Enjoy the current installment of “weekend reading for financial planners” – Practice Management Edition! This week’s edition kicks off with the results of the FPA’s latest practice management study on time management, which finds that if you feel like you’re not in full command of your time and schedule as a financial advisor, you’re not alone; as the results show, only about 1/3rd of advisors are feeling in control of their time these days! The FPA study provides some suggestions of “what’s working” for advisors who do feel in control of their schedules, and is part of their broader rollout of practice management guidance under the new Research and Practice Institution.
From there, we have a long list of practice management articles this week, including: how to protect your practice against thieves trying to commit wire fraud against your clients (and what you must do to avoid liability for a mistaken transfer!); how to craft a social media policy for your firm and roll out social media across your employees; the “right” way to attend a conference to get value (hint: meet as many people as you can); how the key to improving your firm is about trying to improve things one step at a time, rather than delaying until there are lots of problems and trying to fix them at once (which is overwhelming and rarely works); how to manage the coming “crunch” in advisor compensation as competition heats up (key takeaway: go big or go niche); ideas in better implementing common practice management tips; some wisdom in how to ensure your prospective merger with another advisory firm goes smoothly in the long run; and recent survey of CFP certificants suggesting that at least some advisors believe the recent CFP Board “scandals” have been taking a toll on its credibility.
We wrap up with three interesting articles: the first suggests that perhaps we should back away from trying to set financial goals for/with clients, and instead try to focus on the systems and habits that will make them financially successful in the long run; the second looks at the psychology of tax refunds and some research suggesting that for clients who have difficulty saving, getting a big tax refund might not be such a bad thing after all (and in fact, bigger may be better); and the last explores how being a successful leader means at some point, leaning to say “no” and limiting how people can access your time and attention, or you will struggle to achieve your own goals and priorities. Enjoy the reading!
Weekend reading for April 19th/20th:
Feel Like You’ve Lost Control Of Your Business? You’re Not Alone! – The Financial Planning Association has issued a new report on advisors and their time management, as a part of their new Research and Practice Institute, and the findings are that most advisors are struggling with their time; in fact, only 1/3rd of all financial advisors report that they feel in command of their business and time! Solutions for getting more efficient for most firms, to regain control of time, appears to be focused around developing more standardized processes and better delegation. Scheduling techniques are also popular to get better control of time, such as scheduling not just client meetings but most other types of activities as well, and having a weekly schedule where advisors only hold client meetings on certain days (allowing the remaining days to stay open for thinking about the business, working with coaching, training team members, etc.). Notably, the key to time management appears to be getting non-client issues out of the way to focus on clients; the survey actually found that those who felt most in control of their time hold more client meetings, averaging an extra client meeting per week (and a whopping 50 additional client meetings per year, allowing for more client touches and greater client capacity). Not surprisingly, advisors reported that their productivity is hampered by trying to do too much, their administrative burdens of the business, and about 30% acknowledge the challenges of procrastination as well. For those interested in further detail, you can see the full results of the FPA time management study here.
Guarding Against Wire Transfer Fraud – In recent years, there has been a spike in the number of wire fraud attempts targeted against advisors and their clients, where a thief sends a message, usually an email, to an advisor requesting an [urgent] wire transfer of funds. Often, the request comes directly from the client’s [hacked or otherwise compromised] email account, or one so similar that the thief hopes no one will notice (e.g., an email from cIient@hotmail.com instead of email@example.com), and usually indicates the client needs the money quickly and is not available by telephone (e.g., “I’m traveling on vacation”). And unfortunately many advisors, eager to “provide good service” and show they’re responsive, accommodate the request quickly… resulting in lost client funds, an angry real client, and the potential that the firm/advisor will have to pay for the error out of pocket if they failed to follow reasonable procedures to protect against the fraud. So how can advisors protect themselves? Simply put, it’s crucial to verify wire transfers with clients directly, and call them for direct confirmation. Some clients may push back if they feel like they are being forced to “ask twice” for the transfer, but you can communicate to them that it’s simply part of a procedure to ensure the security of their money in the first place, as emails can be hacked and “you’re trying to protect them.” Some advisors will set up a key question and answer, or a code word or phrase, to further validate the request (these code words should be verbal only, and not transmitted by email). Be aware that requests will often come in late on a Friday or before a weekend or holiday specifically because the thieves hope that the urgency will persuade the firm to bend its rules to acquiesce to clients, so it’s important that your staff is empowered to “just say no” if something is suspicious (even if it risks frustrating a valid but unverified client request).
How To Craft A Social Media Policy – This article by Joanna Belbey, the social media compliance specialist for Actiance, explains how firms can craft a “social media policy” for compliance purposes, and how to think about rolling out social media within a firm. Belbey suggests that social media should be rolled out in stages, especially in larger firms, to help advisors and staff understand the platforms and what’s involved. The starting point might be to encourage advisors to sign up for social media accounts but participate in “read-only” mode. In other words, don’t actually post anything, but simply look at the kinds of updates that are being posted by others on platforms like LinkedIn (or perhaps Twitter); even without engaging digitally, there can still be business opportunities, such as scanning LinkedIn updates and noticing a prospective client who just retired, and contacting them by telephone to offer congratulations and ask for a chance to meet (as with retirement, there will likely be “money in motion”). As advisors begin to engage with social media, the next key is “supervision” – firms must have a process to monitor and periodically review employee social media activity, or the firm can be punished for failing to supervise; fortunately, there are a growing number of technology tools available to implement social media monitoring for advisory firms. Once social media activity is happening, the next step is to be certain that there is a consistent marketing message and content/updates consistently being pushed out on the social media channels being used. Bear in mind as well that from the regulatory perspective, social media compliance applies to both corporate social media accounts, and the accounts of employees representing the firm, so firms should be certain they have capabilities to monitor both as appropriate; some larger firms have been producing a “content library” for advisors/employees to use, to ensure that only compliant/appropriate material is posted.
The Right Way To Attend A Conference – With tax day behind us and the spring advisor conference season coming up, this article from Bill Good in Research magazine provides some tips on how to go to a conference and foster the creative thinking necessary to come away with big ideas that can really change your business. Good notes that while it’s nice to get some basic takeaways from the conference, what you’re really looking for is “serendipity” – a “fortuitous happenstance” that doesn’t happen when you just watch a webinar or read the materials or attend electronically. The key of physically being at a conference is the intersection of lots of data and information (giving you the opportunity to connect old ideas in new ways), and the opportunity for connections (or even “collisions”) that create allow you to connect with other people in a new way. In fact, Good notes that Zappos founder Tony Hsieh is actually creating an area around the headquarters of Zappos for people to work and live in a manner that will encourage and support the random ‘collisions’ that lead to serendipitous ideas and new businesses. In the meantime, it’s also important to recognize that at a conference, there may be so much information coming at you, it’s not possible to retain it all, so take lots of notes (or if you prefer, use a service like CopyTalk to dictate them). The bottom line: take notes, gather data, and ‘collide’ with as many people as you possibly can, in the hopes that serendipity will visit you.
The Single Most Important Factor for Improving Your Firm’s Performance – From Investment Advisor magazine, this article by Angie Herbers looks at the biggest challenge that most advisors face in trying to improve the performance of their firms: the way they set themselves up to fail by putting off changes until they’re a big problem, and then trying to hire a professional for advice to implement the impossible approach of doing everything at once to fix the issue. The problem with trying to put through so much change at once is not only that it stresses the capacity of staff to handle it, but the pressure and stress can mount on the owner as well, leading to further self-destructive behavior. By contrast, when problems are tackled one at a time, it’s not only easier to get the change done, but one improvement often makes the next step clearer and easier to take as well. To facilitate this, Herbers highlights the difference between having “goals” and “targets” – for instance, a “target” is trying to get a lower golf score, while a “goal” is try to make every shot a solid, properly hit one. Just going out on the golf course with the target “try to get a lower golf score” isn’t likely to be successful; a more focused, concrete goal is necessary, which done incrementally and consistently can help approach the targeted outcome. Accordingly, in trying to fix and improve your own firm’s performance, be certain to focus on goals, not just fuzzy, long-term targets (e.g., “get more revenue” or “be more efficient” or “attract the right clients”). Of course, much of this is easier said than done, but in the article Herbers articulates a process to help try to establish goals, categorize them, and help to decide would really be the most positive and impactful goal to tackle first, and proceed accordingly.
How to Avoid the Coming Crunch on Advisor Compensation – On Advisor Perspectives, practice management consultant Dan Richards makes the case that there is a coming “crunch” on the compensation of advisors, especially solo practitioners, and that the industry today is akin to the world of small local retailers before the arrival of Walmart (or local diners before McDonalds); once the big firms showed up, the small businesses often struggled, many failed outright, and the survivors are still constantly pressured on their revenue and margins. In turn, this implies that advisors will have to either “grow big or go home”, and that in the future a solo advisor will be as rare as a solo dentist who does their own teeth cleaning and prep work. The good news for advisory firms looking to grow, though, is that since the “rookie advisor training programs” of most large firms are struggling as well, there’s a lot of opportunity to hire new associates into firms to build out team-based practices. Similarly, Richards predicts that these pressures will bring down the average compensation for advisors, which is $324,000 as the partner of an advisory firm and $217,800 for (experienced) solo practitioners, according to Investment News. Yet by contrast, the senior financial executives at large public companies have median earnings of “only” about $168,000 – $230,000 (the median results allow us to exclude the few rare outliers with millions in incentive comp that is not the norm), and the senior managers or directors at public accounting firms only average $115,000 – $190,000/year even at the largest companies. In the private banking world, those with 5+ years of experience at the high end still only average $112,250! To be fair, Richards notes there are some good reasons why advisors command a compensation premium, including a “skill” premium (especially the skill of attracting clients to build a business), an “uncertainty” premium (as only about 1-in-4 advisors even make it through their first three years and the results are only showing the survivors), an “effort” premium (there’s a huge time commitment and investment early on), and a “risk” premium (running your own business entails a lot of risk!). Nonetheless, Richards suggests that ultimately, median compensation for skilled advisors is likely to come down to the $150,000 – $200,000 range (similar to other experienced, skilled professionals in other industries), and that advisors who wish to keep ahead will have to try to grow much larger, or become more specialized, to compete.
5 Thoughts About How To Actually Do What RIA Experts Say To Do – This article by practice management consultant Abby Salameh on RIABiz provides some guidance on how to actually implement a lot of the popular advice that consultants talk about, but advisors often struggle to follow through on. Salameh suggests that in the end, the problem is that the advice is too general, and doesn’t contain enough simple, actionable steps (and the follow-up accountability required to help make sure there’s follow-through). For instance, while many advisors have heard the recommendation to cultivate a focused “elevator pitch” to concisely explain what they do, few have done so; accordingly, Salameh offers up what she calls “The Mad Libs Elevator Pitch” – literally, it’s a series of fill-in-the-blanks (Mad Libs style!) sentences you can use immediately to fill out your own elevator pitch. Similarly, Salameh provides some concrete advice on how to define your niche as an advisor (look for a handful of clients with some commonality, or perhaps a specific technical proficiency you’ve developed in your work with clients), how to build a “good” website (where “good” means customized templates and design work, and a focus on engaging content like video and blogs), how to roll out performance-based incentive plans (the starting point is making your own organization structure chart, and creating clear job descriptions for those roles, so that you can figure out how to benchmark their compensation and what kind of performance you want to incentivize for bonuses), and how to build out a succession plan (as a starting point, at least have a basic contingency plan for what to do if you get hit by a bus tomorrow!). Ultimately, the ball is still in the advisor’s court to implement all of this – unless you really do go and hire a coach to keep you accountable! – but the article does provide greater concrete detail on much of this advice than the typical practice management article.
The Post-Merger Blues And How To Beat Them – In Investment Advisor magazine, practice management guru Mark Tibergien provides some advice for advisors who have gone through a merger, and how to avoid some of the challenges and “post-merger blues” that often follow. In Tibergien’s view, the key is to recognize that a merger is in many ways like a marriage, and in fact share a lot of parallels in that advice that’s good for a marriage is often good for a merger too, from nurturing the marriage/merger with an appropriately long courtship, to never going to sleep angry and avoiding ongoing resentments, to being reasonable in money/spending matters. Tibergien suggests that it will generally take about three years for a good merger to stabilize, as strategies are aligned to build a healthy and productive post-merger firm. But ideally, consideration of how to get along after the merger should begin before the merger even happens, especially when recognizing the messiness that can arise when firms with different culture collide (even if there are shared goals). Overall, Tibergien suggests five key factors for successful mergers: 1) new partners agree on strategy and a unified positioning statement; 2) business structure is adapted to support the [new] strategy; 3) human capital (especially compensation) is aligned to the new plan (especially if the firms previously had different compensation structures); 4) pricing is harmonized across all clients from both firms (for existing and new clients); and 5) culture disconnects between the firms are proactively identified and blended. Tibergien wraps up with some good detail about issues in these various categories to watch out for if you’re considering a merger or going through one. As Tibergien notes, these may seem like common-sense suggestions, but in the real world they’re far more difficult due to the ego and emotions involved in mergers, so be prepared.
Is the CFP Board Losing Credibility in the Eyes of Advisors? – Recently, Wealth Management magazine did a survey of 40,000 CFP certificants, gathering 321 responses to evaluate whether/how perceptions of the CFP marks are changing in light of the CFP Board’s recent initiatives and challenges, from its latest commercial to the “scandals” around the CFP Board’s compensation definitions, as well as the compensation of its own CEO, and its ongoing lawsuit with Jeff and Kim Camarda. The basic results: almost 1/3rd of certificants do believe that the scandals have detracted from the perceived value of the designation in the eyes of clients and prospects, and about 1/4 certificants state that the scandals have led them personally to have a lower opinion of the CFP designation. A whopping 54% of advisors stated that they do not trust the advisor compensation disclosures on the CFP website. Advisors are also somewhat negative on the CFP Board’s new television campaign, with 27% claiming that the commercials will not help their business (the rest either saying “yes” it will help or that they’re just not sure); on the other hand, the overall results showed that 28% of CFP certificants don’t think the designation helps them attract clients in the first place, so it appears that those who are negative on the commercial may simply be the same who don’t feel the CFP marks help them at all. Overall, the CFP Board still notes that based on their own (admittedly much broader) survey from last June of 2013, 92% of CFP certificants state that they were satisfied with their decision to pursue the designation, and yours truly is quoted as pointing out that given the CFP marks are still the leading option for establishing a financial planning profession, the best solution to financial planners concerned about the CFP Board’s recent woes is not to drop their CFP certification, but get involved and make their voice heard to the CFP Board’s Board of Directors.
Why I’m Done With Financial Goals – From The Motley Fool, financial writer Morgan Housel raises the interesting question of whether financial goals are overrated, and whether having [financial] systems are better than having goals. The difference is that goals have an end date, while systems are a way of continuously doing things all the time. For instance, losing 20 pounds is a goal, but eating right is a system; running a 4-hour marathon is a goal, but exercising daily is a system; graduating from college is a goal, but being a lifetime learner is a system; and having enough money to retire is a goal, but doing something you love (so much you never care to retire anyway) is a system. So why are goals bad? In the extreme, they can be dangerous by tempting you to do crazy things to achieve them on time (especially if you’ve otherwise fallen behind), like taking risky portfolio investments to try to keep your retirement date on track. And because many end dates on goals are arbitrary, they can force odd behavior – for instance, is there really any logical reason to measure the returns on your portfolio based on how much your investments are up since the last time the earth went once around the sun (an annual portfolio review). So as you’re sitting down with clients to talk about their financial goals, consider whether their goals are actually limiting them, and if it might instead be better to talk about adopting some smart financial systems instead; the advice might not be a bad idea to consider in your own (business and personal) goals as an advisor, too!
Tax Refund Psychology Says Splurge In Order To Save – As tax season winds down and for many people, the refund checks start showing up, this article makes some interesting points about the value of getting a big tax refund (which last year averaged $2,872 among 113 million American households). The classic financial view is that a tax refund is a “bad” thing – it means the client effectively loaned the money to the Federal government, interest free, and that it would have been better to change exemptions on Form W-4 to reduce withholdings (or reduce estimated tax payments) and simply had more money in their pocket/paycheck all year long. Yet the caveat is that actually, many people are more responsible with a significant chunk of money than they are with small amounts at a time. For many, it’s hard to squeeze more savings voluntarily out of a paycheck, yet a recent study found that a whopping 46% of those receiving a tax refund view it as an “unexpected windfall” and save most/all of it; in other words, they believe it’s easier for them to save the “unexpected” lump sum, compared to trying to save a little every month all year long. To be fair, this still doesn’t mean a big refund check is a good idea if it’s just going to go towards paying down high interest credit card debt (which may have been accumulating due to that lack of extra cash flow all year); nonetheless, it’s important to recognize the psychology of a big refund. In fact, the latest research actually suggests that while small refunds are likely to be “splurged” and spent, it’s actually the largest refunds that are likely to be at least partially saved.
Leadership, Success, and Accessibility – This article by leadership guru Michael Hyatt makes the interesting point that the more successful you are as a leader, the more people will demand of your time, and the less accessible you will have to make yourself. The issue is not just the sheer limitations on time, but the priorities that are entailed in how you allocate your time; given only so many hours in the day/week/month/year, the decisions you make to focus your time in one direction (or towards one person or issue) also represent the decision to take time away from other areas. Which means if you don’t limit your accessibility, you’re inevitably going to fail in achieving your priorities (as by definition, you’re allowing them to become less of a priority!). But given that most of us don’t like to say “no” in the first place, how should you limit your accessibility? The seven suggestions include: 1) acknowledge your resources are finite; 2) determine who needs access and who doesn’t (is there a question/issue that should really be going to a staff/team member instead?); 3) take practical steps to limit your accessibility (e.g., a business email you can turn off and a private email the select few can always use to reach you if it’s really important); 4) have a list of common requests you get and… 5) figure out how to deal with them for good; 6) delegate to people you trust (and get people on your team you trust enough to delegate to in the first place!); and 7) accept the fact that you will be misunderstood (and some people will resent not having access). As the author notes, if you struggle with this, it’s a good sign that you have a good heart. But if you want to be a leader and grow your advisory firm (or any business), you need to accept that at some point, it becomes crucial to manage priorities.
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!
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!