Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the 5th Circuit Court of Appeals declined the motion by AARP (and several state attorney generals) to intervene in an effort to defend the DoL fiduciary rule... which means unless the Department of Justice suddenly (and at this point, unexpectedly) petitions the Supreme Court to hear the matter, it appears the DoL fiduciary rule will officially be vacated and gone and dead for good next week on May 7th (even as debate about the SEC's advice rule is just starting to gain momentum).
Also in the news this week was the announcement of a blockbuster private equity deal that will merge together Financial Engines and mega-RIA Edelman Financial (bringing human financial advisors to the 401(k) channel in a manner that could make it more challenging for independent advisors to access 401(k) rollovers in the future), and an interesting study that finds the average financial advisor is significantly more stressed than most U.S. workers, mostly about compliance and regulation and the difficulty in growing an advisory firm in today's environment... even as the majority of advisors still report they are overall very satisfied with their careers.
From there, we have several articles on marketing, including a look at how much less advisory firms spend on marketing compared to most industries (and where/how they should deploy the money if they do decide to start spending), a reverse-engineered analysis of how mega-RIA Fisher Investments spends its online marketing dollars for advertising and more traffic to its websites, and why the best way to connect with prospects is still about telling your own personal story and why it is that you chose to become a financial advisor in the first place.
We also have a few practice management articles, from a discussion of why it's a good idea for every advisor to take a week to track their time (and better understand how they're splitting their time between client service, growth, and administrative tasks) to understand what they might want to change to improve their personal productivity (and happiness), to an exploration of how to set the right "foundation" for providing a good experience to clients, and why it's better to not just be an expert for your clients but their counselor (or trusted "consigliere" instead).
We wrap up with three interesting articles, all around the theme of using credit cards instead of cash and the rise of travel rewards cards: the first is a review of the biggest and most popular standalone travel rewards cards (including American Express, Chase, and Citi); the second looks at how travel rewards cards have remained remarkably durable and popular over the span of more than 30 years now, but how their benefits are shifting away from increasingly devalued points and towards various "perks" instead, and how the rise of both credit and debit cards, online purchases, and systems like Apple Pay are making it increasingly easy to go "cashless" altogether... at least, as long as you don't need to tip your local service provider!
Enjoy the "light" reading, and Happy Star Wars Day!
Weekend reading for May 5th – 6th:
Last-Minute Bid To Save DoL Fiduciary Rule Fails (Andrew Welsch, Financial Planning) - On Wednesday, the 5th Circuit Court of Appeals rejected requests by both the AARP, and attorneys general from the states of California, Oregon, and New York, in their bid to defend the Department of Labor's fiduciary rule after product industry lobbyists SIFMA and FSI objected and stated that the Appeals Courts' prior decision to vacate the rule should stand, and the Department of Justice itself declined to file its own appeal to sustain any defense of the rule. Notably, there technically is still a time window until June 13th for the Department of Labor (and Department of Justice) to petition the Supreme Court to hear the issue, but given the silence from the DoL in the final week leading up to the April 30th deadline to petition the 5th Circuit, it appears unlikely that the Federal government intends to take any further steps to defend the rule. If nothing further is done, the DoL fiduciary rule will officially be vacated next week, on May 7th. Of course, even as the DoL fiduciary rule passes, the SEC is now underway with its own Advice Rule proposal, though it remains to be seen whether the SEC will be able to move forward, either, as even the proposal faced a 4-1 split of SEC Commissioners, and the issue remains highly contentious. Expect more debate about the SEC's version of the rule to continue for several years into the future from here... and the possibility that if Federal regulation continues to falter, that more and more states will take fiduciary activist positions in their stead.
Why The Financial Engines/Edelman Financial Deal Could End The 401(k) Rollover Bonanza (Michael Kitces, Nerd's Eye View) - The other big news in the financial advisor world this week was the announcement that private equity firm Hellman & Friedman is acquiring Financial Engines for a whopping $3 billion in cash, and will be merging Financial Engines with mega-RIA Edelman Financial (in which Hellman bought a majority stake back in 2015). The deal appears to be a huge win-win for both Financial Engines – which gets access to both Edelman Financial's human advisors to offer a higher service (and higher priced) offering to its nearly 1 million 401(k) participants – and also for Edelman Financial itself, which gets an opportunity to grow its advice offering for all those Financial Engines clients (finally relieving Edelman Financial's need to rely on Ric Edelman for its marketing and new client acquisition). But from the broader perspective, the Financial Engines/Edelman Financial deal is also a big deal because it shows that, despite the frenzy in recent years over "robo-advisors", that even Financial Engines (with a managed 401(k) solution that many call the "original robo-advisor") and big private equity firms see the future as not being purely about robo and tech, but layering in a human advice element. Even more significant, though, is that Financial Engines rolling out more comprehensive financial planning for its 401(k) plan participants may shake up the world of independent financial advisors as well... as historically, most financial advisors got their retiree clients by making a pitch for their 401(k) rollovers when they retired and had to get an advisor for the first place. But if Financial Engines can pair Edelman Financial advisors together with at least their more affluent plan participants, while they're still in the 401(k) plan... then by the time prospective retirees actually retire, they may have already had an Edelman Financial advisor for years. Which, if replicated by other 401(k) providers across the industry, could spell the beginning of the end of financial advisors getting the bulk of their retiree clients (and assets) through 401(k) rollovers!
Financial Advisors Are More Stressed Than The Average Worker (Amanda Schiavo, Financial Planning) - According to the recent "Financial Advisor Wellness" study by Northern Trust's FlexShares, financial advisors are significantly more stressed than the average U.S. worker, despite being in a profession with a substantially-above-average salary compared to most, and in an environment where markets are still in a relatively stable bull market. Instead, the stress points appear to be driven primarily by compliance and regulatory concerns – not entirely surprising given the rollercoaster of both DoL fiduciary rule and then the recent SEC advice rule – along with the challenge of growing their firms in an increasingly competitive environment where it's harder than ever to differentiate. Perhaps surprisingly, though, the stress is actually greatest amongst younger advisors, who face the greatest uncertainty with long-term prospects, while planners with more than 20 years of experience are relatively less stressed (ostensibly because their advisory practices are already at a point of comfortable stability). Other (albeit less common) stress points for the typical advisor includes managing work/life balance, wearing many hats in their business, and effectively managing client relationships, which are perennial challenges for the typically-solo advisor marketplace. On the other hand, despite the well-above-average stress levels, the survey still found that advisors on average are quite satisfied with their profession, and most have been able to find coping mechanisms to handle the natural stress that accompanies the job.
Modern Marketing (Bob Veres, Inside Information) - Various industries spend different dollar amounts on marketing, which ranges as high as 12% to 25% of revenue/year for technology companies, to as low as 4% of revenue for manufacturing companies... which is the lowest of any industry except financial advisors, where marketing is typically no more than 2% of revenue! Fortunately, in the past most financial advisors have been able to sustain 10%+ growth rates even without spending much on marketing, though, substituting instead the implicit cost of their time by engaging in in-person marketing activities like networking. Yet in an increasingly competitive environment where it's harder than ever to differentiate as a financial advisor, marketing and PR consultant Megan Carpenter of FiComm raises the question of whether most financial advisors may soon start falling behind on growth. Although notably, the solution is not just to "start spending" on marketing, which without a coherent strategy isn't likely to yield much fruit anyway. Instead, Carpenter suggests that the starting point is to build out the firm's "brand infrastructure", which includes everything from clarifying who the brand serves, its logo and website, basic digital marketing tools to capture prospect information and social media profiles, etc. After all, if the firm can't clearly articulate what its message is, it's hard to get that message out to the marketplace to attract the firm's ideal clientele! From there, it becomes possible to create and deliver content that highlights the firm's expertise and intellectual capital (from blogging to case studies and white papers), to attract that target clientele who will respond to the firm's marketing and messaging (and using social media as a means to then distribute that content and route everyone back to your website). Notably, having a clearly defined target market, and understanding the messages that resonate with them, also allows the firm to further modify both its marketing and client service approach as well; for instance, it gives better perspective on whether clients will respond best to emails, text messages, or printing and mailing physical financial plans after all. The key point, though, is that while advisory firms arguably spend far less than they should on marketing, it doesn't help to just spend on marketing if the firm doesn't know exactly what it's trying to allocate the dollars towards in the first place!
The Fisher Formula (Advisor Advance) - Fisher Investments is the second largest RIA in the US, with a whopping $83 billion in AUM across 40,000 clients and almost 2,300 employees. And the firm is legendary for its successful ability to market itself, which Advisor Advance "reverse-engineers" to evaluate what Fisher Investments is doing when it comes to digital marketing in particular... including a substantial amount of digital advertising in order to bring prospects into their customized landing pages, which offer prospects some kind of "lead magnet" (a guide they receive in exchange for handing over their email address), which then gives Fisher the opportunity to nurture the prospect until they're ready to set an appointment to potentially become a client. For instance, almost 40% of Fisher Investments' education website traffic, and 30% of its main website traffic, is driven by Google Ads and paid search, producing nearly 30,000 and 145,000 visitors per month respectively, and the ads themselves are typically very simple and straightforward, identifying a prospective problem to solve (e.g., "4 Ways To Avoid Running Out Of Money In Retirement" or "Want To Retirement Comfortably?"), and offering those who click through a Guide to achieving it. And the ads actually aim to "pre-qualify" their prospects as well, for instance by stating "If you have a $500,000 portfolio, download the guide..." These ads in turn lead to "landing pages", which are simply designed, visually appealing pages that have one objective: to get people to provide their email address in exchange for receiving the guide, and without any other menus or navigational elements that might distract the visitor. Fisher also uses third-party services like Outbrain and Taboola which distribute Fisher's content to third-party websites as native advertorial articles and headlines. And more recently, it appears that Fisher is experimenting with Facebook ads as well, with a number of variations designed to once again drive visitors back to Fisher's website and landing pages. The key point, though, is to understand that once you have the rest of the digital marketing machine in place to nurture prospects, it really can pay to spend dollars trying to bring more visitors directly to your website, whether via Google ads, Facebook ads, or native advertising content partners!
The Most Powerful Tool To Connect With Clients (John Bowen, Financial Planning) - People connect with people, which is why sharing a powerful story about yourself (one that gives the listener some insight into who you are, what you do, and why) can be an especially effective way to create an emotional connection with a prospective client. As the industry saying goes, people do business with people they know, like, and trust... which means regardless of whether your company's products or services are any good, prospects have to know, like, and trust you, as a person, before they will decide to do business with you. Ironically, though, many advisors think their story isn't unique or "special" enough to merit such a storytelling exercise and connection, but Bowen suggests that any/every advisor's story can be compelling... you just have to focus in on three core questions: 1) Who has most influenced your belief systems (e.g., telling the story of either the influences you moved towards, or away from, in your lifetime); 2) Which events have moved you the most (e.g., major personal experiences like a birth or death in the family, standing up to a boss or parent, or an external event like an economic downturn or natural disaster that shaped you as a person); and 3) What have been your valleys (as people will connect even more when you make yourself vulnerable by sharing your challenges, not just your successes). The goal in going through these questions is to be able to sketch out in a couple of paragraphs "the story of how you became a financial advisor" and the turning point(s) that brought you to where you are today. Notably, you may have to repeat the process, reading your own story and rewriting it a few times, to really hone it down – you can even try sharing it with friends and family, to see which parts they receive most enthusiastically, what makes the listener light up, and where they lose focus. The point is not to make it perfectly polished, in a way that potentially loses authenticity... but simply to figure out how best to tell the story of what brought you to where you are today, because prospects want to understand your "humanity" in deciding whether you are someone they should entrust for their own financial needs.
A Time-Tracking Exercise For Advisors (Rich Conley, Advisor Perspectives) - When it comes to personal time management, there are three core questions that everyone must consider: 1) how do you want to spend your time; 2) how do you actually spend your time; and 3) how do you change to spend more time doing what you want? The first category is usually straightforward for most advisors – the top activities include meeting with clients and prospects, creating financial plans, and perhaps some level of administrative tasks that are crucial for the business to proceed. The second category usually has the most ambiguity, as a lot of people don't actually realize how much time they spend from day to day on non-essential or less-than-ideal tasks, and the cumulative impact that small tasks can have when they add up. Accordingly, Conley suggests taking a week and actually tracking exactly how you spend your time throughout the day, either by tracking it in a spreadsheet, or using a third-party service that can help like Toggl or HoursTracker. The key, though, is not merely to quantify the tasks and amounts of time, but to track the nature of the activity in the core categories of either Administrative, Client Relationships, or Growth. When you reflect back on your time after a week, are you spending less time than you need to on Growth? More time than you should on Administrative Tasks? Based on the time you spent on the various tasks you were engaged with, what could you let go of or delegate, to free up more time to redirect towards what you could be doing that's more productive (and more likely to make you happy!) instead?
Are There Cracks In Your Client Experience Foundation? (Julie Littlechild, Absolute Engagement) - A perfect house isn't so perfect if it's built on a shaky foundation, and the same is true when it comes to how advisors create a great service experience for their clients. To evaluate whether your own firm's foundation is shaky with respect to how you serve clients, Littlechild suggests asking yourself 6 key questions about the business: 1) Have you defined your "deal breakers" (e.g., the acceptance criteria of what it takes for you to accept working with a client or not, which could include not just financial wherewithal and assets, but their personality and values or particular needs as well); 2) Have you segmented your clients based on the value (i.e., can you score who is actually the right fit or not, so you can make adjustments to your clientele as appropriate to better focus on who you serve best?); 3) Have you tiered your service plan to link to the value of the client (i.e., are you creating meaningful value for each client, commensurate with what they want, need, and can afford at each tier?); 4) Have you assessed capacity based on your existing resources (i.e., it's not enough to set a plan for what services you will provide for each client tier, until you also evaluate how much time and staff resources it will take to provide that to all clients across all tiers and verify the math actually works!); 5) Have you assessed the profitability at each client level (which matters not just for the business in the aggregate, but for each client to ensure what's provided to them is commensurate with the cost to deliver it); and 6) Do you formally manage expectations (as even if you're providing "great service", what is "great" to you may be different than what your client expects, so setting clear service/engagement standards is crucial!).
Be Your Client's Consigliere (Tony Vidler) - Some advisors operate as experts, while others serve as more of a counselor instead. The expert has the responsibility to have the answers and be able to analyze facts and provide recommendations. The counselor, on the other hand, serves as more of a close trusted friend and confidant, providing essential counsel... or what was known in the Sicilian and American Mafia as a "consigliere", the advisor/counselor to the boss, who represented the boss in important meetings, but was devoid of ambition and therefore able to provide disinterested and trusted advice. And Vidler makes the case that it's the Consigliere role that delivers the most value to clients, by serving as both a counselor to the boss (client), being responsible for representing the boss's (client's) interests (i.e., as a fiduciary), and being a close trusted confidant that dispenses disinterested (i.e., non-conflicted) advice. Notably, a key point of the Consigliere role is that it's still the boss's (or client's) role to make the decision; the role of the Consigliere is to try to persuade the decision-maker on what the best course of action would be, though. Relative to today's marketplace, though, the key distinction is that it's not enough to "just" be the expert that has the information and answers, though; the valued advisor – or consigliere – of the future has to have the skillset to be able to persuade clients to actually take the advice, too!
How To Navigate The Complicated World Of Credit Card Points (Lucas Peterson, New York Times) - For years, various companies have offered credit cards with reward programs that provide proprietary "points" that can be used in their stores or hotels (or "miles" in the case of airline credit cards). The caveat, however, is that such points are typically constrained to just that company's products or services, and may either not be exchangeable at all to other providers, or only at an unfavorable "exchange rate". An alternative is a growing number of credit cards that offer standalone credit card points, redeemable directly against the card balance itself (i.e., as a cash reward), or with greater flexibility about how they can be used and redeemed for a wider range of travel rewards. The primary three in this space are cards from American Express, Chase, and Citi. The American Express cards provide "Membership Rewards" points, which can be used to buy gift cards, or specifically to book travel (through their portal) or transfer the points to partnered flight and hotel programs for bookings, and American Express has the widest range of partners to whom those Membership Rewards points can be transferred (at least for the applicable American Express cards like Everyday and Platinum). The classic rule of thumb is to try to get at least 1 penny per point in rewards, which is most commonly feasible by booking (otherwise expensive) airline tickets, where a plane ticket for 50,000 points is a good value if it would have cost at least $500 to buy it directly. In the case of Chase, their points are called "Ultimate Rewards", and are tied to a wide range of their Sapphire, Freedom, and Ink cards (although only the Ink Business Preferred and Sapphire cards allow transfer to travel partners or bonuses when redeeming through the Chase Rewards portal, although cash-back points from Freedom cards can be transferred to a Sapphire card, and then redeemed more favorably). The third popular standalone travel rewards card is Citi Prestige, which provides "ThankYou Rewards" points, which has some unique benefits (e.g., the fourth night of a consecutive-four-night stay is always free, from a cheap motel to the Four Seasons!), but also some limitations (fewer transfer partners than American Express or Chase). Although notably, unless you're putting a lot of money through your credit cards each month, for many the most efficient way to rack up points quickly is through sign-up bonuses (which can be as much as 50,000 points to switch)... though obviously, bear in mind that frequent card switching can also impact your credit rating, and it's still important to only charge through the credit card what you can actually afford to pay in the first place (or you'll lose more in credit card interest than you ever earn in travel rewards points!).
Why Airline Credit Cards Have An Enduring Appeal (Ron Lieber, New York Times) - Credit cards offering frequent flier miles have been around for more than 30 years now, but the market is still growing, with Delta generating a whopping $3 billion from its relationship with American Express in 2017 (projected to hit $4B by 2021). And this is despite how they've shifted over the years. Early on, such cards offered a simple "one mile for every dollar spent" system, until eventually so much airline currency was floating around, that the airlines had to both increase the number of miles it takes to book a ticket, and/or restrict the availability of the tickets; yet in practice, this simply helped spur the growth of more "independent" standalone travel rewards cards that provided generic points that customers could shift around to any airline (thereby potentially slowing the depreciation of their points). As a result, the market for travel rewards cards continues to grow, with Citi increasingly getting into the market as well (partnered primarily with American Airlines), while Barclays has built a partnership with JetBlue for its credit card. And the travel rewards cards have further expanded their benefits in recent years, with additional "privileges" like free checked bags, or a higher-ranking boarding group (increasing the odds you get space in the overhead bin for your carry-on bags), or (discounted) access to airport lounges. In fact, as travel rewards points continue to get devalued, some anticipate that it's the perks that will increasingly sustain interest in travel rewards cards in the future (a strategy that the data suggests is already paying off for them). Although the fact remains that at least mathemetically, airlines miles have been so devalued that it's virtually always a better deal to "just" seek out a 2%-cash-back credit card instead (unless you're using airline miles for long-distance business class seats where there's more bang for the buck).
Going Cashless: My Journey Into The Future (David Gelles, New York Times) - For the first few months of the year, Gelles is running a personal experiment to go "cashless", which means not touching paper money or metal coins, and just using a combination of credit cards, Apple Pay, and online orders (and occasionally the "generosity of an unsuspecting friend"). Notably, in some other countries like South Korea and Sweden, cash is largely gone already... but the United States has been far slower to adopt the transition to a cashless world. Yet Gelles notes that it really is feasible for most – especially in metropolitan areas – to live in a cashless world even now, using a credit card (or a smartphone) to pay for virtually everything, including even groceries (thanks to both delivery services like Amazon.com and Fresh Direct, as well as credit-card-accepting grocery stores). The upside of going cashless is not just the ability to avoid those pesky trips to the ATM, and that so many credit cards now provide cash back or points (especially for those who simply "use it like cash" and pay the balance in full every month anyway), but the fact that cash is "dirty" (literally, a vector for germs and disease), and also funds a lot of dirty activities (e.g., drug dealing, arms trading, etc., all of which would be more difficult to do secretly in a cashless world). Perhaps the biggest caveat, though, is simply that a significant portion of the population is still "bankless" and simply don't have access to credit cards and/or bank accounts (though efforts from companies like PayPal to serve the unbanked appear to be gaining momentum). That, and by not carrying around cash, it's still difficult to tip service providers, in a world where tipping electronically often isn't feasible, and no one likes the social awkwardness of stiffing a valet or hairdresser. Although if the only purpose of cash is just for small tipping-style transactions, most people would still use only a tiny fraction of the cash they otherwise take out from the ATM today!
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.