Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a recent survey found that clients across several countries who work with a CFP professional have better outcomes on a range of measures compared to those working with other advisors or no advisor at all, suggesting that the potential benefits of gaining CFP certification can accrue not only to the advisor themselves, but also to their clients.
Also in industry news this week:
- A new advisor benchmarking study indicates that high-growth firms are excelling in 3 areas: client acquisition, "relationship alpha", and strategic scale
- A recent survey indicates that while advisors increasingly are leveraging home office investment models to save time and scale more efficiently, they often customize them to meet their clients' unique needs
From there, we have several articles on retirement planning:
- Why "unretiring" does not necessarily have to mean going back to work full-time or in one's former industry
- The motivations for individuals who have reached 'traditional' retirement age to keep working and how advisors can support clients who are considering this decision
- How volunteering offers a range of mental and physical benefits to retirees and where they can find opportunities in their community
We also have a number of articles on client communication:
- Best practices for advisors in handling tricky client communication scenarios
- How advisors can add value to clients by helping them overcome "choice overload"
- The benefits of proactively informing clients about changes to an advisor's business and how advisors can structure and deliver these messages
We wrap up with 3 final articles, all about defining wealth:
- How defining wealth in terms of what an individual "can do" rather than as an arbitrary number can help clients better understand the "why" of their financial decisions
- How wealth can be thought of as one's ability to control their time
- How thinkers over the centuries have defined "enough" and what their conclusions mean for individuals today
Enjoy the 'light' reading!
(Josh Welsh | InvestmentNews)
Earning the CFP credential is associated with a range of benefits for financial advisors, from having increased confidence in their technical skills to higher compensation compared to advisors without the certification. And while survey data indicates that consumers increasingly prefer to work with a CFP professional, a recent study sought to quantify the benefits clients of CFP professionals receive compared to those who work with an advisor without the credential.
According to the study of more than 15,000 consumers in 15 countries and territories sponsored by the Financial Planning Standards Board (which oversees the CFP certification internationally), clients of CFP professionals reported that they were more likely to experience a higher quality of life, were more satisfied with their financial situation, had greater financial confidence, and had a better experience with the financial planning process compared to clients of advisors without the CFP certification. In addition, 98% clients of CFP professionals said they trust their planner to act in their best interest (though this figure was also high for non-CFP advisors at 95%). Respondents reported a range of benefits from working with their advisor, from helping them fulfill their life dreams (with 79% indicating so) and cope better when faced with health issues (73%), to positively impacting their family life (51%) and mental health (51%). In terms of the top benefits of working with a financial planner, the most popular response was improved financial wellbeing and peace of mind, followed by better financial decision-making confidence, help to explain and simplify financial matters, and saving time and effort organizing their finances.
Overall, this study indicates that clients across many countries receive a wide range of benefits, both for their finances and for their lives as a whole, from working with a financial planner, and with CFP professionals in particular. Which speaks to the value that advisors provide their clients as well as the potential boost to credibility and effectiveness provided by the CFP certification!
(Jennifer Lea Reed | Financial Advisor)
Industry benchmarking studies can be a valuable tool for advisory firm owners to make better business decisions. By compiling and publishing data on firms across the industry, the studies enable owners to compare their firms' performance side-by-side against that of their peers, giving the owners an expectation for how their firms should perform and insight into where they might be outperforming or underperforming the competition.
Providing additional data points for advisors, Investment firm Capital Group's latest benchmarking study of 3,000 advisors across a range of advice channels found that the average advisor surveyed grew their revenue by 7% in 2022 (despite weak market performance). At the same time, the top quintile of firms in terms of growth (measured as a composite of asset, revenue, and client growth) saw more than double this increase.
The study found that these high-growth firms excelled in 3 areas: client acquisition, relationship alpha, and strategic scale. In terms of client acquisition, high-growth firms were more likely than the average advisor to have a distinct brand identity, had greater confidence in their marketing skills, and were almost twice as likely to have standard procedures in place for prospecting. High-growth firms were more likely to offer services beyond investment management, with education planning, charitable planning, and estate planning among the services more likely to be offered by these firms. Finally, the high-growth firms were better able to scale by defining and measuring productivity, efficiency, and return on marketing and technology investments, and were nearly 20% more likely to have standard operating procedures in place for a range of business activities.
For advisors interested in seeing how they stack up with other firms, Capital Group also released a tool dubbed "Your Growth Plan" that allows a firm to input its own data and receive a personalized business assessment based on the results of its benchmarking study. In addition, advisors can also review other major benchmarking studies to compare data for more specific firm types (e.g., only RIAs or fee-only planners) to get an idea of best practices across the industry and consider what might be appropriate to implement in their own firm!
(Emile Hallez | InvestmentNews)
As many financial advisors have shifted their service models from a focus primarily (or entirely) on investment management to comprehensive financial planning, they naturally have less time to focus on creating and managing customized portfolios for each client… and less need to do so, when their value isn't necessarily derived from the portfolio management side of their offering in the first place. Fortunately, these advisors have a range of options available to support a more systematized and standardized investment planning service to clients, from Turnkey Asset-Management Platforms (TAMPs) that help advisors manage the full portfolio management process to model marketplaces that serve as centralized platforms where advisors can select from a series of third-party-created investment models, but retain control and discretion to implement the trades themselves (typically using trading and rebalancing software).
A related option for advisors working under the umbrella of a larger firm is to use the firm's 'home-office models', proprietary asset allocation models that advisors can leverage without having to outsource this task to an external vendor. Which ranges from advisors affiliated with broker-dealers that provide their own home-office models, to those advisors at mid-to-large-sized RIAs that establish their own internal investment team that crafts standard models that all advisors of the RIA can (and are expected to) use.
Notably, though, advisors do not necessarily use these models without client-specific modifications; for instance, a Fuse Research Network report found that while advisors are increasingly turning to home-office models (and 71% of advisors with access use them to some extent), only 10% of those surveyed said they use them with little or no modifications. At the other end of the spectrum, the report found that 36% of advisors at RIAs and broker-dealers build their own asset allocations from scratch, while only 9% of wirehouse advisors did the same.
In sum, advisors appear to be increasingly turning to model portfolios (whether sourced from a home office, centralized within their own investment team to all their advisors, or via a model marketplace) that offer the opportunity to save time on building an asset allocation… while still allowing the advisor to craft client-specific advice and make client-specific portfolio modifications as appropriate. Which ultimately creates more scale for the advisory firm, and frees up time for advisors to focus on the services their target clients need the most (while also presenting an opportunity for advisors whose unique value proposition is investment management to differentiate themselves!).
(John Yeigh | Humble Dollar)
Many individuals look forward to retirement as a time of relaxation when they can wake up when they like and do whatever they want to during the day. But after an initial honeymoon period, some retirees find that they are missing a sense of structure and purpose that can come from work. Which leads some individuals to 'unretire' or take on paid work once again.
Notably, returning to the labor force does not mean that an individual must go back to full-time work, or even their previous profession. In the case of Yeigh and his wife, 'unretiring' meant buying a lakefront property that included 3 cottages: 1 for the owner and 2 that could be rented out. Not only have Yeigh and his family enjoyed living on the lake, but the work involved in renting out the cottages (and the income it brings in) has brought several benefits as well. For instance, the weekly cadence of vacationers coming in and out (and the work required to 'turn over' each cottage) has added structure to their schedules. In addition, tracking rental schedules, maintenance requirements, tenant communications, and other responsibilities have helped to keep Yeigh and his wife in good mental and physical shape. Further, at a time when some retirees have a hard time replacing the social connections that a workplace can provide, Yeigh has enjoyed meeting and interacting with the variety of renters that stay at their property. Finally, the rental cottages have provided an additional income stream for Yeigh and his wife in retirement, reducing their dependence on the performance of their investment portfolio.
Ultimately, the key point is that while managing a rental property might not be for anyone, it provides an example of how retirees can get many of the benefits of working (e.g., structure, income) without necessarily returning to full-time employment!
(Steve Randall | InvestmentNews)
Retirement, as it is typically experienced today, is a relatively new concept in the course of human history, as individuals in centuries past often worked their entire lives or died soon after they were no longer able to work. But thanks to increased longevity, many individuals today will get to live for multiple decades after finishing their careers. At the same time, this extended retirement period can come with challenges, both financial (i.e., having sufficient income to support one's lifestyle in retirement) and personal (i.e., finding ways to have a fulfilling retirement across many years).
A recent report from T. Rowe Price found that 57% of retirees want to continue working in some form. Among those working in retirement, about half of respondents said they need to do so for financial reasons, while a similar portion chose to work for the social and economic benefits, indicating that working in retirement is a choice, rather than a necessity, for many individuals. The report found that women and single retirees are more likely than men or married couples to cite income as the primary motivator for working in retirement, while men were more likely to cite the need for social engagement as a reason to go back to work.
Given the interest (and/or need) of many individuals in continuing to work after reaching 'traditional' retirement age, financial advisors have several ways to add value to clients in this position, from helping clients mentally prepare for the transition to retirement, to outlining the financial implications of continuing to work (e.g., potentially being able to delay claiming Social Security to receive a larger benefit when they do claim), to serving as a 'thinking partner' to help clients explore what activities (paid work or otherwise) that will provide them with enjoyable and meaningful 'golden years'!
(Richard Eisenberg | MarketWatch)
Pre-retirees might imagine their coming retirement to be filled with days of travel, hobbies, and relaxation after a career in the workforce. However, they might overlook an activity that is associated with a range of physical and mental benefits: volunteering.
For instance, participants in AmeriCorps Seniors, the federal government's national service program for people 55 and older, reported decreased anxiety, depression, and loneliness, with 84% reporting stable or improving health after a year of service. In addition, 88% of those who felt a lack of companionship before becoming a volunteer reported fewer feelings of isolation after. A separate study sponsored by Age Wave and Edward Jones found that people who volunteered were more likely to feel happy, resilient, purposeful, and healthy compared to those who did not (though it is possible that the interest in volunteering and the ability to do so might have influenced these results).
Nonetheless, despite the potential benefits of volunteering, only 26% of American retirees volunteer (slightly above the 23% volunteer rate for all ages). Which suggests that many retirees might be missing out on the chance to leverage their skills and experience in retirement for the benefit of others while also promoting their own health. With this in mind, advisors working with clients who are looking for more fulfilling activities or a stronger sense of purpose in retirement could offer volunteering as an option (e.g., clients could use VolunteerMatch to find opportunities in their area). In addition, advisors (whether currently working or in retirement) seeking the benefits of volunteering for themselves and others have many pro bono planning opportunities to choose from as well!
(Jane Wollman Rusoff | ThinkAdvisor)
For many financial advisors, one of the benefits of the job is the chance to work directly with clients in a variety of circumstances to create and implement a financial plan that will help them live their best lives. At the same time, doing so requires an advisor to have strong communication skills to build rapport and trust with the client, gather the information they need for their analysis, and to communicate their findings.
With this in mind, communications expert Matt Abrahams suggests several best practices for advisors looking to improve their client communication skills. For instance, while it is important for advisors to come into a meeting prepared with the key points they want to make, there will inevitably be unscripted parts of the conversation. For instance, when faced with a client question regarding what the advisor recommends in a given situation, Abrahams suggests that advisors try to add structure to their response rather than taking a stream-of-consciousness approach. One option is to answer questions in terms of 'what' (i.e., the information the advisor wants to share), 'so what' (i.e., why the response is in the client's interest), and 'now what' (i.e., the next steps).
Further, throughout their careers, advisors are bound to face situations where clients are upset, whether because of broader circumstances (e.g., a market downturn) or because of an error the advisor made. In these situations, Abrahams recommends first acknowledging and paraphrasing the client's concern, which can put them into a more collaborative, calm state. If there was an error on the advisor's part, Abrahams suggests that advisors say what they plan to do differently next time to show the client that they have thought about what happened and that there will be a change to the relevant procedure going forward.
In sum, advisors can improve their client communication skills by ensuring they listen actively to what the client has to say (to understand the point the client is trying to get across), acknowledging their concerns, and responding in a structured manner. And given that these skills can improve with repetition, advisors have a range of opportunities to practice them, from holding mock meetings and receiving feedback from other advisors to taking part in one of a variety of available training programs!
(Samantha Lamas | Morningstar)
American consumers have a seemingly unlimited number of options available to choose from in many categories, from breakfast cereals to car models. The same can be said for decisions around their finances, where there are thousands of available investment options (from individual stocks to mutual funds and ETFs) as well as potential sources of financial advice (e.g., print publications, television, social media).
Nonetheless, while having some choice is no doubt appealing in many aspects of life, facing too many options can be stressful, as described by Barry Schwartz in his book The Paradox Of Choice. At the extreme, consumers can face "choice overload", a bias caused by being overwhelmed with too many options. An investor experiencing this phenomenon could end up falling into a decision-making trap. For instance, they might fall prey to inertia (i.e., avoid making a decision given the number of available options), naïve diversification (i.e., choosing a little bit of everything regardless of their goals), or opting for attention-grabbing investments.
Given the potentially overwhelming number of choices available to investors, financial advisors can add value in several ways. First, an advisor can serve as a curator, narrowing down the potential pool of investments their client might consider based on their preferences and goals. In addition, the advisor can build a structure for the decision-making process and help prevent inertia from taking over. For example, an advisor might create a deadline for the client to make or implement a certain decision (e.g., the next time they meet). Finally, advisors can encourage clients to make better decisions by tying them back to the client's goals. For instance, a client who expresses interest in putting a significant amount of their assets in a highly volatile and speculative asset might not choose to do so if they are reminded of their goal to retire in the next few years.
Ultimately, the key point is that in a world of seemingly endless choices (financial and otherwise), advisors can play an important role not only in helping clients filter out the 'noise' and focus on the options that would best meet their needs, but also in actually implementing the decisions that are made and showing the clients how they have progressed over time!
(Eric Soda | Spilled Coffee)
Many financial advisors operate on an annual or semi-annual meeting cadence, which provides them the opportunity to sit down (perhaps virtually) with their clients to discuss a wide range of issues relating to both the client's financial plan. Sometimes, issues will come up in a client's life between regular meetings, which can lead to an email exchange, phone call, or impromptu meeting.
In addition to changes in a client's life, an advisor and their firm might make changes to their business or the services they provide. And while an advisor might be tempted to put off notifying clients of these changes (or perhaps bury the message within a longer communication, in the case of a change that they anticipate will be received negatively), Soda argues that proactively communicating these changes is a key part of maintaining the client's trust. He suggests that advisors could do so by using a 3-part blueprint: what is changing, what the client needs to know, and what the advisor recommends.
For instance, an advisor who decides to relocate might put off telling clients about the pending move because they are concerned the clients will be upset with the change (even if they can still meet with the advisor virtually after the move). However, if a client learns about the move from another source before hearing the news directly from their advisor, the client might be more upset that the advisor did not inform them themself than about the move itself. Instead, the advisor could use Soda's 'blueprint' to explain what is involved with the move, how it will (or will not) affect the services they provide their clients, and what the clients' options will be going forward.
Depending on the change being communicated, an advisor could let clients know through a phone call (perhaps the most personal, and most time-consuming option), an email addressing the specific topic (less personal, but also less time-intensive), a letter (to almost guarantee that it will be seen), or, for less serious or time-sensitive changes, in a regular newsletter or annual letter. The key, though, is to be proactive in letting clients know when something is changing, which can help maintain trust and, ultimately, client retention!
(Thomas Kopelman | The Long Game)
When individuals think about what would make them feel wealthy, they might be tempted to consider this question in terms of a certain portfolio size or net worth (e.g., I would feel wealthy if I had $1 million). However, because net worth is just a number and the figure someone picks will quite possibly be arbitrary, or at least not grounded in their individual life goals, it is easy to 'move the goalposts' over time (e.g., once someone reaches a $1 million net worth they might decide they would actually feel wealthy if they had $2 million).
Rather than defining wealth by a number, Kopelman (inspired by a LinkedIn post by fellow advisor Rachel Camp) suggests a better approach is for an individual to first consider the lifestyle they want to live and then backtrack into the income (and assets) that would be needed to achieve it. Notably, the results of this exercise will be unique for every individual (and much more unique than striving for the same net worth figure as many others). For instance, Camp wrote that she will feel wealthy if she can live in a high-cost-of-living area, exercise regularly, eat healthy whole foods, travel comfortably 3-4 times per year, and maintain a healthy savings rate for the future, while for Kopelman, being wealthy means going out to dinner every weekend and not having to pick a restaurant based on price, never saying no to experiences with friends and family due to money, focusing on his health, and allowing his spouse to pick what makes her happy.
Notably, this exercise can not only be valuable for financial advisors to do themselves, but also to implement with their clients. Because doing so can not only help clients get more clarity into the why of their financial plan, but also help them make tough decisions. For instance, a client might be deciding whether to take a new job that would come with a higher salary but would require them to be in the office well into the evening on most nights. If this client's definition of wealth was a certain net worth number, they might decide to take the higher-paying job, but if it includes being able to eat dinner with their kids every night, they might make a different decision.
In the end, by helping clients discover their most meaningful objectives, advisors can support them in making the financial decisions that will allow them to achieve these goals, even if they are not the decisions that will maximize their net worth!
(Conor Mac and Six Bravo | Investment Talk)
If a group of people were asked whether having more money would make them happier, their answer would likely be 'yes'. And while some research backs up this finding, the reality is more nuanced, as money in itself does not necessarily provide more happiness (e.g., high-income individuals who do not feel like they have enough time to get everything done are often unhappier than those with lower income but more time).
While they are sometimes considered separately, time and money are closely linked. For instance, an individual might give up several hours in a day to work to earn money. If they immediately spend all of these earnings, they will need to continue on the work-spend cycle perpetually. Alternatively, if they are able to save a portion of this money, they can build wealth over time that can either be spent to 'buy' time in the near term (e.g., by hiring someone to mow the lawn), or even to no longer need to work (i.e., retirement). This way of thinking can also put spending into perspective of the amount of time the purchase will 'cost' (e.g., a $200 purchase will 'cost' 5 hours of time for an individual who makes $40 per hour, or perhaps even more in the long run if that money would have otherwise been saved and compounded), though individuals will have different preferences for balancing consumption today versus saving for tomorrow.
In the end, wealth is not just a number on a page, but also represents the ability to have greater control over one's time. Which suggests that advisors can play a role in helping clients understand this tradeoff and choose the path that will give them the time to pursue what is most meaningful to them, both today and into the future!
(Steve Sanduski | Steve Sanduski Advisor Network)
In the modern age, particularly since the introduction of social media, comparing one's situation to that of others is easier than ever. And even if one has significant wealth in absolute terms (e.g., an individual who has enough money to retire comfortably given their current lifestyle), the temptation to compare oneself to others is always there (e.g., I can retire, but my neighbor can retire and owns a vacation home) and could lead an individual to always strive for 'more' (e.g., by working several more years to build more wealth).
While everyone's definition will be different, thinkers for centuries have considered what it means to have 'enough'. For instance, more than 2,500 years ago, Lao Tzu wrote "Chase after money and security and your heart will never unclench" and "If you look to others for fulfillment, you will never truly be fulfilled", messages that still resonate today. More recently, the economist Adam Smith in the 1700s warned against the danger of equating wealth with virtue and happiness, instead suggesting that one's sense of self-worth be based on the moral virtues they uphold.
Putting the lessons of several thinkers together, Sanduski finds that they reach a similar conclusion with regard to what 'enough' means. First, 'enough' is not a number, but rather requires self-reflection about what is truly necessary and valuable for one's life (rather than basing it on societal expectations or pressure to match their peer group). Second, an individual's mindset can help determine how they view money and determine what is 'enough'. For example, author Lynne Twist suggests in her book The Soul of Money that instead of thinking about money as a 'stock' (e.g., a specific amount of income or net worth) it can be thought of as a 'flow' (i.e., something that moves to an individual when earned and away from them when spent). In this 'flow' view, an individual might have 'enough' when their needs are met, as opposed to the 'stock' view, where this is limitless room for growth in one's net worth (and comparison with others).
Ultimately, the key point is that while each individual will have a different definition of how much money is 'enough' for them, being thoughtful and intentional about determining what 'enough' means based on their own values could be an antidote to the temptation to always seek more or to 'keep up with the Joneses'!
We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.