- Part 14

Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets

October 10, 2019 07:13 am 2 Comments CATEGORY: Kitces & Carl Podcast

When clients are panicking and on the verge of making emotionally-driven (and potentially irrational decisions), there's an opportunity for advisors to use empathy to build trust and strengthen the relationships to be able to talk clients off the ledge. Recent insights from behavioral finance show us ways to genuinely relate to clients by understanding their fears on an objective and intellectual level. But once an advisor makes an empathetic connection, how does the advisor then move that conversation forward to help their client actually make a more rational decision?

In our 18th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards extend their last podcast and look at communication strategies advisors can use to set the stage for helping clients actually make better decisions after ‘talking them off the ledge’, using a three-part pyramid framework: the Plan, at the foundation of the pyramid (representing the financial plan itself that was developed around the client’s personal values and goals); the Process, in the middle (i.e., the method whereby an advisor helps their client determine how those values and goals will become reality); and the Product, at the top of the pyramid (which are the tools that were chosen but that are now the focus of the client’s fears and anxieties).

By using such an approach, an advisor can draw the client’s attention away from the initial cause of alarm – that place in the ‘branches’ of irrational ideas driven by emotional turmoil – back to the grounding ‘roots’ of the client’s financial plan, which (as they’ll be reminded) was built around their own personal values and unique goals. And then, once the client is (hopefully) back at a place where their point of reference is centered on their foundational values and goals (instead of on whatever external, uncontrollable news story or event that made them worry in the first place), it’s at that point where data and evidence can (finally) be brought into the discussion and how the plan originally factored in the potential for both good and bad outcomes to begin with!

Because changing the perspective back to the fundamentals of what they’re trying to accomplish can have a huge impact on a client’s behavior; without that context (and especially under the influence of sensationalized market news), the reasoning behind the product can be easily forgotten and difficult to understand, making that product seem arbitrary and potentially senseless in a turbulent environment. By contrast, with the (reminded) context of the plan, staying within the parameters of the client’s plan will almost always now seem the best course of action for them to weather whatever turmoil the market might be experiencing at any given moment.

Ultimately, the key point is that, by establishing trust through a connection built on empathy, we as advisors can help upset clients remember how the foundation of their plan, based on their personal values, was used to develop the unique portfolio and recommendations designed to bring their financial goals to fruition. And by re-centering the client’s focus back to their original plan, an advisor can make all the difference in helping a client maintain the grit they’ll need to stay on course regardless of whatever transient turbulence the client may perceive.

Kitces & Carl Ep 17: Responding With Empathy When Clients Call About ‘Scary’ Markets

September 26, 2019 07:17 am 6 Comments CATEGORY: Kitces & Carl Podcast

If there’s one thing virtually every financial advisor can relate to, it’s the outreach from a panicked client who has seen or heard some sensationalized story about how the economy or market is in imminent danger of collapse and is seeking reassurance that their life savings will be okay… and may even be asking if it would be better for them to simply sell everything and put their money in cash or CDs. Or instead, it’s the angry client who calls and wants to know (immediately!) why their portfolio has declined, despite frequent (and recent) discussions the financial advisor has had with them about inevitable market fluctuations.

Yet while it’s easy for advisors to get frustrated (especially after having the exact same conversation, sometimes with the exact same client, multiple times), it’s not always as easy to remember that clients are human beings, and as such, will naturally experience fear over losing what they hold dear. And for many clients, it isn’t just about losing portfolio assets themselves that is upsetting; rather, for many clients, it’s what that accumulated wealth that they have entrusted you to manage actually represents: a lifetime of hard work, and the ultimate means to achieving their future goals and dreams, that they may fear is evaporating away right before their eyes.

In our 17th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about the importance (and challenges) of responding with empathy to clients who are upset or afraid. Because even though research in behavioral finance has helped us better understand the natural human proclivity to make irrational decisions, especially in times of stress and fear, the objectivity with which these paradigms have been created has perhaps unwittingly made it too easy for advisors to judge their clients for their impulsiveness, and subsequently become dismissive of what are normal and understandable reactions to stress. And while it is an advisor’s job to help their clients make good decisions, the real challenge is figuring out how to do so with kindness and empathy, and without behaving smugly with a sometimes-hard-to-resist “I told you so” attitude.

Instead, the insight that behavioral finance has provided to advisors can be used to offer an empathetic response to an upset client in a truly genuine manner. Because when that advisor takes a moment to tell the client, “I understand why you’re upset,” they are doing so from a place of intellectual understanding, and are in the optimal position of helping the client down from the ‘branches’ of irrational ideas and emotional obfuscation, and back to the ‘roots’ of their financial plan’s basic objectives… which are based on the client’s core values and long-term goals. And by deliberately pausing for a moment after offering an initial empathetic response, an advisor can give the client a chance to shift gears and, if necessary, to calm down, which helps set the stage for the ensuing conversation.

Ultimately, the key point is that, when a financial advisor responds with empathy to a panicked or angry client, they are strengthening that relationship, building trust, and becoming more effective at their jobs. Because, at the end of the day, empathetic communication is simply an effective tool to connect people to each other’s humanity, facilitating conversations around highly personal values, points of view, and priorities, all of which make it easier to understand the ‘why’ behind a client’s goals and objectives, and how to stay on track to achieve them through the vicissitudes of market volatility.

Kitces & Carl Ep 16: Helping Clients Understand What It Really Means To Retire

September 12, 2019 08:48 am 5 Comments CATEGORY: Kitces & Carl Podcast

The traditional view of retirement has generally been to work as hard as you can during your working years and save as much as possible, to enjoy a life of comfortable leisure after the retirement transition. And although that may seem to be perfectly reasonable on the surface, the reality is that sometimes, careers are more of a (sometimes excruciating) slog rather than a purposeful journey, that even just making it to the retirement transition can be a challenge. In addition, the retirement transition itself can be challenging as well, as the expectation that we’re supposed to know exactly how we’re supposed to lead a fulfilled and rewarding life once it’s time to flip the retirement switch is not always the case in practice. Which, in turn, begs the question: is it really fair to ask someone to “hang in there” with a job that makes them miserable, so they can save up for a future they don’t know how they want to spend anyway?

In our sixteenth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards explore different ways advisors can frame their conversations with clients when helping them envision and plan for a retirement they can actually look forward to, how to integrate relevant “what if” scenarios for a client that can help them truly understand the range of options available that they may not have otherwise thought possible and practical ways to ask questions in a way that probes what clients love to do, what excites them, and what brings them joy – which, in turn, can spark retirement ideas that they will be truly motivated to pursue.

As a starting point, advisors might ask clients how they might go about doing less of what they don’t like to do, and more of what they do like to do (rather than trying to envision a full-stop retirement). And what it might look like to adjust income over time to eventually reach a no-savings and no-withdrawal stage, to reflect a gradual change in work activity (e.g., jobs that might pay less, but that involve activities the client loves more), which can show the client they don’t necessarily have to wait until “retirement” to leave their current job in the first place. Meanwhile, advisors can also simply ask clients what kind of work they would do if they were financially independent and the level of income from their work didn’t matter to begin with, as a probing thought experiment to help clients see past the “traditional” picture of retirement and formulate specific goals that are both meaningful and enjoyable.

The key point, though, is simply that conversations around retirement planning must go past the traditional objective of figuring out how much a client needs to have at a certain age so that they can afford to maintain their current lifestyles, which presumes a sometimes-hard transition away from what might have been meaningful work into a retirement lifestyle they may not really have clarity about anyway. Instead, by examining alternative possibilities leading up to (and through) retirement, advisors can add even more value for their clients… not only by helping them understand their financial picture (in the traditional sense), but also in realizing the wide range of possibilities available to them moving forward!

Kitces & Carl Ep 15: Why Are We So Afraid To Just Listen

August 29, 2019 09:05 am 1 Comment CATEGORY: Client Trust & Communication Kitces & Carl Podcast

Although gaps in a conversation are often awkward and uncomfortable, when used effectively, they can become power tools for financial advisors to foster deeper connections with their clients. Because, beyond just hearing what financial concerns a client may have, advisors can use the opportunity to give space to the conversation, which helps to establish empathy and build trust, and in the process sometimes bringing to light the unique roadblocks clients may have in executing their plan.

In our 15th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the value of really listening to clients, and how, by simply talking less and listening more in client meetings, an advisor can improve the chances that a client will stick to their plan.

In general, financial advisors are trained to be knowledge experts and to communicate that knowledge to clients. But even though clients seek out financial advisors for their technical expertise (after all, the main value-add financial advisors offer are the recommendations that help clients down the path of achieving their financial goals), what may not be so obvious are the reasons that clients will (or will not) successfully follow those recommendations. Reasons that can’t be discovered… unless the advisor gives the client the space to reveal them.

Because no matter how perfect and comprehensive a plan may be, it will offer little value if the client does not know how, or is unable, to follow it. Like a swimming instructor teaching a fearful student how to swim, it may be very clear to the advisor what steps the client needs to take and how to communicate what those steps are. Yet it may be harder to see the doubts and fears that the client may be holding on to – or about whether they can even trust the advisor in the first place – which, in turn, can give rise to a client’s hesitation and reticence to follow through… in essence, a “gap” between what the client knows (i.e., what you tell them), and what a client actually decides to do. But by encouraging clients to fully talk through their concerns – and by using silence as an opportunity for the client to reflect deeply on the questions asked – advisors can empathetically understand what a client’s true priorities are, and particularly, what may be creating the knowledge/action gap for the client.

In the end, the key point is simply that it’s okay, and maybe even potentially valuable, to have some silence during a client conversation, because it can lead to a better balance between the delivery of knowledge and the discovery of nuances that make the client a unique individual. Ultimately, by asking probing, relevant questions, and leveraging silence, advisors can become better listeners and strengthen their relationships with clients, and in doing so, may even identify the obstacles that are keeping them from sticking to their plan in the first place.

Kitces & Carl Ep 14: Projection-Free Financial Planning To Avoid A False Sense Of Precision

August 15, 2019 07:03 am 5 Comments CATEGORY: Kitces & Carl Podcast

Developing trust is one of the most important things financial advisors can do to establish lasting relationships with their clients. For which developing a comprehensive financial plan is often an opportunity not only to deliver value as a financial advisor but to deepen client trust by demonstrating the advisor understands them in the first place. Once clients have stepped into the proverbial Cone Of Trust, though, does a client really want (or need) to review and discuss a full-blown financial plan? Or would they rather just be told, very simply, what they specifically need to do to meet their goals and solve their problems? Alternately, is it still preferable for clients to review their plan in depth so that they might better understand where they are today and how decisions they make now will affect their plan in the long run… no matter how complex or lengthy their financial plan might be (and how much trust they’ve already imbued with from their financial advisor?)?

In our 14^th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards explore the various functions that a physical financial plan deliverable plays in the financial planning (and client relationship trust-building) process, share their viewpoints on how written financial plans can be used effectively to help clients, and discuss what ultimately matters most for clients, regardless of whether their financial plan is one page or requires a 2” binder and color-coded tabs.

Generally speaking, there are two (if not more) camps when it comes to the usefulness and structure of financial plans. Some advisors feel that detailed financial plans give a false sense of security by predicting future outcomes with unwarranted certainty; instead, these advisors prefer to establish trust and develop empathy without using the financial plan as a central conversation tool. Once a strong connection is formed, and they understand the client’s core issues and concerns, they often find it easy to discuss “good” behaviors the clients can follow to avoid mistakes and stay on track and do so using simple terms that apply to and make sense for the client. Interestingly, the level of trust that clients have in their advisor may often influence the degree of understanding they want/need to derive from their advisor, and/or their willingness to accept the recommendations being provided, based on the financial planning discussions they have together.

Other advisors, meanwhile, prefer to develop and discuss a detailed plan with clients and feel that their clients appreciate the clarity a good plan provides for their current financial situation, and that clients value understanding how different outcomes of important decisions considered today (such as funding education, modifying spending habits, and retiring early) will affect their overall financial picture years into the future. This is especially important because clients often fail to realize the powerful impact small changes in behavior and compounding growth can have on saving goals. Not to mention that delivering the financial plan itself can often be part of the trust-building process… as clients may not be willing to take the plan recommendations unless they’re also backed up by a thorough analysis (even if the client won’t read the analysis once they see it’s there and trust that it’s been done).

In the end, the key point is simply that advisors can use financial plans as effective tools for helping clients stay on track and make smart decisions, and that different advisors have their own distinct styles of conveying this feedback. Clients, too, are unique, and they have different preferences about how much of a full plan they want to see. Regardless of how advisors create and implement financial plans, though, clients need to be confident that their advisor is competent and that their recommendations are credible… which means either in advance of developing the plan or as part of the plan delivery process itself, it’s still essential to first establish real trust in the client relationship.

Kitces & Carl Ep 13: The Better Way To Send Market (And Other) Commentary Emails To Clients

August 1, 2019 07:01 am 2 Comments CATEGORY: Client Trust & Communication Kitces & Carl Podcast

In our last episode, Kitces & Carl opened a proverbial can of worms by asking if financial advisors still, in this day and age, send out market commentary to their clients. And if so, what do they send? The general conclusion was that, yes, advisors still need to touch base with their clients, outside of their regular service cycle, using some sort of bulk communication tool or personalized report. Because doing so accomplishes several goals, including and especially that it demonstrates to clients that the person they trusted to manage their life savings is “paying attention.”

Regular communication, meanwhile, is especially important for those clients who are in the “Cone of Trust” (e.g., that stage of the relationship where a client has been with an advisor long enough to meet much less frequently and understands that the advisor will reach out if there’s a problem, and vice versa) because it helps ensure that the client actually stays in the Cone of Trust. Unfortunately, though, while our intrepid hosts were able to conclude that sending something is better than sending nothing (and especially better than anything that features a couple holding hands against a backdrop of a lighthouse on the beach), they ran out of time before they could answer the question: What should advisors be sending their clients?

So, in our (lucky) 13th episode, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss why it’s important to send regular commentary, provide a specific example of an easy and effective way to let clients know that you are thinking about them and their challenges, and why it matters so much that it ultimately comes from you (versus any number of white-labeled, off-the-shelf offerings).

In general, what advisors send out for regular communication generally fell into three buckets. Some use third-party commentary and other materials from a reputable source (some of which can be “white-labeled”), others question the value of even sending anything out at all (since the objective is for clients to not focus on and become concerned about short-term market gyrations), while still others insist no one should be sending content unless it was produced in-house (since the goal is for the advisor to establish their own expertise and authority).

For advisors who fall somewhere between the second and third camps, but whose skill set doesn’t include content creation, one effective strategy is to send out a collection of interesting articles (which may or may not have anything to do with money or “the market”), along with a short comment on why you found it useful. It provides a means of still connecting with clients (since ultimately, whether you connect frequently can be just as important as what you send to connect). And this way, when something noteworthy in the market does come along, your clients (or even prospects) are already accustomed to your cadence.

Ultimately, the key point is simply that it does matter that advisors send something to their clients and that they do so on a fairly predictable basis. Because if you are consistently communicating with clients, you can dictate the tone and focus of whatever it is you’re sending. Which means at the end of the day, what matters is that you do take some time, on a regular basis, to send something (preferably in your own words… even if it’s just a sentence or two about why you find a particular article useful). And when you do, you send a clear signal to your audience that you’re thinking about them… and about the responsibility you have as a steward of their life savings!

Kitces & Carl Ep 12: Communicating With Clients To Bring Them Under The Cone Of Trust

July 18, 2019 07:03 am 3 Comments CATEGORY: Client Trust & Communication Kitces & Carl Podcast

Although “real” (i.e., holistic and comprehensive) financial planning encompasses far more than “just” investments, for better or worse, clients look to their financial advisors as people who are (at least) more knowledgeable than your average bear in regard to “the market.” Because, while providing advice on a client’s portfolio is just one part of the ongoing financial planning process, it’s natural for clients to worry about their investments (or more generally, their assets) and look to their advisors for reassurance that their life savings is being looked after… especially when the financial media consistently bombards them with clickbaity doom-and-gloom headlines. Which, in turn, leads to the question: should advisors send their clients market commentary to demonstrate the advisor’s expertise and try to soothe their nerves… or does doing so just risk making them focus even more on investment issues?

For our 12th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss if sending market commentary to clients actually helps solve any problems (or if it’s just a relic of a product-centric industry), what sorts of clients benefit the most from proactive communication (and why), and ultimately, why sending investment market commentary to clients may be a good thing to do… even if the majority of your clients never even read it!

As a starting point, though, it’s important identify the problem that advisors are really trying to solve by sending market commentary to clients, and which types of clients need such a solution. Because the reality is that, no matter what advisors send, those clients who are true delegators (and hired an advisor in the first place so they didn’t have to be bothered with keeping track of their investments) won’t be interested. However, many clients – even those who delegated their portoflios – do feel like they need to “check in,” at least from time to time, to be reassured that they made the right decision when they hired the advisor to tend to their life savings. Which often manifests itself by the client asking about current market affairs… not because they really care, but because they want to know that their advisor is really “on top of things.” And not only is it a good idea to make sure the advisor can answer their questions, but regularly sending out commentary is a good way to proactively address whatever the topic du jour may be once (rather than fielding potentially dozens of identical phone calls on the same investment concern).

Meanwhile, as client relationships mature over time, meetings naturally become less frequent (as trust levels have developed, and most of the early planning heavy lifting has already been done), so simply staying in touch even by sending out bulk emails with the advisor’s “commentary” can help prevent the dreaded transfer paperwork from landing in the inbox. As no matter how much we’d like to think we’ve “trained” our clients to stay focused on the big picture and ignore short-term market fluctuations, the reality is that sudden spikes in volatility will cause clients’ loss aversion instincts to perk up.

Ultimately, though, the key point is simply to realize communicating with clients outside of their regular meeting rotation matters, and sending them some form of investment commentary (whether it be from a third party or written in-house) is a great way of providing reassurance that you are versed in whatever may be going on in the market at any given time. Even if you always wind up with the same conclusion, which is that your clients are properly allocated and are served best by sticking with the plan you’ve developed with them.

Kitces & Carl Ep 11: What Do You Call Yourself? Planner, Advisor, Industry, Profession

July 4, 2019 07:05 am 4 Comments CATEGORY: Kitces & Carl Podcast Planning Profession

Outside of telling someone that you sell used cars, there aren’t many ways nowadays to shut down a conversation faster saying that you’re a financial advisor. Because, after years of being constantly bombarded by headline after headline about the plethora of misdeeds committed by so-called financial advisors, combined with so many personal experiences with high-pressure sales tactics of unscrupulous salespeople, the public’s trust levels are understandably low.

And while other professions have specific education and ethical requirements (e.g., doctors, lawyers, and accountants), sadly, there are no rules around whether or not someone can call themselves a financial advisor (or any derivation thereof). Which only makes it that much more challenging for “real” financial advisors, who not only have to differentiate themselves from all the other advisors that claim to offer comprehensive financial planning, but also have to separate themselves from literally every other person who wants to call themselves a financial/investment/wealth advisor/consultant/planner… whether or not those jobs have anything to do with the actual delivery of financial advice. Which, in turn, leads to the question: what should financial advisors call themselves… without having to start making excuses immediately afterward?

In our eleventh episode of “Kitces & Carl”, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the roots of various industry titles, why you might want to break the mold and call yourself something completely different (or not), and why the choice ultimately boils down to whether or not what you call yourself resonates with your target clientele.

From a historical perspective, the title of financial advisor originated when the industry was still very product-focused, as a way to differentiate from ‘just’ salespeople with a more consultative approach, as comprehensive financial plans themselves were originally a vehicle through which advisors could recommend (and then sell) their products. As the industry evolved, however, titles such as “wealth manager”, “investment consultant”, and “financial planner” came into the mix, as more advisors and their firms sought out new titles to differentiate and stand out from the crowd, and to sound more “high end” as advisory firms themselves have moved further up-market.

Understandably, then, many professionals in the industry would prefer stricter regulation around who can and can not call themselves any number of titles that imply that they’re providing financial advice (until/unless they’re actually in the business of advice and not product sales). Except that efforts to do just that have simply fallen flat given the vast resources and lobbying might of an industry still dominated by companies that manufacture and distribute financial products.

In the absence of any successful title reform, some advisors have decided to go with whatever standard title that most closely describes what they actually do and own it the best they can. Meanwhile, in an effort to break the proverbial mold, some advisors, particularly those with well-defined niches, have taken it a step further and adopted more creative titles that help them connect with the target audience that they want to reach (think “financial architect” or “financial physician”).

Ultimately, the key point is to make sure that your title accurately reflects the services that you provide, doesn’t get you into any regulatory trouble, and resonates with your target market. Because, in the end, what matters most isn’t what you call yourself, it’s that you’re comfortable and confident when you say it… and if you can invite people into the conversation along the way, then all the better!

Kitces & Carl Ep 10: Transitioning Long-Standing Clients To Create Room To Grow

June 20, 2019 07:07 am 4 Comments CATEGORY: Client Trust & Communication Kitces & Carl Podcast

The perennial problem facing financial advisors throughout their careers (and especially at the beginning) is simply getting in front of prospective clients… and then convincing them to actually hire you and pay for your great advice. However, for those advisors who eventually reach the point where their business is sustainable, and have clients who understand the value that a “real” financial advisor brings to the table, the problem can easily morph from not having enough clients to keep the lights on… to having too many clients to be able to serve effectively (and no remaining capacity to add more and grow further).

Because the reality is that we can only do so much before our calendars (and our brains) reach their limits. It’s at that point where the most obvious answer is to start hiring some team members to help. But that solution can create all sorts of new challenges, and there are plenty of advisors aren’t interested in all the other stuff that comes along with hiring and managing employees… and find that they’re stuck as a result. They don’t have room for more clients, and they’re not interested in hiring and managing employees to create more capacity. And so the question then becomes: how can you, as a financial advisor, create room in your practice to be able to start growing again, especially if you do not want to increase your staff headcount (and management responsibilities) in the process?

In our tenth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss some reasons you may need to start transitioning long-standing clients (some of whom may have given you a shot early on when no one else would, but consequently pay you far less than what it takes to service them) to make room so you can help others, some practical steps for communicating such a transition to those clients, and why arguably it’s your duty to do so… in order to ensure that all of your clients are getting the level of service they deserve.

As a starting point, it’s important to recognize that creating more capacity in your firm by transitioning away some long-standing clients isn’t about just booting those clients to the curb for the sole purpose of finding other, more profitable clients. But the reality is that the clients who you’ve “outgrown” would probably be better served somewhere else anyway. Or put more simply, your “C” clients are almost always someone else’s “A” clients. Which means transitioning them can be win-win-win for you (creating capacity), for the client (receiving better service as an A client), and for the other advisor (who may be thrilled to grow with the clients that aren’t a good fit for you anyway now!).

That still doesn’t solve the problem, though, of communicating this to your clients, some of whom might well have their feelings hurt by your decision. Practical ways of effecting this transition include: raising your minimum fees (in order to serve your clients well, and do all the things you do for them through the year) and letting the client decide for themselves if they value your (higher-fee) advice enough to continue on as your client, sitting down and simply telling them that you’re changing the direction of the firm and (with their blessing) would like to facilitate their transition to another advisor who’ll be a great fit for them, or simply telling them that you’ve been examining all of the relationships in your practice and feel that you’re simply not a good fit for them at this point in their lives.

Because at the end of the day, you are running an advisory business, and that’s nothing to be ashamed of. Taking on the responsibility of advising clients on the best way for them to manage, grow, and use their life savings is the very mission of that business, and ultimately you have to ensure that the direction of your practice is aligned with what your clients need… and if it’s not, it’s your job to tell them.

Kitces & Carl Ep 9: How Do You Optimize Your Practice To Maximize Your Happiness As A Financial Advisor?

June 6, 2019 08:03 am 6 Comments CATEGORY: Kitces & Carl Podcast Personal/Career Development

Generally speaking, there are two types of unhappy financial advisors. One is the advisor who is having trouble just making it in the business in the first place, who is struggling to find enough clients to make ends meet. The other type is the advisor who might have all the outward markers of success (clients, revenue, profits) but has reached a point in their career where they are supremely unhappy… and often end out feeling trapped, too.

Because, as is often the case for advisors practicing under the recurring revenue AUM model, clients tend to stick around. And while that is undoubtedly a great thing, it can also end out being a double-edged sword, and lead to “practice creep”... where, after a certain number of years of building a book of business, an independent advisor with an otherwise solid lifestyle practice may grow past their personal capacity and find that they have accumulated more clients than they can service by themselves. Which then forces the advisor to hire some staff to help. And (again) while that’s not a bad thing, the advisor can ultimately reach a point where they’re the CEO of a small advisory firm and are spending most of their time managing employees rather than doing what they set out to do in the first place, which was to serve their clients! Which ultimately leads to the question: How can advisors avoid this “accidental business owner” trap, and instead build a business that is optimized to maximize your own happiness?

In our ninth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss why some advisors wind up being unhappy in an otherwise “successful” practice, how some advisors have maximized their happiness by being intentional about building their business the way they want - or even “right-sizing” the advisory practice if necessary – and a few actionable ideas for advisors to do the same.

One strategy that has worked well for advisors is to figure out what outcome you’re trying to reach in the first place (whether that be a certain level of income, or amount of time you have to spend with the people you care most about) and make that the primary thing that you measure in the business. After all, our natural tendency is to direct our efforts to improve whatever we see measured and look at on a daily basis… so it a good idea to make sure that we’re measuring the things that really mean the most to us. Whether that’s the number of clients or amount of revenue in the business… or the number of hours we work, the number of hours we don’t work, or the vacation days we take.

And for those advisors who have already reached the point where they’re feeling unhappy with their current business structure and need to figure out how to get off the proverbial rollercoaster, it’s essential to understand that, although we have a duty to our clients, we also have a duty to ourselves as well. Because if we are absolutely miserable with whatever situation that we are in, we will eventually (and inevitably) experience a negative impact not only for ourselves, but for our clients as well. Which means it’s our responsibility and even our obligation to try to fix it.

So, if you’ve gotten to the point where you’re feeling squeezed by practice creep – unhappy with the business despite it being outwardly financially successful – or if you simply want to avoid that in the first place, then remember that it’s perfectly okay to give yourself permission to build your business in a way that actually makes you happy. And measure and optimize for whatever really matters most to you!