Issues and Answers

An all-star panel opened the 2018 Insider’s Forum with a thoughtful discussion of the things that we should put on our professional radars.

Based on the consistently positive feedback we received throughout the meeting, the 2018 Insider’s Forum conference was a success.  In my opening remarks, I laid out a description of our target audience.  The people filling the chairs in the ballroom of the Hotel Del Coronado, in front of floor-to-ceiling windows showing the sunset over the beach, had a few interesting things in common.  They never imagined that they would ever become as successful as they are.  Yet they achieved their current status not by chasing success, but by consistently finding ways to be of service to others.  They are among the 5% of advisors who have completely outgrown the traditional conference experience, which they believe to be too basic or “safe.” 

The target attendees want to expand their knowledge and they want their intellect to be challenged, and if there’s something they don’t like about your meeting, it will not be long before you are told about it.

This, in other words, is a pretty tough audience.  But if you can get just over 300 of them in the same venue, then magic happens.  The hallway conversations and discussions around breakfast, lunch and dinner can be fantastic.  New connections are made among people who know how to make things happen in their businesses and client relationships. 

Over the course of three days, we bonded into a community of like-minded professionals, sharing our experiences, concerns and prescriptions for the future. 

If you believe, as I do, that at least half of the value of a conference experience is these attendee-to-attendee conversations, then the quality of the Insider’s Forum audience provided a great foundation for focused learning and growth.

What about the other 50%: the sessions?  I’m going to be writing about quite a few of them over the next few months, including a ground-breaking presentation by Chris Sidoni and Chad Hileman of Gibson Capital—who contributed to Roger Gibson’s latest edition of Asset Allocation: Balancing Financial Risk—on how to extrapolate customized after-tax return projections for different asset classes, and then map them to a customized efficient frontier for each individual client. 

Pricing expert Matthew Jackson delivered an eye-opening presentation on how advisory firms can not only adjust their pricing, but also give clients more choice in what services they receive from you and how they pay for them—making your services easier to sell at potentially higher price points. 

Marketing expert Megan Carpenter of FiComm Partners defined the difference between marketing and sales, and then broke down the process for recharging your marketing efforts into easy-to-understand steps. 

We heard from Deena Katz, Angie Herbers, Harold Evensky, Joel Bruckenstein, Roy Ballentine, Wade Pfau, Spenser Segal, Steven Kaye—and Shaun Kapusinski of Sequoia Financial Group and Lisa Crafford of Pershing Advisor Solutions brought together a variety of thought leaders in the operations world, who contributed to what we believe is the industry’s best conference educational track designed by and for ops professionals.

Leadership Discussion

For now, let’s focus on the opening keynote presentation.  Every year, we give out an Insider’s Forum Leadership Award to an individual in the profession who has helped guide the profession and generally “moved the needle” in a positive direction.  For our keynote presentation, we created a panel of past award winners.  (Award winner Tim Kochis was unable to make the meeting.)

Mark Tibergien, of Pershing Advisor Solutions, who basically pioneered the idea of taking the management of a professional business as seriously as the delivery of excellent advice and service;

Harold Evensky, of Evensky & Katz/Foldes, who has systematically debunked every harmful investment fad and fancy that entered the planning realm, and guided the profession toward a truly scientific, empirical approach to investing;

Skip Schweiss, of TD Ameritrade Institutional, who has been an articulate advocate for genuine professional standards of practice and care, and has lobbied for the codification of those standards in the legal and regulatory realm; and

Joel Bruckenstein, who has become not only the leading information source during this rapid evolution of advisory-related software and tools, but also an advocate for the profession in the development of better tools and tighter, more efficient integrations.

This was already kind of a rock star panel, but of course we also wanted to include the 2018 Leadership Award winner.  After we handed out the award, the panel welcomed Deena Katz, of Texas Tech University, who is leading the profession toward a future day when every professional financial planner will have, not a certificate, but a diploma on their office wall.

I moderated the panel, and asked each panelist to offer a list of the issues that they believe are important enough to require our attention and focused leadership in the near-term future.  See if you can spot the interesting overlaps.

Schweiss offered three issues, but with some subsets to the last one.  First: How do we attract enough young talent to replace the pending retirement of thousands of “first-generation” advisors? 

Second: is a 1% AUM fee going to be sustainable in a world where competing digital portfolio management solutions are charging 0-30 basis points?

Third: how do we raise the bar for the planning profession, in order to elevate it to the status of a recognized profession?  What will be the academic requirements?  Who or what will become our certifying and oversight body?  What will be the standards of care for the profession?  How will we discipline people who don’t live up to those standards?  And what, exactly, should the advisor world advocate when we talk with policymakers?  Do we want to be left alone or regulated more tightly to prevent “pretenders” from masquerading as professional advisors?

Evensky worried that we are going to experience a low-return environment due to high current market valuations, and therefore advisors will need to revise their future forecasts and assumptions—and perhaps also prepare clients for leaner days ahead. 

He also expressed concern that the profession is still overly focused on asset management, and said that too many advisors are inputting minimal goals into their retirement planning projections—rather than the things that clients aspire to and dream of. 

He said that advisors might need to consider immediate and deferred annuities to pay for the future expenses of some of their less-wealthy retirees. 

And he, too, worried about how the profession will address the robo competition.

Bruckenstein said that he thinks advisors should be watching for new technologies or planning techniques on the horizon that could be game-changers. 

Does the classically-accepted way of delivering financial planning advice meet the needs of the next generation of clients—or does something need to change?

How will the custodial collection of “big data” from multiple advisor practices improve the operational efficiency of advisor businesses?

And shouldn’t the CFP Board recognize technical skills as foundational for advisor practitioners?  Put another way, why can’t we get CE credits for mastering the tools that are used to project the future cost of client goals (including retirement), and calculate and report on client portfolios?

Tibergien said that the profession is facing an acute talent shortage that will only get worse as aging founding advisors begin to retire during a rapid growth period when their firms continue to take on new clients. 

He also mentioned the lack of diversity in the advisor population, at a time when people of color are becoming more numerous and wealthier.

Tibergien raised the question of the future economics of the advisory business now that the custodians and fund companies have seen their margins get squeezed.  Are you next?

He believes that advisory firms will need to redefine their client experience.

And he wonders about the implications of private equity moving into the RIA space.

Finally, Katz raised a very interesting issue.  She said that advisors will never achieve real professionalism if most professionals are actually certificants rather than graduates with university training in their specialty.  Can you imagine doctors or accountants taking online test prep courses and then a test to achieve their professional status? 

Overlapping Concerns

Of course, in an hour and a half, we didn’t get a chance to cover all of these topics in depth.  But I’m sure you recognized the overlaps.  Katz and Schweiss are concerned about how we can define and live up to future professional standards.  Schweiss said that he’s concerned about the “best interest” proposal coming out of the SEC, which he believes will make it appear that wirehouse brokers are actually held to a higher standard than fiduciary advisors.  Why?  “Best interest” sounds more compelling than the nebulous ‘fiduciary’ word.

Katz, Bruckenstein and Tibergien, meanwhile, addressed the talent shortage issue from opposite directions. Tibergien said that the numbers are definitely worrisome; tens of thousands of new planning professionals are going to be needed merely to replace the founding advisors who will soon retire.  He worried about the future competition for increasingly scarce talent. 

Katz conceded that, in the short term, the various university programs aren’t producing nearly enough students to address this talent shortage, and even there, not all of the graduates are moving into advisory firms—there is intense recruiting competition from Vanguard and the brokerage firms.  In the near term, the profession will need to bring in a new generation of career-changers (including, perhaps, brokers moving into the advisor space), and get them certified through the certificate programs. 

Longer-term, the profession will not achieve Katz’s vision unless it can build more capacity in the existing university programs, create new ones, and most importantly convince people in grade school and high school that financial planning is a viable career.  Tibergien talked about visiting your high school, offering to teach a course in basic finance and investing, and make sure you are represented at any career fairs that are held.  He, himself, is funding a high school curriculum in financial planning in northern Michigan, and he invited the audience to follow his lead.

The question we were left with is: can a real profession feature certificants as the overwhelming number of practitioners?  Or will the advisors of the future necessarily all be graduates of university programs in the field of financial planning?

Rethinking Qualifications

Bruckenstein added to the debate in two directions.  First, he disputed Tibergien’s numbers—not that they are inaccurate on their face, but that they assume the world of the future will be the same as it is today.  He believes that advisory firms five or ten years from now will be able to leverage technologies to become more efficient.  Today, advisors can typically service 50 – 100 clients.  The advisor of the future might be able to double or triple that figure.

As we move toward that world, Bruckenstein suggested that the profession needs a total rethink of what the qualifications of a financial planner should be—taking Katz’s proposal in a new direction.  He questioned why skills in or facility with tech tools were not included among the professional knowledge requirements. 

His argument was plausible.  Many advisory services today rest on the underlying assumptions built into planning programs, into the portfolio performance calculations and CRM tracking of client goals as they evolve over time, plus efficient online storage of client documents for an orderly financial life, tax-loss harvesting and rebalancing services.  As tech tools replace human labor, these things will be more true in the future.  Just as doctors have to take periodic CE courses in the use of their instruments, Bruckenstein argued, advisors should be required to know the tools of their trade at a professional level.

Outrunning the Robos

This led to the exploration of another overlap in the issues the panelists raised.  Schweiss, Evensky and Bruckenstein talked about evolving better ways of delivering financial planning services, in part driven by the increasingly sophisticated (and inexpensive) robo competition.  The profession opened a wide door to the robo challenge by perpetuating a disconnect between how advisors typically charge and where their value lies. 

Schweiss noted that the online investment solutions brilliantly mimicked the advisor revenue model—a percentage of assets—and then offered primarily investment management with some phone advice thrown in at a fraction of the cost.  If the advisor is charging 80 basis points and the robo is charging 25, the advisor must be overcharging.  Right?

Schweiss said that advisors are going to have to make the value of their advice and counsel more visible—and perhaps charge directly for it, rather than indirectly through the AUM model.  Bruckenstein said that advisors can make their planning services more pleasant and efficient by creating a collaborative client planning experience and leveraging online technology to handle labor-intensive activities like rebalancing, tax-loss harvesting and even signing on clients through paperless onboarding.  He noted that the custodians have been slow to adopt true automated onboarding, but the technology is available.

Low Returns, Low Fees?

If we are, as Evensky worries, facing a low-return environment—most likely including a significant market meltdown—then Schweiss pointed out that one impact would be reduced AUM fees.  Thus, there are two reasons to consider moving to a retainer or hourly revenue model: there would be a closer match between the services the advisor offers and the revenue model (addressing the robo threat), and the retainer revenues wouldn’t be impacted by lower portfolio values. 

Tibergien and Bruckenstein each said that, even in the absence of a market crash, advisory firms will need to operate more efficiently in order to prevent a long, gradual margin squeeze in the future.  Some possibilities: instead of forcing clients to meet in your office, and instead of scheduling meetings two to four times a year, hold impromptu Skype calls whenever clients want to ask a question.  The meetings last seconds or minutes instead of more than an hour, the client gets on-demand service and doesn’t have to fight traffic to get to your office.  Win-win!

But what about the impact of that low-return environment on clients?  Evensky noted that he has, in the past, been hostile to the idea of incorporating annuities into client portfolios.  But his opposition is beginning to thaw as he looks at the alternatives in today’s high PE environment.  For clients who outlive their expected lifespans, an annuity’s mortality premium in those extra bonus years can be significant enough to make up for poor returns in the equity markets, and save some retirements from disaster.

The question that was raised but never resolved: should advisors be planning for longer client lifespans due to improvements in medical technology?

I think everybody in the room was disappointed when the session had to end; there were so many good ideas flowing back and forth from people who happen to be good at recognizing and addressing key issues in the profession.  But the session opened up a lot of good conversations throughout the remainder of the conference.  I’m sure some of them will be further along, and perhaps more interesting, when we gather together for the next Insider’s Forum, September 11-13 at the Omni Nashville, in Nashville, TN.