Weekend Reading For Financial Planners (December 20–21)

Firms Focusing On 'Drafting' Newer Talent Rather Than Adding Seasoned 'Free Agents': Report

(Leo Almazora | InvestmentNews)

When a financial advisory firm is looking to add talent, it faces a choice: hire a less-experienced individual into an entry-level position and spend time (and hard dollars) training them in the firm's systems, service model, and culture, or hire an experienced advisory professional, who will require a higher salary but come with many of the skills needed to get a fast (and revenue generating) start in the new firm.

According to a report from The Ensemble Practice based on a survey of 230 advisory firm respondents, while recruiting in the industry remains dynamic, firms are primarily relying on talent development to develop experienced advisors over time, rather than hiring experienced advisors away from other firms. The report found that just 1.5% of senior advisors were hired into their current position in the past 12 months, compared to 9.7% of service advisors and 31.9% of associate advisors. Part of the reason for this trend could be the compensation demanded by these different groups; the report found the average salary for an associate advisor was $100,000, compared to $225,000 for a senior advisor (not counting equity-based compensation or profit-sharing incentives). Overall, the firms studied spent 29.6% of their revenues on their sales and service teams and achieved profit margins of almost 40%.

While finances likely play a role in this dynamic, so too does a firm's desire to ensure its culture is strongly ingrained in its employees. By hiring an entry-level employee right out of college or as a career changer, the new hire will be a 'blank slate' that the firm can introduce to how it provides client service. However, while a firm might worry that a more senior hire will come with different ways of working with clients based on their previous firm (that might not match what the new firm prefers), this could actually be a positive if the senior hire is able to offer new ideas and tactics that the firm might not have previously considered (not to mention the potential ability to attract and service clients early on in their tenure, compared to an entry-level hire who might take years to develop).

Ultimately, the key point is that while advisory firms face various tradeoffs when it comes to deciding whether to hire entry-level employees or experienced advisory talent, in reality this isn't an either/or choice as some firms might choose to be opportunistic in identifying experienced advisors who appear to be a good culture fit for the firm while also adding to their developmental talent pipeline. Perhaps the key, then, for a firm considering its next hire is to evaluate its current staffing and identify its most pressing need: an advisor who is ready to drive revenue early on (but who will need to be compensated accordingly) or newer talent who can be trained to provide top-notch client service in the short term while hopefully developing into a service and lead advisor down the line?

Multi-Advisor Teams Have Higher Per-Client AUM, Offer More Services Than Solos: Cerulli

(Jennifer Lea Reed | Financial Advisor)

There is no shortage of potential structures for an advisory firm, from a solo advisor (who is potentially supported by an associate advisor and/or support staff) to a multi-advisor practice (which might have centralized planning and support teams). While a multi-advisor practice would be expected to have more capacity to serve more clients, a key question is whether advisors who team up experience productivity boosts from this setup.

According to a report from research and consulting firm Cerulli Associates, 51% of advisors operate in a team structure, with advisors in the wirehouse and hybrid RIA channels most likely to do so (with 64% of those in these channels working in teams). While there are expected advantages for advisor teams on aggregate data (e.g., average AUM for advisory teams is three times higher than solo practices [$330 million versus $95 million] and annual organic growth of new assets is more than double [$20.3 million versus $8 million]) given the presence of multiple advisors, teams also saw higher average per-client assets ($2.3 million versus just under $1 million for solos) and the number of services they were able to offer (an average of 7.3 versus 6.5 for solos), benefiting from both the benefits of many-hands-make-light-work (more people to deliver more services) and a deeper bench of specialized expertise (as 37% of team practices employ specialized staff, compared to 8% of solo shops, and 28% of teams have dedicated financial planning or investment personnel, while only 5% of solos have such staff).

In sum, the potential advantages of a multi-advisor practice are not just about aggregate team AUM or client headcount, but also include the ability to provide a deeper level of service (and work with the wealthier clients who require them in the process).

That said, advisory teams come with their own complications, from the need to compensate multiple senior advisors (and the staff hired to support them) as well as maintaining a consistent culture and service model across a larger team. Such that Kitces Research still finds that optimal teams stay relatively lean, Either way, though, the key remains that

SEC To Put Advisor M&A, Alts In 2026 Exam Crosshairs, Former Regulator Says

(Tracey Longo | Financial Advisor)

Two trends that have emerged in recent years have been the rise in RIA Merger and Acquisition (M&A) activity as well as increased opportunities for adding alternative investments to client portfolios. Given the potential impact of both of these trends on RIAs and their clients, the Securities and Exchange Commission (SEC) could take a closer look at both of these areas in upcoming examinations.

According to Christine Schleppegrell, the former head of the SEC's private funds branch and a current partner at the law firm Morgan Lewis, the SEC is interested in whether M&A deals are leading to operational risks, service disruptions, or conflicts of interest that could harm clients. This could include "slippage" in how firms notify clients, integrate compliance and operations and monitor fee and performance impacts of an integration between two firms. Also, examiners will likely be interested in how deals are communicated to clients, both in terms of the timing of such notifications as well as whether firms overstate benefits or understate risks of the combination.

Schleppegrell also noted that high-cost and complex alternative investment products are likely to be a central focus of the SEC, with examiners planning to ask advisers more probing questions about their use of private credit, private funds, leveraged ETFs, inverse ETFs, and option-based ETFs (as well as products with unusually high expenses). In particular, the regulator will be examining whether advisers using these investment vehicles are doing so in line with clients' risk profiles and liquidity needs.

In the end, while some RIAs might be interested in taking advantage of new opportunities (whether in terms of an acquisition or exploring new investment opportunities for clients), a certain level of due diligence is required, not only to examine the potential benefits for the adviser themselves but also (perhaps more importantly in the eyes of regulators) whether they can communicate any changes clearly to clients and ensure they continue to meet their fiduciary obligations.

Are We In An AI Investment Bubble?

(Howard Marks | Oaktree Capital)

A major fear of investors on the precipice of (or in) retirement is that they will fall prey to a major investment bubble that could lead to a significant portion of their portfolio evaporating quickly (and thereby leading to a reduced standard of living in retirement). And amidst daily headlines concerning developments in AI and questions about whether the current level of investment (and the returns of AI-related companies) are sustainable might have many investors nervous that the next dotcom or subprime lending bubble could be on the horizon.

To start, Marks notes that not all bubbles are created equal, with some fueled by financial 'fads' (e.g., subprime mortgage-backed securities) and others by legitimate technological improvements (e.g., early internet companies). While the former can lead to financial ruin without any lasting benefits, the latter represent investors being too early or over-exuberant about a particular technology (e.g., while the glut of sub-prime mortgage-backed securities didn't leave a positive impact on the world, the internet's influence has grown significantly since the dot-com bust).

Given that AI would appear to fall in the latter category (though there is plenty of debate on what this technology's most valuable practical uses could be), a key question is whether investors have become overexuberant about the technology and financial leverage has reached (or is heading to) unsustainable levels. Marks sees cases for both sides of this debate. On the one hand, many of the main companies fueling the AI investment boom (e.g., Microsoft and Google) are well-capitalized and have significant revenue from other sources (unlike many dotcom-era companies that earned little to no revenue but received lofty valuations). On the other hand, these companies have started issuing debt to fund AI investment (rather than funding it through earnings), which could put them on a more precarious path. In addition, there are examples of serious venture investments being made in companies that have yet to turn a profit (e.g., OpenAI) and capital flows into startup companies with very uncertain prospects. Also, 'circular' deals (i.e., investments or revenue that flows in a circle amongst companies rather than representing outside capital or revenue), which have been present in previous bubbles can be seen in the AI space as well.

In the end, while there is a certain level of exuberance about the prospects of AI in many circles, a key question is whether this enthusiasm is rational. Though the role of financial advisors might not be to determine the answer to this question (which is difficult if not impossible to determine) but rather prepare their clients for a range of possibilities, from additional months or years of high-flying activity to a possible serious downturn from a bubble popping to the potential for a post-bubble recovery to offer new investment opportunities?

Analyzing Whether The Current Bull Market Has Room To Run

(Harry Mamaysky | QuantStreet Capital)

During a market downturn, it's natural for investors to be worried about how much further the market could drop. However, many investors often become nervous during bull markets as well given an expectation that the good times can't last forever and a bear market could be around a corner. With this in mind, Mamaysky considers the current bull market (starting with the market trough in September 2022) to assess whether the strong performance experienced since then (with a dollar invested in the S&P 500 approximately doubling during this period) is abnormal compared to previous bull markets and whether the market might add further gains in the months and years ahead.

To start, he finds that the current hot start to the bull market isn't particularly anomalous, with the bull market that started in 2009 seeing a similar liftoff. Also, at 40 months, the current bull market trails five of the seven previous bull markets since 1960 in length (with only two bull markets shorter), suggesting there could be additional room to run (with three of these historic bull markets lasting approximately 13 years and turning $1 invested into $8 during the bull cycle).

In addition to concerns about the strong start or length of the current bull market, investors might also be concerned about elevated valuations, with the Cyclically Adjusted Price-to-Earnings (CAPE) ratio rising from the high-20s to approximately 40 during the current bull market (a faster-than-typical increase to start a bull market). Because the CAPE ratio has historically had an inverse relationship with future returns (particularly in the long run), an elevated reading could portend a future downturn. However, Mamaysky notes that while lower valuations would be preferable to higher ones for the long-term health of this bull market, a CAPE at the current level doesn't necessarily mean a downturn is imminent for a few reasons (e.g., CAPE has a long-term upward trend, the CAPE-to-future-return relationship has been flatter in recent decades, and past earnings may not be a good proxy for future earnings). He finds that based on the historical relationship between bull cycle length and the trend-adjusted starting CAPE ratio, the current bull market is projected to last approximately 55 months.

Ultimately, the key point is that while market fluctuations are challenging to predict, the current environment doesn't necessarily indicate that a downturn is on the horizon (though, as Mamaysky notes, negative earnings surprises, among other factors, could lead to a market decline in the shorter term). Which could help advisors provide context to their clients about this bull market and perhaps provide an opportunity to remind them of their long-term investment goals and how their portfolio is designed to meet them!

Protecting An Investment Portfolio From A Possible AI Bubble

(Meg Bartelt | Flow Financial Planning)

While all market downturns are painful for investors, those following the bursting of a bubble can be particularly tough to swallow (e.g., many pre-retiree or retiree clients likely saw their investments drop when the dotcom bubble burst in the early 2000s and might still bear some emotional scars from that time). Which can lead some investors to try to 'time' the market by getting out of the market (in par or in full) in advance of a bubble bursting. And with talk of a possible ongoing Artificial Intelligence (AI)-based bubble pervading the media these days, many clients might be asking their advisors whether now is a good time to reduce their exposure to riskier assets.

As Bartelt notes (and as many advisors will recognize), market timing is notoriously challenging, in part because it requires being 'right' twice: selling as close as possible to the market peak (as selling too early could mean missing significant gains that can occur prior to a market top) and getting back into the market (as waiting for the 'coast to be clear' can mean missing appreciation off of the market bottom). That said, for nervous investors who want to take some action, one option is to rebalance their portfolio, which in the current environment could mean reducing stock exposure and increasing bond exposure to a target amount (and for clients concerned about the tax consequences of doing so, transferring the appreciated shares to a donor-advised fund or directly to a charity not only can avoid realizing capital gains but also potentially provide an itemized deduction!).

Though, at a more basic level, advisors working with clients who are worried about an AI bubble bursting can help them focus on their goals and investment strategies to meet them. For instance, it could be a good time to review when a client might need to tap into certain portfolio assets (e.g., if their planned retirement date has changed) as well as how flexible their goals are (e.g., are they set on retiring at a certain age or would they be ok if the date needed to be pushed back by a year or two) to determine whether their current asset allocation makes sense. Also, advisors could review a client's investment policy statement with them (or create one in the first place!), as having a document that formalizes an investment plan can help discourage portfolio changes based on day-to-day news.

In sum, given that some clients might be concerned about the impact of a possible AI bubble on their portfolios and financial plans, financial advisors can offer significant value by demonstrating how their asset allocations and rebalancing strategies are designed to meet these clients' ultimate financial and lifestyle goals (across a variety of potential market contingencies)!

Follow A Marketing Cadence That Sticks: The Quarterly Tactical Plan

(Kristen Luke | Advisor Perspectives)

The end of the year can be a time for an advisory firm to take stock of what they've accomplished during the past year and to establish goals for the coming year. Setting goals, though, can only get a firm so far; rather creating a strategic plan can increase the chances that they are executed and lead to the desired results.

In addition to an annual strategic marketing plan, identifying objectives and tactics for a particular quarter can help an advisor zero in on the specific actions that need to be taken. A first step is to set specific, measurable objectives for the quarter, such as new leads, new introductory calls, and new clients. Second, identifying one to three one-time objectives or outcomes to accomplish during the quarter (e.g., launching a podcast or meeting with a certain number of estate attorneys) can provide direction for reaching the chosen milestones. Next, identifying tactics that will help reach the objectives (e.g., recording a series of podcast episodes or attending a particular networking event) can help keep an advisor focused on high-impact actions. Finally, determining when each task will be done (both for repeating tasks [e.g., spending 15 minutes per day on LinkedIn] and one-time tasks [e.g., blocking off time to attend a trade show]) and who will be responsible for completing it can create accountability and increase the likelihood that tasks will be completed, outcomes will be achieved, and measurable objectives will be reached.

In sum, given the wide range of responsibilities advisors and their firms face on a daily, monthly, and annual basis, creating a quarterly tactical plan for marketing can keep team members focus on high-impact tactics and work towards measurable goals, ultimately leading to better results (in terms of new leads and clients) as well as the opportunity to evaluate progress and make adjustments as necessary for the next quarter!

Breaking Down Marketing Goals Into Weekly Chunks To Win More Clients

(Kerry Johnson | Advisor Perspectives)

A financial advisor might make annual marketing and new client goals at the beginning of the year, but their other day-to-day responsibilities might lead to these being put on the backburner. Which could create frustration towards the end of the year when they realize they are far off from reaching them.

Amidst this backdrop, an advisor could consider breaking down 'big' annual goals into smaller weekly chunks. Johnson suggests several stages stages to monitor: contacts with clients and prospects, opportunities to better understand their needs, opportunities to demonstrate the advisor's value proposition. By working backward from an annual goal, the advisor can then calculate how many of each they need on a weekly basis; based on their internal data on the percentage of leads who end up becoming clients, the advisor can assess how many they will need over the course of the year, and, then, how many each week. This can break down a larger (and perhaps more intimidating) annual goal into more reasonable chunks and allow the advisor to hold themselves accountable on a weekly basis for making the prescribed number of contacts, intro calls, and discovery meetings needed to meet their larger goals.

In the end, while setting audacious annual growth goals can give an advisor a big-picture target, actually reaching it is a matter of putting in consistent work on a weekly basis. And by tracking the input metrics that go into winning a new client (from attracting leads to demonstrating the firm's value proposition) on a weekly basis, the advisor can have small 'wins' and remain on pace to achieving their longer-term goal.

KPIs To Track Your Advisor Marketing And Figure Out What's Actually Working (Or Not)

(Nerd's Eye View)

Over the years, though, as the focus of the financial advice profession evolved from being almost exclusively transaction-based sales to having a focus on building long-term relationships, so too did growth shift from sales-based approaches to more long-term trust-building marketing tactics. Nonetheless, with the wide variety of possible marketing tactics available, the challenge can quickly become figuring out which are really working the best (especially when some take more time, and others cost more upfront in hard dollars). Fortunately, by tracking key marketing Key Performance Indicators (KPIs) and sales metrics, advisors can measure their business development efforts and not only learn which tactics are most effective, but also how to iterate over time to make them even more marketing-efficient and scale the growth of their business!

An advisor's business development activity can be measured across two main phases: the Marketing Activities that generate new leads and prospects, and the Sales Process that converts those prospects into new clients. As a first step, the most important is to gather data around whatever activity it is that the advisor is doing to attract new prospects (such as the number of podcasts produced, webinars hosted, blog posts published, networking meetings attended, or cold calls made). From there, advisors can determine if the activity is actually having any effect by measuring the number of Prospect Inquiries, or how many people reach out to learn more about what the advisor offers. Along the way, advisors can track their website traffic, which is a good proxy for whether their brand awareness is growing as a result of their marketing activities, as measured (in Google Analytics) by Users Per Month. Finally, advisors should track how much they're spending (in total) on their efforts, both from an actual hard-dollar cost, and the time that's spent on the activity itself, in order to understand if their tactics are improving over time and which tactic is outperforming another.

Once an advisor has generated new inquiries, the next step is to determine how well they are converting new prospects into new clients. Key data points around the prospects themselves that advisors should record along the Prospect Pipeline include the date that the prospect first reached out, how that prospect first learned about the advisor, if the prospect is actually 'qualified' (i.e., they're a good fit for and can afford the advisor's services), and how much revenue the prospect can be expected to bring to the practice. From there, tracking the dates of each meeting in the Sales Process and the date that the prospect signed the paperwork to become a client can help identify potential bottlenecks or issues in the Sales Process itself. Finally, advisors can also record the amount of revenue the client ended up committing in order to track and measure their growth.

The real opportunity in gathering all this data is learning which channels and activities an advisor should be focusing their time and dollars on, and determining what key metrics they should try to improve. Specifically, advisors can take this raw data and turn them into KPIs that will help them become more efficient and effective. These KPIs include the total amount of time spent generating each new prospect, the percentage of those prospects that were actually "qualified", and how many of those qualified prospects became clients, along with the number of days between when a prospect first reached out and when they signed on as a client, the average revenue generated by each new client, and the total new revenue opportunity of all the prospects currently in the Sales Pipeline. Finally, advisors can arrive at the grandaddy of all marketing and sales KPIs, the Client Acquisition Cost (CAC), which measures the all-in cost of what it takes for an advisor to get a new client. By calculating the amount of time and dollars spent on marketing and dividing that by total new clients, advisors can determine if their sales and marketing efforts are truly contributing to the growth of their practices.

Ultimately, given how important it is for nearly all advisors to generate new business, gathering the raw data from their marketing and sales efforts and then calculating the key metrics resulting from those processes is a crucial step towards effectively growing their practices. Importantly, though, advisors can't improve their business development efforts if they don't first measure them. By doing so, it becomes possible to determine what's working (and what's not!) and learn where the advisor's time and money are best spent as they build and scale their ideal financial planning practices!

A Sit-Stand 'Schedule' May Boost Office Productivity

(Monique Mita | Phys.org)

In recent years, more workers have gained access to adjustable desk systems that allow them to work either sitting or standing, which has the potential to ease physical strain from sitting all day and perhaps provide an energy boost. Many standing desk users might wonder, though, about the 'right' proportion of sitting versus standing time to maximize the benefits of this flexibility.

A study led by researchers at Griffith University in Australia separated participants (all of whom were office workers with access to sit-stand desks and who were suffering from lower back pain) into two groups: one group was told to perform a fixed ratio of sitting and standing (30 minutes sitting, 15 minutes standing), while the second group was told to create a routine to transition between sitting and standing based on their own preferences. After three months, the researchers found that those prescribed the 'fixed' ratio not only reported reduced back pain, but also saw improvement in their job-related stress, concentration, and presenteeism. Notably, the group told to use the fixed ratio demonstrated greater adherence to taking time to stand, which could also have played a role in the result.

In sum, while this study was relatively small (with 56 participants), it suggests the key to getting benefits from having a standing desk is not necessarily finding the 'perfect' balance of time spent sitting and standing, but rather committing to spending a certain amount of time standing in the first place (perhaps by setting regular reminders to get out of the chair?).

How The First Cup Of Coffee Could Do More Than Wake You Up

(Bronwyn Thompson | New Atlas)

A crucial part of many professionals' daily routine is a cup (mug, or carafe?) of coffee, tea, or another caffeinated beverage. Which often serves as a pick-me-up to shake off any sluggishness from sleep and gain energy to start the workday. Many continue with additional cups as the day moves along as well.

While caffeine acts as a stimulant, researchers from Germany's Bielefeld University sought to explore whether it might provide additional benefits and whether these other upsides vary depending on the time of day the caffeine is consumed. Over two studies, the researchers had 236 adults aged 18 to 29 log their mood and caffeine intake multiple times per day over two to four weeks. Perhaps unsurprisingly, the participants reported a noticeable mood boost after drinking caffeine (particularly when the reported being tired). Notably, the researchers found that this effect was strongest within 2.5 hours of waking up, suggesting the first cup of coffee or tea could provide a bigger emotional lift than one later in the day.

In the end, while people drink coffee, tea, or other caffeinated beverages for a variety of reasons (from its energy-boosting powers to serving as a social stimulant), this research suggests that doing so could help lift one's mood, particularly early on in the day (which might be appreciated by family members and coworkers alike!).

Examining The Purported Benefits Of Getting Morning Sunlight

(Michael Easter | Two Percent)

There is no shortage of tips and 'hacks' that purportedly can lead to better health. Recently, the idea of getting out into the sun first thing in the morning has gained momentum. While this is a relatively simple and low-stakes recommendation to implement (as a morning walk might sound nice to many!), one might be curious whether it actually provides meaningful health benefits.

The potential benefits of morning sunlight are related to maintaining one's circadian rhythm, the biological cycles (that last approximately 24 hours) that are cued by day and night. By seeing light in the morning, the body recognizes that it's time to be awake (conversely, being in a dark environment at night helps the body see that it's time to sleep). This latter point might be the key to sunlight's benefits, with a regular (and sufficient) sleep schedule being associated with a variety of health outcomes compared to those with greater disruption in their sleep schedules. And while early morning sunlight might be particularly valuable (to keep one's circadian rhythm in line), some researchers who study this phenomenon suggest that getting sunlight throughout the day can be helpful (so those who find it hard to get outside first thing in the morning can still get the benefits of sunlight by going out later).

Altogether, getting outside into the sun (particularly first thing in the morning) appears to provide a range of benefits, starting with better-aligned biological clock and improved sleep (and perhaps serve as an opportunity to get some exercise before the many responsibilities of the workday come into view?).

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "WealthTech Today" blog.