MEDIA REVIEWS – December 13-15, 2019

Among many highlights in this issue of Investment Advisor, Mark Tibergien of Bank of New York/Mellon Pershing, lists various workable financial literacy initiatives—including his own firm’s (the EverFi Partnership) and the Third Decade program that was recently profiled in Inside Information.  Angie Herbers offers a more productive way for financial planners to set goals for their firm in the coming year, and Dan Skiles offers some basic advice on how to raise your cybersecurity game.

Articles that received a “high” relevance rating:

“Big Tech Flexes New Products at T3”
by Tim Welsh
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/big-tech-flexes-new-products-at-t3/
Relevance: high

The T3 Enterprise conference featured, as attendees, the Big Buyers: the larger independent broker-dealers, banks and national RIAs.  In a panel discussion, David Ballard, SVP for Ladenburg Thalmann, said that he looks for tech tools that will enhance the client experience, like a unified advisor and client portal.  Cambridge Investment Research CTO Nick Graham wants to deploy upgrades across systems, to remove paper from the planning process.  Cetera CIO Mike Ragunas focuses on the ease of doing business.  Dynasty Partners CTO Eric Castillo is providing a chat feature so that advisors can communicate with each other across the firm’s platforms.

The biggest game changer, they said, is the elimination of commissions for trades, which will boost the direct indexing concept.  Also: strict state privacy laws, and the rise of fee-for-service financial planning through subscription and retainer fees. 

Among the tech solutions, the article singles out Whealthcare Planning, the health and wealth tech platform co-founded by Carolyn McClanahan, which helps advisors protect older clients from financial abuse and fraud.  Also: Vestmark demoed its new consolidated managed account platform, and Laserfiche introduced the new Laserfiche Vault, a FINRA-compliant designed third-party solution.  Fiduciary Shield is a new retirement plan tech platform that helps plan sponsors reduce their expenses and act as plan fiduciaries.  (p. 18)

“Year-End Tax Opportunities to Leverage”
by Joe Elsasser
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/year-end-tax-opportunities-to-leverage/
Relevance: high

’Tis the season to harvest capital losses out of client portfolios.  Each dollar of capital loss can represent a savings at the client’s tax bracket.  Some advisors also are harvesting capital gains to top off the client’s current tax bracket and help them avoid high brackets when they’re taking required minimum distributions. 

Also: pay attention to the capital gains being distributed by fund companies (phantom capital gains), which may be higher than the gain that would be recognized if the position were sold. 

Also: look at partial Roth conversions, especially if they’re free up to the beginning of the 10% tax bracket.  In other circumstances, you can top off the client’s current tax bracket.  (p. 22)

“A Call to ‘Do Better’”
by Janet Levaux
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/a-call-to-do-better/
Relevance: high

There are stories here that are genuinely horrifying, and these have nothing to do with Ken Fisher.  A woman was raped at the home of a former colleague—and when she told others, they didn’t believe her.  Another woman was invited to a strip club for a business meeting.  Another was at a meeting with a group of senior executives, and one of them made a joke about raping her—and the other executives laughed.  Sonia Dreizler, who has published a blog where women tell their stories of harassment, says that a great deal of the bad behavior happens at conference events, and calls for conference organizers to create a safe and welcoming environment for all participants.

Apparently, women and men agree with these reforms, according to the magazine’s survey.  But Dreizler would like to see FINRA update its regulations around disclosure of harassment.    (p. 32)

“When Giving Back Means Lifting Up”
by Mark Tibergien
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/when-giving-back-means-lifting-up/
Relevance: high

A recent poll shows that 62% of consumers mistrust financial advisors.  BNY Mellon Pershing has created an initiative (the EverFi Partnership) to encourage advisors to deliver personal financial education to schools in their community or their alma mater, to build trust with consumers and empower them with the ability to discern who is trying to take advantage of them.  Topics include savings, banking, payment types, credit scores, financing higher education, renting vs. owning, insurance, taxes, consumer protection and investing.

Also: the Third Decade program accepts people who are coming out of college, who pay no tuition, and teaches them about personal finance.  After they’ve completed 10 hours of classroom training and pass a test, they get $1,000 for a Roth IRA.  This program is open to advisory firms around the country (as you may have read in Inside Information).

Also: BLBB Charitable encourages people to get involved ion community service activities, which they support with funding.  A new financial literacy program is being developed to help people make a connection between their choices and their financial health.   (p. 39)

“Set Goals That Build on What You’ve Got”
by Angie Herbers
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/set-goals-that-build-on-what-youve-got/
Relevance: high

We’re approaching the time when advisors make or revise their annual goals for their firms.  Herbers worries that many advisors set themselves up to fail with this exercise: setting arbitrary numbers as something they must do, create, attain or achieve.  Setting big goals can create a lot of stress—the more so the more unrealistic they are.

The article recommends alternatives to creating big AUM goals.  Instead, look at how you can add services such as tax planning, estate planning or 401(k) management, which might have a larger impact on the firm’s profitability and ability to attract clients. 

Start the growth plan by assessing where the firm is today, and how it would have to change to support the kind of AUM increase the owners have in mind.  You want to create a solid foundation for growth.  Herbers recommends specific areas to look at:

1) Create or revise core values, and explain clearly to employees how those values apply to their work.  Make sure everyone in the firm understands how their behavior drives the growth of the business.

2) Improve your client service experience, which may have deteriorated as the firm got bigger and more complicated.

3) Raise your sales game, by improvising how you communicate the value of your services.  Let clients now how your advice and service will affect their lives and the lives of their loved ones.

4) Work on your employment manual, and the benefits you offer to your staff.  Your staff’s growing expertise needs to be rewarded, and you want to enhance the culture of your firm.

5) Create written defined career tracks for employees, so they can grow within your firm.  What goal can you make to improve the growth of your employees?

6) Is your compensation structure getting the behavior you’re looking for?  What goal can you make to enhance it for the coming year?

7) Is your marketing strategy hard to understand or hard to implement?  Is it effective?  What small goal can you set to improve it?

In general, Herbers recommends that you don’t make big goals; instead, set small ones that will produce great results and foster incremental growth each year.  (p. 43)

“Be Alert to M&A Nuances”
by Tom Giachetti
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/be-alert-to-ma-nuances/
Relevance: high

There’s a constant tug-of-war between buyers and sellers, where buyers favor earnout arrangements, while sellers prefer cash on the barrelhead.  But recently, there has been a shift in deal terms; buyers now rarely accept the risk to deal value on a decline of stock market values.  Earnout payments, meanwhile, are often tied to year-over-year revenue growth or to preservation of targeted earnings.  Because earnings can fluctuate depending on the expense profile of each business, this latter metric can be complicated.

In addition, many more firms are operating with more diverse revenue streams: tax preparation, insurance planning, estate planning and family office services.  Those don’t fit in well with simplistic market measures.  (p. 45)

“Cybersecurity a Bore?  Not When You Get Hacked”
by Dan Skiles
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/cybersecurity-a-bore-not-when-you-get-hacked/
Relevance: high

Someone has hacked your client’s email.  The fraudster is monitoring all the activity in real time.  They can see how your client requests that you send money from their brokerage account.  So the fraudster calls your client posing as a representative of the client’s bank, to verify the most recent transaction and make sure everything is in good order.  The client gives the bank the recent authorization number, creates a new password, and gains access to the bank account, locking the client out at the same time.

The lesson?  Clients should be instantly suspicious of any different or odd requests that involve their financial affairs.  You should provide clients with a list of things you will never do relating to money movement.  You can share examples like this one, of how fraudsters execute attacks.  (p. 46)

“Is an Employee Ready to Jump Ship? Watch Out for These Signs”
by Caleb Brown
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/is-an-employee-ready-to-jump-ship-watch-out-for-these-signs/
Relevance: high

The first warning sign is a staff member who may feel that he’s delivered strong performance, but was passed over for promotion.  You need to clearly state the expectations and requirements for promotions ahead of time.  Some employees may be leaving work earlier and more frequently, potentially to interview with other firms.  You may see staff members acting like they have something to hide; or there may be reductions in communication with existing team members—or, alternatively, less willingness to step up and take on projects.  Is the quality of a team member’s work dropping suddenly?  Does he or she exhibit a negative attitude, or less interested in pleasing the management team? 

If you sense something is not right, trust your gut and challenge yourself to look more closely at what’s going on.  (p. 48)

The rest of the articles:

“Top 2020 Compliance List?  Reg BI, Secure Act, New Ad Rule”
by Melanie Waddell
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/top-2020-compliance-list-reg-bi-secure-act-new-ad-rule/
Relevance: moderate

Remember the Secure Act?  There is a remote possibility that it will be attached to a continuing resolution to fund the government, finally getting it out of the Senate and passed into law.  Otherwise it may not pass at all.

Reg BI has been challenged in the courts by seven states, but Form CRS has not been included int he lawsuit.  The XYPN Network is also suing the SEC on Reg BI, and may actually have a stronger case for overturning it.  FINRA, which would enforce Reg BI, expects to be enforcing by July 2020.  (p. 10)

“ETFs, Mutual Funds Moving in Different Directions”
by Bernioce Napach
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/etfs-mutual-funds-moving-in-different-directions/
Relevance: low

The gist here is that mutual funds are experiencing record declines (a net 107 funds were closed this year through the second quarter) while the number of new ETFs is exploding.  The article says that if a mutual fund doesn’t see a clear path to getting to $100 million to $200 million, the promoters will close it.  The top 10 mutual fund managers accounted for just over 64% of market share, while the top 10 ETF sponsors have over 96% of market share.  Total assets: $4 trillion in ETFs vs. $15.5 trillion in mutual funds.  (p. 14)

“SRI: How Advisors Can Bridge Idea and Practice”
by Alex Laipple and Melissa Mittelman
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/sri-how-advisors-can-bridge-idea-and-practice/
Relevance: moderate

Sustainable investing is now being called “full-information investing.”  The availability and sophistication of ESG data on a growing number of public companies lets investors assess corporate behavior and, therefore, risk.  The article says that sustainable investing can be used as a risk mitigation tool for clients, in addition to appealing to causes they support.

When talking with clients, address questions directly.  Does sustainable investing mean they have to compromise returns?  What, exactly, is the impact?  (p. 16)

“6 Realities for RIA Buyers and Sellers in Today’s Market”
by Ginger Szala
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/6-realities-for-ria-buyers-and-sellers-in-todays-market-2/
Relevance: moderate

A study sponsored by BlackRock says that the largest advisory firms are commanding premium multiples, and also accounted for 42% of the purchases from 2016-18.  Typical deals feature 60% of the purchase price in cash (the remainder in equity).  But some sellers find that they have to trade cash for the highest possible valuation.  Expect more private equity firms, advanced platforms and flexible capital providers to drive value through competitive capital sourcing and creative deal structures.  (p. 20)

“Tipping Point”
by Janet Levaux
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/cover-story-tipping-point/
Relevance: moderate

You wonder when the piling on will end with the Ken Fisher episode, especially since he didn’t make crude passes at any women and his remarks actually told advisors not to market themselves like crude men in bars.  Many advisors, unlike Fisher, have acted out these behaviors routinely at conferences and we are only obliquely referring to their behavior. 

But anyway…. This article looks forward to “meaningful change in the industry’s treatment of women,” where speakers are more carefully vetted, and more people speak out when inappropriate remarks are made.

Meanwhile, a poll showed that more than 70% of respondents found Fisher’s comments inappropriate.  Also: 59% of women believe that physical harassment is somewhat or very common, vs. 27% of the men responding to the survey.  (p. 24)

“A Family Affair”
by Janet Levaux
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/a-family-affair-2/
Relevance: moderate

Wells Fargo Advisors (yes, them) has created a yearly conference for African-American brokers. This year, in St. Louis, there were 200 attendees—and some of them were interviewed about the challenges they’ve faced in the industry.  One, a woman based in Chicago, said that people look at her as if she doesn’t know anything about finance.  She was encouraged to reach out to friends and family to build her book of business. 

An advisor in San Francisco says the the annual summit is “fun and exciting.”  An advisor in Melbourne, FL gets to know clients’ families, and thinks more needs to be done to bring in minorities.  An advisor in Lake Charles, Louisiana works with her daughter, which, we are told, represents what’s aheads for the firm and the industry. 

This is a shame.  You know these people have strong stories to tell, if only they were asked the right questions and the writer had listened a bit more carefully.  (p. 35)

“SEC Ad Rule Revamp is a Game Changer”
by Melanie Waddell
Investment Advisor, December 2019
https://www.thinkadvisor.com/2019/11/25/sec-ad-rule-revamp-is-a-game-changer/
Relevance: moderate

The existing advertising rule is 50 years old, developed long before social media or the ability to rate your experience with any vendor (or advisor) online.  Why should brokers and realtors be able to have testimonials, but not financial planners? 

The proposed updates, which run to 507 pages, would allow advisors to use testimonials, endorsements and third-party ratings, subject to certain conditions.  The rules would not allow advisors to inappropriately tout returns or cherry-pick their happiest clients.  The definition of advertising is expanded to include instant messages, text messages, emails, videos, podcasts, blogs and all manner of social media—in addition to newspaper and magazine advertisements and direct mail.

The proposal is out for a 60-day comment period.  (p. 41)