Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a new proposal from the CFP Board to allow CFP certificants with a public disciplinary event (that culminated in a public letter of admonition or one-year suspension of their CFP marks) to potentially scrub their records clean after 5-10 years… raising the question of where the financial planning profession should balance forgiveness and the recognition that people can and do change against the need for consumers to be aware of a potentially problematic history that could indicate a higher risk of recidivism.
From there, we have a number of practice management articles, including a look at when/why an advisory firm should consider hiring a Chief Operating Officer (COO), the questions to ask when interviewing an advisory firm CEO, a fascinating research look from the Harvard Business Review at how real CEOs manage their time, and a good reminder about how, if advisory firm owners want their employees to “act more like owners,” they need to be given opportunities and pathways to actually become owners (and see that their behavior can be rewarded).
We also have several financial advisor marketing articles this week, from a look at how most advisory firms don’t effectively allocate their marketing budgets, to the best (and worst) kinds of content to buy/use when marketing online, how to handle your social media presence during the holiday season (hint: clients and prospects tend to be on social media sites more during the holidays, so don’t take a holiday from your own social media accounts!), and some helpful tips and considerations when buying holiday gifts for clients (or referral sources, or centers of influence).
We wrap up with three interesting articles, all around the theme of the internet and how we interact with it: the first is a fascinating look at how internet technology is so lowering the costs to deliver goods and services, that startups are now finding ways to leverage the internet to serve the poorest 2 billion people of the world cost-effectively and even profitably (and without requiring them to have smartphones that most of the world’s poor still do not); the second provides a fascinating look at how the first era of the internet was all about decentralized protocols (on which platforms like Yahoo and Google and Facebook were built), how the pendulum has swung to more centralized platforms as those companies built their own proprietary layers on top (potentially limiting innovation), and how decentralized networks like blockchain may bring about a third (more open and more innovative) era of the internet; and the last explores how our behavioral biases not only adversely impact our investing behavior, but can cause us to misperceive the current state of the world, especially in a social media environment where platforms have an incentive to hold our attention (even if it means stoking our biases instead of helping us to overcome them), and how in the process we may be missing out on how incredibly positive world progress has actually been in recent decades!
Enjoy the “light” reading!
CFP Board Proposes To Lessen Stigma For One-Time Infractions And Other Disciplinary Process Changes (Mark Schoeff, Investment News) – This week, the CFP Board released a series of proposed changes to its Disciplinary Rules, the most notable of which would be the ability for CFP certificants to have public letters of admonition or one-year-or-less suspensions removed from the CFP Board’s website after a certain period of time (e.g., 5-10 years). The virtue of the change is that, for advisors who made a mistake once and have since reformed their behavior, they would have the opportunity for a clean slate after an extended period of good behavior; similarly, for advisors whose public disciplinary matters weren’t entirely within their control (e.g., a complaint that the broker-dealer decided to settle rather than allowed the broker to successfully defend themselves in arbitration), the “forgiveness” provision would eventually allow them to move past the matter. On the other hand, regulators like FINRA are not only known for the fact that they maintain an ongoing disciplinary history for any complaints against brokers (requiring a separate expungement process to request any removals at all), but have recently been highlighting to consumers the importance of checking out an advisor’s regulatory history… which, at a minimum, raises the challenging question of: How long, exactly, is long enough to ensure a problem advisor is really reformed, and not laying low until their record is naturally cleaned? In the meantime, other proposed changes to the rules include limiting the time the CFP Board can launch an investigation to within 7 years from the time an allegation is made (i.e., a “statute of limitations” for CFP Board investigations), and clarifications to the review process for appealing a decision. A public comment period will be open until January 29th of 2019, and comments can be submitted directly to the CFP Board either via their website or to the [email protected] email address.
Exploring The Benefits Of Professional Management Of RIAs: A Deeper Look Into COOs (PFI Advisors) – Barely a decade ago, growing an advisory firm to $1B of AUM was a “unicorn” of the RIA world, a feat of such statistical rarity it was almost mythical. In today’s environment, though, not only are there over 650 such independent RIAs, but many now have exceeded $3B or $5B or more and are racing to $10B of AUM. The challenge, however, is that the infrastructure demands of executing a multi-billion-dollar RIA, with $10M+ of revenue and 30-50+ employees, is significantly more complex, and entails the hiring of dedicated management specifically to execute the business of the firm: a Chief Operating Officer (COO). The challenge is perhaps especially significant for advisory firms in particular because the founders tend to be individuals who were first and foremost advisors, and often would still prefer to sit in client meetings than administrative and operational and management meetings to execute the business of the firm. The virtue of hiring a COO, though, is not merely that the founding advisor’s time is once again freed up for their preferred client-facing activities of old, but that it entails a level of professional management – an executive whose skillset and role, very specifically, is to build, develop, and execute the operations and infrastructure of the (sizable and still growing) advisory firm. Ultimately, PFI suggests that a good COO will handle three core areas for an advisory firm: 1) day-to-day administration of the firm itself (i.e., maintaining a holistic firm-wide view of the firm’s execution and diving deep into any projects that arise); 2) driving workflow improvements to help the organization gain efficiency and scale; and 3) managing Human Resources, including the recruiting, development, and retention of employees. In fact, it’s notable that, because the core focus of a COO is really on the execution of the business itself, not conducting client-facing business tasks, many firms even hire COOs from outside the financial services industry, as arguably what matters the most is not experience in an advisory business but simply experience running and executing any kind of growing and scalable business.
4 Questions For CEO Candidates (Angie Herbers, ThinkAdvisor) – In addition to the rise of COOs to handle the execution of an advisory firm’s operations, a growing number of advisory firms are outright hiring CEOs to run the business from the top as well. The challenge, though, is that hiring a CEO who will be responsible for your “baby” as a founding owner of the firm is difficult… in no small part because the CEO may not run the business exactly as the founding advisor did, making it incredibly tempting for the founder to offer “advice” to the new CEO (sometimes, even still, in the interview process itself!). Accordingly, Herbers suggests that the key to finding a good CEO is not to spend a lot of time talking about the advisor themselves and the firm, but to focus the questions and concern on the prospective CEO to understand his/her own business and personal goals, strengths, and leadership style. Relevant questions to ask may include: “What are your goals over the next 3-5 years?” (long enough to be an indicator of where they’re focused, but short-term enough to be realistic and achievable); “What is your relationship with your current employer, how is it structured, and what restrictions do you have in leaving the firm?”; “Can you tell me about any other advisory firms you are looking at, what it is that makes them attractive to you, and how old are their client bases?”; and “What are your thoughts about running a business, what ideas do you have, and what do you think the primary role of a CEO is?” Or stated more simply, interviewing a CEO (or really, any employee) is not unlike the process of advice with a financial planning client as well: don’t share any opinions or make any recommendations until you get all the information you are seeking, and the first focus of the meeting should simply be to listen and learn about the person.
How [Real] CEOs Manage Their Time (Michael Porter & Nitin Nohria, Harvard Business Review) – The role of a CEO is vast; in a large/global company, it entails overseeing business units and multiple organizational levels, serving a wide array of constituencies (shareholders, customers, employees, the board, the media, governments, community organizations, etc.), along with being the face of the company (both internally and externally). The good news is that CEOs do have access to a great deal of help and resources along the way, but the one thing they are all universally limited by is their time. To better understand the demands on a CEO’s time, Porter and Nohria engaged in a comprehensive study of time usage amongst 27 large-firm CEOs for months at a time. Perhaps not surprisingly, the research found that CEO jobs are indeed time-intensive; the average CEO worked 62.5 hours per week, including almost 10 hours per weekday and an average of nearly 4 hours per on 79% of weekend days (and averaging nearly 2.5 hours/day even on 70% of vacation days), of which about half of the time was done at the company’s headquarters and the other half at other (company or customer or other) locations. Overall, the majority of the CEO’s time was spent in face-to-face interactions, with another 15% reading or replying to written correspondence (and the rest on electronic communications), which in turn means the CEO’s time is very agenda-driven in order to clearly set focus and priorities for so many meetings, even as they rely very heavily on their direct reports. Ultimately, the researchers conclude that a true CEO has impact across 6 dimensions: Direct influence (i.e., setting agendas and making decisions); Internal constituencies (that have to be managed to get the organization’s work done); Proactivity (in anticipating problems, gathering facts, conducting analyses, and making choices); Leverage (of the CEO’s position itself to access resources and drive change); Tangible decisions (about concrete things from structure to resource allocation and the selection of key people); and Power (the formal authority of power itself). Notably, though, in the context of an (admittedly much smaller) advisory firm, is that none of the work of a true CEO involves actually doing the work of the company itself, but instead being the leader at the top to truly manage the execution of the business itself.
Act Like An Owner (Mark Tibergien, ThinkAdvisor) – It is a common complaint of advisory firm owners that their (young) employees fail to “act like owners.” Yet as Tibergien points out, ownership itself is a trade-off; business owners retain a number of powers (e.g., to hire and fire, invest in ideas or cut costs, accept or reject clients, change pricing and incentives, etc.), and in exchange they participate in both the rewards and the higher risks of being a business owner. Yet the irony is that for newer advisors who entered the business in the past decade, they likely haven’t experienced much of any of the risks of ownership yet, given markets (and advisory firm revenues) that have steadily grown and ever-rising demand for (paired with a shortage of) good advisor talent. And as a result, many advisory firm owners have been reluctant to share ownership with those younger employees, given that they’ve only seen the pleasure and upside opportunities of the business and not the pain and risks. Yet as Tibergien points out, if advisory firm owners are going to hold back literal equity and ownership, it shouldn’t be a surprise that employees fail to “act like an owner” in the first place, given that they’re literally not one. Because ultimately, the best way to get employees to rise to the occasion is to actually give them the opportunity to do so… which means establishing a clear career path in the advisory firm so employees know what the path to ownership is and can be confident that if they “act like an owner” they can actually become one, setting clear cultural values that ownership-minded employees would want to be a part of, and ensuring that the firm itself is actually recognizing and rewarding “act like an owner” behavior instead of unwittingly discouraging the behavior (e.g., saying the firm celebrates client-centric behavior but rewarding the top salespeople who bring in new business at any cost).
The Painful Truth About Your Marketing Budget (Sara Grillo, Advisor Perspectives) – Most advisory firms spend remarkably little on marketing, in part because even when they do spend, it often doesn’t produce the desired results. Grillo suggests that ultimately, a marketing budget should cover 3 key areas: Brand, Audience Reach, and Selling. When it comes to Brand, the good news is that it doesn’t have to be an ongoing expense; instead, hire a firm that’s good at marketing and branding, pay them a few thousand dollars to help you figure out the right messages and branding, and move on (with perhaps a small ongoing retainer for them to help produce content to express the brand). Once you have a brand and create some kind of content to demonstrate your expertise, though, it’s still important to get the word out about it; as Grillo notes, most advisors have social media followings that are much too sparse to rely on their followers alone to spread the word, and instead should be looking to strategies like paid advertising distribution via Facebook or LinkedIn (posting it to groups with prospects, not fellow advisors!), along with perhaps Google Adwords, and even doing other visibility-building activities (e.g., newsletters, speaking engagements, podcasts, etc.). And ultimately, recognize that you have to invest into the actual sales process itself, as most advisors do not have a 100% close rate (nor should they!), which means it’s not enough to just get “at-bats” and sit down with prospects, but to actually invest into whatever it takes – from advisor sales training to a nicely polished sample financial plan – to help close the business. And remember, even if you do spend on marketing as an advisor, the marketer can express the brand, but the advisor is the brand, and while the marketer may be the voice, the advisor carries the ideas behind the voice… which means the advisor still needs to make time to support the marketing process, too!
The Worst Kind Of Financial Advisor Marketing (Robert Sofia, ThinkAdvisor) – With the ongoing rise of digital and content marketing amongst financial advisors, there is a growing demand for services and solutions that provide the content advisors can use to market. Yet as Sofia points out, the worst kind of marketing is mass-duplicated canned content, as while it might feel good to the advisor to put it out and say they have a “presence” in the marketplace, the reality is that it’s not likely to be particularly engaging, or reflect positively on the (hopefully unique) expertise of the advisor, when it’s the exact same content being shared by every other advisor who bought into the same content library or automated marketing tools. The next best option, instead, is to “curate” content – sifting through original content from other sources, identifying what would be most interesting/relevant/useful for prospective clients, and sharing it out to them; the good news is that there are a number of tools available to help with content curation, but while it may occasionally get consumer attention with a good article, it still fails to actually showcase the advisor’s expertise and credibility. For those who still don’t have the time to produce their own content, the next best option is “exclusively licensed content,” where third-party marketing agencies create quality marketing campaigns and re-license them to a limited number of advisors at a time (and at a fraction of the cost it would take to hire the marketer to produce it for that firm alone). The best option, though, remains producing original content of the advisor, not because it necessarily has to be the highest quality, but simply because it’s the best way to showcase the advisor’s unique value and expertise… and if the advisor produces it and shares it on his/her website, it cannot be duplicated by others without permission, and clients will only ever see that valuable content on the advisor’s website (naturally associating the credibility of the content with the advisory firm itself).
Holiday Social Media: How To Show The Personal Side Of Your Firm (Heather Wilson, SEI Practically Speaking) – While much of the focus on social media, blogging, and digital content is all about how to showcase the credibility and expertise of the advisor and his/her firm, Wilson notes that in practice, it’s often the more personal content that really resonates (especially on social media), and really helps clients and prospects get to know you better personally (and therefore connect better with you). Accordingly, some business social media tips to be mindful of with the coming holiday season include: don’t take a holiday from your business social media during the holidays, recognizing that often the time people have off from work and are with family (that they may or may not want so much time with) means prospects and clients may be on social media more during the holidays (though notably, probably not LinkedIn, but platforms like Facebook and Twitter instead); if you don’t want to actually be tied to your business social media accounts yourself over the holidays, use scheduling tools like Buffer or Hootsuite to queue up your social media posts for you while you’re out of the office; don’t forget to bring your camera and take pictures (from your own family, to the office holiday party) that you can share out and show the more personal side of your business; and don’t forget to tag or @mention the other people (or if you’re doing charitable work, organizations) you’re involved with during the holidays as well, which helps to stretch your reach on social. Other ideas for quick content wins on social media for the holidays include: holiday quotes or images; company holiday party pictures; team outing pictures; firm or personal philanthropy event pictures or videos; a New Year’s resolution list (or those of your team members); a simple thank-you or happy-holidays graphic.
Not Exactly The Advisor’s Gift-Buying Guide (Steve Wershing, Client Driven Practice) – It’s common to give gifts during the holiday season, including to clients, but Wershing notes that many or even most gifts that advisors give have little lasting impact (e.g., nice poinsettias that are literally dead just a few weeks after they’re given!). Based on his work with numerous advisors’ client advisory boards, Wershing provides a number of suggestions for better client-gift-giving ideas, including: leave your logo off the gift (because including your logo makes it not a gift, but a promotion, which doesn’t convey the same kind of perceived gratitude and appreciation to the client recipient); make it something actually useful (as the more they hold onto it and use it, the more likely they are to appreciate it and remember you for it); if it’s going to be consumable, make sure it’s something that will last (e.g., not a bottle of wine that gets consumed once, but a bottle of high-end olive oil that will be used for many months to come); and when giving to your best/top clients, don’t try to give “bigger” more expensive gifts (which may run afoul of industry regulations anyway), try to give more thoughtful/meaningful (i.e., more individualized and personal) gifts instead. Also don’t forget that if you’re giving gifts of gratitude, it’s not just about recognizing clients (or top clients) themselves, but also those who gave you referrals, or centers of influence you have a relationship with (or wish to deepen a relationship with!).
How The Internet Is Changing Life For The World’s Poorest People (Christopher Mims, Wall Street Journal) – While it’s long been recognized that a key benefit of the internet is its ability to cut transaction costs to almost nothing, in recent years, it’s leading not just to a new level of competition between internet vs. bricks-and-mortar businesses (e.g., Amazon vs. the entire retail industry), but it’s also becoming possible to serve cost-effectively or even profitably the world’s poorest 2 billion people. Which in turn is bringing to market services for everything from neighborhood-scale renewable energy and clean water, to gas cooking stoves, microloans for consumer goods, and even insurance against natural disasters. And notably, the most recent spate of technology-leveraging innovations don’t even necessarily require a smartphone. For instance, one company called WorldCover is offering low-cost crop insurance for farmers in rural Africa, where it takes just one person in a village with a simple feature phone and some ability to read to help facilitate the insurance-buying process for crops, with claims triggered instantly from satellite weather tracking. Another service called Rakula finances consumer goods in Sri Lanka to the nearly 40% of the population that are too poor to get credit from the bank, deriving instead a 3-4 minute interview to evaluate their risk with “non-traditional” measures like whether they are deeply tied to the local community (e.g., entrenched in family units with young kids at school that reduce their risk of disappearing into the night). And PayGo in Kenya provides consumers internet-connected canisters that help facilitate cooking with gas (clearer and more convenience than with charcoal or wood), where the canisters measure and meter themselves from their own cellular connections to reduce the need for their buyers to even cell phones themselves to leverage the technology.
Why Decentralization Matters (Chris Dixon, Medium) – The first era of the internet ran from the 1980s to the early 2000s, where internet services were built on open protocols that were controlled by the internet community itself, which meant they could be confident building on the platforms knowing that the rules wouldn’t change later, and leading to the rise of huge web platforms including Yahoo, Google, Amazon, Facebook, LinkedIn, and YouTube (and eliminating centralized-platform predecessors like AOL). The second era of the internet, from the mid-2000s to present, though, saw companies rapidly build additional layers on top of the internet’s open protocols (supported by the growth of smartphones) that turned many platforms into more closed centralized services… leading to more and more people getting access to amazing technologies, but harder for startups to challenge incumbents when there was an increasing risk the centralized platforms would change their rules (e.g., Google altering its search algorithms or Facebook changing its news feed algorithms). Which in turn is leading to a government backlash, and the rising question of whether governments need to impose regulations on large internet companies (akin to how it eventually did for phone, radio, and TV networks in the past). Yet Dixon notes that, unlike those prior hardware-based mediums, the internet itself is ultimately just layers of software, which means the alternative approach is simply to decentralize the platforms and the internet itself. Thus the promise of platforms like blockchain, which go far beyond just their cryptocurrency Bitcoin roots, and provide the promise of being able to grow and scale without eventually going through the shift that centralized platforms do (where they run out of users to grow, and instead start trying to extract more from their users, leading to a backlash as the relationship shifts). And the good news is that decentralized platforms also encourage more innovation itself; thus why email companies have been able to keep up with combatting email spam (or at least, prevent it from getting exponentially worse), while Twitter (and its closed-network system) has struggled to keep up with its own spam challenges (because without a decentralized network of developers, Twitter itself has to find and commit enough of its own resources to fight the problem).
The World Isn’t As Bad As Your Wired Brain Tells You (Christopher Mims, Wall Street Journal) – While much has been written about how the behavioral biases of our brains can distort the way we invest, Mims notes that those same behavioral biases and heuristics can also (incorrectly) color the way our brains see the world itself. For instance, the Availability Bias – which refers to our tendency to think that whatever we heard about most recently is more common than it actually is – not only leads people to pursue high-flying tech stocks in the recent news, but also makes people more afraid of shark attacks in the ocean than the higher risk of simply drowning at the beach, or fear terrorism even though the odds are higher of the plane simply crashing on its own (or simply of being killed while walking down the street), or be afraid to let children play outside unsupervised (even though in reality it’s never been safer in America). Similarly, we also have an “Extremity Bias,” to tell the most extreme version of any story in a crowd (to keep listeners’ rapt attention), which, in a social media environment, causes the effects to magnify (making everything sound far more extreme in the news than it actually is). And our Confirmation Bias (where we tend to seek out information that confirms our pre-existing views and discount anything to the contrary) may not only cause us to be overconfident investors but also become more polarized in our political views (as we focus too much on news that confirms our views instead of news that teaches us to expand them). And unfortunately, the rise of “algorithms” that shape what we see online may be further exacerbating the problem, as content that feeds our biases is more likely to be clicked on and engaged with, literally drawing us into the platforms more by stoking our (potentially-distorting) biases. The good news, though, is that as platforms recognize the problem, content algorithms are beginning to change, and while humans have long struggled with their inherent biases, ultimately over the centuries we eventually manage to reshape the flow of information to keep humanity moving forward. Which, if you look at the underlying facts about human progress itself, we’re actually accomplishing quite well!
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.