Weekend Reading For Financial Planners (January 10–11)

Client Sentiment Rises After Advisor Meetings, Particularly If The Advisor Demonstrates Emotional Intelligence: Study

(Steve Randall | InvestmentNews)

While a significant portion of the work performed by an advisor (and their team, if they work with one) is done behind the scenes (e.g., performing financial planning analyses and portfolio reviews), time spent meeting with clients can be particularly impactful, as it allows them to demonstrate the human connection that many clients seek (and that separates advisors from digital sources of advice). Advisors might wonder, though, what exactly they can do during meetings to increase the chances their client leaves the meeting feeling better than they did when they entered.

To address this question, advisor AI platform Jump analyzed approximately 12,000 anonymized advisor-client meetings to determine client sentiment at the start and end of meetings and how advisors were able to provide the biggest boost. Overall, the study found that advisors were broadly able to improve client sentiment during meetings, with data from October showing that clients started meetings with an average sentiment score of 6.49 on a 1-10 scale (calculated using natural-language analysis of conversational data, capturing indicators of confidence, anxiety, clarity, and overall financial mindset) and ending meetings with an average sentiment of 7.50. Notably, while initial client sentiment was lowest during the market downturn experienced earlier in the year (with an average starting sentiment of 6.18 in March and 6.21 in April), advisors were able to provide a lift during this key period, with average meeting-ending sentiment of 7.40 in March and 7.32 in April (a full point higher than when the meeting started).

The study found that advisors who demonstrated greater emotional intelligence during meetings (i.e., engaging in behaviors such as limiting the time they talked [allowing the client to talk more], asking open questions, offering empathy statements, and conducting emotional check-ins) tended to provide a bigger sentiment lift for their clients. For example, advisors with the highest emotional intelligence ranking increased client sentiment by an average of 1.15 points during meetings (from 6.51 to 7.65), while those with the lowest emotional intelligence ranking only improved client sentiment by an average of 0.59 points (from 6.31 to 6.90).

Ultimately, the key point is that while financial advisors appear to be broadly effective in improving client sentiment over the course of meetings (which could ultimately feed into improved client retention and a greater number of client referrals over time), the report identifies emotional intelligence as a key factor that could drive improvements for advisors who emphasize these characteristics. Which suggests that while advisors might enter meetings ready to focus on presenting their financial planning and market analyses to clients, taking time to also step back and let clients express their concerns (and perhaps asking appropriate follow-up questions) could make the client feel even better about their financial situation and their relationship with the advisor when they leave the meeting!

"Peace Of Mind" Top Reason Consumers Seek Financial Advice: Vanguard Survey

(Tobias Salinger | FinancialPlanning)

Financial advisors have no shortage of ways to offer value for their clients. Notably, an advisor's value proposition includes both hard-dollar benefits (e.g., identifying tax-savings opportunities) as well as more intangible support (e.g., serving as a sounding board during turbulent markets). A key question, though, is how current and prospective clients might rank these benefits (which could inform how advisors market themselves and their value proposition).

According to a survey by Vanguard of 12,070 individuals receiving human or digital advice on its platform, "peace of mind" was the most frequently cited reason cited for pursuing an advice relationship, with 34% of respondents identifying it as their top choice and 68% putting it in their top three. Other commonly cited factors included investment returns (17% top choice/48% top three), helping the client achieve their goals (16% top choice/46% top three), convenience and time-saving (13% top choice/46% top three), and as a source of answers/feedback when questions or concerns arise (12% top choice/55% top three). Which indicates that many consumers come to the table with a mix of hard-dollar and intangible motivations (and that even if they lead with, for example, a concern about investment management, they might also be highly receptive to an advisor's ability to respond quickly to their questions or concerns as well).

Looking specifically at "peace of mind", Vanguard asked a broader survey pool (which also included self-directed investors) how they might experience peace of mind with a financial advisor. The top characteristic cited (by 67% of respondents) was support (i.e., "I would know my advice provider is watching my investments and keeping me on track."), followed by trust ("I would trust my advice provider to put my needs first"), chosen by 60% of respondents. Other aspects of "peace of mind" included having less stress around their finances (47%), having an advisor who is responsive (44%), and greater confidence that they will reach their financial goals (44%).

In sum, these results suggest that advisors can help clients achieve greater "peace of mind" not only through the formal planning process (e.g., portfolio construction and monitoring) but also by being responsive, acting in their clients' best interest, and by demonstrating how clients are getting closer to achieving their financial goals. Which could help certain advisors differentiate themselves from other sources of financial advice that don't meet all of these characteristics and ultimately lead to greater client growth and retention!

SEC Proposes Expanding "Small RIA" Definition To $1 Billion AUM

(Tracey Longo | Financial Advisor)

In an effort to protect consumers, the Securities and Exchange Commission (SEC) creates and updates regulations that must be followed by SEC-registered investment advisers. While these regulations can raise standards of conduct amongst advisers, they also come with a compliance cost for firms that are required to follow them (e.g., additional paperwork and time spent training employees). And while larger firms might be able to handle such burdens fairly easily due to their greater headcount (possibly including staffers whose sole role is compliance), complying with new regulations can be a tougher task for smaller firms (where an advisory firm owner might also be the firm's chief compliance officer, amongst wearing many other hats as well!).

To help balance this dynamic, whenever the SEC implements new regulations for financial advisors, they are required to do an economic impact analysis to evaluate how the cost of compliance regulation would impact the industry, and whether regulations intended to protect consumers might unduly raise costs so much that consumer access is actually reduced in the process. In turn, to ensure that innovation remains strong and more advisory firms are created over time, the SEC has an additional layer of economic impact analysis it must do to evaluate how new regulations would impact "small" firms as well. Which has a current threshold of RIAs with $25 million of assets under management.

The caveat, though, is that while $25M sounds like a lot, as industry participants know, that is often the asset base for a solo advisor with no staff at all. In fact, even firms with $100M or several hundred million of AUM are often still only 3-10 person teams, without any dedicated compliance support role… for which, again, new compliance regulations can be especially onerous (yet the SEC is not explicitly required to consider their impact as a "small" firm once they're over $25M of AUM).

This issue has led to calls from Congress and from the Investment Adviser Association, (IAA) among others, for the SEC to revise its definition of a small firm from the current $25 million, and at least consider a limit of $100M of AUM if not higher (given that firms typically register with the SEC once they reach $100 million of AUM, ironically that means the SEC's current small-firm limit doesn't even require them to consider the impact on most SEC-registered firms!).

On the heels of last month's passage in the U.S. House of Representatives of the INVEST Act (which, if it becomes law, would require the SEC to study its definition of 'small entity'), the SEC this week proposed amendments that would increase the small entity threshold for RIAs to $1 billion, a figure that would be subsequently adjusted for inflation every 10 years as well. It would therefore require the SEC to provide additional economic impact analysis for most of the advisory industry before undertaking new rules (given that the majority of RIAs have less than $1 billion in AUM). Notably, though, this proposal is separate from a parallel discussion the SEC has opened about whether the threshold for state-versus-SEC registration of RIAs might also be raised in the future (from the current $100M of AUM to what also might become a $1B AUM threshold).

The re-definition of "small entity" proposal will be open for a 60-day comment period once it is published in the Federal Register (notably, while many firms will likely cheer the higher threshold, the IAA previously argued that determining what constitutes a 'small entity' by staff count, rather than by AUM, would be a more accurate way to assess as firm's capacity for complying with new regulations).

Altogether, momentum for a change to the small entity threshold had been building for months (if not years), and a change could ultimately provide relief for relatively smaller firms by forcing the SEC to more carefully consider how new regulatory proposals would impact the overwhelming majority of RIAs that don't even have the size capacity for a dedicated compliance role (and the prospective $1 billion threshold covers significantly more RIAs than a more modest increase from the current $25 million threshold would have). The end result will likely be a slowing in the pace of new regulations for RIAs, and more scrutiny of any new regulations that require particularly onerous due diligence or paperwork documentation (that are more difficult for smaller firms to scale)… a plus for most RIAs that already have to balance compliance with client service, marketing, and the other duties that go into running a firm (and perhaps encourage the formation of new firms, which could allow the industry to serve more clients!).

Concentrate To Get Rich (Or Poor)

(Ben Carlson | A Wealth Of Common Sense)

When a certain handful of stocks (or other individual assets) are seeing significant gains, advisors might start to receive questions from clients about their exposure to these high-flying assets. Though, notably, these questions might come in two flavors: those clients who are concerned that they might be over-concentrated in particular investments (e.g., the "Magnificent Seven" stocks, which in recent years have accounted for a significant portion of U.S. broad market index funds) and that a downturn in these names might be particularly harmful for their portfolio and those who want more exposure to these outperformers (perhaps experiencing FOMO, or the fear of missing out).

In the end, though, concentration is a two-way street. While putting a significant portion of one's assets in a particular investment (whether individual equities, real estate, a business, or otherwise) can lead to massive (and, potentially, rapid) wealth, such a lack of diversification can also lead to (rapid) wealth destruction if performance turns for the concentrated asset (leading to the saying "You concentrate to get rich, but diversify to stay rich").

Which suggests an important role for financial advisors in helping clients understand the concentration risks they face. For instance, while an investor in an S&P 500 index fund will have significant exposure to "Magnificent Seven" stocks, if their portfolio is diversified more broadly (e.g., including international stocks, bonds, or other asset classes), the percentage of their total assets concentrated in this market segment might actually be lower than they expect. On the other hand, a business-owner client might not realize how much of their net worth is concentrated in their business (which could lead to an advisor recommendation to take some profits 'off the table' and invest in other assets).

In sum, while investment concentration can lead to great wealth (or dramatic losses), those seeking middle ground can find it in the form of diversification (and perhaps a financial advisor who can assess their concentration risk and propose alternative asset allocations). Which might not be as flashy as going 'all in' on a hot asset or strategy but could ultimately lead to steadier wealth accumulation and a greater probability of achieving one's financial goals.

The One Thing My Worst Investments Had In Common

(Nick Maggiulli | Of Dollars And Data)

Any investment comes with one or more risks, from market and idiosyncratic risk for equities to interest rate risk for bonds. While investors will likely be familiar with these and might consider them when making a particular investment, another potential pitfall, liquidity risk, can sometimes be overlooked.

The ability to liquidate an investment in a timely manner and with minimal loss of value can be a valuable characteristic, especially if the value of the investment is needed to meet cash flow needs in the near future. However, it can be tempting for investors to put their money in relatively illiquid asset classes due to the (at least claimed) returns they can offer. For instance, private equity investments might make sense for some investors who want exposure beyond publicly traded stocks, but such funds typically come with a lock-up period that can last many years (which, on the one hand, gives the fund manager a source of 'permanent' capital to invest, but, on the other, restricts investor access to their invested capital). In this case, investors who are relatively new to illiquid asset classes might recognize conceptually that their capital might be inaccessible for a certain period of time but not necessarily think through the implications for their broader portfolio and cash needs.

In the end, while relatively illiquid assets might be a good fit in some investor portfolios, financial advisors can offer their clients value by showing the full implications of such an investment to ensure they look beyond the potential returns to consider the full scope of risks they'd be taking on.

How Can Investors (And Advisors) "Follow The Evidence"?

(Joe Wiggins | Behavioural Investment)

Financial advisors can offer their clients a level of investment expertise that the clients might not have themselves (or want to spend the time learning). A problem, though, is that sometimes the objective 'evidence' for a particular investment approach can erode over time or conflict with other research-backed findings.

For instance, many investors have found success by choosing a particular asset allocation that meets their needs and sticking to it over time (perhaps engaging in regular rebalancing and/or adjustments as their risk capacity changes), which is easier to implement (and often more successful) than more active investment approaches. However, some research suggests that valuations are a driver of long-term return and risk, which might lead some investors to adjust their portfolios based on current valuation levels (a more active approach). An advisor could take either path and be 'following the evidence' but end up with different investment strategies.

Another example of conflicting evidence is research suggesting that investing in market capitalization-weighted indexes is likely to be inferior to other approaches (e.g., investing in an equal-weight index). However, investors in U.S. broad-market indexes with market cap weighting have seen stronger performance than their equal-weight counterparts over the last 15 years (thanks to the strong performance of several mega-cap tech stocks). Which raises a question: does this period of outperformance counteract the previous research on market cap weighting or should investors expect reversion to the mean in the future?

With many other examples of these type of conflicts (e.g., certain private market investments that could provide diversification [a broadly recognized positive factor], but typically come with higher fees [a widely recognized negative factor], or weighing the potential negative impact of "home country bias" [i.e., being overweight in investments in one's own country compared to its representation in a global market portfolio] against possible benefits [e.g., the relatively strong performance of U.S. stocks over the past 15 years]), some investors [or even advisors] could become paralyzed with indecision, or, even worse, decide to ignore research findings and data altogether. However, this phenomenon perhaps suggests another valuable role for financial advisors in understanding (and communicating to clients) that while investment strategies aren't necessarily black-and-white (or will necessarily outperform over the course of an extended time period), identifying the strategies with more robust backing and a higher probability of success could ultimately lead to positive outcomes.

Applying Happiness Research To Create A More Enjoyable Retirement

(Dunigan Folk and Elizabeth Dunn | Annual Review Of Psychology)

Entering retirement is not only a major financial transition (i.e., from receiving regular paychecks to generating income from Social Security, portfolio assets, or other sources), but a significant lifestyle change as well. While many individuals on the precipice of retirement will have a good idea of what will bring them joy in retirement, others might be unsure about how to get the most out of their 'golden years'.

For many years, researchers have considered the factors that are correlated with greater happiness. A recent examination of pre-registered studies (which commit to analysis plans up front, which can reduce the number of false positive results) identifies several behaviors associated with greater happiness, many of which are applicable to individuals entering and in retirement. One finding that appears to be robust is the benefit of sociability for boosting positive feelings, suggesting that finding avenues to encounter others could help boost one's mood (and potentially lead to new close relationships, which separate research has found to increase happiness). Another potential tactic is to take a novel approach to familiar experiences. For instance, when a retiree (or a still-working individual) has a regular routine, finding ways to treat it differently (e.g., treating a weekend like a vacation) could make this time more memorable.

In addition to these "addition" practices, certain "subtractions" could improve happiness as well. For instance, reducing unpleasant time use (e.g., by outsourcing certain undesirable tasks) can remove negative impediments to happiness (and could be a way to encourage nervous clients to spend more in retirement). Another potential "subtraction" is reducing the amount of time spent on smartphone and/or social media use. The reviewed literature suggests that benefits from reduced smartphone use could come from reduced distractions (making time spent in social situations more enjoyable), while reduced social media use could provide a boost to life satisfaction with longer-term (e.g., one month) abstinence.

In the end, no single prescription is likely to apply to every retiree when it comes to boosting happiness. Nevertheless, several of these concepts, including finding regular opportunities for socializing, creating opportunities for novelty, and reducing distractions and unpleasant time use could serve as a framework from which a retiree could fill in with the activities and relationships that bring them the most joy (and perhaps, from a cash flow perspective, where they want to commit their available financial resources?)

The Dark Side Of 7 Saturdays A Week

(Allen Mueller | 7 Saturdays Financial)

After working 40+ hours per week for several decades, retirement can seem like the ultimate opportunity for greater freedom. At the same time, one's working years come with a sense of purpose, routine, and collegiality (not to mention a paycheck) that will need to be replaced in retirement. Which can sometimes lead individuals to have retirements that don't live up to their expectations, whether because of "choice overload" (i.e., with so many options it can be hard to pick the 'right' one) or because they are challenged in replacing many of the positive aspects of working life (with might have been overshadowed by various annoyances).

One way financial advisors can help guide individuals to a more fulfilling retirement is to have them retire "to" something rather than "from" their previous careers. By having a plan for filling time up front (e.g., by volunteering on a specific project, engaging in certain hobbies, or even taking on a part-time job), an individual will be less likely to wake up on their first Monday of retirement without anything to do. Notably, an individual could 'practice' retirement up front by reducing their work hours or taking a sabbatical to see how they want to fill their time and whether their chosen avocations can fill the time and fulfillment voids that can be created by leaving the workforce.

Another major aspect of the retirement transition is the change in one's social interactions. While professionals likely have friends outside of the workplace, co-workers often serve as a key social circle that will no longer be there in retirement. Which means individuals might consider how they might create and build friendships in retirement, particularly if they plan to move away and leave friends they've made during their working years. Beyond friends, couples on the edge of retirement might also consider how their relationship will change and how (and with whom) they want to spend their time, as they might have differing expectations for how much time they will spend together in retirement (e.g., one spouse might plan to do activities with friends during the week, with the other might assume they'll be doing activities together), which could create conflict.

Ultimately, the key point is that while retirement is a time of great possibility, it can come with peril as well. However, financial advisors are well-positioned to support their clients in this transition, both financially (e.g., creating a sustainable retirement income plan) and emotionally (e.g., by encouraging clients to think about what they want their retirements to look like in advance and how this plan will meet their needs for a sense of purpose, close relationships, and more).

Why Making Retirement (Or Other Financial) Decisions Based On Happiness Studies May Not Be A Good Idea

(Derek Tharp | Nerd's Eye View)

In a very broad sense, the term "happiness" may align with something along the lines of Aristotle's "eudaimonia" that was meant to refer to the ultimate aim of humans to live a good life. However, in recent years, a narrower conception of "happiness" has emerged – particularly within psychology and economics research. Based on a desire to evaluate how factors such as income are related to "happiness", researchers have come up with survey questions such as "How happy are you on a scale of 1 to 3" that are then used to test all sorts of hypotheses regarding the relationships between life circumstances and happiness.

There's nothing intrinsically wrong with such research; however, studies based on this narrow conception of happiness tend to make for good headlines and often get widely cited in the media (e.g., "People who drink coffee are happier!"). As a result, such studies can gain traction to the point that they could actually influence life decisions, and that can be problematic.

First, there's the issue that personality is actually one of the strongest predictors of "happiness" (as reported in such studies). For instance, all else being equal, extraverted individuals simply tend to report they are "happier" than introverted individuals when presented with such survey questions. Moreover, extraversion is associated with all sorts of life decisions (e.g., living in cities), which means that we can't make much of research findings that don't consider how personality factors influence results.

More fundamentally, however, is the issue that this narrow conception of happiness (i.e., happiness that can be rated through shallow inquiries such as, "How happy are you on a scale from 1 to 3?") is not an effective way to choose life goals that will actually bring a person long-lasting feelings of fulfillment. Researchers have criticized the notion that people should chase these narrower forms of happiness, rather than orienting one's life toward the pursuit of meaning and purpose – which often comes from accomplishments that take work and are not easy.

In the end, no one lies on their death bed wishing they'd averaged 2.5 rather than 2.4 on their lifetime happiness score when measured on a scale from 1 to 3. However, many people do lie on their death beds wishing they'd spent more time with family, built better relationships, or otherwise engaged in pursuits that brought a sense of purpose and meaning. Which perhaps suggests that happiness in retirement or otherwise isn't necessarily about 'one weird trick' but rather by getting the 'big things' right based on each individual's unique personality and preferences.

6 Ways To Improve Your Attention Span

(Eric Barker | Barking Up The Wrong Tree)

Attention has always been a scarce commodity, but it is particularly so in the modern age where various potential distractions vie for one's attention. Which means that those who can harness their attention to the greatest extent possible could find themselves being more productive at work and having higher-quality free time outside of it.

In her book "Attention Span: A Groundbreaking Way To Restore Balance, Happiness, and Productivity", professor of informatics Glora Mark identifies several techniques that can help individuals improve their attention spans and become more productive in the process. First, it's important to recognize that attention isn't an infinite resource and taking time to rest from sessions of intense focus (whether actual sleep, a walk, or even a rote activity like scrolling on one's phone) can lead to an improved ability to focus on the next thought-intensive task. While taking breaks is important, so too is avoiding unintended interruptions, from email notifications to the ever-tempting presence of a smartphone on one's desk. Mark also finds that attempting to multitask is detrimental to one's attention span, as the mental 'costs' of task switching can add up over time (and lead to greater stress). Notably, stress itself can affect one's attention span as well, as negative emotions reduce mental stamina.

Altogether, given that each person has a different attention span and preferred work style, creating a personal rhythm or plan can provide for dedicated "deep thinking" time blocks to focus on a single task while also allowing room for activities that recharge one's mind and energy. Which could ultimately lead to greater productivity and a better mood in the process!

A Key Survival Skill For 2026: "Critical Ignoring"

(Christopher Mims | The Wall Street Journal)

The seemingly infinite amount of information available at one's fingertips at any given moment is a double-edged sword: while it's easier than ever to find the answer to a particular question (e.g., finding a basic fact online takes much less time than finding and flipping through a physical encyclopedia), the current environment can also lead to a sense of overwhelm from the sheer number of available sources of information.

Amidst this backdrop, a potential strategy is to engage in "critical ignoring", or checking out some initial signals concerning the veracity of a particular new story or piece of information before filing it away in one's head as a fact. A key step is to filter the sources of information one is exposed to down to those that have shown a propensity to be correct (e.g., perhaps ignoring many wholly unverified social media posts). This can also have the benefit of limiting the number of distractions one faces (e.g., allocating a certain amount of time for reviewing the news rather than getting regular alerts throughout the day).

The introduction of Large Language Models (LLMs) such as ChatGPT in recent years has added a new wrinkle to this practice, as these tools could serve as a shortcut for evaluating a particular claim (as they have often been 'trained' using a variety of data sources), but are also known to 'hallucinate', or provide incorrect outputs (which could be the result of training based on Internet sources that were incorrect in the first place!). In addition, these tools often provide cogent outputs that might sound convincing, but, in reality, might be false (suggesting that users might need to dig into the original sources the tool cites for its claim). Which suggests that while LLMs could be helpful in verifying a claim found elsewhere, they are also not foolproof sources of answers.

Ultimately, the key point is that at a time of ever-expanding sources of information, the ability to quickly determine what appears to be correct (though might require further verification) and what is almost certainly false, slanted, or incomplete not only could lead to the consumption of higher-quality information but also could save valuable time in the process!

Your Brain On ChatGPT: Accumulation Of Cognitive Debt When Using An AI Assistant For An Essay Writing Task

(Nataliya Kosmyna and Eugene Hauptmann)

ChatGPT and other Large Language Models (LLMs) go beyond the search capabilities of long-standing search engines to provide written outputs that can appear to have been written by a human. Which has led some individuals to use it as a replacement for their own original writing (whether using an LLM's output unedited or perhaps reviewing it first).

While such activity could clearly stunt learning in an educational environment (if a student doesn't actually engage with the material and merely prompts an LLM), an interesting question is whether reliance on LLMs might diminish an individual's capacity for key cognitive tasks in the future. To explore this question, a group of researchers conducted an experiment where participants were required to compose an essay but were divided into three groups: one was given an LLM to use, a second group was given a traditional search engine, and the final group was provided with no technological assistance at all. After conducting three rounds (over the course of three months) of the essay task with their assigned modality, a fourth round had those with LLM access now use no assistance and those who had no computer support use an LLM.

The researchers recorded participants' brain activity to assess their cognitive engagement and cognitive load, finding that "brain connectivity systematically scaled down with the amount of external support", with the "brain only" group showing the strongest, widest-ranging networks and the LLM group showing the weakest engagement (with the search engine group in the middle). The brain-only group also took greater ownership over their essays and were better able to quote from them than the LLM group.

While this is merely one experiment (and the researchers note several caveats to their findings), it does suggest that reliance on LLMs for thinking-intensive activities could lead to less 'exercise' for the brain and reduced fluency with the topic at hand. Which is perhaps not only informative for students working on an assignment, but also for professionals creating content that they may have to fully grasp and explain to a peer or client in the future!

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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.