Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the latest release of FINRA’s 2019 budget, which once again shows flat revenue as broker-dealers struggle with stagnating growth and a decline in the number of people taking licensing exams to become brokers, forcing FINRA to rely on as much as $185.8M of its reserves this year just to meet its operating and capital expenses… and raising the question of whether FINRA will eventually be forced to restructure, or substantially increase member fees to broker-dealers… which in turn may only further accelerate the broker-dealer decline as regulatory costs rise.
From there, we have a number of articles around household cash-flow planning, including a fascinating new job-skills training program that focuses on those with problem-solving and perseverance skills and has lifted low-income individuals from an average of $18,000 to $85,000 of income, some tips to keep “lifestyle inflation” in check as income grows, the dynamics of trying to transfer not just financial assets but instill financial and other values for the children of affluent households, and how it’s increasingly necessary to look not just at a household’s own budget and cash flow but also to ask about their potential obligations for other family members (from children who may need to support elderly parents, or parents who may need to support adult children).
There are also several marketing-related articles this week, from tips to quickly and easily adapt “generic” marketing content into something more customized (and more likely to be effective) for clients, “growth hacks” that can accelerate a firm’s marketing success, how the techniques of a hostage negotiator (who must build rapport quickly in high-stakes situations) can inform the way we try to introduces ourselves and connect to prospects, and tips on how to respond to the infamous conversation-ender where you introduce yourself as a financial advisor and someone quickly responds, “I already have a financial advisor!”
We wrap up with three interesting articles, all around the theme of how we spend our time and focus our attention: the first explores the benefits of doing a “time audit” to better understand how you really spend your time (and whether it’s truly on the important tasks, including not just the urgent but also the long-term important ones); the second looks at how scheduling free-time and leisure activities actually reduces their enjoyment (because then it’s just another scheduled task/chore to do!), and why “rough scheduling” with flexibility timing is better; and the last provides a fascinating look at the importance of being cognizant of and deliberate in what you really “measure” in your life (and how that impacts the way you focus your time and effort).
Enjoy the “light” reading!
FINRA Projects Widening Budget Gap (AdvisorHub) – This week, FINRA announced its planned 2019 operating budget, which shows a projected $846.9M of revenue against operating expenses of $922.5M, which will result in a $75.6M shortfall/loss for 2019 (up from a $66M loss in 2018 and a $61.4M loss in 2017). Notably, a part of its rising costs (up 3.7% for 2019) is actually a short-term increase to absorb relocation costs in an effort to renegotiate some of FINRA’s New York City leases and shift functions to lower-cost properties in the future, along with staff compensation increases after several years of salary freezes and reductions in incentive compensation for senior employees. In the meantime, FINRA’s projected revenue remains relatively flat, as the broker-dealer community in the aggregate struggles to grow and revenue from registration fees are down as fewer people take FINRA exams to register as brokers, while FINRA declined (for the 6th straight year) to increase broker-dealer member fees. Notably, though, FINRA’s revenue projections do not include potential fines that may be collected from member firms for wrongdoing (nor any investment gains or losses from FINRA’s sizable reserves), though with capital expenditures as well, FINRA projects needing to rely on its reserves by as much as $185.8M in 2019. Nonetheless, while FINRA’s reserves can allow it to operate for an extended period with losses, the broader implication of FINRA’s ongoing (and rising) net losses as the broker-dealer community continues to shrink in the aggregate is that eventually, FINRA’s role and functions may eventually have to shift more substantively (to reduce costs), or broker-dealer member fees may eventually need to be substantially increased. Which in turn may only further accelerate the decline in broker-dealers due to the regulatory costs?
Income Before: $18,000. After: $85,000. Does A Tiny Nonprofit Hold A Key To The Middle Class? (Steve Lohr, New York Times) – While the rise of companies like Amazon are viewed by many as a rising opportunity for middle-class jobs in growing tech firms, for others there’s still a concern that tech jobs themselves are just “a small network of the privileged,” unavailable to those who are lower-income and don’t necessarily have a four-year college degree in the first place. In this context, a number of recent startups are exploring how to help those Americans also achieve upward income mobility. A case-in-point example is Pursuit, where 85% of their 300 graduates have landed well-paying tech jobs within a year at major firms like JPMorgan Chase as well as startups, earning an average of $85,000/year (up from $18,000/year on average before the Pursuit program). The program only accepts those with the “highest need and potential,” and is still selective, accepting only 10% of its applicants (who submit via outreach efforts at public housing buildings and libraries, as well as word of mouth), with a focus primarily on those who have problem-solving skills, and perseverance. Or in essence, those who are willing to put in the time and effort to become software developers, and are also able to adapt to new and unfamiliar environments. Participants can attend on either weekdays or a combination of evenings and weekends over the span of 10 months (followed by three more years of supported mentorship), and learn about everything from various programming languages and concepts, to “soft skills” like making presentations, working in teams, and writing resumes and thank-you notes. Up front, the program is free, though ultimately, the program is financed by investors, who are later paid back by graduates who agree to pay 12% of their income for 3 years, if and only if they make more than $60,000/year after graduating (which at an $85,000/year salary and the cost of the program, has equated to an effective interest rate for investors of 6.6% who are supporting Pursuit’s educational initiatives).
12 Strategies For Keeping Lifestyle Inflation In Check (Trent Hamm, The Simple Dollar) – For most people, the opportunity to lift themselves up financially, and increase their annual savings, is to lift their income and earn more to be able to save more in the first place. With the unfortunate caveat that, if not careful, expenses themselves may inflate higher as income rises… resulting in a “lifestyle creep” that doesn’t actually produce any additional savings after all. Which is important because if a $40,000/year income supports a $40,000/year lifestyle, and income rises to $60,000/year and the lifestyle then lifts up to match, it will remain just as hard to figure out how to save more… as the only option left is to cut lifestyle spending, a form of “lifestyle deflation” that is very difficult for most. In fact, the key distinction – and why managing lifestyle inflation is so important in the first place – is that it’s far easier to just not increase spending in the first place than to have it increase and then have to figure out how to cut it later. Which is all the more striking given the research that more expensive lifestyles don’t even necessarily make us happier, either (though the cuts certainly make us unhappy!). Accordingly, strategies to manage lifestyle inflation include: Clearly define life goals and what “success” really means to you in the first place, so you can evaluate new spending in the context of whether it really “matters” to your goals (or not); set short- and medium-term goals to ensure you’re on track for those long-term goals and not distracted by lifestyle spending temptations; automatically transfer your raise to savings (e.g., increase retirement contributions, set up an extra debt repayment, create a new 529 plan, etc.) so you’re not tempted to spend it; Avoid debt (because debt-financed purchases are often the most difficult to get rid of later, since the debt is binding!) and if you have debt, pay it off quickly; Make sure that splurges are really splurges (unique one-offs), that don’t become habits that then become part of a new (more expensive) lifestyle; Watch out for “deserve” mentality (e.g., “I deserve this expensive car/trip/treat”); Carefully research the significant purchases (e.g., cars and homes that really impact lifestyle costs); Beware inflating your friendships (e.g., don’t let your lifestyle drift up just because your friends’ lifestyles are, or that you’re spending more time with new friends who have more expensive lifestyles); and make sure you have a repertoire of free or at least low-cost things you can enjoy (so you don’t just spend to fill free time!).
What Does Passing On Values To The Next Generation Really Look Like? (Ellen Miley Perry, Advisor Perspectives) – While estate planning and passing on wealth to the next generation (in a tax-efficient manner) is a standard conversation for affluent clients, a recent book by Tom McCullough and Keith Whitaker entitled “Wealth of Wisdom: The Top 50 Questions Wealthy Families Ask” highlights that for many families, figuring out how to pass on their family values is equally or more important than “just” passing on their wealth alone. Accordingly, five key lessons for “values transmission” within the family include: 1) Values are caught, not taught (meaning that actions speak louder than words, and the best way for families to communicate values to their children is by living and doing them, not just saying them… although establishing a family mission statement or family values statement may still help the family to at least crystallize its thinking of the values to express in the first place); 2) Values are different from beliefs, preferences, and choices (in essence, “values are the compass that each of us uses to direct our behavior, often unconsciously” and serve as the organizing principles of our lives, such that Christianity or Judaism are preferences or choices while “spirituality” would be the unifying value, or environmental conservation or the arts are preferences while “generosity” is a value); 3) Leading a life that is consistent with your values is the greatest predictor of happiness (as it’s the congruence between life and values that drive happiness and satisfaction, while misalignment between the two leads to frustration and stress, though the demands of growing and maintaining wealth can often challenge affluent families to stay in congruence, and teenagers will have a natural tendency to challenge their parents’ values are part of their own development); 4) Storytelling is a powerful means of sharing values (as telling stories is a way to express your own life’s work, in the context of what’s most important to you, and what your values are); and 5) If the family is to flourish for multiple generations, the attention to human capital should be as serious as that to financial capital (which means focusing on both maintaining healthy family relationships, and using financial resources to enhance the life experiences and opportunities of each member of the family).
Family Financial Obligations: The Undiscussed Budget Issue (Meredith Moore, Medium) – Most households manage their finances in the context of their immediate family needs: an individual, a couple, and/or perhaps a family that includes some number of children. More affluent households have decisions about how much of that cash flow to allocate to their current lifestyle; lower-income households may just be focused on trying to allocate the dollars for basic survival. Notably, this context of family financial independence is somewhat different than the long-term historical norm for families, where a key role of children was to support and provide for their parents. And in fact, through much of the past century, the potential need for children to support their parents was still feasible simply given rising wealth over time; according to Opportunity Insights, a whopping 91.5% of 30-year-olds in 1970 were earning more than their parents did at the same age (adjusted for inflation). However, the ongoing pressure on wages in recent years, especially for young people, means that today, less than half of Millennials are out-earning their parents at a similar age. Which means for younger clientele today, there’s a growing risk that family financial burdens outside the immediate family itself – for instance, supporting parents after a elderly health event – is creating a new layer of financial stress and burden. And conversely, for older clientele, it’s increasingly common to need to support children even after they’re otherwise adults (e.g., the college graduate with a mountain of student loan debt who moves back into their parents’ household in their 20s after graduation). The significance of these trends from the financial planning perspective is that it’s no longer enough to just look at the household’s personal cash flow and their income and expenses; to understand the potential pressures that may be coming, it’s equally important to ask whether the client may have an anticipated financial obligation for some other member(s) of the family as well.
7 Tips To Customize Generic Marketing Content (Jordan Fromholz, Advisor Perspectives) – Automated marketing is fast and affordable, but the challenge is that it just doesn’t work for most financial advisors, because consumers want to see content that is specifically relevant to them (or from the advisor’s perspective, customized to the individual niche target clientele the advisor serves). Yet as Fromholz notes, there are ways to reasonably adapt generic marketing content (e.g., from a large content library) into something more customized, without needing to reinvent the wheel from scratch. Potential strategies include: Add authenticity by including real stories from your practice or your personal life (to turn your ‘faceless business’ into something that’s real, from you); Be specific (e.g., turn a generic article on 401(k) plans into something specific for doctors by adding some statistics about 401(k) trends in private medical practices); Grab attention (by turning headlines or lead-ins into something that will resonate with your audience in particular); Add a more click-worthy image (even if it’s just a picture of you, your family, etc., rather than just a generic stock photo); and End every article with a call-to-action that ties the theme of the article to an action you want them to take (e.g., if it’s an article about an estate strategy, end with a call-to-action for your next seminar on living trusts, or if the topic is about saving for college, end with a call-to-action to contact the firm about setting up a 529 plan). And of course, be mindful when you select the content from the library to pick articles that are most likely to be relevant for your target clientele in the first place! (E.g., no articles about saving for college if your clients are retirees with already-adult children, at least unless it’s specifically about college savings strategies for grandchildren!)
The Five Most Powerful Growth Hacks (Bob Hanson, Advisor Perspectives) – “Growth hacking” is a process of doing rapidly iterating tests across marketing and sales to try to quickly find the most efficient way to grow a business, until one or more of the small tests yields promising results, and then resources are poured into that area to try to further accelerate what’s working. So what are some potential “growth hacking” strategies for advisory firms? Hanson suggests: 1) instead of just targeting classic COIs (e.g., attorneys, CPAs) that every other financial advisor targets as well, experiment with hyper-targeted Centers Of Influence instead (e.g., if you specialize with dentists, try partnering up with someone who does practice management consulting for dentists instead); 2) instead of just trying to get cross-referrals, see if you can find another advisor with the same target market, and merge together so that you can double the marketing resources into the same niche; 3) make sure you focus on the “top of the funnel” (and how to build awareness and leads, such as with a “lead magnet” call-to-action on your website), rather than just trying to increase your sales conversion rates; 4) rather than trying to continuously create new content and marketing materials to stay in front of prospects, create ‘evergreen’ content once, and then repurpose it repeatedly over time; and 5) hire support staff to delegate so you can free up more time for the marketing activities that work for you in the first place.
What A Hostage Negotiator Can Tell You About Introducing Yourself To A New Client (Steve Wershing, Client Driven Practice) – Hostage negotiators have the unique challenge of needing to win someone over in what may be just seconds, in incredibly high-stakes situations. But the reality is that almost anyone gets only a few seconds to make a good first impression and win trust when being introduced or meeting for the first time. For which the typical approach is to talk about credentials (for credibility), or the advisor’s fiduciary duty, or something similar to impress “trustworthiness” upon the prospect. By contrast, Wershing highlights how a hostage negotiator tries to make crucial connections, quickly, when moments matter. For instance, FBI hostage negotiator Christopher Voss was once engaged in a situation where he had to secure the freedom of a US citizen kidnapped in Haiti, which required the help of the kidnap victim’s father… who immediately asked upon getting on the phone with Voss: “You’re in Washington, DC? How you gonna help me?” Voss’ response: “Haitian kidnappers aren’t killing their victims these days. That may not make sense but they’re not. Today is Thursday and Haitian kidnappers love to party on Saturday night. If you do and say the things I ask you to do and say, we’ll have your son out by Friday night, Saturday morning at the latest.” And the father replied, “tell me what you want me to do.” The key distinction is that Voss didn’t start by explaining his credentials as the FBI’s top hostage negotiator; instead, the first thing he did is try to demonstrate that he saw what the other person (the father) was seeing and understand what the other person was experiencing. In other words, it’s all about trying to “Empathize with the person and share with them a little bit of strategy to indicate you know how to get them through it successfully. Rather than sharing your qualifications in the hopes they will believe you can do the job, demonstrate that you have the insight necessary and a plan to get them what they want.” Or stated more simply: yes, you may be proud of your accumulated knowledge and skill that you’ve worked hard to get, but the reality is that the prospective client is facing their own issues, so the sooner you take the client’s side and communicate from their perspective, the further you’ll get.
Responding To “I Already Have An Advisor” (Bryce Sanders, ThinkAdvisor) – It’s a common situation for most advisors: you’re at a social event, someone asks what you do, you say you’re a financial advisor, and before you even have a chance to elaborate further, you get the response “I already work with an advisor”… a prospect’s attempt to shut down any possibility of being solicited for business before the advisor even has a chance. So how can an advisor respond to try to keep the door open? Some options include: Establish yourself as an alternative (as who knows, maybe deep down they aren’t happy with their current advisor, and just need a nudge to get over the inertia, so you can say “I’m sure you are happy with your current advisor. But here’s my card. Please give me a call if anything changes.”); Ask “how have they done for you lately” to prompt the prospect to think about whether their current advisor is really being attentive; Head them off at the pass by just saying upfront yourself “…and you probably already work with a financial advisor,” which may still elicit a response of “Yes, I do,” but at least keeps better control of the conversation; Be affirmative by saying “that’s a fine firm” (as most people want to be complicated on their good choices, and being negative about the competition usually just makes people defensive and territorial anyway); ask “Would you recommend them?” as if they would they’ll probably follow through with why (good perspective on what they value), and if they wouldn’t, then the door opens (another alternative would be asking “why do you stay with them?” for a similar path of responses); or simply ask, “when was the last time you heard from your advisor?” to see if the other advisor is really on the ball, or for a somewhat more aggressive style, consider an “if-then” approach of stating “If your advisor is there when you need them, returns calls quickly and makes the case for getting into the market as the averages cross significant milestones, these days, that’s about as good as it gets” and then see if they affirm the current relationship (or not).
Scrutinize Your Life Priorities With A “Time Audit” (Khe Hy, Rad Reads) – One of the great challenges of productivity is that how we actually spend our time doesn’t always match where we should spend our time. At best, most people spend time on the Important tasks that are Urgent and demand attention, but never get to the equally-important-but-longer-term-and-less-urgent tasks… and sometimes, we get distracted by the Urgent tasks that aren’t even really that important in the first place. Systems like David Allen’s “Getting Things Done” (GTD) can help with task prioritization, as well as aligning tasks to the ideal time during the day (for most people, it’s the late morning when productivity and focus peaks). But if you’re not certain how well focused your time on tasks is in the first place, Hy suggests doing a “time audit” – using an app like Toggl that tracks how much time you spend in each of various apps or software on your desktop, laptop, or smartphone, or simply by journaling your activities or tracking them on your calendar (if you’re rigorous about calendaring all your activities in the first place) over the span of a week. When Hy went through the exercise, he found that he spends about 24% of time on relationships, 19% on blogging (as a writer), 24% doing coaching (how he gets paid), 12% on email (“not bad” at just about 32 minutes/day!), 10% reading, another 10% on his newsletter, 4% on maintenance tasks, and unfortunately “just” 4% on “R&D” (the long-term important-but-not-urgent tasks!). In turn, Hy then heat-mapped his activities into where they fell on the spectrum of important or not, and urgent or not… to understand how efficient his time really was. How would your time-audit tasks stack up?
Want To Be Happier? Stop Scheduling Your Free Time (Allison Klein, Washington Post) – In an increasingly busy world, it’s more and more common to “schedule” free time, setting appointments on our calendar for specific “leisure” activities to ensure that we fit them in. But in a recent research study by Selin Malkoc and Gabriela Tonietto entitled “Activity Versus Outcome Maximization In Time Management“, it turns out that when our free time becomes part of our “to-do” list, it becomes less enjoyable. In essence, it shifts from being a leisure activity, into a “scheduled activity” in our heads… right next to other scheduled activities like work meetings and dentist appointments. Or stated more simply, scheduling free-time leisure turns it from free-time into a forced/scheduled chore. Of course, for many people, if we don’t schedule the free time, something else gets scheduled on the calendar, and then we don’t have any free time at all! So what’s the alternative? “Rough scheduling”, such as planning to meet for lunch or an after-work drink, but not assigning it a specific time so we feel the pressure that comes with meeting expectations for scheduled ‘tasks’. Of course, rough scheduling also means sometimes, the meet-up might not happen, because things can change if the scheduled activity isn’t concrete. But that’s also the point. Sometimes that might have been a better outcome anyway. After all, if it was that necessary to force the “leisure” time to happen, it really may not have been that leisurely or desirable after all?
What Are You Measuring In Your Life? (James Clear) – There’s a famous saying that “What We Measure, We Improve”, and that making progress on improvement always starts with measuring it (or else you can’t know if you’re improving in the first place!). For instance, Clear notes that once he started to track how many pushups he was doing, he got stronger; when he started to track a reading habit of 20 pages per day, he read more books; and when he recorded his values, he began to live with more integrity. The key, though, is that measuring to gain improvement isn’t actually about the goal of what you’re trying to count up to; instead, it’s that measuring creates a system to understand and track progress, opening up our natural path of curiosity and lifting our self-awareness (or to just give a helpful reminder nudge to show up and do what we’re counting in the first place!). Of course, not everything important can be measured, especially intangibles like love, morality, or finding meaning. And some things don’t need to be measured. (E.g., if you already work out actively simply because you love it and already do it simply for the sake of doing so.) Still, even in these areas, it’s still possible to find something to measure. For instance, you can’t measure love, but you can send a digital love note to your partner every day and keep track of your streak, or schedule one “surprise appreciation” each week where you write a friend to thank them for something unexpected. The key point, though, is simply that if you want to improve something in your life, start by figuring out a way to measure it. What are you measuring in your life?
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.