Enjoy the current installment of “weekend reading for financial planners” – this week’s issue starts off with two industry studies: the first shows that an advisor’s interpersonal skills and emotional intelligence dominate the traits of what makes the top advisors most successful (as opposed to quality information and advice, which is necessary but not sufficient for maximal success); and the second finds that as overall economic and wealth growth slows in the US, advisors will increasing be forced to compete with other advisors to win clients (or “steal” them), rather than just relying on the newly wealthy for new clientele.
There are several practice management and technology articles this week as well, including a good reminder about why it’s so important to say “no” to the wrong prospects, the rising importance of getting involved with the Google+ social network as a way to grow your advisory business, some best practices tips on Twitter for advisors that are genuinely useful, a fascinating profile of what digital marketing for financial planning may look like in the future (and that a few advisors are already implementing today), and some data on how Millenials do and don’t differ from older clientele and how advisors may (and may not) have to change to deal with their future clients.
We also have a pair of technical articles, including one looking at how the new health insurance rules will work for 2014 – open enrollment begins in October for millions of people! – and another on how the use of bypass and other estate planning trust strategies are changing as estate planning takes on a more income-tax-centric theme for the many clients who simply no longer face any kind of Federal estate tax liability.
Continuing the opening theme of emotional intelligence, we wrap up with three articles looking at the importance emotional intelligence, relationships, and the value we provide: the first is an interview with Doug Lennick, author of Moral Intelligence 2.0 and a consultant to advisors; the second is a meta analysis from the Harvard Business Review of all the research on emotional intelligence and what we can draw upon from it; and the last is a more general article about how just being in the information of dispensing expert information is no longer sufficient in today’s world, and that everyone – including advisors – needs to get out of the business of trying to hoard increasingly commoditized information, and instead deliver real value through non-commodity service, customization, and making complex information relevant. Enjoy the reading!
(Editor’s Note: Want to see what I’m reading through the week that didn’t make the cut? Due to popular request, I’ve started a Tumblr page to highlight a longer list of articles that I scan each week that might be of interest. You can follow the Tumblr page here.)
Weekend reading for June 1st/2nd:
AFA Study Shows EQ Pays – From Professional Planner Magazine in Australia, this article looks at a recent research study of top planners in Australia and found that the best, who are viewed as a “trusted adviser” by their clients, exhibited very high levels of emotional intelligence, in addition to having exemplary technical skills. In fact, when the clients of Australia’s top “Adviser of the Year” candidates were interviewed to determine what traits of the advisors were most important, 82% indicated that interpersonal skills were number one; by contrast, number two was “professional reputation” at only 19%, and “quality information and advice” was third just behind it. The key takeaway for all advisors, though, is not just that more trusted advisors with higher EQ have happier clients who refer more and are less fee sensitive, but that interpersonal skills and emotional intelligence is something that can be learned, trained, and practiced; so in addition to focusing on technical proficiency, think about spending some time and effort on your soft skills, too, as it presents a potential for significant return on your personal investment!
Advisors Must ‘Steal’ Clients To Drive Growth – Projections in the coming years are that wealth in the US and Canada will slow to a moderate 2% annual gain in the coming years, which means advisors will not simply be able to enjoy a greater share of a growing pie, and instead will have to increasingly rely on gaining market share for growth – in simpler terms, it means growth for advisors will increasingly come from not just getting new wealth clients, but taking clients from other wealth management firms. The implications are significant, as it means advisors will not only have to get their business model right, but will have to really deliver services that differentiate themselves – enough not just to show that they’re different, but to persuade clients to make a switch (as echoed previously in this blog). The squeeze on growth is also putting a squeeze on margins, as costs rise for firms trying to step up their offerings to compete.
How To Say No To The Wrong Prospects – From the Financial Planning magazine blogs, Bill Cates provides a good reminder on the importance of saying “no” to prospective clients and referrals who are not actually a good fit for your firm. Early on you might be accepting anyone/everyone you can get as a client, but at some point as the business grows and your time becomes more constrained, if you keep taking clients who don’t fit your model you won’t have time to effective serve the clients who do and find more of them. Unfortunately, the article doesn’t quite live up to its title in specifically explaining exactly how to deliver the “no” to a prospect when the time comes – still an awkward point in time for many advisors – but does emphasize the importance of being crystal clear about who your business does and doesn’t serve (which lets prospective clients self-select out if they recognize they don’t fit). Cates also suggests that it’s a good idea to have another staff member, or an outside colleague, to whom you can refer prospects who aren’t a good fit, so that you can honor the original referral and ensure the prospect gets to a solution with someone. And finally, don’t forget to follow up with the original person who made the referral to you to let them know what the outcome was; you may not want to divulge personal financial information about the person who was referred if they didn’t qualify, but you can explain that the “timing” or “fit” wasn’t right, and recognize that if the referral wasn’t a fit in the first place that you may still need to better educate your current referrers about what type of client you are looking for.
Establishing Authority With Google Through Google+ – From the Wired Advisor blog, this article provides a great explanation of the new(er) social network Google+, and why it matters. The basic idea is that Google is trying to get more sophisticated in its search engine process by placing searches in context – your search results might be shaped not just by your search term itself, but your geographic location, your search history, and your social media networks and activities… which means that as an advisor, if you’re connected with clients and prospects in a particular geographic area, it increases the likelihood that their friends and family will get you in their Google searches! Accordingly, that means it’s necessary to establish a social media presence on Google+, which is the social network of Google and the platform Google primarily uses to provide those social-context-relevant search results, by sharing quality content that will get people to engage (showing Google that you are relevant to them, and therefore that you should be relevant to search results). In addition, Google is establishing a system called “Author Rank” which will try to rank online content not just by the content itself, but also by the author; connecting the articles you write to your Google+ profile allows Google to promote the content through a combination of the quality of the content and the quality of the author (as previously discussed on this blog, eventually that helps to ensure that prospective clients searching for information will find you as the answer!). The article wraps up with a three-step guide on how to set up your Google+ account and Google Author profile to connect what you’re writing (and have written) back to you.
Using Twitter To Promote Practice, Win Clients – While there are many write-ups of advisors using Twitter, this one has some particularly good real-world tips from those who are using Twitter successfully. For instance, don’t view Twitter as just a bullhorn for promoting yourself and your content (though it is important to ultimately demonstrate your expertise and get those who are interested over to your blog or website to connect further with you); share what others are doing too (for instance, follow some financial journalists and share what they’re writing and tweeting), and share a bit of personal stuff as well, to help humanize yourself in an otherwise digital environment. And don’t just follow back everyone who follows you, or your Twitter feed will become too “noisy” to read and follow; instead, follow who you want to follow that provides value to you. Another tip is to make sure that you share more than just a link itself; say more, to give the link context, or occasionally to simply provide value without requiring someone to click on a link. Ask questions to get interaction, responses, and engagement, and be ready to respond to those who do reply, even if they push back a little (unless they’re really “trolls” that are just insulting, then ignore them). Consider using an automated scheduling system like HootSuite to prepopulate some tweets to ensure ongoing engagement (but not all of them or you lose the human touch!), and if you find the pace overwhelming consider planning out an editorial calendar of topics you plan to cover. And on a final note, both humorous and (professionally) serious – don’t tweet when you’re overly tired or emotional, and definitely be careful about drinking and tweeting!
To Think … Like A Digital CFP (this article is no longer available) – At Online Advisor Central, this article looks at how financial planning is evolving in the digital marketing context, drawing parallels between Dick Wagner’s seminal paper “To Think.. Like A CFP” from 1990 that showed how financial planners could ultimately become professionals, to the shift today in how financial planners can become digital professionals. The most interesting part of the article, though, is a detailed walk-through of how a digital financial planning practitioner (labeled “Neo Advisor” after the choice made by Neo in the movie The Matrix to face the true reality) would grow a business. It starts with picking a particular niche (Neo Advisor chooses orthodontists), then trying to find orthodontists to connect to through LinkedIn and Neo’s local network as his sister is an orthodontist, then joining some LinkedIn groups for orthodontists, establishing a blog with articles of interest for orthodontists, connecting with orthodontists on Google+ and starting a series of Google+ hangouts for them using a $100 flip video camera. As Neo Advisor’s presence grows, he engages with his audience directly, charging them financial planning fees as a premium feature of his content offering and collecting payment directly through an e-commerce platform. Notably, while the discussion is presented as a “theoretical” framework, it’s actually being implemented by early digital CFP adopters already.
Will High Net Worth Millennials Change The World Of Financial Advisors? – This article from Millionaire Corner looks at how Generation Y Millenials have different expectations of advisors than prior generations, particularly regarding communication. While being responsive to clients has always been critical, Millenials accustomed to near-instantaneous communication through text messages and social media may put new pressures on their advisors. In addition, Millenials expect a wider range of communication, more efficient to them than just doing quarterly face-to-face in-person meetings. Another challenge is that Millenials are far more accustomed to being a part of the research and learning process, and can easily whip out a smartphone to look up something and fact-check their advisor (but may still need an advisor to help distill those facts into meaning). On the other hand, the research also suggests that Millenials may be more conservative investors than even their Gen X predecessors (despite their young age), and the percentage of Millenial millionaires who don’t use an advisor isn’t all that much different than millionaires of the World War II generation (about 25% vs 18%, respectively). The bottom line to all of this is that notwithstanding some significant differences, these may ultimately just be refinements on the existing model; after all, clients have always expected advisors to be responsive, to build relationships, and to provide both information and the wisdom to apply it, and that doesn’t appear to be changing anytime soon, though using videos, blogs, and texting may spice it up a bit.
Five Quick And Important Facts On Health Insurance Through Obamacare – Although the new health insurance rules under the Affordable Care Act take effect in 2014 – barely more than 6 months away – there is still a lot of confusion about how it will all work. The reality is that health insurance will still be purchased the way it is now – through large employers, small employers, as individual coverage, or through public programs (e.g., Medicare/Medicaid). The big differences are that large employers must offer coverage or pay a fine (though many will likely choose the latter because it’s actually cheaper), and that if clients can’t get coverage through an employer they must be able to get it through a health insurance exchange. The exchanges will offer standardized policies (easy to compare) with premiums that adjust based on four (and only four) factors: age, rating area (think geographic cost-of-living adjustment), number of people in the family, and tobacco use. Notably, nothing about health status is part of the new rules, and the exchanges will not be able to adjust premiums, limit coverage, or exclude pre-existing conditions in 2014 and beyond. Of course, while the new rules ensure access to health insurance coverage, it still has a cost, which may not be trivial, but is a lot cheaper than paying for a serious sickness or injury, and there will be premium assistance for the nearly 67% of the population that makes less than 400% of the poverty level (and Medicaid will be available for those earning less than 138% of the poverty level). Premiums for individual coverage when it becomes available on the exchanges will change in a lot of states when the new rules kick in, though states that already have an active and well-regulated individual insurance market may not see a lot of increases. The health insurance exchanges will open for individual coverage on October 1.
New Take On Trust Strategy – This article from Martin Shenkman on Financial Planning looks at how strategies around bypass trusts are shifting in today’s tax environment. For instance, historically the highest return investments went in the bypass trust – to allow the growth to escape future estate taxation – but with the introduction of higher income tax rates and the new 3.8% Medicare surtax, now an argument can be made to put bonds in the bypass trust and keep equities in the name of the surviving spouse, where it’s easier to avoid the high tax rates and the investments will get a step-up in basis at the surviving spouse’s death. On the other hand, at some point rates will rise, which risks significant losses for a trust, which might also fail a prudent investor test if it was too concentrated in any one asset class (even bonds), so at a minimum consider owning other income-producing alternatives in the trust as well if the goal is still to hold equities in the surviving spouse’s name to get the step-up in basis. A similar asset location issue arises in the context of IRAs, and in some cases estate planners are even reconsidering whether it’s necessary or appropriate to still use grantor trusts in certain circumstances. Perhaps the most important concern to bear in mind for all of these scenarios, though, is that when the beneficiaries differ between the IRA, trust(s), and surviving spouse, that differences in how assets are invested for income tax and asset location purposes can materially – and sometimes adversely – impact the differing beneficiaries, so be cautious not to get into trouble as an advisor or trustee by letting the tax tail wag the investment/economic dog!
Doug Lennick on Moral Intelligence And The Value Of Behavioral Advice – This Journal of Financial Planning article is a 10 Questions interview with Doug Lennick, author of Moral Intelligence 2.0 and founder of Think2Perform, a firm that consults with financial planners (and other industries) on how to improve emotional and moral intelligence to better handle irrational clients and implement behavioral finance research. Lennick starts out by noting that our brains are hard wired to avoid danger and find opportunities, and we trigger that wiring by emotions; as a result, emotions drive behaviors, and as our brains hard-wire those responses, habits become permanent. Fortunately, we can re-wire our brains – a phenomenon called neuroplasticity – but it’s really hard to break those pathways and form new ones; self-awareness in the moment (something we can help our clients to do) is a key first step, and helping to ensure that clients don’t make hasty decisions without using all their cognitive capabilities. Ultimately, Lennick suggests these skills are all part of our “moral intelligence” which is our “mental capacity to determine how to apply universal moral principles to [our] own values, [our] own actions, and [our] own goals.” The key principles are integrity, responsibility, compassion, and forgiveness. Lennick’s research finds that integrity, by far, is the key moral principle for advisor success, not just by acting in the interests of clients, but even being willing to stand up for what’s right and being willing to lose a client rather than let the client do foolish things. If you’re wondering how your own moral intelligence stacks up, Lennick has an online assessment at Moral Compass, or you can check out the book, and Lennick emphasizes that ultimately these moral and emotional intelligence factors can be improved, through a “four R’s” process of Recognizing, Reflecting, Reframing, and Responding.
Can You Really Improve Your Emotional Intelligence? – From the Harvard Business Review blog, this article takes an overview of all the research that’s come out about emotional intelligence and having a high Emotional Quotient (EQ), and whether/how much you can really change it. After all, how often is someone told to “keep your temper under control” or “be a better listener” or “show more empathy” yet nothing really changes? The good news from the research is that it does appear that EQ can change, but realistically it will be a path for long-term improvement requiring a long of dedication and guidance; EQ may not be entirely rigid, but it is pretty firm, thanks to a combination of early childhood experiences and genetics. Fortunately, coaching does help, especially to address interpersonal skills, and even empathy can be trained in adults, but a process of getting accurate feedback is crucial, as most of us are generally unaware of how others see us. On the other hand, the reality is that not all coaches are equally competent, and the research suggests that some of us are just more coachable than others, though the surprising reality is that those most sensitive to criticism and failure may actually be the most likely to improve (as these characteristics lead to lower EQ but also more willingness to change). Notably, the research also shows that EQ tends to increase with age – so the good news is that for many, the ongoing lessons of life itself at least provide some small improvements over time; in addition, the EQ research shows that the improvements that come from higher EQ are not just about professional/workplace success, but tends to lead to overall higher levels of happiness, better health, and improved relationships! (Hat tip to Charles Green of Trusted Advisor for suggesting this article!)
Hoarding Information – From the blog of marketing guru Seth Godin, this article provides the simple but crucial reminder that if your business relies on hoarding information and getting paid to dole it out to people who don’t know – but could find out if they wanted to – then your business is in serious trouble. Just ask a travel agent trying to get paid for travel information, or a real estate broker that no longer gets to deliver value by providing information on real estate listings that are now online and free. Information wants to flow and be available, and if your business relies on that alone as its key differentiator, at some point a competitor will come up with a better, more direct, faster, and cheaper way of delivering that information, and make you irrelevant. That doesn’t necessarily mean knowledge-based professionals are doomed, though. It simply leads to the obvious – albeit difficult – alternative path, which is to provide enough non-commodity service and customization that it doesn’t matter if the underlying ideas spread. In fact, in that context, having your ideas and information spread will actually make you even more successful, not less!
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!