feed - Part 74

Transitioning From An Advisor Practice To A (True) Financial Advisory Business

January 26, 2017 12:22 pm 7 Comments CATEGORY: Practice Management

Periscope Office Hours Cover Image Jan 24 Transitioning From A Practice To A Business

The fundamental constraint that every financial advisor eventually faces is that there are only so many hours in the day and week, and therefore only so many clients that can be served, before you hit a wall. At that moment, you reach the maximum capacity of a financial advisory practice, and have to make a decision about whether you will stay that size - with what may be a very good income - or grow into a business, a true business, that goes beyond your individual capacity to serve clients as a financial advisor.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the dynamics of transitioning from a practice to a business, and the challenges you may encounter along the way, including building a team, letting go of client responsibilities, and most significantly... changing your mindset!

The first change you need to acknowledge is that when making the transition from a practice to a business, you, personally, can no longer spend your time primarily servicing clients. This is partially due to the wall you will naturally hit from trying to service too many clients, but even more importantly, you need to recognize that if you spend all of your time working in the business, you won't have any time to work on the business. You may still keep a small set of clients – if for no other reason than to remember what's it's like to sit across from the client and hear their needs and concerns – but the first step in the transition for most advisors is bringing on an associate advisor who can gradually take over client relationships and work with all new clients going forward. And as you add more clients, you'll simply add more advisors (who aren't you!).

The second thing to recognize is that if you're going to be doing all that hiring over time (from advisors to operations and back-office staff) as the business grows, you're going to need to really focus on developing your people (instead of acquiring new clients). In fact, since the financial advisory business is a service business, finding and developing people will arguably become your number one job as you make the transition from a practice to a business.

But the biggest challenge to transitioning from a practice to a business is that you're also going to have to completely change your mindset. Because you may have started out as a financial advisor giving advice, but going forward you are no longer trying to do financial planning... you're trying to build a business that does financial planning. This will mean an endless set of changes as your business grows and your role changes to reflect the new challenges you face, as well as real financial sacrifices as you hire staff and try to find economies of scale as the firm grows.

Ultimately, the path to being a business owner is not for every advisor. Many are quite happy to continue doing the client work as a solo advisor - and that's okay! - but for those who do wish to build their practice into something bigger than themselves, it will require a complete mindset shift to vision a business that truly goes beyond your individual ability to serve clients and instead is all about getting other great financial advisors to serve the clients in your business!

#FASuccess Podcast Ep 004: Deb Wetherby On Building The Team Of A $4.5B RIA Serving HNW Clientele

January 24, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back for the fourth episode of the Financial Advisor Success Podcast!

My guest this week is Deb Wetherby, founder of Wetherby Asset Management, a $4.5B independent RIA based in San Francisco that serves ultra-high-net-worth clientele. So if you've ever been curious about how a fee-only firm with a whopping $10 million minimum is staffed and operated, this podcast will not disappoint.

And Deb’s journey into the role of being a financial advisor, entrepreneur, and ultimately business executive, is a fascinating one. She started out working in the private bank division of a major wirehouse in the 1980s – as one of only 14 females around in the globe in her department – before eventually deciding that the conflicts of interest inherent in private banking of the day were just too much. The end result was launching her firm, and bootstrapping it from scratch, running three full years just to reach breakeven, while racking up substantial credit card debt to stay afloat!

Now, 23 years later, Wetherby Asset Management managed $4.5B of AUM for almost 500 clients, with 66 staff members. And Deb shares how the growth of the firm ultimately forced her to evolve from being "just" a financial advisor, into a leader of the business, with a primary focus on establishing and maintaining the culture of the firm. In fact, Deb has one of the most unique and intensive processes I've ever heard of, to both vet and onboard new team members – which she graciously shares in today's podcasts.

So if you're running a financial advisor firm and struggling with how to make sure your growing team is all marching to the same drummer, or simply aspire to grow a large advisory business in the future, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Weekend Reading for Financial Planners (Jan 21-22)

January 20, 2017 02:49 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a flurry of news about the DoL fiduciary rule, including a letter from Senator Elizabeth Warren asking major financial institutions that have already been working to comply with the rule if they're now willing to support it (since they're already almost done implementing the necessary compliance processes), a major report from the Consumer Federation of American finding that 25 of the leading financial services firms are holding out to consumers that they provide advice as an "essential service" even as they contend to regulators and the courts that they are merely in the business of selling products, and a review of the latest set of fiduciary rule FAQs released by the Department of Labor (which cleared a major concern about using fee-offset revenue-sharing arrangements in 401(k) plans).

From there, we have a few more articles delving deeper into the fiduciary rule as its applicability date looms, including: an analysis by Ron Rhoades of why ultimately most Financial Institutions will probably eschew the BICE rules and just become level fee fiduciaries using fee-based advisory accounts instead; criticism that the DoL still hasn't sufficiently defined its "due diligence" expectations of how advisors should analyze the investments they're recommending; and a look from Cliff Asness of AQR at some of the potential "unintended consequences" of the DoL fiduciary rule (such as whether, in the long run, consumers will end up trusting financial advisors too much, let their guard down, and ultimately allow even more harm to be caused down the road).

There are also a couple of practice management articles this week, from a review of the record-breaking pace of mergers and acquisitions amongst RIAs last year (though the total number of deals is still miniscule relative to the total number of advisory firms), to a look at how 1/3rd of the major RIAs last year actually saw a decrease in AUM as retirement withdrawals and even client deaths of their baby-boomer-centric clientele are beginning to take a toll, and a discussion of the blocking point amongst advisory firm owners that will cause most of them to fail to achieve their own long-term vision for their business.

We wrap up with three interesting articles: the first is a discussion of whether investment managers, from mutual funds to even RIAs, should consider adopting "fulcrum fees" in lieu of the traditional AUM fee, as a way to better align the interests of the manager and the client; the second is a look at the research on why ethical people end up making unethical choices, and the recognition that it's creating a toxic employee culture that is the most common driver of employees making "bad" decisions; and the last is an interesting discussion from Bob Veres that even as advisors who work at broker-dealers complain that the media is maligning them as salesperson (when they're really trying to give advice and act in their clients' best interests), it's actually the broker-dealer companies themselves, and their lobbying organizations, who are stating to the regulators and the courts that their "advisors" are really just mere salespeople and not advisors (and thus contend they shouldn't be held to a fiduciary duty)... which means if you're at a broker-dealer and want to be recognized as an advisor, you'll have to start by convincing your own company to truly recognize you as such!

Enjoy the "light" reading!

When Do You Actually Have To Register As A Financial Advisor?

January 19, 2017 09:22 am 10 Comments CATEGORY: Practice Management

With more and more people looking to become a financial advisor – given both the rewarding nature of helping people and the income potential it brings – questions about when you actually have to register as a financial advisor are becoming more common. Does any financial advice trigger a requirement to register? What kind of license do you need to become a financial advisor? And can you wait until you get clients, before you go through the process?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the exact rules that determine when you have to get a license to become a financial advisor - or technically, to register as an investment adviser by creating an RIA and becoming an IAR (investment adviser representative) of that business.

The core requirement under the Investment Advisers Act of 1940 is that it's "being in the business of giving investment advice for compensation" that triggers the need to register. While there are forms of financial advice that may not require registration, such as "financial coaching", the reality is, almost anyone who's holding themselves out as a financial advisor - particularly as a CFP certificant - is likely giving some form of investment advice, and consequently will need to register.

Registration as an investment adviser can happen one of two ways: either registering with the primary state in which you do business, or registering with the Securities and Exchange Commission (SEC). However, registering with the SEC requires a minimum of $100M of regulatory AUM, or doing business (requiring registration) in 15+ states; as a result, most advisors just starting out will initially register the RIA at the state level, and then become an IAR (investment adviser representative) of that RIA.

Notably, though, to become an IAR, you must also pass the Series 65 exam (or have the Series 7 and 66 if you are coming from a broker-dealer). Most states will waive this requirement for those with an advanced certification such as the CFP, CFA, CHFC, or the AICPA's PFS. But ultimately that means to get started, you must both pass the Series 65 exam (or possess one of the requisite designations), and go through the registration process.

And the registration process in the advisor's home state itself should be done before actually going into business. As the financial advisor adds clients in other states, and crosses more than five clients (for most states), it's also necessary to extend the registration in those states. But soliciting the first client requires the advisor to at least create the initial RIA in their home state, first.

Fortunately, it's still fairly inexpensive to get up and running as a financial advisor (at least relative to the income potential it brings, and the cost of starting a business in other industries). However, that doesn't mean it's easy to make the transition - because the real challenge is not just the startup cost to become a financial advisor, but filling the "income gap" of launching a business with no clients or revenue, and needing to build up to the point where you can actually pay yourself a fair wage! On the other hand, in the long run, successful financial advisors still have the potential to make many times the average household income in the US!

#FASuccess Podcast Ep 003: Julie Littlechild On Becoming A More Referable Advisor

January 17, 2017 07:02 am 5 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back for the third episode of the Financial Advisor Success podcast!

This week, we’re changing it up a little bit - rather than speaking with a financial advisor, my guest is Julie Littlechild, a speaker, writer, and researcher focused on understanding and improving financial advisors’ engagement with their teams and their clients. She is now the founder of Absolute Engagement, a firm that is conducting ongoing research into personal, client, and team engagement in advisory firms, and has also done extensive research on generating client referrals.

In this episode, Julie shares what she's learned from her real-world research about what works – and what doesn't – for financial advisors, including why asking clients for referrals is generally a terrible way to actually get referrals, and how to reposition yourself to become more referable. Julie also shares her research on how advisors can get more energized and re-engaged in their practices, and how her own experience of building and then selling her coaching business gave her perspective on the challenge of staying engaged in the business you've built.

So whether you're a financial advisor trying to generate more and better client referrals, or feel like you've hit a wall and need to get re-energized in your own business, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

#FASuccess Podcast: How Ron Carson Built Carson Wealth & Carson Institutional

January 10, 2017 07:01 am 6 Comments CATEGORY: Financial Advisor Success Podcast

Welcome to the second episode of the Financial Advisor Success Podcast!

In this episode, I spoke to Ron Carson, a veritable legend in the world of financial planning. Not only has he been the top-ranked advisor at LPL for 25 years running(!), and is regularly recognized at the top of lists like Barron’s for the size of his advisory business Carson Wealth, but Ron is also the founder of the Peak Advisor Alliance, and Carson Institutional… in addition to founding his own charitable endeavor, the Dreamweaver Foundation.

It’s taken Ron considerable energy and determination to get where he is today, and this interview sheds light on all the hard work he’s done to build such an impressive career. While it may seem like successful people simply spring into existence, I hope these interviews show you that all financial advisors, even those who have been incredible successful, still struggle at times.

And Ron Carson is no exception. In this episode, Ron talks candidly about his humble beginnings and the moment of physical, emotional, and professional burnout - when he was about to give up after failing to break $30,000 of GDC after six years - and how the actions he took in his moment of desperation actually turned into his career-making opportunity. He also shares the mistakes he’s made along the way, including his slow adoption of technology, and struggles to delegate and invite other (über-talented) people into his business’s inner circle. We also discuss Ron’s thoughts on making your employees into stakeholders, how he juggles the advising, mentoring, and charitable businesses he’s founded over the years, and more!

I hope you enjoy this second episode of the Financial Advisor Success Podcast! Please share your comments here on the blog of what you think, and I hope you’ll leave us a review on iTunes as well (which is important as iTunes looks to reviews to decide which podcasts to make most visible for other financial advisors who are searching!).

The Latest In Financial Advisor #FinTech (January 2017)

January 9, 2017 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the January 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 big news of the early 2017 rollout of Schwab Intelligent Advisory, a new service that was initially dubbed another "robo" but in reality is a financial advice solution powered by human CFPs who will simply leverage MoneyGuidePro financial planning software and virtual client meetings using telephone, video chat, and email to service clients... but at a "robo" price of just 28bps with a $25,000 minimum. The new Schwab Intelligent Advisory service is likely intended as a play to capture mass affluent consumers as the DoL fiduciary rule impacts and disrupts at least some broker-dealers... but in the process may also pose a serious competitive threat to the independent RIA community, including a large number of advisory firms that currently custody their assets at Schwab!

From there, the latest highlights also include:

Smarsh acquires MobileGuard to expand their text message compliance archiving services.
eMoney Advisor launches a new data gathering and client onboarding solution, threatening independent players like PreciseFP.
Orion Advisor Services launches a fee benchmarking tool to help advisors substantiate their pricing as "reasonable compensation" under DoL fiduciary.
Finicity raises a $42M Series B to expand their account aggregation capabilities after completing the takeover of the old Intuit Financial Data API.
Blucora's Tax Act partners with Legg Mason's robo-advisor Financial Guard.
Personal Capital blows through its VC growth targets and earns its remaining Series E ahead of schedule.
Will digitization of financial advisor business metrics eventually create fully automated tools to provide advisory firm valuations?

You can view analysis of these announcements, and more trends in advisor technology, in this month's column, including a look at the new national sponsorship arrangement between the FPA and Betterment for Advisors, how XTiva is trying to create a marketplace for enterprise "sales management" solutions for wealth management firms, and the recent rollouts of TD Ameritrade's new VEO One platform and Envestnet's new Yodlee app for Tamarac advisors to turn their portfolio accounting client portal into a fully holistic performance financial management dashboard for clients.

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 Podcast Ep 001: Rick Kahler on Entrepreneurial Persistence & Building a $200M AUM Practice

January 3, 2017 07:01 am 12 Comments CATEGORY: Financial Advisor Success Podcast

Welcome to the inaugural episode of the Financial Advisor Success Podcast!

My mission with #FASuccess is to help you be more successful as a financial advisor - whatever "success" means to you. In this new weekly podcast, we'll feature interviews with successful financial planners who share their stories about what it took for them to succeed, along with consultants who work with advisors and help them get to the next level.

In particular, it's my goal to highlight the "Iceberg Illusion" of success - that what little we see outwardly of other people's success is, like the tip of an iceberg, just a small part of what it really took to be successful. On the podcast, it's my goal to dig deeper, and help reveal the real struggles that every financial advisor will face from time to time in a business or career... and what it takes to persist and push through.

In this first episode, I talk with Rick Kahler, a financial planner in Rapid City, South Dakota, who by any classic industry measure has been very successful. He's built a practice up to 100 clients and $200M in assets under management, supported by 7 staff, and taking home more than $350,000 of income from the firm. Yet the reality is that it hasn't always been this way for him. For most of his early career, Rick worked as a mortgage and real estate broker, where financial planning was just a "side job" that built slowly over time... and as a result, when he decided to focus fully on the firm, he took a major step back in his income that took years to recover.

Rick’s story is truly humbling as he openly shares the events and decisions that brought him to where he is today. You’ll hear about his decisions that worked well in growing his practice, and quite frankly the sheer persistence in Rick’s professional career that allowed him to consistently and repeatedly overcome roadblocks and challenges. Between at one point losing 5 out of 6 employees in under 60 days, to facing insolvency and near bankruptcy 6 times, and failing on multiple other businesses before focusing on his advisory practice, Rick’s ability to persist when times are uncomfortable is truly inspirational.

I hope you enjoy this first episode of the Financial Advisor Success Podcast! And please share your comments once you listen, and let me know what you think and how we can improve from here!

Announcing New Nerd’s Eye View Updates For The 2017 New Year!

January 2, 2017 07:02 am 9 Comments CATEGORY: Nerd's Eye View

Every year, we look to make improvements to Kitces.com and the Nerd’s Eye View blog to make it more valuable for all of you, the readers, based on your feedback to our reader surveys. And as we kick off the 2017 New Year, I’m excited to announce several new features and changes we’re making today and in the coming month to better serve you!

First and foremost, I’m thrilled to announce the launch of the Financial Advisor Success podcast. An increasing number of you have been asking for us to add a “Kitces podcast” that you can listen to while you commute or work out, and after a year of planning and preparation, it’s finally here! The first episode will air tomorrow – Tuesday, January 3^rd – and going forward, will become a regular part of our weekly content every Tuesday!

In addition, in the coming quarter we’ll be launching a new opportunity to CPAs to earn Continuing Professional Education (CPE) credits, on top of the CFP and IMCA CE credits we already offer. The new CPE credits will be offered for any and all of the more-than-30-hours of Kitces.com content that is already eligible for other types of CE, at no additional cost (beyond the requirement to join our Premium Members Section itself).

We’re also making a number of tweaks to the visual style and format of the blog as well, to help make it easier to read and enjoy. This includes both adjusting the default font to be a little darker and easier to read on mobile screens, and new font resizing buttons that make it easier for you to enlarge the size of the text (without otherwise distorting the reading format). And we’re working on an adjustment to the sign-up prompts so that they’ll be fully eliminated once you’ve already signed up (which due to technical challenges, will be implementing later this quarter).

I'm also excited to announce that we're expanding the content team here at Nerd's Eye View, and have hired Derek Tharp, who is finishing up his Ph.D. in Financial Planning at Kansas State and will be both helping me on behind-the-scenes research to support our articles, and also publishing a few of his own from time to time. We're also slightly expanding our available Guest Post slots, if you're interested in submitting something yourself to be featured on Nerd's Eye View!

And last but not least, I’m excited to announce that the votes are in for naming the Nerd’s Eye View community, and the overwhelming winner was that you wanted to be called the “Nerd’s Eye Crew” of readers! (But if you still don’t think that’s the “right” name, please leave your feedback in the Comments section at the end of this post!)

2016 Highlights – The Top 20 Nerd’s Eye View Blog Posts You Might Have Missed

December 26, 2016 07:01 am 2 Comments CATEGORY: Nerd's Eye View

As 2016 comes to a close, I am so thankful to all of you, the growing number of readers who continue to regularly visit this Nerd's Eye View blog, and have been kind enough to share the content with your friends and colleagues as well (which I greatly appreciate!). Over the past year, the cumulative readership of the blog has grown yet another 35%, with more than 160,000 unique readers coming to Nerd's Eye View last month. The continued growth has meant more reinvestments into features and even staffing, to continue to build this platform for the benefit of advisors. And we'll be announcing a number of major new initiatives in early 2017 as well!

Yet notwithstanding how many of you have made reading the Nerd's Eye View a weekly habit, I realize that the sheer volume of articles can feel overwhelming at times, and that it's not always possible to keep up with it all. And blog articles, once published, are usually quite quickly left in the dust as the next new article comes along.

Accordingly, just as I did last year and in 2014, I've compiled for you this Highlights list of our top 20 articles of 2016 that you might have missed. So whether you're new to the blog and haven't searched through the Archives yet, or simply haven't had the time to keep up with everything, I hope that some of these will (still) be useful for you! And as always, I hope you'll take a moment to share articles of interest with your friends and colleagues as well!

In the meantime, I hope you're having a safe and happy holiday season. Thanks again for another successful year in 2016, and I hope you enjoy all the new services we'll be rolling out in 2017, too!