Enjoy the current installment of "weekend reading for financial planners" – this week’s edition starts off with some big announcements from industry associations, including the retirement of NAPFA CEO Ellen Turf next year, and a staff restructuring by the FPA that will result in outsourcing both the organization’s lobbying efforts in Washington and meeting operations for its conferences. From there, we have a few highlights articles from this week’s Schwab IMPACT conference, including a discussion from Bernie Clark that wirehouses are increasingly shifting to an AUM-based model to compete directly with RIAs, and some new technology tools from Schwab including DocuSign e-signatures and the new Schwab OpenView MarketSquare which will provide advisors a chance to provide ratings and reviews on various vendors and service providers to the advisor community. We also look at a recent announcement from the SEC that it has been stepping up enforcement and cracking down on investment advisers, a discussion of how young planners are often choosing to start their own firms or go with large institutions because the independent firms continue to try to hire more experienced planners instead of newer ones, an exploration of what does and does not constitute a niche for financial planners targeting their business, and some thoughts about how the regulatory debate on financial advisors may still be too narrow because it doesn’t capture the conflicts of the financial media. We wrap up with four interesting articles: the first is an article by Angie Herbers about recent research showing what does and does not create client stress, and that often advisors themselves contribute to client stress; the second looks at how "wealth management" is increasingly distinguishing itself as a separate discipline with its own unique body of knowledge; the third is a discussion of how effective data management is not only a matter of efficiency and productivity but also impacts the client experience; and the last is an intriguing interview with LinkedIn CEO Jeff Weiner about leadership and what it really means to be a leader and not just a manager. Enjoy the reading!
Weekend reading for November 17th/18th:
NAPFA’s Ellen Turf Hands In Her Resignation – This week, NAPFA CEO Ellen Turf notified the organization of her intent to resign effective August 31, 2013 – admirably, the decision was driven not by any kind of troubles for NAPFA (in fact, NAPFA has grown from about 600 members to nearly 2,500 members during her tenure), but instead by the advice of her financial planner that she was financially ready to retire! Nonetheless, Turf’s departure will leave a hole in NAPFA after 14 years as the CEO, and at a somewhat challenging time given the ongoing regulatory and advocacy battles underway for financial planning. NAPFA has announced an intent to conduct an open search for NAPFA’s CEO replacement, with the goal of bringing the new leader on board in time for transition training before Turf leaves.
In Shakeup, FPA Outsources Washington Lobbying Efforts – This article from Advisor One discusses recent restructuring that has been occurring with the staff of the Financial Planning Association, as new CEO Lauren Schadle begins to implement a new Board-approved strategic vision for the organization. The biggest change is a decision to eliminate the Washington DC advocacy office for the FPA, and instead outsource the FPA’s lobbying efforts to the consulting and lobbying firm The Raben Group, which apparently was driven both by a desire for cost savings and a belief that The Raben Group may allow for a more far-reaching presence in Washington. The FPA is also going to outsource its meetings operations, and has hired a new person to head its national sales (i.e., sponsorship) efforts.
At Schwab’s Annual Conference IMPACT: If You Are an RIA, the Wirehouses Are Coming for You – This brief article from REP magazine editor David Geracioti reporting from the Schwab IMPACT conference quotes Schwab executive vice president Bernie Clark, who pointed out that wirehouses are increasingly focusing on the same fee-based AUM business as RIAs. Clark cited a statistic from major wirehouse Morgan Stanley that 90% of new money gathered by the organization went into fee-based accounts, and that most advisors at wirehouses are now dually registered. The implication – being a fiduciary RIA is less and less of a differentiator, as the success of the RIA channel is leading wirehouses to voluntarily opt themselves into the exact same model anyway. The article also notes another buzz item from the Schwab conference – that as firms grow, managing that growth and adding staff is becoming exponentially harder due to the complexity of managing a much larger firm.
Paper Pushing: Schwab Aiming To Take Advisers Digital – In his blog, Davis Janowski of Investment News summarizes a number of other interesting highlights from this week’s Schwab IMPACT conference, including most notably a big push on paperlessness by forging a new relationship with DocuSign to enable eSignature capabilities for most Schwab forms, to be implemented sometime in 2013; although DocuSign already has relationships with Fidelity and TD Ameritrade, Schwab apparently intends a big push to help advisors adopt it into their workflow. Other announcements include an Android version of the Schwab Advisor Center mobile application, the SchwabAlliance.com website (a customized version of Schwab.com for clients of Schwab advisors), and the launch of a review site called Schwab OpenView MarketSquare where advisors can rate third party providers, vendors, and applications. Even for non-Schwab advisors the development of the Schwab MarketSquare platform may be significant, if it gains momentum and becomes an area where vendors serving Schwab and any/all other advisors receive constructive feedback and criticism for improvement.
SEC Cracking Down On Investment Advisers – This article from Investment News notes that the SEC appears to be cracking down more on investment advisers, for the second year in a row, racking up a whopping 734 enforcement actions in 2012 (on top of 735 in 2011) and leading to $5.9 billion in penalties and disgorgements. The SEC indicates that the uptick in enforcement is a result of a significant reorganization internally, including a streamlined structure, more specialized units, better training, and more. The increased efforts appear to stem both from the criticism levied at the SEC for its failure to punish Wall Street after the 2008 collapse, and perhaps the ongoing criticism that it does such a poor job overseeing investment advisers and conducting exams that it may lose responsibility of overseeing investment advisers in the future.
On Their Own – This article from Investment News looks at how some young advisors are just going out and building their own practices from scratch, not necessarily because they want to but because larger firms continue to prefer hiring older and more experienced practitioners rather than younger new ones. Ultimately, this is concerning not only for firms to develop their pipeline for the next generation of talent, but also because it leads them to underserve the next generation of clients, as younger clients often prefer to work with younger planners. The problem seems to stem primarily from the fact that most small firms simply don’t feel they have the time and resources to train a young planner; what young planner hiring is occurring tends to be in the larger institutions that have the capacity to develop training programs.
A Niche Is A Need – This article by marketing consultant Stephen Wershing explores the concept of niche and how to define one, noting that ultimately a niche is "not actually a demographic or a profession or an affiliation. A niche is a need. A successful niche identifies a tribe of people who share a common need that is not shared by the general population." This is why "women" is not a niche – because there’s little in common with the needs of a 18-year-old young woman, a 45-year-old female corporate executive, and an 87-year-old widow, and is also why just having $1 million (or some other net worth) isn’t a niche either. So what’s your niche, really?
Financial Advisors May be Subject to Uniform Rules – In his monthly column for Financial Planning magazine, Bob Veres shares some thoughts about the ongoing fiduciary and regulatory debate, noting that as we head into 2013 we will have some new Congresspeople and likely a new SEC chief. Yet while we wait to see how the uniform fiduciary standard discussion plays out, Veres suggests that it still may be too narrow of a conversation; after all, there is still a wide base of financial media that reaches an even wider public base that will not be subject to these rules, even though much of the media is actually even more conflicted than advisors on their investment recommendations. As Veres points out, "Stock touts used to be marginal members of the criminal underclass, on a par with touts at the racetrack. Now, they may be celebrities and/or media personalities…" and notes that entirely legal advertising suggests "Even babies can supposedly beat the market with the right trading tools." From Veres’ perspective, this puts all the more pressure on getting the uniform fiduciary standard right, as it may represent the only safe haven for consumers in the midst of an even broader conflict-ridden world of investment advice.
Stress Fracture: How to Save Your Relationship With Your Client – This cover article from Investment Advisor magazine by practice management consultant Angie Herbers looks at some recent research on what stresses clients from Dr. Sonya Britt and Dr. John Grable at the Kansas State University Financial Planning Research Center. Of course, understanding client stress is ultimately crucial, because clients will make (predictably_ irrational decisions and exhibit adverse behavior under high stress situations. Their work yields some interesting, and occasionally surprising, conclusions, such as the fact that watching financial news causes stress levels to rise (no surprise), but that stress levels rise even higher when the financial news is good and that the markets are up (ostensibly because it triggers feelings of regret for not fully participating)! Perhaps even worse and more concerning, the Britt/Grable research found that the majority of clients experience stress increases during meetings with their advisors, often as a result of poor communication techniques or poorly designed questions, including some relatively simple ones like "How satisfied are you with your overall current financial situation?" or even "What is your primary financial goal?" Stress levels are also higher when clients sit at large tables across from advisors, rather than in a more intimate couch setting. Overall, this article provides some powerful – and somewhat counter-intuitive or even controversial – ideas about how to really reduce client stress.
Rich? Moi? – This article from the Wall Street Journal looks at how to define terms like "high net worth" and "wealth management" by drawing on a recent study from the Investment Management Consultants Association (IMCA), which surveyed the industry to try to determine some common definitions. The conclusion of the research – that wealth management is complex enough to command its own distinct body of knowledge, including topics regarding human dynamics, wealth-management strategies, client specialization, and legacy planning, and that "high net worth" in terms of receiving wealth management services begins at $5 million of net worth. Of course, IMCA has some self-interest in this, as they provide the Certified Private Wealth Advisor (CPWA) designation accredited by ANSI, but the article and the IMCA study nonetheless make a valid point that the kinds of planning techniques and issues involved with very high net worth individuals are different than the general public or "mass affluent" as previously discussed on this blog.
The Data is the Client Experience – This article on the ByAllAccounts blog explores how, as independent firms increasingly work with a broad range of vendors, service providers, and software packages, the difficulties in integrating and flowing data across networks and applications is more and more problematic. Yet this isn’t merely an efficiency problem; it’s also creating challenges for the client experience itself. For instance, difficulty in creating investment reports or financial planning updates quickly and easily – with data drawn from multiple sources – can adversely impact the client’s impression of the firm if the wait for information becomes intolerably long (not to mention the quality, readability, and understandability of the information). And of course, the challenge just becomes more complex with wealthier clients that tend to hold a wider range of investments, including those for which clear pricing is less readily available. Ultimately, the article speculates lightly on the directions this may take without a lot of clear conclusions, but the fundamental point remains – is effective management of data shifting from merely being an efficiency and productivity issue for the firm to a service and (positive or negative) experience issue for the client?
In Sports or Business, Always Prepare for the Next Play – This interview with Jeff Weiner, chief executive of LinkedIn, provides an interesting look not at LinkedIn itself but at leadership overall. Weiner defines leadership as "the ability to inspire others to achieve shared objectives" with an emphasis on the word inspire. "Managers will tell people what to do, whereas leaders will inspire them to do it." Weiner also notes the importance of prioritization, and the struggle of trying to do too many different things at once for too many different customers. He also emphasizes the importance of moving on to whatever is next – don’t spend too much time dwelling on successes, nor obsessing over failures – and that while e-mail is great, when there’s tension or a problem there’s no substitute for picking up the phone or seeing the person face to face. Weiner wraps up with advice to students coming into business today, and emphasizes: 1) have long-term goals about what you want to accomplish or what impact you want to have; 2) surround yourself with amazing people (not just who you work for, but all around you); and 3) always be learning.
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!