Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a hard look at the current state of advisor technology surveys, and the challenging question of which survey(s) advisors can and should even trust as an indicator of industry trends (and which are not sampling enough advisors or in a consistent enough manner to really know).
Also in the advisor technology news this week is a look at how wealth management firms at large held up with their digital tools in the midst of the coronavirus pandemic (finding that most firms are lagging badly, but that in general, independent wealth management firms and the platforms they use actually fared better than most), and a reminder that the coming new CFP Board Standards of Conduct will require them to actually understand the details of their financial planning (and other) software and cannot rely on ‘black box’ solutions when crafting recommendations to clients anymore.
From there, we have a number of articles around succession planning, including a recent industry study showing the majority of mid-to-large-sized advisory firms still aren’t confident they’ll be able to transition the firm to the next generation without at least a lot of bumps along the way, a look at how ‘sick’ many succession plans became through the midst of the pandemic turmoil (from next-generation owners who can no longer afford to make payments on their equity purchases, to both buyers and sellers getting cold feet to do the deal), and some tips for both founders and next-generation advisors on how to start the succession planning conversation (particularly if they’re concerned the ‘other side’ isn’t picking up the conversation themselves).
We also have a few marketing-related articles, from tips on how to handle ‘Negotiator’ clients and develop the confidence to avoid yielding to those asking for fee discounts, advice to new advisors about where to focus first on marketing (hint: local marketing, local SEO, and LinkedIn), and a reminder that, in the end, clients don’t hire an advisor for what the advisor does but for what the advisor can do to help clients become who they want to become (which means marketing should be all about the transformations that advisors can create for their clients to achieve that vision for themselves!).
We wrap up with three interesting articles, all around the theme of office culture and team-building in the virtual world: the first explores the dynamics of whether business cultures can survive if they ‘stay’ virtual and don’t go back to being in-person as offices reopen; the second looks at the value of playing games during work hours as a way to build team connections and culture (especially during the remote pandemic environment); and the last explores how to build a strong Virtual Culture (from the authors of the book by that very name!) for those who are thinking that they do want to remain more virtual, but are trying to figure out in practice how to do so while sustaining a strong culture.
Enjoy the ‘light’ reading!
Did Financial Planning Magazine Get The Story Right On Advisor Tech Trends? (Joel Bruckenstein, T3 Technology Hub) – A few weeks ago, Financial Planning magazine released its popular annual Advisor Tech survey, with the somewhat surprising headline “Advisors losing faith in planning software“, driven by a significant uptick in the percentage of advisors who say they aren’t even using commercial financial planning software (from 4% in 2019 to 20% who “don’t use” in the latest survey). Yet as noted in last week’s Weekend Reading, it’s hard to put faith into FP magazine’s Tech Survey, with a sample size of just 225 (down from 350 in 2019), and what appears to be a significant uptick in advisors in banks and credit unions (already recognized to be the least frequent adopters of financial planning software simply due to the lag in the bank channel to shift from products to advice), along with a rise in “Other” advisors. In fact, based on Financial Planning magazine’s own reported demographics, the survey evaluated only 29 independent RIAs in total, and only 44% of the advisors surveyed are even at independent firms (RIA, broker-dealer, or hybrid) who would have the ability TO choose whether or not to use financial planning software in the first place (the rest being in wirehouses, banks, credit unions, regional broker-dealers, and other employee or home-office-controlled models, not to mention a 15% “other” category that literally may not even include financial advisors but was included as part of the results for those who “don’t use” planning software). Which suggests that the “trends” that Financial Planning magazine identified are more likely a function of its own changes in sampling methodology than a reflection of the changing preferences of financial advisors (per the headline “advisors losing faith in financial planning software”, and the survey’s nonsensical result that MoneyGuidePro’s market share fell from 65% to only 7% the year that Envestnet bought it for half a billion dollars, which, if actually true, would be a multi-hundred-million-dollar writedown for Envestnet!?). And now, the original progenitor of the Financial Planning magazine software survey – Joel Bruckenstein, who since split away to run his own T3 Advisor Technology survey in part because of the “editorial differences” in how the FP magazine survey was being conducted – has similarly come out against the Financial Planning magazine survey, going so far as to suggest it is a “disservice to the profession” to suggest that interest in financial planning is waning when every other industry study says it is on the rise and Financial Planning’s own survey sampling methodology was so questionable (in addition to simply being too small of a sample size to reasonably be able to slice and dice the results), and in fact contradicts the software companies’ own publicly reported data (that users and adoption are up in the past year), and what has been a clear buying frenzy of financial planning software as major strategic players all see growth in financial planning (with eMoney, MoneyGuidePro, FinanceLogix, and Advizr all acquired in the past 5 years). On the other hand, it’s notable that Bruckenstein’s T3 Tech Survey has also faced its own criticism in sampling methodology, leading to similarly ‘bizarre’ trends like the 2019 study showing Redtail’s market share at 57%, up from just 19% in 2018 (and while few would dispute that Redtail is growing, there’s no supporting evidence elsewhere to suggest such an avalanche of market share growth in just 12 months from a CRM system that’s been around for nearly 20 years). Still, though, overall T3’s Advisor Tech survey samples far deeper – literally thousands in the latest 2020 study, compared to just 225 from Financial Planning magazine – which should provide a better overall perspective on the industry, and provides far more robustness in key supporting areas like advisor reviews of their software (which showed a slight increase in advisor satisfaction in their advisor software in 2020, not a decline. The key point, though, is simply that – as with any kind of data and research – scrutiny of the underlying process of how data was collected is crucial, and advisors (and the editors who publish such research) should be wary not to overstate conclusions that are a reflection of their own (potentially problematic) survey processes with advisors more so than the actual trends of advisors themselves.
Pandemic Shutdown Highlights How Terrible Wealth Management Apps Are? (Samuel Steinberger, Wealth Management) – The disruption of the coronavirus pandemic abruptly forced financial advisors to work from home, and for wealth management firms to interact more ‘digitally’ with their clients than ever before. And now, a new report from Morgan Stanley and Oliver Wyman is out, evaluating the state of wealth management after COVID-19… finding, perhaps not surprisingly, that a lot of large (i.e., national) wealth management firms struggled to keep up with an estimated 7X to 10X increase in digital engagement from clients, including a 3X increase in client-facing webinars and 2X increase in client meetings via video. The problem appears to be compounded by the fact that not only did wealth management lag in the adoption of digital tools and the fast digital pivot, but that it underperformed relative to other industries that are more tech-enabled, further highlighting the extent of the wealth management tech gap in particular (and how ‘digital-first’ or pure-digital players like Robinhood, Wealthfront, and Betterment were able to stand out more than ever). Notably, though, from the advisor perspective, the discount brokers/RIA custodians (e.g., Fidelity, Schwab, Ameritrade) actually scored better than most other financial services firms… suggesting that as frustrated as many independent advisors are with the state of their technology, it’s actually better than a lot of the large direct-to-consumer traditional firms (e.g., large banks and trust companies). And in the end, the research still showed that a whopping 85% of HNW investors value the ability to talk to a human financial advisor… albeit with an increasingly ‘omni-channel’ range of touchpoints to connect with that human advisor, including videoconferencing, phone, live chat, email, and more.
Tech Ignorance May Hurt Under New CFP Board Tech Standards (Samuel Steinberger, Wealth Management) – At the end of June, the CFP Board will begin to enforce its new Standards of Conduct, which, for the first time ever, explicitly includes “Duties When Selecting, Using, and Recommending Technology” to clients, putting an onus on CFP professionals to actually understand how their software works. Specifically, the new rules require that the CFP professional must “have a reasonable level of understanding of the assumptions and outcomes of the technology employed” and “have a reasonable basis for believing that the technology produces reliable, objective, and appropriate outcomes.” Notably, though, it’s not entirely clear whether or how the CFP Board will assess ‘technology competency’ – and hasn’t provided any indication of implementing new assessment tools or an exam on the topic. Instead, to the extent a complaint is filed against a CFP professional – that relates to inappropriate recommendations as a result of advisor software tools – it won’t be sufficient for the advisor to simply claim “well, I recommended what the software showed” without also being able to demonstrate an understanding of how and why the software arrived at that conclusion. And in fact, some advisor software tools like eMoney are exploring whether they may issue certificates that show an advisor is trained and competent in their software, as a way for CFP professionals to validate that they do in fact know and understand their software. In the meantime, the CFP Board also hasn’t indicated what the potential consequences or penalties would be for an advisor who fails to meet the new technology standard (which in theory could range from Private Censure to a Public Letter of Admonition, CFP suspension, or total revocation of the marks), but is expected to update their CFP Sanction Guidelines later this year. The key point, though, is simply that it will no longer be permissible for CFP professionals to rely on their financial planning software as a ‘black box’ solution; instead, CFP professionals must understand the underlying assumptions and calculations of their planning software, in order to rely on it with clients.
Study Suggests Most Next-Generation Advisors At RIAs Not Ready To Lead? (Michael Fischer, ThinkAdvisor) – Earlier this week, advisor consulting firm and investment banker DeVoe & Company released the results of a survey study on next-generation leadership in RIAs (from $100M to $5B in AUM), and found that 57% of firms believed the transition to their next-generation leadership would be “bumpy or worse”, with a few more outright acknowledging there was no qualified candidate within their firm to take the reins in the future, with the outlook even bleaker for ‘mid-sized firms’ (with $750M to $1B of AUM) where a whopping 87% reported that passing the baton to the next generation would face significant challenges. DeVoe suggests that the biggest gap is in programs to develop and manage the performance of advisory firm teams (and especially key future leaders within the firm), as 65% of RIAs surveyed indicated they conduct performance reviews only once a year or even less frequently (impliedly not enough to develop next-generation leaders in a rapidly changing environment). Other human capital gaps highlighted in the survey included: 54% of firms said they did not have a clear methodical incentive compensation plan; 49% have not mapped out career paths for advisors and other employees (and 8% acknowledge there is essentially zero communication on the topic within their firm); though 86% of RIAs did note that coaching was valuable for their firms and employees as a means of talent development.
Saving Sick Succession Plans (Philip Palaveev, Financial Advisor) – The financial advisor industry has long struggled with succession planning, with a combination of firms that try to develop internal succession plans, others that enter into “friendly neighbor” exchange agreements (“I’ll buy your firm if something happens to you, you buy mine if something happens to me”), some that partner with a larger firm as a ‘backstop’ to acquire their firm if something happens… and many that simply have no plan in place at all. Unfortunately, though, the coronavirus pandemic has now wreaked havoc on a wide range of succession planning solutions. For instance, firms that had begun the process of financing tranches of the business for sale to next-generation advisors are now struggling with the fact that the downturn in revenue and profits from the market decline may mean the next generation advisors can no longer afford to make payments on their installment notes (or may only be able to do so at a level of personal sacrifice that just isn’t worthwhile to them when they’re still only small minority owners in the business), forcing firms to either refinance the loan (to a longer term, thereby reducing the size of payments), or trimming advisor/partner compensation to bolster the profit distributions (which obviously has its own intra-firm political ramifications). On the other hand, firms that had already been delaying succession may now find their succession plans delayed even further (i.e., if next-generation buyers don’t want to buy now in the current environment and wait a few years, the entire multi-year transition process is pushed back several years), and some successors may walk away altogether (scared off by the risk of seeing first-hand for the first time what market volatility does to the advisory firm’s profitability). Of course, in some cases, it’s founders who decide they don’t want to sell (at depressed valuations while revenue is down). And Palaveev notes that even some seemingly ‘done’ deals have been undone by the pandemic volatility. The key point, though, is simply to recognize that real-world market volatility has created some real volatility in succession plans… and it may take longer to soothe the nerves of sellers and next-generation buyers than just waiting for the market itself to recover.
Starting the Succession Conversation (David Grau Jr, Advisor Perspectives) – One of the hardest parts of having the “succession planning conversation” in advisory firms is that they often never occur in the first place, a stalemate that emerges when founders wait for their next-generation advisors to show interest in the conversation, while next-generation advisors wait for the founder to put the equity conversation on the table (and may eventually leave out of frustration if that conversation never comes). Grau suggests that in the end, the most important issue is to have the conversation – not who initiates it – and accordingly, provides tips for either/both sides to get the discussion going. From the ‘Gen 1’ perspective (the founder), the key is to recognize that the best successors aren’t hired, they’re built by investing time into developing next-generation advisors into being the future leadership of the firm, beginning with the development of an organizational structure, job descriptions, and a career path on how to advance through the levels of the firm (including where and how equity may become part of the picture if the goals are achieved, thereby making equity something that ‘Gen 2’ can choose to step up to and pursue, knowing that there will be a reward at the end worth pursuing). From the ‘Gen 2’ (next generation) perspective, if the equity conversation isn’t coming up, Grau urges that it should be brought to the table – not by just dropping hints and clues, but by having an outright conversation… albeit one delivered in a non-confrontational way that states the Gen 2 advisor’s goals/hopes along with their desire to understand Gen 1’s goals and to figure out if buying in is something they would consider in the future… and then giving them some time to process and figure out if they really do. Notably, Grau also points out that because – almost by definition – founders have never been through the succession experience already, Gen 2 advisors who want to advance the conversation may want to do their own research and bring ideas to the table of how it might be done, to help paint the picture for their founders of the path they’d like to pursue. The key point, though, is to recognize that from either side, succession planning is not an event, but a process – for Gen 1 to develop Gen 2 advisors to lead, and for Gen 2 advisors to get Gen 1 comfortable with transitioning a piece (or someday, all) of the firm’s equity.
Want To Avoid A Fee Face-Off? Here’s How… (Brett Davidson, FP Advance) – Virtually all financial advisors have, at some point, sat across from a “negotiator” client, who tries to haggle down the advisor’s stated fee. Yet despite the somewhat common occurrence of the Negotiator, few fee-for-service advisors in practice are comfortable handling fee hagglers. Davidson suggests, though, that the real key to handling fee hagglers is not dealing with the fee haggler themselves, but that fee haggling is a reflection of the advisor’s confidence in their own value instead; in other words, when advisors get 100% clear and confident in their own value, Negotiators stop appearing (or at least if they do appear and ‘try’ to get started, they get shut down quickly because the conversation is ‘easy’ when the advisor is confident in their value!). More generally, Davidson suggests that the key to handling Negotiators is not to try to validate the fee by the burdens the advisor faces (e.g., “my fees help to cover the cost of my services, and also manage the legal risk I have in providing you advice”), by talking more about the value the advisor actually provides and what that can be worth to the client (from time savings to helping them focus on their goals, providing an expert second opinion and removing the emotional pain or fear about a financial decision, etc.), or by trying to ask ‘better’ questions that help clients delve deeper themselves (e.g., helping them see they don’t have an investment or retirement problem, they have a ‘how much is enough’ problem!). Notably, Davidson suggests that there is a time and place for fee discounting, but it’s more about the size and volume (e.g., a discount on the fee schedule for clients with large assets, expressed in a graduated fee schedule by assets), or a temporary discount upfront that may be easier to revert to ‘normal’ fees in another year or few (when you’ve further built your own confidence, and/or simply have more skills to bring to the table with more years of experience by then).
Josh Brown’s Advice To New Advisors: Start Locally, Pick LinkedIn Over Twitter (Jeff Berman, ThinkAdvisor) – Financial advice is an incredibly crowded marketplace, with a growing number of independent national firms and even more mega-financial-services firms with a national reach… which means in practice, it’s incredibly hard for an advisor to distinguish themselves in a world of blogging and social media to attract (and compete for) a national clientele. Instead, even famed blogger and Twitter pioneer Josh Brown suggests that most advisory firms instead should start local – which means even if they’re blogging, focus on content relevant to the local marketplace (what are the good restaurants and golf courses in town relevant to the types of clientele you work with), not broad-based content. Or stated more simply, “become a star in your own pond first” (and decide later if you want to pivot to go national after you get initial success locally). Still, though, it’s crucial to understand that most consumers don’t pick (or switch to) a new advisor until something happens in their lives that is a catalyst event… which means ongoing marketing is crucial, to ensure that you’re somewhere top of mind if/when that event comes and they realize they do need a financial advisor. Other suggestions include that Search Engine Optimization is increasingly relevant for financial advisors (including and especially for local SEO), and that while Twitter may be good for conversations, LinkedIn is better for finding clients (due to the more professional context of the platform).
Talk About Who Your Client Wants To Be (Steve Wershing, Client Driven Practice) – One of the primary motivators for us to ‘work’ on something is simply a vision of what we can become by doing so; we exercise to become more physically fit, we start a business to become more financially successful, we save so that we can enjoy the retirement we envision in our heads. In turn, if we’re not happy with the status quo and our progression towards those visions, we make a change… and may seek out someone who can help us achieve that vision. Accordingly, then, Wershing points out that in practice, clients will seek out an advisor not because of what the advisor provides or does, but because of what the advisor enables the client to be or do or achieve… whether that’s to be more successful, more satisfied, less anxious, more financially confident, or something else. Or as Wershing puts it, prospects “don’t necessarily want a new advisor because of the advisor. They want a new advisor because of who they will be once they start working with the advisor who can get them there.” Which means the key to successful marketing is not about discussing the advisor’s capabilities and expertise, but better understanding who your ideal client wants to be, and painting a picture of what a successful client outcome looks like for a prospect who may be considering your services. At the least, showing them how you can help them be who they want to be will make them more drawn to you; at best, you might even help them discover something new about what they want to become and think they can achieve… and then have the opportunity to help them get there.
The Office Is Far Away… Can Its Culture Survive? (Chip Cutter, Wall Street Journal) – As businesses far and wide have been forced to operate for several months in a virtual remote work environment, more and more have been trying to come up with ways to keep employees engaged and their culture strong (from an online plank-holding contest, to walk-and-talk meetings held outdoors, and even a company-wide game show). As while in practice, the pandemic has revealed that most employees can be productive when working remotely – and many even become more productive – it’s easier to sustain a productive work environment with a team that was originally in-person than to try to create team cohesiveness as more and more employees lose their office ties (or are hired into a role where they start as virtual from day 1). From a practical perspective, most companies are relying more heavily on tools like Zoom to support team meetings, but are augmenting with increasingly frequent virtual communication as well (e.g., more frequent all-company meetings, or video messages from the leadership on a monthly or even weekly basis to keep everyone focused and feeling connected to the company’s bigger goals), and finding more ways to bring the team together (e.g., 2-3 virtual water cooler check-ins every week for 15 minutes where anyone on the team can show up to chat with the CEO). Still, though, some recent surveys are showing that employees are feeling less connected to their organizations as remote workers, particularly those who were only hired after the remote shift. Of particular concern is how to support business innovation – those ideas that often spark from employees’ ‘random’ meetings and connections in the workplace, that lead to conversations that lead to ideas that lead to new opportunities. Which means, at a minimum, that even increasingly virtual companies may still try to periodically come together in person from time to time… at least once it’s permissible to do so again!
3 Reasons Your Remote Employees Should Be Playing Games (Neal Taparia, Entrepreneur) – The conventional view of work is that it is for… work, and that games and other leisure activities are what we do after work is done (and typically, not in the workplace). Yet a growing base of research finds that playing games is actually quite relevant in the workplace. For instance, games can provide an important mental break that helps to relieve stress – something that most people are facing a great deal of in the midst of the coronavirus pandemic, from work and income worries to health and family concerns. In addition, it turns out that playing games also helps with productivity at work, as work brings cognitive fatigue and a little game time can be remarkably refreshing (for instance, 5-10 minutes at the end of a scheduled meeting just to de-stress a little!?). And ultimately, games also help us connect and socialize, which is arguably more important than ever in the current environment where employees work remotely and may otherwise feel less connected to each other. And notably, it doesn’t even necessarily matter what the game is, but simply that the team comes together for a game, whether it’s a typing competition like TypeRacer to win the crown of “who types fastest in the company”, or a site like GameRules that can help people figure out what the ‘best’ game is to play based on their own style and preferences.
How To Create An Award-Winning Culture Without A Physical Office [Podcast] (Brad Johnson, Elite Advisor Blueprint) – One of the biggest challenges many advisory firms have faced in the pandemic and its sudden transition to remote work is how to maintain their team connectivity and culture in a world where the team is no longer together in person. Yet as Bryan and Shannon Miles have found in building Belay Solutions (which itself provides virtual assistant solutions and won Entrepreneur magazine’s award for “Top Company Culture” in 2017 despite operating virtually), it is that there’s really nothing about “culture” that requires everyone to be in-person to build and sustain it. Instead, as the Miles’ discuss in this podcast with Brad Johnson (and based on their book “Virtual Culture: The Way We Work Doesn’t Work Anymore“), culture is about the behaviors that the firm engages in regardless of whether it’s virtual or in person, and the key to maintaining culture in a virtual environment is about getting clear on what everyone is really accountable for in the first place. In other words, it’s impossible to build a strong virtual culture of accountability if everyone’s role is not crystal clear in the first place… and that struggling virtual cultures are more likely a function of not being clear in who’s accountable for what, rather than in being virtual itself. Along the way, the Miles’ discuss tips and best practices in building a strong virtual culture, including why they always require video to be on and that no one can mute themselves during virtual meetings, how they communicate and maintain the culture in their office, and the way they maintain team cohesiveness in a virtual environment.
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you’re interested in more news and information regarding advisor technology, I’d highly recommend checking out Bill Winterberg’s “FPPad” blog on technology for advisors as well.