Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a new study out from Aite Group that finds the average CFP certificant is becoming significantly more successful than the non-CFP, with 40% higher average revenue in total and a whopping 70% higher average revenue per client as CFPs are showing themselves more able to attract higher net worth clientele.
From there, we have a couple of practice management articles this week, from strategies to create a retention plan for your advisory firm staff (ranging from bonuses to employee perks), to a checklist of the little things to consider in evaluating whether your physical office space is making a good first impression on prospective clients, and an interesting discussion from Mark Tibergien about whether much of the conventional wisdom about practice management trends for financial advisors is wrong (e.g., despite the buzz on “fee compression” the top advisory firms have actually been raising their fees by 5-10bps in recent years!).
We also have a number of advisor technology articles, including: the big news from the T3 Advisor Technology conference that Fidelity is launching “WealthScape” (which will include a new Fidelity proprietary portfolio accounting and performance reporting solution, in competition with Advent, Black Diamond, Orion, and others); a look at the evolving landscape of RIA custodian technology at Pershing, Schwab, and Raymond James; issues to consider for advisory firms looking to adopt e-signatures in the business; two new technology solutions that can help address compliance issues (including MyRIACompliance from RIA In A Box, and an about-to-be-launched RIAglass from MarketCounsel); and a look at how wirehouses have been reinvesting heavily into technology as well and are closing the gap on the independent advisor technology tools.
We wrap up with three interesting articles: the first is a discussion about how to explain that you’re a fiduciary advisor, recognizing that raising the point about how other advisors are not fiduciaries could cause prospects to wonder about your own motives as well; the second explores the challenge that for most advisors, even if their ideal client showed up on their website to check them out, there’s no way for the client to know they’re the right fit; and the last explores the question of whether advisors are being hypocritical by insisting that “everyone” should have a financial planner to have a third-party perspective on their family financial issues, even as most advisors fail to pay for their own financial planner to get that very service to themselves.
And be certain to check out Bill Winterberg’s “Bits & Bytes” video on the latest in advisor tech news at the end, which this week includes highlights coverage of the Technology Tools for Today (T3) Advisor FinTech conference, including Riskalyze’s announcement of a new “Check-In” feature, eMoney Advisor’s new client experience portal, and the coming new wealth management platform from Fidelity called Wealthscape!
Enjoy the “light” reading!
Weekend reading for February 20th/21st:
Are CFPs More Successful Than Non-CFPs? (Emily Zulz, ThinkAdvisor) – A new study from Aite Group entitled “Building A Wealth Management Practice: Measuring CFP Professionals’ Contribution” compares the income and productivity of CFP vs non-CFP advisors, and finds that across the industry the media revenue for a solo non-CFP professional is $250,000, while the median revenue for a solo CFP certificant is $350,000. In addition, the study finds that CFP certificants are more successful at attracting high-net-worth clients (with their share of HNW and UHNW clients 53% higher than non-CFPs), and in turn this allows CFP certificants to generate higher revenue while serving fewer clients (a whopping 70% more revenue per client). Notably, though, the studies’ authors point out that it’s not merely the CFP designation that matters, per se, but the fact that CFP certificants are more likely to offer values-driven advice (built around their CFP edcuation) and it’s the planning-centric model that is truly excelling. In the meantime, the total number of CFP certificants is now approaching 74,000.
Creating A Retention Plan For Your Advisory Team (Katherine Vessenes, Research Magazine) – While top advisory firms focus on being client-centric, Vessenes makes the case that it’s actually necessary to be employee-centric, first. After all, if you can’t attract and retain the best employees, then being able to serve clients will is a moot point anyway. Particularly since losing one client is “just” the loss of a client, but losing a team member can devastate the support for and relationships with over 100 clients! Accordingly, Vessenes has created a significant focus on employee retention, including several new initiatives: an “Our Hero” award that is simply a silver frame with the words “Our Hero” inside that employees can give to any other employee for going above and beyond (and creating the opportunity for employees to show appreciation to other employees); hired an administrative assistant to help the firm’s client service managers, allowing them to delegate admin work that didn’t really need to be done by a licensed employee (thereby allowing them to do more high-value work instead); created a comprehensive range of employee benefits, including paying for all their CE (along with the associated cost of taking exams and prep courses), offering a health care reimbursement plan, access to a SIMPLE IRA, 15 days of paid time off and a flexible work schedule, and the opportunity for each team member to get their own financial plan; and created a “best place to work” committee to come up with more ideas for the company. The firm also instituted a series of four bonuses: a profitability bonus (for overall profitability of the firm); a competition bonus for achieving whatever the company’s competitive goal is for the quarter (e.g., a big push to get distant clients to schedule appointments); a retention bonus (for employees who have longevity with the firm); and a ‘just because’ discretionary bonus for employees who go above and beyond and deserve to be recognized on the spot.
A Checklist To Make Your Office Stand Out (Teresa Riccobuono, Advisor Perspectives) – First impressions with a client (or prospective client) are crucial, and Riccobuono makes the point that this pertains not only to the apperance of the advisor and how he/she is dressed, but also how the office looks as well. And in many cases, it’s difficult for advisors and their team to judge the looks of the office, as we become ‘immune’ to how it looks and spotting the problems when we’ve been there so long. Accordingly, Riccobuono provides a comprehensive checklist of issues to watch out for, that may not catch your eye as the advisor but that a prospective client could notice, including: are there dirty windows or cobwebs in the corners; are any of the window blinds bent, broken, or dirty; are there unprofessional-looking post-in notes dotting publicly visibly work areas; is any of the furniture beat or up torn; are the magazines outdated; is your conference room whiteboard so old it can’t even be cleaned. Of course, ideally you’re not just eliminating negative first impression issues, but creating positive first impressions as well, such as: upgrading the quality of the desk and floor lamps for better lighting; having a prominently visible logo/brand; a frame at the reception desk welcoming the prospect; a digital photo frame in the lobby featuring client events; etc. If you work with elderly clients, do the chairs have a high sturdy seat to keep them comfortable, and have you eliminated rugs that could be dangerous tripping hazards to those with balance issues? The bottom line: while it’s important to get the “big stuff” right about your business value proposition, don’t forget the little things matter too, when it comes to the appearance of your office and client meeting spaces!
What Advisors Can Learn From ‘Conan The Contrarian’ (Mark Tibergien, Investment Advisor) – The ‘conventional wisdom’ in the advisory world these days is that advisors are reducing their fees to compete with robo-advisors, are threatened about whether they can compete at all, and are struggling with the lack of a work ethic in young employees even as they risk losing assets with the coming intergenerational wealth transfer to young clients. Notwithstanding these views, though, Tibergien notes from his firm’s research that in reality, the top performing advisory firms have been able to raise their fees by 5-10 bps for clients in each bracket, particularly by focusing on their financial planning value-add beyond increasingly commoditized investment management. Similarly, while robo-advisors are viewed as a threat to the advisor business model, the reality is that the advisor business model has already survived multiple changes in recent decades, from the end of fixed-rate stock brokering commissions to the shift to the AUM model… and ultimately, robo-platforms may be little more than another change that automates previously manual and cost-ineffective work to allow advisors to focus on greater value-adds instead. And while some firm owners question the work ethic of young advisors, firms that have transitioned ownership to young advisors do not appear to be suffering, and instead are simply finding that young advisors manage work-life balance and productivity differently. And while there is still a lot of obsessing over the intergenerational wealth transfer that looms, Tibergien notes that much of that wealth will dissipate (either divided amongst multiple family members, or donated heavily to charity), and that many advisory firms would probably be better served to skip chasing inheritors (who may not end out with that much wealth anyway) and instead focus in areas where wealth is actually being created (e.g., from business owners).
What Exactly To Make Of Fidelity’s WealthScape And Whether It’s The Third-Party Equilibrium China Shop (Brooke Southall & Tim Welsh, RIABiz) – At the recent T3 Advisor Technology conference earlier this month, Fidelity announced that is preparing to replace its current performance reporting platform WealthCentral, with a new version called WealthScape. And in the process, Fidelity will be replacing Advent – which is currently the primary portfolio accounting software hardwired into WealthCentral – with its own Fidelity-built solution instead. In fact, Fidelity notes that once completed, its new platform will eliminate the need for advisors to have traditional portfolio accounting software systems (e.g., Advent, Black Diamond, or Orion Advisor Services) at all anymore. Yet competing portfolio accounting software providers question whether independent advisors will be willing to make themselves beholden to a custodian’s proprietary solution, and whether Fidelity can effectively create a “one-size-fits-all” solution given the breadth of advisors who use their platform, especially as Schwab recently announced that it is adding outside providers like Orion (and Redtail CRM) to its Schwab Intelligent Integration platform. Nonetheless, Fidelity is deeply committed to the new project, noting that over 200 are working on it already, with potentially as many as 1,000 Fidelity staffers and a substantial portion of the company’s $2.5B annual technology budget allocated to the initiative, which got its legs once Fidelity completed its eMoney acquisition last year. And despite its native deep integration to eMoney, Fidelity notes that there will still be ‘workable’ integrations to third parties on the new Total Advisor Platform (TAP) solution, though some advisor software companies are now questioning whether Fidelity is becoming more of a direct competitor than an integration partner. Also up in the air is whether Fidelity’s new portfolio accounting solution will work constructively with other custodians besides Fidelity… or whether other custodians will even be willing to cooperate with Fidelity’s proprietary solution, with the risk that Fidelity could use low pricing on its portfolio accounting solution to attract advisors (first to their software, and then to the entire Fidelity custody platform).
RIA Custodian Technology (Joel Bruckenstein, Financial Advisor) – Expectations for the quality of technology are on the rise, both from advisors and their clients, and RIAs are increasingly looking to their RIA custodians to fill the gap. In the case of Pershing Advisor Solutions, which focuses primarily on mid-to-large sized RIAs that are professionally managed and growth-oriented (and serving high-net-worth or ultra-HNW clients), is trying to merge its bank and brokerage custody platforms into a single unit (given that HNW families tend to be active users of both). This means advisors would have a single service team to deal with issues on both sides, that advisors would have a single technology platform (via NetX360) to manage across both, and that Pershing’s NetXClient portal for clients would allow them to access the same consolidated view as well, with additional enhancements coming for global wealth management capabilities as well (e.g., for clients doing overseas trading and in need of multi-currency support). Pershing is also rolling out a form of “digital advice” robo platform, partnered with newcomer Marstone. In the case of Schwab Advisor Services and their RIA tools, there are three technology themes underway: transforming the client experience (including a next generation Service Center for clients to view activity, and better electronic workflows); enhancing data infrastructure (including cybersecurity); and expanding technology support beyond custody alone (including Schwab Institutional Intelligent Portfolios, and Schwab’s next generation portfolio management/accounting system called Portfolio Connect). At Raymond James and its RIA division, the focus has been on client reporting and the ability for advisors to build custom reporting packages, an expansion of account aggregation capabilities (via Fiserv) into its advisor workstation and client portal (and obviating the need to rely on MoneyGuidePro’s account aggregation capabilities), and usability enhancements. Raymond James is also building out a practice management technology suite for advisors, with a central dashboard that advisors can use to monitor and manage the entire business.
What You Need To Know About E-Signatures (Dan Skiles, Investment Advisor) – The transition from “wet ink” signatures on paper to electronic e-signatures offers the opportunity for a significant boost in operational efficiency for advisors, but Skiles notes that adopting such solutions are more complex than many advisors realize. The good news is that mobile devices are more capable than ever of handling the technical requirements, and clients are increasingly familiar with the concept (as it’s being adopted in other industries as well). However, as the advisor you may still need to choose from multiple provider options, including DocuSign, Right Signature, Adobe EchoSign, and others (at least, if your broker-dealer or RIA custodian hasn’t chosen for you). Skiles suggests trying out more than one, using some of your favorite (tech-inclined) clients to help beta test the process. You will also need to choose how the e-signer will be authenticated – will you just use the client’s email address, or require them to have a PIN number or answer personally identifiable questions as well? Also, consider whether you’re going to have every document in the firm included in the e-signature process, and how will you store them electronically (given these are now the legally binding copy of the document!). Skiles suggests that most firms should actually plan to start gradually, adopting some e-signed forms into the process (and sorting out the kinks in the process), and then expand further as you gain experience using the technology.
Tech Tools To Streamline Compliance (Joel Bruckenstein, Financial Planning) – The growing complexity of compliance is creating an increased burden on financial advisors, but the good news is that a growing number of technology tools are arising to help advisors manage that burden. One is MyRIACompliance, an online compliance management software tool from RIA In A Box. It starts by capturing relevant information from an RIA’s form ADV, allowing it to surface appropriate details like registration requirements for the specific states in which the RIA has clients (and an integration with Orion to scan new client details to determine if a new state registration needs to occur), and provide a year-round compliance calendar of monthly compliance obligations to be completed (with the associated sample documents or supporting materials necessary to complete). Basic pricing starts at $195/month plus $12/month per each additional employee, or $345/month for SEC-registered advisors, while the “Pro” package for mid-to-large sized firms starts at $395/month for state-registered advisors or $595/month for SEC-registered firms (and a top tier package is available with additional compliance support for the largest firms). Another coming software-based compliance solution is RIAglass, currently in beta testing phase from MarketCounsel (but scheduled to open sometime later this month). Notably, RIAGlass aims to be more than “just” a compliance calendar. It will be a broader project management tool for advisors with complex compliance and supporting needs, such as the breakaway advisor who needs help on finding office space and hiring staff and picking a custodian, in addition to the actual compliance issues. In other words, RIAglass aims to eventually build an entire ecosystem of specialized service providers that RIAs can access (securely), in addition to just legal and compliance support itself. Pricing for RIAglass has not yet been announced.
Wirehouses Gear Up On The Tech Frontier (Joyce Hanson, ThinkAdvisor) – Recent years have witnessed a rising tide of “breakaway brokers” leaving wirehouses, and while some leave for financial reasons, in many cases the problem has simply been that wirehouses were struggling to keep up with the breadth of flexible technology options increasingly available to independent advisors. And the situation was exacerbated for the past 8 years by several wirehouses being forced to spend resources just to integrate their legacy mainframe systems with their new parent companies, as Merrill Lynch, Wells Fargo/Wachovia, and Morgan Stanley/Smith Barney all went through major acquisitions in 2008. However, after years of reinvesting to catch up, Aite research director Alois Pirker suggests that the wirehouses are finally catching up, both by building out their own proprietary tools, and by simply licensing what’s available to independent advisors (as Morgan Stanley and UBS both use MoneyGuiePro now, and Merrill Lynch has adopted the Salesforce CRM platform). In fact, wirehouses have the potential to move ahead, by leveraging the resources from serving 10,000+ advisors and forming the kind of deep (proprietary) integrations across the entire advisor technology stack that simply isn’t feasible for most independent advisors (particularly when it comes to detailed workflow integrations). Nonetheless, the continued explosion of software serving independent advisors – and the growing size of the independent advisor community – is spurring new technology investments in that channel as well, so the jury remains out about whether integrated wirehouse technology will move ahead of the independents, or simply be a part of the technology upgrade propagating across the entire advisory world.
How to Explain Fiduciary Duty to Clients (Kimberly Foss, Financial Planning) – Most consumers are surprised when they learn that only RIAs are subject to a fiduciary duty to act in the best interests of their clients, while brokers are merely required to sell suitable investments. However, explaining the difference can be challenging, given that fiduciary itself is just financial jargon to most consumers, and telling prospects that you’re a fiduciary can even invite a skeptical prospect to wonder “if you’re saying you act in my interests just because you’re required to by law, does that actually mean you’re less trustworthy in the first place?” So how do you help clients understand you’re a fiduciary (jargon) and invite them to trust you (without saying “trust me” in a manner that can undermine trust building)? Foss starts by highlighting the fiduciary difference briefly – as most prospects just don’t know, and need to be aware – but doesn’t dwell on it. Instead, she extends the concept by telling her own story, how she started out as Merrill Lynch, but chose to leave the commission-based environment of proprietary products to establish her own firm, specifically so that she could eliminate the conflict of interest and be able to act in her clients’ best interests. In other words, she differentiates around fiduciary not by trying to belittle competitors, but simply by telling her own journey of why she crafted the firm that she has. Notably once someone becomes a client, though, Foss rarely broaches the issue again, and does not talk about industry issues with clients (e.g., pending DoL legislation), a once clients do trust enough to become clients, bringing up the issue of untrustworthy advisors is more likely to make them wonder if they should still be trusting you, too.
Do Your Prospects Know If You Are The Right Advisor? (Julie Littlechild, Absolute Engagement) – If a prospective client visited your website, would they actually know if they were the right match for your advisory firm and its services? Littlechild notes that remarkably few advisors can answer this question in the affirmative. And in most cases, it’s not because the website itself is poorly designed, but because the advisory firm really doesn’t know who the ideal client is in order to articulate it in the first place! Yet ultimately finding an ideal client is crucial, or eventually the advisor hits a capacity limit and cannot grow the business any further (not to mention the challenge of differentiating in today’s environment!). So how do you go about defining your ideal client if you want to? Littlechild prescribes a 5-step process: 1) define the work that you love, that energizes you in the first place (because otherwise, you won’t maintain the motivation anyway!); 2) define the characteristics of the ideal client that matches the kind of work you want to do (this should include not only technical details like asset minimums and investment philosophy, but also ‘personal fit’ characteristics like their values, personality, and communication style); 3) re-assess if your identified ideal client really fits the kind of work you want to do, and that it’s an economically viable target market; 4) define your “client acceptance criteria” with a clear dividing line about what kinds of clients you will take and what you will not; 5) and then determine whether or how you need to restructure the business and its processes to fit the new ideal client criteria (including updating your financial advisor website to finally make it clear who you really serve!).
Should Advisors Hire A Financial Planner? (Bob Veres, Advisor Perspectives) – Financial planners are known for suggesting that “everyone” needs to engage the services of an outside professional… except when it comes to themselves, where advisors hiring a financial planner seems to be remarkably rare. After the conventional view goes, if you are an expert financial planner yourself, why would you need to pay someone else to do it for you. Yet as Veres points out, most advisors claim that their value is more than just their technical knowledge alone, but also their outside perspective… and if so, isn’t it hypocritical to claim that third-party advisor is valuable but be unwilling to pay for one yourself? And for many advisors, the “cobbler’s children have no shoes” situation is all too common, which means hiring an advisor may ensure that you actually do take care of your own financial situation! Other benefits to financial planners hiring their own financial planner include: it’s a way to engage the advisor’s spouse, in a manner that is often difficult for advisors doing their own planning; advisors who go through the planning process as a client learn what it’s like to be on the other side (which can help you realize how to improve your own process with clients); and you may even get best practices ideas from “your” advisor that you can use as an advisor with your own clients. If you’re going to go down this road, though, Veres notes there are some sticky issues to consider. First, will the planning by your peer be a ‘professional courtesy’ or a paid service (Veres advocates for making it a formal, paid relationship). Will you have the outside advisor manage your assets (and does that create a negative perception if you don’t manage your own money the way you manage it for your clients?)? And if you’re feeling squeamish about the cost to pay another advisor, or letting go of control of your assets… again, what does that say about how you really perceive the value of your own services for which you charge your clients the same way?
I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column!
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. You can see below his latest Bits & Bytes weekly video update on the latest tech news and developments, or read “FPPad Bits And Bytes” on his blog!