MEDIA REVIEWS – April 8-16, 2020

Let’s call this the “HR” issue of Financial Planning magazine, because in addition to the lead column telling us what staff members at your firm really want in their workplace environment, we have two articles exploring the perks and workplace cultures of the fintech firms rated best places to work for.  The first is probably more applicable to you than the latter two, unless you’re ready to dole out tickets to music festivals or host evening engagements at the local baseball stadium.

Along a similar theme, we are told that the disgraced brokerage firm Wells Fargo will no longer force people who suffer sexual harassment to take their case to arbitration, but few other firms seem inclined to follow in their footsteps.  And a Cerulli report indicates that firms are sometimes hostile to the idea of hiring diverse candidates as advisors and staff.

Articles that received a “high” relevance rating:

“How to Inspire Your Team”
by Kelli Cruz
Financial Planning, April 2020
https://www.financial-planning.com/opinion/build-stronger-engagement-through-compensation-culture-and-professional-development
Relevance: high

What motivates and engages staff teams?  Cruz teamed up with Julie Littlechild to survey staff members.  At the base is fair base compensation with variable compensation that acknowledges team members who have gone above and beyond.     The article recommends 20-25% of the industry range compensation from surveys when the employee is new to the role, 50% for a more seasoned employee who is meeting performance expectations, and 75-80% or more for the most experienced employees.  (Never equal to the top of the range?)

Beyond that, a graph shows the most valued benefits for advisory staff members.  Retirement or 401(k) plans is valued by 67% of those surveyed, followed by medical insurance (63%), a flexible work schedule (48%), paid vacations (44%), the ability to work remotely (42%), and then some less-valued things, like the ability to earn equity in the firm (29%), profit-sharing (24%) and financial support for professional development (23%).

Employees value the opportunity to learn and grow, so you should create an annual goal-setting process that includes metrics not only aligned with the employee’s role, but which also includes the development of applicable skills and knowledge that will allow advancement.  Meanwhile, gather employee feedback using feedback apps or anonymous social networking tools.  Perhaps most importantly, the firm’s managers need to exhibit leadership and stay in constant communication about the values and expectations of the firm, and be open to feedback themselves.  (p. 10)

“Can Diversity Efforts Save the Industry?”
by Ann Marsh
Financial Planning, April 2020
https://www.financial-planning.com/news/financial-advisory-firms-must-diversify-to-solve-advisor-exodus-cerulli
Relevance: high

A report by Cerulli Associates suggests that advisory firms can replace the 40% of advisors who are expected to retire in the next decade by hiring Hispanic and African-American candidates.  The article also notes that women make up just 14% of advisors, brokers and reps across the industry.  Cerulli cites “unwelcoming firm cultures” among the factors that contribute to barring planners of diverse backgrounds from entering the industry.  Another factor is the brokerage industry’s focus on sales, which creates a 50-70 percent “washout rate” in they first five years of a new rep’s career.  The report recommends moving away from commission compensation to salaries.  (p. 12)

“Cut Client Acquisition Costs”
by Michael Kitces
Financial Planning, April 2020
https://www.financial-planning.com/news/kitces-how-financial-advisors-can-cut-client-acquisition-costs
Relevance: high

Last year, Kitces conducted a survey and concluded that the average cost of acquiring a new client came to $3,119, more than the revenue most clients will generate for the firm in the first year.  Advisors with a purely AUM revenue model probably lose money in the early years but make it back by year three and the clients are financially profitable thereafter.  That means the firm can only take in so many new clients at once, or it might go broke.

The article suggests that a typical firm spends 10% of its expenses on marketing and sales: 2% in hard-dollar costs and 8% in advisor time costs.  It says that referrals are very cost-effective, and then lists other low-cost ways to bring in clients: search engine optimization, paid web listings, writing a book, conducting webinars, direct mail, holding education events—and at the other end, the article says that hiring a marketing consultant can raise client acquisition costs to $25,000 per client.  Radio can cost almost $8,000 per client.

At the end, the article says that the inefficiency of advisor marketing suggests that there’s room for third-party lead generation solutions—advisor directories and paid web listing services. Meanwhile, the larger firms are outgrowing the smaller ones because they have the cash flow to invest in scalable hard-dollar marketing.  (p. 23)

“Will Anyone Follow Wells?”
by Ann Marsh
Financial Planning, April 2020
https://www.financial-planning.com/news/wells-fargo-ends-forced-arbitration-for-sexual-harassment-claims
Relevance: high

Shareholder activism by asset manager Clean Yield prompted the disgraced Wells Fargo organization to stop forcing alleged victims of sexual harassment into private arbitration.  The author asked nine other large firms whether they would follow suit, and eight of the nine either failed to respond or declined to comment.  Edelman Financial Engines said that mandatory arbitration is not a requirement included in its employee sexual harassment policy.  Rudy Adolf of Focus Financial and Adam Birenbaum of Buckingham Wealth Partners were unwilling to be interviewed, Commonwealth said its executives were traveling, and representatives for LPL Financial, Raymond James, Ameriprise and Cetera did not respond or said they would not address the topic.

A spokesperson for Wells Fargo declined to comment on how many sexual assault disputes the bank is currently fighting in private arbitration disputes, and would not say if those cases will be barred from jumping to the court system.  And it still uses mandatory arbitration for individuals who, within the firm, are discriminated over any other kind of gender or race claim. 

An organization called Force the Issue claims to have persuaded 90 firms (not all financial services) to drop mandatory arbitration clauses or publicly confirm that they don’t use them.  (p. 27)

“Printers Need Cybersecurity Protection Too”
by Wes Stillman
Financial Planning, April 2020
https://www.financial-planning.com/opinion/for-rias-cybersecurity-means-protecting-printers-computers-too
Relevance: high

Instead of just protecting the business operations in your tech stack (custodial connection, CRM, portfolio management, rebalancing and reporting tools) you should be protecting access to every system you have control over.  Otherwise you are open to phishing scams, data breaches and potential legal liability.  That means, the author says, an architected protection environment, a framework that ensures that access to all data and systems is managed, controlled and monitored—including access from unmanaged devices.  Think: data from a secure location downloaded into a hacked or infected device or email system.  (p. 29)

“Preventing Intrafamily Fraud”
by Ed Slott
Financial Planning, April 2020
https://www.financial-planning.com/news/tax-case-shows-how-financial-advisors-might-protect-clients-from-intrafamily-fraud
Relevance: high

Slott tells the story of a tax court case, where an elderly woman with dementia was basically robbed of her IRA assets by her son, who had moved in with her and fraudulently obtained a power of attorney.  The IRA distributions were taxed to the mother.  The daughter eventually stepped in and tried to clean up the mess, and claimed that since the mother never received the proceeds of the IRA, she shouldn’t have the huge tax burdens.  Nor, after she died, should the estate.  The claims were denied.

In a case where an advisor stole IRA funds from a client in a nursing home, the client won a lawsuit, received a settlement, and the IRS allowed the settlement to be rolled back to the client’s IRA as a “restorative payment.”  Only compensatory damage awards can be re-contributed to the IRA, not punitive damages and attorney’s fees.  (p. 33)

The rest of the articles:

“Record Growth for Black and Latino CFPs; Status Quo for Women”
by Charles Paikert
Financial Planning, April 2020
https://www.financial-planning.com/news/record-growth-for-african-american-and-latino-financial-advisors-cfp-board
Relevance: moderate

The CFP Board notes that the number of black and Latino CFP professionals grew 12% last year, but the growth rate for female CFP professionals stayed roughly the same, at just under 4%—about the same as the overall growth rate of certified advisors.  The CFP Board plans to build strategic partnerships with the Hispanic Association on Corporate Responsibility and the National Urban League.   (p. 13)

“A Form ADV Blunder”
by Kenneth Corbin
Financial Planning, April 2020
https://www.financial-planning.com/news/financial-advisors-big-form-adv-mistake
Relevance: low

The article says what you already know: that the Form ADV is a living document that should be updated as circumstances change.  And it says it again and again.  (p. 15)

“Tickets to Lollapalooza?  Perks from the Best Wealth Management Fintechs”
by Jessica Mathews
Financial Planning, April 2020
https://www.financial-planning.com/list/the-best-wealth-management-fintechs-to-work-for-in-2020
Relevance: moderate

This “special report” seems a bit tone-deaf in this pandemic era; we are exploring all the cool perks that different tech firms offer, and ranking tech firms as to whether they are among the “best” places to work.  Advyzon makes sure its workers own at least a 15% equity stake in the company.  Oranj offers its workers VIP tickets to the Lollapalooza music festival in Chicago.  Redtail invites each employee and a guest to an annual all-expenses paid team-building trip to an exclusive resort.  At Facet Wealth and 280 CapMarkets, employees have unlimited vacation, personal and sick days.  At ActiFi, the staff has wide latitude to create their own hours and work style, as long as they stay productive.  Advyzon and ActiFi pay 100% of their employees’ health insurance premiums and deductibles. 

The list, in order, starts with YCharts, followed by ActiFi, Snappy Kraken, Redtail Technology, 280 CapMarkets (a bond marketplace for advisors and institutions), Facet Wealth (where staff members bring their pets to work), PeerStreet (an alts platform), Advyzon, Oranj, Ally Financial (a digital bank), and TradePMR.  (p. 16)

“Drink Kombucha, Get Results?”
by Jessica Mathews
Financial Planning, April 2020
https://www.financial-planning.com/news/why-ycharts-is-best-fintech-to-work-for-in-2020
Relevance: moderate

This is a quick profile of the culture at YCharts, which finished first in the best places to work contest.  Every Friday, one or two employees are profiled over video conference call, including a section on what they would do if they won the lottery.  There are music festival tickets, employee matches for retirement plans and group seating at Chicago Cubs games.  Staff members can nominate one another for extraordinary performance each quarter, and the top performers of sales teams are recognized in front of the company.  The office offers kombucha, cold brew and beer on tap.  Workers join leagues where they play kickball, soccer, flag football and bowling.  (p. 21)

“Fraud by Phone?”
by Tobias Salinger
Financial Planning, April 2020
https://www.financial-planning.com/news/ameriprise-appeals-decision-in-advisor-mark-sachse-case
Relevance: moderate

An Ameriprise client informed the firm in writing that it should not make any trades on margin in his account.  The account was later badly churned with trades on margin, he complained and then received a bizarre flurry of calls that promised large sums of compensation, over and over again, and of course the checks never arrived.  He was also told not to believe the statements, because (he was told) he had much more than that in the account. The broker had been disbarred as a lawyer in Kansas in 2007 after legal clients had filed 17 complaints against him.  The client is suing, of course, and Ameriprise is suing to compel FINRA arbitration in the case, even though it apparently doesn’t have the documentation.  Meanwhile, another ex-Ameriprise broker received an 11-year prison sentence after defrauding 20 clients of more than $8 million.  (p. 31)

“Paying Off a Client Loss?  Stop”
by Alan Foxman
Financial Planning, April 2020
https://www.financial-planning.com/news/can-a-registered-rep-cut-a-client-a-check-to-make-up-for-a-bad-recommendation
Relevance: moderate

A broker says that a client took a big hit on an investment he recommended, and is making noises about complaining to his supervisor.  So he’s thinking of just cutting him a check for the loss.  What does the securities attorney think?

The securities attorney says that FINRA Rule 2150(c) prohibits reps from sharing in the profits or losses in a customer’s account unless the members firm provides written permission, and the customer provides written permission, and the sharing of profits and losses is in direct proportion to the financial contributions the rep made to the account.  In other words, don’t do it.  (p. ?)

“Measuring Performance”
by Craig Israelsen
Financial Planning, April 2020
https://www.financial-planning.com/news/which-performance-measure-is-most-relevant
Relevance: low

The author notes that measuring performance depends on some assumptions.  If it’s a lump sum investment, holding and rebalancing, the sequence of returns doesn’t matter.  If money is being systematically invested, the best returning asset will be the one that had the best returns in the latter time period.  If money is being withdrawn, then the advantage goes to the funds that performed best in the early years.  The author decries the fact that these latter two ways to measure performance are not reported anywhere, but what time period would you use to determine if the investment is successful or not?  Everybody is going to experience a different sequence of returns, right?  (p. 36)

“What Happened When I said, ‘I Want Your Job’”
by Lauren Cosulich
Financial Planning, April 2020
https://www.financial-planning.com/news/why-financial-advisors-should-work-with-a-partner
Relevance: moderate

The author wanted to change careers and get into Private Wealth Management, applied at J.P. Morgan Private Bank and was lucky enough to interview with a very supportive woman who nurtured her career from support staff to wealth manager.  The two moved to Lehman Brothers and then Barclays Wealth Americas, before finally moving to an independent firm, Summit Trail Advisors, where the author is now a partner.  The lesson is that with a partner, the workload can be divided based on skill or experience, and a good mentor can be the difference between being rejected for that first job and a successful career.  (p. 40)