Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with the news of the Federal Reserve’s long-anticipated interest rate hike – the first of what will likely be a series of increases to combat the current spike of inflation – and a look at the wide-ranging effects it may have for consumers and investors, including volatile markets and higher debt costs (in addition to the already-existing effects of inflation).
Also in industry news this week:
- FINRA has issued a regulatory notice on the ability of retail investors to trade options and other “complex products” on brokerage platforms, which stops short of proposing new regulations but suggests that broker-dealers may need to do more to affirm the suitability of options trading for their retail customers
- A new report from Cerulli suggests that firms should focus on a target niche (or more generally, the advisor’s “ideal” clients) to increase their efficiency (a finding that echoes previous Kitces research as well)
From there, we have several articles on ways advisors can help clients maximize their cash flow:
- Why it is important for clients who are planning to leave their job to create a strategy to maximize the financial benefits from their employer before they go
- How advisors can support clients in appealing a college’s financial aid offer
- Why now is an opportune time to use airline miles and hotel points, and how advisors can support clients in earning and using travel rewards
We also have a number of articles on marketing:
- How advisory firms can make the best first impression with their websites using a few best practices (like making it clear who the firm serves, what makes it different, and what visitors are expected to do next in the first five seconds of viewing the site)
- How firms with limited resources to put towards their website can focus on their most-visited pages to maximize the return on their investment
- How advisors (even those with limited web design knowledge) can improve the search engine optimization of their website content to draw in more visitors
We wrap up with three final articles, all about productivity systems:
- How using a ‘productivity funnel’ can help advisors organize and execute on, but first and foremost select, the right projects
- Why advisors might consider different productivity systems for projects with a set deliverable and timeline, versus those that are more intangible in timeline but still ‘need’ to be done
- A look at a number of popular productivity systems that can help solve a range of challenges, from Getting Things Done to Zen To Done and more, supporting everything from tackling projects that require a consistent effort to organizing the firehose of information that advisors face each day
Enjoy the ‘light’ reading!
(Claire Ballentine & Charlie Wells | Financial Advisor)
On Wednesday, the Federal Reserve approved the first of a long-anticipated series of interest rate hikes designed to cool off what it perceives as an overheated economy and combat the spike in inflation, which has reached its highest level in 40 years. Most analysts and investors have expected a rate hike for several months, and so the big question now is how high the Fed will ultimately raise the rate to, and whether they will do so gradually or take a more aggressive approach.
Either way, the rate hikes will have repercussions for investors, including financial advisors and their clients. Most directly, interest rate increases generally lead to a decrease in bond prices, as existing bonds need to be sold at lower prices to match higher yields of new bonds. The impact on stocks is less predictable: In recent history, rate hiking cycles have corresponded with higher stock prices (because the Fed generally raises rates in the face of an already-strong economy that is growing earnings and thus stock prices); however, stocks could also see more volatility if the rate hikes go high enough to push the economy into a recession (or the Fed decides it ‘needs’ to push the economy into recession to stop inflation). And for cryptoassets – whose entire histories have occurred in the post-2008 low-rate environment – it is even harder to predict what impact rising rates will have on prices… though the recent large declines in value experienced by cryptocurrencies like Bitcoin and Ethereum might have investors looking for safer places to store their money.
Other areas where consumers might be affected by rising interest rates are in the yields on their savings accounts (where even “high-yield” accounts have only earned around 0.5% annually since 2020) and on mortgage rates, which have tracked sharply higher in recent months to around 4%.
Whatever the ultimate outcome of the Fed’s rate hikes, what seems most likely is that in the next few months consumers and investors will be dealing both with the lingering effects of inflation (especially in the form of higher gas and energy prices in the wake of Russia’s invasion of Ukraine), and the consequences of rising interest rates (with potentially volatile markets and higher costs for debt and housing). All of which could keep advisors busy preparing clients for the potential impact on their portfolios and balance sheets as volatility rises, and being responsive to clients whose nerves are rattled by the volatility, while keeping them focused on their long-term goals as they navigate the uncertain waters ahead.
(Mark Schoeff | InvestmentNews)
Traditionally, the use of derivative investments like options contracts was mostly limited to financial professionals, with retail investors much more likely to use more traditional investments like stocks, mutual funds, and ETFs. In recent years, however, options have gained popularity with retail investors, fueled by investors sharing strategies (and comparing results) on forums like Reddit, and much of the “meme stock” phenomenon of 2021 was driven by retail investors buying call options to leverage their stakes in stocks like GameStop and AMC.
The retail use of options does not sit well with financial industry regulators, who have expressed concern about non-experts investing in complex and potentially risky instruments (and criticized and have levied fines against retail brokerage platforms like Robinhood because they enabled investors to too-easily trade options like a game). Because, even though such products are technically available to all investors – professional and retail alike – the regulations governing options were created before technology made them easily accessible to anyone who wanted to trade them, perhaps with the assumption that investors who traded options were likely to do so via a professional intermediary.
In the latest sign that more regulation might be forthcoming to redefine what are considered “suitable” investments for retail brokerage clients, FINRA has released a regulatory notice and request for comment regarding “sales practice obligations for complex products and options” (the notice also encompasses other “complex” investments like inverse exchange-traded products, structured products, and non-traded REITs). While stopping short of proposing new regulations, the notice notes FINRA’s concerns with allowing complex products to be traded by investors who may not fully understand them.
Notably, FINRA already does impose rules on broker-dealers who offer options trading to retail clients, requiring brokerages to perform due diligence on clients to determine if it is appropriate to approve them to trade options. What the notice seems to suggest is enhancing those regulations, requiring broker-dealers to have a live conversation with options customers, restricting targeted communications like push notifications that may ‘gamify’ options and overly encourage investors to trade, and/or periodically reassessing each customer to ensure options trading is still appropriate. All of which could significantly reduce the appeal for retail brokerage firms to offer options trading, and potentially lead many broker-dealers to quit offering options trading to retail clients altogether.
The comment period will last until May 9, and will likely attract significant pushback from broker-dealers (where, despite having largely eliminated trading fees for traditional investments, commissions on options trading has helped firms achieve record trading revenues).
(Karen DeMasters | Financial Advisor)
Efficiency has perhaps never been more important to financial advisory firms than it is today. As technology has allowed advisors to automate much of portfolio management and other back-office tasks, many firms have focused on creating deeper client relationships and ever-more specialized advice to continue providing value commensurate with the fees paid by clients. But along with the increasing depth of advice comes a higher amount of time that it takes to serve each client, causing advisors to reach their maximum capacity with a smaller number of clients, and potentially capping their revenue potential.
All of which means that finding ways to become more efficient – i.e., increasing the number of clients served while offering the same depth of advice – has become paramount for firms seeking to grow and scale their services.
New research by consulting firm Cerulli shows that firms searching for more efficiency should focus solely on their “ideal” clients and (as difficult as it can be to give up potential business) consider turning away potential and existing clients who do not fit in that ideal group. According to the study, 64% of the 2,000 advisors surveyed reported that serving non-ideal clients was the most prevalent challenge to their productivity, suggesting that more advisors view it as easier to efficiently serve clients within their target niche than those outside of it.
Cerulli’s report affirms a similar Kitces Research finding that niching drives greater productivity for financial advisors. Specifically, niches allow advisors to serve more clients (and at higher revenue levels per client, further boosting scalability) by developing deep expertise that can be repeated across clients with a similar profile, allowing the advisor to more effectively scale their advice and increase their capacity. And even though, in the early days of a firm, it can be tempting to serve a high number of non-ideal clients (simply because the firm needs to find any clients to serve to generate revenue), it is crucial as the firm grows to narrow the focus to the firm’s target clients to maintain efficient and sustainable operations or the variability of the clientele becomes the biggest detractor of productivity.
As the body of research continues to show the benefits of niching, it becomes more and more clear that defining a specific target client – and sticking with that type of client – is a central factor in running (and especially scaling) a successful practice.
(Bitches Get Riches)
The pandemic has led many individuals to consider leaving their jobs for new opportunities (or to take time away from work). But leaving a job is not always as simple as giving two weeks’ notice and bidding farewell to co-workers. In fact, there are several steps an employee can take to maximize the benefits they receive from their previous employer before leaving and to ensure a smooth transition to whatever awaits them in the future.
Ways to maximize financial benefits from a job before leaving include front-loading 401(k) contributions (particularly if they will be moving to a job that does not offer a 401(k)), ensuring that any company match for 401(k) contributions is received and fully maximized, and using any paid time off (particularly if the company does not pay out any unused leave). In addition, the employee should be aware of any vesting schedule for retirement plan matches or stock options, as staying in the job until a certain date could prove to be lucrative if it lines up with a vesting or bonus payout date. Also related to pay, an employee considering taking out a major loan might want to consider having the process completed before leaving their job (to have an established record of their pay), though they should consider waiting until starting a new job if it will come with a higher salary.
As employer health insurance benefits often run through the end of the month, leaving a job early in the month can maximize the time left on the current plan before having to transition to a new plan. Relatedly, employees can make sure they get the most from their current health insurance plan by scheduling an annual physical (as well as dental and vision check-ups), stocking up on prescriptions, and getting any needed vaccinations before they quit.
Finally, it is important for workers to make sure that they will have access to documents and websites that they will need after leaving their employer. This could include changing the contact email address for the company’s 401(k) plan to a personal address (because access to the company email address will likely no longer be accessible after leaving) and ensuring they have copies of W-2 forms and other pay documentation. In addition, employees might want to consider saving work samples that could be used when applying for future jobs (as long as they do not include trade secrets or other protected material).
Leaving a job can be a stressful time, and financial advisors can add value for clients who are moving to a new job or retiring by helping them complete these steps to maximize their benefits and ensure the transition goes smoothly (and can take these steps themselves if they are switching jobs or starting their own firm!).
(Cheryl Winokur Munk | The Wall Street Journal)
As college acceptance letters begin to trickle in, many families will be evaluating the financial aid packages offered as well. Because many colleges offer both merit aid and need-based aid, families across the income spectrum have the potential to benefit from this assistance. And for those families whose circumstances have changed since they initially applied for aid (potentially increasing need-based aid), or whose students’ academic credentials have improved since their application (potentially increasing merit-based aid), appealing a financial aid offer can lead to an improved aid package.
Of course, the first step for families is to request the review in the first place. Many schools will publish the process for making an appeal on their websites, which can often include submitting updated documentation (e.g., if a family’s income has dropped due to a parent losing a job), but parents might have to call the financial aid office directly to learn more about the process (there are also online resources available to help guide families through financial aid appeals). It is also important for families to be specific about whether they are appealing a decision regarding merit aid, need-based aid, or both, as the requirements for each will be different. And given the compressed timeline for accepting an offer of admission and the corresponding aid package, it is important for families to follow up with the financial aid office if they have not received a response regarding their appeal within a week.
In the end, the rising cost of college has made financial aid a high-stakes game for many families. And financial advisors can play an important role in supporting clients during the financial aid process, including by helping families structure their income to maximize financial aid opportunities, keeping families updated on the timelines for financial aid (perhaps as part of a client service calendar), and by outlining the process for appealing a financial aid decision.
(Julie Weed | The New York Times)
Many people have decided to cancel or postpone travel plans during the pandemic, potentially leaving some individuals with large balances of airline miles and hotel points to use. What’s more, many of these balances may have grown during the pandemic as those with points-earning credit cards continued to earn points through their regular spending. And as many travelers consider planning vacations, they might be considering when would be the best time to use their points.
It turns out that now is likely to be a good time to use points to book travel. For instance, major U.S. airlines have implemented policies where flights booked with airline miles can be refunded in full (if canceled a certain number of days out from the planned travel), making it less risky to book a flight only to have to cancel it down the line (particularly for international flights given evolving COVID-related travel restrictions). And given that the pace of business travel remains lower for now than it was before the pandemic, airlines have been making more seats available for purchase with points (as they would rather fill it with a person using points than letting it remain empty).
In addition, airline miles and hotel points tend to decline in value over time as travel providers increase the cost in points for certain flights or hotel stays (e.g., a certain hotel that costs 10,000 points today could increase in price to 15,000 points next year). Also, the cost of award travel can often depend on consumer demand, so as more people get out traveling (and use the points they have built up), points prices could increase further.
Given this opportunity, financial advisors have several ways to support their clients in earning and using points and miles, from creating a credit card strategy to earn more miles to helping clients find the best redemptions. And so, maximizing miles and points is an opportunity for advisors to create significant value for clients, both those with a stash to redeem today and those who want to plan for a future vacation!
(Susan Theder | Financial Advisor)
As advisory firms shift to an increasingly digital presence, advisor websites have taken on key importance as a marketing asset. Websites are often a prospective client’s first experience with an advisory firm – typically, a prospect will visit an advisor’s website before ever setting foot in their office – and so the website provides a crucial first impression of the firm’s experience. And so firms should pay special attention to ensure that the impression presented by the website is the one that they want to provide.
According to Theder, several best practices can help firms create a good first impression through their website:
- Ensure that it is possible (within five seconds of visiting the site) to understand who the firm serves, what differentiates the firm from others, and what the next step is for a visitor to do more.
- Ensure the site is optimized for visitors viewing it for the first time (such as by including an “about” page and an easy-to-navigate menu).
- Include a clear description of the firm’s fees to provide transparency and set expectations for potential clients.
- Start laying the foundation for good SEO (which can encompass multiple strategies like including a FAQ page, verifying the firm’s Google My Business listing, linking to the site from social media pages, and numerous others).
- Include calls to action (e.g., an invitation for the visitor to schedule an initial meeting) throughout the site’s content to remind visitors what the next steps are in engaging with the advisor.
Importantly, the purposes and expectations for websites change almost constantly over time. Even if a site checked all of the boxes above when it was originally designed, if it has not been updated in more than three or four years, it risks looking and feeling outdated (and giving a similar impression of the firm to potential clients visiting the site). So advisory firms should make efforts to regularly check to ensure their site is still providing the first impression that it should.
(Carolyn Dalle-Molle | XY Planning Network Blog)
Websites are crucial marketing tools for financial advisors, but they also require time and money to create and maintain. As such, advisory firms – particularly smaller firms with limited resources to devote to designing and maintaining their website – can benefit from knowing the most important parts of their website for attracting prospective clients, so they can maximize how they use their resources by focusing on the website components that matter most.
A website benchmarking study conducted by XYPN found that the four most-viewed pages of RIA firm websites are:
- The homepage
- The “About” page
- The most popular post(s) on the firm’s blog
- The “Services” page
Optimizing these pages (in the above order) can therefore make the most effective use of the advisor’s resources.
The firm’s homepage should give a brief (but clear) overall impression of the firm, including who the firm serves, what makes it different, and where the viewer can go next to learn more.
The “About” page should give an authentic portrait of the human(s) behind the firm, and so photos that are recent, natural, and realistic are vitally important to creating the right impression.
Firm blog posts (which readers may come across from elsewhere on the web) should seamlessly guide viewers to the firm’s website via calls to action.
And the “Services” page should (if nothing else) include the information that most visitors want to know, which is the firm’s fees, which create more trust (and increase visitor-to-prospect conversion rates) by the transparency they provide.
Realistically, not every small RIA will be able to optimize every part of its website at once: each individual page can certainly be a project in itself. But by focusing first on the essential pages above – then working to fill in the remainder of the site as resources allow – the firm can ensure that it is putting its investment where most of its visitors’ eyes will go, and making the most of its resources to make the best impression to the highest number of people possible.
(Crystal Butler | Advisor Perspectives)
Mastering Search Engine Optimization (SEO) can be challenging for advisors (even those who are relatively comfortable with technology). It often involves technical elements like HTML code and Google algorithms that most advisors don’t work with on an everyday basis, and even the more tangible components of SEO like keyword phrases and readability can be somewhat mystifying in how they relate to search engine rankings. Advisors who are unfamiliar with incorporating SEO into their website’s content are often better off outsourcing that content to someone who is; however, for those who do prefer to do it themselves, it is possible for non-experts to ensure their website content is search-engine optimized.
Butler, a marketing consultant for financial professionals, offers a practical checklist for on-page SEO (that is, SEO for content that is on the advisor’s website rather than outside content that links to the site). Though a few of the strategies require some basic knowledge of HTML and content platforms like WordPress (such as optimizing the page’s title tag and URL, tagging headlines, and adding meta descriptions), most are centered around the site’s content itself – for instance, structuring content so it is easily “scannable” with short blocks of text and bullet lists, and linking to related external pages – which any advisor with basic writing skills should handle.
Butler also lists several tools that can help advisors analyze and perfect their site’s SEO (including WordPress SEO plugins like Yoast SEO and All in One SEO Pack, and web-based tools like Google SERP Snippet Optimization Tool and Keyword Density Analysis Tool that can help evaluate a site’s SEO simply by pasting its URL into the tool’s search bar).
In general, engaging, readable content that keeps viewers on the page longer is best for SEO purposes. Which is good news, because regardless of the SEO implications, that is often the goal that advisors have for their content anyway! Though it is always possible to improve by hiring an expert, even the very least web-savvy advisors can have a solid search engine presence simply by doing what they are already trying to do: creating content that potential clients want to read.
(Cal Newport | Study Hacks Blog)
When working as a financial advisor, it can seem like there are nearly unlimited tasks to do, from meeting with clients to preparing financial plans to marketing. And while everyone wants to be ‘productive’, with so many potential tasks going on at once, it can be difficult to get a sense of whether a given day has met that standard.
For Newport, productivity is about navigating from a large range of possible things a person could be doing to the actual execution of a much smaller number of things each day. To do so, he imagines a three-level funnel representing selection, organization, and execution.
At the selection level, the individual determines which activities to commit to accomplishing from the broader world of potential tasks. Once committed, these activities go into the organization stage, where a worker considers how they want to accomplish these tasks (perhaps using software tools such as Asana or Trello). They can then move on to execution, where the selected tasks are accomplished within the set organizational framework.
The three-part funnel framework can help workers avoid focusing on one part of the funnel over the others. For example, someone who focuses on the organizational level but neglects the selection stage could find themselves overwhelmed with projects. Similarly, a person who excels at execution but avoids organization could end up spending their day completing more and more individual tasks (which seem productive!) that do not get them closer to completing the overall project (not actually so productive after all!).
Given that advisors only have so many hours in the day, the productivity funnel concept can help them select the most important tasks to complete based on the best use of their time, organize them so that they remain on track, and execute on them in the most efficient way possible. Together, this can not only enhance productivity but also improve the advisor’s wellbeing (as only working on the most important tasks and doing so in an efficient manner can reduce the hours the advisor needs to work!). Though the key point is simply that the real driver of productivity is not just about trying to execute more and do it more efficiently, but taking a moment to select what really should get the advisor’s time and attention to be executing (or not) in the first place.
(Khe Hy | RadReads)
Between professional projects and personal goals, financial advisors have a wide range of tasks to keep organized. But trying to maintain a written list of all of these responsibilities (or, even worse, trying to keep them all in your head) can be overwhelming, and it can be hard to actually get things done.
With this challenge in mind, Hy first suggests creating a list of ‘projects’. To qualify for this list, a project must have a specific end date and a specific deliverable. For example, projects could include filing your taxes or hiring a new employee. The next step is to fill in the project with the individual tasks that must be completed for the project to be finished. And because the project and its associated tasks have discrete deadlines and deliverables, it is easy to tell when a given task, or the project as a whole, is completed (or whether the project is off track).
Yet, many parts of our personal and professional lives require a minimum standard of excellence but do not have specific deliverables or fixed deadlines. For example, ‘being a good manager’ is important but does not entail a specific deliverable and has no endpoint, which Hy suggests organizing into ‘domains’. Like projects, each of these domains will consist of several tasks, but these tasks do not have a set due date (e.g., while taxes must be filed by April 15th each year, there is no fixed deadline for checking in to see how your employees are doing). Given the lack of due dates, it can be easy for these tasks to be forgotten, which is why it is important to set time weekly to specifically go over the task lists of your domains, and determine which tasks are the highest priority and whether they are on track.
Ultimately, the key point is that advisors can benefit significantly from using a system to organize both the discrete projects they want to complete, as well as their more intangible goals. By breaking the projects into smaller tasks – and then setting deadlines, or at least regular check-in points to ensure the (domain) tasks are getting completed — an advisor can ensure that their priorities are on track to be completed.
In a world of seemingly infinite quantities of information available and potential goals to accomplish, having a way to organize this information and manage personal and professional objectives is crucial to getting things done. And given that everyone has different work styles and ways of thinking, a variety of productivity systems are available that can help individuals prioritize and execute their goals.
A simple method is to identify the “Most Important Task” that must be accomplished and focus on completing it before turning to other tasks (or distractions, such as email). Work on this task should begin first thing in the morning, and only tasks that will take no more than four hours to complete should be selected (if a task will take longer than four hours to complete, it can be divided into smaller tasks). By implementing this system, you can improve the chances that your most important task will be completed each day.
For tasks that require consistent work over a period of time, using a calendar or other tool to track progress over time can be motivating and make it more likely that the goal will be achieved. For example, someone writing a book could mark an ‘x’ on the calendar each day they write 1,000 words.
And for more complex projects, the ‘Getting Things Done’ system involves gathering all of the projects that need to be completed, and then breaking them down into actionable steps with defined time limits. And for those who have a seemingly endless number of projects, the “Zen to Done” system asks individuals to reduce their goals to what is essential, and then simplify their other commitments to ensure that the goals can be completed.
Finally, the “PARA Method” can be used to organize the disparate amount of information and tasks a person has to deal with on a given day. The method involves maintaining four categories of tasks and information: projects (goals or tasks with a deadline), areas of responsibility (where a certain standard has to be maintained), resources (topics of ongoing interest and related materials), and archives (items that are no longer active or required for task completion).
In the end, the best system for a given individual will depend on their interests and responsibilities. The important point is to actually choose a system, and then follow through on it once it is selected!
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, as well as Gavin Spitzner's "Wealth Management Weekly" blog.