Enjoy the current installment of “weekend reading for financial planners” – this week’s issue starts off with an announcement by the CFP Board of a new initiative to increase the number of women entering financial planning (currently only 23% of CFP certificants), a discussion from FPA’s lobbying group of the current advocacy priorities in Washington DC for 2013, and a surprising article about industry trends showing that using virtual advisors isn’t just about young people as many of the new startups in this space are reporting a significant number of Baby Boomers using their technology-driven advisory services.
From there, we look at a few industry-related articles, including one discussing how often the reason why advisors merger and acquisition deals fall through is not problems with culture and philosophy but just good old-fashioned dollars-and-cents, and a review by Bob Veres of the latest Mark Hurley white paper and the insights it provides not just about the advisory firm landscape but also some good tips for buyers and sellers about how to get a deal done. In addition, there’s a pair of more technical articles, the first explaining how to help clients choose an appropriate Medigap supplemental policy, and the other looking at what an unwinding of Quantitative Easing by the Fed would really look like (hint, it will be a lot more gradual than the market volatility will imply when it begins).
In addition, there are several practice management articles, including one about how to ensure any photos and images you use on your website at legal to avoid a Copyright infringement lawsuit, another with some tips about how to “wow” a client (everyone says it’s good to wow clients with great service, but what does that really mean!), and a good discussion about the importance of paying attention to your office environment and decor because the impression it leaves can impact your client’s perspective on the entire experience.
We wrap up with three more introspective articles: the first poses a series of 5 questions that advisors should ask themselves and be able to answer to better focus where their business is going to succeed in the future; the second reflects upon the importance of telling your own personal story to help build a client’s faith and trust in you; and the last is a fascinating look at the book “Give and Take” which finds that some people are givers, some are takers, and most are matchers, but it’s the dynamic between the three of them that ultimately determines who succeeds in business. 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 May 18th/19th:
CFP Board Announces Effort To Increase The Ranks Of Women CFP Professionals – This week, the CFP Board announced a new initiative focused on increasing the number of women entering the financial planning profession and earning the CFP certification, as currently only about 23% of the 68,000 CFP certificants are female (and the number hasn’t changed for a decade). The initiative will be guided by a high-powered Women’s Initiative Advisory Panel, including former CFP Board Chairs Bob Klovsky and Karen Schaeffer, LearnVest founder Alexa Von Tobel, Kate Healy of TD Ameritrade, recruiter Mindy Diamond, journliast Mary Beth Franklin, plannesr Lazetta Braxton and Kathleen McQuiggan, and CFP Board Consumer Advocate Eleanor Blayney. The panel will meet in the spring of 2013 to examine the problem, and CFP Board will use their input to conduct further research on how to address the issue, with a follow-up meeting by the panel in the fall to establish solutions for CFP Board to implement in the coming years.
FPA’s Man In Washington Speaks Of Planner Group’s Priorities – This article from AdvisorOne highlights the comments of Daniel Penchina of The Raben Group, the lobbying organization hired by the FPA to represent its advocacy interests in Washington DC, who spoke at the recent FPA Retreat conference. Penchina noted that financial planners are well liked on the Hill, and that the House Financial Services Committees staffers have a good understanding of the issues important to FPA, including a fiduciary standard for all advice-givers and funding the SEC’s exam efforts through user fees. Notably, FPA’s Political Action Committee (PAC) funds are relatively limited, and that the FPA only spent $74,000 in the 2012 election season, compared to $168,000 from FSI and $604,000 from SIFMA; however, Penchina indicates that money doesn’t buy as much access these days anyway, although it’s still important to support members of Congress who support the organization. In terms of the legislative outlook, Penchina suggests that the Senate Financial Services Committee may be more focused early on regarding housing finance issues and not fiduciary matters and that overall Dodd-Frank is moving slow because of limited bandwidth, but that Rep. Maxine Waters’ legislation on SEC user fees has a chance. Penchina also noted that the FPA is taking a fresh focus on state FPA associations and providing better tools to be advocates on the ground on local state issues, such as addressing recent initiatives in Ohio and Minnesota where legislation was proposed to add a financial services tax that would impact planners.
Baby Boomers Driving The Technology Wave – On Wealth Management, Lauren Barack points out that while most have talked about the push for an online component to advice as being driven by younger clientele, it turns out that baby boomers are adopting the model as well, faster than anyone may have realized. For instance, virtual advisory firm Wealthfront was built for younger investors in Silicon Valley, but Baby Boomers are now making up over 10% of their new clients. In the case of San Francisco-based Personal Capital – which has less of a younger-client marketing focus – the numbers are different; more than half of the firm’s clients are age 50 or older, meeting with their advisors virtually using screen-shares, chat, and FaceTime. The firms suggest that the adoption by older clients may be because they’re being influenced by their children also using the platform, although statistics from Pew suggest that Baby Boomer adoption of online habits is widespread; even 57% of those aged 50 to 64 are on Facebook now. Yours truly is quoted as emphasizing that technology won’t replace advisors, merely augment them by providing face-to-face interactions but using digital tools (which probably explains why Personal Capital’s tech-augmented-advisor is having so much more success than Wealthfront’s pure-online-only offering).
How, Strangely, Money Gets Downplayed In RIA Deal Making – This RIABiz article from consultant John Furey makes the interesting point that perhaps the slow pace of merger and acquisition deals in the RIA space has less to do with challenges of finding a good cultural and philosophical fit or strategic synergy between firms, and more about just the good old-fashioned numbers analysis – and the fact that ultimately, deals won’t get done unless there is accretion of value to the buyer. In this context, “accretion” means getting to an end point where the whole is worth more than the sum of the parts, whether through strategic synergies, margin expansion as duplicative costs are scale or entirely eliminated, the potential for faster revenue growth from the combined entity, or perhaps the help ensure an ongoing or future transition (e.g., to facilitate succession planning). However, in practice Furey thinks that most deals get stuck because the transaction is usually only accretive for one party – the buyer may misjudge how much income the seller is giving up, or the seller may fail to realize how expensive it will be to be replaced in the business and how little profit expansion is available to the buyer. Similarly, this is why buyers aren’t necessarily eager to just buy revenues for the sake of buying revenues, and also is why sellers may not be excited to sell just for the sake of turning their income stream into a lump sum. So the bottom line – whether you’re thinking of buying practices or selling them – is that deals must be approached where the transaction provides something accretive to the buyer and the seller; if you can’t see and structure the deal in a manner that’s truly accretive to both parties, it probably isn’t going to get done.
Trapped In Tweenerland – This article by industry commentator Bob Veres provides a nice walk-through of the recent Mark Hurley white paper, “Brave New World of Wealth Management” which once again reiterated that the vast majority of firms (about 18,000 of the roughly 19,000 independent advisory firms) have little or no enterprise value and would more accurately be classified as “books of business” instead, with about 200 large evolving businesses and roughly 1,000 “Tweener” businesses that are too small for real value and haven’t taken the leap necessary to truly transform the business away from being “founder-centric” or “glorified proprietorships” (albeit often very profitable ones). Going forward, Hurley identifies 5 major forces (all headwinds) that will create challenges for all these firms, which Hurley predicts will erode margins for large firms, make books of business stuck small, and force most Tweeners to fall back to being books of business. These forces include a smaller pool of millionaire households since the financial crisis, aging client bases (as the baby boomers with most of the wealth continue to get older), lower returns on bonds (which will be a drag on overall returns, especially as older clients tend to hold more [low return] bonds), higher costs (including operating costs due to the lack of qualified professional staff, compliance costs, litigation costs, and marketing/acquisition costs), and the simple fact that advisor firm owners themselves are getting older and that it will put a squeeze on firms trying to rush for the exits at the same time. Veres criticizes some of the underlying assumptions – most notably, that most firms really can sell for at least some value, at least on an earnout basis, and that there is still some potential for small firms to merge into larger ones. Some of the most interest discussion is at the end, though, where Veres highlights a few good tips from the Hurley report for buyers and sellers themselves. Tips for sellers include: don’t wait until the practice is already deteriorating to sell it; get a high-quality attorney to really help you navigate the process; be ready for a difficult, emotional, time-consuming process. Tips for buyers instead recognizing there’s a low probability any deal gets done; keep the deal moving forward if there’s one underway (the longer the negotiations drag on, the less likely the deal is to close); and recognize that most firms are less than perfect and that any deal will require some work. Also, for both buyers and sellers, remember the staff, who are material to the transaction for both parties and need to be kept in the loop.
How To Choose A Medigap Supplemental Policy – This article provides a nice guide on choosing a Medigap policy for clients who are turning age 65 and enrolling in Medicare; although it was written for consumers, it’s a good reminder for planners as well. The purpose of Medigap insurance is to help pay for the copayments, coinsurance, and deductibles that aren’t covered directly by Medicare itself (but Medigap policies do not provide for prescription drugs, which are covered under Medicare Part D instead). Policies are sold in 10 standardized packages that are labeled A, B, C, D, F, G, K, L, M, and N. Plans F and C are the most popular, as they provide the most comprehensive coverage. Plans M and N are newer and much cheaper than the others, as they are cost-sharing sharing plans (appealing to retirees who are healthy and don’t anticipate many claims, but want some coverage beyond just Medicare itself). Amongst most plans, the differences are fairly small, so more affluent clients will often just choose Plan F, but if you want to make more finely sliced choices, there’s a nice comparison chart of the policy types at Medicare.gov. Notably, because the policies are standardized, once you pick the particular plan type, it’s fine to just shop for the cheapest coverage, as there will be no difference in benefits; however, recognize that some policies as sold as “attained age” (which means premiums increase as the years go by) while others as “issue age” (where premiums are locked in at issue and only adjust for inflation). You’ll get the best price if you sign up within 6 months of enrolling in Medicare Part B, as that’s the open enrollment period where an insurer cannot refuse to offer coverage or change the rates based on client health.
A Professional Preps For The End Of QE – This article by Josh Brown on Forbes looks at recent comments by John Hilsenrath of the Wall Street Journal – the Fed’s “unofficial media mouthpiece” – suggesting that the Fed is beginning to think about how to cool things off; not that change is anticipated to happen anytime soon, but that it’s at least time to begin thinking about what the end of QE might look like. Brown provides a great summary of 9 key points regarding the Fed’s current thinking about how things might move forward from here, noting: 1) The Fed is not uncomfortable with current market speculation, though it’s aware of the concern; 2) The Fed is cognizant of the rhetoric from influential hedge fund managers regarding the runaway benchmark indexes, and realizes that there are concerns not only around Fed policies, but the perceptions of those policies; 3) We are still in the hint-dropping phase, which can still be a very long ways out from an actual change; 4) A rate hike is not imminent, though markets will anticipate it in advance, which will likely result in a strong dollar, bond losses, commodities volatility, Gold dropping, stocks recorrelating, and the VIX elevating; 5) There are two nightmare scenarios, including a sharp bond rate spike triggering a stock selloff, and a ceaseless rate hiking campaign when rates do rise, though neither is probable right now; 6) the market may be volatile as the regime changes, but it will settle down again; 7) the Fed will not likely act until conditions are better than they’ve been historically in these delicate situations (Bernanke IS a “student of the Depression”) so economic data will have to look good, for a while, before the Fed moves; 8) notwithstanding market reactions, the real QE exit will take years, and involves slowdown of asset assets, then a slowdown and ultimate cessation of reinvestments, then raising short-term rates, and only finally beginning a sell-down of portfolio assets (or alternatively, just letting the unwind occur by having the Fed’s bond assets mature, rather than be sold); and 9) over multi-decade time horizons, this isn’t about the end of QE, but just the beginning of whatever comes next. The bottom line, though, is that Brown predicts the QE unwind will be more gradual than most suggest, and although the markets may be volatile along the way, the Fed will be as gentle and patient as it needs to be.
The Best Ways to Be Sure You’re Legally Using Online Photos – Studies consistently show that using graphics and images on your website and in your social media helps to drive activity and engagement – and as the saying goes, pictures are worth a thousand words, too. Fortunately, the it’s remarkably easy to find photos and images online to use… however, the reality is that just because an image is online and accessible doesn’t mean it’s appropriate, or even legal, to use it. Even online images and photos are protected by Copyright law, including the Digital Millenium Copyright Act. This article walks through the key things to know to ensure you’re using images legally, and it entails more than just giving attribution (which may keep you out of trouble for plagiarism, but does not protect you from copyright infringement!). While the situation is fairly straightforward if you took the picture or created the picture (it’s yours as long as you’re not subject to a Work for Hire agreement), using someone else’s work is not acceptable unless you ask and receive permission; although there is a “Fair Use” doctrine that allows some limited use, it’s actually a very complex area of the law and be cautious about relying upon it. In addition, realize that there are public domain images that can be used freely, along with photo-sharing sites that operate under a Creative Commons license (which generally does allow free use as long as it includes attribution). But the bottom line is that you should assume any/every image you find online is copyrighted, unless proven otherwise with a clear free-use license or because you received explicit permission to use it. And bear in mind, if it’s your site, the rules apply to you when you get a cease and desist or takedown notice, even if the image was posted by your staff or web designer, so make sure they’re familiar with the rules too! (Hat tip to Susan Weiner for suggesting this one!)
Best Way To Wow A Client – In Financial Planning magazine, Bob Veres notes that while lots of publications and consultants encourage advisors to provide a “wow” client experience to drive up retention and referrals, few really talk about what “wow” service actually is, what it entails, how to define it, and how to measure it – which matters, because if you can’t evaluate what you do, you certainly can’t improve it! The key concepts tend to be consistent, and include setting clear expectations (if you don’t set a baseline, you can’t exceed it!), actual client experience (what happens when they call or walk into the office?), responsiveness (how quickly do you or staff reply to requests?), personal conduct (do you do what you say you’re going to, and communicate effectively?), professional service (including the professional quality), and relationship quality (how well do you listen, recognize and address unique client needs, and customize your advice and service accordingly?). The more you can quantify what “wow” means for these concepts, the better; if you define how many meetings are necessarily to give professional service and maintain good relationships, you can then measure it and see if you’re meeting it; the same applies for your turnaround response time and requests, or other service needs. Ultimately, the goal is not merely to make clients “satisfied” but to really engage them in the practice, which is what drives referrals.
Create An Office That Impresses Clients – This article by Ron Carson on the Financial Planning magazine blogs takes a deep dive into the little ways that an office environment can be changed to enhance how clients perceive the advisor. What impression d o your clients get when they enter your office before you say a word? What nonverbal messages does your decor communicate? Does it make clients more comfortable and receptive, or turn them off? Carson suggests a number of key points to focus on, including: 1) Upgrade your office itself, focusing on everything from the greeting clients receive, to the layout and decor, to even the music and odor (Carson’s office bakes fresh cookies every day to give off the soothing aroma in the front lobby); 2) Dress for the occasion, as what you wear will make an impression on your clients, so ensure they get the impression you want them to get; 3) Be aware of your tone, as the nonverbal aspects of your communication matter, a lot; and 4) Avoid distractions, and make sure that emails, phone calls, texting, social media, television, etc., aren’t distracting your attention from your clients when they’re there with you. The communication issues are two-way as well, so Carson also suggests checking out this quiz to evaluate your own “emotional intelligence” to understand how well you’re perceiving your clients’ nonverbal queues.
5 Questions Advisors Must Prepare To Answer To Remain Relevant – This RIABiz article provides some interesting guidance for advisors to refine and hone their focus and value proposition, framed as a series of 5 questions a hypothetical sophisticated modern-world client would/should ask; while many clients may not actually ask all these questions, the point is that you can still prepare your answers to them, which in turn may help you to refine your business focus, and your marketing message and materials. The questions, not quite your traditional “the right questions to ask your advisor” fare, are: 1) Why are you in this business? (In the spirit of Simon Sinek’s “Start With Why” understand what your purpose, why you do it, and who has inspired you); 2) Do you measure your investment success with absolute or relative returns? (In the author’s opinion, “absolute returns” that tie to goals is the only acceptable answer as a wealth manager, and you should be able to monitor/track/report on this); 3) Can you describe your ideal client? (If you don’t have an ideal client, that’s the first problem, and answers must be genuine, not flippant or arrogant or overly broad; you should be able to walk your prospect through not just your ideal client profile, but the challenges that person faces, and how you can solve them!); 4) What behavior can I expect from you as my financial advisor? (This lets you address fiduciary intent, disclose your fees, explain your investment philosophy and wealth management model, and your client service/experience); 5) What behavior/responsibilities do you expect from your clients? (Set expectations for your clients about what they need to and should be doing to make the relationship succeed and be mutually beneficial). By answering these questions and reflecting on what you’ve said, the goal is to refine your own target clientele and value proposition.
How To Tell Your Most Important Story And Gain Trust From Your Clients In 5 Minutes – This article makes the key point that while the new client coming to your office may have a financial problem to solve, there’s a more important problem to address first: showing the client that he/she can trust you. And no, saying “Don’t worry, you can trust me” or “Trust me, I’m a fiduciary” isn’t going to do it. Instead, the author suggests that the best way to build trust is to tell your own story, because the reality is that your attempts to influence others are filtered through their judgment about who you are, and your trustworthiness, values, ambitions, and integrity. In fact, for many people, the stress and effort of finding to people to trust is so difficult that most would probably prefer not to trust you, and just make own their own story about you instead, assuming you must be too ambitious, or greedy, or inexperienced, or dumb, or whatever lets them justify not listening and going through the efforts of making changes in their own financial lives. So get used to leading with your own story, answering the key questions: 1) Who are you?; 2) What makes you special?; 3) What earns you the right to influence?; and 4) What are your gifts? Ultimately, the author suggests that people don’t want more information, because we’re already struggling to process all the information we have; instead, what people want is to have faith in you, which requires true stories of your personal experiences to build up that faith.
Givers vs. Takers: The Surprising Truth about Who Gets Ahead – This article from the Knowledge@Wharton series interviews Wharton management professor Adam Grant regarding his new book “Give And Take” which finds that who does and doesn’t succeed in business is highly correlated is their tendencies for reciprocity – in other words, are they givers, or takers? Takers are those who, when they interact with others, are trying to get as much as possible from that person in pursuit of the shortest and most direct path to achieving their own goals (generally contributing little in return in the process). Givers, on the other hand, are those who look to help, not necessarily by donating money or volunteering, but making introductions, giving advice, providing mentoring or sharing, etc., all with no strings attached. Notably, few people are pure takers or givers; most are somewhere in between, and in fact Grant defines a third group called “matchers” who try to maintain an even balance and may even keep score on it (e.g., I’ll help you, but if I do I expect you’ll help me in return so we stay even). Not surprisingly, the research finds that givers are overrepresented at the bottom of many industries, as they are often abused and exploited by takers and eventually burn out; however, Grant also finds that givers are overrepresented at the top and many are inordinately successful, and in fact the takers have trouble reaching the top because eventually the matchers – who keep score – go out of their way to punish takers for abusing the dynamic and reward the givers for their generosity. The effect is especially noticeable in sales, where the most productive are those who put their clients’ interests first and try to help, and get business in the process; in fact, the article tells the story of one financial advisor in particular who, as a giver, reached a greater level of success on that basis, even with a few unfortunate taker-abuses along the way. In the short run givers may lose, but in the long run they often get ahead, especially if they can put some limits so they don’t get abused, and especially in businesses built around relationships and reputation… certainly relevant in the world of financial planning!
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!