Weekend Reading for Financial Planners (June 23-24)

Posted by Michael Kitces on Friday, June 22nd, 7:04 pm, 2012 in Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an editorial from Bob Veres about whether the Financial Services Institute is going to find itself on the wrong side of history, defending the status quo broker-dealer model against the underlying trend towards fiduciary advice. From there, we look at a recent announcement of FPA's new PlannerSearch tool for consumers, a new CRM package for smaller advisory firms, a nice article about how to select the right CRM package for your firm, and some tips about how to run a seminar marketing strategy effectively to grow your practice. We also look at an interesting article about important conversations to have with your clients, that includes a lot of stuff financial planners already know but a few good tips as well, and a nice article by Roy Diliberto pointing out that the best way to get extraordinary results from your firm is to make your employees extraordinary by giving them the opportunity to succeed and making sure you, the business owner, aren't being part of the problem. This week's reading also includes three investment articles: one that suggests the fate of municipal bonds may be more tightly linked with equity returns than we realize; the second providing a nice primer on the European crisis and how we got to where we are; and the last suggesting that Europe's moment of truth may be arriving, and that they will not be able to substantively kick the can further down the road. We wrap up with a nice article from Robert Shiller - a prospective commencement speech for finance graduates that provides a nice reminder of both the challenges that finance must tackle in the coming years, and the underlying social purpose for why the finance sector exists in the first place. Enjoy the reading!

Weekend reading for June 23rd/24th:

Is The Financial Services Institute On The Wrong Side Of History? - This article from Bob Veres' website is an excerpt from his Inside Information newsletter (available at a discount as a new subscriber to The Kitces Report as well!), looking at the lobbying activity of the Financial Services Institute (FSI). While the FSI has taken some understandable lobbying positions, such as preserving the stretch on IRAs or allowing the independent contractor status for registered representatives, Veres questions the FSI position supporting FINRA as the prospective regulator for investment advisers, along with its lack of support for an investment-adviser-style uniform fiduciary standard. In fact, Veres suggests that the FSI may actually be taking a position contrary to a large number of its 35,000 members, many/most of whom were signed up by their broker-dealers, where the B-D cut the check for everyone to help the FSI get membership clout, when in reality those members are already transitioning themselves from sales to fiduciary advice and have no love of their current FINRA regulator. Veres suggests the reality is that FSI doesn't have 35,000 individual members, but "just" 124 broker-dealer companies as members, and that they may be lobbying to preserve their own company status quo despite their registered representatives, not in support of them.

FPA Launches New Version of Online Planner Search Tool - This week, the FPA announced an updated version of its PlannerSearch service for consumers, which now offers the public more ways to search for a planner, including by compensation model, whether there is a free initial consultation, and area of specialization. To participate in FPA's search tool, planners must be FPA members with the CFP designation, and must be affiliated with a state or SEC-registered investment advisor (or a trust or banking institution), unless they are otherwise exempt from registration.

Tech Tools: Managing Customer Contact - This article by Joel Bruckenstein in Financial Planning magazine is a review of Wealth Advisor CRM, a new entrant to the advisor CRM software space priced at an "affordable" level for smaller practices, ranging from $59/month for an advisor and one admin assistant to $79/month for the Premier Plan serving four advisors and three administrators. Bruckenstein's review provides a walkthrough of what you'd see in navigating around and using the CRM; more generally, he notes that the interface is intuitive to use, that the settings section allows for a good deal of control (although some pieces like the Dashboard cannot be customized yet), and that the CRM offers integration with LaserApp for document storage. However, the current templates appear to be built more for brokers than fee-only advisors (although more templates may be coming soon), there are no workflow capabilities, and the calendar sync function is one-way (which requires you to use Wealth Advisor CRM for all calendar input). Overall, Bruckenstein suggests the platform is still relatively new, but shows some promise for small- to mid-sized firms.

The Right Fit - This article by practice management consultant David Lawrence in Financial Advisor magazine gives tips on how to select the right CRM software for your own practice. While many of the tips are somewhat standard and difficult to apply ("determine your needs" and "perform an ROI calculation"), the article does give a nice list of some of the leading packages for off-the-shelf packages, web-based off-the-shelf packages, financial advisor customized solutions, and integrated solution (that merge the CRM software with financial planning and/or other features). The article also includes a good list of costs to consider, including not only the purchase price and installation costs, but also cost for customization, the time to convert your existing data to the new CRM platform, and the cost of employee aggravation. 

Seminar Mistakes - This article by Bill Good in Research Magazine discusses the 6 primary mistakes that advisors make when doing seminar marketing. First, check what others are doing; have your clients collect the seminar invites they receive, so you can see what people like your clients are already getting. Second, send a smaller test mailing first, so you see how it goes. From there, make sure you create a good invitation with a good catchy title, and run your seminar at a good location (good restaurant is good; country club, community meeting rooms, ethnic restaurants are bad). Finally, make sure you really have a good, interesting presentation - don't be boring! - and while it's important to have slides for visual aids, don't go overkill on the Powerpoint. For further information, see Bill Good's "Seminar Success Zone" information on his website

Six Conversations With Clients You Need To Have - This article from Research Magazine looks at six common conversations advisors have with their clients. Although the fundamentals of the conversations are probably not news to any serious financial planners, the article does have a few valuable nuggets and takeaways. For instance, don't just define the scope of the engagement with the client; consider asking them about their prior best and worse experiences with other advisors, so you can better understand the client's expectations for the relationship. And while it's important to ask clients about tolerance for risk, be aware that people who are overconfident in their abilities often take on more risk, not because they can tolerate it, but because they (mistakenly?) believe they can better control it. Or given the inevitability of market declines, make sure you have a conversation with clients to rehearse how they would handle a decline in advance (as discussed previously on this blog), rather than deal with it for the first time in the panic of the moment. Also, try getting a fix on the client's overall attitude by asking non-investment questions; for instance, the client's attitude about whether the US overall is going down down down, or has absolutely nothing to worry about, might be a general sign of excessive pessimism or optimism.

Extraordinary People--Extraordinary Results - This article by Roy Diliberto in Financial Advisor magazine explores the importance of having good people in your firm, noting that in reality if the employees are not good, that's often a reflection on the owner of the firm more than the employee themselves. Was the employee given a good environment from management in which to work and succeed? Does the firm practice the values it preaches and educate its employees on the value of financial planning? Do the managers give public praise for employees? As Diliberto points out, in the end virtually everyone gets personal satisfaction from performing well, which notably means that employees who are given the opportunity to succeed and do will probably be happy employees who stick with the firm as well.

Muni Forecast: Lots of Clouds - This article by Allan Roth in Financial Planning magazine explores the troubling link between municipal bond and stock market performance - suggesting that municipal bonds may not be the diversifier they were once thought to be. The issue is not merely one of direct investment risk; Roth's primary point is that a driving force in municipal bond defaults in the coming years may be pension shortfalls, which are heavily impacted by the poor performance in equities demanding increased funding from municipalities already suffering from multi-trillion dollar shortfalls. So far, stocks and municipal bonds haven't shown much of a positive correlation in the past 4 years, but Roth notes that government bonds have actually shown a negative correlation while municipals merely show a zero correlation. Overall, Roth doesn't necessarily suggest there will be a municipal bond implosion anytime soon - but the point remains that if there's another bad decade for stocks, the poor returns on equities and the rising pension obligations they create may translate into similarly poor municipal bond returns.

A Brief Primer on the European Crisis - In his weekly missive, John Hussman revisits the current market and economic environment. Hussman notes that the US is entering not only a business cycle recession, but is also in the midst of a broader "financial cycle" recession (characterized by the deleveraging environment) that typically makes the business cycle downturns deeper. As a result, Hussman suggests that the Fed and monetary intervention may no longer be able to stave off recession. In terms of Europe, Hussman emphasizes that the problems remain there, too, because ultimately the European liquidity fixes do not address the underlying solvency issue that must be resolved with debt restructuring. Hussman then provides a useful primer on how the European crisis has really come about over the past decade or so. 

The Bang! Moment Is Here - This article by John Mauldin on Advisor Perspectives suggests that the breaking point moment for Europe is arriving. Various countries are currently experiencing bank runs, which are creating serious inter-country debt obligations due to the Emergency Lending Assistance (ELA) program. As Greek banks experience shortfalls, they borrow from the ECB under the ELA program... which ultimately means that Greece leaving the Euro would result in a Greek default on their ELA loans, causing an increasingly large hit to the rest of the European banking system. Yet the reality is that the problem is already spreading beyond Greece, as borrowing costs in Spain continue to raise, and even France is at risk for losing its AAA rating. The bottom line is that Mauldin doesn't think the can is able to be kicked down the road much longer; Europe will soon have to either go all-in on a fiscal union or break up.

My Speech To The Finance Graduates - This article is a commencement speech by professor Robert Shiller of Yale, providing advice and guidance to finance graduates entering the world today. Shiller suggests that today's finance professionals need to get back to their roots, focusing on the original social and public purpose of the finance sector, and challenging old assumptions. Shiller suggests that today's finance scholars need to better understand asset bubbles, support more participatory forms of venture capital, develop more flexible loans to help homeowners weather economic turbulence, improve financial literacy, and ultimately  serve as stewards of society's assets and advocates of its deepest goals.

I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column! And click here to sign up for a delivery of all blog posts from Nerd's Eye View - including Weekend Reading - directly to your email!


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