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Weekend Reading for Financial Planners (August 11-12)

Posted by Michael Kitces on Friday, August 10th, 6:15 pm, 2012 in Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a look at the big news on the regulatory front - an expected op-ed article from Congressman Bachus in the Wall Street Journal, just after it looked like the Baucus legislation for an investment adviser SRO was dead. From there, the rest of weekend reading takes a deep dive into a long series of practice management articles, including an article on shifting from AUM fees to retainers by Bob Veres, a look at how financial planners are serving the middle market, an examination of ways to maximize the efficacy of your website besides using social media (through search engine marketing and search engine optimization), a look at how many firms fail because the business owner has a strong vision but fails to communicate it effectively to staff, and the benefits of being involved with a study group. We also look at an article sharing some general "pearls of wisdom" and tips for success, an intriguing look at how the best way to generate more referrals may be to stop asking for them, and a caution not to undervalue the work that you do for clients. We wrap up with two more personal/productivity-oriented articles, one on how scheduling time windows for yourself to do various tasks can improve your efficiency, and another on how it's crucial to always be reading and maintaining intellectual curiosity to be an effective leader in your business (hopefully supported by this weekend reading column!). Enjoy the reading!

Weekend reading for August 11th/12th:

Amazed and confused: Advisors Struggle To Make Sense Of Bachus' Wall Street Journal Op-Ed Salvo - This article covers the biggest political and regulatory news of the week: Congressman Spencer Bachus published a strongly worded op-ed in the Wall Street Journal suggesting that advisors need to better police themselves, notwithstanding the fact that just two weeks ago he tabled his own proposed legislation for a self-regulatory organization to oversee advisors. The timing is so odd that some have suggested it may have simply been a timing snafu, and that the article was actually written long ago and that the Wall Street Journal just finally published it, not realizing that Bachus own legislation was already off the table. Nonetheless, the article re-opens the discussion that advisors do not have sufficient oversight, citing scenarios from Madoff to former NAPFA chair Mark Spangler. Yet critics note that in fact, Madoff was regulated under FINRA, and that advisors are already asking and willing to have better oversight - just not in the form of Bachus' legislation that would likely put FINRA in charge, and instead in the form of user fees paid by firms directly to the SEC for improved oversight.

The Alternative To AUM-Based Fees: The Total Profitability Retainer Formula - This article by Bob Veres in Advisor Perspectives explores the idea of setting fees by calculating a retainer based on what it would take to serve the client profitably, rather than simply using AUM fees, suggesting that in many practices, the AUM structure essentially results in overcharging a few clients who subsidize the remaining clients that are undercharged. To demonstrate the problem, Veres recommends a guided exercise of going through clients, looking at their fees, the overhead costs of the office, and the costs for professional staff time, to help identify which clients are profitable and which are not. In the end, Veres notes some best practices tips for retainers, including building in an automatic inflation increase, and allowing clients to pay via fee sweep or a credit card. 

How To Serve The Middle Market: Ideas For Planning Approaches And Compensation - This article in the Journal of Financial Planning explores ways that financial planners are serving the middle market, and are getting paid for their work. Key tenets include: looking at spending is critical; there are many similarities in the planning challenges faced by the middle market, allowing financial plans to be constructed more efficiently; costs can be driven down further by engaging clients in the process more directly (e.g., having data submitted electronically or aggregated online); and volume is necessary to be profitable. Compensation runs the gamut, from hourly/flat fee/recurring fee approaches, to commission or commission-and-fee hybrid approaches, to segmenting clients into service levels. It's also notable that a lot of middle market financial planning may be more modular than comprehensive; in point of fact, comprehensive planning may be a turn-off for this market segment that may be looking for a more direct, cost-efficient answer to a specific pain point or problem.

How RIAs Can Maximize Their Web Marketing With Nary A 'Friend-ing' Or Tweet - This article explores ways for advisors to be better found by clients searching for them on the internet, noting there are two primary strategies: 1) search engine marketing, where you pay to have your site listed high on the search results; or 2) search engine optimization, where you try to make modifications to your website to help it rank higher in the organic Google search process (and potentially pay a consultant for support to optimize for this result). Ultimately, though, the easiest and least expensive way to accomplish this is simply to write an ongoing series of relevant articles and publish them on your website. In all cases, though, the end goal is to make a good first impression on the client, begin to establish trust, and help turn a website visitor into a bona fide prospective client.

Go, Team, Go! - This article by John Bowen in Financial Planning magazine makes the interesting point that for many advisors, the primary struggle is not their lack of motivation, thoughtfulness, or vision, but their common failure to get their staff and teams fully on board with the vision - and consequently, execution is poor and progress is limited. To rectify this, the first key is communication, and recognizing that different staff members may hear and identify with the vision in different ways, so the message needs to get out in both formal and informal contexts. It's also important to have goals for the team - "keeping score" - which helps everyone to understand how success is measured, and towards what the common goal everyone is working together. In addition, the standard traits of effective leadership and trust building are also important, from transparency to keeping promises and doing what you say you'll do.

Wisdom In Numbers - This article from Financial Planning magazine explores the benefits of forming study groups, which are defined as "the formalization of the networking process with colleagues in whom you have a lot of trust and respect." Groups like NAPFA have gone a step further, and actually formalized the process of supporting study group formation itself, which comes in two varieties: local gatherings where members exchange ideas, and "management information exchange (MIX)" groups, where firms from geographically diverse areas actually open up the books on their practices to share and gain insight from other group members, who do the same in return. Some study groups even go so far as to commit to supporting each other on succession planning issues, should a group member die, as advisors to the business and/or the estate. The article concludes with some best practices tips for operating a study group.

Pearls Of Wisdom - This article from Financial Advisor magazine is an interview with a series of advisors reflecting on their "pearls of wisdom" - a series of core beliefs and tips for success. The key areas include: Know Thyself ("Know what makes you special or different. Define your uniqueness and share it liberally."); Service (stay focused on clients and teach yourself how to really ask meaningful questions and listen for what the answers communicate, verbally and nonverbally); Support Systems (leverage your time and productivity by having staff you can delegate to); Promotion and Marketing ("Make your existing clients your marketing partner; make them want to brag about you or at least speak highly of you."); and Continuing Education and Development (always be educating yourself and learning more). While you may not find any great revelations in this article, it provides a nice series of reminders in key areas for success. 

How To Succeed At Referrals (Without Even Asking) - This article by Olivia Mellan from Investment Advisor magazine is an interview with marketing consultant/coach Stephen Wershing about his upcoming book "Stop Asking For Referrals" and how "everything people say about getting referrals is wrong." Wershing notes that asking for referrals disrespects the reasons that clients give us referrals, by making the process about the advisor when it's really about the client. Instead, Wershing says it's important to understand that giving referrals is about clients, and the social currency they generate by making a referral that helps their friends and family or networks and extends influence. In turn, the key to generating referrals effectively is to have a clear target market, so that people who need assistance in a specific area will know you're the one to refer as a solution; Wershing notes that most advisors have target markets that are too shallow and/or don't use appropriate criteria. If you can't complete the sentence "People like ____ come to me for ____" you're not targeted enough. Wershing suggests that advisors view generating referrals less like hunting for prey (think of how that feels for your clients who are the prey!) and more like farming and nurturing a broad base of potential seeds. 

Don't Undervalue Your Work - This article from Bill Bachrach in Financial Advisor magazine focuses on five ways that advisors leave money on the table and fail to maximize their success: not charging a fee, or charging too small a fee, for up-front planning and advice work; not consolidating all of your client's assets; unimplemented advice; failing to ask for referrals; and wasting time (from doing tasks in your business you should be delegating, to failing to outsource parts of your business). Ultimately, the goal is to add more value for the client, and deepen the relationship to a greater level of trust.

Advisors: How Time Windows Will Change Your Life - This article by Angie Herbers from the Advisor One blogs highlights a simple but valuable productivity tip - instead of just going through all the work you have to do, from one task to the next, schedule specific time windows for yourself to get those tasks done. What Herbers found was that by focusing in this manner, the task at hand often was completed more quickly, ultimately getting more done through the day while working fewer hours.

Why Leaders Must Be Readers - This article makes the simple point that intellectual curiosity is a key to ongoing success as a leader, and that one of the easiest and most common ways to indulge that curiosity is by reading. Reading (and even re-reading) can remind you of things you meant to do or should be doing, and it can give you opportunities to interact with others (especially if all your partners/firm/team read the book together). The author suggests that if necessary, make time to read - as few of us ever seem to have much spare time on our hands - and if you can't read full books, at least read articles online.

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!

Michael E. Kitces

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.

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