Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a fantastic advice article for young advisors about how to build an optimal path for themselves by being authentic (advice that's probably relevant for advisors of all ages!), along with an interesting discussion of a "new model" to bring financial planning to the masses, and a discussion of the ongoing "Great Divide" between the veterans of financial planning and the younger people entering the business. From there, we look at a good discussion of compensation trends in the industry, a discussion of the conflict of interest disclosure rules for CFP certificants, and two interesting "lists" from RIABiz - one is a list of the top 10 words that should be expunged from the RIA business, and the other is the top 10 steps that wirehouses could take to reinvent themselves and stem the RIA tide (in the interest of consumers). There's also a good article with starter tips to improve the SEO of your website (i.e., how easy it is for people to find you using the search engines), and a dissection of last week's "surprise" unemployment report. We wrap up with two interesting articles; one looks at recent research into investment risk-taking behavior, finding that excessively risky investing may not just be a behavioral bias problem but actually a physiological one; and the other providing an intriguing forecast of how the student debt problem could be resolved in the next decade as online education with a near-zero dollar cost could drastically undercut the pricing of traditional colleges and universities and shift how most people get their higher education. Enjoy the reading!
As financial planning firms grow more efficient, especially with the use of technology, it becomes possible for planners to manage an increasingly large number of clients. The only limitation, it would seem, is the time it takes to service them. However, research in psychology and anthropology suggests that there may be another limit to the maximum number of clients - the physiological limit of our brain's neocortex that constrains the number of social relationships that can be actively maintained. This threshold - called "Dunbar's number" - is estimated to be about 150 people on average, and corresponds not just to the average size of many ancient tribes and villages, but also the military unit size of the Roman army, and even the average number of Facebook friends or engaged Twitter followers! The implication of the research is that even as firms continue to become more efficient, there's still a physiological brain-based limit to how many clients we'll ever be able to manage, which allowing for some personal relationships as well may never be much higher than 75-125 for any planner regardless of the new tools and technologies we create in the future!Read More...
Advisor surveys continue to show that the #1 marketing strategy for most firms is to grow through referrals. Unfortunately, though, most firms still get modest results at best, leading them to double down on their referral efforts by asking clients for referrals even more.
A recently released book by marketing consultant Stephen Wershing, however, suggests that the optimal path to success is actually to go the opposite direction - "Stop Asking For Referrals" and instead focus on creating the environment that makes it easier for clients to refer, by understanding what it is that drives clients to refer in the first place. The end result is a practice that has a well identified target market and a clear niche, so that clients truly understand who is and is not an appropriate person to refer, and when someone is referred what they find is compelling enough to make them want to follow through for an initial meeting.
Notably, recent research by Julie Littlechild has shown that overall, 91% of clients are willing to refer, and 29% of clients actually do refer - given that most firms are not growing at 29%+ organic growth rates, though, suggests that there is a lot of room for improvement by applying Wershing's recommendations to fix the weakest links in your own referral growth strategy!Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a recap of the recent FPA Experience national conference, along with a discussion of the latest research from Cerulli suggesting that the declining market share of wirehouses may actually be accelerating even as we become more distanced from the financial crisis, and a nice overview of the current state of fiduciary rulemaking (or lack thereof) from the SEC. From there, we look at Financial Planning magazine's recent Influencer Awards recognition, a discussion of the FA Insight "Growth by Design" study of how firms are strategically viewing and managing growth, and a wide-reaching interview on safe withdrawal rates from retirement researchers Bill Bengen, Jon Guyton, and Wade Pfau. There are also a few investment articles, including the latest change from Vanguard to further drive down the expenses of ETFs, a recap on the current state and future of actively managed ETFs, and a striking article on asset allocation glidepaths suggesting that rising equity exposure in the years before retirement may actually be more effective than declining equity exposure! We wrap up with a brief article (and associated video) showing how to hide the new "endorsements" feature of LinkedIn (which some have suggested may be a violation of the regulations barring client testimonials), and a profile of a financial advisory firm making an interesting splash in social media with a controversial political video that has generated a whopping 1,000,000 views and 100,000 Facebook fans. Enjoy the reading!
It is an accepted belief that retail investors, swayed by a barrage of financial news and information, and the wiring in their own brains, tend to systematically buy at market peaks and sell at market lows, resulting in returns that are far lower than what could have been achieved by simply buying and holding.
This so-called "behavior gap" has been quantified most famously over the years by DALBAR, which produces and annually updates a study of the difference between investor (dollar-weighted) returns and index (time-weighted) returns, and currently shows that investors have cost themselves more than 4% per year in returns for the past two decades.
Yet the reality is that DALBAR's methodology confounds the impact of investor behavior, and the simple consequences of return sequences; it's entirely possible that some or all of the low DALBAR investor returns are simply due to the fact that markets rose for the first half of their time sample (the 1990s) and were flat for the second half (the 2000s).
And in fact, that appears to be the case. Once DALBAR updated their projections to compare investor returns to a passive investor who simply invested systematically over the entire time period, the result surprisingly shows that retail investors in the aggregated actually outperformed systematic dollar cost averaging for the past 20 years!Read More...
The ongoing low interest rate environment in the US has created many challenges in recent years, as the struggle to find yield and return drives planners and investors away from bonds and towards other options for higher returns, from equities to so-called "alternative" asset classes - in turn driving up those prices and reducing dividend yields and prospective future appreciation. Nonetheless, many returns on alternatives are still appealing given an alternative of near-zero interest rates on fixed income! Yet the reality is that low interest rates, as they continue to persist, are beginning to have other effects beyond just the impact to investors. Insurance companies have been forced to raise prices on some types of insurance, or leave the marketplace entirely, as the returns are simply too low to manage risk and generate a reasonable profit. Pension plans continue a slow grind of underperforming their long-term actuarial assumptions, creating a larger and larger deficit that must ultimately be resolved as well. And while many planners have been trying to focus their clients on the risks of what happens to bonds if rates rise, recent research suggests that in fact the greatest surprise of the coming decade could be that rates continue to remain low as the US economy deals with its massive public and private debt levels - which in turn means many of these low interest rate challenges could still be in the early phase!Read More...
