Weekend Reading For Financial Planners (July 9-10) 2022

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Executive Summary

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with a recent study indicating that 15% of employee advisors at wirehouse firms and 7% of independent advisors affiliated with a broker-dealer are considering leaving their firm in the next one to two years. Of those most likely to stay, retention was driven primarily by the quality of the firms’ technology offering, the breadth of its products and services, and the corporate culture set by the leadership of the firm. Though notably, dissatisfaction among employee advisors tended to increase with industry tenure, suggesting that some firms could potentially lose advisors with the largest books of business, potentially creating an opening for competing firms to bring on seasoned talent (and client assets)!

Also in industry news this week:

  • How advisors are planning to grow despite the current bear market’s negative impact on assets under management
  • Two years after its implementation, the SEC is planning to draft additional guidance to help advisors better understand Reg BI and ensure it delivers on its investor protection goals

From there, we have several articles on practice management:

  • How setting Objectives and Key Results (OKRs) can help ensure all employees are working toward common firm goals
  • How advisors can leverage the Entrepreneurial Operating System (EOS) to systematically manage and grow their firms
  • What it takes to build lasting influence, and why it has little to do with social media follower counts

We also have a number of articles on cash flow management:

  • How advisors can work with younger clients who want to financially support their parents or other loved ones
  • How to prevent money issues from derailing a friendship
  • The importance for advisors of recognizing the different preferences clients have for spending and saving their money

We wrap up with three final articles, all about psychology:

  • Why setting “process goals” can help advisors create routines that endure after their larger goal is achieved
  • Why advisors might not want to worry the next time they start (literally) sweating a stressful situation
  • Why chosen suffering is an important part of achieving a life of happiness and meaning

Enjoy the ‘light’ reading!

Adam Van Deusen Headshot

Author: Adam Van Deusen

Team Kitces

Adam is an Associate Financial Planning Nerd at Kitces.com. He previously worked at a financial planning firm in Bethesda, Maryland, and as a journalist covering the banking and insurance industries. Outside of work, he serves as a volunteer financial planner and class instructor for non-profits in the Northern Virginia area. He has an MA from Johns Hopkins University and a BA from the University of Virginia. He can be reached at [email protected]

Read more of Adam’s articles here.

(Gregg Greenberg | InvestmentNews)

Many factors go into an advisor’s satisfaction with their job, from the technology and marketing offered by their firm, to compensation, hours worked, and company culture. And as many advisors shifted to working remotely during the pandemic (and perhaps have additional options to work for firms operating virtually), many of these factors have become even more important. And a new study suggests that some advisors are becoming dissatisfied with their current positions and could be poised to leave their firms.

According to research firm J.D. Power, 15% of employee advisors at wirehouse firms and 7% of independent advisors affiliated with a broker-dealer are considering leaving their firm in the next one to two years. Further, the study found that while independent advisors had relatively similar levels of satisfaction across tenure levels, employee advisor satisfaction declined alongside years in the industry, as those with 20 or more years of experience showed lower satisfaction (658 points on a 1,000-point scale) compared to mid-career advisors (689 points) and those in their first 10 years (741 points). Given that the advisors with the most tenure are likely to have the largest books of business, this relative dissatisfaction could be especially hurtful to firm performance were these advisors to leave.

Among advisors with the highest levels of satisfaction and loyalty to their firms, 91% said the technology offered by their firm has improved during the past two years, 79% said their firm offers competitive products and services, and 74% said their firm’s corporate leadership fosters a strong culture, signaling the areas that appear to be most associated with advisor retention. In addition, another way for firms to hold on to their advisors could actually be a shift back to the office; notwithstanding the popularity of remote work, J.D. Power’s study showed that 38% of advisors preferred to work in the office most of the time, while 24% said they prefer to work in the office full time, and overall satisfaction scores were highest among advisors who are currently working in the office either full-time or most of the time.

While this study only surveyed a portion of the advisor community (as it only included wirehouse employees and independent advisors affiliated with a broker-dealer), it does suggest that firms could consider whether they are providing the infrastructure and company culture their advisors really want and demand. Because of the many options available to advisors (from affiliating with a different broker-dealer to starting their own RIA), as well as the aging advisor population, the competition for talent is likely to remain fierce and the firms that offer the best range of benefits and resources – from technology to their products and support services to their culture –are most likely to thrive!

(Natixis Investment Managers)

For advisors looking to grow their Assets Under Management (AUM), the bull market experienced in the last decade has provided a significant tailwind (as AUM could rise even in the absence of growth in the number of clients served). However, the broad market decline experienced so far in 2022 could flip this formula on its head, with market performance now serving as a headwind, increasing the importance of other areas of AUM growth.

But despite the market decline, a survey of 300 financial advisors by asset manager Natixis found that those surveyed still expect a median of 15% annual AUM growth during the next three years. Amid the weak market performance, advisors are looking to capitalize on a potential wave of retirements among baby boomers, as well as expected intergenerational wealth transfers, to grow their AUM. Among the advisors surveyed, the most cited factor driving their business growth was demonstrating value beyond asset allocation, followed by building relationships with the next generation of heirs. The former point was reflected by the fact that among those surveyed, 93% of client AUM are in model portfolios (as opposed to the advisor personally building and managing the portfolio). Perhaps unsurprisingly, the vast majority of advisors using model portfolios reported that their clients view comprehensive financial planning as the greatest value of having a relationship with an advisor.

Ultimately, the key point is that because bull markets cannot last forever, organic growth is crucial for advisors looking to grow their AUM (or at least keep it steady when markets decline!). And separate research suggests that amid competition from relatively low-cost investment management platforms such as robo-advisors, the advisors who are likely to be most successful are those who provide comprehensive planning that focuses on the services clients want to receive from a human advisor above and beyond ‘just’ ensuring that clients’ portfolios are appropriately allocated!

(Mark Schoeff | InvestmentNews)

The Securities and Exchange Commission (SEC)’s Regulation Best Interest, issued in June 2019 and implemented in June 2020, requires brokers to act in their clients’ best interests when making an investment recommendation, by meeting four core obligations: disclosure, care, conflicts of interest, and compliance. But because Reg BI does not explicitly spell out what ‘best interest’ means, what conflicts need to be mitigated, or how to mitigate them, industry observers have been waiting for the SEC to provide additional guidance to clarify the regulation and what it means in practical terms for brokers.

Two years after the rule was issued, SEC Chair Gary Gensler said in June that the agency is drafting more guidance to help advisors better understand Reg BI and ensure it delivers on its investor protection goals. Following a bulletin released in March outlining how brokers and advisors can adhere to their guidance (to help advisors better understand Reg BI and ensure it delivers on its investor protection goals and respective standards when opening accounts and rolling over retirement assets for clients), Gensler indicated that SEC staff are working on new bulletins concerning conflicts of interest, the requirement that brokers only have to consider ‘reasonably available alternatives’, and costs.

In addition, Gensler hinted that Reg BI might address conflicts of interest in online investing and whether the algorithms robo-advisors and similar firms use are built to optimize an investor’s performance rather than the firm’s own revenue (perhaps influenced by a recent SEC settlement with Charles Schwab related to allegations that Schwab misled users of its Schwab Intelligent Portfolios robo-advisor platform by falsely claiming that the cash allocations in its model portfolios were determined through a ‘disciplined portfolio construction methodology’ when regulators ultimately determined they were pre-set to generate a desired amount of revenue for Schwab).

And so, while it appears that additional SEC guidance on Reg BI is forthcoming, advisors and industry observers are likely to also look for additional enforcement actions that will further clarify what actions broker-dealers must undertake to comply with the regulation (and demonstrate the consequences of failing to do so!).

(Khe Hy | RadReads)

Running a business is inherently challenging and grows even more complex as the number of employees at a firm increases. For example, a solo firm owner only has to manage their own time each week, but an advisor with 7 direct reports (with 40-hour workweeks) is responsible for the direction of 280 hours a week! This heightens the importance of ensuring that everyone is moving in the same direction toward common company goals.

With this in mind, the Objectives and Key Results (OKRs) framework can help organizations set better goals and execute on them. With OKRs, a firm takes a longer-term goal (Objective) and connects it with measurable milestones (Key Results). To start creating an Objective, a leader can consider an aspirational goal that can be communicated in a way that everyone on the team can understand and easily remember (because employees cannot work toward an objective that they do not understand!). For example, an Objective could be to create something that did not exist before, make something that already exists better, or make an innovative change to a product or the organization itself.

Once the objective is put in place, the company can move on to setting Key Results. Notably, Key Results must be outcomes rather than outputs. For example, contacting 10 prospects would be an output (that does not necessarily help the firm’s bottom line), while bringing on 2 new clients would be an outcome that could be a Key Result. In addition, Key Results need to be measurable and preferably be tracked on a regular basis (to ensure the firm is heading in the right direction!).

In the end, as a business grows, so does the importance of making sure each team member is working towards the company’s ultimate goals. And given the wide range of roles at a financial advisory firm (from management to lead advisors to support staff), setting OKRs (and following through with them!) can help ensure everyone is on the same page in helping the firm thrive (in whatever way the firm chooses to define success!).

(Matt Cosgriff | Nerd’s Eye View)

As the RIA industry’s continued growth has catapulted more and more firms across the $100M (or even the once-unthinkable $1 billion) AUM threshold and transformed many practices into true businesses, many advisors are finding themselves as “accidental business owners” as their firms have grown beyond themselves as the original founders and into professionally managed sustainable enterprises. Managing even a small RIA of a half dozen individuals and beyond now requires firm owners and/or management to be able to effectively develop and communicate a compelling vision, foster a culture centered on the execution of key objectives, build processes for identifying and solving key issues, and, most importantly, implement a framework for managing and leading people.

Traction Book CoverEnter Gino Wickman’s Entrepreneurial Operating System, outlined thoroughly in his seminal book, Traction. The incredibly simple, yet highly effective framework (if implemented correctly) has gained momentum over the last several years across small to mid-sized businesses and has specifically gained popularity with RIAs across the country in recent years as a means of professionalizing their businesses as they hit that 6+ employees mark, and drawing focus to the six key aspects of managing any business: vision, people, data, issues, process, and traction.

In his firm, Cosgriff and his team have successfully implemented all six components of EOS, starting with “Vision”, by implementing the Vision/Traction Organizer (V/TO) tool to clarify and communicate the firm’s core values and focus, long- and short-term organizational goals (including “Rocks”, the important 90-day goals identified each quarter), marketing strategies, and key issues. Focusing on the “People” framework, the firm has been able to identify the right people for the right roles by finding those who “get it” (i.e., they understand the role), “want it” (i.e., they have a genuine desire to do the job successfully), and have the “capacity to do it” (i.e., have the skill and ability to do the work). The “Data” component has been used to create and customize “scorecard” systems for leadership, departmental teams, and individual employees to benchmark performance, which in turn facilitates identifying and addressing the “Issues” that may deter them from achieving goals.

The development of documented and agreed-upon core “Processes” in the firm is fundamental to achieving consistent and excellent customer client experiences, which, taken together with the other EOS components, ultimately leads to creating the last EOS component, “Traction” – the continual organizational momentum that allows a firm to grow and achieve its goals – monitored continuously through weekly “Level 10” check-in meetings.

Ultimately, for advisory firms of all sizes, whether they be the proverbial “accidental business owner” just trying to build a framework for running their business beyond employee number two or a firm with hundreds of employees, EOS can be a powerful framework to run your business on. EOS pulls together basic and timeless principles for effectively running a business of any size and packages them into a simple framework that can serve as a powerful operating system capable of taking your (advisory) business to the next level.

(Tanmay Vora | QAspire Consulting)

The last decade has seen a significant rise in the use of the term ‘influencer’. Often this refers to someone with a significant social media following who is thought to be able to influence their followers to buy a certain product. However, real influence goes beyond metrics (such as a follower account, or, for a financial advisor, AUM), but rather is based on the outcomes an individual is able to generate for others.

Vora suggests that rather than occurring suddenly through a viral tweet or video, the best kind of influence happens silently, gradually, and unnoticeably. This type of influence-building takes time and is the result of several pillars, including: having substance (i.e., accomplishments or expertise that builds credibility); gaining trust; acting as a thought leader (i.e., challenging conventional wisdom and advancing new points of view); engaging in generous actions; being committed; and providing a change in how people operate and think. Importantly, leaders never set out with a goal of ‘influencing’ others, but rather influence is a by-product of who they are, how they do things, and the difference they make in the world.

The key point is that building influence is a journey, not a destination. And for advisors, by making meaningful connections with others, building trust, showing generosity, and being consistent in your pursuits, you can naturally build influence and make a positive impact on your firm, the planning profession, and your broader community!

(Sophia Bera | Gen Y Planning)

Gifting is a priority for many financial planning clients. Whether it is a grandparent looking to support a grandchild’s college education or a parent helping a child cover their bills while they are looking for a new job, the direction of a gift is often from an elder individual to someone who is younger. But sometimes, a younger person will want to financially support a parent or other family member, which creates a range of planning considerations.

First, it’s important for the person who wants to gift to consider how it will fit in their own financial life, as, like the instructions for using the oxygen mask on an airplane, the ‘help yourself before you help others’ argument applies here as well. At this stage, an advisor can help their client consider not only whether their current cash flow would support the gift, but also whether doing so might hinder the client’s progress toward longer-term financial goals (and whether the size of the gift could create gift tax concerns!).

Next, an advisor can help their client consider the best way to support their loved one. For instance, a client whose financial goals would be put in jeopardy by a cash gift could consider spending time to help the planned recipient apply for government assistance or find alternative sources of money. And for those who can give cash, the framing of the transaction is important as well; for example, saying that the money is a gift rather than a loan reduces the stress of both the giver (who does not have to prod the recipient to repay the loan) and the recipient (who does not have to worry about how they will pay back the loan).

It is also important to set boundaries around the gift. For instance, with the help of their advisor, a client could choose a set monthly amount to give to their parent. In this way, they won’t end up giving more (or less) than they intended to by making ad hoc gifts. Another way to set boundaries is to create a separate bank or brokerage account in the giver’s name, where they can deposit funds intended for the recipient. This allows the money to be gifted to be segregated from the client’s other assets (that are allocated for other goals).

Ultimately, the key point is that supporting family members is a goal of many younger advisory clients. And advisors can add significant value by helping them determine how much they can give (and how to make the gifts) while staying on track for their other financial goals!

(Allie Volpe | Vox)

Money is often treated as a sensitive subject, and a lack of dialogue can sometimes create misunderstandings. And when it comes to friendships, it is important to manage differing expectations surrounding money to ensure the relationship remains healthy.

For example, a weekend vacation could cause conflict among a group of friends. While an individual with the highest income might suggest that the group stay at a luxury hotel and eat at expensive restaurants, a friend who recently lost their job might have a much more limited budget. In these cases, each friend can play an important role, no matter their income. For instance, a high-earning friend could ask others how much they are willing to spend before booking the expensive hotel, while a friend with less income could take the initiative to express their priorities and limits (perhaps suggesting that the group stay in a less-expensive hotel but still eat at nice restaurants). Typically, the sooner the financial boundaries for an event are set, the happier each member of the group will be with the final result.

The key point is that money is an emotional topic that can cause harm to friendships if not handled with care. Advisors can be attuned to these dynamics as well, whether it is by helping a client craft a financial purpose statement (that can clarify the client’s spending priorities) or by treating the limits of other advisors (who might have vastly different incomes) with respect when planning a social event. In the end, when friends (or colleagues) are considerate to both their own budgets as well as the limits of others, their relationships can thrive no matter each individual’s income!

(Christy Raines | Azimuth Wealth Management)

One of the things that makes financial planning a rewarding profession is the variety of clients with whom an advisor can choose to work. From a young, high-earning professional with significant debt and few assets to a pre-retiree wondering whether they have enough money to make it through their retirement, each client’s situation is different. But even clients with similar incomes and asset levels often have drastically different preferences for handling their cash flow.

For example, the largest expense for many clients is housing, but total housing costs can vary widely. The total housing costs for a client with $400,000 of gross income and a $2 million house might take up more than 40% of their take-home pay, while total costs for a client with a similar income and an $800,000 house could be less than 20% of take-home pay. Notably, there’s no ‘correct’ answer for each of these clients; if the client with the expensive house spends most of their time there, while the other client is often away on work travel and vacation, each arrangement could make sense for their needs.

In addition, while clients typically recognize the need to save money for the future, they might have very different preferences on how much to save each month. For example, one client might want to take advantage of every tax-advantaged account possible to maximize the amount saved for retirement while another might only contribute up to their employer’s 401(k) match, preferring to spend the rest of their income today. In these situations, while an advisor can explain to the clients the implications of their current savings path, it’s important not to prejudge their decision-making. For example, the saver might have seen their parents live a spartan retirement because they didn’t save, while the big spender’s parents might have died at a young age before they could spend their nest egg.

In the end, because each individual has different preferences and priorities, there is no one ‘right’ way for a client to spend and save their money. And by working with clients to create sustainable goals and implementing an appropriate financial plan, advisors can help them live their best lives, even if their decisions diverge from the preferences of the advisor or their ‘typical’ client!

(Chris Bailey | A Life Of Productivity)

Whether it is in your professional or personal life, there are a seemingly endless number of things that can be done. With this in mind, many people decide to set goals to focus their efforts on their top priorities. But because many goals aren’t achievable in a single day, it can help to focus instead on the daily processes that can lead to the desired final result.

For example, if an individual has a goal of writing a book, setting a daily goal of ‘write the book’ won’t get them very far (unless it is a very short book!). Instead, they can use ‘process goals’ – setting out a pathway to achieve what you want – to not only set better daily productivity targets, but also to make it more likely that the ultimate goal will be achieved. For example, the author could make daily goals of writing for 90 minutes or someone preparing to run a marathon could set a daily target of running for 30 minutes rather than the broader goal of ‘train for marathon’.

Setting and completing process goals can also create positive habits that will endure after the ultimate goal is achieved. For example, even after the marathon is over, the runner is likely to continue their 30-minutes-per-day running routine (rather than spending all of their free time on the couch), which has health benefits even in the absence of an upcoming race.

For financial advisors, process goals can create habits and small victories that can build momentum toward larger firm goals. For instance, an advisor whose ultimate goal is to bring on 10 new clients this year could have a daily process goal of re-contacting two prospects or writing a marketing blog post. By working through these process goals, an advisor can not only make it more likely they will achieve their current objectives, but also create routines that will help them meet their future goals as well!

(David Robson | BBC Worklife)

Everyone has been in a stressful situation at one time or another. Whether it is preparing to give a speech or asking someone on a date, there is a wide range of potential stressors in our personal and professional lives. Often, these anxiety-inducing situations come with unwanted side effects, from sweaty palms to unconsciously touching your face or hair. But while some people might be concerned about these reactions (anxiety about anxiety!), research suggests that these signals could make you more sympathetic to your audience.

The study from the United Kingdom had participants undergo a fake job interview, including a three-minute speech about their qualifications and an on-the-spot mental arithmetic test. They then asked a separate group to rate videos of the fake interviews in terms of the subject’s stress levels and how much they liked the person. The researchers also had psychologists watch the interviews to count how many times the participants showed non-verbal signs of stress. Interestingly, the people rating the videos were able to predict how stressed the interviewees felt, and these ratings aligned with the non-verbal stress signals the subjects showed. But perhaps most notably, the interviewees who showed more signs of stress were judged to be more likeable by the raters. This suggests that authentic ‘stress signals’ could have positive communicative functions (and might not need to be a source of worry after all!).

Dealing with stress is a regular part of life for advisors, but sometimes worrying about how you appear to others can compound your anxiety. But luckily, this research suggests that the next time you encounter a stressful situation and find yourself nervously tapping your foot (or biting your nails, or blushing, or….), recognize that these reactions are not just normal, but perhaps will make you come off as more likeable to your audience!

(Stephen Johnson | Big Think)

If you ask a group of people about their life goals, some might say ‘finding happiness’ while others might want a life of meaning. Very few are likely to say they want to suffer. But psychologists suggest that some amount of suffering is necessary to find happiness and meaning.

The key is to distinguish between chosen suffering and unchosen suffering. Chosen suffering is pain that an individual chooses to take on. For example, someone might be willing to handle the pain of a workout at the gym in order to improve their fitness and health (which can contribute to their ultimate happiness). On the other hand, unchosen pain, such as the grief felt before or after the death of a loved one, could potentially give a sense of meaning but is not necessarily a good thing.

One explanation for why someone might willingly incur pain is the contrast with more pleasant sensations. For instance, a cold drink often tastes better after eating a spicy dish than in isolation. Also, humans frequently seek mastery, which often comes after completing a series of often-painful tasks. For example, climbing to the top of a mountain can offer a beautiful vista and a sense of accomplishment, but often requires a challenging hike to the peak. Broadly, humans seem to place greater value on accomplishments that require a lot of effort.

One of the best parts of working as a financial advisor is the sense of meaning that comes from helping clients achieve their goals. However, the wellbeing that comes from being an advisor inevitably involves some pain, whether it is completing the required education, studying for the CFP exam, or building a business from scratch. But just like so many things in life, this ‘chosen suffering’ is often well worth the rewards that come with being a successful advisor!


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, as well as Gavin Spitzner’s “Wealth Management Weekly” blog.

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