feed - Part 48

Using Behavioral Finance Principles To Behaviorally Coach Clients To Make Better Decisions

May 13, 2020 07:14 am 2 Comments CATEGORY: Client Trust & Communication

The study of behavioral finance has significantly enhanced our understanding of real-world financial behaviors, and (in the process) has given advisors insight into the underlying behavioral biases that cause clients to make not-always-rational decisions. Yet while examining the irrational behavior of individuals in the context of personal finance, behavioral finance focuses mainly on how individuals behave but doesn’t always do a great job explaining why they make the choices and have the biases that they do, nor in particular what financial advisors should actually do about those behaviors. Thus, while academic research on behavioral finance has imparted value to the financial planning industry, it still has a tendency to fall short when it comes to providing effective, practicable applications that advisors can bring back to their firms.

In this guest post, Jay Mooreland – Founder of The Behavioral Finance Network in Saint Paul, Minnesota – examines the challenges financial advisors face in actually implementing behavioral finance concepts effectively with their clients, and how advisors can instead use behavioral coaching not only to help clients stick to their plan but also as a way to differentiate themselves from other advisors.

One of the most common challenges with the actual application of behavioral finance is dealing with the overabundance of ‘noise’ described as ‘behavioral finance’ presented by experts and non-experts alike, which frequently offers little value to the financial advisor who isn’t just trying to understand what biases may be causing their clients to behave the way they do, but who are trying instead to help their clients change their behavior and actually stick to an agreed-upon financial plan by managing the influence of those irrational behavioral biases. As the recent market volatility from the coronavirus pandemic illustrated, simply ‘knowing’ that clients may be exhibiting behavioral biases that make them want to sell at the market bottom didn’t itself do much to talk them off the ledge.

Instead, behavioral coaching can be an effective way to help clients make better choices if done proactively and consistently. And notably, while education is a key factor in behavioral coaching, the best coaching support won’t come from advisors who just provide their clients with facts and rational statements, but will instead be more likely to come from advisors who also understand the importance of message timing (i.e., when a client would most benefit from certain ideas, which depend not just on the economic environment or current legislative landscape, but also on what is happening in the client’s own personal, financial, and emotional life), and how best to deliver the messaging (e.g., crafting messages that are easy, smart, and fun) so as to effectively stick with a client.

Advisors can also employ the principles of behavioral finance to connect and engage with clients and prospects to grow an advisor’s business, as it is critical for financial advisors to use appropriate framing (i.e., advisors can communicate most successfully when they keep the client’s point of view in mind, versus relying only on their own perspective) and understand how clients will perceive and interpret the messages they convey. Furthermore, messaging and communication that incorporate psychological factors (e.g., emotionality and connection) will generally tend to be more impactful in influencing clients’ behaviors than rationality and logic.

Ultimately, the key point is that while behavioral finance research may have limited application for financial advisors looking for practical ways to directly help their clients, advisors can use behavioral finance principles to effectively help their clients make better choices and stick to their plans with a more coaching-oriented approach. Furthermore, principles of behavioral finance that emphasize proper framing and the psychology of communication can help advisors differentiate themselves with value headlines that are personal, impactful, and that connect effectively with clients.

#FASuccess Ep 176: Understanding The Landscape Of Employee Vs. Independent Advisor Broker-Dealer Platforms, with Mindy Diamond

May 12, 2020 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 176th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Mindy Diamond. Mindy is the founder of Diamond Consultants, a recruiting firm that has been helping advisors evaluate and change their broker-dealer platforms for more than 20 years now. What's unique about Mindy, though, is her deep understanding of the full breadth of options that advisors can consider when evaluating the right platform to build their businesses - from wirehouses to regional broker-dealers, independent broker-dealers, and hybrid RIAs, and from employees to independent models.

In this episode, we talk in-depth about the range of choices that advisors have today in choosing a brokerage platform, the contrasting benefits and disadvantages of each platform depending on the types of clientele the advisor serves, how each varies in what they will pay in upfront recruiting bonuses versus higher payouts over time, and the way the independent RIA channel is increasingly replicating the brokerage channel as it shifts from simply being the most openly independent platform to instead ranging from employee tuck-ins to fully independent models as well.

We also talk about when advisors should and shouldn't look at switching to another broker-dealer platform. Why it's not enough to just feel the push that makes you want to leave your current platform but must also have a pull that makes you want to go find a new one, the most common pushes and pulls in practice that lead advisors to switch platforms, from “Lowest Common Denominator” (LCD) compliance frustrations to limitations on product choice, compensation changes or simply a desire to build more equity in your own business, and why it's so crucial for an advisor to understand and assess their own priorities first to have any chance of really picking the right platform for them.

And be certain to listen to the end, where Mindy shares her perspective on how brokerage platforms for advisors have changed over the years. Why the decision about what platform to choose is not as black and white as it once was and instead is more shades of gray, how the emergence of teaming (especially in wirehouses) may be better for advisor training but also makes it harder for advisors to change platforms when they want to, and why the most crucial question that advisors need to evaluate when figuring out whether they're in the right place or not, is simply to take a hard look at whether they really want to be an employee or independent in the first place because there are opportunities to succeed with both.

Launching A Compliance-Ready Podcast To Enhance Your Digital Marketing

May 11, 2020 07:07 am 0 Comments CATEGORY: Marketing

In this day and age of social media and social distancing, podcasting is an ever-popular means for advisors to market themselves to grow their businesses and reach prospective clients in an ‘audio-intimate’ format unique to podcast episodes. However, advisors face the unique challenge of meeting strict compliance requirements when producing a podcast show. Because of regulations imposed by the SEC and FINRA, both RIAs and broker-dealers, respectively, have specific guidelines that must be followed when it comes to communications with the public and content that may be construed as advertising.

In this guest post, Ben Krueger – Founder of Cashflow Podcasting – discusses steps that advisors can take to work with their compliance teams and to set up their own podcast episodes. The three key steps that can help advisors streamline the approval process of their podcast proposals with their compliance departments include: establishing podcast goals that aim to provide value through educating and supporting a clearly identified target audience; developing a good working relationship with the compliance team members who will be involved in reviewing the podcast and taking measures to be proactive on what they need while keeping communication channels open and clear; and creating content that complies with regulatory requirements (e.g., avoiding testimonials, endorsements, unsubstantiated claims, etc.), and then reviewing and documenting all content produced.

In addition to these steps, creating a systematic timeline for the podcast process can also help to organize a recurring schedule of events needed to produce each episode and can help the advisor stay on a regular production schedule (as the entire process can take as long as two months for producing a ready-to-air show approved by compliance), which can be important to attract and maintain a regular audience of listeners. Identifying the right tools and services can also help streamline the process, from transcription, audio editing, and production services to social media archiving and monitoring tools.

Ultimately, the key point is that while there is plenty to manage in creating a successful podcast, compliance requirements should not keep advisors from producing an effective podcast program that will help to educate their clients and grow their business. By developing a clear vision of podcast objectives, understanding compliance requirements, proactively working together with compliance team members, and identifying the best technology solutions to meet their needs, advisors can create their own compliance-ready podcast episodes!

Weekend Reading for Financial Planners (May 9-10)

May 8, 2020 02:54 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 of a new show to debut this weekend on CNBC that will feature not stock-picking entertainment but actual financial planning advice from real financial advisors (featuring advisor and media personality Josh Brown) in what may be the most visible attempt yet to burnish the public image of what it means to be a "financial advisor" away from existing negative portrayals like Wolf of Wall Street and Ozark.

Also in the news this week is an update to the SEC's Frequently Asked Questions guidance on Regulation Best Interest reaffirming that standalone broker-dealers will be required to stop using the "advisor" title after June 30th (though dually-registered broker-dealer/RIAs will still be permitted to do so, even when acting as a broker and not an RIA), registration is opening for a new online version of FINRA and NASAA Series 6, 7, 63, and 65 exams as Prometric testing centers look to stay closed for at least several more weeks in many areas (while the CFP Board has announced that the July CFP exam is being delayed to September to allow more time for in-person testing centers to open where the more comprehensive exam can be effectively proctored), a recent Fidelity study finds advisors are buying more active than passive funds in the midst of the current market volatility (though it may simply be because advisors who use active funds are more likely to actively manage them in the first place), FPA launches a "Virtual Externship" program for college students to get up to 160 hours of CFP experience if their prior in-person internships were cancelled, and a new study finds that it's the frequency of advisor-client interactions and the transparency of the advisor's compensation that drives perceived value from clients (more so than just "how much" the advisor charges and whether it's more or less than what other advisors charge).

From there, we have several articles around client communication and relationship-building, including a look at how therapists are adapting to a more virtual environment with their patients (with some lessons for financial advisors communicating with clients), how to be more mindful of whether what you're saying to clients is really empathetic or not (hint: any sentence that starts with "at least... [it isn't worse]" isn't actually very empathetic), and a reminder that it's almost impossible to really know what others are going through so even when they share their troubles it's a good idea to pause and say "tell me more about that" before just trying to (empathetically) respond without necessarily understanding what their true concern actually is.

We wrap up with three interesting articles, all around the theme of how businesses and their employees can and are continuing to adapt to the work-from-home environment and the potential of returning back to the office in the coming month: the first explores how a renewed focus on employee safety (from the potential transmission of the coronavirus) may force offices to shift away from the open-office trend and back towards cubicles (with barriers to support social distancing!); the second provides some helpful tips on apps and tools to use to be more productive in a work-from-home environment; and the last provides a helpful reminder for anyone in a position of leadership about how to communicate more productively with employees in an era when virtual workplaces necessitate a more proactive communication approach.

Enjoy the 'light' reading!

Kitces & Carl Ep 33: Triaging Clients Efficiently Through Critical Financial Care

May 7, 2020 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

As the Coronavirus pandemic has caused significant economic disruption around the world, financial advisors have been faced not only with the daunting challenge of not only how best to stay abreast of the rapidly evolving legislative landscape offering assistance to individuals and businesses in need of financial relief but also in how best to assess which clients are most urgently in need of response and critical financial care.

In our 33^rd episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about these challenges, and how despite the deluge of new legislation evolving seemingly every week, the most important thing for advisors to do during these difficult times is to maintain confidence as the experts and leaders that their clients rely upon (whatever the requisite expertise of the week may be). Because the confidence of an advisor doesn’t need to based on a mastery of the current legislative provisions available to clients alone; instead, linking one’s confidence to the ability to engage with the client – in the process of meeting with them, understanding their problems, and then developing a solution – is more effective, as these are the aspects of the relationship that clients ultimately value most.

This is not to say that the information itself is not important; on the contrary, having networks (e.g., a circle of trusted experts who have collectively agreed to help each other find answers for their respective clients) and organized systems to obtain and share information (e.g., collecting relevant documents and website links, and then posting those resources to a webpage on your website that is available to clients as a resource) can help advisors stay informed themselves, and to disseminate crucial information quickly to clients who may be in critical need of guidance.

For advisors who have too many clients who need immediate attention such that they cannot get back to all of them immediately, a triage strategy can help them determine which clients they should help first. By ranking clients’ issues in terms of the risk of failure those issues pose for the client (but obviously not necessarily telling the client they are being ranked!), advisors can help clients tackle issues that are the biggest threats to their clients’ financial well-being. And by organizing a three-step communication system of 1) responding to all clients initially, 2) setting clear expectations around when they can get a deeper response (especially if the client isn’t ranked first in the triage-ranking system), and then 3) following through with each client accordingly, advisors can ensure that all their clients are getting the attention and service they need to stay successful.

Ultimately, the key point is that advisors have access to networks to help them keep up with new information being released on a daily basis, and also easily accessible tools that can help them share that information quickly with their clients. More importantly, though, advisors should remember that, while clients may value the technical information their advisors provide to them, the real value clients derive from the relationship is their advisors’ ability to engage and connect with them, and to provide the leadership they need to stick to their financial plans!

The Latest In Financial Advisor #FinTech (May 2020)

May 4, 2020 07:06 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the May 2020 issue of the Latest News in Financial Advisor #FinTech – 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 and wealth management!

This month's edition kicks off with the news that FTV Capital (the PE firm that invested heavily into rapidly rising Riskalyze) has taken a majority stake in Docupace, which historically was a ‘document management’ system for advisory firms that had expanded into front-office new-client onboarding but now – with FTV’s capital – aims to expand into the messier (but more desperately needed) opportunities for back-office business process automation (for what remains a very paperwork-intensive industry even with the shift to digitally e-signed forms).

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

Pulse360 launches new note-taking solutions for advisors to capture client notes digitally in a client meeting and immediately thereafter queue templated follow-up messages to clients
Hidden Levers expands into financial planning software with a stress-test-based approach to modeling retirement projections
Edmond Walters launches new Apprise financial planning software platform for ultra-high-net-worth clientele
SmartAsset’s SmartAdvisor launches an extension of its lead generation service that will queue up a ‘Live Connection’ to a prospect directly by telephone
XY Planning Network launches a new compliance archiving solution for websites, emails, and a wider range of ‘next generation’ social media platforms like Instagram and Facebook Groups

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including eMoney partnering with Allianz to expand its capabilities to illustrate annuities in a decumulation plan, Orion launching a marketing automation tool to offer prospects Advizr’s financial planning modules, Schwab striking a deal for API-based direct feeds to account aggregators that should set an industry template for reducing how often links break, and serial AdvisorTech entrepreneur Steve Lockshin announcing his latest venture, an estate planning solution dubbed “Vanilla”.

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

I hope you're continuing to find this column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

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

Elevating Client Service To Actually Drive Growth Through Client Referrals

April 27, 2020 07:03 am 4 Comments CATEGORY: Practice Management

Financial advisors who want to grow their firms faster can examine a wide range of advisor marketing strategies and sales tactics. But the reality is that if an advisory firm is struggling to grow, often the problem isn’t actually a matter of better marketing; instead, it’s about developing a better client service process. Because while the most significant value proposition of a real financial advisor is ultimately to help their clients live better lives, having a consistently remarkable client service process is what allows a financial advisor to successfully elicit the positive feelings experienced by their clients, which are essential in establishing lasting trust and driving the referrals necessary to bring about growth. And simply put, the fact that an advisory firm has high retention of existing clients doesn’t mean its client service process is good enough to bring new client growth as well.

In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – explains how the Client Service Process is actually the key to growth, and how it consists of not only the client service experience itself, but also the Operations Experience – the behind-the-scenes activities that clients may or may not see directly, but that they can certainly feel the effects of through every interaction they have with the firm. And in order to create an exceptional client service process based on cultivating trust, there are four components that must be mastered, in the following order: 1) Understanding, 2) Control, 3) Discipline, and 4) Stability.

The first stage of trust is Understanding, and involves the advisor not just having a solid grasp on what the firm does and who it works with, but also a deep connection to and alignment with the firm’s motivation, of why it does what it does and chooses to work with the clients it has. Next comes Control, in which financial advisors decide what services they will (and will not) provide for clients, with the confidence that those services align with the firm’s (and their own) motivation and purpose. In this stage, advisors also help clients realize that they, too, have a level of control in choosing to follow the advice they are given (or not), and this autonomy serves to deepen further the trust being cultivated between client and advisor. The next stage is Discipline, in which advisors and their staff need to continually uphold all the details, big and small, of the client service process promised to clients, which, over time, create the “living client” who trusts the firm culture and process so intrinsically that they essentially mirror the actions and feelings of the firm at all times. The last stage involved in cultivating trust is Stability. For the advisor, stability represents a solid belief that, whatever transition the business may face, it will maintain the integrity it needs to continue to grow. Similarly, the client has full faith that, whatever transitions they themselves face in their lives, their advisors will provide the stability to always guide them through the experience.

Ultimately, the key point is that the client service process is the primary area where advisors should focus in order to grow their firms. And while other components like marketing, sales, and human capital are all very important, they will not mean much if the client service process is faulty. Because it is the client service process, which includes both the client service experience and the firm’s operations experience, that is most crucial in establishing positive emotions between the client and advisor, on which long-term trust and a strong, lasting client-advisor relationship are built.

Weekend Reading for Financial Planners (Apr 25-26)

April 24, 2020 02:49 pm 5 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 Senate and House (and imminently, the President) are signing into law the next wave of coronavirus pandemic stimulus, a $484B bill that includes another $310B of funding for the PPP (along with another $60B for the EIDL program) as small businesses continue to seek capital to stay running and keep employees on board.

Also in the news this week is a fascinating study that the coronavirus has driven nearly 1-in-4 Americans to seek out a financial advisor for the first time (resulting in a surge of new client inquiries for many advisory firms), that TD Ameritrade (and Schwab) still see the Schwabitrade deal as being 'on' for the second half of 2020, feedback to a NASAA proposal that all IARs of RIAs be required to earn 12 hours/year of CE credit and that NASAA should permit other types of CE (from CFP to FINRA) to also count, and a FINRA proposal to aggregate the SEC's Investment Adviser Public Disclosure data into FINRA's own BrokerCheck site so consumers can have a one-stop shop at BrokerCheck to see the regulatory and disciplinary history of dual-registered brokers.

From there, we have several articles on investing and retirement planning, including how coronavirus volatility is leading more RIAs to leverage the block trading capabilities of their RIA custodians to reduce trading costs for clients, a Blackrock research finding that advisor portfolios tended to significantly underperform their benchmarks in the market decline (but not due to poor equity selection, and instead due to underweighting government bonds as a safety diversifier against the risk of recession), new research that questions whether there's really any economic value to so-called "bucket strategies", and some guidance about how to think about changing the client's financial plan when an update shows a significantly lower Monte Carlo probability of success.

We wrap up with three interesting articles, all around the theme of our opportunity to (re-)build when/as the country eventually emerges from the coronavirus pandemic: the first looks at how, despite incredible innovation and progress, the country has perhaps focused too much energy on building software and technology and not enough on infrastructure and companies that make things we need (until now, when we realize what we don't have and can't quickly mass-produce); the second looks at how the dynamics of venture capital and its addition to high margins and fast exits may have amplified our lack of building (and what it takes for investors to re-focus on building); and the last looks at how the collective call of the country to fight the coronavirus is itself stimulating a fresh wave of business innovation that may already be creating a lasting positive mark on the country that will remain to our benefit long after the coronavirus is gone!

Enjoy the 'light' reading!

Kitces & Carl Ep 32: Communicating Triggers And Breaking The News That The Plan Has To Change

April 9, 2020 07:04 am 1 Comment CATEGORY: Kitces & Carl Podcast

Now that the initial shockwaves of the coronavirus pandemic have passed, and individuals around the globe are adjusting to the current state of affairs, financial advisors are immersed in the process of updating clients’ financial plans to understand whether or how the recent market volatility has actually impacted them. As while the perpetual message for clients inclined to panic-sell has always been to ‘stay the course’, the reality is that, at some point, the market decline is still severe enough that at least some course correction in spending may be justified to appropriately address how to proceed in the aftermath of the down market we’ve experienced. Which in turn raises the question of how to ‘break the news’ that a spending adjustment might be necessary… and whether the discussion of focusing on spending (that can actually be controlled) may actually help further alleviate client fears.

In our 32nd episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about how financial advisors can introduce discussions about sometimes-necessary spending changes, and why strength, empathy, and confidence are so important throughout the process. As importantly, even though some advisors who have stood by and defended the plans they have created for their clients may experience feelings of guilt for needing to tell their clients that some course correction is now appropriate, it is vital to remember that their clients’ financial plans have probably already accounted for the possibility of disastrous events and that these course corrections are to be expected (and may in fact be less severe than what clients fear).

Accordingly, it is not necessary for advisors to assume a defensive position out of guilt that the original plan actually does need to be adjusted; instead, they can position themselves as supportive guides for their clients, acknowledging that the turbulence has been scary, painful, and difficult, but that ultimately, they are available to work together to help the client identify if (and how) their plan needs to be adjusted. In other words, market turmoil presents an opportunity to reinforce that the financial plan is not necessarily intended as a rigid solution set in stone; rather, it is designed as a roadmap to reach a destination, and that course corrections along the way are to be expected, as ‘unpredictable’ obstacles do inevitably arise.

For clients who need to reduce their expenditures, it can be useful to point out that small, permanent cuts are generally more effective than drastic (albeit temporary) cutbacks, which can help the client maintain a better sense of control over their situation. Illustrating various ‘what-if’ scenarios (simplified by many financial planning software tools) can also have several advantages, as the process can help clients understand not only all of the different variables that can be leveraged to adjust the current projections made in their plans but also the tremendous impact that small-but-permanent long-term changes can have on their plan.

Additionally, what-if planning scenarios can be used to establish the triggers that would justify a(nother) plan adjustment (e.g., a 5% spending cut will be implemented if the portfolio falls below one threshold, or a 10% cut if a lower threshold is breached), which in practice can be helpful to alleviate clients’ anxiety (to know it’s 'only' a 5% or 10% spending cut), and to give them a sense of when it actually is important for them to check in with their advisor (and in the meantime reducing fearful phone calls and emails).

Ultimately, the key point is that financial advisors can best support their clients by proactively guiding them through the adjustments needed to keep their financial plans successful, and clarifying that these adjustments are not only normal, but also that they are not an indication that the plan has ‘failed’ and instead simply that course-corrections are a part of the process in the first place. And by practicing rational overconfidence to reassure clients, advisors can communicate that the financial plan is a tool to help them figure out what adjustments to make to stay on course, navigating the unexpected-yet-inevitable roadblocks and obstacles that arise from time to time.

#FASuccess Ep 171: Transitioning From Successful Wholesaling To Financial Advisors To Becoming One Instead, with Tom Kennedy

April 7, 2020 07:06 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 171st episode of Financial Advisor Success Podcast!

My guest on today's podcast is Tom Kennedy. Tom is a wealth advisor at Global Wealth Advisors, a hybrid advisory firm based in Houston, Texas where Tom works with a base of nearly 400 clients.

What's unique about Tom, though, is that he made the transition into being a financial advisor from a successful 10-year career of working as a wholesaler to advisors, allowing him to get intimately familiar with the advisory firms in his area and network his way to a firm that was acquiring a book of 400 clients at the exact moment that Tom was ready to make a transition.

In this episode, we talk in-depth about what it's like to shift from the wholesaler business to the advisory business. How the required skillset of wholesalers to meet with and talk to lots of people is a natural fit for working as an advisor as well, the way the advisory business allows for more and deeper relationships than the traditional volume of required meetings for wholesalers, the appeal of shifting into an advisory business where every year doesn't start back at $0 the way the commission-based wholesaling business does, and the real-world challenges of making a transition away from a wholesaling job that typically pays far more in the short run than most advisory firms could feasibly offer, but why it was still appealing to Tom to make the shift anyway, for its long-run potential in the advisory business.

We also talk about how Tom actually made the transition itself. Why he decided to get a CFP certification while he was still working as a wholesaler, the way he approached firms to interview for opportunities, how he assessed the various firms that he was coming in contact with to figure out which would be the best for him to work with as an advisor, and why, even as someone with deep experience and a natural skillset for business development, it was still more appealing for him to find a role where he could take over an existing book of clients and not just start developing his own client base from scratch.

And be certain to listen to the end, where Tom shares why, despite the long-term earning potential of the advisory business, he found it appealing first and foremost as a change in work-life balance from the 10-year grind as a wholesaler, the biggest surprise to him in transitioning from an employee-wholesaler model to becoming an independent advisor, about what it really means to be an independent business owner, and the lessons that Tom incorporated into starting his advisory firm based on what he'd seen as best practices in other firms from all his wholesaling years.