Weekend Reading For Financial Planners (January 31–February 1)

CFP Board Ups Future CE Requirements For Certificants, Revises Certain Experience Requirements For Candidates

(Melanie Waddell | ThinkAdvisor)

From time to time, the CFP Board has reviewed its initial CFP certification and ongoing Continuing Education (CE) requirements to ensure they are meeting the needs of the organization, its certificants, and the broader public that relies on the CFP marks as an indicator of professional competency. The latest round kicked off in January 2023, when CFP Board formed a 15-person independent Competency Standards Commission to review and evaluate its competency requirements for Education, Examination, Experience, and CE to earn and maintain the CFP marks, addressing topics such as the amount of CE credits that CFP professionals should need to earn on an ongoing basis (and what content should qualify), current education requirements to get the CFP marks in the first place, and the efficacy of the Experience requirement.

After floating a number of proposed revisions in late 2024, CFP Board this week announced a series of changes to its competency standards that will go into effect in the coming months and years (and released a series of FAQs related to the updates). For current CFP professionals, the most impactful changes will likely be those surrounding CE requirements, with CFP Board increasing the current requirement to complete 30 hours of CE every two years to 40 hours (including a two-hour ethics CE requirement) starting with renewal cycles that begin after the first quarter of 2027 effective date. While the total number of required CE hours is increasing, the updated standards allow for up to 5 hours of CE credit on practice management topics and certificants who earn more than the necessary number of CE hours over a particular two-year cycle can carry over up to 10 hours to their next cycle. Also starting in 2027, CFP Board may designate mandatory CE topics in response to significant changes in laws, tax codes, or regulations affecting the financial planning profession.

The updates to the Competency Standards also include a number of items related to the certification process. Perhaps the most impactful, for those pursuing the 6,000-hour "standard" pathway to completing the experience requirement for certification, is that starting in 2027, qualifying experience must demonstrate at least three of the seven steps of the financial planning process (experience logged before the effective date will continue to be evaluated under the prior standard of being related to the planning process without a specific number of steps needing to be met). Also related to the experience requirement, starting in the second quarter of 2027, candidates will be able to count up to 500 hours of qualified pro bono planning towards the Standard Pathway (though this might have minimal impact for many candidates given that pro bono planning opportunities frequently require CFP certification and that it can be harder to build up pro bono hours compared to working a full-time job in financial planning).

Separately, candidates with the Certified Investment Management Analyst (CIMA) certification will now be able to apply it towards the Accelerated Path to meeting the education requirement (meaning that they will not have to complete a full CFP Board-registered education program, though they will still need to complete a capstone course and earn a bachelor's degree to complete the education requirement (notably, the bachelor's degree requirement was not updated, though CFP Board said it is establishing a working group this year to review whether it should be maintained or modified).

In the end, CFP Board's adopted revisions are largely in line with those that were proposed in 2024 (with a few exceptions, including a proposal that would have allowed CFP professionals to count a certain number of pro bono service hours towards CE requirements) and don't impose immediate burdens on candidates or certificants (with the changes rolling out over time and not applying retroactively). In total, the changes appear to be an effort to ensure that candidates have relevant experience (through the adjusted standard pathway towards the experience requirement) and certificants update their skills to meet a changing planning and policy environment (through the potential for topic-specific CE requirements). At the same time, some CFP professionals might balk at the increased CE hour requirements (which are relieved to some extent through the ability to roll over hours and count up to five hours of practice management credits), while future career changers in particular might find it harder to meet the experience requirement if their previous professional experience covered one or two, but not three or more, parts of the planning process.

Private Equity Driving Higher RIA M&A Valuations, Though Internal Successions Remain Viable: Study

(Tobias Salinger | FinancialPlanning)

One of the major themes in the RIA industry over the past several years has been the increasing interest of Private Equity (PE) firms in the space, leading to a wave of Merger and Acquisition (M&A) activity (and higher valuations), driven in part by PE-funded RIA 'aggregators'. Amidst this backdrop, a key question is whether internal successions will remain viable going forward, as next-generation owners might struggle to match the valuations offered by acquiring firms.

A recent study by RIA consulting firm Succession Resource Group (which included collaboration from Oak Street Funding and PPC Loan and used data from 171 deals that Succession Resource Group advised on or that used financing from Oak Street or PPC Loan) indicates that an increased pace of RIA M&A activity can exist alongside successful internal successions. On the M&A side, the report confirmed the PE-boosted increase in deal valuations (with Succession Resource Group CEO David Grau Jr. noting in a related webinar that purchase prices "moved up a noteworthy amount this year"). Notably, the study found that firms with lower profit margins but more capabilities and sustainable expansion potential tended to receive higher valuations than firms with higher profit margins but smaller capacity and long-term growth (suggesting that prospective sellers might not just focus on juicing their profitability but rather shape their firm for greater future growth, even if it means a short-run hit to the bottom line).

Looking at internal successions, the report found that the availability of a variety of deal structures is enabling deals for founders and internal successors. For instance, some firms are using a "shared growth" model, where successors earn a stake in the appreciated value of the firm over a multi-year period. Others are engaging in seller-financed deals where successors use profits to pay down the related note over time (reducing up-front cash contributions that some successors might struggle to gather). Also, some firms starting out on their succession path are using 'synthetic' or 'phantom' equity to give successors deferred compensation with some of the benefits of actual stock shares (which both promotes retention and gives successors a head start when buying into the firm down the line).

Ultimately, the key point is that while elevated deal volume and valuations might make the headlines, internal successions appear to remain an achievable possibility, particularly if founders get the ball rolling early in identifying and mentoring potential successors while exploring purchase strategies that allow them to achieve their financial goals for monetizing their business while making the transaction financially viable for their firm's next-generation owners.

RIA AI Adoption Climbing, Though Defined Strategies Lag: Reports

(Alec Rich | Citywire RIA)

In the world of advisor technology, the rise of Artificial Intelligence (AI)-powered capabilities has taken center stage over the past few years, as firms explore potential use cases for more generalist tools (e.g., large language models such as ChatGPT to generate marketing content) as well as advisor-specific software (e.g., client meeting notetaking software and AI capabilities added on to existing AdvisorTech solutions). A key question, though is whether most firms are taking a strategic approach to AI adoption (for example, by appointing a team member to spearhead their AI program) or are exploring potential opportunities on a more ad hoc basis.

A survey from Charles Schwab of 533 advisors across its network with a median firm AUM of $375 million found that while 63% of advisors surveyed are using AI in some form, only 10% of users are incorporating AI into their longer-term strategies, while 30% are experimenting and the other 60% are "somewhere in between". The survey found that 71% of internal firm AI usage is concentrated around administrative tasks (e.g., notetaking and summarizing client meetings, drafting emails), while 28% of firms are using AI to analyze firm data and 26% are using it to atomate workflows or current processes. Notably, only 19% of advisors said their firms have identified AI subject matter experts, while 18% have communicated an AI vision to the firm or articulated how it will support advisors' work.

A separate report from F2 Strategies based on a survey of high-level executives across 85 RIAs, wealth managers, broker-dealers, and asset managers found that while 74% of respondents are using AI, adoption varies significantly across channels, with RIAs and multi-family offices much more likely to adopt AI tools compared to those in the bank trust, broker-dealer, and wirehouse channels. The F2 report also found that relatively few firms are being strategic about their approach to AI, for instance by considering whether and how to change business goals given efficiencies gained by AI usage.

In sum, while an increasing number of advisors appear to be exploring AI usage, many firms appear to be in the early innings of considering how deep they want to go into their AI adoption and who within the firm will lead the charge. Nonetheless, those who do take a more strategic approach could ultimately find both cost and time savings (by only implementing AI capabilities that move the needle for the firm's processes) that could be redeployed to provide a deeper level of client service and/or allow the firm to expand its client capacity!

Pray For Beta, Not Alpha

(Nick Maggiulli | Of Dollars And Data)

Much investment research and commentary is performed in the pursuit of "alpha" (i.e., the ability to beat a market benchmark). Which can sometimes lead investors to spend significant time (and money, in the form of fund fees) trying to achieve this outperformance to boost their assets (and perhaps brag to their friends?).

However, because alpha is calculated in relation to a benchmark, it can be a better gauge of relative performance than absolute performance. For instance, if a particular fund 'only' loses 5% in a year that its benchmark lost 8%, it has achieved positive alpha but investors in the fund still lost money in absolute terms. With this in mind, Maggiulli suggests that "beta" (i.e., how much an asset's return varies relative to a market benchmark) can often be more impactful. Returning to the previous example, earning the broad-market return in a year that it gained 15% (through an index fund with a beta of 1) would be preferable to achieving alpha but seeing negative performance in absolute terms.

He finds that even if one can achieve alpha (no small feat, particularly over the longer term), those who earn the market return can outperform depending on the broader market environment when each is achieved (e.g., an investor achieving 1% alpha would 'lose' 40% of the time compared to the market index return over 20-year periods). For example, an investor could have beaten the market by 10% per year from 1960-1980 and still underperformed a broad-market index fund invested between 1980-2000!

In sum, while achieving alpha can help an investor reach their performance goals, the pursuit of alpha has to be weighed against the time and hard-dollar costs of doing so (and the realization that one's absolute performance is likely to be more influenced by the performance of the broader market). Which could help explain why many financial advisors in recent years have focused on ensuring their clients have an appropriate asset allocation for their particular goals, using low-cost investment vehicles that match market performance, and spend the time saved from not pursuing alpha on other planning issues (e.g., tax or retirement planning services) that could ultimately have a greater impact on their clients' overall financial wellbeing?

The Myth Of The Stock-Picker's Market

(Amy Arnott | Morningstar)

When the broader stock market is performing well, sticking with equity index funds can seem like a good bet. However, when the market is moving sideways or downward, a temptation can emerge to stray from an index strategy and buy actively managed funds or to start picking individual stocks (given that even when the broader market is down, at least some individual stocks typically will have positive performance).

With this in mind, Arnott analyzed historical performance data to determine whether actively managed funds were able to consistently able to outperform the S&P 500 during so-called "stock-picker's markets" (i.e., when individual stocks within the index had a higher 'win rate'). While she found a positive correlation (i.e., actively managed funds performed better when a higher percentage of individual stocks outperformed the index), the relationship wasn't particularly strong. Similarly, she found that while actively managed funds had a higher 'win rate' when the broader index had a negative return, the relationship wasn't particularly strong as well (also, she speculates that this outperformance could be associated in part with funds' allocation to cash to cover redemptions [and not necessarily stock-picking acumen], which can lead to outperformance compared to the fully-invested index). It's also worth noting that these 'win rate' figures are for individual years, with separate Morningstar research finding that very few actively managed funds have stronger returns than their benchmarks over the longer term.

Ultimately, the key point is that while there are times when a majority of constituent stocks outperform their broader index, it can be hard to identify these periods in advance and actually executing such a strategy could come at a cost of time and/or higher fees that might reduce the value of pursuing it!

When It's Worth Paying Up For Funds, And When It's Not

(Jeffrey Ptak | Morningstar)

Mutual funds and ETFs have been a revelation for investors, allowing for the purchase of dozens or even hundreds of individual stocks or bonds within a single investment (saving significant time compared to purchasing these shares individually). Over the years, the number and types of funds have exploded, with investors being able to access a wide range of active and index strategies through fund vehicles.

While funds will naturally have varying performance characteristics given that they pursue different investment objectives, they also come with different expense ratios, which can affect these funds' net performance. This then raises a key question: when is it worth it to buy a fund that comes with a fee that is more expensive than a plain broad-market index fund?

Ptak argues that there are a few times when paying more could be worth it. For instance, target date funds often have a higher expense ratio than the underlying funds within them, but their automated rebalancing and glide path adjustments could make this fee worth it (further, Morningstar finds that target date fund investors are also less likely to trade in and out of these funds, avoiding some of the underperformance that can occur from trying to time the market). Similarly, an investor might be willing to pay for a "buffer" ETF that provides downside protection (at a price) if it encourages them to stay invested. Also, an investor might find a higher-fee fund worth it if it allows for wider diversification and reduces frictions involved in certain investments (e.g., choosing a bond ETF rather than evaluating and purchasing bonds on one's own).

On the other hand, he finds certain other reasons to use higher-fee funds less convincing. For example, while covered-call ETFs have attracted attention for their ability to generate income while providing some downside protection, Ptak finds that a simple mix of stocks and cash could provide a similar performance profile at a lower cost. He's also dubious about certain private market strategies that incur higher costs and are relatively illiquid but appear to have lower volatility, as the apparent subdued volatility can be the result of having the underlying assets marked-to-market less often than publicly traded assets within a different fund.

In the end, because funds with higher fees aren't necessarily superior than lower-fee funds, it's up to investors to evaluate whether the additional cost is worth the potential benefits a particular fund can provide. Which also suggests a valuable role for financial advisors not only in evaluating whether purchasing a particular higher-cost fund might be worth it, but also in helping clients stick to investment strategies that will best help them achieve their financial goals (and that could be executed with lower-cost funds in the first place?).

How Small Advisory Firms Can Market Smarter, Not Harder

(Crystal Butler | Advisor Perspectives)

While large financial businesses have the luxury of sizeable marketing budgets and staffing, smaller financial advisory businesses might not have the same luxury. Nevertheless, because many high-impact marketing strategies don't necessarily come with a large price tag (in terms of hard dollars or time spent on them), smaller firms can still find success in attracting their ideal target clients.

To start, creating content that is unique to an advisor's voice and expertise can allow them to standout from more generalist content and the increasing amount of AI-produced content appearing online. In terms of where to publish content, a monthly newsletter can allow an advisor to stay top-of-mind for prospects, clients, and Centers Of Influence (COIs) alike, to provide evidence of their expertise, and to demonstrate their consistency (by showing up at the same time each month in recipients' inboxes). Offering high-quality content on LinkedIn (rather than posting at random) can also provide a marketing boost, perhaps by offering something of value (e.g., a checklist or guide relevant to an advisor's ideal client) and driving interested contacts to opt in to the advisor's email list.

Given that part of the goal of content creation is to drive readers and viewers to the advisor's website, ensuring that this tool appears fresh and updated can help build credibility. For instance, having recent blog posts, updated service descriptions, and timely resources can show that the firm is active and engaged (and support Search Engine Optimization [SEO], and now Answer Engine Optimization [AEO] efforts!), while strong visuals and a mobile-friendly interface can create a pleasant experience for users. Also, effective websites have a clear call to action that makes it easy for visitors to take the next step towards becoming a client, whether it's signing up for the advisor's email list or scheduling an introductory call.

Altogether, while a small advisory firm could spend significant dollars and/or hours on marketing, the time needed for serving current clients, amongst other responsibilities, means that finding cost-effective ways to attract new clients is an imperative. Nonetheless, by identifying the planning issues that are most relevant to their ideal target client, creating content that demonstrates an advisor's ability to solve them, and making the path from engaging with the content to becoming a client as smooth as possible, small firms can achieve the growth the seek without breaking the bank (or working too many extra hours) in the process.

Best Practices For An Advisory Firm Website Refresh

(Mikel Bruce | Advisor Perspectives)

A key task when starting a new financial advisory firm is to create a website, which can serve multiple functions, from explaining what type of clients the firm works with to posting content geared towards these individuals' needs. As a firm evolves over time, though, this original website can become outdated, suggesting that a refresh could be in order.

First, a firm might consider whether its website speaks to its current ideal target client. For instance, while a firm might have been open to a wide range of client types initially (to generate enough revenue to 'keep the lights on'), they might have refined their ideal client profile over time. With this in mind, ensuring that the website speaks to this persona (e.g., through the language used and content included on it) can be an important part of a refresh. Relatedly, reviewing language and content on the website for jargon or unappealing word blocks can help ensure visitors understand what the firm is trying to communicate.

Another part of a website refresh could be to review its "persuasive architecture", which guides visitors on where to start, what pages to explore next, and how to take action as efficiently as possible. For instance, saying "schedule a 15-minute intro call" is more clear and could be more effective language than "get started". Websites that were created many years ago also might not be taking full advantage of available interactive features, such as calendar scheduling tools that reduce the friction involved in setting up a meeting, chatbots that can provide quick answers to prospect questions, or embedded videos that allow visitors to see and hear the advisor could be effective additions.

Ultimately, the key point is that advisory firm websites can change over time, both as the firm itself refreshes its brand, services, or target client and as new tools can allow for a more seamless and interactive visitor experience. Which suggests that regularly reviewing its website could help a firm ensure it's sending its intended message and stand out in the minds of prospects and clients.

Accelerating Growth By Marketing How Your Advisory Firm Is Different (Instead Of Better)

(Nerd's Eye View)

Consumers have a wide range of options when it comes to choosing a provider of financial advice, from larger wirehouses and asset managers to smaller Registered Investment Advisers (RIAs). Given that larger firms tend to have more substantial marketing budgets to attract clients, smaller firms and their advisors have had to look for alternative ways to differentiate themselves from the competition. Which led many firms to market all the ways they were 'better' than other sources of financial advice by highlighting their status as fiduciaries, fee-only advisors, or by offering (more) comprehensive financial planning services beyond investment management, as just a few examples.

However, while these attributes remain valuable for clients (and are worth highlighting), their value to smaller advisory firms as differentiators has eroded over time as what may have once been unique characteristics for these firms are now either increasingly common or have become harder to parse for consumers. For instance, even though RIAs are bound by a more stringent fiduciary standard, consumers might be unaware of the nuanced differences between that obligation and the seemingly similar requirements of broker-dealers under Regulation Best Interest. Similarly, consumers may struggle to understand the difference between a "financial plan" and a "more comprehensive financial plan" if they've never been through the financial planning process in the first place.

In this environment, another option for smaller firms to compete is to focus on how they are different, instead of marketing how they might be better than their competitors. And by using their website and other marketing materials to position themselves as different, smaller firms can demonstrate to their ideal target clients why they are the right choice for their financial planning needs.

Because the largest firms typically cast a very wide net when it comes to attracting prospective clients (whether in terms of age, profession, planning needs, or other factors), serving a client base with a narrower set of characteristics can help a firm stand out. Which means that if an advisor can demonstrate that they recognize (and can help solve) their ideal client's unique pain points, such prospects are likely to feel a stronger connection to the smaller, more targeted firm, and to believe that that small firm will be better understood by their advisor compared to a more generalist large firm with a bigger marketing budget.

Another way advisors can demonstrate how they are different is by explaining how, exactly, they do financial planning, and what specific services they provide for their ideal clients as a way to communicate their value. Because when a firm has an ideal client type, they often are able to go deeper into their clients' specific needs and can communicate exactly how the process works to address those needs. This lets prospective clients know what to expect (and helps them understand the value they will be receiving in exchange for their fees!). This service specificity can be a differentiator for firms with ideal client types, as a firm that works with a broader client base will likely need to be more generic in its marketing, given that the planning needs of its clients will be significantly broader.

Ultimately, the key point is that while it has gotten more difficult for financial planning firms to show how they are better based on traditional characteristics such as being a fiduciary or providing comprehensive planning services, firms can shift their focus to emphasize how they are different and can meet the specific needs of their ideal target client as a way to adjust their marketing efforts. Which helps these firms attract more clients and continue to thrive amidst competition from larger counterparts!

Why 'Ultra-Processed' Social Media Is Different Than Other Types Of Media Consumption

(Cal Newport)

Much has been written over the past couple years about the potential downsides to social media consumption (for adults and teenagers alike). However, critics of this view might point out the introduction of previous forms of entertainment (e.g., television and comic books) was associated with similar worries that it would suck up everyone's attention and lead to delinquency amongst younger individuals.

Newport suggests, however, that social media's algorithmic nature is designed to make it addictive in a way that other forms of entertainment or not. He analogizes this situation to discussions about the potential dangers to one's health that can come from different types of food. For instance, while processed food (e.g., a homemade chocolate chip cookie) might be bad for one's health (particularly in large doses), so-called ultra-processed food (e.g., snack chips) are engineered specifically to be hyper-palatable, encouraging consumers to eat more of them. Shifting to entertainment, television might be considered similar to a processed food, in that while consuming too much of it might distract from more valuable pursuits, it's not necessarily designed to be addictive (at least in its analog form, as algorithmic streaming platforms appear to be trying to change that property), whereas social media platforms that employ algorithms designed to feed the user "ultra-processed content" that will keep them scrolling reflect many of the addictive qualities of ultra-processed food.

In sum, when evaluating (and, in particular, trying to reduce) one's media consumption, it could be helpful to consider whether a content platform being used is actively making it harder to spend less time on it. Which could mean that cutting certain "ultra-processed" content platforms out altogether could be more effective than trying to resist its temptations?

LinkedIn's Secret: Real Names

(Stu Woo | The Wall Street Journal)

For many users, one of the worst parts of the social media experience is dealing with toxic content, which often comes from accounts with anonymous handles, allowing the identity of the real user behind the text or video to remain unknown, potentially encouraging more abrasive content than they might post (and that other users might be exposed to) otherwise.

One platform that stands out in this regard is LinkedIn, where users register and appear under their true names (which makes sense given its original focus on helping users connect with professional opportunities rather than on more general discussion). This appears to lead to greater self-discipline amongst posters (who might think twice before posting certain contact if a current or future employer might see it), creating a more pleasant environment for all users. In addition to avoiding vulgar content or attacks on others, using real names appears to encourage users to post smarter, higher-quality content rather than a stream of consciousness across multiple posts. Also, while LinkedIn employs an algorithm in its feed, it doesn't necessarily promote 'hot takes' but rather posts that create "economic opportunity" and get saved or shared. Altogether, these features appear to benefit both users and the company itself, with the platform doubling its membership to 1.3 billion between 2020 and 2025, with users more likely to stick around (with 4.7% of users checking LinkedIn more than once a day, compared to 3.9% in 2020, according to research firm GWI).

In the end, while some social media platforms encourage as much time spent on the platform as possible (whether by amplifying highly engaging, if abrasive and/or controversial, posts or employing a maximally addictive algorithm (while allowing for posting under a largely anonymous handle), users appear to be responding positively to LinkedIn's gentler approach, seeking out higher-quality information, conversations, and career opportunities (even if a certain level of humblebragging still exists on the platform?).

How To Minimize Time On The (Anti-) Social Web

(G. Elliott Morris | Strength In Numbers)

In the early years of social media (The Facebook, anyone?), available platforms really were social, with users creating networks to keep up with their friends, family, and colleagues. Over time, though, many platforms shifted from promoting personal connections to keeping users on the platform as long as possible, leading to the introduction of algorithmic feeds that supply users with an infinite stream of content (most of which comes from people they don't know personally). Given the time-sucking power of these platforms (in addition to the anxiety and frustration reading through them can cause), some users might decide to reduce (or fully stop) their use of them.

Given their addictive qualities, taking this step can be easier said than done. Nevertheless, there are several actions users can take to make it easier to reduce their social media consumption. For instance, using platforms that allow for a chronological feed (of individuals a user purposely follows) rather than an algorithmic feed can reduce distraction and focus on what's important to the user. For those who use social media for work, available post-scheduling tools allow users to post without the distraction of first seeing their feed.

Another way to limit social media usage is to control interactions with one's smartphone. One potential tactic is to treat a smartphone like a landline, keeping it in one place when at home (e.g., plugging it into a charger in the kitchen, so that using it means a walk, rather than just a reach into one's pocket). In addition, minimizing the number of phone notifications (e.g., limiting them to calls or text from personal contacts, excluding updates from social media platforms or news sites) can prevent a constant stream of tempting (and distracting) dings and vibrations. Another distraction-minimizing practice is to schedule time in the day to check social accounts (and email?). In this way, an user can ensure they respond to any messages while not letting the feed take over hours of their day.

The key point is that while reducing time spent on social media can be an uphill battle, users can employ a range of techniques to reduce the temptation of checking their various accounts and feeds during the day. Which could ultimately create more time for actual social activities!

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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.