Weekend Reading for Financial Planners (May 9-10)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

[Real] Financial Advice Show To Debut On CNBC (Josh Brown, Reformed Broker) – The financial services industry is one of the least trusted industries, a result of not only the aftermath of the economic recession wrought by the industry-induced financial crisis of 2008-2009 but also a public portrayal of financial advisors that is typically ‘greedy’ at best (e.g., Wall Street from the 1980s), to outright criminal (e.g., The Wolf of Wall Street or now Ozark)… a distinct difference from other professions that have been positively portrayed, from Crime Scene Investigators (CSI) to lawyers (Law & Order and any number of other legal dramas) to doctors (with innumerable medical/hospital dramas). As a result, CFP Board CEO Sarah Teslik nearly 15 years ago suggested that a key way to improve the perceived standing of financial advisors, in particular, would be to have a television show that portrays in a positive light the value of comprehensive financial planning advice and the transformations it can create. And so it’s notable that this week, popular financial advisor and media personality Josh Brown of Ritholtz Wealth Management announced that he will be piloting a new “Financial Advice” show, to air starting this Friday at 6 PM (EST) on CNBC, focusing not on Cramer-style talk-about-stocks but focused on real financial advice, including not only broader portfolio-related themes but also behavioral investing and beyond-portfolio issues from retirement to Social Security to tax planning. (And deliberately airing in the evenings when markets are not open so viewers won’t be distracted by intra-day market volatility headlines!) At this point, the financial advice show is still just a test, but advisors who want to support can submit suggested questions to cnbc.advisor@cnbc.com with the subject line “#CNBCAdvisor Question”, or send a tweet to @cnbc using the #CNBCAdvisor hashtag. Is now the time for a positive breakthrough in the media/television perception of what it really means to get comprehensive financial advice beyond just stock/investment tips?

SEC Reg BI Rule Will Require Brokers To Stop Calling Themselves ‘Advisors’ (Greg Iacurci, CNBC) – As a part of the SEC’s Regulation Best Interest that is scheduled to take effect on June 30th, brokers at standalone broker-dealers (i.e., those who are not dually registered as an investment adviser as well) will be required to stop using the term “advisor” in their marketing and communications to clients. The requirement, reiterated in a recent update to the SEC’s FAQs about Reg BI’s Disclosure Obligation for broker-dealers, is significant because it is anticipated that many broker-dealers will need to substantively revamp everything from their job descriptions and titles and business cards to their websites and marketing materials and customer agreements to meet the requirement. At its core, the separation of titles drives from the fact that, while brokerage firms have increasingly encroached into the advice domain, legally the function of a broker-dealer is to broker and deal in securities transactions for clients and not to give advice (and thus why broker-dealers are not already subject to a fiduciary duty), which even the SEC’s own studies have shown is a distinction that consumers don’t understand anymore. Notably, however, critics have pointed out that while the “advisor” title itself would be restricted under Reg BI, other synonyms (e.g., financial consultant, wealth manager, retirement counselor) are not restricted, and the rule has a significant loophole in that it doesn’t apply to dual-registered advisors (i.e., those who work under a broker-dealer and an RIA), permitting them to still use the “advisor” title even when they are serving in a brokerage sales capacity and not actually serving as an advisor. In fact, SEC data indicates that about 60% of brokers are already dually registered (and an even higher percentage at the large national broker-dealers that reach the bulk of consumers), and some have suggested that the end result of the rule may not actually restrict the advisor title in practice, but simply compel more broker-dealers to encourage their brokers to also take the Series 65 and become dually-registered. Nonetheless, given the limited timeline until Reg BI takes effect, in the near term the new rule is expected to drive substantive change with at least a subset of standalone broker-dealers that will be obligated to stop using the “advisor” title after June 30th.

Registration Starts May 11 For FINRA And NASAA Online Test-Taking As CFP Board Postpones July Exam To September (Melanie Waddell, ThinkAdvisor) – One of the major challenges of the coronavirus pandemic shutdown for the financial services industry is that with non-essential businesses closed, including Prometric testing centers, the ability of the industry to administer its required regulatory exams for new brokers and advisors (e.g., the Securities Industry Essentials exam, Series 6 and 7, Series 65, etc.) has been eliminated. Accordingly, both FINRA (for broker exams) and NASAA (for Series 65 exams) have been working with Prometric to roll out an online testing service where candidates with camera-equipped computers will be able to take the exams and have them remotely proctored by Prometric staff (particularly for states that may still not be re-opened for many more weeks). Registration is expected to open by May 11th, with exams beginning by May 24th. However, the CFP Board announced this week that it was not comfortable with a remotely/virtually proctored exam approach, and instead would be delaying its previously scheduled July testing window until September 22nd – 29th (while also retaining its originally scheduled November 3rd – 10th exam window as well). Unfortunately, the July rescheduling further delays a subset of nearly 100 test-takers who were originally scheduled for the March exams, only to have Prometric testing centers shut down in mid-March as the coronavirus pandemic spread (and had been rescheduled to July), and the CFP Board still cautions that exams may be delayed further if the pandemic causes testing centers to remain closed longer than anticipated.

Advisors Turned To Active Management And Rebalancing During Downturn (Jeff Benjamin, Investment News) – In a recent Fidelity survey of financial advisors conducted in mid-April, 41% of advisors reported that they were increasing exposure to active management in client portfolios in the midst of the market volatility, including 57% adding to domestic equities and 27% adding to investment-grade bonds. By contrast, only 15% of advisors planned to increase their allocations to passive strategies, and 30% planned to decrease allocations to cash. Notably, though, while Fidelity suggested the results indicated that advisors may be looking more towards active management during this period of market volatility, it’s also simply possible that advisors who use active funds tend to add and subtract to them more actively, while passive advisors tend not to add to their passive holdings simply because they have adopted a passive investing approach in the first place. In fact, of advisors engaging in trading in the first place, 76% said the reason was simply related to rebalancing (where equities would naturally be purchased by rebalancing after a market decline, of which the majority would be actively managed funds simply because the majority of advisors already hold active funds that would be getting rebalanced), and advisors were equally likely to state they were looking to increase risk (30%) as decrease risk (also 30%). Either way, though, the Fidelity data did show that client phone calls were on the rise, with advisors spending an average of 4 hours per week calming clients about portfolios prior to the crisis, but spiking to 14 hours/week since the pandemic began.

FPA Releases “Virtual Externship” Program For Students Who Lost Summer Internships (Patrick Donachie, Wealth Management) – With the coronavirus pandemic forcing advisory firms to shift to a work-from-home environment, many have canceled their previously scheduled summer internships, lacking a physical office space to bring the students to train on and then execute their internship duties. In response, organizations like XY Planning Network adopted a “virtual internship” program to help advisory firms re-institute (and get trained on how to implement) those internship opportunities in a virtual format. However, given the sheer breadth of students that may be facing lost internship opportunities, the Financial Planning Association has announced the launch of a “Virtual Externship” program, where CFP candidates can go through a structured 8-week program (from June 1st to July 30th), where each week focuses on a different topic (e.g., investment planning, cash flow planning, retirement planning, etc.), with a focus not just on teaching course curriculum (which students already receive in their academic CFP classes) but case study exercises, software training, and Office Hours with advisor mentors and external tech partners (and a dedicated online community and forum). And notably, similar to an actual internship, the FPA externship will qualify for 160 hours of Experience towards the Standard (3-year) Pathway of the CFP Board’s Experience requirement. The Externship program will be limited to but free for FPA members, with registration directly on the FPA’s new Externship website.

Study: Here’s What Really Leads To Satisfied Clients (Michael Fischer, ThinkAdvisor) – The rise of robo-advisors and more broadly the commoditization of investment management by technology has led many to fear that advisor fee compression may soon be coming, but a recent consumer study on the value of a financial advisor (released by Carson Coaching), finds that in practice, “fees” alone are not the strongest indicator of an advisor’s perceived value. Instead, having a focus on financial planning, and a holistic menu of services, are deemed by consumers to be even more important, effectively showing that consumers are willing to pay higher fees for more comprehensive financial planning advice… with the caveat that advisory firms then need to actually deliver on that value. Another caveat is that conducting more in-person meetings is not necessarily a key driver of that perceived value of more-in-depth advice, as consumers indicated that value was more strongly correlated to the number of interactions between an advisor and client (i.e., even if via videoconferencing and not in-person), and in fact-finding that most clients do not believe that the traditional once-or-twice-a-year meeting is enough to justify an advisor’s value. Other notable results included: 94% of consumers who understood how their advisor was compensated felt they received adequate value (compared to only 82% who lacked that transparency), and understanding advisor compensation was increasingly important as the affluence of the client themselves increased; long-term care and estate planning are often the last planning topics covered with clients but disproportionately contributed to client satisfaction with perceived value; and clients, in general, felt more confident about their retirement when they had received a formal written plan from their advisor (versus those who did not receive a written plan).

Your Video Therapist Will See You Now (Andrea Petersen, The Wall Street Journal) – For many financial advisors, the shift to a work-from-home environment where client meetings are conducted by email, telephone, and videoconferencing has made it more difficult to maintain a deep and intimate connection with clients… but marriage and family therapists are finding an even more challenging environment. In some cases, the issue is simply finding a comfortable place to talk (where patients may have to talk from their cars or even bedroom closets just to avoid children or other family members listening in), while in other cases the challenge is for the therapist themselves (who may unwittingly get distracted when sitting in front of a camera and thus staring at one or several computer monitors with distracting content and notifications). On the other hand, therapists are also finding that the cancellation rate on meetings has dropped to near 0% (from a usual in-person meeting no-show rate of 25%), as ‘just’ dialing into a videoconferencing session is far easier for most and requires less coordination and logistics (than taking time out of the day to come to a professional’s office). On the other hand, some patients are declining video calls, and either expressing a preference for phone calls (e.g., where the computer or just being able to see one’s own image on screen are too distracting) or delaying meetings until it’s again possible to meet in person. In turn, the National Register of Health Service Psychologists has made a guide for conducting effective therapy sessions via technology (and the emerging domain of “telepsychology”). Of course, the reality is that engaging in therapy with patients is not the same as engaging clients as a financial advisor, which means not all of telepsychology’s lessons may translate to financial advisors. Yet, on the other hand, it’s not necessarily that different, either?

The Least Empathetic Thing To Say? (Jessie Stuart, The Wall Street Journal) – One of the unique challenges of the coronavirus pandemic is that with so much widespread hurt, from lost jobs to devastated businesses to health concerns and even death due to COVID-19 itself, a lot of people have a lot of pain to share, and are looking for an empathetic ear. Yet short of the worst outcome (death), often the natural human response is to still be thankful for what we have, and recognize that “at least it’s not worse” (e.g., “School canceled? At least you’re not a senior!”, “Scared to go to work that you might get sick? At least you still have a job!”). Yet while the intention is usually good – to remind someone of how lucky they still are – as Brene Brown notes in her talk “The Power of Vulnerability”, starting a sentence with “at least…” is virtually never an effective way to connect with empathy. Instead, empathy is created by making a connection. For instance, Stuart notes that in a recent situation with a patient, who was immunocompromised and seeing news coverage of the coronavirus and remarking “I have no immune system. I’ll be the first to go… I’m just—I’m paralyzed with fear”, a doctor colleague replied “I can only imagine how scared you’re feeling right now. It’s unfair that you’re dealing with leukemia and now this. I don’t know what the future holds, but we’ll be with you every step of the way.” The response may not be perfect… but in practice, it likely never will be, as most of us cannot ever perfectly relate to what someone else is going through, but we can at least acknowledge the pain, and promise to be there for them.

Empathy Starts With Curiosity (Peter Bregman, Harvard Business Review) – When faced with someone who is sharing their challenges – all too common in the current pandemic environment – it’s naturally tempting to to try to acknowledge and reflect to them those challenges. Finding it unsettling as an advisory firm owner in this environment? Bregman suggests that we might easily reply “Well certainly, we’re in unsettling times. Especially for you, a founder whose organization is disrupted. You’re worried about cash and operational continuity. And you’re in the investment community. How can you not be unsettled in the face of such dramatic and unpredictable market swings? I totally get it!” Yet the caveat is that in practice, it may not be the business disruption that’s actually weighing on someone. Perhaps they’re unsettled because of the challenges of their home life in the midst of the pandemic? Or being stuck at home and missing colleagues in the office? Or worried about a (potentially not previously shared or disclosed) health issue that is threatened by coronavirus? In fact, Bregman points out that sometimes we don’t even realize what it is that’s stressing or bothering us until we have more time to process it (which itself is challenging when the idle time to process our thoughts is in short supply when work and home life are mashed together). Which means the starting point of empathy, now and especially in the current environment, is not even to assume you understand (and try to empathize with) what is bothering someone, but instead simply to keep curiously asking “tell me more”, to both understand and even help someone else process what they’re dealing with right now.

The Pandemic May Mean The End Of The Open-Floor Office (Matt Richtel, The New York Times) – While the trend of ‘modern’ corporate offices for years has been towards increasingly open workspaces, businesses looking to prospectively re-open their offices in the coming months as employees return to work are now focusing on the health risks that apply in such open environments. As a result, a whole host of new office ‘essentials’ are being considered, from reworking air filters to push air down and not pull it up (where the virus may more easily spread), windows that actually open for more air flow, hand sanitizers built into desks… and ‘sneeze guards’ or outright plexiglass dividers to separate workspaces. In other words, after years of office walls coming down, coronavirus may cause the return of (at least the see-through glass version of) office cubicles. Of course, the reality is that even with all of these innovations, risks of the virus spreading in the workplace will remain, and at best our research on how to limit virus transmission in office workspaces comes from research about how the flu spreads (which may or may not be exactly the same as how coronavirus spreads). In fact, experts note that one of the most straightforward ways to limit virus transmission is simply to have (more) flexible paid sick leave that encourages ill employees to stay home, or more generally to “de-densify” how crowded office workspaces really are. Still, though, as the reality is that businesses will reopen before there is a coronavirus vaccine, there is a new focus on new workplace arrangements that will at least reduce the risk of the virus spreading and make employees feel safer, which means open workspaces, elbow-to-elbow seating, shared desks, and more, may soon be eliminated, in lieu of office spaces with more separation and barriers (or at least see-through plexiglass sneeze guards!?).

7 Exceptional Apps That Will Optimize Your Work-From-Home Life (JR Raphael, Fast Company) – Most financial advisors (and employees in general) are accustomed to working in office environments, where the employer themselves provides the essential workplace tools to manage the day and stay organized. But in a work-from-home environment, which itself requires new and additional tools to stay organized and focused, there is a hunt for how to stay more productive. Raphael offers a number of suggested tools to aid the process, including: Trello as a task management and personal organizing system (a series of virtual ‘boards’, each with a column of cards that capture tasks, checklists, or visual reminders), which in turn has a feature called Butler that can create some time-saving automations (e.g., make certain recurring tasks pop up in a particular column at the same time every week); Brain.fm for background music (or really, background ‘noise’ that is scientifically engineered with sounds that are designed to help you focus); Super Auto Refresh Plus to keep remote software from kicking you out (for Chrome browsers), which can be programmed to ‘click’ and refresh a page every 10 minutes to prevent it from being timed out; Boomerang to manage your Gmail inbox by sending out messages that are automatically scheduled to ‘boomerang’ back in a few days (for those of us who use our Inbox as a task list and need a way to make those tasks ‘go away’ for a period of time and come back later);  Expensify to digitize expense tracking (when it’s not feasible to drop off your receipts to the bookkeeper anyway now!); and apps that help you focus on staying fit at home (e.g., Nike Training Club) that can give you a reminder nudge when you haven’t worked out all week!

1 Email Every Remote Leader Should Send Every Week (Robbie Abed, Inc.) – For those who are managers of people and in positions of leadership, one of the biggest challenges to personal productivity is the time it takes to gather and share status updates with those you work with, often resulting in a compounding volume of emails and text and chat messages… which has only compounded further in a virtual work-from-home environment where getting updates from colleagues in the hallway, lunchroom, or water cooler is no longer viable so ‘everything’ gets communicated via emails and other message systems. In an effort to consolidate the flow of information, Abed adopted an approach of sending out an email every Monday morning to his entire team, with the subject line “My plan for the week” that would share his priorities and focus for the week as a leader, both to share what he was working on (status update) and get feedback from his team about whether there was anything else they needed help with (i.e., that he should be focusing on instead). In turn, he would also typically include a section of what was accomplished in the prior week as well, to highlight where the business was making progress. And may even include a few broader directives to the whole company of priorities for the week (e.g., we’re cancelling all unnecessary meetings not related to supporting clients over the next 30 days). Leaders with many direct reports may similarly ask for their team members to provide them a similar weekly report as well, to consolidate all the information and reporting to one place. The key, though, is simply to facilitate team communication into what everyone else is working on, which helps to support teamwork, and also to reduce distractions and interruptions (because it’s no longer necessary to keep checking in on ‘who’s working on what’ when it’s already stated up front where their focus is for the week!).

I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!

In the meantime, if you’re interested in more news and information regarding advisor technology, I’d highly recommend checking out Bill Winterberg’s “FPPad” blog on technology for advisors as well.