Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that the Securities and Exchange Commission this week authorized 11 Spot Bitcoin Exchange-Traded Funds (ETFs), which could provide financial advisors and their clients with a convenient way to invest in the cryptocurrency without many of the security issues or price tracking challenges of other methods (though the new products will still be subject to Bitcoin's notorious price volatility!).
Also in industry news this week:
- The Department of Labor (DoL) this week published a final rule delineating what makes an individual an independent contractor versus a company employee, though it did not provide specific guidance for registered representatives of broker-dealers and other financial professionals who have expressed concern that their independent contractor status could be in jeopardy
- Vanguard this week opened a high-yield savings product to all investors, adding to the heated competition for consumer deposits
From there, we have several articles on practice management:
- How financial advisory firm owners can ensure that managers promoted from within the firm are positioned for success
- A recent survey indicates that being proactive with planning strategies and communication could be more important than portfolio performance for financial advisors when it comes to client retention
- How advisors who reach the partner level (and their firms) could benefit from a 2nd career path that guides them throughout the rest of their careers
We also have a number of articles on cash flow and budgeting:
- 11 questions that can help couples get on the same page financially before moving in together
- 3 options for couples when deciding how (or whether) to combine their finances
- How holding regular 'money dates' can help couples improve their relationship with money and each other
We wrap up with 3 final articles, all about health:
- The many benefits of meeting the recommended daily intake of fiber and the foods that contain the most of it
- Why worrying about getting 8 hours of sleep per night might be counterproductive and why sticking to a regular sleep schedule might be a more effective approach
- 9 ways to get healthier in the coming year that do not require a major lifestyle change
Enjoy the 'light' reading!
With its dramatic price increases over the past decade (coupled with sharp declines along the way!), Bitcoin has caught the imagination of a wide range of investors. One of the challenges for advisors with clients interested in investing in Bitcoin, though, is how to actually invest in it, as the cryptocurrency generally cannot be held directly at the custodians financial advisors use to manage other client assets. The rollout of Bitcoin futures Exchange-Traded Funds (ETFs) in 2021 eased this burden, as advisors could buy and sell these ETFs just as they would other exchange-traded products. However, because these products invest in Bitcoin Futures, rather than hold the cryptocurrency directly, there is potential for deviations between the price of the ETF and the spot price of Bitcoin. And despite entreaties from a range of product providers, the Securities and Exchange Commission (SEC) for several years refused to approve a "Spot" Bitcoin ETF (which would invest directly in 'physical' spot Bitcoin, rather than in Futures products), citing the lack of a regulated exchange able to monitor Bitcoin trading to detect fraud and manipulation.
Nonetheless, after significant anticipation (and a court ruling criticizing the regulator's previous position), the SEC reversed course on Wednesday, authorizing 11 spot Bitcoin Exchange-Traded Funds (ETFs) to begin trading on Thursday. While SEC Chairman Gary Gensler noted in a statement that the regulator did not approve or endorse Bitcoin itself, the SEC determined that because irregularities on cryptocurrency exchanges would likely to show up in futures prices on the CME (a regulated market), it would be able to surveil for fraudulent and manipulative acts as they would apply to the approved spot Bitcoin ETFs. Gensler also noted that the ETFs will provide additional protections for Bitcoin investors (e.g., required disclosures from product providers and the fact that the ETFs will be traded on regulated exchanges) compared to investing in Bitcoin through other means (e.g., directly through exchanges facing varying levels of regulation).
Ultimately, the key point is that the introduction of the new Bitcoin ETFs provides advisors with a way to provide clients with exposure to spot Bitcoin prices using its regular custodian. Yet at the same time, the SEC remains concerned that because Bitcoin itself is not traded on a regulated exchange, there is still elevated risk of price manipulation or other types of fraudulent activity as it pertains to Bitcoin trading. Nevertheless, given the significant attention this week's announcement as received (which might pique the curiosity of at least some clients), advisors will likely be fielding more questions about whether a spot Bitcoin ETF might (or might not!) fit into their clients' overall asset allocations, even as advisors still have to weigh whether the volatility of Bitcoin and the underlying opacity in trading is worth the (fiduciary) risk!
(Allison Bell | ThinkAdvisor)
The use of independent contractors has grown in a variety of industries during the past several years. Doing so allows companies to hire labor without having to offer the full suite of benefits (and provide the full suite of employee protections) they are legally required to provide for bona fide employees. But the growth of this model in certain industries (e.g., Uber/Lyft drivers en masse) has raised concerns, particularly among Democratic officials, that this shift toward an independent contractor model leaves many contractors especially vulnerable, as their income is often more precarious than W-2 employees, they don't get the benefits of W-2 employees, and, by definition, they don't benefit from standard legal protections for employees. This has led to back-and-forth guidance from Washington, as the Obama administration broadened the definition of who counts as an employee (making it more challenging to label a worker an independent contractor), while the Trump administration subsequently narrowed the types of workers who must be considered employees.
In the financial services space, a variety of workers, from life insurance agents to registered representatives, could potentially be affected by these rules as well. As while amongst financial advisors, being an "independent" whose relationship is structured as an independent contractor is often a proactive choice by the advisor themselves for the sake of autonomy (not because the firm is trying to avoid offering employee protections or benefits), but as independent contractors, they (and their firms) still have to navigate the rules to maintain that status. As the relationship between registered representatives working as independent contractors and their affiliated broker-dealer could come under scrutiny (given the level that registered reps are economically dependent on their broker-dealers, given that the broker-dealer holds the rep's license, and technically clients are clients of and make payments to the broker-dealer, and not the rep).
This week, following an avalanche of comments (more than 55,000!) from financial industry representatives and others, the Department of Labor (DoL) published an employee and independent contractor final rule, which is set to take effect March 11. Under the rule, DoL will use 6 factors to evaluate the "economic reality" of the relationship, and try to determine whether a worker is considered to be an independent contractor: 1) the opportunity for profit or loss depending on managerial skill (the more the outcomes are dependent on the worker, the more independent they are); 2) investments by the worker and the potential employer (the more the worker invests into the opportunity, the more independent they are); 3) the degree of permanence in the work relationship (the less permanent the work, the more independent they are); 4) the nature and degree of control (the more the worker has autonomy and control, the more independent they are); 5) the extent to which the work performed is an integral part of the potential employer's business (the less integral the work, the more independent the worker is); and 6) the worker's skill and initiative (the more outcomes are reliant on the worker's own skills and initiative, the more independent they are). Notably, the rule does not provide specific answers as to whether common arrangements in the financial services industry (e.g., between broker-dealers and their registered representatives) that are currently considered to be an independent contractor relationship will continue to be so. Nonetheless, the DoL did note that it was responsive to financial services industry concerns, softening language in certain places and emphasizing that analyzing cases based on "the totality of the circumstances" provides flexibility in making determinations based on the specific facts of an individual case.
In the end, while the DoL's new rule provides additional clarity on the Biden administration's thinking on the employee-independent contractor issue (that will apply to the broad range of industries), it does not provide a firm answer to whether registered representatives, life insurance agents, and others in the financial services industry will continue to be considered independent contractors or will be labeled as employees going forward, suggesting that it will take additional DoL regulations or guidance, and potentially court decisions (as certain individuals seeking the benefits of employee status might challenge their status as independent contractors, or vice versa), to provide a final determination regarding those in specific industries and business relationships. Though after proactive advocacy by organizations like the Financial Services Institute (FSI), it does appear that the DoL's intention was not to disrupt at least the majority of 'traditional' independent financial advisors (and their independent contractor relationship).
(Brooke Southall | RIABiz)
Financial advisory clients tend to hold at least some cash at a given time, whether in a savings account to represent an 'emergency fund' or as an allocation within their investment portfolio (perhaps invested in money market funds or Treasury bills) to serve as a less-volatile ballast to equity or bond positions or as 'dry powder' for potential investment opportunities that arise. And while investors could only earn relatively paltry returns from their cash holdings in the low interest rate environment of the past decade, the recent rise in interest rates has presented an opportunity to earn more from cash holdings and has introduced heightened competition among some banks and asset managers to offer strong rates and features on their cash products.
One of these competitors is asset management giant Vanguard, which recently opened its "Cash Plus Account" offering to non-Vanguard investors. In addition to a 4.7% interest rate, the account has no minimum investment and is eligible for FDIC coverage up to $1.25 million for individual accounts and $2.5 million for joint accounts (by spreading the cash across multiple banks, Vanguard and others can offer higher FDIC coverage than can accounts at an individual bank). Also, the "savings account alternative" offers direct deposit and bill pay features (which could make it attractive to those who conduct the majority of their transactions electronically), though it does not come with an ATM card or a checkbook as a standard checking account might.
Altogether, Vanguard's entry into the increasingly crowded cash management space provides consumers with an additional alternative for holding their cash (and receiving a decent return in the process, at least compared to savings products by some larger commercial banks). Further, this competition has presented opportunities for financial advisors as well to add value for their clients by helping them access the most appropriate cash management product for their needs (many of which allow advisors to play a more hands-on role in managing this portion of their clients' asset allocation)!
(Beverly Flaxington | Advisor Perspectives)
When an advisory firm owner first starts their business, they are often the only employee, meaning that there is no one else to manage other than themselves. But as a firm's client base grows, many firm owners decide to hire one or more employees (who the firm owner manages themselves, sometimes reluctantly). And once the firm's employee headcount reaches a certain point (and the owner no longer has enough time to manage the employees and take care of their other responsibilities), they might decide to hire individuals whose primary job is to manage the growing roster of employees.
While a firm owner could make an external hire for these management roles, they might decide instead to promote from within the firm. And while this approach has potential benefits (e.g., the new manager's familiarity with firm culture and processes), this transition can present challenges as well. For instance, while an employee might have strong technical acumen in their specialty (e.g., financial planning or firm operations) they might not have developed the leadership skills that could help them better lead their 'new' team. In addition, employees who used to see the individual as a peer might balk at viewing the new manager as a supervisor and could take issues directly to the firm owner instead.
With these potential challenges in mind, firm owners have several options to improve the odds of a smooth transition. First, being clear about what is expected of the new management role (e.g., their responsibilities, decision-making boundaries, and the chain of command) can help both the new manager and those working under them better understand the new dynamics. Further, if employees do try to circumvent the new manager and go straight to the owner for a decision, emphasizing the new chain of command (even if the owner is in position to make the decision) can empower the new manager and help set the standard for the new roles in the firm. In addition, firm owners can provide new managers with guidance on how they can be successful in their new roles and develop their leadership abilities (as management requires a particular set of skills), perhaps leveraging external training providers.
Ultimately, the key point is that the transition from employee to manager can be a tricky one, both for the new manager and for the rest of their team. With this in mind, firm owners can increase the chances that the promotion will be successful by being clear about the new manager's roles and responsibilities and helping them develop the skills they need to be a successful manager!
(John Bowen | Financial Advisor)
Financial advisors tend to enjoy high client retention levels, often thanks to the high level of client service provided (though perhaps client inertia can play a role as well). Nevertheless, given the potential loss of revenue that can come when a client departs, taking a step back to consider whether they are providing the types of services and communication methods their clients seek can help advisors keep their retention rates as high as possible. Because while some advisors might assume that portfolio performance is the largest driver of client turnover, survey data from advisor coaching firm CEG Worldwide suggest that while performance is important, it is not the single (or the biggest) factor behind a client's decision to leave their advisor.
Instead, the survey data indicate that an advisor's lack of proactivity is a far more important driver of client dissatisfaction than portfolio returns. And it turns out that many advisors are not fulfilling this need, as only 25.1% of respondents "completely agreed" that their advisor reaches out to them on a regular basis (and only 33.2% said they "completely agreed" that they get a quick response when they do reach out to their advisor). For advisors considering how they might be more proactive, addressing recent tax law changes or evolving market conditions (before a client brings up these topics) can show that they are acting on their clients' behalf outside of regularly scheduled meetings. The survey also found that advisors who provide tailored services to meet their clients' needs tend to have better client satisfaction, particularly for high-net-worth clients. For instance, advisors who engage in strategic tax planning or offer unique investment options that meet a client's specific needs might be more likely to have better client retention than advisors offering more generic tax or investment advice. Also, firms can promote retention by building client loyalty to the firm itself rather than to their individual advisor; in case the advisor moves on, firms that communicate transparently about the sustained quality of service the client can expect from the firm could increase the likelihood that their clients will remain with the firm.
In sum, given the relatively high rates of client retention enjoyed by financial advisors, it could be easy to take continued client loyalty for granted and perhaps let service levels for ongoing clients slip (particularly if the firm is busy onboarding new clients). However, the survey data discussed suggest that advisors who act proactively on their clients' behalf, communicate regularly, and offer customized planning solutions can help solidify their client relationships, potentially for years or decades to come!
(Philip Palaveev | Financial Advisor)
When financial advisor career tracks are discussed, it is often in the context of helping junior employees find their footing at the firm and understand where different tracks could take them as they move forward in their careers. And while the 'end' of these career tracks might be when the employee becomes a partner at the firm, new partners might still have many years or even decades left before they plan to retire. Which suggests that firms with several partners could consider what career tracks look like for the '2nd' phase of these partners' careers.
Palaveev suggests that there are 3 career trajectories for those who have reached the level of partner. First, "practice builders" have a strong client base and leverage their sharp technical skills to serve their client base. Next, "brand builders" are those who best represent the firm externally, whether through writing, public speaking, or on social media. Finally, "business builders" are those partners who want to focus on the strategic and tactical decisions that make the business successful (and might not serve clients directly themselves).
By the time they have enough experience in the firm to reach the partner level, advisors will often know which track they would like to be on for the next stage of their career (and firm management also will likely have a good idea of how well these individuals' skills match with a given track). Notably, each track will need to be fleshed out with details about how the partner can advance over time across different metrics. For instance, a "practice builder" might advance along their track by serving increasingly high-net-worth clients and expanding their coaching of other advisors, among other factors.
Ultimately, the key point is that while becoming a financial advisory firm partner might be seen as the 'finish line' for a younger advisor, in reality this achievement often represents the beginning of a new stage in their career. And by developing partner-level career tracks and helping partners find the right track based on their interests and skills, firms not only can promote these individuals' development, but also maximize their unique talents for the benefit of the firm as a whole!
(Anna Sale | The New York Times)
When individuals start dating, their respective financial backgrounds tend not to be one of the first topics discussed (perhaps unless both are financial advisors?), in part because one or both individuals might be nervous that the other will judge them for the current situation and previous decisions. But as they formalize the relationship, particularly if they decide to move in together, having a conversation about money can be a healthy (though sometimes difficult) part of building a relationship that will last.
Notably, these conversations do not have to start with the nitty-gritty details of net worth statements and cash flow diagrams. Rather, beginning the conversation with more qualitative questions that address each partner's values not only can help each individual learn more about the other, but also ease the transition into more contentious topics. In this stage, potential questions include "What do we want our life together to look like?", "What would you do if you won the lottery?", and "How do you think your financial priorities might change in the next 10 years?". Together, these questions can help the partners look forward to a brighter future together (even if the specific financial details that will later be unveiled might not look so rosy).
Next, the partners can start to dig into their respective financial situations, from their income and expenses to their assets and debts. While this might be challenging (especially if an individual is embarrassed about a part of their financial life), agreeing to make the conversation a 'judgment-free zone' can ease the anxiety derived from revealing one's financial life. In addition, each partner can consider asking the other whether there is anything about their finances that they might want to know about (because while partners might not lie directly to each other, they might be tempted to withhold uncomfortable information unless asked about it).
After each individual's financial details have been laid out, the couple can then dig into the details of how they want to run their new household, from how or whether to share their money (e.g., how will they divide rent), whether they want to have a separate bank account for household expenses, and their preferences for what happens if one partner becomes incapacitated or passes away (which could lead them to consider updating their estate documents and/or insurance policies).
In the end, while money conversations can feel uncomfortable for many individuals, taking a measured, understanding, and non-judgmental approach can ease this burden and facilitate better discussions. And for financial advisors working with new couples (or even those that might not have considered their household practices in many years!), encouraging them to discuss these questions can help them build strong communication habits around money (and help the advisor better understand the couple's mutual goals in order to build the best possible financial plan for them!).
When a couple gets engaged, many items can suddenly appear on their to-do list, from planning a wedding to deciding where to live. In addition, the pending marriage creates an opportunity to discuss how each partner wants to handle money once they have tied the knot. And while they might hear from parents or others about a particular method they 'should' use, in reality couples have several options for managing their household finances.
One option is to completely combine both spouses' finances. This could include having a single joint checking account into which each partner's income is deposited and from which all bills are paid (notably, while the couple also could have joint savings and taxable brokerage accounts, certain other accounts [e.g., IRAs] cannot be held jointly, though the partners could collaborate on how much to save in the account and the appropriate investment strategy). This approach can help the couple have a sense of 'jointness', though one or both partners might be hesitant to make such a big jump immediately (and even if they decide not to completely combine their finances up front, they could decide to do so later on).
Another possibility is for each partner to keep their finances completely separate, which can help ease the transition to marriage as each individual can maintain their current accounts as they did before they were married. Couples that choose this option will soon recognize, however, that it's very hard to keep a couple's finances completely separate, as they almost certainly will have joint bills to pay (e.g., rent). In addition, while their money might be kept in separate accounts, the partners can still discuss how they want to work toward shared financial goals (and whether contributions to the goal will be split evenly, or perhaps based on a percentage of each spouse's income).
Finally, couples could consider taking a hybrid approach, where they maintain both a joint checking account to pay for shared bills (and perhaps a joint credit card) while each keeping a separate bank account where remaining funds are kept. This can provide for a sense of financial freedom (as each spouse will have control over the money in their separate account) while creating a pool of jointly held money for expenses or shared goals. Like the separate account approach, this method also requires a conversation between the spouses as to how much each will contribute toward joint expenses and goals.
While it might not be as exciting as deciding on where to go on a honeymoon, a discussion of how to manage household finances after marriage can ensure the couple makes a conscious decision that reflects each partner's desires and start to build a long-lasting and trusting relationship around the (sometimes thorny) subject of money!
(Lisa Shidler | RIABiz)
For couples, "date night" might involve heading out to a concert or restaurant, or perhaps ordering in and watching a movie. In any case, most date nights do not involve spreadsheets or Sankey diagrams. Nevertheless, having a regular 'money date' can ensure that both partners are on the same page when it comes to their finances.
While there is no set formula for what a 'money date' should entail, it could involve going over the latest credit card statements (as a starting point to discuss cash flow), considering a 'big' financial decision (e.g., whether to spend on a major vacation), or a variety of other financial-related topics. The key, though, is to schedule these 'dates' regularly to keep communication lines open and to avoid putting them off (perhaps perpetually). Couples can also customize the date to meet their needs. Those who find it easy to discuss money issues might be fine with a meeting at the dinner table, while those who have a harder time bringing themselves to the conversation might choose to engage in 'temptation bundling', or pairing or pair the (not-so-fun) money date with something more fun, like a bottle of wine or a night out after the conversation is over. Alternatively, those who find financial conversations to be difficult could engage a professional, such as a financial therapist, not only to facilitate these conversations, but also to unlock "money scripts" (i.e., unconscious messages about money) that could be invisibly affecting the conversations.
In the end, while regularly scheduled 'money dates' can take many forms, the key is that they can help facilitate communication between partners on the (sometimes challenging) topic of money. And for financial advisors, encouraging clients to go on 'money dates' could help ensure that in-office meetings are not the only time they discuss their finances together!
(Brett and Kate McKay | The Art Of Manliness)
There is no shortage of recommendations for improving one's diet, from eating more protein to consuming fewer ultra-processed foods. In addition, one nutrient that gets less attention, but can contribute to a range of health benefits, is fiber.
Fiber is a type of carbohydrate found in plant-based foods and comes in 2 types: soluble fiber, which can help slow digestion (and make a person feel less hungry) and insoluble fiber, which helps keep one's digestive system regular. This nutrient offers a range of potential benefits, including supporting weight loss (by making an individual feel fuller), regulating blood sugar (reducing the risk of developing type 2 diabetes), supporting heart health (by lowering LDL [often referred to as 'bad'] cholesterol), and contributing to a 'regular' digestive process. And while the recommendations of the American Heart Association and the American Diabetes Association recommend that adults get 25 to 38 grams of fiber daily might seem like a challenge, many foods are rich in this nutrient, including fruits, vegetables, whole grains, nuts, seeds, and beans (fiber supplements also are available).
Altogether, while keeping an eye on one's fiber intake might seem like yet another chore when it comes to eating a healthy diet, the wide range of available foods that can provide the recommended daily intake means that making it a 'regular' habit might not be as difficult as it seems!
(Geoffrey Rogow | The Wall Street Journal)
In recent years, much has been written about the benefits of sleep, from reducing the risk of heart attacks and strokes to being a better partner and parent. At the same time, new technologies (e.g., smartwatches) have allowed individuals to track their sleep (not just the number of hours, but also the quality) like never before.
However, this combination has led some individuals to worry about how much (and how well) they are sleeping which, ironically, can make it more challenging to sleep. Which has led many doctors to be concerned that the ongoing "sleep obsession" could in reality be harming people's health. Instead of focusing on getting a certain number hours of sleep, some doctors recommend focusing instead on setting consistent times on going to bed and waking up. In fact, a recent study found that shorter, regular sleep was generally associated with lower mortality than longer, inconsistent sleep (though long, consistent sleep was associated with the lowest mortality risk).
In the end, while it can be challenging for many individuals to get 7 to 9 hours of sleep a night as recommended by the Centers for Disease Control and Prevention, worrying about this fact could make the situation worse. Rather, creating the conditions for more regular, uninterrupted sleep (even if it's in a shorter time window), can help individuals reap many of the benefits of sleep and reduce their anxiety about it in the process!
(Carmel Wroth and Andrea Muraskin | NPR)
The number of potential ways to improve one's health can feel overwhelming, and the scope of many suggestions ("only eat X type of food!", "exercise at least Y hours per day!") can seem nearly impossible to implement. But some research suggests that taking on one or more 'smaller' changes can improve one's health while being relatively painless to implement.
Cardio and strength training are often recommended for improving one's health, but going to the gym can seem like a major chore (and/or be intimidating) for some individuals. Instead, a first step could be to make small lifestyle changes that increase the amount of movement performed during the day (e.g., walking instead of driving short distances or climbing the stairs instead of taking the elevator). And when it comes to nutrition, instead of doing a complete dietary overhaul, making smaller changes (e.g., increasing the amount of fiber and decreasing the amount of ultra-processed foods consumed) can have a significant impact.
In addition to habits that can improve one's physical health, there are many 'small' ways to improve one's mental health as well. These can include engaging in "little acts of joy" (e.g., petting a dog or walking in nature), reducing time spent on social media (particularly when it involves mindless scrolling or engaging in stress-inducing conversations), or finding ways to be creative (e.g., cooking, art, gardening, or even just doodling).
In sum, improving one's physical and mental health does not necessarily require a radical lifestyle change. Rather, adopting relatively smaller, simpler habits that are more likely to be followed could lead to big results over time!
We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in 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 "Wealth Management Today" blog.