams that meet their specific objectives.

Ultimately, the key point is that there are different types of teams that advisory firms can develop, and choosing the right type of team will depend on what is most important to the firm and what overall goals the company has. But with a clear understanding of the ideal type of team that can fulfill the advisory firm’s goals, it’s possible to tackle the unique challenges that each type of team commonly faces, and advisory firms can target specific solutions to help their teams thrive while meeting organizational goals!

Weekend Reading for Financial Planners (Mar 27-28)

March 26, 2021 02:59 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a look at the new health insurance planning opportunities that have emerged under the American Rescue Plan, from the potential to receive several months of "free" (tax-credit-subsidized) COBRA coverage to new rules for Premium Assistance Tax Credits that can produce thousands of dollars in tax savings for those who buy health insurance from state insurance exchanges in 2021.

From there, we have several articles on advisor marketing:

What is a "Retargeting Ad" and why retargeting can be an especially efficient way for financial advisors to spend their marketing dollars
Why "Email" continues to be the #1 most popular marketing channel for financial advisors (and is becoming more popular with the rise of email marketing automation tools)
What it takes to become "an authority" where your expertise attracts your ideal prospective clients
The rise of website providers dedicated to working with financial advisors to produce websites at a "reasonable" (i.e., not $20,000+) cost

We've also included a number of articles focused on retirement planning:

Why new retirees are beginning to look at taking a "gap year" between the end of work and the beginning of retirement (to better figure out what they want to do, and where they want to live, in retirement)
How "retirement" itself isn't just a phase, but continues 6 sub-phases in retirement (that advisors can help their retired clients navigate through)
A new approach to thinking about more "flexible" retirement spending strategies and why "spending flexibility" itself is a continuum along which retirees can choose an optimal spending strategy
The rise of new Social Security training programs, from the National Social Security Advisor (NSSA) program to the new Registered Social Security Analyst (RSSA) certification

We wrap up with three final articles, all around the theme of (re-)drawing the line between work and home life:

How work itself is increasingly becoming "omnipresent", where "are you available" isn't a question of whether you're actually available and have time, but whether you're ready and willing to give attention to work at that moment
How the pandemic gave rise to the staycation (taking a vacation but staying at home), and now the work-from-home work is leading to the rise of the "workcation"
The ways that businesses are (re-)designing Paid Time Off programs in the modern environment, from more flexible sick-plus-vacation time, to "forced" vacation days, and floating holidays

Enjoy the 'light' reading!

Kitces & Carl Ep 56: The Advisor Fee Debate And Focusing On Value Over Price

March 25, 2021 07:06 am 4 Comments CATEGORY: Kitces & Carl Podcast

For the past several decades, the prices that consumers pay for financial products have been trending lower and lower. From the rise of discount brokerage in the 80s, to no-load mutual funds platforms in the 90s, online brokerage in the “aughts”, and robo-advisors in the 2010s, the cost of investing has decreased steadily and dramatically. Accordingly, a recurring concern over the past decade has been whether the “fee compression” in financial products will eventually spread to financial advice as well. Instead, though, the opposite has been true, as our own Kitces Research shows that there has actually been fee expansion when it comes to financial advice, as the typical price that advisors charge for standalone financial plans, retainers, and hourly rates has been on the rise (and even AUM fees have remained remarkably stable!). Which suggests that, as the industry has become more focused on the advice side of the equation (and less on product sales), advisors have had to up their game… and in practice really are delivering far more value to their clients than they ever have… to the point that they’re even able to charge more for it!

However, as the advisory world transitions fully to advice fees and the debate between commissions versus fees begins to fade, a new sort of industry conflict is rising to take its place: where advisors who charge fees are criticizing each other for whatever fee model they’ve chosen to utilize within their practices, and the suggestion that their particular fee model is superior to all the others. Which raises the question: is the debate about the “best” advice fee model another version of consumer education (akin to teaching consumers about the difference between fees versus commissions), or are advisors charging fees becoming too focused on differentiating on price (or pricing model) instead of focusing on the range of value that a range of advice fee models can support?

In our 56th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss the emerging new advisor fee debate, why advisors may be missing the mark on the core issue at play, and how advisors could reframe their discussion in order to help move the profession (and their own practices) forward.

As a starting point, it’s important to remember that in an industry with a lot of compensation excesses, it has been a tried-and-true tactic for financial advisors to build their businesses over the years by pointing out that their costs are lower (making it more feasible to deliver better performance) than their competition. Yet at the same time, it’s important to remember that there’s a difference between advisors who charge a lot for very little service, and advisors who charge a lot for a lot of service (that not all clients may want to buy and pay for… but some do). In other words, while there are certainly advisors whose rates are “high” (in absolute terms), the central debate shouldn’t be around the fee itself (or what it’s based on), but rather the value that a client is actually getting for the fees they pay. Or stated more simply, the issue isn’t whether a certain fee (or fee model) is good or bad, it’s whether the fee itself is justified for the value it provides to the particular type of clients being served.

From a client-facing perspective, meanwhile, advisors might consider focusing on all the services (and value) they provide when meeting with prospective clients, rather than highlighting the fees that other advisors may be charging. Because, at the end of the day, when advisors ask good questions and emphasize the positive effect that they have on their clients' lives, prospective clients will be able to connect the dots themselves and understand if the service that they’re getting (or not) from their current advisor is worth the fees they’re paying.

Ultimately, the key point is that advisors who win business on price run the risk of eventually losing business on price (and/or simply attracting the most price-sensitive clientele). Which means for advisors focused on long-term relationships, making clear the real value of financial advice (and what that looks like on an ongoing basis) turns the focus away from why a prospective client may or may not be paying too much, and towards their pain points and the issues that they need help with. Because it’s the emphasis on the positive work that advisors do, and the outcomes they facilitate for their clients, that will push the profession (and individual advisory firms) forward.