feed - Part 69

New SEC Custody Rule Requirements For Advisors With Third-Party SLOA Authority

August 30, 2017 07:01 am 5 Comments CATEGORY: Practice Management

In an effort to provide premium service to clients, it’s common for financial advisors to be granted a standing letter of authorization – or “SLOA” – to enact money movements in and out of a client’s account. The use of SLOAs and other disbursement authorizations effectively allows advisors to act based on a client’s verbal requests, without “troubling” them for additional paperwork and signatures every time.

Yet the caveat is that while providing such conveniences is appealing from a client service perspective, from a regulatory perspective, the ability of an advisor to transfer money out of a client’s account – especially to a third party that isn’t the client – creates the risk that the advisor could abuse their authority. Accordingly, in this “age of Madoff”, the SEC has decided it’s necessary to issue additional compliance rules to protect consumers when it comes to advisors with standing letters of authorization (SLOAs) to make client disbursements.

In this guest post, Chris Stanley, a compliance consultant and the founding principal of Beach Street Legal, shares his perspective on the recent issuance of an SEC No-Action Letter, and supporting FAQ and IM Guidance Update 2017-01, which deems that advisors who have SLOA authority will be treated as having custody of client assets. Which means not only will those assets and accounts need to be reported for custody purposes on Form ADV, but those investment advisers who don’t comply with certain new safe harbor provisions will also be subjected to the requirement for an annual surprise exam under the custody rule as well!

Fortunately, the SEC will allow RIAs to continue to use SLOAs to support clients in limited (but still useful) circumstances, and provide additional guidance on how RIAs can avoid the custody rule if their only standing authorizations are for “first-party” transfers (i.e., moving money amongst accounts that are all the client’s, with the same account registration). Nonetheless, the reality is that most advisors will at least need to work with their RIA custodian to update account agreements and/or some of their SLOA paperwork with clients to remain compliant and avoid surprise exams under the custody rule!

#FASuccess Ep 035: Investing In Your CRM And Your Team To Systematically Grow Your Advisory Business with Cheryl Holland

August 29, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-fifth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Cheryl Holland. Cheryl is the founder of Abacus Planning Group, a private wealth management firm located in Columbia, South Carolina, that manages more than $1B of assets under management for just over 200 affluent clients.

What's fascinating about Cheryl's firm, though, is the way that she has systematized the processes of the firm - in a way that actually helps them be even more high touch and customized for their clients. From automating workflows, tasks, and reminders of client needs, to building a templated meeting agenda for every client meeting that covers check-ins, celebrations, investment, financial planning, and administrative tasks, to refining an investment process around model portfolios with DFA funds, Cheryl's firm has invested heavily in systematizing the business... and invested heavily into customizing Salesforce as their CRM to facilitate the process.

In this episode, Cheryl shares how her firm structures its blended AUM-plus-planning fee structure, why Abacus sets a minimum fee - rather than an asset minimum - in deciding which new clients to work with, why the firm decided to make a shift towards focusing on a niche of closely-held family businesses after already growing successfully for nearly 20 years, and how the firm markets with a combination of COI referrals, national board volunteerism, and client referrals, to drive its growth.

In addition, we talk about Abacus' approach to reinvesting into its team – because as Cheryl puts it, "you can't grow your firm if your people aren't growing" - with everything from sending employees out to conferences, bringing in psychologists to teach active listening and empathy skills, management training classes for emerging leaders (including Cheryl herself!), and how every the Operations and Administrative team members at Abacus have a chance to take the Registered Paraplanner course and advance themselves in the firm.

And be certain to listen to the end, where Cheryl shares the two key advisory business books that she re-reads every year to advance the firm, how she decides when it's time to make a change and evolve the firm and her role, and her advice to young women who are trying to grow their own advisory careers and manage the competing demands of work, home, and family.

So whether you're curious about how to balance the dynamic between systematizing your firm's processes and procedures without losing the sense of high-touch customization, or simply want some ideas of what, exactly, you might standardize, or are looking for ideas on how to deepen the training and education of the advisors (and emerging leaders) in your firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

#FASuccess Ep 034: Becoming An Advisor #FinTech Software Entrepreneur While Running Your Own Advisory Firm with Sheryl Rowling

August 22, 2017 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-fourth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Sheryl Rowling. Sheryl is the founder of Rowling and Associates, an independent advisory firm in southern California that manages more than $300 million of assets under management, and provides a combination of investment management, financial planning, and tax preparation services for clients.

What's unique about Sheryl, though, is not simply that she's built a successful advisory firm with a team of 12, but that in an effort to try and make her firm's investment management process more efficient, she decided to create her own rebalancing software... and then sell it to other financial advisors as the software solution we now know to be Total Rebalance Expert, or TRX, which was subsequently acquired just a few years ago by Morningstar.

In this episode, Sheryl talks about what it was like building a technology firm (while running her advisory firm as well!), how building an advisor technology firm differs from building a traditional advisory firm, the challenging demands of needing to iterate rapidly in a competitive software landscape, and the personal toll that it takes in trying to simultaneously run both an advisory firm and an advisor technology firm at the same time.

In addition, we talk in depth about the structure of Sheryl's CPA financial planning firm, why they decided to offer - and charge separately - for tax preparation services in addition to financial planning, the core technology stack of MoneyGuidePro, Junxure CRM, and PortfolioCenter (bundled, of course, to TRX for rebalancing) that she uses to operate the firm, and how she positions her comprehensive financial planning offering to her clients as "we answer every financial question you have, and the ones you don't even know to ask!"

And be certain to listen to the end, where Sheryl discusses her "As If" rule to decide what to focus on and how to build her ideal practice, and the newest solution she's launching for fellow financial advisors, to purchase her investment team's model portfolios and due diligence research for a flat annual fee - which, you can then implement in your own rebalancing software, but without the AUM fees of a full-blown TAMP provider.

And so whether you’re looking for fresh perspective on a comprehensive financial planning firm with a strong tax focus, or have ever wondering specifically what it takes to launch an advisor technology solution “on the side”, I hope you enjoy this episode of the Financial Advisor Success podcast!

Comment Letter To CFP Board On Its Proposed Fiduciary Standards Of Conduct

August 21, 2017 07:01 am 33 Comments CATEGORY: Regulation & Compliance

In December of 2015, the CFP Board announced that it was beginning a process to update its Standards of Professional Conduct for all CFP certificants, the first such update since the last set of changes took effect in the middle of 2008. And on this past June 20^th, the CFP Board published proposed changes (including an expanded fiduciary duty) to its Standards of Conduct, with a public comment period that would last until August 21^st.

And so as the CFP Board’s Public Comment period closes today, I have published here in full my own comment letter to the CFP Board. And as you will see in the Comment Letter, I am overall very supportive of the CFP Board advancing the fiduciary standard of care for CFP professionals, and view this as a positive step forward for the financial planning profession.

However, the CFP Board’s proposed changes do introduce numerous new questions and concerns, from key definitions that (in my humble opinion) still need to be clarified further, to new wrinkles in what does and does not constitute a fee-only advice relationship (and whether and to what extent certain types of compensation must be disclosed), to uncertainties about how CFP professionals are expected to navigate important conflicts of interest, and how CFP professionals should interpret the 29(!) instances where the CFP Board’s new standards are based on “reasonableness”… with no explanation of how “reasonable” is determined, and a non-public CFP Board Disciplinary and Ethics Commission that doesn’t even allow CFP professionals to rely on prior case histories for precedence.

Ultimately, I am hopeful that the CFP Board will end up moving forward with its proposed changes to expand the scope of fiduciary duty for CFP certificants, but only after publishing another round of the proposal for a second comment period, given the substantive nature of both the changes themselves, and the concerns that remain.

In the meantime, I hope you find this public comment letter helpful food for thought. And if you haven’t yet, remember that you too can submit your own Public Comment letter to the CFP Board by emailing [email protected] – but today (August 21^st) is the last day to submit!

#FASuccess Ep 033: Building An Online Marketing Machine That Takes Over Your Advisory Business with Jeff Rose

August 15, 2017 07:01 am 9 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-third episode of the Financial Advisor Success podcast!

My guest on today's podcast is Jeff Rose. Jeff is the founder of Alliance Wealth Management, a solo financial planning firm with just one support advisor that oversees more than $40 million in client assets in Carbondale Illinois, a rural town of barely over 25,000 people.

What's fascinating about Jeff's advisory business, though, is not just that he's been able to successfully grow his firm in an area with a far more limited natural market than being in a dense metropolitan city, but that recognizing the constraints of his local geography, Jeff decided to develop an online blogging strategy to get more prospects. And after 9 months of toiling away with nothing to show for it, he landed his first "digital" client – a widow with $2M who had simply Googled "certified financial planner in Illinois" – and become obsessed with digital marketing. Nearly 10 years later, Jeff's online marketing efforts have been so successful, he's generating more than $100,000 per month in revenue from his online efforts, and is powering leads not only to his own advisory firm, but is also providing a high volume referrals to an outside insurance business for people who just need term insurance, as well as referring additional prospects to a number of other financial services firms as well.

In this episode, Jeff talks about how he built his digital marketing platform, the setbacks he's had along the way, and how it powers his advisory firm, which he has made so efficient that he's able to spend only 1-2 days per week to keep it running, with a combination of Redtail CRM, Blueleaf, InStream Wealth, and Slack, while he continues to leverage his blogging platform to grow new revenue streams.

And be certain to listen to the end, when Jeff talks about the major move he's about to make – literally, moving over 150 miles away from his own advisory firm – where he goes for inspiration and new ideas, and why, despite or perhaps because of his financial success, his primary focus is now on getting even more efficient about the work that he does, so that he can spend more time with his four kids as well.

And so whether you’ve been curious to know what it takes to successfully build a blog and digital marketing presence that generates new clients, or want to see how success online can bring new opportunities beyond just the advisory business alone, or simply want a glimpse into a hyper-efficient solo advisor’s firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (August 2017)

August 7, 2017 07:01 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the August 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 a look at Morgan Stanley’s rapid pace of reinvention as a tech-savvy wirehouse since hiring away Schwab’s Naureen Hassan to become the firm’s Chief Digital Officer in early 2016. Since then, the company seems to be rapidly overcoming the traditional “Not Invented Here” mentality of wirehouses, forging partnerships with a number of outside providers, even as they build a fascinating vision of a robust tech-augmented human advisor platform, where the software continuously monitors and analyzes the situation for all clients and nudges the advisor with “Next Best Action” ideas that the advisor can take to the client (queued up with pre-written communication templates that the advisor can easily modify and adapt to individual client circumstances).

From there, the latest highlights also include a slew of companies announcing new “platform” initiatives, including:

FinFolio launches Wealthlab.io, a standalone REST API back-end platform for account openings, trading and rebalancing, and data feeds, that should provide an expedited foundation for new robo startups (or even large advisory firms that want their own custom-created wealth management solution).
FinMason launches a new FinTech accelerator program, allowing startups to build on their FinRiver data analytics to create and rapidly deploy solutions to advisors (or consumers).
Pershing continues to try to expand its open API platform to compete with TD Ameritrade’s VEO open architecture (and provide new advisor FinTech startups an alternative to building for “just” TD Ameritrade alone).
Apex Clearing strikes yet another deal with a “robo” middleware solution to help it gain distribution to the independent RIA marketplace and compete against the likes of Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions.

You can view analysis of these announcements and more trends in advisor technology in this month's column, including “robo”-401(k) provider Vestwell partnering with Fiserv, Advisor Software launching a new “Behavioral IQ” solution that aims to go beyond just risk tolerance and risk capacity, RobustWealth partners with Roofstock to allow advisors and their clients to invest directly into rental real estate and have the results aggregated with the rest of the portfolio, Morningstar acquiring a 40% stake in Sustainalytics as it doubles down on its commitment to its Morningstar Sustainability Globes, AdvisorHub launches a platform called “AssetLink” to re-define how advisors engage with wholesalers, and more!

I hope you're continuing to find this new 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]!

#FASuccess Ep 031: How To Properly Vet New Financial Advisors By Hiring For Attitude And Not Skills with Caleb Brown

August 1, 2017 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirty-first episode of the Financial Advisor Success podcast!

My guest on today's podcast is Caleb Brown. Caleb is the founder of New Planner Recruiting, a recruiting firm that, as the name implies, focuses specifically on hiring newer associate-level financial planners.

What's unique about Caleb's recruiting process, though, is the way that he vets prospective financial planners to determine whether they're likely to be successful in the advisory business in the future, with a strong focus not just on their technical skills, but the initiative and effort that they put into the process of trying to get hired through his recruiting business in the first place. Because the reality is that you can provide education on the book knowledge of financial planning, and train a lot of financial planning skills, but it's almost impossible to teach someone to have that go-getter kind of attitude that it really takes to succeed as a financial advisor.

In this episode, Caleb talks at length about what issues you should consider in the hiring process for a prospective new advisor, the role of using various types of personal and other assessment tools to evaluate potential hires, what you should - and shouldn't - expect your new hire to do and bring to the table to make your advisory business more successful, and what the going rate salary is that you have to pay as an advisory firm to get quality talent.

And be certain to listen to the end, where Caleb talks about his tips on how to work through the inevitable difficult times that arise as an entrepreneur, and how an executive coach has helped him to keep his focus.

So whether you’ve been struggling with finding good financial planning talent for your firm and are looking for ideas on how to better identify and screen potential hires, or you’re a prospective financial planner looking for insight about what it takes to get your foot in the door with a good financial planning firm, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Weekend Reading for Financial Planners (July 29-30)

July 28, 2017 02:58 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement that Golden Gate University has launched the first Master's in Financial Planning with a concentration in financial life planning, as financial planning education providers increasingly shift to focus on training new financial advisors in the communication and empathy skills needed for future success. Also in the news this week was the announcement that the Treasury is shutting down the MyRA program (after it failed to blossom into a full-blown automatic IRA enrollment solution, and only a lackluster 20,000 households have signed up in the past two years), and for the first time an independent RIA successfully sued a large broker-dealer (for $1.5M!) for poaching one of its advisors who improperly took client information when he left (signaling a new escalation in the growing battle between broker-dealers and RIAs, as in the past it was only broker-dealers suing RIAs for poaching advisors, not the other way around!).

From there, we have a few practice management articles this week, including one about the importance of becoming an "emotionally intelligent CEO" for advisory firm founders who must transition from "just" being the lead advisor into being a leader and executive of the firm, another about what to do if an employee declines a promotion or opportunity for partnership, and why advisors need to be wary of asking "platitude" questions like "What keeps you up at night" when talking to prospects, and instead reframe question to get more concrete responses that help the advisor really understand how he/she can help.

We also feature several more technical articles, from a review of the rules on deducting long-term care expenses (not just LTC insurance, but the underlying expenses themselves for those who aren't fully insured!), to issues to consider when choosing a (family or corporate) trustee as part of the estate plan, and the rules for Medicaid recovery (where the state files a claim against a decedent's probate estate to recover state Medicaid expenses against any of the decedent's remaining assets at death that weren't already spent down).

We wrap up with three interesting articles, all looking at the connections between happiness, fulfillment, and how we spend our dollars: the first is a review of a recent study finding that spending money on timesaving tasks (e.g., hiring a maid, or ordering takeout for dinner) provides a greater happiness boost than spending on material goods; the second looks at the decline of conspicuous consumption amongst the affluent, and the rise of "inconspicuous consumption" amongst the upper-middle-class (spending on things like services and education), in a manner that doesn't overtly display social status, but may reduce social mobility; and the third is a fascinating interview about the latest research on positive psychology and what leads us to really feel fulfilled in our lives.

Enjoy the "light" reading!

#FASuccess Ep 030: Self-Publishing A Book To Establish Your Authority (As A 401(k) Expert) with Josh Itzoe

July 25, 2017 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the thirtieth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Josh Itzoe. Josh is a co-founder of Greenspring Wealth, an independent RIA based in Towson, Maryland, that advises on more than $2.2 billion in 401(k) plan assets.

What's unique about Josh's business, though, is not just the success that he's had in the 401(k) plan niche, but how he built his business: by making himself an expert by sitting down and reading the entire ERISA code himself, and then self-publishing a book to share his newfound expertise with prospective clients... which quickly established him as an authority brought him nearly $80,000 of new revenue within the first 6 months of publishing the book.

In this episode, Josh talks not only about what he went through to self-publish his book to jumpstart his 401(k) consulting business, but also discusses at length the business of being a financial advisor to 401(k) plans itself, how it differs from the traditional model of serving individual financial planning clients, the intensive RFP process it takes to win the business of mid-to-large-sized 401(k) plans, how the pricing model for advising on 401(k) plans is shifting from the AUM model to a flat-fee structure based on the size and complexity of the plan, and how including the stability of 401(k) plan consulting fees was able to smooth out the revenue volatility of the AUM fees in the other half of his advisory firm, which manages more than $400 million in AUM for individual wealth management clients.

We also talk more generally about trends in the 401(k) advisory space, why the real value to most employer retirement plans is not about helping them understand - or scaring them about - their fiduciary duties as plan trustees, but simply helping them avoid the administrative and operational mistakes that really get most plan sponsors in trouble, and why in today's environment it's difficult to break into the 401(k) plan space as a financial advisor… unless you're ready to dedicate your full time to it.

And be certain to listen to the end, where Josh talks about why he thinks the future of serving 401(k) plans better is all about leveraging new technology solutions, and offers up some great resources for those who want to get more active in this space (which you can find in our Show Notes for this episode).

So whether you’ve been thinking about getting into the 401(k) business as a financial advisor, or are simply curious to hear how writing and self-publishing (with a little outsourcing support) your own book can accelerate your marketing efforts and establish you as an expert in your niche, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

What Cyborg Chess Can Teach Us About The Future Of Financial Planning

July 24, 2017 07:01 am 5 Comments CATEGORY: Planning Profession

The recent rise (and subsequent decline) of robo-advisors has generated much discussion about the threat (or lack thereof) that technology poses to human advisors. Yet, as discussed previously on this blog, the man vs. machine framing of the role that technology will play in the future of delivering financial planning advice may be too narrow. Instead, the combination of man and machine (i.e., the “cyborg advisor”) may pose the greatest opportunity to human advisors in the long run… and threat to those who lag behind.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – examines how the game of 'cyborg chess' provides support for the idea that human-computer teams will remain superior to either humans or computers on their own (even when the intelligence of computers vastly outweighs that of humans), as well as some of the insights cyborg chess can provide about how the skills of cyborg advisors will differ from the traditional skills of advisors today.

'Cyborg chess' (or freestyle chess) is a version of chess in which humans can use any resources they want to improve their play… including today’s increasingly-sophisticated computer chess software. One interesting fact about of cyborg chess, as was previously noted by Tyler Cowen in his book Average is Over, is that human-computer duos consistently defeat both the best humans and the best computers. What's even more interesting, though, is that the humans in some of the world's best human-computer duos aren't even all that great at chess themselves! Which means the skills that let humans most effectively assist and execute chess software may be different than the knowledge needed to be a great chess player!

In fact, it turns out that to be skilled at cyborg chess, humans have to be good at letting computers do what they do best, and then excel in areas where humans are more effective. And while there are some obvious applications to financial planning, in areas such empathy and building client relationships (where humans will certainly remain relevant in the future), the same is even true in technical areas of financial planning as well, where computers are typically thought to have an advantage over humans. Specifically, humans can play an important role in areas such as helping computers know where to look for the best solutions, examining inconsistencies generated by different computer programs, helping computers to be more efficient in their calculations and analyses, and knowing the limitations of various programs and when they may generate recommendations that don't align with the real world. And of course, as technology becomes even more prevalent in financial planning, “finology”-focused soft skills and human aspects of giving financial advice will become increasingly important.

The bottom line, though, is simply to recognize that despite the view that computers will come to dominate certain areas within financial planning, the reality is that there are still ways that computer-human duos can be more effective than computers or humans alone. Additionally, this has some profound implications for the skills and knowledge that are needed to be a great financial advisor in the future, and those skills and knowledge may not necessarily align with what we think of (and currently teach under the CFP Board’s curriculum!) as the core competencies of great financial advisors today!