Weekend Reading for Financial Planners (Apr 3-4)

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.

CFP Board Updates Principal Topics List Of CFP Exam With New Psychology Of Financial Planning Category (Tobias Salinger, Financial Planning) – Every 5 years, the CFP Board conducts a Job Task Analysis to understand the “work” that financial planners actually do with their clients, and then updates the list of required “principal knowledge topics” for the CFP exam to align to the practice analysis. This week, the CFP Board announced its latest 2021 update to the Principal Knowledge Topics, which, notably, will introduce an entirely new category titled “Psychology of Financial Planning”, in acknowledgment of the growing role that counseling and coaching skills and the actual psychology of decision making are playing in the delivery of financial advice to make sure that advice actually ‘sticks’ (above and beyond “just” economic research into behavioral finance ‘anomalies’ and biases). In its update, the CFP Board made a number of changes to the weightings in other Principal Knowledge Topics as well, including Risk Management (declines from 12% to 11%), estate planning (declines from 12% to 10%), retirement planning (rises from 17% to 18%), and tax planning (rises from 12% to 14%). Perhaps most notable, though, is the elimination of the Education Planning category altogether (previously at 6% weighting) which is now being consolidated into the “General Principles of Financial Planning” category (which as an entire category went from a 17% weighting for ‘just’ General Principles to a 15% weighting including Education). Which speaks to the relative focus of financial planning for more affluent and older clientele, where Retirement and Estate planning, plus Investment Management, now have a collective 45% weighting, but Education Planning, Cash Flow Management, and Budgeting combined have a low single-digit weighting as just subsections of the General Principles category. (Though again, the weightings are not a reflection of what the CFP Board “believes” is important, but literally what actual CFP professionals do today, per the Practice Analysis Study.) In the meantime, the “old” existing topic list (and their current weightings) will remain in effect for the remainder of 2021, while the new topics (and their new weightings) will first take effect for the March 2022 CFP exam.

Half Of Consumers Think Financial Advisors Are More Expensive Than They Are, But Almost All Who Use One Say They’re Worth It (Devon Delfino, Magnify Money) – This survey from Magnify Money of 1,552 Americans conducted in February 2021 offers several interesting insights on how investors across the wealth spectrum view the financial advice industry (both the perceived cost and value of advice).  30% of those surveyed indicated that they work with an advisor today, jumping to 55% of those earning more than $100,000. And of those, a whopping 95%(!) believe it is worth the money! However, half of the overall group surveyed believe that financial advice costs much more than it does, specifically an advisory fee of between 5 and 15%(!) of AUM. Given that the average fee is clearly much, much less than this – with our latest Kitces Research showing that the median AUM-based fee is holding at 1% for a $1 million account, the irony is that while many financial advisors fear putting their fees on their website will make them seem “expensive”, in reality, some consumers might be surprised how “cheap” good financial advisor can actually be!? Similarly, the results also showed that 42% believe financial advisors are only for the “wealthy”, which jumps to 48% for women (suggesting that unless you’re truly catering only to the ultra-high-net-worth, perhaps in the effort to appear exclusive, we are turning off prospective clients in the process?). Other notable results include: a startling 50% of those under the age of 40 believe they can get the information a financial advisor provides from Google (offering further validation that the value of financial advisors continues to shift towards serving as a guide rather than the all-knowing expert); only 18% prefer a robo-advisor over a human advisor, but that jumps to 29% for Gen Zers (and keeping the big picture in mind, that is still 18%, versus 0% roughly 15 years ago in the pre-robo era); 60% of those working with an advisor hired one based on a specific life event, such as a death in the family, receiving an inheritance, or going through a divorce, reinforcing that business development isn’t just about prospecting and networking but also having a system to be present and maintaining engagement in our prospects’ lives until these event-driven advice needs arise to initiate the relationship; and lastly, while everyone strives to lead with planning, the reality is by the far the most common reason for hiring an advisor (60%) is Investment Management (versus 30% who say it’s for Comprehensive Financial Planning). So despite all the pundits suggesting that investment management is commoditized, perhaps there is still a case to be made for articulating a clear and distinct message surrounding our portfolio management guidance, offerings, and ways we can add value in areas like tax management and personalization (even after financial planning itself continues to be on the rise as well?).

Study Affirms Majority Of Advisors’ Clients Downplay Daily Market Fluctuations And Undue Focus On Short-Term Volatility (Sarah Fallaw, Datapoints) – In a world where financial advisors are so often focused on getting clients to save and invest, and keeping them invested (including and especially through times of market volatility) as a way to add “advisor alpha”, a recent DataPoints study of nearly 1,600 investors who are actual clients of financial advisors provides a positive affirmation of these client outcomes, with 77% of clients agreeing that most investors should ignore daily market fluctuations, 70% disagreeing with the idea that focusing on short-term gains in important, and 60% agreeing that a “slow and steady” investing strategy leads to building wealth. Notably, though, the study does show that some disparities occur within couples – particularly those that delegate primary investment responsibility to one member of the couple over another – with 85% of those who are responsible for investment decisions agreeing that most should ignore market fluctuations, but only 63% of those not responsible (e.g., the ‘other’ spouse) sharing the same viewpoint, suggesting that advisors need to be especially cognizant of the risk that the less-involved spouse may also be less on board with a stay-the-course philosophy. Of course, the reality is that when the survey is conducted amongst those who are already clients of financial advisors, it’s not entirely clear if the financial advisors were effective at changing clients’ attitudes to be more long-term oriented, or if the reality is simply that more long-term oriented clients tend to seek out financial advisors (who then add value by reinforcing that existing long-term focus). Nonetheless, the results suggest that, at a minimum, there typically is strong alignment on a longer-term investment focus amongst clients of financial advisors.

I Want You To Get Mad! (Stephen Wershing, Client Driven Practice) – In the famous 1976 film “Network“, anchorman Howard Beale learns that his network is in trouble, breaking down into an on-air rant about his feelings of powerlessness to change the outcome and exclaiming that he didn’t know what to do, but “all I know is that first you’ve got to get mad!” Which, in the end, so connects emotionally with his viewers that it triggers a broad public outcry to save the station. Wershing suggests that, in a similar manner, financial advisors have an opportunity to not only try to make ‘informational’ statements about their value and “passion for client service”, but to actually get mad in a way that can emotionally connect with prospective clients to really make the point. Because as Donald Miller’s “Building A Story Brand” book highlights, most people have some series of unmet needs (that we can service as financial advisors)… but below the problem at hand are the emotions that struggle raises, and below that there is often a deep-seated sense of frustration at the injustice of the situation. Thus, for instance, it’s not about helping clients develop retirement income strategies… it’s about recognizing the injustice that what should be a time of eager anticipation is instead often one of insecurity and fear. It’s not about helping young families with the technicalities of saving for college and retirement and optimizing taxes all at the same time… it’s about recognizing the injustice that the burden of doing so prevents them from having as much meaningful time with the children they’re trying to raise and save for. As Network’s Beale famously urges: “Go to your windows. Open them and stick your head out and yell ‘I’m mad as hell and I’m not going to take this anymore’!” So the question for you is: what is the underlying sense of injustice that your clients are struggling with… and how will you show them that you’re mad as hell, too, and will do whatever you can to fight that injustice alongside them?

One-Sentence Elevator Pitches That Get Prospects’ Attention (Sara Grillo, Advisor Perspectives) – One of the classic challenges of growing a financial planning business is that what we do and the value we provide for clients is complex, long-term, and intangible… which makes it incredibly difficult to even describe in the first place. The phenomenon has led to the rise of the so-called “elevator pitch” – the idea that because the business of financial advice is complex, but most clients won’t pay attention for much longer than the time it takes to ride up with you in an elevator, the advisor should find some way to boil down what they do to an “elevator pitch” that can quickly capture the prospect’s attention (and open the door to a longer more-detailed conversation about value). Yet as Grillo notes, most advisors with limited time for an elevator pitch tend to try to make themselves as compelling as possible in a short period of time… instead of really focusing on the prospect and what might be of interest to (or a pain point for) them. And because the only real goal is to engage with a prospect to get them more interested (for a longer conversation), the key is really just to have a statement that grabs attention (with some mixture of humor and intrigue), and then be quiet and let them respond if they’re interested. For instance, one advisor describes how his elevator pitch has been boiled down to “I rescue investors from their [explicit] brokers!” (Which in the end isn’t necessarily about bashing all brokers… but if someone is unhappy with the current service they’re receiving from their broker, it will immediately intrigue them to want to talk more about how you can help!) Accordingly, Grillo suggests steering away from the industry jargon (e.g., “comprehensive financial planning”, “achieve your goals”, “fee-only fiduciary”, etc.), and instead really focus on pain points that prospects might have, such as “I help people not blow up their portfolios” or “I work with doctors who hate financial advisors” or “I handle the money drama with your spouse on your behalf”… all of which would resonate with them immediately if they really did have that problem or struggle and be in search of a solution! (And if not, it saves time to know that prospect is not a fit, and move on more quickly to the next who might be?)

The Question Nobody Asks About Their Brand (Phil Edelstein, Advisor Perspectives) – The essence of branding is about crystallizing exactly who you are and what you believe in… which then guides what the firm says and does, and how it “shows up” (in everything from words to visuals and colors) to reinforce the perception of that brand. Yet as Edelstein notes, most brands focus on questions around “who are we” and “what is our driving purpose as a business” and “who is our target customer”… but doesn’t necessarily focus on the true core issue of growth, which is “why aren’t we winning business [already]?” Which in some cases may be a function of competition (e.g., how the advisory firm is unique and differentiated), but more often it is simply about client inertia and issues of trust about whether the advisor can really deliver. For instance, if the true reason the firm isn’t winning business is that prospects just may not be sure if they can really trust you, look to create more social proof (e.g., media quotes and industry awards) and a list of client testimonials or reviews (as the SEC is now making them permissible, at least for SEC-registered RIAs). If the firm isn’t winning business because clients may not think your investment process is sophisticated enough, commit to writing a monthly market commentary (promoted via email and social media), and hire a PR firm to help you get some targeted press sharing your thoughts about the economy/markets. If the firm isn’t closing ultra-HNW prospects who may not be convinced the firm has the capability to deliver on their service needs, look to redesign the firm’s brand and look to feel more premier and “white glove” and create a more targeted service model that can be shown specifically ultra-HNW clients. The key point, though, is simply to recognize the importance of looking inward and being honest with oneself as an advisor about why, really, prospects aren’t saying yes… and using the clarity that is gained to be certain your (updated) brand tackles that issue head-on!

Free COBRA Health Insurance: Who Qualifies And How To Sign Up (Anne Tergesen, Wall Street Journal) – A key planning opportunity within the recent American Rescue Plan is the opportunity for any workers who have been laid off over the past year to adopt employer-based health insurance coverage from their prior employer under COBRA… which will be available for free from April 1st through September 30th, as employers will be eligible for a payroll tax credit to directly offset the cost of the COBRA coverage (resulting in a net-zero-dollar bill to the employee). Notably, eligible individuals are not only those who will be laid off over the next 6 months and opt into COBRA coverage, but also those who were laid off as far back as March 1st of 2020 (more than 1 year ago), who may have originally opted out of COBRA at the time (which can be ‘expensive’ since employers are permitted to pass through the entire health insurance premium, plus an up-to-2% administrative charge… often a sticker-shock for those who had previously received employer-subsidized coverage), but will have the option to resume COBRA coverage starting April 1st. In addition, those who are still employed but lost their health insurance coverage due to an involuntary reduction in work hours will also be eligible. However, anyone who voluntarily left a job (or reduced work hours) will not be eligible for the government-subsidized COBRA coverage (but can still choose to simply buy and pay for COBRA health insurance under the ‘normal’ rules); furthermore, dependents who lose coverage due to turning age 26 will not qualify, nor will someone who starts a new job with health insurance (at least, not going forward from the point they are able to get new health insurance from the new employer). To drive enrollment, the new law requires employers to send notices to former workers of their new COBRA eligibility, though those who are particularly anxious about seeking coverage and don’t want to wait beyond the April 1st start date are advised to contact their former employers to request that their health insurance coverage begin immediately.

5 Ways Technology Will Change How We Age (Carolyn Gowen, Financial Bodyguard) – According to Joe Coughlin of the MIT AgeLab, one of the core questions arising as medical advances increase our longevity is “How will we add life to our longer lives?” For which the answer is increasingly “technology” that can play more and more of a role in enabling us to engage in fulfilling activities in our later years. Key trends in this regard include: technology that keeps our brains sharp so we can work longer (e.g., Lumosity), with a whopping 70% of consumers now stating they intend to work at least part-time beyond age 75; technology that enables our ability to do part-time or gig work in our later years (e.g., 24% of Uber drivers are over age 50, and 10% of Airbnb hosts are over age 60); various social media platforms that help us to stay connected and avoid the isolation that often occurs in later years (from Skype to Facebook, Instagram to WhatsApp), which is reflected in the ‘surprising’ statistic that those aged 65-and-over are now the fastest-growing sector of social media users (and have the most time to spend on social media!); technology that helps us stay/be more mobile (from using driver services like Uber or Lyft, to meal delivery services when we don’t want to go out); technology that enables us to stay in our homes longer and still get help when we need it (e.g., TaskRabbit); and technology that helps us to outright stay more healthy, from Helping Hands to provide online social services support, to apps like Pillboxie so you don’t forget to take your medication!

The 5 Types Of Retirement Savers (Nick Fortuna, Barron’s) – While the importance of saving for retirement is often reiterated by financial advisors and the media, the reality is that not all people have the same proclivity towards saving and investing for the long term. A recent study by Artemis Strategy Group, which interviewed more than 3,000 consumers to understand their retirement savings behaviors, found that those saving for retirement can be grouped into 5 psychographic groups: Purposeful Planners, which are the smallest group (at 12%), but the most financially successful, with median household income of $125,000 and median household assets of $325,000, and are the most likely to have a financial plan, devote time to retirement planning, and often enjoy managing their finances; Optimistic Dreamers (at 13% of the total), which skews towards women (57%) and younger individuals (49% under the age of 25), who tend to have much lower income ($62,000 median household income) and less educated (46% having a high-school diploma or less), and who may feel that retirement is far away but still expect to lead active and rewarding lives of seniors, with a basic understanding of retirement planning and saving for retirement but little interest in spending much time on it; Cautious Preparers (at 17% of all consumers), who tend to prepare for the worst and stick with tried-and-true investment strategies, often have sizable knowledge about retirement planning but may also rely upon experts when they have questions; Ambitious Risk-Takers (28% of the total), who tend to be educated and optimistic, skew younger, tend to use and trust financial advisors but also like to do their own research; and Uncertain Strugglers (the largest group, at 29% of consumers), who tend to have less formal education, more likely to rely on instinct and friends-and-family recommendations for financial decisions (rather than financial advisors), and are generally pessimistic about living comfortably in retirement.

Delegation Versus Perfection (Patty Kreamer, Advisor Perspectives) – One of the drivers of success for many financial advisors is a high level of conscientiousness regarding the work that they do. The good news is that this ‘perfectionist’-style approach, with a deep focus on quality and excellence, can help to attract and retain clients. The bad news is that a relentless focus on perfectionism is often the antithesis of effective delegation and eventually leads to the advisory firm ‘capping out’ and no longer being able to grow (constrained by a list of tasks that the advisor insists only ‘they’ can do and cannot be delegated). Yet in the end, Kreamer notes that the reality is that we are not perfect, either, and insisting that we’re the only ones that can do a key task is both counter-productive and just factually untrue in almost all situations (except, perhaps, those few tasks that truly align with one’s “Unique Ability” that only they can do). To figure out which tasks are which, Kreamer suggests creating a list with 3 columns, labeled “Stop” (tasks that are stealing your productivity away, that someone else really could start doing sooner rather than later, either via delegation or outsourcing), “Start” (those activities that you would like to start doing more of, from particular tasks in the business, to others like walking more, getting home earlier, or getting to sleep earlier), and “Continue” (the stuff that you’re doing, enjoy doing, and is truly a good use of your time). Notably, the key to the exercise is not just reflecting on the need to delegate (the “Stop” list), but also reflecting on the “Start” list and all those tasks you might be able to accomplish… by finally letting go of the “Stop” column! And if you’re really not sure where the time is going in the first place, Kreamer suggests signing up for Clockify or Toggl to (automatically) track where your time is going… and then reflect on the resulting list to decide what goes into the Stop/Start/Continue columns!

Crafting a Personal Career Construct as a Next Generation Planner (Christopher Stroup, Journal of Financial Planning) – For many younger and newer financial advisors, one of the most appealing aspects of working for a prospective advisory firm is its “career track” that traces out how the advisor can follow an established roadmap to grow their career over time. But, as Stroup notes (in quoting Tony Gaskins), “The doors will be opened to those who are bold enough to knock”. In other words, it’s fine to search out a firm that may lay out a prospective career track, but the best outcomes occur for those who plan out their own careers and then go knock on the doors that can give them the opportunity for those outcomes. In Stroup’s case, that meant creating his own personal “Career Vision” of what he wanted to achieve, with a “Career Construct” that spanned 5 core domains: Who do you want to serve? (What kind of work really excites you and brings you joy? In Stroup’s case, that was someday working with LGBTQ+ venture-backed startup founders… where specificity is your friend because it helps to formulate a more concrete plan about how to pursue them.); What competencies will you need? (What do you need to learn, what credentials do you want to obtain, and what associations do you want to get involved with, to get you closer to who you want to serve?); What kind of team will you need? (i.e., What mentors do you need to find, or networking do you need to do, in order to move forward?); What is your outreach strategy? (How will you find your way to the people you want to reach? Networking meetings? Publishing? Speaking? Social media? Volunteerism?); and What will your Specialty be? (How will you bring it all together into a specialized offering that distinguishes you, and the competencies you bring to the table, to differentiate yourself for those you someday want to serve?). Once you’ve created the Career Construct, share it with others to get their feedback about whether you’re on track, whether it would help to modify it or focus it… and perhaps to see if they can help you take the next step to achieve it?

The 5 Principles Of $10K Task Management (Khe Hy, Rad Reads) – One of the fundamental challenges to time productivity is that we focus a lot of effort on how to do more instead of focusing on what the highest impact activities are to do… the stuff that isn’t just worth $10/hour to get done, but the tasks that are $100/hour or even $10,000/day outcomes when successful. Yet, in practice, refocusing your time and effort on $10,000 days requires establishing a structure and system to be able to have that focus on what drives the most impact… or what Hy dubs “10k Task Management” strategies. The first key of this effort is to create a place to get all the other ideas out of your head so that you can focus on the ones that matter most, which could mean carrying around a Moleskin notebook (for those who prefer the ‘analog’ approach) or a note-taking or “To Do” app like ToDoist. Next, refine your Task Management system to not just be a grand list of all the tasks, but allocated by domain so you can focus your attention (e.g., breaking your tasks into Reminders, Personal, and Work, which helps to park the Important-but-not-Urgent so it’s not lost or forgotten), and then focusing them into Projects (defined as “What Am I Working On Now?” that has a clear due date and deliverable, from “Hire a Head of Sales by ____” to “Plan and go enjoy summer vacation!”). Notably, as all these tasks are broken out across Projects and Domains, it becomes important to add “metadata” labels to be able to find them (e.g., which are $10 vs $1,000 vs $10,000 tasks to prioritize, which ones are due sooner or later, which ones are high-energy versus low-energy) and prioritize them as appropriate, so you’re not just doing more stuff, but the right stuff instead.

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

Gavin Spitzner contributed this week’s article recap on the Magnify Money study.