Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a recap of President Trump's three-phase "Opening Up America Again" plan, and the guidelines being put out to states and regions about when and how to re-open their economies (in stages, over time) as the coronavirus spread hopefully crests and begins to decline (with protocols in place to deal with the risk and consequences of subsequent flare-ups).
Also in the news this week is the realization that funds for the Paycheck Protection Program (PPP) have already been committed (all $349B) in less than two weeks (amplifying pressure on Congress to expand the program sooner rather than later as 700,000 applications are currently in limbo), a look at where the SEC may focus on whether/how RIAs are still meeting their own compliance obligations (even and especially in a virtual work-from-home environment), and the news that New Jersey has delayed its state fiduciary proposal (as a part of an overall Executive Order by the New Jersey governor to stay any new rule-making by any state agency of the time being) but may still take up the issue again later this year.
From there, we have several articles on how advisory firms are adapting to the current work-from-home and work-with-clients-virtually environment, including the recognition that "yes" it really is possible to work with at least most clients virtually, how to engage in prospecting via one-to-many webinars in the current online-only environment, other digital/online marketing strategies that advisors are engaging in to adapt to the current environment, tips on how to convince clients to switch advisors (including and especially in the current difficult environment), and a new free tool from advisor cybersecurity provider OS33 to evaluate whether an advisory firm's own work-from-home network and computers are really secure (or not).
We wrap up with three interesting articles, all around the theme of how to handle and manage the emotional turmoil and disruption that the coronavirus pandemic has wrought: the first explores how robo-advisors are adapting by building in various technology 'nudges' to help clients make good decisions (en masse) during these difficult times; the second explores how we can reconcile the balance between being in an industry that by and large has stable jobs and income and an ability to work from home but is still personally disruptive and stressing while also being empathetic to those who are still facing far worse; and the last is a powerful reminder that while it's important to be optimistic to maintain hope for the future (especially with clients) it's still important to be realistic as well, as the consequences of creating unrealistic hope that is later dashed can be even more harmful than simply being realistic with clients about the opportunities and hoped-for outcomes but also fairly acknowledging the risks that do still remain in the current environment.
Enjoy the 'light' reading!
President Trump's 3 Phase Plan To Reopen America's Economy, Explained (Seren Morris, Newsweek) - This week, President Trump unveiled initial guidelines for ending the various lockdowns and stay-at-home orders across the country that have been implemented in response to the coronavirus pandemic. The three-phase plan, entitled "Opening Up America Again", is intended to provide guidance to state and local authorities about when and how they should reopen their economies. The core requirements for a state to consider reopening include: a downward trajectory of influenza-like illnesses and COVID-19 cases reported in a 14-day period; a downward trajectory of documented cases or positive tests (as a percentage of total tests) within a 14-day period; and hospitals having the capacity to treat patients without crisis cases, and with a robust testing program in place for at-risk healthcare workers (including emerging antibody testing). When a state enters Phase 1, social distancing in public should continue, social gatherings with more than 10 people should be avoided (along with keeping schools, daycare centers, and camps closed, and prohibiting visitors to senior living homes and hospitals, while restaurants and entertainment venues may re-open but only with strict social distancing protocols in place), individuals are still encouraged to minimize non-essential travel, employers should still encourage employees to work remotely when possible (and instead return to work in phases, while closing common areas), and vulnerable individuals (e.g., the elderly, those with serious underlying conditions, and those who are immuno-compromised) should continue to stay at home. At Phase 2 (for states/regions with no evidence of a rebound after Phase 1), vulnerable individuals will still be expected to stay home, and social distancing should remain, but social gatherings up to 50 will be permitted, non-essential travel can resume, and schools, daycare centers, and camps can reopen (along with bars with reduced standing-room occupancy). With Phase 3 of Opening Up America Again (for states/regions that continue to show no evidence of a rebound after Phase 2), vulnerable individuals will no longer need to stay home, but should still practice social distancing and minimize exposure, and larger venues (e.g., movie theaters and sports venues) can operate under limited physical social distancing protocols. Throughout all the phases, though, good public hygiene habits remain crucial, including regular hand-washing, avoiding touching your face, sneezing or coughing into a tissue or the inside of your elbow (and not the hand you use to touch public surfaces!), and face coverings should still be 'strongly considered' (particularly when using mass transit), while anyone who is feeling sick should be certain to stay home and not expose others (in case they have contracted COVID-19).
Hundreds Of Thousands Of PPP Emergency Small Business Loan Applications In Limbo (John Reosti, Financial Planning) - On Thursday morning, the Small Business Administration announced that it had committed all of the program's $349B of potentially-forgivable loans, less than two weeks after the program first launched, and effectively loaning out in 14 days the equivalent of what the SBA has previously provided through the 7(a) lending program over the past 14 years. Fortunately, it appears that PPP loans that had been approved and simply not yet funded will still receive their disbursements; however, the SBA has indicated that it will no longer approve applications now that funding is extended, until/unless Congress approves an additional round of funding... and leaving nearly 700,000 PPP loan applications in limbo. Currently, Congress is debating the possibility of at least another $250B round of funding for the popular PPP, but the Consumer Bankers Association (CBA) estimates it may ultimately require as much as $1 trillion to satisfy the demand from small businesses. Notably, though, despite applications no longer being approved, the CBA is asking the government to allow lenders to still upload applications into the SBA's system, so that small businesses can quickly receive funds (without even more of an application backlog) if/when Congress approves additional funding. Still, though, it remains to be seen whether additional dollars will be approved and allocated by Congress, leaving firms (including advisory firms) that had not yet even applied for PPP in a wait-and-see approach about whether it's even worth pursuing at this point?
The SEC Is Watching Advisors' COVID-19 Response (Paul Helms & Jodi Benassi, ThinkAdvisor) - With the initial round of coronavirus disruption, the SEC issued statements about its own coronavirus response efforts, with early enforcement guidance focusing on public company disclosures, market manipulation, and insider trading concerns. However, as the initial dust settles, the question arises of when and whether the SEC may turn its attention to the RIA community, which ultimately represented the highest proportion of the SEC's enforcement caseload last year (if only because there are so many RIAs under its purview that it must oversee, audit, and potentially investigate and enforce against in the first place). Accordingly, there are a number of areas that RIAs should remain mindful of from a compliance perspective, both in general and specifically in light of the coronavirus (and work-from-home) environment, including: if the financial advisor's business model shifts, and especially if advisory firms try to open up new revenue sources that may necessitate ADV updates or other new disclosures; it's especially important to ensure that client portfolios remain properly aligned with client goals and risk tolerance (as bear market losses are what prompt mismatched clients to file legal complaints and take action); automated rebalancing tools (whether as a 'robo-advisor' or using commercially available rebalancing software for advisors) should be scrutinized to ensure they're actually trading clients properly and that models/algorithms are behaving as expected; beware of the potential for cross-trading if some clients are buying what others are selling, and the need for additional disclosures and monitoring; re-evaluate cybersecurity protocols in light of employees now working remotely; and recognize that the coronavirus will likely lead to a new wave of business continuity questions from the SEC in the coming years as it both retrospectively evaluates how firms maintained their services for clients, and whether/how firms should be expected to (or required to) put new protocols in place in the future.
New Jersey Delays Final Fiduciary Rulemaking (Bernice Napach, ThinkAdvisor) - This week, New Jersey Governor Murphy issued an Executive Order 127 extending the various deadlines for rulemaking by all state agencies... which notably includes the fiduciary proposal for broker-dealers currently under consideration by the New Jersey Bureau of Securities. The change was not intended to target the fiduciary rule proposal in particular, but part of a broader recognition of both the current disruption of state agencies adapting to the state's emergency shutdown order in light of coronavirus, and to grant agencies more flexibility to focus their resources on coronavirus-related issues and delay/extend their 'normal' rulemaking work. Notably, though, the New Jersey governor's order does merely delay New Jersey's fiduciary rulemaking process, leaving the door open for its Bureau of Securities to take the issue up again later this year and build upon its prior preliminary proposal and public hearings already held in July and November of 2019. Which is significant, as New Jersey's fiduciary proposal over broker-dealers (and insurance agents) providing advice is one of the most stringent of the state fiduciary proposals, with the potential to set a strong state fiduciary precedent for other states if it is ultimately approved.
Yes, You Can Do Personal Online-Only Advice (Tony Vidler) - The shift towards engaging clients virtually as "location-independent" advisory firms has been underway amongst advisory firms for a number of years, but primarily just for a small subset of firms that wanted to avoid commuting, the costs of an expensive office space, to satisfy their personal work/life balance preferences, or because they had a niche clientele who themselves were not local. Now, however, many advisory firms are being forced to shift to location-independent digital-only advice offerings for both meeting with new clients and attracting new ones... and discovering that yes, personal financial advice really does work in an online-only environment. In fact, Vidler notes that in the end, delivering financial advice through online/digital platforms isn't really about doing more in the advice engagement process, but simply doing the "regular" thing in a different way, from data gathering through video meetings instead of in-person, financial plan presentations via screen-sharing instead of in-person, and new client paperwork via e-signature instead of in-person. Or as Vidler puts it, digital financial advice is simply "advice delivered without the traffic jam and a whiteboard". In fact, without building everything up to the next (infrequent) in-person meeting, correspondence and client communication often happen even faster in a digital environment (via phone call, video teleconference, and email), potentially improving and even deepening the client relationship. And can even be more appealing for a subset of clients who want the convenience and time savings of not needing to travel to the advisor's office! As many advisory firms are now discovering, if only because the coronavirus pandemic has forced the industry to adapt all at once!
Five Essential Prospecting Webinars That Advisors Can Offer During The COVID Crisis (Bob Hanson, Advisor Perspectives) - While many advisory firms are in the midst of adapting to client meetings digitally using videoconferencing software for those one-to-one meetings, Hanson notes that there are also opportunities for advisors to conduct webinars for one-to-many events with clients or especially prospects. The key is simply to offer a webinar topic that is relevant and of interest in the first place. Potential options to consider include: offer a "Special Markets Update" for clients (and/or prospects), where you put the current pandemic crisis in historical context, show how markets/economies have behaved following such shocks in the past, and explain how your investment philosophy and strategy will address the current environment (which makes it both effective to market services to prospects, and also just communicate key information to a wide swath of clients all at once to save or reduce the one-to-one meeting time); host a "COVID-19 Resources and Tips for [your area]" panel that brings in local experts to talk to/about the local community (e.g., someone connected to town government to talk about regulations, someone from the medical community to talk about local medical services, etc.), which can even be advertised via the local town newspaper or new website; conduct a "What the COVID-19 Crisis Means to [your target market]", where you narrowcast educational content to your specific niche clientele and make it most relevant for them in particular; offer evergreen "Financial Planning 101" or "Basics of Long-Term Investing" webinars that can be used to introduce prospects to your company and services, and can be re-purposed for the future; or look to other organizations conducting webinars themselves, and try to make yourself available as a panelist/participant on their event to further advance your brand and expertise with new audiences.
Advisors Bolster Online Presence As Coronavirus Shuts Down In-Person Meetings (Mark Schoeff Jr., Investment News) - With coronavirus triggering shelter-in-place orders for most states and preventing advisory firms from marketing for prospective new clients as they did in the past (e.g., with local networking events and in-person prospect meetings), many firms are using the current environment as an opportunity to bolster their digital marketing and online profiles instead, re-purposing what was originally "external" marketing time to be digitally-focused instead. For instance, one advisor took the time he previously spent going to networking meetings and instead increasing his social media activity, while also tweaking his website to improve its Search Engine Optimization (SEO). Other advisors are still trying to drive forward with networking by simply doing so in an online environment, hosting their own one-to-many online networking meetings via platforms like Zoom (e.g., conducting a series on women and health and inviting experts and prospects who might be interested to come together in the online environment, and allow the advisor to showcase some of their expertise in an educational setting). Other efforts from advisors have included: making themselves more 'findable' via online listing platforms (e.g., Google Local Business, Yelp, etc.); contributing to conversations amongst prospects/networking groups on LinkedIn or Facebook; or taking the time to start developing the advisor's own podcast or blog.
8 Ways To Get Prospects To Switch Advisors (Jane Rusoff, ThinkAdvisor) - While difficult markets can highlight advisors providing great service to their clients, it also draws attention to those who are not serving their clients well, creating an opportunity for good advisory firms to convince clients to switch away from their current advisor. However, Jonah Berger, author of "The Catalyst: How To Change Anyone's Mind", notes that simply trying to push someone to leave their current financial advisor often backfires. Instead, Berger suggests that the key is about removing the roadblocks that make it easier for someone to change their mind and agree with you (e.g., that your services are better than their current advisor and that it's worth making a switch), which starts with asking not "what can I do to convince this person?" but instead "Why hasn't this person changed already?" (and then trying to solve for the roadblocks that are identified), recognizing that the longer a client has already been with an advisor, the less willing they'll be to switch, and the more fearful they become about making the switch. In this context, notable roadblocks (for advisors to evaluate how to overcome) and Jonah's tactics to address them include: Determine the Barriers (simply identify what those roadblocks may be that are preventing someone from changing their mind); Overcome Pushing Back (recognizing that the harder you push, the more the other side resists, so instead find ways to make initial commitments easier); Use Tactical Empathy (to gain trust, you need to listen and put yourself in the other person's shoes to really understand their fears and roadblocks); Construct a Phantom Portfolio (don't just say you can provide better solutions than the other advisor, show them); Chunking (rather than asking for all of a prospect's assets, ask for just a small piece and incrementally expand over time, rather than just going for the "big ask"); Commit to Handling the Costs of Switching (to reduce the pain of switching); Get Corroborating Evidence (obviously limited in the context of publishing testimonials, but provide any opportunities you can for prospects to connect with existing clients); Make It Reversible (e.g., "if you're not happy in 6 months, I'll help you do the work to transfer your accounts back to wherever they were before!").
Security Provider OS33 Offers Free Tool To Help Secure Advisor Computers (Davis Janowski, Wealth Management) - For many financial advisors working from home, one of the biggest challenges is not just being compliant regarding cybersecurity but even knowing whether the firm's (home) computers are safe and secure in the first place. To help with the diagnostic process, advisor cybersecurity provider OS33 is offering free use of a lightweight version of its "Workplace Device Check" compliance software, that can help assess whether an advisory firm's home office devices are secure and operating on secure networks, following a series of 12 key checks that were identified in the recent FINRA March 2020 Cybersecurity Alert. Notably, the OS33 solution does not capture or transmit any information back to the company itself - the company emphasizes it's simply a 'here to help' solution (ostensibly in the hopes of building awareness in the advisor community) - to help firms identify cybersecurity gaps they will need to fix (for which OS33 provides additional solutions).
These Robots Want To Make Sure You Don't Do Anything Stupid With Your Money (Simon Constable, The Wall Street Journal) - Financial advisors have long experienced the phenomenon of do-it-yourself investors who make panicked decisions in times of volatile markets, and then come to the advisor for help in the hopes of recovering and/or avoiding the same mistake again in the future. For which the rise of "robo-advisors" was presumed to be a risk, as the largely self-directed solutions still expose what are nominally 'do-it-yourself' investors (who simply chose a robo-advisor to asset-allocate their investments instead of an ETF provider or a mutual fund manager) to their own behavioral biases and panic decisions. Yet in practice, robo-advisors have been trying to leverage their technology solutions to engage in one-to-many nudges to keep clients from making such investment mistakes, at a size and scale beyond what individual advisory firms can sometimes even do (where interventions tend to 'only' be one-on-one, one client phone call or meeting at a time). Interventions that robo-advisors have been testing and implementing include: automatically scanning investments to identify alternatives that have a low cost, or idle cash that could be invested (or at least held elsewhere for a higher yield); analyzing household cash flows to identify unusually high spending categories that may be ripe for trimming for those who need to tighten their budgets (especially in the current economic environment); and prompting clients who do log in to sell with a notification about the taxes they may incur (for long-term holdings where, even after the recent market decline, they still have significant capital gains) to discourage them from selling and incurring a tax bill on top of locking in their losses (which Betterment has found makes clients 62%(!) less likely to complete the change even when the tax cost is as low as $5!).
Privilege And Anxiety Clash, Then Make-Up, In My COVID Brain (Hunter Walk) - For those who actually have the good fortune to be in relatively stable jobs that are successfully weathering the current coronavirus pandemic, it can be challenging to reflect on the anxieties that the coronavirus disruption is still causing families of all types and backgrounds... even while also acknowledging how fortunate it is to be able to stay at home together in a stable job with a healthy family. In Walk's case, the challenge hit home in reflecting how his daughter's schooling has been disrupted, and worrying about whether it might impair her long-term academic trajectory... which, when so many people have lost their jobs, or are suffering from a horrific virus, or have even experienced death in the family, is arguably not 'that horrible' in the grand scheme of things. Nonetheless, it still felt hollow to simply answer the common "How are you holding up?" question with the standard "Great, really lucky. I know there are so many people suffering." And instead, Walk now acknowledges "...still, at the same time, I don't want my kid to have a childhood shaped by this experience. And I want to be giving great advice and counsel to our CEOs but in some cases we’re just going to have to figure it out as it evolves. And my puppy peed on the floor and I don’t know if she’s just mad at us or if something is wrong. And..." In other words, at the end of the day, we're all still humans, and suffering with our own (relative) disruptions that can be "messy, and dumb, and serious, and trivial". For which we still need to talk and share with others, as part of the human process of coming together and working through our challenges.
Client Confidence And The Stockdale Paradox (Steve Wershing, The Client Driven Practice) - When times get difficult, we often look to leaders for inspiration and confidence that "everything will be OK", which includes how clients often look to their advisors (for confidence in sticking with the current strategy in the midst of fear). Yet there is such thing as being too optimistic. In a story told by Admiral Jim Stockdale (the highest-ranking prisoner of war in Hanoi during the Vietnam War), the ones least likely to make it out from being POWs were the optimists, who envisioned they'd be out by Christmas, then Easter, then Thanksgiving, then Christmas again... and eventually died of a broken heart when none of it came true. Notably, that doesn't mean it's better to give up early on, but Stockdale emphasizes that there is a fundamental difference between "faith that you will prevail in the end" (which you can never afford to lose) and "the discipline to confront the most brutal facts of your current reality, whatever they might be"... which was subsequently dubbed the "Stockdale paradox" (the balance between maintaining a positive attitude, while recognizing the risk of setting too-specific short-term expectations that may backfire). In the advisor context, this means being cautious in talking about "V" shaped recoveries (what if the situation really hasn't recovered by Christmas?), or in general setting too much of an expectation of a speedy recovery, and instead focus on giving clients something to do to deal with their current reality (e.g., consider trimming your spending at least a little bit, or harvest some losses, or even find some buying opportunities), while empathizing with clients that it is scary and that you're still confident that things will work out in the end... even if no one really knows when.
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.
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