Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with two interesting studies on advisor trends: the first finds that advisors who outsource investment management are growing substantially larger businesses than those who continue to manage investments in house, and that the result appears to be driven primarily by the direct time constraints that occur when the owner-advisor spends time on portfolio construction instead of meeting with prospects and clients and doing business development; and the second study finds that social media adoption amongst financial advisors is now widespread, with a growing number reporting a material amount of new business development stemming directly from their digital marketing efforts.
From there, we have several articles on practice management and career development, including: a look at how most advisory firms aren’t even tracking the volume of new client leads coming in, making it impossible to evaluate whether they’re doing a good job with their marketing and sales processes; strategies on how to reach out and develop deeper relationships with Centers of Influence (COIs) to generate referrals; issues to consider when deciding whether it’s time to hire another financial planner in the office; and the most common leadership mistakes that financial advisors make in growing firms (all of which are related to the “thinking mistakes” we unwittingly unleash upon ourselves with our own mental attitudes).
We also have a few more technical articles this week, from key talking points with clients about the new money market fund rules that have just taken effect, to the way you can get a 3.5% yield on a government bond (by buying Series EE Savings Bonds!), and tips for finding an alternative to a big national bank if you’ve decided its time for something different (especially given the recent controversial news about Wells Fargo).
We wrap up with three interesting articles: the first is a fascinating introspective look from Stephanie Bogan, a consultant to advisors who built up a successful business and sold it for seven figures while she was still in her mid-30s, and reflects on how important it is not to confuse achievement and business success with truly finding your passion and purpose; the second is a fantastic reminder from Julie Littlechild of the importance of taking time off to renew, supported by her own research that finds the advisors who are most effectively engaged in their businesses really do tend to be the ones that take the most time off from the business as well; and the last is a discussion of a recent research study finding that the whole concept of “work-life balance” may be the wrong way to view the issue, as it implies a painful zero-sum trade-off, and that pursuing “work-life harmony” is a better way to approach the competing demands of business and life/family.
And be certain to check out Bill Winterberg’s “Bits & Bytes” video at the end, which this week includes coverage of a financial advisor who got fired after falling for a cyberthief’s “spoofing” attack (where the advisor accidentally processed fake email wire transfer requests), the news that Envestnet has acquired Wheelhouse Analytics (likely in preparation for DoL fiduciary price benchmarking), and the announcement of two new robo-advisor platforms, from Zacks Investment Management (which launched Zacks Advantage) to Merrill Lynch and its new Merrill Edge Guided Investing solution.
Enjoy the “light” reading!
Weekend reading for October 15th/16th:
Advisers Who Outsource Investment Management Make More Money Than Those That Don’t (Grete Suarez, Investment News) – A joint study by SEI and FP Transitions analyzed data from a whopping 8,000 advisors over the past 10 years, and found that financial advisors who outsource investment management run more financially successful businesses than those who don’t. Notably, the study found no discernible differences in investment management performance results – meaning that ‘self-directed’ advisors were on average no better, but also no worse, than outsourced investment management solutions when it came to the quality of investment management itself. Instead, the business difference appears to stem directly from the amount of time that non-outsourcing financial advisors spend on their own investment management, which in turn crowds out time to meet with prospects and existing clients, and crowds out budget that could otherwise be dedicated to marketing and business development. As a result, outsourcing advisors grew an average of 14 new clients and $14.5M of new AUM per year, compared to only 4 new clients and about $7M of new AUM for advisors who manage in-house; over the span of a decade, that meant in-house investment managers had grown to about $800k of annual revenue, while the advisor who outsourced grew to an average of $1.9M of revenue. (Michael’s Note: It’s important to recognize that SEI is a provider of outsourced investment management solutions, and thus had a financial self-interest to see the study’s results come out the way they did; nonetheless, that doesn’t change the potential validity of the underlying result itself, that advisors are limited by their available time, and where they choose to spend it will impact their business outcomes!)
Social Media Adoption Soars Among Financial Advisors (Christopher Robbins, Financial Advisor) – For the past several years, Putnam Investments has been doing a “Social Advisor Survey”, and the latest results from their 2016 study show continuing growth and adoption of social media platforms. Overall, 85% of advisors are using social media platforms on a daily basis (up from 75% two years ago), and 80% of those advisors specifically noted that they were now gaining new clients via social media, up from just 49% in 2013. Results overall are still modest, with the median asset gain through social media at $1.9M of AUM, though savvy larger advisory firms are having even more success, with those over $100M of AUM reporting a media social-media-driven AUM gain of $4.7M. Overall, 35% of large firm advisors are now reporting that social media plays a “very significant” role in their marketing efforts, with 85% reporting that social media is shortening the time it takes to close business and 56% stating that it is improving their overall efficiency. Notably, as social media platforms and trends ebb and flow, both Twitter, Google+, and Instagram saw their slowest adoption growth rates yet, while advisor usage of YouTube, Pinterest, and Tumblr actually declined in 2016, as firms appear to be concentrating on the leading platforms of LinkedIn (up to 73% adoption), Facebook (at 54%), and Twitter (at 44%).
Despite Having The Tools, Most Financial Advisers Don’t Track Sales Leads (Matt Sirinides, Investment News) – In the latest 2016 edition of the InvestmentNews Financial Performance Study of Advisory Firms, the researchers attempted to analyze for the first time the conversion rates of the typical financial advisor’s sales process, as leads (initial touches with strangers) turn into bona fide prospects (interested in doing business), and prospects then turn into clients. Unfortunately, though, the researchers found that the data itself is a problem; even though more than 90% of advisory firms use some form of CRM system to track clients, only 38% of them have a formal program in place to track how many leads came to the firm to begin with. In other words, the majority of advisory firms don’t even know how many leads they’re getting in the first place… which obviously makes it impossible to measure conversion rate success and outcomes! Amongst the firms that do track the data, the study found that the average firm converts 33% of their qualified prospects into clients, and 21% of their overall leads (though notably 4th quarter leads might just not have closed “yet” by the time the survey data was collected, so true long-term conversion rates for advisory firms may be slightly higher on average, given that sometimes a lead can take a year or more to eventually become a client). Ultimately, the data matters because tracking leads is a key performance indicator of the long-term health of an advisory firm’s pipeline, while a low lead-to-prospect conversion rate indicates that the firm’s marketing is doing a poor job of screening out qualified vs non-qualified leads, and a poor prospect-to-client conversion rate implies a problem with the sales process. But until advisory firms do a better job of measuring the activity and outcomes, it’s difficult to assess whether any particular firm has a problem or not, or what a “typical” result would even be in the first place!
How to Deepen Relationships with Centers of Influence (Teresa Riccobuono, Advisor Perspectives) – Building a network of Centers of Influence (COIs) who can refer you to new clients is long recognized as an effective path to growing an advisory firm, with almost 70% of the affluent finding their primary financial advisor through their accountant or attorney… with the caveat that to do COI marketing, you have to figure out how to build that network of COIs in the first place! And Riccobuono notes that in reality, there are actually three different types of COI relationships – the Advocates (who actively refers you, without reciprocation, because they think you provide a great solution), the ‘typical’ COI (who casually refers you, and to whom you may occasionally cross-refer), and the Strategic Partner (where there is an exclusive and reciprocal cross-referral arrangement, which may also include a revenue-sharing agreement). The distinction matters in part because different types of referrers have different expectations for the client relationship going forward; for instance, typical referrers and some strategic partners may refer to a financial advisor but expect that they are still the ones controlling the relationship – in other words, they are not “giving you” the client and control, they are bringing you in to support their client (and if you don’t recognize that dynamic as the advisor, you will likely ruin the COI relationship!). In addition, recognize that in a world where most COI relationships only thrive if they are true relationships, you need to treat them as such – which means getting to know the COI as well as you would try to know your top clients. In order to meet them in the first place, you can pursue many paths, from networking groups and events, to connecting through a mutual friend on LinkedIn, or looking to the professionals your clients already patronize and asking for an introduction. And when you get started, be certain to qualify the COI early – which means asking if the COI is taking on new clients (is it even meaningful to cross-refer him/her some of your clients?), and whether the COI already has a trusted financial advisor to whom referrals are made (so you at least understand the potential and/or your competition). If you find a good potential fit, Riccobuono suggests the next step is to invite the COI to your office, and actually take them through a meeting similar to what a prospect goes through – not because you’re soliciting the COI for business directly, but because you want the COI to understand what the experience would be for a prospect that he/she refers to you. And remember, as you form relationships with multiple COIs, that it’s important to track results and activity, so you are aware of what’s actually working, or not, with any particular COI.
Should I… Hire Another Planner? (Ingrid Case, Financial Planning) – For solo advisors, the decision about whether to hire or not entails big trade-offs. The good news is the potential to expand the capacity of the business and allow for more clients, to refocus your time as the advisor on what you enjoy and do the best in the business (and delegate the rest), and can even be a continuity plan to sell the business; the bad news is that it means you have to actually manage people, and be prepared to make the sacrifices and reinvestments necessary to continue to grow the business. Unfortunately, even for those who decide to hire and grow, the process of actually finding the right hire can be very time-consuming and frustrating (though notably, there are some outside recruiting firms that help with the process, albeit for an additional cost). And recognize that the cost of an employee, between salary and benefits, could take years to recover financially and break even before it’s a net enhancement to the firm’s bottom line, not to mention the time to train and develop someone (especially if they come in from outside the industry). Nonetheless, the reality is that if you want to shift from running a practice to a business that has value and the ability to survive beyond yourself, eventually the step of hiring a paraplanner or another financial planner is one that you’ll have to take!
8 Leadership Mistakes That Hurt Your Firm (Angie Herbers, Investment Advisor) – One of the fundamental challenges of growing a successful firm as a financial advisor is that the advisory skills of the founder which allows the business to survive and thrive in the early years are not the same as the management and leadership skills necessary to lead a growing business… and many founders struggle greatly in making the transition from client advisor to business leader. Notably, the first key in making the transition successfully is simply recognizing the problem in the first place – that advisor success is not the same as business leadership success, and that being a good leader is something that requires effort to learn. This self-awareness, and willingness to learn, makes it feasible to overcome the problematic “thinking mistakes” that sometimes hinder owner-advisors. In fact, Herbers identifies eight such common behaviors: 1) feeling guilty about your success (from how much money they make, to the time off they take, which can unconsciously lead to self-sabotaging behaviors from snapping at employees, or spending even more time than is healthy out of the office, just to avoid facing the guilt); 2) doubting they can be leaders (and failing to recognize that while they may not naturally have leadership skills to run a large enterprise, those skills can be learned); 3) seeking validation from others (which can lead to blind spots when owner-advisors surround themselves with people who only tell them what they want to hear); 4) seeking a consensus from employees (as the reality is that being the owner-founder-leader means eventually, you have to take the authority to make the key decisions); 5) wanting employees to be your friends (as there’s a big difference between being liked by employees, and being friends with them, and blurring the line makes management and leadership more difficult); 6) believing you can control people like machines (recognize that employees can’t just be controlled or manipulated); 7) not fighting fair (as occasional disagreements will occur, and handling them in a manner that abuses power as the owner can damage your ability to lead in the future); and 8) acting invulnerable (instead of simply being honest, cooperate, and taking responsibility for mistakes). Notably, all of the problems that Herbers highlights are ultimately driven by the mental state of the owner-advisor; in other words, you can’t be a good leader until you’re truly mentally prepared to tackle the challenge.
Here’s What Financial Advisers Need To Tell Clients About New Money Market Rules (John Waggoner, Investment News) – In the coming week, the new money market rules that were created in the aftermath of the 2008 financial crisis will finally take effect. For institutional investors, the big change is that prime money market funds will now have floating NAV prices (calculated daily out to four decimal places). For retail investors, prime money market funds will still be locked into a $1 NAV. But both retail and institutional investors in prime money market funds could face redemption limitations in times of market duress; under the new rules, prime funds can impose an exit fee of up to 2% for a limited time on those who try to liquidate during market volatility, and in the extreme they can even halt redemptions for up to 10 business days. (These rules also apply to tax-free money market funds.) For retail investors (i.e., natural person clients of financial advisors) who want to avoid the potential redemption limitations, the alternative is to invest into a money market fund that holds only government bonds, which will both maintain a $1 NAV and have no redemption limitations. The trade-off, however, is that prime funds do have a slightly higher yield (currently averaging 0.17%, versus just 0.03% for retail government-bond money market funds) in exchange for taking the liquidity risk. Notably, many money market funds have already been shifting their own structure and focus to comply with the rules; in fact, almost $1 trillion of cash has already moved from prime money funds to government money funds since the financial crisis.
Uncle Sam Pays Almost Twice the Yield on Treasurys, If You Know Where to Look (Jason Zweig, Wall Street Journal) – In a world where cash alternatives yield almost nothing, and even a 20-year Treasury bond yields a meager 2.1%, investors can still buy Series EE Savings Bonds directly from the U.S. Treasury, with a whopping 20-year yield of 3.5%, thanks to a provision that guarantees the investor will always get back at least twice the money they put in after 20 years if the savings bond is held to maturity. The caveat is that the Series EE bond must actually be held to maturity in order to get this yield; on a current yield basis, interest currently accrues at a mere 0.1%/year, which means it is functionally more like a zero-coupon bond than a traditional yield-bearing instrument. In addition, it’s notable that a U.S. Savings Bond cannot be redeemed in the first year you buy it, and will apply a 3-month interest penalty if sold in the first 5 years (which admittedly isn’t much of a penalty given the 0.1% annual yield!). And you can only invest $10,000 in EE Savings Bonds per Social Security number each year (so $20,000/year for a married couple), which must be done directly through TreasuryDirect.gov. Another benefit to using Series EE bonds is that they can be liquidated tax-free to pay for higher-education costs, as long as you’re under the income limits (currently about $92,000 for individuals and $145,000 for married filing jointly) and the bonds are registered in one or both parents’ names. Though at this point, many are simply using them as a fixed income alternative (to the extent permissible), and some investors might consider purchasing them during the accumulation years as a form of bond ladder strategy (for instance, buying $10,000/year of Series EE bonds in your 40s will provide $20,000/year at maturity in your 60s, providing the necessary cash flows to cover retirement spending while delaying Social Security until age 70).
A Guide To Getting Rid Of Your Big-Bank Checking Account (Ron Lieber, New York Times) – The recent debacle of Wells Fargo improperly opening as many as 1.5 million bank accounts on behalf of unwitting consumers, just to make sales goals, has once again begun the all-too-common discussion of whether it’s “finally” time to ditch major national banks in lieu of alternatives. So what exactly are the alternatives? One choice is to pursue a Credit Union – a nonprofit cooperative that exists to serve members – which do limit participate to those who qualify as ‘members’, but the membership requirements are fairly expansive these days, and the Credit Union National Association even has a search tool to help people find a local option. Another option is to check out smaller local banks, though unfortunately banking regulations make it harder than ever to start new ones these days; nonetheless, there are several organizations that help people find local banks, including the Global Alliance for Banking on Values, the Community Development Bankers Association, and the Independent Community Bankers of America. For the tech-savvy individual, another option is to look to the emerging number of digital start-up banking solutions as well, such as Zero Financial (expected to launch early next year). Unfortunately, though, there’s no alternative to the nuisance of needing to re-do all the automated bill-pay and transfer payments you may have already set up with your current bank if you switch, and be certain to check out the breadth of the ATM network, the ability to deposit checks via mobile phone, and the costs or hassles to transfer money to external accounts (if any/all of those banking features are relevant for you!).
Don’t Mistake Achievement For Passion And Purpose (Stephanie Bogan, Investment News) – By age 35, Stephanie Bogan has built a thriving consulting firm called Quantuvis, and sold it to Genworth in a seven-figure deal, and for the next several years served on the executive team of Genworth and later United Capital. By any classic measure, Bogan had earned money and prestige and was successful, but she still felt stress and anxiety, fear and doubt, and wasn’t satisfied or able to relax. Ultimately, she recognized that her drive for success was really a search for significance and meaning – that essential journey to find acceptance and belonging that every human being struggles with, and one that many financial advisors similarly struggle with, as we enjoy the money and prestige and success of the advisory business. Yet so many are still unsatisfied and are not as happy, healthy, or wealthy as they’d like to be, and feel enslaved to their businesses. So how do you move forward? Bogan suggests the starting point is to recognize that we’re all driven by our own inner issues – those dysfunctions and wounds we carry, which we attempt to ‘solve’ by directing our energies into the world. Which means it’s impossible to make the mental transition to a better place, until you reflect on what it is that really drives you. The good news is that once you recognize the root causes, neuroscientific research shows that it really is possible to change – it’s a phenomenon called neuroplasticity, a recognition that our brains really can be retrained and rewire themselves to follow new habits (that can take us down the path of a happier, more fulfilling, and more successful life). The key, is to recognize that the lens of how we see ourselves and the world around us is the primary thing that defines our path, and that changing our own worldview is what changes our outcomes. Or stated more simply: how we view our world is what creates it, which means if you want to change your world, you need to change your mind and how you view yourself first.
The Most Common Way We Limit Our Own Success (Julie Littlechild, Absolute Engagement) – Personal renewal and taking time off is critical to business and personal success, yet the challenge is that often those who need it the most are the ones so immersed in their businesses that they can’t find the time to do it. Yet without taking time to refuel and re-energize, you can lose your creative edge, which ultimately drags down your business. Notably, how you choose to recharge is up to you; the common theme of the most successful people is not how they renew, but the fact that they are intentional about carving out some time to do so, and when they do they often go big (e.g., they don’t just take time off, they take a full month sabbatical; they don’t just go for a run, they train for an ironman). In part, this is because even “good” time off should still have a focus, as energy can diminish with both overuse or underuse of a muscle or skill. The results of effective personal renewal, though, are clear; in Littlechild’s own Absolute Engagement research, she finds that advisors who are “absolutely engaged” in their businesses are twice as likely to take 5 or more weeks off each year (and are more likely to do it by taking most of that time off all at once, rather than intermittently). The bottom line, though, is simply to recognize that as financial advisors, our focus may be on helping others, but in the end you can’t effectively (and sustainably) help others until you take care of yourself, first!
The Key To Work-Life Balance Is Really Work-Life Harmony (Psychological Science) – Virtually everyone in the working world has had to contend at some point with a conflict between personal and work life, such as trying to decide whether to stay late at work to finish a project, or make it home in time for the family dinner. And while always skipping the project to spend time with family could get you fired, employers are increasingly being forced to acknowledge that always choosing work over family isn’t good, either; research has shown that some level of “work-life balance” is vital to maintaining job satisfaction and avoiding burnout. Yet a recent new study by Ong and Jeyaraj on the topic of Work-Life Interventions finds that viewing the problem as one of “work-life balance” may itself be unhealthy, because it implies that the issue is a zero-sum game where work and life are separate and competing domains; instead, they find that it’s more effective to reconsider the issue as one of “work-life harmony” instead, where work and life are interconnected and co-dependent, not separate and in competition. In fact, the study found that managers who guided employees through work-life conflict situations by framing solutions as an integration of work and life had employees maintain better creativity levels and experience less cognitive dissonance and stress about their work and life conflicts. While the research is still early, the implication nonetheless is that perhaps it’s time to rethink the tension between work and life as not being a zero-sum game, or a see-saw where pushing on one side adversely impacts the other, and instead think about how to productively engage the two in a manner that tries to harmonize the demands of both.
I hope you enjoy the reading! Please let me know what you think in the comments below, and if there are any articles you think I missed that 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. 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!