Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the latest edition of Financial Planning magazine’s annual Advisor Technology survey, showing the most widely adopted advisor software tools in various categories… and highlighting that, with the proliferation of advisor technology, the problem now is not the threat of robo-advisors but simply the burden of choosing which of the ever-growing number of solutions human advisors want to use to deliver their own tech-enabled services!
Also in the news this week was the stunning news that wirehouse Wells Fargo will be rolling out a pilot program for “independent” RIA offices (albeit still operating under the Wells Fargo brand) in an effort to stem the tide of brokers breaking away to the RIA channel, and the news that the SEC is going to take a hard look at its own custody rule in 2019 and whether it’s time to update the requirements for the modern technology-driven world (where custody is far more complex than just having physical possession of a client’s printed stock certificate!).
From there, we have several articles on industry trends, including a look at the initial success of recent Financial Planning Re-Entry Initiative from the CFP Board’s Center for Financial Planning to increase the number of women in financial services, an updated discussion from Bob Veres on the recent OneFPA Network proposal (and the FPA National Board’s response to his earlier criticisms), and the news that the FPA NexGen community is transitioning itself away from being an independent community for younger advisors and instead will adopt the vision and mission of FPA National and serve as its community for any advisors who are new to the profession (whether entering as young students or more experienced career-changers instead).
We also have several practice management articles this week, including a reminder of the importance of focusing not just on reducing employee turnover but “regrettable” turnover, the impact of culture and how it is naturally set from the top by a firm’s founder/leader (but can be consciously changed/improved), and tips for advisors who want to negotiate a better deal for themselves when changing broker-dealers (and understanding what can potentially be negotiated in the first place).
We wrap up with three interesting articles, all around the theme of finding our own purpose and success in life: the first looks at how, despite the popularity of the saying “do what you love and the money will follow,” a better approach is probably the Japanese concept of “ikigai” which considers both whether what you’re doing is something you love, something you’re good at, something the world needs, and something you can actually get paid for (and that it takes the intersection of all 4 to really succeed financially at what you love); the second takes a fascinating look at how luck may play a far greater role in success than we realize (but talent does matter, and you can choose to put yourself in positions where good luck can happen to you); and the last explores how the key to getting what you desire (and aspire to) is being willing to change when necessary in order to achieve it.
Enjoy the “light” reading!
2018 Advisor Tech Survey: How Advisors Restock Toolkits Amid Fintech’s ‘Wild West’ (Harry Terris, Financial Planning) – In the latest annual Advisor Technology survey from Financial Planning magazine, the good news is that advisory firms are feeling less fear towards and pressure from robo-advisors (with only 16% of advisors saying they even have a “robo” offering), and are seeing technology enhancements driving more hiring in their firms to deliver value to clients (with 51% of firms stating that more technology will lead them to make more hires)… but advisory firms are also struggling with the “dizzying” array of choices and competing platforms, especially since the cumulative cost of various subscription/licensing fees from technology solutions can be one of an advisory firm’s biggest line item expenses (behind staffing itself). And the situation has gotten even messier in recent years, as not all best-in-class tools integrate with each other, and/or may be redundant to what’s already available in other platforms the advisor may already own. Detailed breakouts of tech adoption for advisory firms reveal that, not surprisingly, CRM is the most popular software solution (91% of firms), followed by financial planning software (82% of firms), then a client portal (80% of firms), then portfolio management tools (at 79% of firms, but notably dropping down 3% from last year and no longer ranking in the top 3!). In the CRM category, the most popular solutions are Salesforce and Redtail (almost tied at 22% – 23% each), followed by Outlook (technically not a CRM!), and then Ebix SmartOffice, Act!, Dynamics, Wealthbox, and Junxure. When it comes to financial planning software, the market leader remains MoneyGuidePro (at 31%), followed by eMoney Advisor (22%), NaviPro and NaviPlan (6.2%), MoneyTree (2.9%), and RightCapital (also 2.9%). While the most popular portfolio management tools are Morningstar Office, Albridge, Envestnet, Orion, PortfolioCenter, Black Diamond, Tamarac, and Advent Axys. When it comes to client portals, most advisors use their broker-dealer or custodian portal first (24%, but down 5% from last year as advisors shift to more advisor-specific solutions), followed by eMoney Advisor’s portal (12.1%), Albridge (9.1%), MoneyGuidePro (7.5%), Orion (4.6%), and Tamarac (4.2%). On a forward-looking basis, advisors indicated that the tools most likely to change wealth management in the coming years include building for mobile devices, behavioral finance software tools, and better digital client portals, while the lowest-ranked were wearable devices, natural language processing (e.g., Alexa tools), and virtual reality.
Wells Fargo To Open RIA Offices In A Wirehouse First (Charlie Paikert, Financial Planning) – This week, major wirehouse Wells Fargo announced that it will be opening several of its own RIA offices around the country next year, an apparent response to the ongoing transition of wirehouse brokers leaving for the RIA channel where Wells Fargo hopes that providing an independent RIA platform may give them the opportunity to retain those wirehouse brokers instead (as Wells-Fargo-affiliated RIAs). In essence, the RIA experiment appears to be intended to operate as an additional channel under Wells Fargo itself, alongside its existing wirehouse model and its quasi-independent FiNet offering, using the Wells Fargo brand but providing services from separate RIA offices. On the other hand, arguably a significant portion of Wells Fargo’s “breakaway” broker activity (down more than 1,000 advisors in just 2 years) has been not just the shift from wirehouses to RIAs, but also Wells Fargo’s own public branding issues after its phony accounts and other scandals, for which offering an RIA channel that is still under the Wells Fargo name may not resolve the concerns of its departing brokers. Nonetheless, the mere possibility that Wells Fargo would transition into offering an RIA platform option, effectively becoming an RIA custodian competitor to Schwab, Fidelity, and TD Ameritrade (or other self-clearing broker-dealers with RIA units like LPL and Raymond James), combined with the recent announcement that Commonwealth was also launching a standalone RIA unit, suggests that in the aggregate broker-dealers (both independent and wirehouse) are increasingly adopting the business strategy “if you can’t beat ’em, join ’em,” raising the specter of a hyper-competitive environment for RIA custodial platforms and support services in the coming years.
SEC Custody Rule Up For Review (Melanie Waddell, ThinkAdvisor) – In the coming year, the SEC has indicated that it will be reviewing 12 major rules (a requirement under the Regulatory Flexibility Act to be done every 10 years), and while not specifically part of its RFA review the SEC has also indicating it will be reviewing the Custody Rule, which arguably has become one of the more complex areas in the modern era where “custody” including not only taking cash and holding physical stock certificates, but also simply having electronic debit access to clients’ accounts, a standing letter of authorization to help clients transfer their own assets (but with advisor discretion), or even just the ability to log in to client accounts (with the power to change the address of record and request a distribution to a new address). In fact, the Custody Rule has become so complex that the SEC itself has had to issue “well over” 50 FAQs over the years, highlighting the difficulty that advisory firms seem to be having in figuring out how to appropriately interpret and map the rule to the real-world environment. And the Investment Adviser Association, in particular, has suggested that the Custody Rule needs to be revisited especially for smaller RIAs, where the custody rule compliance obligations can be burdensome, even though such firms themselves are often relying on third-party RIA custodians for actual custody services (for which additional review processes already exist).
CFP Board’s Re-Entry Program For Women Shows Signs Of Success (Melanie Waddell, ThinkAdvisor) – In early 2017, the CFP Board launched its “Financial Planner Re-Entry Initiative” (FPRI) in partnership with iRelaunch (which in turn supports financial services firms looking to establish re-entry programs for experienced professionals seeking to return to the workforce in financial planning positions), with a particular focus on attracting more women into financial services. The FPRI program was piloted in 5 firms (including two large independent firms Edelman Financial Engines and United Capital, two smaller independent firms Luma Wealth and Yeske Buie, and Fidelity Investments itself), and after more than a year, 11 internships have concluded, with 10 of the interns having converted to full-time positions. The success of the initiative, which is detailed in a recent white paper issued by the Center for Financial Planning, and included a combination of a webinar series for firms on best practices, CFP certification training as part of the onboarding process, one-on-one consulting and in-person meeting time, marketing and sourcing support for the firms looking to hire women re-entering the workforce, and additional shared resources and thought leadership, is leading the CFP Board to call on more firms to adopt the approach, as its long-term-internship-to-permanent-position strategy both provides a more comfortable transition pathway for women looking to re-enter the workforce, and also makes it easier for firms themselves to have a longer-term lower-risk mechanism to assess employee potential.
OneFPA Network Revisited (Bob Veres, Inside Information) – Last month, the FPA announced its new “OneFPA Network” initiative, which would consolidate all of its currently independent chapters into a single national organization to centralize key systems, while adopting a “participatory governance” model that gives chapters an opportunity for (more) input into the organization. When the details of the initiative were first published, Veres wrote a rather negative review, suggesting that the FPA was spending too much time with “buzzwords” and “consultant-speak” and not enough on the real details, and that the details that were available were concerning. In turn, the FPA responded with their own letter to “correct misunderstandings and factual errors”, which Veres publishes in full here, along with his own comments and responses. According to the FPA leadership, the OneFPA Network is not driven by a desire to exert more control over chapter activities, and claims that chapters themselves were asking for more support from National, and while they didn’t specifically ask to be dissolved and consolidated, it was simply because most chapters hadn’t realized they were separate entities in the first place (which admittedly is odd when FPA also suggests that a key reason for consolidating is to eliminate “burdensome” Form 990s and other entity-specific filings the chapters are required to maintain as independent entities). Similarly, the FPA leadership suggests that the initiative was not “hatched” in secrecy, but that FPA’s efforts to better streamline and take burdens off the shoulders of chapters leaders has been underway for several years, and was driven by a consultant’s report that suggests the chapters had “operational and cultural issues impeding FPA’s growth and success” (although FPA itself has declined to provide any copy of the various consultants reports that were utilized to develop the OneFPA Network plan). Other notable highlights from Veres’ response letter, and associated interview with the FPA leadership, includes: FPA national leadership insists that chapters will retain control over their revenues and accounts, but a detailed reading of the FPA’s own FAQs indicates that the allocation of chapter dues and sponsorships between National and chapters is still “to be determined” and chapters will have to submit a business plan and a budget to a new OneFPA Resource Coordination Committee (which ostensibly will have some control and oversight of how chapters spend their assets, otherwise it would not produce any kind of changes in the outcomes?); FPA maintains that it cannot implement the initiatives without fully dissolving the chapters (as opposed to just building centralized resources that can be used by the chapters) because the chapters themselves stated they didn’t want “half measures” even though the initial buzz from chapters themselves doesn’t indicate many even knew they were going to be dissolved as part of the initiative (though the FPA also states it is in a Listening Tour with those chapter leaders and hasn’t even solicited membership feedback directly at this point). Ultimately, Veres emphasizes that the change as proposed is a very, very significant one for the organization, which means – right or wrong – it’s important to delve into the details to help ensure the FPA makes a good decision.
NexGen Revisited (Rachel Moran, Ian Harvey, Autumn Campbell, and Dana DeLance, Journal of Financial Planning) – Over the years, the FPA’s NexGen community has evolved from a conversation at FPA Retreat, to a Yahoo message board, to a growing number of local communities tucked within the Financial Planning Association, all with a focus on supporting “next generation” financial advisors under the age of 36. However, over the past 18 months, the NexGen leadership accepted a call from the FPA National leadership to serve as the community for “all” next generation CFP professionals, including career-changers that do not necessarily meet the NexGen age requirement but are otherwise new to the profession and are “next generation” advisors to succeed those currently practicing. Accordingly, the NexGen eligibility requirement will become a combination of the 4 years leading up to when an advisor actually enters the profession (to accommodate undergraduate students pursuing a 4-year degree in financial planning) up through those who are in their first 8 years of their careers (regardless of age). In turn, the NexGen vision is also being restructured to align with the FPA National Primary Aim (from its prior, “to ensure the transference of wisdom, tradition, and integrity from the pioneers of financial planning to the next generation of planners,” to the new NexGen [and FPA] vision of, “elevate the profession that transforms lives through the power of financial planning”), with strategic directives of Community, Education, Career Success, and Advocacy that also align directly to FPA National’s Strategic Directives. In essence, the transition largely eliminates NexGen as a separate community or organization from the FPA, and instead restructures its Vision and Mission to simply be the FPA’s, for a combination of students, young planners, and career changers. Although notably, in the past the FPA has struggled to sustain communities for both students and especially for career changers, which raises questions of whether merging those elements into a more national-FPA-driven and broader-reaching NexGen will really expand the reach of NexGen or just compromise its previously-successful focus.
How To Avoid Regrettable Employee Losses (Mark Tibergien, Investment Advisor) – A recent survey from Future Workplace found that a whopping 91% of Millennials expect to stay at a job for less than 3 years, driven by “FOMO” (Fear Of Missing Out) for other opportunities that might come to them with a change to a new employer (and more generally by what appears to be more of an inclination to pursue pleasure than avoid risk/pain). A problem that may only be made worse by the fact that the management of Millennials disproportionately falls to Gen X managers, who themselves are the infamous “latchkey” generation of independent-minded individuals… whose high-independence attitude may be further increasing the turnover of the Millennial teams they’re responsible for. Though notably, to some extent turnover is not just a generational issue, but simply a stage of life, as many people in their 20s (across the generations) tended to job-hop in their early years while trying to find the “right” fit for their future careers (and simply trying to figure out what their desired future career would be through self-discovery!). And of course, some level of turnover isn’t necessarily “bad,” as the reality is that not all businesses will want to keep every young employee. The question, though, is how to avoid “regrettable” turnover, and losing young employees that the firm might have otherwise wanted to retain. For which the starting point is simply to identify who would be a “regrettable” turnover in the first place – i.e., who has high-potential, valuable intellectual capital that would be hard to replace, and/or would cause a material disruption to the business if he/she left? From there, it becomes feasible to sit down with those employees in particular, and delve deeper into what they really want and need, the kinds of career opportunities they’re seeking, and what kind of meaningful work they want to do doing that would keep them engaged with the business (while still being valuable to the business itself).
A Tale Of Two Cultures (Dave Grant, Financial Planning) – How is it that two advisory firms can offer the same services and produce the same revenue, yet one struggles with high turnover and is a “toxic” place to work, while the other retains its employees and nurtures them to perform at their best? The answer, in a word, is: culture. And culture itself is set from the very top of an organization, as the manners and habits of the top leader(s) become reflected up and down the organization in how employees engage and interact (e.g., bosses that seek buy-in from employees get employees who themselves seek buy-in from others, while those who raise their voice and yell at employees create an environment where yelling at other employees is implicitly condoned as well). In fact, Grant suggests that firms that have a culture of empowering their employees and give them more responsibilities tend to get employees who are more confident and do take on more ownership and responsibility, as the culture becomes a self-reinforcing loop… just as firms that permit too much dissent and outbursts create cultures where employees are afraid to ever take responsibility (for fear of the fall-out that may come next). In turn, these elements of culture can also create challenge when management/leadership changes (e.g., in a merger or acquisition), such as the family-atmosphere firm that communicates directly and is acquired by a new firm that has a more top-down communication style that disrupts the current culture, which results in key employees leaving out of dislike of the new culture (even if the firm is otherwise continuing to execute well for clients). On the plus side, though, Grant notes that culture itself can be nurtured and developed, and is not fixed; instead, it’s something to be mindful of, in order to create the kind of work environment that allows the company and its employees to better succeed.
How Advisors Can Negotiate A Better Recruiting Deal (Jon Henschen, ThinkAdvisor) – Effective negotiation is a challenge for most, with a wide range of negotiating tactics that can be used to obtain better deal terms (albeit some more ethically than others). However, when it comes to advisors and their firms, Henschen notes that there is often remarkably little negotiating that happens at all, as advisors tend to simply be in a “take it or leave it” position when negotiating with a broker-dealer. Yet the reality is that some terms often can be negotiated by the advisor when changing platforms (especially for those bringing more revenue to the table and therefore able to command more bargaining power and negotiating leverage), and accordingly Henschen highlights the areas that tend to be the most flexible and available for negotiating adjustment, including: the payout rate, which is usually set in the grid but may be adjustable by some firms in certain circumstances (e.g., if your firm is largely self-sufficient and doesn’t rely much on home office resources, you may be able to negotiate an extra 1% to 2% payout); ticket charges for trades (especially if you know you will be doing a higher volume of trading and can, therefore, request a lower per-trade fee); forgivable note money (negotiating for a higher amount, or at least negotiating for a forgivable note to cover transition expenses and perhaps first-year expenses on the new platform for E&O, platform fees, technology fees, etc.); transition assistance (whether or how much the broker-dealer’s home office or local OSJ will provide support for moving clients and accounts over); the amount of administration fees/markups on third-party managers (which may be anywhere from 2 to 25bps more expensive than going direct but can sometimes be negotiated down, especially for larger firms); fixed indexed annuity payouts (which often have some flexibility between what the IMO gets, what the broker-dealer gets, and what can be passed down to the broker); and the broker-dealer contract itself (including the terms of what happens if you then leave that broker-dealer in the future as well)!
Money Won’t Always Follow What You Love (Ross Levin, Financial Advisor) – There is a popular view in society today that you can simply “do what you love, and the money will follow,” but Levin suggests that in reality, the connection isn’t always there. The Japanese concept of “ikigai” perhaps offers a slightly better framing, finding the intersection between “what you love”, “what you’re good at”, “what you can be paid for”, and “what the world needs”… where the more you can increase the overlap between those, the more you can get paid well for the work that you love (because you’re also good at it, and it’s also something the world actually needs and will pay for!). And for those who are already at least financially successful, that means often the key opportunity is not to leave what you’re currently doing to find something you love (and hope the money will follow), but instead to take what you’re already good at, can be paid for, that the world needs… and turn it into something you love. In fact, Levin notes that the concept applies not only to us as advisors, but also becomes a key conversation with clients, whether it’s the retiree who then goes on to start a non-profit to put their skills to work in a direction they love more, to engaging clients in their own financial lives after a personal disaster, or simply helping clients find better meaning and purpose in their own work and businesses and leveraging up their own ikigai instead. The key point, though, is that it’s not enough to just try to do what you love and see if the money follows, but that it’s also possible to take skills that already generate income for you and restructure your work into something you love, instead.
The Role Of Luck In Life Success Is Far Greater Than We Realized (Scott Kaufman, Scientific American) – There are a wide range of books and magazines that provide a never-ending stream of guidance on what it takes to be “successful,” from talent and skill to mental toughness and tenacity, hard work and a growth mindset, and emotional intelligence, looking to the key traits of the successful to understand what got them to where they are. The caveat, though, is that many of those traits are also found in unsuccessful people as well, raising the question of whether those factors are real drivers of success, or at least that while they may be necessary they’re not always sufficient to bring success. In other words, talent and the other traits may matter, but they’re not everything… and instead, it turns out that far more success may simply be explained by “luck” instead. For instance, half the differences in income across people worldwide is simply explained by the country they live in and the distribution of income in that country, the chance of becoming a CEO is influenced by your name and month of birth, and people with easy-to-pronounce names are judged more positively than those with difficult-to-pronounce names… all of which are factors that are entirely out of our control (at least, unless you want to get an official name change!). Accordingly, some scientists recently came together to develop a mathematical model of how people career in their careers over 40 years, with varying degrees of “talent,” and then exposed them to certain random lucky or unlucky events… and found that in the end, while talent was normally distributed, success was not, as the 20 most successful individuals held a disproportionate (44%) amount of success. Notably, the talented individuals did have greater success on average… yet the mediocre-but-lucky individuals were often able to exceed the success of the most talented individuals alone. All of which is notable… because it suggests that the “key” to success is not only having at least some talent and/or developing some good skills (not a sole determinant, but it clearly helps), but also placing yourself in positions where there will at least be opportunities for good luck to happen to you, too.
How To Achieve What You Desire And Aspire To (Joseph Dietch, Financial Advisor) – Despite generations of mankind searching for meaning, we’ve made remarkably little progress, and not for a lack of people being willing to offer advice and suggestions on what we could do to make ourselves happier. Which Dietch suggests in his recent book “Elevate: An Essential Guide To Life” that perhaps the problem isn’t that we don’t know what to do to be happier, but that as creatures of habit it’s still hard for us to make the changes to actually improve our situation (whether it’s breaking bad habits, managing our lives better, living healthier, welcoming more love into our lives, etc.). Which appears to be part of how our brains are hard-wired in the first place… to fear (or at least struggle with) change, and have a tendency to get stuck in the status quo (even if it’s not best for us, and even if we know it’s not best for us). Of course, the starting point is simply being willing to change and grow, and that in turn requires both an awareness (of the need to change) and taking action (to actually bring about the change). And that, in turn, requires having the confidence to believe that you will be successful in the change, as if you don’t believe you’ll be able to change for the better… you won’t. And even with an awareness of the need for change and a willingness to take action, it’s still important to get the right information about the changes to make (and not succumb to our biases of seeking confirming information that simply reinforces our existing status quo once again). Which means ironically, the biggest challenge for most people improving their situation is simply that they’ve so limited their perceptions of the world and what’s possible, that they’re not even aware of what could be different, and the steps that might be taken to achieve it. Which means the starting point is really just a willingness to take in new and different information, and really be ready to learn from it, in the first place.
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.