Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with an article highlighting the recent dispute between the CFP Board and (former) CFP certificant Nigel Taylor, who surrendered his CFP certification after an allegation that his firm was in violation of the “fee-only” compensation disclosure rules… and has, in the process, highlighted a critical concern regarding whether the CFP Board has the same scope to enforce its compensation disclosure rules against a firm in the way it does against individual CFP certificants.
From there, we have a large number of practice management and career development articles this week, including: how the effort that potential employees put into the process of applying for a job with you may be more important than their resume and background and experience in the hiring decision; a pair of articles that provide suggestions and tips on how to hire (young) advisors, and build a process around doing so; how advisory firms must learn to shift from focusing on rainmakers to grow and instead adopt firm-wide marketing strategies that allow everyone to participate and support the growth process; tips for young advisors who find themselves rising in their firms and becoming a Millennial manager for the first time; a look at how many young advisors are adopting a “career portfolio” by diversifying income streams across multiple business and freelance endeavors; suggestions on how to evaluate whether your client service team is actually doing a good job servicing clients; and a look at how different “mercenary or missionary” cultures in advisory firms can impact their growth and success over time.
We wrap up with three interesting articles: the first looks at how the financial blogger conference FinCon may be a good template for how advisor conferences need to change to gain better engagement and attendance from young planners; the second look at why it is so difficult to get new clients to make a change to a new advisor, and how the biggest key to success may not be about better communicating your value (although that matters too!) but simply showing them how you will make the process of change itself as easy and hassle-free as possible; and the last provides an interesting reminder that while it’s important to be conservative in helping clients to their financial goals, planners should be cautious not to superimpose their own risk and concerns as planners onto their clients’ lives, or the advisor risks causing the client to leave a large inheritance but fail to enjoy their wealth with the time they had to enjoy it!
And also be certain to check out the videos at the end from Bill Winterberg, highlighting some of the news and buzz from this week’s Schwab IMPACT conference! Enjoy the reading!
Weekend reading for November 8th/9th:
Compensation Disclosures ‘Taylor-Made’ For Conflicts (Bob Clark, Investment Advisor) – Earlier this year, the CFP Board began a compensation disclosure investigation on long-standing veteran planner and CFP certificant Nigel Taylor, who has a “fee-only” RIA Taylor & Associates, but also an interest in an insurance business (a striking parallel to the ongoing case of the CFP Board vs Jeff and Kim Camarda). Taylor insisted that his RIA, as an entity, is and can only be fee-only, but the CFP Board stated that it would move ahead with its investigation anyway; in response, Taylor decided to drop his CFP marks, and the CFP Board in turn suspended its investigation. While the Taylor case appears to be over, at least for the time being, Clark notes that the situation raises fresh questions about the CFP Board’s rules and enforcement of the “fee-only” term – particularly given that Taylor never claimed he was a fee-only advisor (he openly states that he personally is “commission and fee”), but simply that his firm was a fee-only RIA, and that the CFP Board has no jurisdiction over the firm to investigate and apply sanctions in the first place. In fact, Taylor contends that for his RIA (not himself) to claim it is a “fee and commission” RIA would be fraudulent and deceptive, as the RIA itself does not receive commissions (Taylor does personally, through a separate non-RIA entity). The distinction – between the disclosures of the firm, and the disclosures of the CFP certificant themselves – highlights an important limit to the CFP Board’s ability to enforce its rules; in fact, Taylor notes that there was a proposal almost 15 years ago to establish a “CFP Accredited Firm” specifically so that the CFP Board could address this problem, but the initiative was rescinded, and as a result the CFP Board’s scope still does not extend to firms, only practitioners. Taylor has also raised concerns about some of the CFP Board’s “Terms and Conditions” agreement, which was significantly expanded in 2008 when the CFP Board shifted to online renewal, including the fact that the CFP Board disclaims any legal warranty to back its own standards in court (even while requiring certificants to follow them or face sanctions), and that while the CFP Board will not back CFP certificants if problems arise, the CFP Board does require certificants to back the organization with a clause that requires certificants to defend and indemnify the CFP Board if named in a client lawsuit. For a more in-depth discussion of Taylor’s critique of the CFP Board’s Terms of Service, see “A Layman Examination of CFP Certification Renewal Terms and Conditions”.
Hiring For Effort (Caleb Brown, New Planner Recruiting) – Advisory firms use a wide range of criteria to evaluate a potential candidate for hire, but Brown makes the case that one of the best ways to vet is to look at the effort that the candidate puts into the hiring process itself. For instance, one candidate submitted the job application requirements at 3AM on a Tuesday morning… because she was in the midst of finals, didn’t have any other time to submit, but was so interested in the opportunity that she didn’t want to wait and therefore put in the effort; another candidate that was requested to submit a sample financial plan with a given fact pattern voluntarily did a second version of the plan in another financial planning software package as well, and then wrote up a comparison of the two; a third candidate blew through a lengthy job screening process that normally takes 14 days in only 2 days, despite already working part-time and taking a full college course load, simply because she wanted to get a head start on the other candidates. Of course, these over-the-top efforts aren’t common, and sometimes this kind of extraordinary work effort can actually go too far and adversely impact the quality of the work; nonetheless, Brown suggests that in today’s environment, the effort a candidate makes can say more about their potential on the job than just looking at a resume and going through an interview. On the other hand, Brown also notes that the reverse may be true as well; candidates who expect to get hired without putting in much effort may be giving a warning sign about their likely conduct on the job in your firm as well.
How To Hire The Next Generation (Ingrid Case, Financial Planning) – Advisory firms interesting in cultivating and attracting the next generation of advisor talent are increasingly doing so by building alliances directly with the college programs that teach financial planning. Often, the students can be an especially good complement to a founding firm owner, as today’s students are more commonly detail- and process-oriented, while more experienced veteran advisors tend to be more risk-taking, entrepreneurial, and not necessarily as detail-oriented. Some firms will bring in sophomores and juniors as interns, while other firms are creating full scale “residency” programs that provide an opportunity for recent graduates to gain a few years of experience in an advisory firm (but with a known and finite end that takes the pressure off the firm owner from offering a long-term career track unless it is decided to do so later). The interns and residents will typically work alongside other associate or sometimes senior financial planners, doing everything from taking notes for follow-ups in meetings, to helping with financial planning projects like making a database of capital loss carryforwards of clients. Ultimately, the goal is to utilize the internship or residency as a “trial period” for the student or young advisor, evaluating talent and skillset under a limited-term commitment, and then deciding to whom a job offer will be made. In the case of internships, working with students in their sophomore and junior years can give the firm an opportunity to decide whether a job offer will be made at the beginning of their senior year, locking in talent before the student even goes on the job market. For firms that are growing, building a connection with a particular (local but not necessarily) school gives an opportunity to also establish a relationship with the professors, who can help to provide insight on the best candidates for future internships and residency positions.
Step By Step: How To Hire & Train New Advisors (Glenn Kautt, Financial Planning) – As a large and growing RIA, Kautt details the process that his firm has established for finding, hiring, and training new advisors. The starting point is to build a pipeline of potential candidates, which the firm has done by establishing a relationship with three (local, in their case) universities, participating in the school’s career fairs, hosting “get to know Savant” sponsored events for the students, and getting to know the professors to gain insight about which students to pursue. Potential students are then invited to go through the firm’s screening process, which includes a checklist of desired attributes, an assessment of whether they’ll fit the firm’s (performance-based) culture, a validated sales assessment tool, and preparing a paper about why the student feels they’re a fit for the firm and the industry. Those who pass the screening process are then interviewed, with a focus on four main areas: job knowledge (do they know what an advisor does, their potential challenges, and what they need to do to be successful); motivation; intellectual ability; and interpersonal skills. Candidates also go through a personality test that assesses their communication skills and behavior traits (to avoid accidentally putting square pegs into round holes). Candidates that are selected then go into a training process, that includes enrolling in the CFP program (employees pay up front and are reimbursed when they pass), completing an internal training program, assigning a mentor, and going through a 12-18 month process of rotating through all key departments in the firm (investment research, planning & taxes, client services, and the internal data team). Kautt notes that the environment for training and development is shifting, especially given the different expectations of Millenials entering the workforce today, but the fact that firms are growing means they should be evolving themselves, anyway!
The Rainmaker’s Reign Is Over (Angie Herbers, Investment Advisor) – 10 years ago, Herbers suggested that the great challenge facing the advisory industry was the total lack of career paths for young advisors, and the need to develop them so that advisory firms could grow. Now, Herbers says there is a new challenge: the lack of an integrated marketing approach for advisory firms, and their over-reliance on a limited number of owner-advisor rainmakers. In the past, the owner-advisor as rainmaker was a fine approach to grow the firm, as the firm itself was relatively small, and it was easy enough for the owner to move the needle on growth; now, firms are much larger, and past the point of about $750,000 in revenue, rainmakers alone cannot get the job done (and raise even more troubling prospects about how the firm will continue to grow after they retire or otherwise exit the business). The solution, Herbers suggests, is transitioning to a solid firm-wide marketing and client referral plan, though that is clearly a challenge for firms, as few invest much in their marketing, and many struggle to differentiate the firm from the competition (while rainmakers may be able to explain how they individually are different, it’s much harder to do so on behalf of the entire firm). To make the transition successfully, the starting point is to lay a foundation, addressing five key areas: delivering consistently great client service (as some firms over-emphasize rainmaking and under-emphasize client service); providing a consistently good client experience; crafting a consistent firm-wide marketing message; training employees to be prepared to deliver on these areas; and then building a marketing plan to communicate all of these values to the target clientele (which has to be done on a sustained basis, as marketing and building brand awareness is not a short-term endeavor!). Notably, once the firm begins to successfully execute its marketing plan, reducing the need for traditional rainmaking activity, the employee advisors will still need to be taught how to “close”, which in turn requires crafting a process of how the firm will handle prospective client inquiries and turn them into actual clients. The bottom line: a decade of hiring advisors to service clients has created a large base of advisors who do great work for clients, but aren’t rainmakers – and with a good firm-wide marketing effort, they don’t have to be, either.
The Rise Of The Millennial Manager (Caleb Brown, New Planner Recruiting) – As Millennials have been in the workforce for a number of years now, many are reaching the point where they have enough experience that they are rising to positions of management – which can be a challenge for anyone who doesn’t have experience managing others! Accordingly, Brown offers suggestions for the first-time (Millennial) manager, including: remember where you came from, and that if you’re an internal hire who’s been doing a good job you should already have some built-in credibility, as long as you don’t abuse your new authority; start with open communication channels by scheduling one-on-one lunch meetings with each of your new team members to better connect with them and understand what they’re seeking in their careers (and so you can gain insight about how best to manage them); be aware that some people may resent having been passed over for the promotion you got, which means you may need to engage with the person to (re-)build that relationship; recognize that as a manager you will have to span the generation gap to connect with everyone in the firm, so try to seek out shared purpose as a common point of connection; and recognize that while it’s great to draw on your own managers for ideas about how to manage, ultimately you should be ready to develop your own management style that fits your personality and way of interacting.
Understand Gen Y’s ‘Portfolio Career’ (Dave Grant, Financial Planning) – As today’s Generation Y advisors launch their practices, it is increasingly common to find that they take on a number of other paid positions as well, from serving as industry consultants, to doing hourly financial planning, to speaking, and even paid writing. In many cases, the purpose is out of necessity, to fill the “income gap” that emerges when someone launches a practice but doesn’t yet have enough clients to make it financially viable on its own. In others, though, the alternative income sources are not a necessity, per se, but simply done out of a desire to diversify income streams and grow income without necessarily growing a huge advisory practice (with all the staffing and bureaucratic obligations that come with such growth). Yet critics raise the question of whether the effort towards other income streams may distract focus and slow the growth of the practice. For Grant, the key was recognizing that his ultimate goal is a “lifestyle” practice that can be achieved with his current path, and an acknowledgement that the other projects he does are a big part of his internal intrinsic motivation – as an entrepreneur, he draws energy from the challenge of juggling many small projects. Notably, though, the path to such “lifestyle” practices can still lead to significant income; one planner, Jeff Rose, who also runs the Good Financial Cents blog (and has spun off a book, podcast, and video series), estimates that he and his wife (who also has a blog on parenting) will draw $230,000 of combined online publishing income (not to mention also bringing in referrals to his advisory firm). Ultimately, Grant suggests that these kinds of lifestyle practices may be especially common amongst Millennial advisors, but that they can still be highly profitable by effectively leveraging technology (or alternatively, allow for a lesser but still quality income with a very limited workweek to support other endeavors).
How Do You Know When Client Service People Are Good? (Angie Herbers, Investment Advisor) – Historically, advisors would handle the whole range of client service needs, or perhaps delegate the tasks to a junior advisor instead, but Herbers suggests that the best path is to hire dedicated client service team members whose sole job is to handle any/all client tasks that don’t specifically require the advisor’s involvement. Yet such a transition of responsibility in turn raises the question: how should firms evaluate whether their client service team is actually doing a good job for clients? The first step is simply to recognize the importance of the client service team, and ensure that they are properly trained and that their client load is reasonable – otherwise, they’re simply being set up for failure. Second, recognize the importance of training – not about how to provide service to people, which they may already know and be hard-wired to do (and in fact that should be screened for during the interview process!), but how to specifically use your tools and systems for clients, as good client service people tend to be good rule followers once they’re given clear guidelines. So given all this, how should the firm evaluate the client service team? Herbers suggests focusing in two key areas: 1) attitude (does the client service team member talk positively about the work they’re doing for clients, or complaining about clients?); and 2) are there at least some clients giving raving feedback about the team (as good service is so rare these days, that if the team really is giving good service, the advisor should be hearing about it from at least a few clients!). Remember, for many clients, your team member responsible for client service may be the face the client sees most often, so it’s important to make sure the job is getting done right!
Mercenaries Or Missionaries? (Mark Tibergien, Investment Advisor) – The culture of your firm is driven by the business decisions that you make, and Tibergien suggests that ultimately cultures can be segregated into two broad categories: missionary cultures (based on a belief in what the firm does and a desire to inspire people to convert to that way), and mercenary cultures (driven by money). The point is not to suggest that one is bad and the other is good (though Tibergien does later imply that missionary firms may be more stable in the long run), but simply to acknowledge that the practices run on a different kind of fuel… and that the type of fuel can ultimately impact, for better or worse, the behavior of employees. Mercenary-style firms can enjoy significant growth and achieve wealth quickly, but are vulnerable to pitfalls like higher staff turnover, low morale, and sometimes more overt malfeasance. Missionary-centric firms seem to be increasingly popular as the advisory world shifts away from sales and more towards advice, but can also suffer if there’s too much of a failure to manage profitability and not enough done to hold staff accountable for results. In many cases, firms will legitimately seek to balance both, and Tibergien suggests that balance can be healthy, although most still ultimately tend to lean one way or the other. Whichever way they do lean, though, is where they should focus (e.g., preaching a missionary approach by managing like a mercenary can generate backlash for being hypocritical), and recognize that by continuing in that direction employees will begin to act accordingly… as it will be the firm’s culture to do so!
Why Financial Planning Conferences Don’t Attract Young Advisors, And How FinCon Can Save Them (Alan Moore, XY Planning Network) – While most conferences for advisors have struggled terribly to get younger advisors to attend, the recent FinCon conference for financial bloggers, writers, and also many advisors, has been growing by 50%+ every year for 4 years, now boasting almost 600 attendees, with an average age under 30. Moore notes that there are several distinctions about FinCon and how it is run that make it especially conducive for younger attendees (and the Millennial generation in particular), that traditional advisor conferences should take note of, including: cost is significantly lower (both lower registration fee and in cities with less expensive hotels, reducing the all-in cost by nearly $1,000 compared to traditional conferences, and the conference even arranges a shared Google doc spreadsheet to help attendees find roommates to further bring the cost down and another shared spreadsheet so those who paid can sell their registration without worry if it turns out they have a change of plans); content is clearly targeted to the audience, unlike many traditional advisor conferences that try to be everything to everyone and end out producing only 2-3 relevant sessions for any particular attendee (far too little for a $2,000+ total cost of attendance!); mix up the agenda lineup beyond just the traditional alternating keynote and breakout structure (FinCon also includes Ignite sessions, structured networking sessions, a mentoring program, and more); relax the atmosphere (traditional advisor conferences are suits and ties, FinCon is jeans and t-shirts and much more comfortable); focus the sponsors and exhibit hall (at FinCon the price point for sponsorship is posted publicly and is much lower so it’s more open to a wider range of sponsors, the exhibit hall itself was only open for one day of the 2.5-day conference so time could be legitimately focused int he exhibit hall but then attendees could focus on content the rest of the event); and organizations should be wary of structuring themselves to depend so much on conference revenue that they sacrifice on the points above (FinCon is a for-profit endeavor, but not operated by an organization that would be in financial trouble if the conference failed to perform at a certain level of profit, as is the case for many national advisor conferences).
Why It’s So Brutally Hard to Get Prospects to Move (Dan Richards, Advisor Perspectives) – Getting clients to make a change and decide to work with you as their advisor can be difficult, given our tendency to resist change (especially on big issues) and the sheer power of inertia. Richards suggests that the best way to get clients to make a decision to work with you, and combat the inertia, is to reduce the “friction costs” of making the change (in addition to the importance of being clearly differentiated enough to be compelling to work with in the first place!). For instance, while it’s popular to have advisor minimums, consider being flexible if clients have enough wealth to meet your minimum but don’t want to move it all right away (e.g., offer to waive your minimum for 12 months to have the opportunity to prove your value); similarly, be cautious about having a policy that clients “must” move everything for your to manage, recognizing that it makes the stakes of the decision so high it may slow their willingness to move forward. Richard also notes that sometimes, the blocking point for a change is as simple as clients worry about the sheer hassle and “work” of making the change, so recognize that in some cases the best thing you can do is not make a more compelling description of your value and what you do, but simply show clients how easy you make it for them to complete the change and how you and your staff will hold their hand along the way.
Whose Risk Is It Anyway? (Ross Levin, Financial Advisor) – Crisis events like the 2008-2009 bear market are scary, not only for clients, but for advisors who need to guide their clients through it while also watching their own business endure the stress as revenues decline, owners lose their profits, staff start to worry about their jobs, and at the same time client service demands increase. Yet Levin cautions that advisors should be cautious not to focus so much on the downside risks – whether to the business, or for clients running out of money – that they lose sight of the positive, and the opportunity to use money to enjoy life and the experiences that it can provide. In fact, the challenge is that because planners may play a key role in helping clients to set their spending policy, that extreme conservatism or fear from the planner may lead to a significant impairment of the clients lifestyle and a misalignment of their money and their goals as they spend far less than they could have, and end out passing away with an enormous amount of wealth left over; after all, focusing on a 93% Monte Carlo probability of success really means the clients will have a 93% chance of (potentially significant) excess wealth being left over! Levin does grant that in many cases, clients will curtail their spending during difficult and volatile markets – simply because that’s what we tend to do when we feel less wealthy and confident – but this only emphasizes even more the importance of managing spending dynamically and monitoring over time, both to recognize when it’s time to cut, but also when it’s ok to spend more.
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!
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. You can see below his latest Bits & Bytes weekly video update on the latest tech news and developments, or read “FPPad Bits And Bytes” on his blog!