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Weekend Reading for Financial Planners (Feb 16-17)

Posted by Michael Kitces on Friday, February 15th, 7:01 pm, 2013 in Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue focuses on practice management and career development, and starts off with an article highlighting the recent results of the FPA's Compensation and Staffing survey, which shows modest but steady gains for financial planners with strong growth for operations and compliance positions in advisory firms. 

From there, we look at a number of articles focused on the development of newer planners, including a discussion by Mark Tibergien of the challenges of hiring new planners and training them, some coaching tips from Angie Herbers about how to train and develop newer planners, and some guidance from Dave Grant about the virtue of both being a mentor and seeking one out.

We also have a few articles on the tools of the practice, including a review of a new web-based software that can help clients reconstruct cost basis for legacy investment positions, a discussion of Schwab's new launch of 105 no-transaction-fee ETFs (which still have the same expense ratios as transaction-fee versions on other platforms), a review of Windows 8 and why advisors are expected to ultimately adopt it widely, a discussion of how to measure the ROI of your marketing efforts, and an article that provides a thoughtful reminder not to take your front-of-office look and staff for granted and remember that it's still the first impression most of your prospective clients will ever see. 

We wrap up with two articles that look more broadly at the factors that determine success for an advisor, including one suggesting that maybe sheer passion isn't as important as we make it out to be and that honing your craft to be an expert is more important for success, and an interesting discussion suggesting that the key for success for sales, business development, and leadership is not in being an extrovert but instead a steady balance between introversion and extroversion. Enjoy the reading!



(Editor's Note: Want to see what I'm reading through the week that didn't make the cut? Due to popular request, I've started a Tumblr page to highlight a longer list of articles that I scan each week that might be of interest. You can follow the Tumblr page here.)

Weekend reading for February 16th/17th:

Advisory Firms Fattening Paychecks, FPA Says - This Financial Advisor article cites the recent release of the FPA's Staffing and Compensation Survey, which found that more than 2/3rds of financial planning firms intend to increase compensation for employees in the coming year, and more than half of planner employees indicated that their compensation has risen in the past year; only 0.7% of firms indicated a plan to cut employee compensation. Hiring is also up, as 43% of firms indicated a plan to hire in the coming year, while only 4% of firms plan to cut jobs; notably, the growth is greatest at the largest firms, as 80% of firms with 31+ employees plan to hire in 2013. And as the struggles of managing the practice effectively increase, the FPA study also found that the highest compensation increases are actually not going to staff planners themselves, but to compliance, CFO/accounting, and COO/operations manager positions. Notably, firms that focus primarily on investment management tended to provide higher compensation to owners, marking the ongoing industry trend towards AUM-style business models. 

The Human Capital Dilemma - In his monthly column for Investment Advisor magazine, Mark Tibergien looks at the challenges that firms are facing in hiring staff for advisory firms, where despite the general levels of unemployment in the overall economy, the balance of power is shifting to the job seekers. This has occurred in large part because the industry has tended to trade experienced people amongst firms rather than train and develop them within; in fact, Tibergien notes that only 22% of advisors are under the age of 40, and only 5% are under age 30, while the average remains up in the 50s. So how do you make your firm compelling to the most skilled of today's younger advisors? Tibergien suggests focusing on four key areas: capacity (make sure you have enough staff to serve your clients and that you're not understaffed and creating an environment where your staff can't serve your clients at their best even if they wanted to); generational differences (recognize that Gen X/Y have different views and work attitudes than boomers to manage them accordingly); culture (as the saying goes, "culture trumps strategy every time"); and leadership (both learning to lead by example yourself, and giving true leadership development opportunities for your staff). 

Growing Your Own Successor - Continuing the theme of developing your own internal staff talent, practice management consultant Angie Herbers shares a poignant example of an advisor who nearly fired a new planner upon discovering that the individual could only produce basic financial plans, could barely use Excel, and was very shy in front of people. Yet Herbers encouraged the advisor to stick with the young planner and invest some time and effort in training and mentoring him; the end result was that just two years later, the young planner had in fact become a great advisor and firm employee. Yet another problem soon arose - the young planner was still not good at business development - and Herbers once again reminded the advisor that there is an opportunity to train and mentor, just as had been done for the planner's other skills. Notably, this kind of scenario is not uncommon in the industry, given our lack of standardized training programs - a stark contrast to professions like medicine, where the process of supervised training and mentoring has been fully institutionalized in the residency process. And Herbers points out that ultimately the same approach can be applied to ultimately train a younger planner to be a future owner and a successor as well, over the span of several years. But perhaps the most fundamental takeaway of the article is simply that a lot of advisors may be getting a little too impatient in their frustration that a new employee can't do everything immediately, and not recognizing how quickly new staff really can develop by investing a little time and effort. 

Create A Mentoring Program - Echoing Herbers' theme, Dave Grant in Financial Planning magazine also discusses the virtues of mentoring, but written primarily for younger planners encouraging them to seek out mentors. Grant actually starts with an example of a younger planner that he himself as mentored through NAPFA Genesis, discussing both the areas in which a mentor can be helpful (anything/everything from interviewing tips to helping encourage patience and manage job expectations), and providing a good tip that while mentors within a firm are good, having a mentor outside your firm can be especially powerful, as there are some issues about a firm that are easier to discuss with an outside third party. Recognizing the value of what he was providing as a mentor, Grant then sought out a mentoring relationship himself, and reached out to a planner who was about 5 years ahead of him in career progression. Grant notes that when seeking a mentoring relationship, it's important to set forth the goals and intentions up front. Ultimately, Grant suggests that firms should be supporting mentoring relationships within the firm as well, as it can help bring young planners into your firm's culture, build staff loyalty, and outright just help younger planners get through some of the challenges they are facing.

The Best Tool You’ve Never Heard Of - This article by Bob Veres on Advisor Perspectives highlights a service called Your Old Money, a service that helps reconstruct historical cost basis for clients, especially helpful for those scenarios where the client holds a single large position that has been accumulated over years (or decades) and has lost track of records and/or otherwise has no idea what the cost basis might be. The client (or planner) simply indicates an approximate date the investment was acquired, along with the current value and number of shares, and whether dividends have or haven't been systematically reinvested, and the software reverse-engineers how many shares must have been originally owned and how much the cost basis must have been (including reinvested dividends, splits, and mergers, if applicable). More active trading of the investment can be reconstructed as well, although more information/estimates will be required for an accurate result. Of course, the reality is that all of this may still only be an estimate, not a "perfect" calculation, but the rigor should hold up to IRS scrutiny (given that the IRS wouldn't really have any better tools to come up with a different answer!); in fact, the software provides some supporting paperwork the client can sign to help substantiate the legitimacy of the cost basis as a reasonable estimate for tax purposes. 

Schwab Makes Play For ETF-Distribution Domination But Not Without Risks - This RIABiz article discusses the big news from Schwab that it will offer 105 Exchange-Traded Funds (ETFs) with any transaction charges for execution. The shift mimics Schwab's popular OneSource no-transaction-fund mutual funds (in fact, the new ETFs offering will be called Schwab ETF OneSource). What's different and notable, though, is that Schwab OneSource funds generally have a higher expense ratio (as the funds include 12(b)-1 fees that are remitted directly to Schwab), while the new Schwab OneSource ETFs will have the exact same costs as purchasing the ETFs elsewhere; Schwab intends to use its size and bargaining power to gain concessions in the underlying expense ratios directly from the ETF providers instead. The caveat so far is that "only" 105 ETFs are available, out of a universe of about 1,500+ ETFs, and some of the biggest and most popular ETFs (like PowerShares' QQQ) are not on the platform (yet?). Nonetheless, it appears that the drive for lower investor costs will continue, and Schwab's move now puts the pressure on other custodians and investment platforms to follow suit in order to stay competitive (in fact, the article points out that Fidelity already has several no-commission ETFs available as well). Notably, while many advisors may view this as a plus for lower costs for clients, some have expressed concerns that this may also encourage more frequent trading as well, especially for Schwab's retail investors.

Windows 8 Review: 5 Things To Know - On the Financial-Planning.com website, Joel Bruckenstein provides some helpful guidance regarding the new Windows 8 as advisors consider when/whether to upgrade the operating system on their existing (or new) computers. Overall, Bruckenstein suggests that Microsoft's new platform is now competitive to Apple and Google, with the Windows 8 (along with Office 365 and Microsoft SkyDrive) integration across smartphones, tablets, laptops, and desktops. However, Bruckenstein also notes that Windows 8 will not enjoy full integration for advisors under the major broker-dealers and custodians create Windows 8 - and especially, touchscreen-driven - interfaces, and thus far the availability of apps (both advisor-specific and in general) is still quite limited. Nonetheless, key points for Windows 8, and why Bruckenstein thinks it will ultimately gain wide adoption, include: security is much better in Windows 8; integration with Microsoft Office across devices is much better (unlike iPad user frustrations with Microsoft applications and documents); and interesting extras including live tiles, better flexibility for customization, and quality graphics.

Client Views: Fear And Loathing In The Reception Room - This article from AdvisorOne, originally inspired by a post from the Average Joe blog, makes the good point that the front of your office and a prospective client's interaction with your receptionist is often the first impression of you and your firm... so it pays to take some time and focus on what impression your front office is leaving. Does your receptionist really receive people warmly? Moreover, does the receptionist gather useful information to convey back to the advisor, whether the client appears to be unusually anxious, or if the client mentions a recent vacation or birth/death in the family? And what does the entry area itself look like? Do you tell clients not to pay attention to financial news, yet have a television playing CNBC in your lobby? Do you convey that the firm offers high quality service, yet serve bad coffee in cheap paper cups? On the other hand, is your decor so over-the-top that clients wonder if their fees are paying more for the stuff in the office than the service they'll receive? The bottom line - when it's your office, you often take the experience with staff and the look/feel of the office for granted; take a fresh look as though you were entering for the first time in your client's shoes, and you may find some things that need to be changed.

Measuring Marketing ROI - This article from marketing consultant Kristen Luke in the Journal of Financial Planning provides some good suggestions about how to evaluate and measure the return-on-investment (ROI) you're getting on your marketing dollars and efforts. Luke makes an excellent point that the reality of marketing is a long and involved process, where clients are often touched many times over a period of time. For instance, if a client first hears about you from a radio show, then gets your mailer materials, and after a period of drip marketing has a personal life event that spurs a meeting, and then becomes a client in the meeting, how do you evaluate which step of the marketing process was the key to success? Luke notes that the key starting point is to just have the data to be able to track and evaluate in the first place, so it's crucial that your CRM captures all interactions not just with current clients, but with prospects from the very moment they are touched by the first for the first time, including where that lead came from to begin with. From there, you can begin to set goals - how many new dollars of revenue or profits per client on your drip marketing list or at your marketing event. Only after you've determine what your goals are, and confirmed that you're gathering data, can you really begin to evaluate what's working and what's not. 

For Advisors, A Better Path To Success - In Financial Planning magazine, Deena Katz takes an interesting look at the different paths that advisors take to be successful. While many do so by bringing a passion to their work - so infectious that it can't help but inspire clients - Katz notes that in reality there's an alternative way to succeed as well: the craftman's path, where you simply learn to do you job and provide services so well that people can't help but want to work with you. Citing the work of Cal Newport from the book "So Good They Can't Ignore You", Ktaz emphasizes that it is not only not necessarily "all about passion" but in reality it's not even enough to just have passion, as skills matter too. In fact, Katz notes that since there wasn't even a profession to be passionate about in the early years, the reality is that virtually all of today's most successful advisors ultimately took the craftman's path, not the passion path. So how do you succeed in finding the craftsman's path? Find an entry point to get a foot in the door, define what being "good" really means so you can set a goal to work towards it, constantly challenge and stretch yourself (recognize most of today's successful planners built their 'career capital' over time to reach the point they're at today!), and be patient in recognizing that this takes time and effort.

Why Extroverts Fail, Introverts Flounder And You Probably Succeed - Daniel Pink, whose new book "To Sell Is Human" was recently highlighted on this blog, takes a look at some striking recent research that shows - contrary to popular opinion - the most successful salespeople are not highly extroverted people. While it's no surprise that the opposite extreme isn't good either - introverts struggle too - the research shows that the greatest success actually comes from those who are balanced "ambiverts". In other words, if you think of a scale of 1-7 where extreme introverts are 1s or 2s, and extreme extroverts are 6s or 7s, the most successful sales come from those who are 3s, 4s, and 5s; as the article notes, "They’re not quiet, but they’re not loud. They know how to assert themselves, but they’re not pushy." What's notable, though, is that the principles are actually quite similar for leadership in general, too, where again too much of either extreme is problematic. Which means whether you're considering who to hire, whether for business development or to lead your organization, or if you're looking to develop your own leadership skills, remember that a healthy balance really is the key.

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!


  • http://www.herdeirodeaecio@preciolandia.com blackberry

    There's definately a lot to find out about this topic. I like all the points you've made.

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