Weekend Reading For Financial Planners (September 27–28)

Fastest-Growing Advisors Prioritize Client Mix, Segmentation: Report

(Alec Rich | Citywire RIA)

One of the characteristics of the financial advice business is that there is no single route to growth, with firms using a variety of marketing tactics and service models to provide high-quality advice to their clients. Nonetheless, industry benchmarking studies can serve as a tool to help advisory firms understand the factors associated with growth for the broader advisory market.

Joining the growing catalog of industry studies, independent broker-dealer giant LPL Financial this week released its inaugural Advisor Growth Study, which analyzed data from more than 14,000 advisors across LPL's network over a six-year time frame and identified four areas associated with stronger growth (and that advisors and firms who were strong in at least two of the four areas saw growth rates over five times that of other firms).

To start, firms with strong growth tended to prioritize adding clients with long-term potential (with a median client age of 60 or younger and less than 35% of clients in the decumulation phase), and identified one or two areas of focus to attract these clients. Next, fast-growing firms frequently segmented their clients and refined service models based on factors such as investible assets, life stage, planning complexity, and growth potential.

Third, the analysis showed a payoff for deepening engagement through planning services (with advisors and institutions holding 60% of clients in advisory models outpacing their counterparts with more clients in a brokerage model). Finally, these firms (for which 10% of their clients were new each year) grew through several key methods, including leveraging centers of influence and digital marketing.

In the end, while this study only reflects a cross-section of the advisor universe (within the independent broker-dealer channel), it suggests that firms that seek long-term client relationships and provide a deep level of advice to encourage client acquisition and loyalty could continue to see strong growth in the years ahead.

When Quizzed On Estate Planning Topics, LLMs' Grades Vary Widely: Study

(Steve Randall | InvestmentNews)

Since they burst onto the scene a few years ago, Large Language Models (LLMs) have become popular tools for a variety of personal and professional functions. While many user queries have relatively low stakes (e.g., asking for book recommendations on a particular topic), others have steeper consequences, including questions related to personal finance matters.

A recent study by EncoreEstate Plans (a digital estate planning software company) tested various LLMs by asking each of them 46 estate planning questions drawn from the most frequent client inquiries that the firm's planning team has fielded (e.g., "Does an attorney need to sign off on my estate plan" and "What are the best ways to avoid probate"), gauging their accuracy both in absolute terms (on a traditional A-F scale) and relative to each other. The top performing tool, Claude, scored an A or B on 69% of questions asked (with 39% of answers marked A, or completely correct), while second-place Perplexity was close behind at 68% (with 37% of answers being judged completely correct). Notably, ChatGPT (perhaps the best-known LLM) scored significantly worse, with nearly half of its answers earning a D or F.

In sum, while LLMs might be effective at providing answers to general knowledge questions about financial planning, estate planning, or other topics, relying on them for high-impact decisions (e.g., language in legal documents) that includes unique personal considerations could be fraught. Perhaps more notable for financial advisors, though, the study suggests that because LLMs vary in terms of the quality of their responses, leveraging multiple tools (or identifying which tool is most effective at a certain type of query) could lead to better outcomes (though, given the potential time needed to query tools and verify their answers, advisors might often be able to find accurate information faster through a traditional search engine or consulting a colleague?)

Universal Fiduciary Standard For Financial Advice Among CFP Board's New Public Policy Priorities

(Leo Almazora | InvestmentNews)

The financial advice industry has evolved over time and with it has the regulatory landscape in which advisors operate. Which offers interested advisors, firms, and the industry groups that represent them to influence policy at both the state and Federal levels.

With more than 100,000 certificants in its ranks, CFP Board represents an influential voice in this space and the organization recently released its six public policy priorities. Perhaps the most notable (and possibly contentious) priority is to adopt a fiduciary standard for all financial advice by making fiduciary duty a legal requirement for all who provide financial advice (as while RIAs are subject to a fiduciary standard and CFP professionals are subject to CFP Board's own fiduciary guidelines, other providers of financial advice are not held to a fiduciary standard).

Other priorities named by CFP Board include enacting policies that increase access to financial advice and financial planning among consumers (with CFP Board joining other advice-related organizations in restoring the limited deduction for investment advisory and financial planning fees) and increasing opportunities and incentives for Americans to save. CFP board is also prioritizing policies that support organizations such as themselves by preserving nonprofit tax-exempt status, promoting policies that expand professional certification opportunities and educating stakeholders on the role of certification in serving the public.

Altogether, while many of CFP Board's priorities would likely be shared by other advice industry organizations, its push for a universal fiduciary standard (which would likely raise the standard for advice across different industry models) could be the toughest hill to climb as previous efforts (e.g., the Department of Labor's various attempts to implement its "Fiduciary Rule") have been met with opposition and legal challenges, particularly from the product sales industry.

Advisors Nudge Retirement Investors Into Riskier Portfolios (Often To Clients' Benefit), Study Finds

(John Manganaro | ThinkAdvisor)

While many investors are able to tolerate a stock-heavy portfolio for their retirement savings during their accumulation years (given that they likely won't need to tap into those assets for a decade or longer), as they near and enter retirement, their risk capacity can change significantly as they begin to rely on their portfolio to generate income to support their lifestyle. Which presents an opportunity for financial advisors to add value by ensuring that such clients' asset allocations reflect the need to generate income (and mitigate the effects of sequence of return risk) while still including a measure of growth (perhaps through a continued allocation to stocks) to beat inflation and support what could be a multi-decade retirement.

A recent report published by the Center for Retirement Research at Boston College sought to investigate the question of whether advisors' asset allocation recommendations reflect their clients' risk tolerance (particularly for retired clients). Using surveys of both advisors and investors (including a portion who have worked with an advisor), researchers Jean-Pierre Aubry and Yimeng Yin found that, for investors with average risk tolerance, advisors tend to recommend higher allocations than investors prefer (though, notably, advisor-recommended allocations to stocks did change alongside client risk tolerance, with a 'baseline' client having a mean equity allocation of 48% and a client with low risk tolerance seeing a 30% allocation).

The researchers evaluated different factors that could influence advisor likelihood to recommend a larger stock allocation, finding statistically significant results for those who take a "total return" approach (i.e., financing retirement withdrawals from the proceeds of an invested portfolio) to retirement income and the percentage of compensation they receive from asset-based fees. On the other hand, taking a "floor" approach (i.e., funding essential expenses through sources of guaranteed income) to retirement income was correlated with a lower allocation to stocks (notably, several factors studied did not have a statistically significant impact, including the assumed risk premium of stocks and beliefs about the riskiness of stocks).

In the end, while financial advisors might, on average, recommend a more equity-heavy asset allocation than their retired clients might prefer on their own, the authors conclude that this could ultimately benefit these clients if advisors are making a more realistic assessment of risks and returns (as well as their clients' capacity to take risk and not just their tolerance to do so) and craft an asset allocation that reflects each unique client's retirement goals!

Why Cash Is Still King For Short-Term Goals

(Amy Arnott | Morningstar)

After experiencing relatively poor performance amidst the rising interest rate environment earlier in the decade, bond investors might be more optimistic these days, as the Federal Reserve this month announced an interest rate cut and many observers expecting more in the coming months. Nevertheless, a key question remains as to whether bonds are the best vehicle for investors with short-term liquidity needs.

Arnott argues that despite potential tailwinds spurred by interest rate cuts, bonds might not be as attractive as they seem, particularly for short-term goals. To start, yields on cash instruments (e.g., Treasury bills and money market funds) are still attractive, currently outpacing inflation with very little risk. On the other hand, while 30-year Treasury bonds offer a yield approximately 60 basis points (0.60%) higher than three-month Treasury bills, this gap is much smaller than the long-term gap of 2 percentage points (suggesting that long-term bond investors are being compensated less today for the additional interest rate risk that they're taking).

While some investors might instead look to "ultrashort" bond funds for additional yield, even these can come with risk (with the average fund in this category losing approximately 8.4% during the 2008 financial crisis and 1.8% in the first quarter of 2020), suggesting a tradeoff that investors with liquidity needs might not be willing to take.

Looking out more broadly, Arnott highlights the challenges of predicting future interest rate movements (e.g., while the market expected as many as seven interest rate cuts totaling 175 basis points in 2024, the Fed only cut rates three times for a total reduction of 75 basis points). Even today, with the Fed signaling potential additional interest rate cuts, a relatively low unemployment rate and an inflation rate that sits above the Fed's 2% target could lead Fed officials to reassess the calculus of aggressive rate cuts. Further, she notes that the Fed has less influence over longer-term rates (e.g., in 2024, yields on the 10-year Treasury finished the year at a higher level than where they started, despite the Fed's interest rate cuts), which can be strongly influenced by macroeconomic factors.

In sum, while the outlook for bonds might be rosier than it was a few years ago, the risks associated with this asset class (and the inherent lack of certainty surrounding future interest rate moves) suggest that financial advisors can play a valuable role in ensuring clients' asset allocations reflect their liquidity needs (including by selecting an appropriate allocation of longer-dated bonds and/or cash instruments to meet them).

Thinking Outside The Box To Build A Better Retirement Income Portfolio

(Allan Roth | Advisor Perspectives)

For retired clients, one of the top ways financial advisors can add value is to create a retirement income plan that meets their lifestyle needs (and perhaps one that encourages hesitant clients to actually spend the assets they worked decades to accumulate). However, given the many risks that retired clients face (e.g., longevity risk and inflation risk) and the many types of assets available to build such a plan, doing so successfully requires skill on the part of the advisor (though, notably, this isn't necessarily a one-time decision, as clients can benefit from their advisors' ability to make changes over time!).

Roth first analyzes a "typical" retirement income portfolio, allocated 40% to equities and 60% to fixed income before suggesting an alternative that he finds more appealing. To start, the "typical" portfolio he evaluates includes an immediate annuity, a bond ladder, dividend growth stocks, private income investments, and cash or short-term Treasuries. While these assets can play positive roles in a retirement income portfolio (from the immediate annuity offering predicable nominal cash flow to the dividend growth stocks providing regular cash flow), he identifies weaknesses in these areas. Primary among these is the absence of inflation protection, whether in the immediate annuity or the bond ladder. He also notes that a dividend growth fund will likely overweight the value factor rather than providing more diversified exposure to the broader market (in addition, such a fund held in a taxable account will be relatively inefficient).

Instead, Roth proposes an alternative "40/60" portfolio, which he argues is better protected against inflation and comes at a lower cost, consisting of total stock market index funds, high-quality short- and intermediate bonds, a ladder of Treasury Inflation-Protected Securities (TIPS), a "purchase" of delayed Social Security benefits (i.e., by using other assets to support income needs until age 70), and an allocation to cash and short-term treasuries. He notes that the allocation to TIPS and the delayed Social Security benefits (which benefit from an annual cost-of-living adjustment) provide inflation protection (though delaying Social Security benefits can come with its own risks), while the total stock market fund provides broad-market exposure with a total yield that can rival dividend funds (when stock buybacks are also considered) in a low-cost and tax-efficient vehicle.

Altogether, Roth suggests that looking beyond "traditional" assets used in retirement income portfolios could help advisors provide their clients with retirement income that is better protected against inflation and comes with a lower cost while giving clients the confidence that their lifestyle needs (and beyond?) will be met throughout their retirements.

Stop Planning, Start Executing: 6 Marketing "Dos" For Every Advisor

(Penny Phillips | Advisor Perspectives)

For growth-minded financial advisory firms, marketing is an important piece of attracting perspective clients. However, with dozens of potential marketing tactics available (and many ways to execute each one), it can be easy to suffer 'paralysis by analysis' and end up not actually pursuing any of them.

To avoid this scenario, a key principle is to spend less time on strategy (e.g., building and drafting marketing plans or refining the firm's vision and value proposition) and focus instead on actually executing on a chosen marketing tactic. Next, when engaging on social media, being focused on the platforms and messaging that are most relevant to an advisor's target client can avoid extra time spent on sites where their ideal target clients don't frequent and on activities that don't actually generate leads (and when writing, speaking the language of the ideal client and avoiding confusing jargon can be more effective as well). Another marketing "do" is to commit to a consistent marketing budget (Philipps suggests spending at least 5% of gross revenue on marketing activities) to sure that chosen tactics are funded over time (and are given the room needed to generate leads).

Further, given that most advisors aren't marketing professionals themselves, engaging a professional marketing agency to outsource many marketing-related duties could be effective (and while doing so comes at a hard dollar cost, it could save significant staff hours that could be used for activities for which they are better suited). Finally, creating and executing a marketing plan that reflects what makes the firm and its target clients unique (rather than what 'everyone else' is doing) can keep a firm focused on the tactics that are likely to work best for them

Ultimately, the key point is that while each firm will likely have its own 'optimal' marketing strategy, being able to actually execute the strategy (and not get stuck in the planning phase) is a key (if sometimes challenging) part of the process!

Follow A Marketing Cadence That Sticks: The Annual Reset

(Kristen Luke | Advisor Perspectives)

Given the many responsibilities on advisory firm leaders' plates (from ensuring high-quality client service to managing a growing staff), checking in on marketing activities can sometimes be put on the backburner. Nonetheless, with the end of the year approaching, taking time for an "annual reset" can keep the firm focused on its most effective tactics in the year ahead.

This annual reset is designed to create a framework that serves as 'guardrails' for future marketing decisions. A first step is to determine the marketing channels (e.g., YouTube, networking groups, guest appearances on podcasts) the firm wants to commit to in the coming year in order to avoid diluting efforts across tactics that aren't bringing in ideal-fit clients. Next, when it comes to content, the firm can consider the formats its ideal clients want to see (e.g., articles versus video) as well as the formats that it can realistically produce consistently (i.e., even if clients might show up often on YouTube, the firm might find the time and/or money needed to do so consistently is prohibitive). Finally, the firm can revisit the influencer relationships it wants to nurture (and which have been successful), whether 'traditional' Centers Of Influence (COIs) like CPAs and estate attorneys or other potential connections, such as consultants, coaches, or even online personalities.

In the end, because marketing tactics that might have worked in the past might have lost some of their value, taking time for an "annual reset" could be a worthwhile investment to generate more client leads in the coming year while spending marketing budgets (in both time and money) efficiently!

How To Blend Your Voice With The Needs Of Your Clients

(Mikel Bruce | Advisor Perspectives)

Given that an advisory firm website can serve as a "digital business card" and is sometimes the first touchpoint a potential client has with the firm, being able to stand out from the crowd of other potential sources of financial advice is important. But with almost unlimited possibilities available for filling space on the website, firms could find it challenging to find the right balance of content.

To start, effective advisor websites often put their ideal client (rather than the firm itself) at the center of the story. For instance, while telling the firm's backstory might provide color, a website visitor might be more interested in what makes the firm unique and, in particular, how it can help solve the visitor's financial pain points. With this in mind, making the firm's value proposition easily accessible on the website can help clients see that it has the expertise needed to meet their needs and that the firm specializes in working with people like them. Beyond technical acumen, a website can also be a place for the firm's advisor(s) to showcase their personality and show what it's really like to work with the firm (e.g., a 'meet the team' page can demonstrate the firm's personality through how employees present themselves in their pictures and describe themselves in their biographies).

In sum, an advisory firm's website is a first opportunity to 'speak' to potential clients and show that the firm works with people like them, has the technical expertise to do so, and does so in a personable way that will attract their ideal target client!

Money Is Freedom (Or Is It?)

(Frederik Gieschen | Frederik Journals)

Some people use their money to buy more 'things', whether it's an additional house or a nicer car. Another approach, though, is to use money to 'buy' freedom, whether it be from having to stay at a job one doesn't like or the ability to take a sabbatical and totally check out from work for an extended period.

While it would be logical to assume that having more money equals more freedom (given that more money in the bank might mean a longer runway for whatever goal one has in mind), this isn't necessarily the case. For instance, some people get stuck on the "hedonic treadmill", where one's expenses grow faster than their income, making it hard to save and ultimately get the freedom to step away from their current job. This is embodied in the concept of "keeping up with the Jones", where constant comparison and consumer purchases can restrict the ability to save and ultimately be 'free'.

On the other end of the spectrum, the pursuit of money (and, for some, the greater savings that comes with it) can be addicting in itself and hard to turn off. For instance, clients nearing retirement (perhaps the most recognizable form of financial freedom) might find that the transition from saving and building up their nest egg to spending it down is a difficult one that leads to greater stress (putting a damper on the sense of freedom that can come with retirement).

In the end, income is not necessarily the best measure of financial freedom, as one's ability to save and willingness to leverage that savings both contribute to the ability to feel 'free'. Which offers opportunities for financial advisors to support clients in identifying what financial freedom means to them and helping them overcome the barriers (whether it's overspending or a desire for 'more' savings) that might prevent them from reaching it.

Do What Matters: A Framework To Invest And Live Better

(Safal Niveshak)

For busy professionals, it can seem like there's a never-ending list of possible tasks to complete. Which can sometimes be frustrating (given that it's hard to feel like you're truly 'done'), but also satisfying as well (particularly for those who like checking items off of their 'to-do' list).

The problem, though, is that while many urgent tasks might get done during a particular day, this approach doesn't guarantee that the most important items are completed (particularly when it comes to longer-term tasks). To help better prioritize one's time in a given day or week, a potentially helpful tool is the "Eisenhower Matrix", that categorizes tasks on whether they are urgent and/or important. To start, tasks that are both urgent and important stand out as those that should be prioritized, while those that are neither urgent nor important might be put on the backburner. Where things become trickier, however, is in the other two 'boxes' of the matrix. For instance, tasks that are urgent but not important are often those that fill up one's day (given that it can be easy to assume that such tasks 'must' get done). However, this can leave little time for tasks in the final box (important, but not urgent), which are often longer-term projects that can make a big difference but don't have a near-term deadline.

In sum, by setting aside time for 'important, but not urgent' tasks (perhaps by time blocking), advisors can increase the chances that they're able to focus on (and complete) their most important tasks and not just the ones that are screaming for attention at the moment!

Diminishing Marginal Utility And The Need For Next

(Mr. Stingy)

At a time when there are more options than ever to choose from (whether it's types of food, vacation destinations, or job possibilities) and increased visibility of all of these possibilities (thanks to the Internet and social media), it can be tempting to always pursue 'more' in one's personal or professional life.

While pursuing 'more' isn't necessarily a bad thing (e.g., trying to make a greater positive impact on the world), the concept of 'diminishing marginal utility' suggests that being intensely focused in one particular area might lead to reduced results or happiness over time (a simple example of this concept is that while the first piece of pizza might be delicious, the eighth piece might not be so enjoyable). For instance, while a certain amount of income is necessary to achieve a sense of security, research suggests that there are diminishing returns to one's happiness after reaching this level (particularly if the pursuit of greater income results in feeling a loss of control over one's time). Also, instead of pursuing 'more' dopamine surges (whether through a check on one's social media accounts or an extravagant meal), taking time for tasks that might not bring as much excitement in the short run but beneficial in the long run (e.g., calling one's parents or serving the community) could ultimately lead to a more fulfilling life.

Finally, for those who seek 'more' status or notoriety, it could be valuable to consider exactly where their optimal endpoint is; for instance, while there could be great meaning by being recognized by those close to you (e.g., family, peers, clients), there could be diminishing returns from having this extend out to the broader public (whether taking time to impress strangers on social media or, for individuals who are particularly famous, not being able to move about the world without being recognized and perhaps interrupted).

The key point is that while the desire for 'more' can often lead to greater personal or professional accomplishments, recognizing that there are limits to this success could be the inspiration needed to pursue new areas of achievement, which could ultimately lead to a more fulfilling life and a greater impact on thew world.

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "WealthTech Today" blog.