Search results for: <br/>Author: Adam Van Deusen

The 3 Domains Of Financial Advisor Value: Why Human Advisors Continue To Thrive Amid Competition From Robos

May 23, 2022 07:01 am 0 Comments CATEGORY: Practice Management

The arrival of robo-advisors into the financial technology landscape more than a decade ago led many to believe that the combination of (relatively) low fees and digital presence offered by robos would entice many consumers to eschew human advisors and turn to these automated tools. However, since the introduction of robo-advisor technology, client behavior has suggested that these original predictions of robo dominance and the downfall of human advisors have not been borne out.

A new 2022 Vanguard Group report by Paulo Costa and Jane Henshaw helps explain why this turned out to be the case. By surveying households (with at least $100,000 in investable assets) that use human advisors, robo-advisors, or both, the authors found that clients of human advisors were not only more satisfied with the overall service they receive compared to clients of robo-advisors, but also that these clients perceive their human advisors to offer more value in three specific dimensions: portfolio value (i.e., optimal portfolio construction and client risk-taking), financial value (i.e., attainment of financial goals), and emotional value (i.e., financial peace of mind).

While clients of human advisors reported more perceived value from their advisors than did clients of robo-advisors in these areas, the Vanguard study also found that clients do have a preference for human advisors and digital tools to handle different aspects of financial advising. For example, the highest-ranked functions where clients preferred human advisors included feeling understood, having a connection/relationship, working in their best interests, and being empathetic to the client’s needs. On the other end of the spectrum, the areas where clients preferred digital tools included simplifying their portfolio for organized, cohesive management; diversifying their investments; managing capital gains and taxes effectively; and preventing details from being overlooked. Notably, these results were similar across client demographics, including age, wealth, and whether they currently use a human or robo-advisor.

These results suggest that human advisors who recognize and focus on the areas that clients want an actual person to handle – while potentially outsourcing other tasks that clients prefer to be handled through digital tools – could help strengthen their relationships with current clients (by allowing them to focus on the specific areas that involve connecting with clients) and promote firm growth into the future (by freeing up their time to work on business development). In fact, the study found that clients of robo-advisors are quite willing to work with a human advisor in the future, with 88% of these respondents saying they would be willing to do so (while only 4% of clients of human advisors said they would switch to a robo-advisor if they had to leave their current advisor).

Ultimately, the key point is that the Vanguard study shows not only that consumers continue to seek out human advisors, but also that those who do become clients feel that they receive high levels of service. Further, the results suggest that human advisors who focus on the areas where human support is most valued (including active listening and understanding their goals) while leveraging digital tools for other tasks are likely to attract more clients, including those who may currently be using a robo-advisor!

Weekend Reading For Financial Planners (May 21-22)

May 20, 2022 02:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that a court ruling has called into question the Securities and Exchange Commission’s use of its own judges for adjudicating enforcement actions. The court order could pave the way for those advisers ever accused of violating SEC regulations to have the guaranteed right to a jury trial instead, ensuring they will get a chance to ‘have their day in court’ to prove their innocence.

Also in industry news this week:

While some observers thought new leadership at the SEC might pave the way for increased enforcement of Regulation Best Interest, the agency has yet to take any major enforcement actions, potentially leaving consumers still vulnerable to the problematic broker behaviors that Reg BI was meant to solve, and leaving other broker-dealers wondering how to implement the principles-based guidelines
A coalition of advocacy groups has asked the SEC to investigate RIAs’ use of mandatory arbitration clauses with clients, including a call to use regular examinations to gather data on the terms of these clauses and how they are used

From there, we have several articles on the current state of financial markets:

How advisors can put the current market downturn into historical context for their clients
Why seemingly everyone has a bearish outlook for financial markets, and why this could offer a glimmer of hope for market performance going forward
Why the market downturn could present an opportunity for advisors and their clients to take advantage of Roth conversions, as well as alternative strategies advisors could consider

We also have a number of articles on practice management:

How some firms are using equity ownership to attract and retain employees amid the tight labor market
Why asking job candidates about their open browser tabs could be a useful interview question
The most important criteria to consider when selecting a business partner and how best to nurture the relationship

We wrap up with three final articles, all about what it means to be ‘rich’:

While having more money can improve wellbeing for advisors and the broader public, a range of other factors might be even more important
A recent survey shows what net worth Americans think is required to be ‘wealthy’ or ‘financially comfortable’ and also suggests that values-based investing might be gaining momentum
How being ‘rich’ and being ‘wealthy’ are not necessarily the same thing, and how advisors can help clients achieve a life of financial freedom

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (May 14-15)

May 13, 2022 02:06 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the T3 Technology Conference was held last week after a two-year hiatus, drawing a record crowd to see the latest in advisor technology. The event highlighted the growing data management needs of advisors as well as advisors' interest in ways to better scale their practices while continuing to offer individualized planning to their clients.

Also in industry news this week:

A recent survey shows that the focus of many RIAs remains on attracting ‘mass affluent’ clients through referrals from current clients, perhaps suggesting an opportunity for those willing to break the mold in terms of client wealth or marketing strategies
With many firms looking to diversify the traditionally male-dominated financial advisory industry, the market for female advisors has become increasingly competitive

From there, we have several articles on tax and retirement planning:

While the recent market downturn has created opportunities for advisors to engage in tax-loss harvesting in client accounts, there are several potential pitfalls to avoid
How to find the best solution for clients to make contributions to Roth retirement accounts, no matter their income
Why a contingent deferred annuity might be an appropriate vehicle for clients who want income protection while keeping their assets invested in the market

We also have a number of articles on advisor marketing:

Why webinars can be a valuable lead-generation tool for advisors and how to make them more effective
The key features of advisor websites, from a call to action to credibility indicators, that turn visitors into prospects
Why advisors might want to avoid using the phrase ‘follow-up’ with prospects and an alternative option that could lead to converting more into clients

We wrap up with three final articles, all about saying ‘no’:

How to say ‘no’ firmly and gracefully, whether it is to a friend or a prospective client
Why it is not necessary to make the most out of every minute of the day and how taking time to do nothing and being idle can improve your mental and physical health
How saying ‘no’ can allow advisory firm owners to set their own schedules and work with their optimal clients

Enjoy the ‘light’ reading!

A Career Changer’s Guide To Becoming A Financial Advisor: Career Paths, Preparation, Education, Costs, And More!

May 9, 2022 07:01 am 7 Comments CATEGORY: Personal/Career Development

The COVID-19 pandemic has led many workers to consider changing careers, perhaps for greater pay or flexibility. For those with an interest in personal finance and helping others, a career change into the financial advice industry could be an attractive option, particularly given that financial advisors generally report having a strong sense of wellbeing and that they have the potential to earn significantly more than the national median income. And with all of the ways that aspiring advisors can enter the profession, career changers have many factors to consider, including the type of work and career path they would ultimately like to pursue. Because the various financial advice career tracks come with different education and certification requirements, this decision will influence the career changer’s path as they pursue their first job in the industry.

For aspiring planners who want to work directly with clients but who don’t yet have leads of their own or experience with business-development strategies, one option is to start at a firm that assigns clients to advisors (so that the advisor can focus on practicing their financial planning advice skills as they learn how to generate new clients for the firm). Career changers who already have business-development experience (or who have access to many potential clients) might instead prefer to find a firm where they will be responsible for pursuing their own clients. Still, other career changers might want to eventually start their own firm; while this may allow for the greatest autonomy, this option also comes with the greatest financial risk (as the advisor will be entirely responsible for making up income lost after leaving their previous job!). For career changers who want to work in the industry but do not want to work directly with clients, pursuing a career track that allows them to construct financial plans and develop recommendations (without presenting them to the client) could be the best option.

After deciding which career path best suits them, a career changer can pursue the education and credentials that will help them stand out to potential employers and clients. For many, the first step will be to complete a broad financial planning education program to gain the technical knowledge needed to be a successful advisor. There are also designations (e.g., the CFP certification) and specialized training programs that can serve as a signal to future employers and clients that they have the skills and dedication to be effective advisors. Next, constructing a plan that makes the transition as smooth as possible (e.g., scheduling out time for classes, training, and job hunting; and budgeting the financial costs of a transition into financial advising) can help the advisor manage a potential salary reduction (for those pursuing an employee position) or foregone income (for those starting their own firm) as they get up to speed in their new career.

Ultimately, the key point is that while a career change into financial planning can be a fulfilling decision, it is important to plan in advance to ensure a smooth transition, from considering what kind of role in the industry is of interest to the education and credentials needed for that career track. Because with proper preparation, the career changer can increase the chances that they will not only have a good first job in the industry, but also have a successful long-term career in financial advice!

Weekend Reading For Financial Planners (May 7-8)

May 6, 2022 02:08 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that amid a wave of mergers, the number of broker-dealers has declined during the past few years, according to a report from FINRA. And while broker-dealers are also seeing a decline in the number of their registered representatives, their profits have actually ticked higher in the past few years, perhaps supported by strong market performance buoying their growing fee-based business. At the same time, the number of RIAs continues to grow, suggesting that the shift toward advice-centric, rather than product-centric, business models is continuing!

Also in industry news this week:

For the largest independent broker-dealers, fee-based revenues now make up a majority of total revenue (with commissions accounting for just 34%) according to a recent survey, representing a dramatic shift from just a decade ago, when commissions made up the majority of revenue.
Why FINRA is considering raising the barriers for retail investors to purchase a range of “complex” investments, potentially including leveraged and inverse ETFs

From there, we have several articles on industry studies:

A recent study shows that advisors at RIAs tend to focus on expense ratios rather than recent performance when picking mutual funds for client portfolios, leading to better outcomes than both broker-dealer registered representatives and dual registrants, who are more likely to choose more expensive, active mutual funds
A Cerulli study indicates that in a world of low stock and bond returns, advisors are increasingly considering alternative asset classes to generate income for clients
How an advice-only business model can allow advisors to be more creative with their service offerings and reach a wider range of potential clients

We also have a number of articles on retirement planning:

The pros and cons of using a Qualified Longevity Annuity Contract (QLAC) to insure clients against longevity risk while deferring some RMDs
Why clients with long-term care policies may soon see premium increases and how advisors can help these clients analyze their options
Why planned changes to “Traditional” Medicare could make it look more like Medicare Advantage and how advisory clients might be affected

We wrap up with three final articles, all about how one’s personality can affect their wealth:

How certain personality types are correlated with increased lifetime earnings among the general population, and why the traits that lead to success for financial advisors might be different
How the personality traits associated with ‘self-made’ millionaires differ from those who inherited their wealth, and why these traits could affect client behavior
Why certain characteristics are associated with the ability to separate ‘financial BS’ from genuinely profound advice

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (Apr 30-May 1)

April 29, 2022 02:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the Investment Advisers Association has become the latest industry organization to push back against the SEC’s guidance limiting the use of the term “fiduciary” on Form CRS, joining a growing number of voices attesting that RIAs should be able to highlight the differences between the standards of care required of them with respect to their entire advisor-client relationship, versus Reg BI’s standard of care for broker-dealers that is limited to just the moment the broker makes the recommendation (rather than the structure of the broker-dealer itself).

Also in industry news this week:

In response to the SEC’s proposed regulations for RIAs to address cybersecurity threats, industry advocates have focused on the proposed requirement to report incidents to the SEC within 48 hours, a rule that could impede advisors’ ability to respond to threats adequately while also rushing to meet the reporting deadline, while highlighting that smaller RIAs just don’t have the resources to respond in the same way that large firms do.
The FPA’s Virtual Externship program is open for enrollment for its third year, offering experiential training at scale for newer advisors (and exposure to a diverse range of firms and planning techniques) to give those with classroom knowledge opportunities to see how different advisors “do” financial planning

From there, we have several articles on how advisors are approaching the decision to retire (or not):

At a time when the ‘Great Resignation’ is making headlines, why many advisors are choosing to continue working well into their 70s and 80s
The steps advisory firm owners can take to prevent ‘seller’s remorse’ when they sell their firms by vetting more than just the price of the offers
How one firm navigated an internal succession and the lessons learned from guiding clients through the transition

We also have a number of articles on taxes:

How advisors can add value by reviewing clients’ tax returns (and gain insights about the client’s behavior and values that might not have been revealed in earlier conversations)
How owners of highly appreciated artwork have taken advantage of a tax-planning strategy of donating ‘fractional’ shares of art, allowing them to keep the art for a part of the year while enjoying the tax deduction for the donated share
Why moving to a state with lower income tax rates can actually result in higher costs of living because of factors like property taxes and housing costs (and why financial aspects, including taxes, should make up only part of the reason for moving – or not – to another state)

We wrap up with three final articles, all about personal development:

Why the most important and often hardest step to achieving a goal, whether it is running a marathon or starting an advisory firm, is just getting started, as habits are far easier to maintain than to begin
How a lifetime of recreational exercise could pay dividends for our health as we age
Why ditching your smartphone at key moments during the day can promote personal and professional fulfillment

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (Apr 23-24)

April 22, 2022 02:14 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the CFP Board increased its annual recertification fee by $100 (along with an additional surcharge of up to $19/year for CE credits). Representing the first annual fee increase since 2017, the additional funds will be put toward a range of initiatives, including public awareness, talent retention, diversity, and enforcement. But given the non-trivial nature of the increase, CFP certificants are likely to expect real outcomes from these initiatives!

Also in industry news this week:

Portfolio management giant Orion announced this week that it is acquiring leading advisor CRM provider Redtail in a deal that will bring Redtail’s large base of advisors into Orion’s orbit
Some industry observers think RIA valuations might have peaked, perhaps signaling a slowdown in M&A activity and increased viability of internal succession plans

From there, we have several articles on retirement planning:

Why the creator of the ‘4% Rule’ says retirees might want to reduce their spending given the current market and inflation environment
An analysis shows why the reduced benefits associated with annuity contracts with lower-fee Guaranteed Lifetime Withdrawal Benefit riders could make them inferior to their higher-fee predecessors (and why delaying Social Security could trump both in creating guaranteed retirement income)
Why it is important for advisors working with clients nearing and in retirement to go beyond retirement income and consider their clients’ social connections, health status, and plans for the various stages of retirement

We also have a number of articles on managing cash flow:

Why spending money on building friendships can pay dividends for one’s health and happiness
With statistics showing a significant number of individuals have engaged in financial deception with their partner or spouse, advisors can consider how to handle the financial and emotional impacts of these transgressions
Why clients in the wealth accumulation phase of their lives would be best served by finding ways to increase their income and putting money into the stock market as soon as it is available

We wrap up with three final articles, all about currencies and inflation:

Why cryptocurrencies might not have the inflation-prevention benefits touted by some of their proponents
Why a cryptocurrency skeptic argues that cryptocurrencies are primarily speculative assets rather than useful currencies and are unlikely to change the way we buy goods and services
How the ‘Cantillon Effect’ helps explain who wins and who loses from fiscal and monetary stimulus

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (Apr 16-17)

April 15, 2022 02:03 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that Vanguard is partnering with American Express to offer its Personal Advisor Services human CFP offering to AmEx cardholders, giving Vanguard access to a significant new base of potential clients (and combining low investment minimums with credit card perks to entice clients to hire Vanguard as their first – and perhaps only – financial advisor).

Also in industry news this week:

The SEC has issued guidance discouraging RIAs from using the term “fiduciary” to describe their standards of conduct on Form CRS, irking fiduciary advocates who believe RIAs should be allowed to highlight the differences between the standards that apply to them and those that apply to broker-dealers
The growth in RIA valuations may soon slow or even begin to decline, as Canadian financial conglomerate CI Financial is selling off 20% of its U.S. wealth management business in an initial public offering, which could raise newfound scrutiny of the prices they’ve been offering for RIA acquisitions and slow their demand.

From there, we have several articles on investments:

How I Bonds’ new interest rate will make them even more valuable for advisors and their clients in a world of high inflation
Why the rising interest rate environment is bringing a newfound focus on cash management for clients (from money market mutual funds to shopping banks for yield)
While bonds are often seen as a diversifier for equities in client portfolios, Treasuries have performed this function better than other types of bonds in recent years

We also have a number of articles on how advisors can communicate their value to prospective clients:

Why positioning financial advice as expert coaching to achieve a higher level of success – as a good athlete can use a good coach to reach an elite level – can help prospective clients better visualize the value of financial advice
Why justifying an advisor’s fees requires first understanding what a prospective client actually values in the first place, so the advisor can describe what they can do for the prospect in terms of what really matters to them
How advisors can create a brief and compelling value proposition that is consistent across multiple marketing channels (and can be expanded upon in conversations with prospects)

We wrap up with three final articles, all about email management techniques:

While instant messaging tools are often superior to email in the workplace, email can be a useful tool for personal correspondence and checking in with clients
How advisors can reduce the stress of dealing with emails that require complicated responses
Several methods advisors can use to spend less time dealing with email each day

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (Apr 9-10)

April 8, 2022 02:03 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the Biden administration will be extending the current moratorium on Federal student loan payments, originally scheduled to end on May 31, until August 31 (which, while welcome to many borrowers, also leaves many in financial limbo as they try to plan for when – if ever – the payments will restart).

Also in industry news this week:

A new study by Charles Schwab and Ariel Investments shows that participation in the stock market is near an all-time low among Americans amid declining trust in markets and financial institutions (with the effects most acutely seen with Black investors)
How focusing on client experience (rather than simply client service) can help firms generate more revenue by creating emotional engagement with the firm’s most important clients

From there, we have several articles on the current stock market environment:

What advisors can do to keep client investment portfolios on track in the current turbulent market and geopolitical environment
What the recent yield curve inversion means for stock market returns going forward and how advisors might respond
Why investing in international stocks could still provide diversification benefits even as they lag U.S. equities in performance

We also have a number of articles on direct indexing:

While the number of direct indexing platforms has proliferated, one industry observer is skeptical of several of its advertised benefits for advisors and their clients
In the latest sign of direct indexing growth (and its potential to disintermediate ETFs and mutual funds), Charles Schwab plans to launch its direct indexing offering for RIAs and retail investors in late April
Fidelity has gone live with its Fidelity Managed FidFolios direct indexing platform, and its $5,000 account minimum has the potential to bring direct indexing to a wider range of investors (who may not even benefit from it if they’re already eligible for 0% capital gains rates!?)

We wrap up with three final articles, all about productivity:

How the rise of remote work has created a late-evening “peak” of productivity for some workers (which on the positive side could mean more workers are optimizing their schedules to their preferred hours, or on the negative side could mean workdays are simply getting longer)
Why many employees spend at least half of their days “working on work”, including following up on tasks, giving status updates, and searching for information (which comes at the cost of actually getting work done and can prevent organizations from strategizing for the long term)
How workers can optimize their schedule for productivity by grouping meetings together and leaving the remaining time free to work without distractions

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (Apr 2-3)

April 1, 2022 02:04 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with the news that the Securing a Strong Retirement Act (a.k.a. SECURE 2.0) has passed the House of Representatives with strong bipartisan support, meaning that after a long wait since the bill’s introduction, more tax and retirement planning opportunities may be on their way before the end of the year. Though with the legislation still pending review and passage in the Senate, it may take until the end of the year before it is actually signed into law?

Also in industry news this week:

A judge has ruled against the state of Massachusetts in its enforcement action against the brokerage firm Robinhood, and in doing so invalidated parts of the state’s fiduciary rule for broker-dealers (underlining the need for regulators to more clearly distinguish the line between sales and advice and to uniformly regulate firms on both sides of the divide)
RIA Mergers & Acquisitions activity continued at a strong pace in 2021, with the median firm valuation reaching 9x EBITDA – though the growing number of sellers may result in slowing valuation growth in the coming years (even while the total number of deals continues to increase)

From there, we have several articles on the regulation of RIAs and broker-dealers:

The SEC has published its 2022 list of examination priorities for broker-dealers and RIAs, including ESG factors (and concerns about “greenwashing”), crypto, private funds, and managing conflicted compensation models in compliance with Regulation Best Interest
In a new Staff Bulletin, the SEC has reiterated some of the standards of conduct that apply to both broker-dealers and RIAs when making account recommendations, namely the requirement to consider costs to the client (and justify and document the reason for recommending wrap accounts when lower-cost alternatives are available)
As private markets grow in size and influence, the SEC has proposed new rules increasing its oversight and enforcement over private equity and hedge funds and imposing new rules and reporting requirements on private fund managers

We also have a number of articles on retirement:

How clients with health insurance coverage through Medicare might get a mid-year reprieve on their Part B premiums due to price changes in one very-high-cost Alzheimer’s drug
Why some retirees choose to live on cruise ships, and the planning considerations for doing so
Six strategies advisors can use to reduce retirement income risk for clients, including asset-liability matching, dynamic spending, buckets, and more

We wrap up with three final articles, all about career planning:

A survey shows that while current and aspiring advisors agree on the importance of client communication in addition to technical skills, the biggest blocking point for many new advisors is simply the financial burden of jobs that require them to get their own clients from scratch (with little income until they manage to do so)
Why exploring a range of jobs and experiences early on (rather than becoming a specialist right away) can lead to a more fulfilling career
Why time and creating financial flexibility for oneself are two of the most important drivers of success when taking a career risk

Enjoy the ‘light’ reading!