Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that, even as the country is still absorbing the outcomes of last week’s $2 trillion CARES Act stimulus, President Trump has begun to advocate for another $2 trillion round of stimulus, this time focused on major infrastructure spending that both Democrats and Republicans have acknowledged is long overdue, but raising the question of whether the parties can come together to pass such bipartisan legislation on the heels of what has already been the largest economic stimulus legislation in history.
Also in the news this week is a flurry of focus on the new Paycheck Protection Program (PPP) under the CARES Act as it opens its application process today with the potential for small businesses (including advisory firms) to receive up to $10M in tax-free forgivable loans to support their employees (but on a first-come first-served basis and the risk that the $350B allocation will have more demand than dollars to allocate), and the news from the SEC that, despite economic turmoil and business disruptions, it is sticking with its June 30th effective date for Regulation Best Interest (Reg BI).
From there, we have a number of articles about how advisors are managing the current investment environment, including a discussion of how rebalancing software has found its moment to shine amidst the pressure for rapid rebalancing trades where taking days, or even just hours, to queue up trades can result in a material difference in price, and how market turmoil is leading to an uptick of interest in third-party models and even entire TAMP platforms, as small-to-mid-sized advisory firms realize the time challenges of doing both a burst of reallocating portfolios and reassuring clients at the same time.
We also have a few articles on the current work-from-home environment, including tips about how to avoid “Zoom bombing” (where hackers can interrupt your Zoom meeting with offensive material!), tips on how to improve your webcam setup to be a little more visually flattering, and some additional suggestions on how to remain productive when (suddenly) transitioning to a new work-from-home environment.
We wrap up with three interesting articles, all around the theme of leadership in these challenging times: the first explores the importance of developing team members to have their own autonomy to take risks and make decisions (especially in a bear market when there’s too much to be done for the firm owner to make all the decisions); the second explores how fear in the midst of business risks can unwittingly cause advisory firm owners to clamp down at the exact moment it’s crucial to empower employees more; and the last provides some helpful tips about how to be an effective leader in times of crisis… including recognizing that even if your advisory firm is not in trouble, employees don’t necessarily know that, and still need enhanced communication from the leadership, if only to give them confidence that the firm really will be OK!
Enjoy the ‘light’ reading!
Trump Calls For New $2 Trillion Infrastructure Bill (Catherine Lucey & Andrew Duehren, The Wall Street Journal) – Even as the nearly $2 trillion stimulus for individuals and businesses small and large under the CARES Act was just finalized last week, earlier this week President Trump suggested that Congress consider taking up what would become the fourth round of coronavirus relief legislation, focused specifically on (re-)investing another $2 trillion, this time into the U.S.’ aging infrastructure (and to take advantage of current near-zero interest rates). Notably, with Democrats having already been calling for infrastructure investments, and both parties advocating that future stimulus efforts should include infrastructure investments from expanding broadband access to overhauling water supplies, there is hope that such legislation could be passed on a bipartisan basis, especially as jobless claims explode and more and more Americans seek new work opportunities. And notably, President Trump has already repeatedly sought to work with Democrats on an infrastructure deal throughout his presidency, for which the coronavirus recession and rising unemployment claims may give new momentum. However, Republican leaders have also signaled that, given the sheer magnitude of the CARES Act stimulus, it may be better to wait some period of time to see the effect of that legislation before moving on to the next, and that questions still loom about whether or how to pay for a(nother) $2 trillion stimulus, and whether the parties can come together to agree on what exactly should be included in such legislation. Still, though, Speaker Pelosi is anticipated to prepare a proposal in the coming weeks, with the potential for lawmakers being called back to Washington to vote after April 20th.
Quickly Maximizing Paycheck Protection Program’s (PPP) Forgiveable Loan Opportunity For Financial Advisors (Jeff Levine, Nerd’s Eye View) – While the CARES Act included a number of notable financial planning opportunities for individuals, from the waiver of 2020 required minimum distributions (RMDs) to new Coronavirus-Related Distributions that can be withdrawn penalty-free and later re-contributed, a major pillar of the legislation was $350B in support of small businesses in the form of a new Paycheck Protection Program (PPP)… potentially relevant not only for advisors’ clients who happen to be small business owners, but also for advisors themselves as owners of small businesses. The essence of the Paycheck Protection Program is that “small” businesses (up to 500 employees) can obtain a Small Business Administration (SBA) loan, with a 2-year maturity and fixed 1.0% interest rate (and payments themselves deferred for the first 6 months), with eligible borrowing amounts of up to 2.5 times their average monthly payroll expenses over the past year (capped at $10M in total loan proceeds), and amounts that are spent to cover key expenses (including payroll costs, rent, utilities, and mortgage interest) during the first 8 weeks may be forgiven altogether as long as the business maintains the same number of employees. Which means, in essence, that employers can obtain up to 2 months of employee compensation (plus up to an additional 25% of that amount for rent, mortgage interest, and utilities) on a tax-free basis (as forgiven loan amounts will not be taxable income). In order to qualify, though, businesses must (self-)certify in good faith that the loan is necessary “due to the uncertainty of current economic conditions caused by COVID-19”. And notably, the loans will only be available on a first-come first-service basis, with an application period that opens today (Friday, April 3rd)… leading to an anticipated onslaught of SBA loan applications as businesses facing uncertainty (including advisory firms that don’t know how much further AUM and revenue will decline if the bear market continues) quickly try to apply and obtain their share of the available dollars before they potentially run out.
SEC Won’t Extend Reg BI And Form CRS Compliance Date (Melanie Waddell, ThinkAdvisor) – With coronavirus shutdowns and mandatory stay-at-(and work-from-)home orders disrupting many businesses, the Financial Services Institute (FSI, which lobbies for independent broker-dealers) called last week for a delay in the June 30th effective date for Regulation Best Interest (Reg BI), citing the difficulty of firms to adapt their systems and processes for Reg BI when they are actively responding to the business disruption that the coronavirus has already imposed. In response this week, SEC Commissioner Clayton responded that the SEC believes that firms compromising “a substantial majority of retail investor assets” have already made considerable progress in adapting to the new requirements of Reg BI over the past 10 months since the rules were finalized, and that consequently (and given the perceived benefit of the new rules to protect investors) the June 30th compliance date for Reg BI (and associated Form CRS) will stand, suggesting instead that the subset of broker-dealers that are specifically unable to meet the Reg BI implementation deadline due to COVID-19 contact the SEC directly to discuss whether the SEC should adapt their examination and enforcement efforts for those firms in particular. Especially since the SEC has already emphasized that in the initial period after June 30th, they will be focusing primarily on whether firms have made a ‘good faith’ effort to comply, anticipating that the regulator will still have to work proactively with broker-dealers to further adapt their compliance processes and procedures anyway.
Advisors’ Rebalancing Tech Being Put To The Test (Davis Janowski, Wealth Management) – While bear market volatility tends to produce a burst of additional work for advisors in the form of fielding client phone calls and emails and conducting meetings and financial planning updates, it also produces a burst of portfolio-related activity, from tax-loss harvesting to partial Roth conversions at depressed values and good old-fashioned portfolio rebalancing as well. Which in turn is shining a new light on the benefits of various rebalancing software solutions to automate the process across a large number of clients… especially in markets where a single day or even a single hour can be a multi-hundred- or thousand-point swing in the markets (and therefore reflected in the price of the client’s rebalancing trades). As otherwise, the challenge in rebalancing quickly becomes which clients will be rebalanced first (with the risk that others will obtain materially different prices for the same rebalancing trade as the market moves), and how quickly the firm can rebalance (when hours or days again can materially change the execution price for clients). Of course, the caveat is that for particularly complex clients, it can still take a lot of effort to program rebalancing software to consider a client’s unique circumstances (if the software even has the features to do so), and rebalancing software providers are also reporting an uptick in support calls from advisors on how to best leverage the software (especially for unique client situations). Still, though, for the bulk of clients whose rebalancing and tax-loss harvesting situations are fairly straightforward, rebalancing software is now having its moment in the sun for the sheer efficiency of being able to promptly rebalance clients without the industry’s historical reliance on cumbersome spreadsheets, with providers like AdvisorPeak recently announcing a deal for advisors without rebalancing software to adopt the solution for free in the second quarter to quickly seek out efficiencies in the current environment.
Why More Advisors Are Now Adopting [Third Party] Model Portfolios (Jeff Berman, ThinkAdvisor) – With the uptick in market volatility, mega-investment platform provider Envestnet is reporting a concomitant uptick in interest for its various third-party model portfolios from asset managers like American Funds, Blackrock, and Vanguard. In part, this is because asset managers themselves have been making a push into various “model marketplaces” that allow them to deliver models to advisors that use (and thus support the growth of) their own ETFs and mutual funds, with recent increases in both the number of firms offering such models, and the quantity and breadth of models that each firm is offering. And in practice, advisors have already increasingly been adopting model portfolios, whether due to the time efficiency of standardizing investment allocations across their client base, or trying to enhance the value of their own advisory firm by making its investment process less reliant on the founder (i.e., it’s easier to sell an advisory firm that uses third-party models than one that is reliant on the founder to create the portfolios when the founder will no longer be around to create the portfolios after they retire). But adoption of model portfolios also seems to be enjoying an uptick amidst the recent market volatility, as more advisory firms focus on client conversations about portfolios over managing the portfolios themselves, while outsourcing the actual portfolio design and implementation that is increasingly commoditized and difficult to be paid for anyway. And Envestnet notes that, in practice, they’re seeing less turnover within and short-term redemptions coming out of their model portfolios, as broadly diversified model portfolios are more likely to be implemented as part of the client’s overall financial plan (which helps them to stick with the plan during times of market turmoil).
How A TAMP Can Help Advisors In Times Of Market Turmoil (Ryan Beach, ThinkAdvisor) – When market volatility strikes, sometimes the biggest challenge for especially smaller advisory firms is simply figuring out what to do first… rebalance client portfolios and harvest losses, return client phone calls and emails, or try to proactively communicate with all clients about the market volatility… recognizing that in most circumstances, advisors can ‘do it all’, but when markets get volatile and a burst of activity is necessary, with limited time in the day and limited resources as a small or solo advisor, there simply isn’t enough time available to do it all at once. Which is leading to fresh looks at the relative benefits of outsourcing investment management to a TAMP provider, if only for the crucial time-savings and focus benefits they provide in difficult times, allowing advisors to focus on client meetings, leverage TAMP-provided marketing and communication materials with clients, and let the TAMP itself handle the tax-loss harvesting and rebalancing trades. Of course, larger advisory firms often already separate such functions within their own firms, putting advisors in the position of planning and client communications and forming a separate/centralized investment team to manage and implement client portfolios. But when it comes to smaller or solo firms with more limited resources, TAMPs are also finding their moment in the sun by eliminating the challenging advisor tension about whether to first reallocate client portfolios or reassure clients themselves, leaving the TAMP to focus on the investment issues and the advisor with time to focus on their clients.
Advisors Beware Of Zoom Bombing (Davis Janowski, Wealth Management) – With the explosive growth in adoption of Zoom amidst a growing number of state-wide shutdowns and work-from-home orders comes growth in attempts by hackers to penetrate Zoom’s systems and even live calls being conducted by Zoom participants. The phenomenon, known as “Zoom Bombing”, occurs when a Zoom meeting is set up as an ‘open’ link or conducted via a Personal Meeting Room (which in essence is a standing open link), making it possible for outside hackers to guess the room number (or even just randomly try potential room numbers until they hit one)… and upon entering the Zoom chat successfuly, wreak havoc by sharing offensive audio or visual material. To prevent such Zoom-bombing invasions, Zoom itself has posted a guide to preventing others from hijacking user sessions, most notably by using the Waiting Room feature, locking the meeting and requiring a password to join, and configuring the meeting to not allow participants to screenshare (unless the Host explicitly grants them permission). Still, though, the recent Zoom-bombing challenge has quickly brought awareness to what is turning out to be a growing range of security concerns, from Zoom user data that was ‘accidentally’ being shared with Facebook, leaking personal information of call participants, and security vulnerabilities that could even permit hackers to take over a local computer and access stored passwords, which has culminated in a potential class action lawsuit already looming against Zoom, and a warning from the FBI about Zoom’s vulnerabilities, leading Zoom CEO Eric Yuan to issue a public apology and a statement this week that they are halting all feature developments and putting their full engineering resources towards fixing their security issues as quickly as possible.
Look Better On Video Calls Using Pro Photography Techniques (Stan Horaczek, Popular Science) – With the rapid rise of work-from-home video conferencing has come the newfound challenge of ‘how to look good when video conferencing’, given that many working from home do not exactly have ‘ideal’ home office environments, and webcams are not always flattering! Accordingly, Horaczek provides some practical tips on how to improve the visual look of your video conferencing setup from home, including: find the “biggest” light source you can, as the broader the light source the fewer awkward shadows it creates (e.g., sitting in front of a big window or at least a big lamp is better than a small lamp or narrow light), though it’s still best to find an indirect light source (e.g., point the lamp at a nearby wall to bounce onto you, not at your face directly, and do not sit directly in shining sunlight, which again can cast harsher shadows); face towards the light source to the extent possible, which further smoothes out the light on your face and looks less shadowed or grainy; stick with one color of light if possible, as mixtures of light (e.g., incandescent light bulbs and also more natural light) don’t necessarily look good when mixed together; be certain to clean off your camera lens itself (using a lens wipe or even just a clean t-shirt); watch out for a strong backlight (i.e., don’t sit with a window behind you, which can cause rays of light to streak across the lens, or shadow your face as the camera struggles with the light balance); be certain to raise the camera to eye level (consider a stack or books or a shoebox to adjust for the appropriate height!); and if you really want to upgrade, consider a basic “ringlight” that you can put behind your webcam to create a more balanced natural light.
I’ve Worked From Home For 22 Years, Here’s What I’ve Learned (Alexandra Samuel, The Wall Street Journal) – For the average worker who’s accustomed to commuting to the office every day, one of the underappreciated benefits of the traditional work arrangement is that it creates a natural distinction between “work life” and “home life” given the actual physical separation. Accordingly, Samuel suggests that for those who have now transitioned to working from home, it’s necessary to reconstitute what the traditional work day looks like, in order to re-create that important distinction. Key recommendations to more effectively work from home include: create some structure for your work day, including your key priorities (e.g., choose 3 primary things you intend to accomplish that day, share them with a colleague to create a sense of personal accountability, and focus on those items in order to stay focused); recognize that your time management systems will need to change, as the day is not necessarily broken into natural breaks with colleagues and a traditional cycle of meetings (instead, try “time theming” where you group activities together around a particular theme, and consider time-tracking apps like Timing.app or ManicTime to keep yourself accountable); understand that it’s still important to take breaks (and respect your body’s natural energy cycles), filling in the instinctive breaks that we often take at work (e.g., getting a refill at the water cooler); be certain to still take proactive time to stay connected to others, even if it means creating standing virtual happy hours or meet-ups with friends or colleagues; wear a fitness tracker to help remind you of the importance of moving around and staying active; and recognize that without distractions of co-workers, you may even get work done more quickly when working from home… so if you’ve done your 8 hours of ‘work’ in only 5-6 hours, it’s OK to walk away and call it a day!
The Smell Of Fear (Mark Tibergien, ThinkAdvisor) – When difficult times come, leadership is tested, as advisory firms that are run well increasingly come together, and those that are not increasingly fall apart. Yet while the extremes of each are clear – as Tibergien cites one example of an insufferable advisor that asked his clients to rely on his firm and its employees yet talked down about them and admitted he wouldn’t recommend his own family to work with them – in practice, most advisors may not be the best nor worst of leaders, and instead are simply trying to make do as best they can in their current environment and with whatever life throws at them. Ultimately, though, Tibergien suggests that one of the key factors that determines which advisors come through successfully (or not) is their own fear and their ability to control it. As those who cannot command their own fear about our most basic psychological needs (e.g., struggle with the fear of not being lovable, or the fear of appearing weak) eventually end out undermining their own employees and team to satiate that fear, in turn making their work environment psychologically unsafe for others, which further undermines risk-taking behavior and makes employees even more dependent. For instance, it’s the employee who doesn’t feel safe to take on a project, and therefore asks the leader for more and more guidance about how to do it, undermining trust, leading to micromanaging, and becoming a self-fulfilling prophecy where the employee can’t do it on their own and the employer “has to” micromanage to ensure the project is done. Which means at the core, while the risk of failure is scary, it’s the willingness to accept failure as a potential outcome – and a learning opportunity – that ultimately empowers teams to overcome those fears and take on more accountability. Leading Tibergien to ask: what kind of work environment have you created in your firm?
8 Skills That Make Great Leaders (Angie Herbers, ThinkAdvisor) – Advisory firm owners wear a number of different hats, from managing and mentoring employees to advising clients, and leading the business itself… with the caveat that as the business grows, the business owner themselves cannot do everything, and must increasingly rely on their team to accomplish the overall goals of the business. Which in turn means it’s increasingly important over time for firm owners to focus on developing the teams of people they manage to positively impact the business. The 8 areas that Herbers suggests can help to drive stronger results for the overall business includes: affirming business focus (does everyone in the firm understand the mission of the business, and how their work connects to that mission?); affirming client focus (what does it mean to do ‘good’ work for clients, and is everyone on the same page about what that takes?); a results orientation (is the team on the same page about what ‘successful’ results are for the business?); leadership (is the firm focusing energy and resources to develop its own leaders?); initiative (does the firm allow room for employees to take the initiative with their own ideas?); planning and organization (the best employees are effective at prioritizing their work to do the most important tasks first, but doing so is a skill that can be taught to those who struggle); decision-making (are employees endowed with the necessary decision-making authority to take action where appropriate?); and interpersonal skills (which is about more than just being ‘likeable’, but also about whether the team really works well together as a team). All of which becomes even more important in times of business stress!
How To Lead In Times Of Crisis (Meredith Parfet & Aaron Solomon, Fast Company) – While many or even most businesses are experiencing at least some elevated levels of stress in the current coronavirus environment, some are facing an outright business crisis, forcing the owners to try to rise to the occasion of leading their companies through the crisis. Which itself is a challenge that few are equipped for, as most leaders have never experienced a real business crisis… at least until the first one hits. The fundamentals of how to handle a crisis are timeless, though, and rely on the principles of being open, honest, clear, and timely in communications to build trust and demonstrate leadership. As at the core, employees need to fundamentally believe that their organization and leadership are capable of handling the crisis in the first place. And given that employees don’t even necessarily know the true health of their businesses, and when it is in crisis (or not), it’s arguably advisable for all advisory firm owners to be talking to their employees about the potential risks and impact that the coronavirus recession may have on the business. Key actions in this communication include: don’t be afraid to rely on established experts as a way to convey calm and leverage voices of authority (e.g., citing the CDC or local/state health departments about coronavirus exposure); show that there’s “a plan” and demonstrate the business’ preparedness (which again helps to re-assure employees that the business can navigate its challenges, while taking pressure off leaders to act extemporaneously under pressure); build community by giving employees way to come together (from a daily message from the CEO to virtual meditation or yoga); solicit feedback, so employees have a choice to voice their own concerns (and feel that they’re being heard); be willing to show flexibility by throwing some rules out (e.g., do you really need a formal sick leave policy when it’s difficult to measure the line between sick and well and home and work anyway right now?); take the time to show what you’re doing to support the business (again building confidence from employees); and remember that, because in the end it’s all about creating confidence that the business can navigate its challenges successfully, the numbers and facts to persuade employees aren’t necessarily as effective as a sheer show of passion from leadership that they’re prepared to do whatever it takes to survive and, in the long run, continue to thrive.
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.