Enjoy the current installment of “weekend reading for financial planners” – this week’s edition (similar to last week) highlights several more recent studies on trends in the financial services industry, including what financial planners tend to charge for their services, trends in wealth management in 2012, and some dramatic differences in how RIAs view investment management versus the rest of the investment industry, as well as the new ways young planners are entering the industry. We also look at some practice management articles, from a brief overview of what the cloud computing movement is all about, to the use of coaches, and different ways to manage your staff for optimal growth. In addition, there’s some coverage of this week’s FSI OneVoice conference, and we wrap up with an especially interesting (although not terribly optimistic) article from John Mauldin about the current outlook in Europe, and the risk of a “tail event” that could dramatically impact markets in 2012. Enjoy the reading!
Weekend reading for January 28th/29th:
Fees for Financial Planning Services: What Planners Charge – This recent article from FPA’s Practice Management Solutions magazine reports on the survey results from FPA’s 2011 Financial Plan Development & Fees study that ran last October. Some of the results are intriguing; the average respondent works with 90 client households, and provides comprehensive or modular planning to about 80% of their clients. 82% of planners charge an AUM fee, but almost 50% generate at least some revenue from hourly fees or flat planning fees; almost 1/3rd of planners have at least some flat retainer fee clients as well. The median AUM fee is 1%, the average hourly fee is about $200/hour, and the median comprehensive plan fee is $2,250. To construct comprehensive financial plans, the average time varies wildly, but 45% of respondents spend between 6 and 14 hours for the average plan. Notably, though, over 25% spend more than 15 hours on a single plan, and over 15% spend more than 20 hours! And only 25% of planners deliver a written plan in less than two weeks after the discovery meeting; the remainder take at least two weeks to deliver a plan back to a client.
Aite Group: What’s in store [for wealth management] in 2012 – This article from Registered Rep magazine highlights a recent 2012 forecast research report by the Aite Group. Notable trends include an ongoing pressure on profitability for wealth managers, ongoing shifts in trying to find the right business model, a new rise in self-directed investing and various alternative investments, a rise in how much control advisors are seeking to exert over their portfolios, and the emerging phenomenon of copy trading (where retail investors mimic the electronic trading of active managers through technology platforms).
“Astonishing” Advisor Research Suggests Necessary Changes to Mutual Fund/ETF Communications – This blog post by Pat Allen of Rock The Boat Marketing discusses the research report “Investment Trends in the Financial Advisory Profession” recently released by Advisor Perspectives and Inside Information (contact firstname.lastname@example.org for an executive summary and pricing information) regarding investment behavior by RIAs in particular. Allen highlights a number of significant trends from the study, including the fact that as many as 83% of advisors plan to make a tactical shift in the allocations of client portfolios in the next three months. Advisors are also radically more data driven in their investment analysis; rather than relying on wholesaler data, 95% of mutual fund inflows could be attributed to a Morningstar star rating of 4 or 5 as a best-in-class performer. Nonetheless, a shift is also underway regarding more qualitative evaluations of investments, and while raw performance is important, it is investment process that is actually the most important to advisors. In other words, good performance may be the first criterion to be considered, but it’s actually the last when making a final selection decision. The research results also support the trend towards an increased focus on downside risk over return.
Rising Tides – This article by FPA President (and former NexGen President) Michael Branham explores the dynamics for new advisors currently coming into financial planning. An increasing number of financial planners are entering the industry with their financial planning education already completed, looking for an opportunity to immediate begin applying the knowledge they have acquired. Yet the training in academic programs often focuses more holistically than what many firms realistically implement for their clients. And while new financial planners may have the technical knowledge, they still often lack both a skillset to effectively apply it, and the experience to communicate and implement it effectively with clients. Nonetheless, the need for integrating young planners is tremendous given the demographics of the industry. The article wraps up with a strong focus on encouraging young planners to seek out a mentor and getting involved with professional associations like the FPA.
Retirement Income Research Proved Fruitful in 2011 – This article by Harold Evensky in the January issue of the Journal of Financial Planning highlights the array of good retirement income articles that came out in the Journal last year. Evensky highlights both the Cooley, Hubbard, and Walz paper (updating their earlier seminal work on safe withdrawal rates), some interesting research from Kasten and Kasten about the implications of declining cognitive function in later years on the optimal age at which to make retirement income decisions, and three papers by researcher Wade Pfau on new adaptations of the safe withdrawal (and Pfau’s “safe savings”) rates. If you didn’t catch all the research as it came out last year, Evensky’s article provides a nice summary.
Changing Gears – This article by Glenn Kautt in Financial Planning magazine is a self-reflection on changes that Glenn has made in recent years in how he manages his own firm. The article explores some of the incentive programs that Kautt has put in place that have and have not worked in motivating staff to help grow the firm, as well as shifts in his leadership style. Perhaps most notable, though, is his discussion towards the end of the article, where he supported members of his team to develop their own niche expertise (a topic I’ve written about previously on this blog) and gave them an opportunity to flourish in those areas – rather than simply order them to do so – with very positive results.
Marketing Coaches: In Search of the Right Fit – This “Focus” article by Jim Grote in the Journal of Financial Planning explores the idea of financial planners using marketing coaches to help them grow their businesses. For anyone who has been thinking about working with a coach of some sort, the article provides some helpful distinctions in understanding the different ways that coaches refer to themselves (marketing coach, business coach, life coach, etc.) and what you might expect. From there, the article makes the case for the importance of marketing, different ways that some coaching programs add value. The final section actually includes some useful tips on marketing advice. Although overall the article covers a bit more ground than just “finding the right marketing coach”, overall it may provide some helpful inspiration for planners struggling with their marketing who are considering getting help.
Choosing a Cloud-Based Platform – This article from the January issue of Investment Advisor magazine provides the basics for what “cloud computing” is, its advantages, and why advisors should consider it, as well as some of the distinctions between a cloud platform and so-called “software as a service” offerings. Unfortunately, the article is a bit more jargon-filled than I wish for being an introduction, but if you’re otherwise unfamiliar with the principles of moving your technology and software “to the cloud” this article is a decent starting primer.
FSI OneVoice 2012 – This article from AdvisorOne provides some coverage of the activity at this week’s national conference for the Financial Services Institute, which was entitled the “OneVoice” event. The FSI organization – a spin-off of the FPA’s broker-dealer division in 2005 – has grown dramatically, now boasting a membership count of almost 34,000, a number it hopes to grow over 40,000 in another 3 years, although with a large portion of the member base established by firms paying on behalf of their registered representatives, retention is a concern too. The focus of the conference – consistent with its name and the advocacy focus of FSI – was around FSI’s lobbying efforts on behalf of the broker-dealer community. Framing itself as an organization to “regulate the regulators”, FSI board chair Joe Russo noted of the regulators that “[They] didn’t detect the Ponzi schemes, because the schemes were very good at filling out [their] forms. The bad guys hide in the minutia of the paperwork regulators foist on the rest of us.” The FSI event had a record 640 attendees, with an agenda focused on the areas of challenge that broker-dealers face in their business as broker-dealers.
Staring Into The Abyss – In his weekly offering, John Mauldin provides an excellent outline of the current situation in Greece and Europe overall, and what may be coming in 2012. Mauldin points out that ultimately, Europe’s problem is the interrelationship of countries that face default, an overleveraged banking system that can’t withstand the default, and trade imbalances so severe that even if the first two issues are handling, the third will just bring about a repeat of the first two again in the future. In the meantime, the situation in Greece deteriorates, and as the likelihood of default and a writedown increases, the fear of contagion is spreading; the market is already pricing Portugal’s 10-year bonds at 14.39% last week, and the credit default swap market implies a 66% chance that Portugal defaults by 2017. And it looks like Europe is now heading into a full-blown recession (Germany may already be there), which will just exacerbate the problem further. Mauldin’s ultimate outlook suggests that Greece will end out leaving the Euro and going back to the drachma, although the near-term ramifications are so drastic, Europe may still try to stretch the matter out further (potentially, for years) in the hopes of mitigating the impact. And then comes the other European countries on the brink… overall, Mauldin suggests that there is significant tail risk emanating from Europe in 2012, and that it’s not the time to be a long-only investor.
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! And click here to sign up for a delivery of all blog posts from Nerd’s Eye View – including Weekend Reading – directly to your email!