Tag: CFP

Why Is it So Hard to Ask For Referrals As A Financial Advisor?

Why Is it So Hard to Ask For Referrals As A Financial Advisor?


Growing a client base and acquiring more ideal clients is a challenge all advisors face, regardless of how successful they currently are. And although almost everyone in the industry has heard that asking for referrals is an important way to grow a business, many advisors struggle with this. Which raises the question, as recently posed by Ron Carson at a recent keynote presentation: “Why don’t more advisors ask for referrals? Are advisors afraid to ask for referrals because they’re not proud of their own services?”

In this week’s discussion, we talk about why it is so hard to ask for referrals as a financial advisor, and how the many barriers – including our pride (or lack thereof) in the company or products we represent, our confidence in our own value, or even shame about the industry we are in – can make it hard to ask for referrals.

Of course, when financial advisors get started, it isn’t feasible to ask for referrals, because you don’t have any clients yet to refer you; instead, the only choice is cold calling, “cold knocking” (walking the streets and knocking on the doors of small businesses), or some other cold prospecting strategy. In fact, arguably for newer advisors, the whole appeal of being able to ask for referrals to generate new business is the opportunity to get away from cold calling and other types of prospecting!

Yet the caveat is that it’s difficult to ask for referrals, if you’re not actually proud of your company and its products. Because if you know, deep down, that your solutions aren’t really the best for your clients, you’ll likely self-sabotage your own behavior – as I experienced myself when starting out as a life insurance agent, struggling to prospect and ask for referrals because I was embarrassed about the sales tactics my company was using at the time!

Of course, ultimately becoming a real financial advisor is not about getting paid for your company’s products, but getting paid for your own advice, knowledge, and wisdom. But that still means it’s hard to ask for referrals until you’re actually confident in yourself, and your own knowledge. And here, too, many struggle, because if we don’t actually know anything about financial planning, and we know that we don’t, then we can’t confidently convey our value. Which is why professional designations like the CFP marks are so helpful… because often it’s only after completing a designation that many will really start to feel confident that they can bring value to the table, and ask for referrals.

Although even once advisors have expertise and can truly add value as a financial advisor, it can still be hard to have confidence to ask for referrals, when telling people “I’m a financial advisor” risks making you a social pariah because so many consumers have had bad prior experiences with advisors! That’s the challenge of trying to do business in a low trust industry. When metrics like the Edelman Trust Barometer finds that fewer than 50% of all consumers trust financial services companies, it’s literally an odds-on bet that if you say “I’m a financial advisor” and ask for referrals, that the person’s first and immediate impression of you will be negative!

The bottom line, though, is just to recognize that there really are a lot of barriers that make it hard for us to ask for referrals, all of which are built around our own fears and discomfort in what we do, the value we provide, or the company/industry we represent. Our fears hold us back. And often our fears are quite well-founded. It really is uncomfortable asking for referrals when you’re not proud of the company and products you represent. Or you’re not confident in your own value. Or you’re ashamed of the industry you’re in. So, if you find yourself at one of these blocking points, figure what do you have to do to grow past it – whether it’s leaving your company, reinvesting in yourself and your education, or differentiating yourself from the rest of the industry – or you won’t have the confidence you need to ask for referrals!

Asking For Referrals To Sell Investment And Insurance Products

As most of you know, I started my career in financial services, working in a life insurance company, straight out of college, into a life insurance agency. It was the year 2000, so the hot product at the time was variable universal life insurance. Buy life insurance. Invest the cash value in the stock market.

Now, back then, the only way you could get started was you had to go out and prospect. You could do cold-calling, or you could walk the streets and cold-knock on the doors of small businesses. There were some long-term career life insurance agents in that office who built their whole careers knocking on the doors of people’s homes, like, literally selling insurance door-to-door, cold-knocking, back in the 1960s and 1970s.

But ideally the goal for most advisors is to get away from that as quickly as possible, by getting some clients and then asking those clients for referrals to new clients and prospecting your way forward from there. It’s basically the…Asking for referrals was the pathway from cold-calling and cold-knocking.

Frankly, compared to cold-calling and cold-knocking, proactively asking for referrals seems like a pretty good deal. But here was the thing. I couldn’t do it. I just couldn’t do it. I couldn’t bring myself to ask clients and prospects I was talking to if they knew anyone else who might benefit from our company’s products and services. It was what I was trained to say, and I couldn’t do it.

Deep down, I think the reason why is exactly what Ron said. I wasn’t proud of the company and the products that I represented. Because at the time at least, it really felt like the company was solely focused on one product, a variable universal life, at least in our branch, where it was all the managing partner wanted us to talk about with every prospect we met.

Even as a novice agent at the time, I knew deep down that not everybody on the planet needed a VUL policy. What’s worse I knew we didn’t even have the best VUL policy on the market, because we got trained in how to overcome objections, including the objection of outselling competing products that illustrated better than ours.

So I was in a position where the company was pushing me to sell a knowingly inferior product to a wide range of people, who often didn’t even need the product. Lo and behold, I didn’t want to ask for referrals. I just couldn’t do it.

To be honest, it…Well, I guess as Ron’s question suggested, it wasn’t that I was afraid, per se. It was frankly that I was kind of ashamed of what I was selling, what I was doing. Ultimately there’s only one good way you ever really deal with that. You have to leave, and that’s what I ended up doing. It basically becomes a self-fulfilling prophecy. I wasn’t proud of my company’s tactics and the product I represented. So I didn’t ask for referrals, and I didn’t get much business, which meant I couldn’t qualify my contract, which means the discomfort with the company and its products eventually meant that I no longer had a job selling that company’s products. Funny how these things work out.

But I think it’s a good reminder for all of us that you can’t stay at a company where you aren’t proud of what they do and their solutions that they provide. As Ron had put it, if you wouldn’t knowingly, willingly, and happily recommend your mother and your grandmother to the company that you’re working for, you need to find a different company. You need to go somewhere else because, otherwise, it will become a self-fulfilling prophecy. You won’t be comfortable asking people to do business. You won’t be comfortable asking for referrals, which means you will self-sabotage your own success, and it’s not going to work out anyways.

So save yourself some time and extended, but inevitable, demise. If you aren’t able to ask for referrals because deep down you’re ashamed of the company or products you represent, find a new company to represent, and get over this hurdle.

Asking For Referrals Requires Confidence In Your Own Value [Time – 4:50]

Now that being said, the truth is that even if you want to ultimately become a financial advisor, where your primary job is actually not selling the company’s products, but selling your own advice and knowledge and wisdom, then what you really need to become proud of, so that you can represent confidently, is yourself and your knowledge.

Here too, I’ll admit that this was actually a huge struggle for me in the early years, even after I left the insurance company. I switched to working in a much more financial planning-oriented independent broker-dealer, but I still had to struggle. I didn’t really know anything about financial planning. I was about 23 years old, with a bachelor’s degree in psychology, and I knew I didn’t know much of anything about financial planning. It’s hard to confidently ask people to work with you and pay you for your advice, when you know you don’t actually bring much value to the table and give very good advice.

For me, that was the primary motivator to go out and get my CFP marks and ultimately continue on with a lot of additional post-CFP designationsfrom there, because I couldn’t confidently convey my value and ask for their business until I knew, for me personally, that I had the knowledge and value to convey in the first place.

So for me, it was only after completing some of those designations that I felt confident enough that I knew my stuff and felt I really brought value to the table, that I finally started to get comfortable asking prospects for their business, asking for referrals and introductions, and actually started doing business development. And that was a good 8 to 10 years into my career, because it’s a lot easier to ask for referrals when you’re truly confident you actually add value and help people. I mean why would you not ask for referrals at that point? You have the knowledge. It helps people. Why do you not want to help more people by telling them what you do?

In fact, I find that’s one of the key differences between advisors, not product salespeople, but actual advisors who are good at business development and asking for referrals, versus those that aren’t, is that the ones who are good at it mostly just comes from their confidence in their own value. They feel it’s only natural to share their expertise with more people, to help more people. Why wouldn’t you if you have the expertise?

Asking For Referrals In A Low Trust Industry [Time – 6:59]

Now, really, there actually is one reason why you probably wouldn’t, even if you have the expertise. It’s because even if you have the expertise to add value as a financial advisor, it’s still hard to actually tell people you’re a financial advisor, because so many consumers have had bad experiences with advisors. I’m sure all of you who are advisors listening to this, you have experienced this. Right? You’re at a social event, and someone asks you what you do, and you say, “I’m a financial advisor,” and they say, “Oh, yeah. I have a financial advisor. He helped us with our life insurance a few years ago,” because they think comprehensive financial planning is getting a life insurance policy.

Or you say, “I’m a financial advisor,” and they take a step back and start looking for someone else across the room to talk to, “Oh, hey, Johnny,” because they’ve clearly had some bad experience with a financial advisor or salesperson in the past, and now they’re assuming that when you say, “financial advisor,” you’re just there to sell them something, and they didn’t feel like buying anything today. It makes it really hard to ask for people’s business and ask for referrals as a financial advisor, when so many people have been stung by a bad financial advisor in the past. It feels like you’re not telling people about this great service you deliver. You’re confessing you’re a financial advisor and hoping it doesn’t make you a social pariah.

This is the challenge of doing business in a low-trust industry, with low barriers to entry. The Edelman Trust Barometer, which is kind of the leading global survey that measures consumer trust, finds the financial service industry as the least trusted industry there is. We are dead last. Fewer than 50% of all consumers actually trust financial service companies, which means it’s literally an odds-on bet that when you say, “I’m a financial advisor,” and ask for referrals, that the person’s immediate first response of you will be negative, because fewer than 50% of consumers trust financial services in the first place.

Like it or not, as financial advisors, even as we try to become our own profession, we’re still representatives of the financial services industry. I think that makes it harder for all of us to ask for referrals. When you know the odds are that bad, it’s hard to want to be productive. It’s easy to be afraid that the reaction when you’re going to ask for referrals will be negative. So you just don’t want to do it at all.

Frankly, I think this is one of the main reasons, as financial advisors in the past couple of years, we’ve been evolving our titles and labels. You know? Financial advisor is associated with financial services industry, but wealth manager feels more aspirational, as though we’re trying to separate ourselves out. I’ll admit it at least, I’m often ashamed of the industry I represent, even as someone that’s trying to help improve it, because I also know the bad stuff that happens in our industry.

Asking For Referrals When Clients Don’t Know Who To Refer [Time – 9:29]

Of course, even when you do actually ask for a referral, there’s still the awkward reality that, often, when you ask someone for referrals, the person responds, “Um. Can’t think of anyone offhand.” Now it feels even worse to ask for referrals. What are you supposed to do at this point? Drill deeper? “Are you really sure you don’t know anyone who might want to work with me?” Because that doesn’t sound desperate.

Indirectly, I think this is one of the many reasons why having some kind of niche or specialization is so important. Think of it in the context of another profession. Imagine you’re an orthopedic surgeon. Most doctors get their business by referrals. They get business from patients who refer them. They get business from other doctors who refer them, but you don’t see a lot of orthopedic surgeons going to networking meetings saying, “Do you know anyone who’s blown out their knee lately?” because they don’t have to. They’re an orthopedic surgeon. If you have knee problems, you already know you need an orthopedic surgeon. If I have a friend who has a knee injury, then I refer him to an orthopedic surgeon I saw a couple years ago, because I’m trying to be helpful.

In other words, when you have a niche or a specialization, you don’t have to go out and ask for referrals. You establish your expertise and become known for what you do, and people refer the business to you. Think about it from the other end. If you had a friend who was having knee problems, and you knew a great orthopedic surgeon, why wouldn’t you make the referral to help your friend? It doesn’t matter whether the surgeon asks for referrals or gives me a pen and paper to write down the names of three knee-injury people I know. Frankly, it wouldn’t even help, because if none of my friends just had a knee injury, I wouldn’t know anyone to refer.

I’m not going to make that referral until I actually connect with the friend who just had a knee injury, and then I’m going to make the referral, which means what really matters isn’t that the surgeon asked me for referrals at all. It’s that I know his specialization is orthopedic surgery and that he fixes knee injuries. Then he just has to wait because the next time I meet someone with a knee injury, my brain is probably instantly going to make the connection because that’s what our brains do all by themselves. Oh, you tore your ACL? I know a surgeon who does great work on ACL injuries. Let me introduce you.

What Does It Take For You To Ask For Referrals?

But the bottom line here is just to recognize that I think there are a lot of barriers that make it hard for us to ask for referrals, as financial advisors. I think Ron Carson was right here. It’s our fears that hold us back, but they’re well-founded fears a lot of the time. It really is uncomfortable asking for referrals when you’re not proud of the company and the products you represent, or you’re not really confident in your own business value, or you’re ashamed of the industry that you’re in, or your clients never seem to come up with a name when you do ask for referrals. So what’s the point? You just stop asking.
So if one of these are your blocking point, what do you have to do to grow past it? Do you need to change the company you’re representing, to one where you’re actually proud to ask for referrals because you believe you bring a good solution to the table? Do you need to reinvest in yourself with CFP certification or some other post-CFP designation? So that you’re confident enough in your own value to proudly ask for referrals, because you just want to help more people with the expertise you have.

Do you need to find a way to market and position yourself so the value is unique enough that you’re clearly differentiated from the rest of the bad people in the industry? Or do you need to refine your specialization or niche some way, to make you so referable that you don’t need to ask for referralsbecause people naturally think of you when they’ve got a particular problem or challenge, where you have the niche expertise to solve it, and they say, “Oh, I know a person that can help you.” So what’s holding you back from asking for referrals?

So what do you think? Why is it so hard to ask for referrals as a financial advisor? Is it due to the companies we work for? The industry? Our lack of confidence in ourselves? How have you overcome the barrier to asking for referrals? Please share your thoughts in the comments below!

Replacing The Data Gathering Meeting With A “Get Organized” Client Experience

Replacing The Data Gathering Meeting With A “Get Organized” Client Experience

Executive Summary

Creating a financial plan starts with gathering the client data, which many advisors request by providing clients with a “data gathering form”, typically structured in a manner that makes it easy to input the data into their financial planning software.

The caveat, however, is that in practice clients often don’t fill out the data gathering form. For some, they feel it’s too much work. For most, the problem is simply that they aren’t organized enough to provide all the requisite information. And may even feel guilty or embarrassed about the fact that they’re “failing” in the very first step of the financial planning process.

So what’s the alternative? Ditch the data gathering meeting, and have a “Get Organized” meeting instead. In other words, make the first meeting with the client about getting them financially organized in the first place. Have them bring in their jumbled files, and give them a file box with sorted folders to organize the information. Scan the key documents and statements and put them into a newly created client vault. Set up a client PFM portal, show them how to use it, and help them to begin connecting their accounts on the spot.

By having the Get Organized meeting, the financial planner still has the opportunity to collect all the data that’s needed to move forward with the financial planning process – but done in a client-centric manner that recognizes the client’s challenges and provides them an immediate, tangible benefit. In fact, for some people, a “Get [Financially] Organized” service might be so valuable, advisors could even charge for it separately and get paid to market and demonstrate their value to prospective clients!

The Problem With The Data Gathering Meeting

The 6-step process of financial planning starts with establishing the client-planner relationship, and then immediately proceeds to gathering client data. This natural sequence forms the basis for all the actual financial planning “work” that will follow – after all, it’s impossible to analyze a client’s situation, make recommendations, and implement them, if the advisor doesn’t have the underlying data in the first place.

Unfortunately, there’s a major problem with the typical data gathering with clients: many clients don’t actually have the data in the first place, or at least don’t have an easy way to put their hands on it. Their financial lives are not well organized. “Important” documents like Wills and life insurance policies are stashed away in a filing box… somewhere. There are paper statements for a few of the investment accounts, but the rest require an online login… using a password long since forgotten. Sometimes clients aren’t even certain exactly where all their assets are. “I think there’s still some money left in that old 401(k) from my job back in 2007?”

Which means when the financial advisor asks a new client to fill out a data gathering form and bring it to the first meeting to start the financial planning process, the process hits an immediate wall. The client doesn’t know all the details to fill out the form! Even the thought of getting the data together may seem daunting, as it will clearly require a lot of work. In other words, the desire to “do” financial planning with the advisor has turned into a giant homework assignment for the client on Day 1!

And sadly, the implicit pressure from the financial advisor can even make the situation worse. Clients who aren’t organized enough to comply with the “simple” advisor request of “fill out this form and bring us all your data so we can begin the process” may feel guilty or inadequate.

 “Does everyone else have this information put together except for me? My planner seems to expect that I should have all this material at my fingertips. I feel like I’m failing and I haven’t even started yet!”

And then the natural human responses start to kick in.

“This is going to take a ton of time and effort. I’ll just put this off until later.” (Procrastination)

“Ugh, I’m realizing now that I don’t even know where some of this stuff is! I’m going to have to reschedule the meeting. It’s too humiliating to go into the advisor’s office and have to admit my financial house is in such disarray.” (More procrastination, rescheduled meeting)

“I’m so embarrassed I don’t have all the data my advisor needs to start the process. If I ignore the advisor and how awkward this whole experience has become, maybe it’ll just go away.” (Client never agrees to reschedule)

Of course, many experienced advisors have long since “learned” that asking clients to bring in all their data up front rarely works, precisely because clients usually don’t have the data handy and available. So instead, we just say “bring in what you can” and try to flesh out the rest of the rough details verbally in the meeting.

Yet in practice, this still drags out the financial planning process. The initial analysis turns out to be ‘wrong’ because crucial information was accidentally left out, or turned out to be incorrect based on subsequent details that changed the client’s original foggy recollection. The subsequent implementation stalls, as the final steps can’t be taken because some key data and materials are still outstanding.

The fundamental problem: starting financial planning with a data gathering meeting implicitly assumes that clients are organized enough to provide that data, even though we know the reality is that many people aren’t actually that organized. We’re trying to solve “our” problem as advisors – gathering the data – rather than truly focusing on the client’s problem of being financially disorganized (and the feelings of shame that can arise from “getting [financially] naked” in front of an advisor and admitting to being so disorganized).

Introducing The ‘Get Organized’ Meeting

So if the reality from the client’s perspective is that they often aren’t financially organized enough to begin the financial planning process with data gathering, then why not make the first meeting about getting organized!? In other words, forget the advisor-centric data gathering meeting, and offer a client-centric “Get Organized” meeting instead.

The starting point would simply be introducing the concept to clients, and what they should expect. For example, a prospective new client might be sent the following:

In order to move forward with your financial plan, we need to understand the details of your financial life.

However, we realize that like most people, your financial life probably isn’t in perfect order already. Statements end out buried in drawers and at the bottom of piles. Insurance policies are buried who-knows-where. Sometimes we even lose track of old accounts.

So at our first meeting, we’re going to work together to help you Get Organized. Please bring with you whatever financial information you can easily put your hands on. If you just want to bring in a box full of scattered papers (or even unopened envelopes!), that’s absolutely fine, we’ll work with you to sort through it. If your accounts are mostly set up online, we’ll help you track those down too.

By the end of the meeting, though, our goal is to help you Get Organized. Together we’ll start you on your way to getting your financial information in good order, and set you up with a system to keep things organized in the future. And along the way, we’ll gather the details we need to take your financial plan to the next stage.”

And then in the meeting itself, the goal is to get the client organized – both their physical paper documents, and their online financial world.

Getting Paper Statements And Physical Files Organized

The first step to helping clients to their physical paper statements and files in order is to literally help clients get their statements and files in order.

Accordingly, the advisory firm process would begin with setting up a file box for clients – for instance, a storage box like this with ample room for hanging files – which would be pre-configured with labeled folders for the typical categories of client financial information, including Wills & Trusts, Insurance Policies, Bank Accounts, Investment Accounts, etc. (The box could even be privately branded to the advisor, for additional marketing value.) Keep a label maker handy to add labels to new folders relevant for the client’s particular information.

From there, it’s time to actually go through the client’s piles of files. Having an intern or associate planner involved may help with the process of sorting through all the information and getting it filed properly. (And it’s a good experience and learning opportunity for the intern or newer advisor!) Guide clients about what information really needs to be kept, and what does not. Have a shredder there in the conference room so old information can be trashed on the spot (no reason for the client to carry it back home!).

Once the files have been initially organized, ask the client if there appear to be any significant accounts or insurance policies that are missing. If they are, look up the contact information for the financial services firm on the spot (from the computer in the conference room), and either call the company or submit a request online immediately to request the information. Make an empty folder with an appropriate label so the client knows exactly where to put the file when it arrives. Remember, the goal is to make it easier for the client to be organized, and minimize the post-meeting homework they don’t want to do anyway!

Notably, handling all these key client files and information also provides an important data-gathering opportunity for the advisor. In addition to sorting through all the various historical files, the advisor should have a high-quality portable scanner in the conference room, to allow for the most recent statements and other key documents to be scanned on the spot. This allows the advisor to have as much up-to-date information as possible coming out of the Get Organized meeting to continue the financial planning process!

Configuring The Client Vault And Online Portal

In addition to scanning key documents and recent statements for the advisor’s data gathering needs, the scanning process creates the opportunity for the advisor to set up an online vault for the client’s digitized financial information. Depending on the advisor’s technology setup, this might be done with a standalone “vault” solution like Sharefile or EverPlans, or a client document vault tied to portfolio accounting tools like Orion Advisor Services or financial planning software like eMoney Advisor.

In fact, as the process of organizing the client’s physical files nears its completion (or at least, once your intern or associate advisor is busy going through the rest of the files and sorting or shredding the documents as appropriate), the next stage of the “Get Organized” meeting is introducing your client vault and showing clients how to access and navigate it (including where you’ve already put their initial files).

Once the vault is configured to capture the digital version of paper files, it’s time to get the client fully organized in the digital world as well, by setting them up to use a full Personal Financial Management (PFM) dashboard, such as the one that eMoney Advisor includes with their financial planning software, or a standalone solution like Wealth Access.

As with the organizing of physical files, the goal of configuring the PFM portal is to get clients organized at the meeting – not just give them homework to do later. So if possible, the advisor should actually help the client log into the portal for the first time, and begin connecting accounts on the spot. (Show the client that you’re using the “private browsing” or “incognito mode” for your web browser, to ensure the protection of their private information and that their login details are not saved in the local browser.)

And of course, as with the process of getting physically organized, connecting client accounts through a PFM is appealing for the client because it gets them (digitally) organized, but also for the advisor because it provides a means to get additional data for the client’s financial plan (that will be continuously updated thanks to account aggregation!).

The “Get Organized” Meeting Template – Checklist For Advisors

Benefits Of The Get Organized Meeting

For some advisors, I suspect that completing the steps on the “Get Organized” meeting checklist will feel too “basic” or beneath them. Is it really valuable to spend your time as a CFP certificant helping a client file some documents and scan them? Or showing clients how to log into a website and connect their accounts?

The short answer: Yes. Because the meeting isn’t about the advisor. It’s about what an often-not-very-financially-organized client needs.

After all, consider this experience from the client’s perspective. The data gathering meeting isn’t just a bunch of homework anymore, or a stressful and embarrassing situation where the advisor asks for information the client can’t (easily) produce. Instead, it becomes a meeting where the client is expected to be less-than-completely organized, and has a clear, tangible outcome to become more organized.

This cannot be emphasized enough. The benefit to the client of the Get Organized meeting is that the client will literally be more organized at the end of the meeting, and walk out holding the box of files that makes them more financially organized than they may have ever been in their lives, and set up with a system to maintain that organization in the future. Now the client leaves the first meeting with a sense of accomplishment, that they’re actually taking measurable, tangible positive steps towards improving their financial future!

Along the way, of course, as the advisor you actually did get all the information you would have been seeking in a data gathering meeting anyway. The client did bring in all the statements. You did get to scan all the key documents to reference in the future development of the plan. The client has connected all of their accounts via aggregation so you can get continuously updated client data in the future.

The distinction is that rather than gathering data in a manner that’s focused on the advisor – fill out this ‘data gathering form’ in a format that’s convenient for my financial planning software – it’s done in a client-centric manner, resolving an actual pain point of the client: the all-too-common feeling of being financially disorganized.

What Happens After The Get Organized Meeting?

Of course, one important caveat is that spending this much time on just the raw financial information and data – between sorting out physical paperwork and files, and connecting client vaults and online account aggregation – means there may be little time to do a deep discovery process of talking through the client’s actual goals, and all the important non-financial information.

But this isn’t necessarily a problem. Now that you have the financial information, the next meeting can be spent mind mapping through the client’s non-financial details, and even beginning to use the planning software in a real-time collaborative manner with the client to explore the possibilities and identify potential goals! This second stage “Personal Discovery” meeting should actually be even more effective, because you’ll already have the underlying data in place. And the client will likely be even more interested in progressing to this next stage of this reimagined client-centric planning process… having achieved such a positive tangible outcome from the first Get Organized meeting!

Re-Imagining The Client-Centric Financial Planning Process And Meetings

Skipping The Get Organized Meeting… Or Sometimes Getting Paid For It?

Notably, for that subset of clients who really are financially organized already – and don’t need the “Get Organized” meeting – they may be able to just skip directly to the second meeting and begin exploring their potential goals.

In other words, the point of the “Get Organized” meeting is not to be mandatory for every client, but simply to be available for what are likely the large number of prospective clients who could benefit from it.

On the other hand, you may even find that for some prospective clients – many of whom are likely daunted by how much “work” it is just to find a financial planner and begin the financial planning process – the availability of a “Get Organized” meeting actually turns them into clients. Because they weren’t about to do all the homework required to get themselves organized, and weren’t going to admit to they couldn’t complete the advisor’s data gathering form. But when the data gathering meeting is about the client, and valuable to the client, the process is far more appealing.

In fact, some advisors might find they can even charge for the Get Organized meeting as a separate service for clients! This could become an option for existing clients (some of whom are still not financially organized), or a ‘pre-engagement’ service for prospective clients – a form of getting paid to market by offering a useful and relevant service for non-clients that’s worth paying for and can turn them into full clients.

The bottom line, though, is simply this: the data gathering process is fundamentally broken for many potential clients, who simply aren’t organized enough to provide the requisite data in the first place. So if the reality is that most clients aren’t actually financially organized in the first place, don’t pressure them or make them feel guilty about being unable to complete your data gathering form in a manner that’s convenient for your financial planning software. Have a Get Organized meeting and offer them a service that actually solves their problem… and gets you the data you need along the way!

So what do you think? Do you struggle to get clients to go through the Data Gathering process and provide all their information? Do you think the Get Organized meeting would be a viable alternative? Please share your thoughts in the comments below!

Predicting Wealth Building Behavior With DataPoints Assessment Tools

Predicting Wealth Building Behavior With DataPoints Assessment Tools

Executive Summary

The Millionaire Next Door became a NY Times Bestseller in 1996 by revealing how little we understand about millionaires, and the behaviors that help people to become millionaires. While the traditional view was that wealth comes from an inheritance, or becoming an executive in a major corporation, and that you can identify millionaires by their high-end suits, luxury cars, and large houses in affluent neighborhoods, in reality a huge swath of millionaires become such simply by living frugal lives of cheap suits, practical cars, and modest homes, which allows them to convert a substantial portion of their income into wealth over time.

Of course, having a healthy income, and willingness to take calculated risks for success, do clearly help in the wealth-building process. But the key point was that not only is affluence not necessarily correlated to outward signs of wealth, but in reality some of the greatest wealth-building behaviors come from not flaunting that wealth and being “socially indifferent” to trying to keep up with the Joneses.

Now, a company called DataPoints – founded by Sarah Stanley Fallaw, the daughter of The Millionaire Next Door author Thomas Stanley (and herself trained as an industrial psychologist) – is turning The Millionaire-Next-Door insights about wealth building behaviors into a series of assessment tools that financial advisors can use.

For advisors who are trying to expand their practices to work with “younger” wealth accumulator clients, the DataPoints assessment tools provide a unique research-based approach to actually understand which prospects are likely to be successful wealth accumulators, and which prospects should be avoided because the assessment reveals in advance they will be especially difficult to work with. And for new and existing clients, a rigorous wealth building assessment tool as a part of the discovery process can help the advisor understand where to focus their advice and efforts to help the client actually change their financial behaviors for the better.

In other words, while as financial advisors we increasingly find ourselves talking about the “behavioral” value of financial planning advice, DataPoints is actually creating tools that help to measure what a client’s wealth-building behaviors actually are. Which on the one hand makes it easier to be effective with clients – as we can get a better understanding upfront of the client’s financial tendencies – but also makes it possible to actually measure the success of the advisor-client relationship by the extent to which the advisor actually helps their client (measurably) change their financial behaviors and attitudes!

Building Wealth And The Millionaire Next Door Book

The Millionaire Next Door by Thomas Stanley and William DankoIn 1996, Thomas Stanley and William Danko released the book “The Millionaire Next Door”, which quickly became a NY Times Bestseller.

Stanley and Danko were market researchers who had initially sought – as marketers do – to better understand the tendencies, habits, attitudes, and other psychographics of the affluent (a segment of the marketplace that companies have long wanted to better understand). In fact, Stanley had already published several books on working with the affluent, including “Marketing To The Affluent,” “Selling To The Affluent,” and “Networking with the Affluent”, based on nearly a decade of prior research he had conducted through his Affluent Marketing Institute.

Yet Stanley and Danko aimed to go even deeper into understanding the millionaire mindset. Accordingly, they launched a new comprehensive survey of nearly 1,000 affluent individuals in the early 1990s, and conducted interviews with another 500 affluent individuals via focus groups. And the end result of the study revealed that the typical idea of what a millionaire looks like – living in an affluent neighborhood, driving a luxury car, and exhibiting other similar indicators of wealth – is not actually a fair characterization of a huge segment of the affluent.

Instead, it turned out that nearly one-half of millionaires don’t live in upscale neighborhoods. Nor did they commonly inherit, as (at the time) the researchers found that 80% of America’s millionaires are first-generation “rich”. A wealthy individual was simply someone who was able to earn a solid income, and exhibited certain “wealth-building” behavioral traits along the way, that made it especially likely they would be able to convert that current income into long-term wealth.

Specifically, the researchers found that “Prodigious Accumulators of Wealth” (PAWs) tended to have 7 core traits:

– They lived well below their means

– They allocated their time, energy, and money efficiently, in ways conducive to building wealth

– They believed that financial independence is more important than displaying high social status

– Their parents did not provide economic outpatient care

– Their adult children were economically self-sufficient

– They were proficient in targeting market opportunities (i.e., finding/creating wealth-building business opportunities)

– They chose the “right” occupation (one with good income-earning potential)

Of particular note at the time was the recognition of the first three points – that wealth builders tended to be frugal (i.e., live well below their means, and save 20%+ of their income every year), tended not to pursue social status symbols (i.e., are more likely to wear inexpensive suits and jewelry and drive non-luxury American-made cars), and that to the extent they did spend they tended to allocate their dollars differently (e.g., buying cars for the long-run instead of leasing them, owning homes instead of renting them). In other words, being a millionaire wasn’t about inheriting wealth or just earning the big bucks; millionaires were also a sea of frugal tightwads living in modest homes in non-affluent neighborhoods (the very antithesis of the “traditional” view of a millionaire at the time!).

In addition, though, the research did find that millionaires were more likely to proactively create opportunities for themselves – at the time, self-employed people made up less than 20% of workers in America, but accounted for 2/3rds of millionaires (either by being entrepreneurs, or self-employed professionals like doctors or accountants). And affluent accumulators did tend to have pursued above-average-income job opportunities in the first place (though not necessarily of the high-visibility variety, as the millionaires profiled included not only doctors and lawyers, but also welding contractors, paving contractors, and even owners of mobile-home parks).

To some extent, it’s perhaps not “surprising” that those who manage to find above-average job opportunities ended out creating above-average wealth. But the key recognition of the Millionaire Next Door was that above-average income alone does not necessarily lead to above-average wealth, because not everyone translates their income to wealth in the same way (or at all)! Instead, it’s the other behaviors – about being able to live within their means (even or especially when their income could afford a much higher standard of living than what they were currently enjoying), allocate dollars to things that appreciate rather than depreciate, and their “social indifference” to keeping up with the Joneses, that resulted in accumulating wealth and reaching millionaire status.

Which, again, was somewhat “surprising”, because it meant millionaires didn’t look like what most people expected millionaires to look like. They often didn’t live in millionaire-looking homes, drive millionaire-looking cars, or buy millionaire-looking jewelry. Which was actually the point. Because those were the behaviors that led them to not spend as much, and be able to accumulate wealth in the first place!

DataPoints And The Further Study Of Building Wealth

After the success of The Millionaire Next Door, Thomas Stanley went on to conduct further research on the behaviors and psychographics of the affluent, further extending the quantitative and qualitative data on wealth building under the Affluent Market Institute (AMI), and publishing “The Millionaire Mind,” “Millionaire Women Next Door,” and “Stop Acting Rich” to help consumers understand how to better adopt the behaviors and mindset of those who successfully accumulated wealth.

And to better put the research to use in application, in 2013 Thomas Stanley’s daughter Sarah Stanley Fallaw (a researcher in industrial psychology with a Ph.D. in Applied Psychology herself, who had joined AMI in 2009 as its Director of Research) founded DataPoints to begin the process of adapting the research into a series of assessment tools that can be used to evaluate someone’s wealth-building potential.

In the years since, the DataPoints researchers have found that beyond someone’s circumstantial factors that lead to wealth building (i.e., having grown up more financially independent, and having a high-income job), there are a series of distinct and consistent factors that are predictive of wealth building. They are:

– Frugality (one’s willingness and ability to spend below their means);

– Responsibility (to what extent does the person believe they have control over their financial [and other] outcomes, versus whether they are externally determined);

– Confidence (does the person have the confidence to believe they’re capable of improving their situation);

– Planning and Monitoring (can you set goals and effectively monitor your progress towards achieving them)

– Focus (do you have the discipline to avoid distractions and stay on track to your goals); and

– Social Indifference (do you feel a need to spend to display social status, or are you socially indifferent to the spending habits of others)

Combined together, these Wealth Factors help to reveal who is more or less likely to actually convert their income into wealth, which is relevant not only to individuals who may want to improve their situation (and need to understand what behaviors to change), but also to financial services firms who may want to understand who is a “good” potential wealth-building client in the first place.

After all, with the growing shift from focusing on baby boomers (who have already accumulated wealth), to Gen X and Gen Y clients (who are still in the wealth-building phase), it’s especially important to understand whether someone already has the right wealth factors in place to be able to accumulate, or whether there are key behavioral areas that the advisor will need to work and focus on in order to help the client achieve financial success.

Datapoints Engage And Advise Assessment Tools

As currently constructed, DataPoints provides a series of 4 “Engage” and 3 “Advise” modules to better understand an individual’s financial attitudes and habits.

All of the DataPoints tools have been psychometrically tested to affirm their validity and realibility, and the questions that DataPoints asks uses a “biodata” approach, where instead of asking people about their personality (e.g., “are you frugal” or “do you like to spend money on social status”) they’re instead asked about their “personal biography” and to reflect on their past behaviors to understand their traits (e.g., “I live well below my means” [agree or disagree] or “Most of the clothes I buy for myself are:” [trendy / practical / etc]).

Engage Assessments For Prospects

The DataPoints “Engage” questionnaires are a series of relatively short screening-style assessments, containing 10-13 questions and taking no more than about 2-3 minutes to complete, that prospective clients can complete. The four Engage assessments evaluate a prospect’s “Spending Patterns”, “Career Fit”, “Wealth-Building” potential, and their tendency to engage in their own “Financial Planning” and self-monitoring behavior.

The brief questionnaires can be sent as a link directly to a prospect, or even embedded on an advisor’s website, as an opportunity to both add immediate value for a prospect (who might be curious to know how their spending behaviors or wealth building potential stack up), and for an advisor who wants further insight into the client’s potential issues and concerns. The advisor might offer one or several Engage assessments for prospects to try out, depending on which one(s) are a good fit for that advisor’s particular type of target clientele

Advise Assessments For Clients

As contrasted with the Engage assessments, the Advise modules are longer (45 – 54 questions) and meant to go deeper (more likely with new or existing clients).

The first is a “Building Wealth” assessment, which directly measures the six wealth-building factors identified in DataPoints’ research (building on Stanley’s original Millionaire Next Door) behavioral habits. The second is a “Financial Perspectives” assessment, which looks deeper at a client’s financial attitudes, for instance their tendencies towards altruism, budgeting, status, spending, and (financial) independence. And the third is an “Investor Profile”, intended to be DataPoints’ take on financial risk tolerance and the client’s propensity to take financial risks (given that Stanley’s original research clearly showed that Millionaire wealth accumulators are significantly more likely to be willing to take at least calculated risks)

To some extent, the idea that “people who are frugal and don’t try to Keep Up With The Joneses” may seem intuitively obvious (especially since The Millionaire Next Door book itself came out, and also from the experiences that most financial advisors have witnessed first-hand with their clients). Yet until now, financial advisors have lacked a systematic process to make this assessment with clients (and prospects).

But with standardized assessments, it becomes possible to really understand how clients’ wealth-building behaviors compare to one another… and to potentially explore issues that may otherwise be difficult to talk about.

Sample Advise Assessment: Building Wealth

For instance, in putting myself through the Building Wealth assessment profile, it turns out that I have a very high level of confidence and personal responsibility – for better or worse, I believe that I am in control of my own destiny, and am confident in my ability to find positive financial outcomes. In addition, I am rather frugal (having long lived on far less than I make), and I have never been one to try to dress in the latest fashion trends. (Thus the Kitces Blue Shirt phenomenon!)

On the other hand, the assessment tool also correctly identified that I struggle tremendously with Focus (a lifelong battle with ADHD), and that I am not actually very strong in planning and monitoring for my own future (thus why I rely heavily on third-party tools like Mint.com to make it easy for me by automating the necessary tracking!).

Michael's DataPoints Assessment


Notably, though, my “Wealth Potential” score is still strong, despite my moderate score in planning and low Focus score… in part because the DataPoints research has shown that one’s wealth-building capabilities are not merely the additive sum of each factor. Instead, the interrelationships are more complex.

For instance, the DataPoints research notes that for more affluent individuals, an inability to focus may not be as critical, as financial management tasks can be outsourced (via professionals like financial planners, or now increasingly via technology as well). And DataPoints has also found that ironically, clients who are high in Responsibility are more likely to build wealth but also can actually be more problematic in bear markets, as their desire to exert control over their situation (which helps them create wealth) also makes it very difficult for them to sit by and do nothing in the midst of market turmoil (and instead feel a strong need to “do something”, given their tendencies, even when they shouldn’t!).

Financial Planning Applications Of Financial Behavior Assessment Tools

Ultimately, financial behavior assessment tools like the ones that DataPoints has created appear to have two primary applications to aid in the financial planning process.

Screening Prospects With Wealth Building Potential

The first is to use DataPoints’ assessment tools as a form of screening process to identify clients who are likely to be wealth accumulators in the first place.

For those advisors who are trying to work with younger clientele who don’t meet the firm’s current minimums – or in particular, are trying to identify young accumulator prospects who may not be profitable clients now but are likely to be in the future – the Building Wealth assessment tool, or even the shorter Wealth Potential engagement tool, can help give the advisor a better understanding of the client’s long-term potential. Or viewed another way, the Building Wealth assessment tools can help reveal which clients are most likely to be effective at implementing the financial advisor’s advice and recommended strategies – as opposed to those more “challenging” clients, who seem to struggle to follow through on ever implementing the advice that’s given to them

In this context, the advisor might, as a part of their initial “Get To Know You” process, send a DataPoints Building Wealth assessment to the prospective client, with a statement to the effect of “This assessment is meant to help you understand a little more about your own financial habits and tendencies. Please complete it before our first meeting, so that we can have a better understanding of whether or how we can best help you.” Or alternatively, the advisor can actually embed the DataPoints Engage asssesments directly into his/her website, and simply make it available for prospects to take themselves (and then the advisor can decide to follow-up on those who show a strong wealth-building potential, to see if they’re interested in working together).

On the other hand, though, the relevance of the DataPoints assessment tool is not merely about identifying young accumulator clients who have a good potential to actually accumulate. It would also be relevant for older and already-affluent clients, as their scores in areas like “Frugality” and “Social Indifference” can provide a valuable indicator of whether their natural tendencies are to sustain their accumulated wealth, or to dissipate it away.

And the assessment may be especially helpful for those who have had “Sudden Money” events, whether an inheritance, divorce (for the spouse who receives the settlement!), business liquidity event, or other surprise windfall… where the client did not necessarily establish their wealth through the usual accumulation-style means, and as a result it’s not always clear whether – once they achieve their wealth – they are likely to sustain it or not. A DataPoints assessment can help provide that information up front, to better understand where the likely challenges will be with the client.

And notably, DataPoints’ own research has found that not all Wealth Factors types are equally likely to engage a financial advisor in the first place. For instance, their research has found that those who already have a high propensity to accumulate wealth are the least likely to hire an investment manager (as they likely feel the Confidence and Responsibility to manage it themselves). Those who have the least propensity to accumulate wealth are the most likely to seek out a financial planner (ostensibly in recognizing that they need help, though obviously not a good fit for advisors using an AUM model!), and those who have “medium” propensity (recognizing some capabilities, but recognizing the need for some hep as well) who are the least likely to eschew a financial planner and use a robo-advisor instead! On the other hand, all the groups are equally likely to leverage personal financial management technology to help them on their path (and drawing an important distinction between the desire for technology to track finances, and the need for a financial planner about what to do about their finances!)!

Use Of Financial Services Providers By Wealth Building Likelihood

Profiling Clients For Behavioral Finance Coaching Needs

With prospects, it’s necessary to keep the assessment brief, and thus why DataPoints makes its short Engage assessments available. On the other hand, the DataPoints “Advise” tools – which are the longer and more in-depth assessments – could actually be used as a part of the advisor’s data-gathering process once the individual has already agreed to become a client, to truly understand what the client’s natural financial behaviors are, and how best to work with the client.

For instance, those who are low in Focus may need regular guidance and nudges to stay focused on their long-term goals. Those who struggle with “Planning & Monitoring” may be especially interested in the advisor’s regular updates (while those who already score high in that area probably have their own systems for tracking, and won’t care about the advisor’s quarterly reports at all!). Clients with a low social indifference will need constant reminders to focus on their own goals and not what others are doing. Those with low confidence may struggle to implement the advisor’s recommendations, because they aren’t confident in their ability to succeed, while those with high confidence and high responsibility may have trouble staying the course in a bear market and want to intervene (because they feel the situation is in their control, even if it’s not).

The process may be especially helpful for working with couples as well, where the reality is that both spouses do not necessarily align on all of these wealth building behaviors and financial attitudes. In fact, major gaps in areas like social indifference and frugality between a husband and wife may help to explain a lot of financially-related marital strife. While gaps in areas like confidence and responsibility will tend to be a guide about which spouse is likely to be the financial decision-maker in the household, and which tends to be more hands-off in the process.

A New Way To Measure Advisor Behavioral Impact “Success”?

A natural extension of how the DataPoints research might be applied is the recognition that not only do the assessments help provide an indicator of who has the behavioral tendencies and attitudes to accumulate wealth, but they can also be used to track the positive impact of the financial advisor over time, and become an alternative way to measure an advisor’s “success” and quality!

Accordingly, DataPoints has introduced a new “Performance Plan” module that monitors how the client’s financial attitudes and wealth factors change over time in working with the advisor, providing both the advisor and client guidance on particular areas to focus on for improvement, and then tracking that progress (by sending the client periodic assessment updates).

DataPoints Image Of Performance Plan

In this context, not only can the advisor avoid being judged based on whether a portfolio happens to hit benchmark returns or not, but instead moves their value proposition away from market returns and goal progress altogether (recognizing that often setbacks to goals are beyond the advisor’s control anyway, from a sudden health event, to a natural disaster, to a job loss or market decline). The focus of the advisor-client relationship instead becomes, as many advisors already espouse, a focus on “behavioral coaching”, with results that can be tracked and measured (via DataPoints), and a recognition that if the right behaviors and attitudes are in place that are conducive to wealth-building, the wealth itself is likely to come eventually (even if the path remains a bit bumpy in the short run).

Ironically, though, some advisors may be wary of going so far as to measure client’s behavioral attitudes and change over time, recognizing that in the end, we are financial planners, and not trained psychologists. And once you begin tracking a client’s financial behaviors and attitudes, you’re truly accountable – as the advisor – to helping to change them!

Nonetheless, with the rise of behavioral finance, the commoditization of financial services products, and an increasing focus on the intersection of technical financial advice and the empathy, coaching, and behavioral-change skills necessary to help clients actually implement the advice, arguably the DataPoints Performance Plan assessment provides a potential framework for whole new ways that advisors can measure their “success” and “effectiveness” in the future.

At a minimum, though, in a world where a person’s income and outward signs of affluent aren’t necessarily very good indicators of their wealth, nor their propensity to accumulate or sustain the wealth they have, DataPoints provides a new way to deepen the discovery process… whether with a new client to really understand their financial attitudes and behaviors… or to be used as a way to engage prospects and identify those whom the financial advisor is most likely able to help and work with constructively in the first place!

In the meantime, for advisors who want to check it out themselves, the DataPoints Engage and Advise assessment are available now. The Advise module (which includes the comprehensive Building Wealth assessment) is available for $59/month for up to 100 clients, the Engage lead-generation assessments costs $109/month, or a “Complete” package is available for $139/month which includes both. Further information is available on the DataPoints website, and pricing details are found here.

So what do you think? Would a solution like DataPoints be helpful to better understand which clients may be more or less effective at building wealth? Would you use DataPoints as a screening tool to understand which clients will be easiest to work with, or as an ongoing advisory tool to understand which behaviors your clients need help with? Please share your thoughts in the comments below!

CFP Board Quietly Raises Certification Fees By 17% But To What End?

CFP Board Quietly Raises Certification Fees By 17% But To What End?


While the CFP Board has done a lot to justify its certification fees over recent years – from increasing the number of CFP certificants over the past 10 years by nearly 50% (despite the fact that the number of financial advisors is down over the past 10 years), to raising the status of the marks with its ongoing successful public awareness campaign – an important but little-noticed announcement was buried half way through the CFP Board’s recent monthly email update: the CFP Board will be increasing its annual certification fee from $325 per year to $355. And while this increase may seem modest, because $145 of the total certification fee is earmarked for the public awareness campaign, the reality is that this is a 17% increase on top of the $180 portion that actually goes towards operations of the CFP Board. Which raises the question: why such a large increase, and why now?

In this week’s discussion, we discuss the recently announced 17% increase in CFP Board certification fees, as well as why accountability of the CFP Board to its certificants is important, and why it is concerning that the CFP Board has given no substantive explanation for why it is pushing through such a large increase – and particularly for an organization coming off of a $1.3M surplus in 2015 and with over $20M in reserves.

Of course, fee increases aren’t unusual in the long run for any organization, as it’s essential to keep pace with rising staffing costs due to inflation. And this is still only the first increase the CFP Board has put in place since 2011… which, even then, was just tacking on the $145 surcharge to cover the public awareness campaign. It has actually been nearly 10 years since the CFP Board raised its core certification fees, relying instead on the rising number of new CFP certificants paying those fees to fund growth instead. Additionally, both the public awareness campaign and CFP Board satisfaction ratings appear to suggest the CFP Board is making some good progress.

Nonetheless, accountability is crucial, and especially since the CFP Board has been prone in recent years to taking actions without soliciting much input or holding public comment periods. In fact, while the CFP Board did put forth a recent public comment period on proposed changes to their Code of Ethics and Standards of Conduct, the reality is that their bylaws require the CFP Board to do this, and it has been over 5 years now since the CFP Board put forth a public comment period on any otherchanges to the 3 E’s (Education, Exam, and Experience) – effectively eschewing the practice ever since the CFP Board got “voted down” in negative public comments regarding increasing the number of required CFP CE credits.

Which raises the question once again of why a 17% fee increase, and why now? Especially on top of the fact that the organization is already running a substantial operating surplus of $1.3 million dollars in 2015 and has more than $20 million in net reserves available. Was there a major downturn on the CFP Board’s 2016 Form 990 that we just can’t see yet? Is the CFP Board trying to raise more revenue internally for its Center for Financial Planning initiative, even though the organization originally said it would be funded separately (especially in light of the fact that the CFP Board tried to put through a $25 fee increase last year in the form of a “voluntary donation” that certificants were going to be defaulted into)?

Unfortunately, the reality is that we just don’t know, because the CFP Board gave no substantive explanation for why it is pushing through such a large increase beyond saying that it “supports the operations of CFP Board in fulfilling its mission and strategic priorities”. And so, while it’s not necessarily a negative for an organization to raise its fees over time, the question remains: why does the CFP Board now, all of the sudden, need another $2.3 million in its operating budget for 2018? And what does it take to get some transparency and basic explanations from the CFP Board on why it is pushing through a 17% fee increase?

The fee increase will be effective for everyone who renews their CFP certification starting November 1st or later, and it also includes everyone who goes through their initial CFP certification process after November. So everybody who’s planning on taking the November exam coming up and passes the CFP exam is going to find out that once they do that and they get their CFP marks, certification fee’s will be a little more expensive than previously expected.

Now, I can’t fault any organization for periodically raising its fees. You know, it sucks from the consumer end to have to pay, but it’s an inevitable reality, especially for any sizeable organization. If you have a lot of employees who tend to want raises every year, at some point, you have to increase your prices to keep up with inflation. And in point of fact, this is actually the first change in the CFP Board Certification fees since July of 2011 when its public awareness campaign first launched. But once you consider the fact that a part of our annual certification fee is the public awareness campaign, it turns out that this fee increase is actually a much bigger deal than you might realize.

CFP Certification Fees And The Public Awareness Campaign

For those who don’t remember or who got their CFP marks since 2011, prior to the CFP Board’s public awareness campaign, the certification fee for CFP certificates was $360, payable every two years. The biannual fee structure was done that way to line up with the biannual CE certification cycle. So you need 30 hours of CFP CE credits every two years to renew and you paid a $360 certification fee every two-year renewal period. Which simply meant you affirmed your two-year CE cycle was done and then you paid your two-year recertification fee.

Now, when the CFP Board introduced their public awareness campaign, it announced two changes to the CFP certification fee at the time. The first, and kind of the big one, was that it was adding a $145 per year surcharge to the certification fee, specifically earmarked for the public awareness campaign. Now, multiplied across what at the time was about 64,000 CFP certificates, that produced about $9 million a year for the CFP Board to allocate to public awareness on top of a multi-million dollar commitment the organization made from its own reserves. The public awareness campaign was a big deal when it launched.

Now, the second change that was made at the time was to convert that biannual $360 certification fee into an annual $180 fee in steps. So they just took the $360 every two and made it $180 every one which adds up to $360 every two.

Now, paired together, that’s how we got our current $325 a year certification fee that started in July of 2011. It was $180 which was the annual certification fee, basically to cover operations of CFP Board, and then another $145 a year specifically for the public awareness campaign. So, in this context, a $30 certification fee increase is a bit more sizeable than you realize because it’s not really a $30 increase on $325.

Functionally, it’s a $30 increase on the certification fee portion, which means CFP Board is moving their fee from $180 to $210, or across their whole operating budget, that’s a 17% increase on the certification fees over what it’s been charging for the past couple of years. And multiplied across what’s now more than 78,000 CFP certificants, we’re talking about a roughly $2.3 million revenue bump for the CFP Board next year. That’s a $2.3 million increase in fees for an organization that runs its core on only about 14 million in certification fees in the first place, plus about $4 million for exam fees and CE sponsor fees.

Which raises this question, why so much of an increase now and all at once? Now, again, the increases aren’t unusual in the long run and this is the first fee increase the CFP Board has done since 2011. And again, the increase in 2011 was just adding the $145 public awareness campaign surcharge on top of the what then was $360 biannual fee or $180 a year at the time. I think it’s actually been almost 10 years since the CFP Board raised that core certification fee from $180 a year or $360 every two years.

In the meantime, it’s just been relying on the growth and the top line number of CFP certificants who pay those fees to grow the organization. So catching up for a decade’s worth of inflation adjustments is not unreasonable, but still, it’s pretty noticeable when it happens all at once like this. Especially when the CFP Board ran a $1.3 million surplus in 2015 which is the last year. Their Form 990 is publicly available.  So it’s not like they’re hurting for revenue on the operating budget right now.

Public Awareness Campaign And CFP Board Satisfaction Ratings

All this being said, I do think it’s worth recognizing the substantial progress that the CFP Board is making these days in executing on its initiatives with the certification fees that we pay. As substantial as the fee increase was for the public awareness campaign, the latest tracking study showed that even by 2015, just four years in, CFP certification had passed the CPA licenses as the designation or license that consumers most believe a financial planner should hold.

And every measure of public awareness for the CFP marks, top of mind awareness, unaided awareness, trust in CFP certification, intent to seek out a CFP certficant were all up very materially in the past several years.

CFP Public Awareness Relative To CPA

Not surprisingly, then, the CFP Board did a recent satisfaction survey amongst us – the CFP certificants – and found a mere 8% said they’re dissatisfied with the effectiveness of the public awareness campaign and only 22% believe it wasn’t worth the fee increase.

That’s a pretty big deal, it was an 80% fee increase and almost 80% of advisors are still fully on board with it. So now we’re saying what the CFP Board charges for what it does, it’s getting results and most of us actually seem to be pretty satisfied with the results as I think we should be. And at the same time, it’s crucial to recognize the success the CFP Board has had in actually growing the CFP marks themselves.

Bear in mind, if you look at data from Cerulli, the number of financial advisors in total is basically flat since 2011 and down almost 10% in the past 10 years, yet the number of CFP certificants is up 25% since 2011 and almost 50% in the past 10 years. That’s phenomenal growth to achieve for the CFP Board – to be growing the ranks of the CFPs by 50% in a time when the head count of total advisors declined by 10%.

To the extent we pay CFP certification fees to CFP Board to maintain the marks and build awareness for them, the CFP Board does appear to be doing a heck of a job at executing and getting results for the fees we pay, which is why I so strongly advocate that anyone who wants to establish their career as a financial planner today and is looking forward to their career future needs to get CFP certification. It is becoming the baseline competency standard for actually being a real financial planner beyond just being licensed as an insurance agent or a registered rep salesperson.

And likewise, that’s why even if someone has often disagreed with CFP Board about its policies over the years, I advocate submitting public comment letters. Speak out, and get involved to help shape the CFP Board’s policies. The CFP marks and the CFP Board aren’t going away, so if you don’t like what the organization is doing, don’t talk about dropping the marks, get involved and be a part of the change that you want to see.

CFP Board Accountability – Why A 17% Fee Increase Now?

Now, at the same time, I’m a supporter of the CFP marks and the CFP Board, but I do think accountability is crucial, especially since the CFP Board has been prone in recent years to taking a lot of actions without soliciting much input or even holding public comment periods. Now, it did put forth a public comment period on the recent proposed change to the Code of Ethics and Standards of Conduct, but that’s because its bylaws require the organization to do so.

Aside from that change, it’s been over five years since the CFP Board put forth a public comment period on any other change to the other three E’s – the education changes, exam changes, and experience requirement changes – all of which have experienced material changes in five years.

Ever since the CFP Board proposed to increase the number of required CFP CE credits in 2012 and got basically “voted down” in negative public comments, the organization has stopped soliciting public comments and there isn’t even a way to access the prior public comments that were submitted. They’re all supposed to be public comments, but CFP Board has failed to actually make them public.

And so, in that context, where I do think there are real concerns about CFP Board’s accountability, it’s a fair question to ask, why exactly it feels the need to take a 17% increase on certification fees for 2018? Why so much of an increase? Why now, especially if the organization is already running a substantial operating surplus of $1.3 million on an $18 million operating budget in 2015, and has more than $20 million in net reserves available?

Was there some major downturn for CFP Board in 2016 that we just can’t see on the Form 990 yet because it’s not publicly available? Or is CFP Board raising revenue in advance for some new initiative that we haven’t even been told about yet and we’re being forced to pay for it before we even know what it is? Or is CFP Board trying to raise more revenue internally for its Center for Financial Planning initiative even though they said originally that the center would be funded separately from contributed income?

Especially since CFP Board tried to put through a $25 fee increase last yearby defaulting every CFP certificant into a $25 voluntary donation to the Center for Financial Planning, which they quickly eliminated 48 hours after Kitches.com published an article about it here on Nerd’s Eye View. So it may just be a coincidence, but it’s hard to believe that the CFP Board tried and failed to put through a $25 a year donation to the Center last year, and now suddenly is pushing through a $30 increase in the certification fee this year. Is the fee increase to generate revenue from the Center that they couldn’t get last year? Unfortunately, we don’t know because the CFP Board gave no substantive explanation for why it is pushing through a 17% increase in the certification fee beyond saying it supports the operations of CFP Board in fulfilling its mission and strategic priorities.

And so again, while I’m not necessarily negative on any organization that raises its fees over time especially when it’s the first increase in such a long time, the question remains: Why does the CFP Board now, all of a sudden, need another $2.3 million in its operating budget for 2018? You don’t need $2.3 million on an already profitable $18 million operating budget just to give the whole team well-deserved salary raises.

So what initiatives is this actually earmarked towards? Is this the Center of Financial Planning already experiencing some kind of mission creep by taking a portion of CFP Board operating budget even though it was never supposed to come from operating budget dollars? What does it take to get some basic transparency and explanations with CFP Board on why it’s pushing through a 17% fee increase? This isn’t just 3% or 5% adjustment we can write off as an annual cost of living tweak. For a 17% increase and a $2 million revenue grab, we should be getting a little more substantive explanation.

So what do you think? Were you aware of the CFP Board’s 17% fee increase? Should the CFP Board be more transparent about what this fee increase is going funding? Is it possible the Center for Financial Planning is already experiencing some mission creep? Please share your thoughts in the comments below!


How (New) Advisors Should Dress And The Dangers Of Countersignaling

How (New) Advisors Should Dress And The Dangers Of Countersignaling


A topic of increasing discussion amongst financial advisors is whether it’s truly necessary to dress up in order to attract and retain clients, and whether it might instead be better to adopt more casual attire – either because such attire makes it easier to connect with clients, or because some very experienced and successful advisors have adopted such wardrobes, seemingly with no negative impact on their success. But the reality is, just because a more casual style may work for seasoned and successful advisors, does not mean that it will work for all advisors.

In economics, signaling refers to the ways in which we try to convey information to another party under conditions in which credible communication is difficult. For instance, when meeting with a prospective client, financial advisors may need to engage in certain forms of signaling in order to demonstrate their competency (e.g., becoming a CFP professional), since all advisors trying to win over a prospect would have an incentive to claim they are competent, regardless of their true level of knowledge. By contrast, countersignaling is a strategy which refers to ways in which we may try and demonstrate an even higher level of status by not signaling (e.g., a mid-level student may eagerly attempt to answer an easy question in class, while a high-level student may not, as a signal that their knowledge surpasses the point at which they would take pride in answering such a question).

In an attempt to explain such countersignaling behavior, prior research has used game theory to demonstrate why signaling can be an effective strategy for mid-level individuals with regard to some characteristic (to demonstrate they are not low-level, and to hopefully be perceived as high-level), while countersignaling may actually be more effective for high-level individuals (as they are unlikely to be mistaken as low-level, and signaling could actually give the perception they are mid-level). And this dynamic may have direct implications for the decision to dress down as a financial advisor, as it could be the case that dressing down actually increases the status of an experienced and successful advisor, while dressing down might decrease the perceived status of a young and inexperienced advisor.

Of course, this doesn’t mean that it isn’t still wise to consider other factors, such as a particular client niche (and their typical dress/attire), when deciding whether or not to dress down. But given that many people prefer to not dress up, advisors – and particularly those who are young and inexperienced – should be careful not to skip out on opportunities to signal credibility to prospective clients, and be especially cognizant of the fact that just because seasoned advisors can dress down successfully, does not mean that young and inexperienced advisors can, too!

How we dress is an inherently personal topic. What we wear conveys messages about who we are, what we value, and who we hope to become. As a result, talking about dress and “appropriate” clothing can be a touchy subject. But it’s not a topic that financial advisors should shy away from, as our dress can have a real-world impact on our professional success.

One particular consideration is whether advisors really need to dress up in business formal attire to attract and retain clients, or whether it’s OK to “dress down” more often. In fact, some advisors believe it’s better to dress down, and see it as a way to better connect with clients by wearing attire that is more in line with what clients themselves would wear. Others have acknowledged industry shifts more broadly, and that consumers may be becoming more accommodating of less formal clothing. After all, it’s not difficult to find a lot of experienced and successful advisors who regularly dress down, and have clearly still been successful.

Yet, the caveat is that what works for a subset of experienced advisors doesn’t necessarily work for all advisors, and especially not for younger and inexperienced advisors. Often the discussion surrounding advisor dress will treat advisors as some sort of amorphous group, or at least one that is hard to classify beyond the clientele they are targeting. But the reality is, regardless of one’s target clientele, the decision to dress down can have very different implications based on an advisor’s experience and (perceived) level of success. In particular, “countersignaling” (i.e., the strategy of showing off by not showing off) can be a powerful strategy for some, but completely backfire for others!

Signaling Theory And How We Impact Perceptions By How We Dress

In economics, “signaling” refers to the ways in which one party can credibly convey information to another party under conditions of asymmetric information – for instance, how job applicants might signal the quality of their skills to an employer, when the applicants inherently know moreabout their skills than an employer possibly can, and the applicants (regardless of their true quality) have an incentive to portray themselves in as positive of a light as possible.

Nobel laureate Michael Spence’s seminal article on signaling within the job market first proposed signaling as one way for parties to overcome these problems of information asymmetry. In particular, Spence evaluated the role that education might play as a signaling mechanism in the job market. For example, while it can be hard for an applicant to credibly convey their true intelligence or work ethic when applying for a job, a Finance degree from State University at least indicates that an applicant has a combination of work ethic and intelligence that was capable of generating a particular GPA at a particular caliber of school.

A key aspect of signaling is that, in order to be credible, the signal itself must be costly to send. If the signal were free to send, everyone would send it, and, therefore, it wouldn’t convey any credible message. Additionally, there must be some condition present which otherwise prohibits credible communication, and therefore limits the ability of the party with less information to simply make the assessment effectively on their own. One such example is the inherent conflict of interest that always exists between a buyer and seller of any good or service – where the seller/provider is “always” trying to make everything seem appealing to a prospective buyer/customer/client.

For example, suppose a buyer and seller are discussing the potential sale of a piece of art. In this case, there’s no need to “signal” the current condition of the art, as the seller can simply let the buyer examine the art and determine the condition for themselves. But if the authenticity of a piece of art is an important aspect of its value, then the seller will want to have a credible way to signal the art’s authenticity to the buyer. Since merely stating that a piece of art is authentic is a costless activity (and it is exactly what both a fraudster and a genuine art dealer would claim), genuine sellers may instead pay for an appraisal by an independent and trustworthy third party to credibly signal the authenticity of the art to prospective buyers. Meanwhile, fraudsters won’t make a similar investment, as the cost will not enhance the value of fraudulent art.

(Note: The relevance of signaling within a financial advisory context is immediately apparent here, as we often have nothing tangible to show prospective clients, and must instead try to sell an invisible service.)

Another key aspect of signaling is that the costs of signaling will vary based on the true status of the underlying information that is known by one party yet hard to credibly convey to others (e.g., effectively signaling intelligence will be easier [i.e., less costly] for someone with a higher level of intelligence). This often comes up in the context of hiring decisions, and particularly in the debate over whether college education is primarily a way of building human capital or simply signaling one’s ability to employers.

From the signaling perspective, going to college might still be a valuable investment for students even if they don’t retain any skills or knowledge in the long run, as the opportunity cost of sending the signal to future employers (the time, effort, and money required to acquire a degree) is lower for students who exhibit traits that are attractive to future employers, such as higher intelligence and good work ethic.

In other words, all else equal, a student with lower levels of intelligence or work ethic is going to need to invest more in order to achieve the same degree and GPA as a student with higher levels of intelligence or work ethic. This cost may be a financial cost (e.g., paying more due to re-taking classes, tutoring services, etc.), a time cost (e.g., graduating in 5-years instead of 4, studying more, etc.), or simply a lifestyle cost (e.g., putting forth more effort and experiencing more stress to achieve the same outcome) – but the key point is that the opportunity cost is lower for a student with traits that an employer may find valuable, and therefore individuals with those traits may be more likely to invest in sending that signal.

In a financial advisory context, there’s a high degree of informational asymmetry between financial advisors and prospective clients. Assuming that nearly all financial advisors are at least more knowledgeable than the average consumer, it is then hard for financial advisors to credibly convey the true quality of their knowledge or services to consumers. In other words, it is difficult for a less knowledgeable consumer to differentiate a “merely good” advisor from an exceptionally knowledgeable, skilled, or otherwise more qualified advisor. Additionally, consumers cannot trust an advisor’s assessment of their own knowledge, as both fraudsters and competent advisors would (costlessly) claim to be knowledgeable advisors (or, similarly, claim to be fiduciaries acting in their clients’ best interests).

Of course, certifications and designations are one way that advisors can engage in signaling. A consumer can credibly know that a CFP professional has at least achieved a minimum level of education and competency. But given that consumers in many markets now have 10s if not 100s of CFPs to choose from, such signaling is increasingly just table stakes, and advisors still need to engage in other forms of signaling.

Countersignaling And Enhancing Perceived Status By Not Showing Off

An important concept related to the decision to “dress down” in an advisory context is “countersignaling”. While “signaling” refers to engaging in a costly behavior to credibly convey a message, “countersignaling” refers to avoiding a costly behavior to similarly convey a message in a credible manner, albeit in an even higher-status way.

Feltovich, Harbaugh, and To (2002) developed a model of countersignaling to examine such behavior, which was subsequently supported by their experimental research. Feltovich et al. note that contrary to prior models which implied that the highest status individuals would invest the most in signaling, it’s often those of mid-level status who are most eager to engage in signaling behavior. To support this point, they give examples such as:

  • “The nouveau rich flaunt their wealth, but the old rich scorn such gauche displays.”
  • “Mediocre students answer a teacher’s easy questions, but the best students are embarrassed to prove their knowledge of trivial points.”
  • “Acquaintances show their good intentions by politely ignoring one’s flaws, while close friends show intimacy by teasingly highlighting them.”

Using game theory, they examine why this might be. After laying out different incentives and noting how different participants might act within a “noisy” environment of imperfect information and uncertainty, they find that signaling is often a rational behavior amongst medium quality signalers, while countersignaling is often rational (and possibly even more effective) amongst high-quality signalers.

To get a better understanding of what their model is saying, imagine that we separate financial advisors into three categories: low quality, medium quality, and high quality.

(Note that quality is intentionally vague here, but think of “quality” from a consumer’s perspective, which will likely be an overly simplified, imperfect, and possibly even “wrong” conception of advisor quality, such as an advisor’s personal success in the business.)

Noting that consumers and advisors engage in a “noisy” market with lots of imperfect information and uncertainty, it’s going to be hard for consumers to precisely place advisors in any particular category. Instead, they’ll have to rely on contextual clues available to them to try and determine the quality of an advisor.

Example 1. Assume Advisor A is a CFP certificant, works for a prestigious firm, works out of premium grade office space, and has been in the business for 25 years; Advisor B is also a CFP certificant, runs their own RIA, has three support staff, works out of mid-tier office space, and has been in the business for 10 years; and Advisor C is studying to become a CFP professional, runs their own RIA, works out of a home office, and has been in the business for 3 years.

Assuming all three advisors make a favorable impression on a prospect in an initial meeting, I think it may be reasonable to suspect that a typical consumer might rank the advisors (in terms of quality, from highest to lowest) as follows: Advisor A > Advisor B > Advisor C

(Note: Of course, these may not be accurate representations of advisor success at all. The inexperienced advisor with a home office may have the most business success of the three, but in a noisy and uncertain environment, that’s not the high probability estimate a consumer is likely to make.)

Further, assume that while all three advisors would ideally prefer to be perceived as a highest-tier advisor, each believes that an impartial assessment would place them in the following categories: Advisor A (highest-tier), Advisor B (mid-tier), and Advisor C (low-tier). If this were the case, Feltovich et al.’s theory would suggest that each advisor might be more or less willing to engage in signaling behavior depending on their perceived standing.

Relative to Advisors A and B, Advisor C likely realizes that they have genuine deficiencies that inhibit their ability to signal the highest level of quality. Both advisors have far more experience and a larger client base that presumably can at least sustain a support staff or employment at a prestigious firm. As a result, signaling strategies that attempt to position Advisor C to compete on perceived status are likely to be ineffective. Not only will the relative costs of such strategies be higher, but signaling and losing out to a medium quality advisor results in a worse outcome than just not signaling at all (by wasting the time and cost of trying, instead of focusing on finding clients who won’t use such signals as evaluative criteria in the first place).

Meanwhile, Advisors A and B have different incentives. Unlike Advisor C, who may perceive the gap between their current standing and the highest tier advisor to be too large to overcome, Advisor B has stronger incentives to signal. First, Advisor B wants to distinguish themselves from lowest-tier advisors. Additionally, Advisor B would prefer if their signaling could move them into the highest-tier of advisors. This combination of incentives, both distinguishing oneself from a lower-tier and moving oneself to a higher-tier, is why Feltovich et al. find that signaling is most attractive to mid-level individuals.

By contrast, signaling may not be as attractive for Advisor A, because the contextual clues available to the consumer – some of which are themselves signals of a different sort (long tenure, premium grade office, prestigious firm, etc.) – make it unlikely that Advisor A will be perceived as a lowest-tier advisor. As a result, unlike Advisor B, Advisor A does not need to worry about distinguishing themselves from the bottom tier. Further, because mid-tier advisors have a strong incentive to signal and presumably will signal often, signaling could actually run the risk of lowering the perceived status of the high-tier advisor by making them look like a mid-tier advisor who’s just trying to appear as higher status. And this is where the power of countersignaling comes in. Under the right circumstances, countersignaling demonstrates a level of confidence that may be perceived as even higher status than signaling.

The Dangers of Countersignaling

The Important Juxtaposition Of Context And Attire In Countersignaling

When the topic of “dressing down” comes up in a financial advisory context, it is important to acknowledge the broader contextual environment. Of course, dressing down may not be dressing down at all if an advisor is still “dressing up” relative to their broader environment (as has been noted by those who dress down to match the clothing style of a specific client niche). But setting this sort of “dressing down” aside, there is risk in inexperienced advisors seeing experienced advisors successfully countersignal and reaching the wrong conclusions about the importance of attire. Because the contextual environment of an experienced advisor is fundamentally different than an inexperienced one, the impact of dressing down may not be the same.

Example 2. Going back to the prior example of Advisors A, B, and C: Assume that business formal is the standard consumer expectation amongst each advisor’s target clientele. Further, assume that all of the advisors know each other and engage regularly at local events and industry conferences. Now suppose that 12-months ago Advisor A decided to go fully business-casual in attire, and has been pleasantly surprised with the results. Advisor A shares with Advisors B and C that not only has it not appeared to hurt their business, but things seem to be getting even better.

In this situation, there is a danger in Advisors B or C concluding that they too would not be negatively impacted if they bucked the norms and expectations of consumers and decided to dress down. Yet countersignaling, given the full context of Advisors B and C’s situations, may not come off as confident and status-raising. Instead, it may just make them look less professional, lowering their perceived status and ability to attract and retain clients.

It is true that seeing someone dress business casual within an environment where most are dressed business professional stands out, and possibly in a good way if pulled off well. But seeing someone dressed business casual in an environment where everyone else dresses business casual (e.g., a mid-tier office complex), just doesn’t have the same effect. Adding in the additional factors that fill out the full contextual evaluation that consumers are likely to make, the reality is that Advisor A has likely built both the social and human capital that might allow them to pull off countersignaling, whereas Advisors B and C have not.

Career Stage Matters In Choosing Proper Attire As A Financial Advisor

Simply put, it may be risky for inexperienced advisors to look towards experienced advisors for guidance on how to dress, and particularly if they are picking up countersignaling behavior that may not apply within their own individual context. While there’s certainly a lot that younger advisors can learn from their more experienced colleagues (and it’s great that many experienced and successful advisors are willing to help give advice and guidance to younger advisors), it’s crucial to remember that – as with any financial planning advice – it must be appropriate to the individual’s own circumstances.

And the reality is, even most of those experienced and successful advisors themselves rose up through more “traditional” ranks, and achieved a certain level of success before going in a different direction. Dressing down with an existing client base – where many clients already know and trust an advisor – is not necessarily the same as dressing down when growing a practice from scratch. Similarly, growing a practice where you have to meet new clients and get to know them from scratch is different than growing a practice by generating referrals from existing clients – where there is likely a higher degree of social capital coming into the referrals relationship, which can either reduce negative perceptions related to dressing down or enhance the countersignaling effect.

Of course, dress is just one of many factors, and surely there are examples of advisors who have launched and grown successful practices eschewing formal attire at all stages of their career. But it is still worth contemplating what impact, if any, dressing down might have on success. Particularly given that many young advisors (myself included) don’t seem to love formal business attire, it can be easy to engage in some motivated reasoning that leads us to the conclusions that we want to reach – ignoring the real-world psychology from a client’s perspective.

Or viewed another way… if you’ve ever had the frustration of losing a prospect to some slick-but-clueless salesperson, recognize that this is a quintessential example of how hard it really is for a typical prospect to understand who is and isn’t a credible advisor. It may not feel “fair” that consumers often rely on intangibles like how an advisor dresses to select an advisor, but in the face of a difficult decision with few “clues” to go on, any potential signal about the credibility of the advisor matters. So beware of skipping out on the signaling opportunities that are implied in how you dress as an advisor… at least, unless you’re really certain you can pull off a countersignaling strategy successfully! (But remember, the fact that other experienced advisors can do it still doesn’t mean you can, too!)

So what do you think? Can dressing down have different effects based on the experience and perceived status of an advisor? Should inexperienced advisors fight the urge to dress down? Are there other ways advisors can signal or countersignal with their dress? Please share your thoughts in the comments below!

Comment Letter To CFP Board On Its Proposed Fiduciary Standards Of Conduct

Comment Letter To CFP Board On Its Proposed Fiduciary Standards Of Conduct


In December of 2015, the CFP Board announced that it was beginning a process to update its Standards of Professional Conduct for all CFP certificants, the first such update since the last set of changes took effect in the middle of 2008. And on this past June 20th, the CFP Board published proposed changes (including an expanded fiduciary duty) to its Standards of Conduct, with a public comment period that would last until August 21st.

And so as the CFP Board’s Public Comment period closes today, I have published here in full my own comment letter to the CFP Board. And as you will see in the Comment Letter, I am overall very supportive of the CFP Board advancing the fiduciary standard of care for CFP professionals, and view this as a positive step forward for the financial planning profession.

However, the CFP Board’s proposed changes do introduce numerous new questions and concerns, from key definitions that (in my humble opinion) still need to be clarified further, to new wrinkles in what does and does not constitute a fee-only advice relationship (and whether and to what extent certain types of compensation must be disclosed), to uncertainties about how CFP professionals are expected to navigate important conflicts of interest, and how CFP professionals should interpret the 29(!) instances where the CFP Board’s new standards are based on “reasonableness”… with no explanation of how “reasonable” is determined, and a non-public CFP Board Disciplinary and Ethics Commission that doesn’t even allow CFP professionals to rely on prior case histories for precedence.

Ultimately, I am hopeful that the CFP Board will end up moving forward with its proposed changes to expand the scope of fiduciary duty for CFP certificants, but only after publishing another round of the proposal for a second comment period, given the substantive nature of both the changes themselves, and the concerns that remain.

In the meantime, I hope you find this public comment letter helpful food for thought. And if you haven’t yet, remember that you too can submit your own Public Comment letter to the CFP Board by emailingComments@CFPBoard.org – but today (August 21st) is the last day to submit!

Comment Letter To CFP Board On Its Proposed Fiduciary Standards Of Conduct

In December of 2015, the CFP Board announced that it was beginning a process to update its Standards of Professional Conduct for all CFP certificants, the first such update since the last set of changes took effect in the middle of 2008. And on this past June 20th, the CFP Board published proposed changes (including an expanded fiduciary duty) to its Standards of Conduct, with a public comment period that would last until August 21st.

And so as the CFP Board’s Public Comment period closes today, I have published here in full my own comment letter to the CFP Board. And as you will see in the Comment Letter, I am overall very supportive of the CFP Board advancing the fiduciary standard of care for CFP professionals, and view this as a positive step forward for the financial planning profession.

However, the CFP Board’s proposed changes do introduce numerous new questions and concerns, from key definitions that (in my humble opinion) still need to be clarified further, to new wrinkles in what does and does not constitute a fee-only advice relationship (and whether and to what extent certain types of compensation must be disclosed), to uncertainties about how CFP professionals are expected to navigate important conflicts of interest, and how CFP professionals should interpret the 29(!) instances where the CFP Board’s new standards are based on “reasonableness”… with no explanation of how “reasonable” is determined, and a non-public CFP Board Disciplinary and Ethics Commission that doesn’t even allow CFP professionals to rely on prior case histories for precedence.

Ultimately, I am hopeful that the CFP Board will end up moving forward with its proposed changes to expand the scope of fiduciary duty for CFP certificants, but only after publishing another round of the proposal for a second comment period, given the substantive nature of both the changes themselves, and the concerns that remain.

In the meantime, I hope you find this public comment letter helpful food for thought. And if you haven’t yet, remember that you too can submit your own Public Comment letter to the CFP Board by emailingComments@CFPBoard.org – but today (August 21st) is the last day to submit!

Narrowing The Definition Of “Family Member”

The Related Party rules under the proposed Standards of Conduct include a rebuttable presumption that any family members, or business entities that family members control, will be treated as a “Related Party” for the purposes of both compensation disclosures, and the potential determination of the CFP Professional’s status as being “Fee-Only”.

However, “Family Member” is simply defined as:

A member of the CFP® professional’s family and any business entity that the family or members of the family control.

In practice, this raises numerous questions.

First and foremost, to what depth in the “family tree” is it necessary to look to determine “member of the family” status. Parents, siblings, and children? Grandparents and grandchildren? What about aunts, uncles, nieces, and nephews? Do cousins count? Only 1st cousins? What about 2nd or 3rdcousins? Do the family members of the CFP spouse’s family count, if the spouse is not themselves a CFP professional (such that the family members are “only in-laws”)?

Similarly, what constitutes “family control” of an entity? Must it be controlled by a single family member? What if multiple family members each own a minority share, but their combined ownership constitutes a majority ownership? Does “control” mean ownership of voting shares that actually control the entity? Does that mean a CFP professional could avoid “Related Party” status by owning a 99% limited partnership interest in the entity but NOT the 1% controlling general partner interest? (And does that distort the original intent of these Related Party rules, since the CFP professional would not control the entity, but would receive the bulk of the financial benefits of the entity?)

Notably, Internal Revenue Code Section 318 provides substantial guidance about where these dividing lines are drawn with respect to family members, family attribution, and constructive ownership of stock, and may serve as a guiding template for the CFP Board.

But the nature and scope of “family” and “control” must be clarified further, lest CFP professionals simply direct (without being required to fully disclose) a substantial portion of their compensation to entities in which they own 99% limited partner interests but no controlling interests to avoid the Related Party rules!

Key Point: Clarify the scope of “family member” (how much of the family tree counts?), what constitutes “control” of a business entity as a Related Party, and whether a non-controlling but majority financial interest should also be deemed a Related Party.

Disclosing How An Advisor Is Compensated, or What An Advisor Is Compensated?

A key aspect of the fiduciary duty is to fully disclose conflicts of interest to the client (to the extent they cannot be avoided), and is articulated as such in the CFP Board’s required Duty of Loyalty to clients.

However, the actual disclosures required in Sections 10 and 11 (Introductory Information to the Prospect, and Disclosure Information to the Client) regarding compensation merely require that the advisor disclose “how the Client pays, and how the CFP professional and the CFP Professional’s Firm are compensated, for providing services and products.” Notably absent is a requirement to disclose what, exactly, the CFP professional and his/her firm will be compensated for providing services and products.

This may have simply been an unintended error of wording, but sections 10(b)(ii) and 11(a)(ii) of the final rules should be updated to clearly require the CFP professional to not merely disclose how they are compensated – e.g., “with fees” or “with commission” or “by my company” – but disclosewhat the CFP professional is compensated: i.e., disclosing to the client theactual compensation arrangements for what, exactly, the CFP professional is compensated (and not merely “how”).

Notably, if/when compensation disclosures are required that explain what, exactly, the CFP Professional and the CFP Professionals firm are paid, an additional distinction may need to be made between what the CFP Professional is paid, and what the CFP Professional’s Firm is paid, given that not all CFP Professionals are privy to the details of all revenue sources of their Firms (particularly in the case of a broker-dealer, if a broker-dealer is deemed the CFP professional’s “firm”). This may include (for firms) revenue-sharing or shelf-space agreements, 12b-1 or sub-TA fees, conference sponsorships based on sales volume, commission overrides (in the case of certain annuity and insurance products), etc. Consider whether additional clarifications are needed to specify the exact scope of compensation disclosures for the CFP profession as distinct from the CFP Professional’s Firm, especially given the breadth of some firm’s overall business models.

Key Point: Does the CFP Board expect the CFP professional to merely disclose how they are compensated (fees or commissions or both?), orwhat they are compensated (disclosure of actual compensation arrangements)? And to what extent must the CFP Professional determine the prospective compensation relationships of the CFP Professional’s Firm?

Financial Advice Outside The Scope Of A Financial Plan

In the glossary, Financial Advice is defined as follows:

A communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the Client take or refrain from taking a particular course of action with respect to:

  1. The development or implementation of a financial plan addressing goals, budgeting, risk, health considerations, educational needs, financial security, wealth, taxes, retirement, philanthropy, estate, legacy, or other relevant elements of a Client’s personal or financial circumstances;

Technically, this would suggest that any suggestion that a client take or refrain from a particular course of action not pursuant to a [comprehensive] financial plan would not be deemed advice. In other words, if the CFP professional simply gives direct advice to the client regarding budgeting, risk, wealth, taxes, retirement, etc., but not specifically pursuant to the “development or implementation of a financial plan”, it would not be financial advice subject to a fiduciary duty (unless captured in one of the other subclauses of Financial Advice regarding the investment of Financial Assets or the selection of other professionals).

Given that many forms of financial advice are given more modularly, and not necessarily as a part of a comprehensive financial plan (nor is what constitutes a “financial plan” even defined in the proposed Standards), this section should be modified to simply recognize that the subjects themselves are what trigger financial advice, not specifically the creation of a financial plan.

The most straightforward resolution would simply be to remove the words “development or implementation of a financial plan addressing”, such that the section would simply read:

A communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the Client take or refrain from taking a particular course of action with respect to:

  1. The goals, budgeting, risk, health considerations, educational needs, financial security, wealth, taxes, retirement, philanthropy, estate, legacy, or other relevant elements of a Client’s personal or financial circumstances;

Notably, in the context of this change, the word “goals” should be also modified, to stipulate “financial goals” (as otherwise, even advice about a client’s “goal to lose weight” could be treated as a financial advice goal under this definition!), or alternatively the final clause could be adjusted to state “…or other relevant financial elements of a Client’s personal or financial circumstances”).

In addition, advice regarding loans, debt, and other mortgages (or more generally, “liabilities”) should be included in the list of topics which are treated as “financial advice” in this section (as the remaining subsections defining Financial Advice all pertain to a client’s Financial Assets, and not his/her Financial Liabilities).

Key Point: The delivery of financial planning advice should be treated as financial advice, regardless of whether it is actually delivered pursuant to a financial plan.

New Issues Created By Proposed Compensation Disclosure Rules

Beyond the aforementioned definitional issues regarding the Proposed Standards, a number of unique new issues arise in the CFP Board’s new approach to compensation definitions, including its “negative framing” approach to fee-only (where a “fee-only” advisor is not one who “only” receives fees, but one who does not receive any form of Sales-Related Compensation), the labels that advisors use (or may potentially use in the future) to describe their compensation methodologies.


Section 14(b) of the Proposed Standards defines Sales-Related Compensation, which is stated as:

Sales-Related Compensation is more than a de minimis economic benefit for purchasing, holding for purposes other than providing Financial Advice, or selling a Client’s Financial Assets, or for the referral of a Client to any person or entity. Sales-Related Compensation includes, for example, commissions, trailing commissions, 12(b)1 fees, spreads, charges, revenue sharing, referral fees, or similar consideration.

The fact that revenue-sharing and referral fees, along with any other kind of compensation for the referral of a Client to any person or entity, constitutes “Sales-Related Compensation”, presents substantial potential difficulties for a number of common investment arrangements that would otherwise, to an objective observer, appear to constitute a Fee-Only advisory relationship (were it not for this new compensation definition).

For instance, many financial-planning-centric CFP professionals choose to outsource their investment management implementation, rather than hiring a CFA to assist with it internally. If the advisor wants to retain operational responsibilities and “just” have a third party help with investment models and implementation, the advisor might use a Separately Managed Account. However, for advisors who want to fully outsource investment management responsibilities, it is common to use a TAMP (Turnkey Asset Management Platform), which handles both the investment management and other operational tasks of the investment portfolio, including billing.

In some cases, TAMPs will apply two tiers of fees to the advisory account – one for the TAMP’s portion of investment responsibilities, and the other for the CFP Professional’s fees. But more commonly, the TAMP will simply conduct the entire fee sweep, and then remit a portion back to the CFP professional in the form of either a revenue-sharing or solicitor fee.

The end result of this arrangement is that the CFP Professional that uses a TAMP for investments in order to focus on financial planning would be deemed to receive sales-related compensation and not be fee-only (due to the fact that the TAMP swept the fees and remitted them to the advisor), whereas if the advisor retained billing responsibility and remitted a portion of the advisor’s fee to the TAMP as an expense, he/she would be treated as fee-only. This seems to create a substantial distinction in compensation disclosure arrangements, without any actual substantive difference in what the client pays, or the nature of any conflicts of interest (particularly where the advisor retains advisory authority to hire/fire/change the TAMP manager).

Furthermore, the irony is that if the CFP professional was not independent, and instead worked for the TAMP, and was paid compensation directly by the firm for which he/she worked (even if it was a percentage of revenue), the compensation disclosure rules would (correctly) recognize that the client is paying only a fee to the CFP professional and his/her firm. Thus, an independent CFP professional who objectively chooses a third-party TAMP (for which the TAMP handles billing and shares the CFP professional’s share of the fee back to him/her) is treated as receiving sales-related compensation, yet an employee of the TAMP who only solicits for that TAMP, and receives a share of the fee revenue (a classic salesperson arrangement) would not be sales-related compensation (because as an employee, the employee’s compensation within the firm is not treated as revenue-sharing, even though it functionally is).

In other words, the CFP Board’s Proposed Standards have (perhaps unwittingly) created a substantial distinction between “first-party” revenue-sharing (CFP professional is internal to a firm), and “third-party” revenue sharing (CFP professional is external from the firm), even though the actual services rendered, fees paid by the client, and compensation paid to the CFP professional, are exactly the same… and in fact, the external advisor would be more independent and less prone to sales-related conflicts of interest!

While in theory, it might be ideal to try to “require” all advisors to structure third-party investment management agreements in certain ways – such as requiring that the advisor’s fee and the TAMP’s fee always be billed separately, or that the advisor always sweep fees and remit the TAMP’s portion to the TAMP, rather than the other way around – from a practical perspective, such changes would be substantial operational changes for many TAMPs, and not feasible to implement in a timely manner in accordance with the CFP Board’s Proposed Rules. Even though, again, the end result to the client is still that he/she is paying only fees and no actual sales-related compensation.

Accordingly, the CFP Board should consider amendments to this definition of “Sales-Related Compensation”, to more accurately reflect the underlying substance and economic reality of the arrangement for the client, and not recharacterize fees as sales-related compensation simply due to operational implementation decisions.

Reasonable safe harbors to further modify this rule might include:

– If the CFP professional receives a referral or solicitor fee from another firm, and that firm itself receives no sales-related compensation in connection with services rendered to the client, then the CFP professional’s participation in a portion of the fee-only relationship does not convert it to sales-related compensation (i.e., participating in a portion of the fees in a fee-only relationship is still a fee-only relationship);

– In order to be deemed a permissible fee-only revenue-sharing agreement, the CFP professional should retain discretion to hire or fire the third-party manager (to affirm that the CFP professional is in an independent relationship, and not operating as a captive salesperson); and

– In order to not be deemed Sales-Related Compensation for participating in the sharing of a client fee, the CFP Professional’s share of the compensation should not materially vary by the assets of the client or total assets of the relationship (to avoid sales incentives for directing client investment fees towards a particular provider)

Key Point: Treat CFP professionals who outsource to third-party managers the same as CFP professionals whose firms hire internal investment staff, if the client is actually paying the same fees either way.


Continuing the prior theme, it’s also notable that all forms of “Sales-Related Compensation” implicitly assume that payments will come fromthird parties, without recognizing that for advisors who work directly for product manufacturers, “sales-related compensation” comes in the form of direct bonuses from their employer for certain levels of sales production.

In other words, when an independent advisor is paid to sell a third-party product, sales-related compensation is typically in the form of a commission. When a captive advisor is paid to sell his/her company’s ownproprietary product, sales-related compensation is typically in the form of bonuses (which firms assign based on sales targets, the profitability of products, etc.). Yet the CFP Board’s current definition of compensation would not characterize the compensation of the latter as sales-related compensation, even if the bulk of the advisor’s compensation actually was tied directly to sales (and paid in the form of employee bonuses, rather than product commissions).

Accordingly, CFP Board’s definitions for sales-related compensation need to consider the types of internal compensation bonuses paid to employees for business development and production, including common practices such as paying advisors a percentage of revenue they bring in (an indirect form of solicitor fee), and paying bonuses based on total products implemented (an indirect form of commissions). And to the extent such compensation arrangements would be deemed sales-related compensation in a third-party independent context, they should be reflected as sales-related compensation in a first-party context as well.

Otherwise, a firm could operate entirely as “fee-only” simply by manufacturing all of its own proprietary products, and rather than paying commissions to third-party advisors, simply pay its own CFP professionals a salary plus bonus (or a share of revenue) to sell its products (even though the nature of the advisor’s role is purely sales).

Key Point: Treat RIA solicitors of a fee-only firm the same as employees of a fee-only firm, given that both may be paid the exact same way (a percentage of revenue). And recognize for captive employees of firms that manufacturer proprietary product, even salary and bonus compensation can constitute sales-related compensation (even if there are no direct commissions, because the company is distributing its product directly through its own salaried salespeople).


One of the greatest challenges that may arise from the proposed definitions for fee-only and sales-related compensation is for advisors who wish to change to become fee-only, even though they previously operated as a commission-and-fee advisor who received sales-related compensation.

The reason is that, under the proposed definitions, a fee-only CFP professional cannot hold out as such if they receive any “sales-related compensation”, including trailing commissions and 12b-1 fees, even if 100% of the CFP professional’s ongoing relationships with new clients involve no new sales-related compensation. In other words, any CFP professional who wantsto operate on a fee-only basis in the future still cannot actually be fee-only unless they terminate all ongoing 12b-1 and other trailing commission payments to themselves.

Yet from a practical perspective, this is neither positive for the client, nor the advisor. To the extent the client has already purchased a commission-based product in the past, with a 12b-1 or other commission trail built into the existing pricing of the product, even if the advisor terminates the trailing commission relationship, the client will still pay the trail anyway. It will simply be collected by the product manufacturer as a “house account”, instead of being paid to the original CFP professional who sold it.

In addition, a CFP professional who terminates their commission trail relationship is required to remove themselves from being the broker-of-record or agent-of-record on the investment or insurance product, which eliminates the advisor’s ability to actually provide basic service, and answer ongoing financial planning questions, of the client.

All of which means compelling newly-fee-only CFP professionals to actually terminate their trailing commissions and 12b-1 fees results in a decrease in the ability of the advisor to service the client and address their financial planning needs, without even saving the client the cost of those trailing commissions or 12b-1 fees in the first place!

And notably, even the SEC characterizes a 12b-1 fee as a combination of a “distribution fee” (i.e., a commission, of up to 0.75%/year), and a “shareholder servicing fee” (which FINRA caps at 0.25%/year). In other words, a 12b-1 fee of up to 0.25%/year isn’t actually even “sales-related compensation” in the first place; it’s a servicing fee. (The same is true for many insurance commission trails as well, though the split between [levelized] commissions and servicing trails are not always delineated explicitly.)

Thus, given that ongoing 12b-1 and commission trails are typically for servicing anyway, and advisors who retain servicing relationships with products previously sold to clients maintain better ability to render financial planning advice on those products, a more appropriate definition of “fee-only” (or limitation on sales-related compensation” would recognize a distinction between receiving servicing 12b-1 fees and commission trails on prior transactions, from new commissions generated from new transactions (which would clearly be sales-related compensation).

Accordingly, the CFP Board should consider adding an additional exclusionary condition under Section 14(b) of its proposed rules (i.e., a new paragraph iv), which stipulates that the mere presence of 12b-1 servicing fees (in an amount no more than the FINRA-capped 0.25%), and ongoing commission trails (for servicing previously sold products), will not be treated as sales-related compensation, as long as no new sales-related compensation is introduced going forward.

Conversely, though, the CFP Board should also consider amending the rules to stipulate that if an advisor’s compensation status changes, all prospective and existing clients must be notified of the change. Otherwise, the limitations on “sales-related compensation” and the definition of “fee-only” also risks being rendered moot by an advisor who claims to be “fee-only”, then “temporarily” changes their compensation to be commission-and-fee for one client (who does a purchase of a large commission-based product), and then switches “back” to fee-only after the purchase has occurred. In other words, CFP Board needs to consider introducing some provision to clarify whether or how quickly an advisor can change their status to/from fee-only, to minimize any risk of routine “hat-switching” from one client to the next. (A notification requirement to all clients of the change in compensation methodology would likely be sufficient to reduce any advisor incentive for making regular client-by-client changes.)

Key Point: Provide clear guidance about how CFP professionals who previously received sales-related compensation, and still receive ongoing 12b-1 servicing fees and insurance commission trails for servicing, can transition to fee-only status, without being required to terminate their broker-of-record and agent-of-record affiliations that are necessary to ensure previously-sold contracts can be properly serviced by the advisor.


One of the “unintended consequences” of the changes to compensation disclosures in the last update to the CFP Standards of Conduct was that, once the definition of “fee-only” became more clearly defined, advisors who wanted to market on a “similar” basis began to adopt the label “fee-based” instead.

To address this issue, the CFP Board’s new rules would require, in Section 14(a)(ii), that:

A CFP® professional who represents that his or her compensation method is “fee-based” must: a) Not use the term in a manner that suggests the CFP® professional or the CFP® Professional’s Firm is fee-only; and b) Clearly state that either the CFP® professional earns fees and commissions, or the CFP® professional is not fee-only.

While this is a reasonable way to address the concern of CFP professionals who use the label “fee-based” to imply something similar to “fee-only”, it fails to recognize the underlying challenge: that given currently favorable media coverage of the “fee-only” label, there is a substantial marketing advantage for non-fee-only advisors who can come up with a fee-only-like similar label.

Which means even if the CFP Board cracks down on “fee-based”, it’s only a matter of time before a new, alternative term arises instead. Advisors who receive fees and commissions, but want to accentuate the fee aspect of their advisory relationships, may simply instead adopt terms like “fee-oriented” or “fee-compensated” or “fee-for-service” (without acknowledging they’re also commission-compensated). Which leaves the CFP Board in the unenviable position needing to update its compensation disclosure rules every few years just to try to crack down on the latest “innovative” fee-related marketing term.

The alternative, which the CFP Board should seriously consider instead, is to standardize the terminology in compensation disclosures – a path the organization had started down previously with its 2013 “Notice To CFP Professionals” regarding compensation disclosures, with its specific disclosure types of “fee-only”, “commission-and-fee”, and “commission-only”.

In a world where those options are the only options that advisors are permitted to use – or at least, where those disclosure types must be statedfirst, before any other compensation labels – there is little risk of alternative compensation labels arising. Or at a minimum, if a CFP professional chooses in the future to call themselves “fee-oriented” or “fee-compensated” or “fee-for-service” but first must acknowledge they are commission-and-fee advisors, the risk of consumer confusion over compensation labels is greatly diminished.

Notably, though, the one caveat of this approach is that in practice, it means most advisors will end out in the “middle” category of being commission-and-fee, and that advisors will be in that category regardless of whether they receive 99% of their compensation in commissions, or 99% of their compensation in fees (even though, in practice, those are substantively different business models, with substantively different potential conflicts of interest to disclose to the client). Accordingly, to avoid rendering the “commission-and-fee” label meaningless (even as it’s used by the majority of CFP Professionals), CFP Board might consider at least adjusting to four categories: fee-only, fee-and-commission, commission-and-fee, and commission-only (where the difference between fee-and-commission versus commission-and-fee is determined based on which compensation type formed the majority of the advisor’s compensation over the prior calendar year, or some other stipulated measuring period).

Nonetheless, the fundamental point is simply this: in order to prevent the “creative” use of potentially misleading compensation labels, the CFP Board needs to standardize a fixed nomenclature of compensation models (as it has for “fee-only”, but including all the other possible categories as well), and require those labels of the first/primary explanation of compensation for the CFP professional. Anything less simply invites a never-ending oversight challenge of adapting new rules to ever-changing terms and labels in the marketplace.

Key Point: Standardize a series of required compensation disclosures, rather than merely defining “fee-only” and limiting “fee-based”, or the advisory community will simply keep coming up with new terms that may or may not be deemed misleading in the future. A standard nomenclature – such as fee-only, commission-and-fee, fee-and-commission, and commission-only – eliminates any room for innovating new questionable terms.

Limiting An Advice Engagement To A Compensated Engagement

One of the biggest practical caveats to enforcing a fiduciary duty for any professional service provider is being clear about when a professional service engagement actually begins. This helps to ensure not only that “general education” is not unwittingly treated as a fiduciary professional service, but also that “free” services (which may or may not constitute a formal professional services engagement) aren’t subject to professional standards when they shouldn’t be.

Fortunately, the flush language of the definition of “Financial Advice” in the Glossary of the proposed standards does clearly state that “…the provision of services or the furnishing or making available of marketing materials, general financial education materials, or general financial communications that a reasonable person would not view as Financial Advice, does not constitute Financial Advice.” This helps to limit any concern that a practitioner would have that general financial education will not constitute fiduciary financial advice.

However, Section 1 of the Standards still require that a fiduciary duty applies to any “Client”, where a Client is defined as “any person… to whom the CFP professional renders Professional Services pursuant to an Engagement”, and an “Engagement” is defined as “a written or oral agreement, arrangement, or understanding”. Yet at no point is there an actual requirement that such an engagement be a formal businessrelationship for compensation.

As a result, the delivery of “free financial advice” – e.g., on a pro bono basis, in an informal relationship with a friend or colleague, or even just ad hoc in a conversation with a stranger – could potentially constitute a fiduciary financial advice relationship. The conversation merely needs to start with an informal statement “Hey, let me ask your advice about something…” and if the advisor responds, an oral understanding that advice is about to be delivered exists, which attaches the advisor’s fiduciary duty.

Notably, such an (investment) advice relationship would not exist for that advisor under the Investment Advisors Act of 1940, because Section 202(a)(11) of that law stipulates that one is only an investment adviser if he/she engages in the business of advising others for compensation. Similarly, the Department of Labor’s recently introduced fiduciary rule also limits the scope of fiduciary duty to situations where the advisor “renders investment advice for a fee or other compensation…”

Accordingly, the CFP Board should adjust its definitions to clarify that “free” advice, or other non-compensated informal advice arrangements, do not (and cannot) rise to the level of being fiduciary financial advice, if the advice is not provided for consideration (i.e., for compensation). Practically speaking, this is probably best handled by adjusting the definition of a Client to be:

Client: Any person, including a natural person, business organization, or legal entity, to whom the CFP® professional renders Professional Services for compensation pursuant to an Engagement.

Key Point: A financial planning “engagement” should be limited to one where the CFP professional renders professional services for compensation, to avoid the risk that “free advice” is deemed an advice relationship.

What Does It Mean To “Manage” Conflicts Of Interest

One of the fundamental principles of a fiduciary duty is the recognition that advisors have a duty of loyalty to their clients, to act in their clients’ best interests, such that conflicts of interest must be managed, and unmanageable conflicts of interest must be avoided altogether.

Accordingly, the Investment Advisers Act of 1940 (and subsequent SEC guidance over the years) provides an extensive series of rules regarding what kinds of conflicts of interest are prohibited for investment advisers. Similarly, the Department of Labor’s new fiduciary rule (and the prior/existing rules under ERISA) prohibit a wide range of unmanageably-conflicted activities, subject to various Prohibited Transaction Exemptions if certain safe harbor stipulations are met.

When it comes to the CFP Board’s requirements, though, Section 9 of the Proposed Standards merely requires CFP professionals to disclose conflicts of interest, with a brief paragraph (out of a 17-page document) directing that “a CFP® professional must adopt and follow business practices reasonably designed to prevent Material Conflicts of Interest from compromising the CFP® professional’s ability to act in the Client’s best interests.” And while Section 1(a)(ii) does go a bit further in stating that a CFP professional should “Seek to avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict”, this still constitutes the entire guidance of the Proposed Standards of Conduct.

Thus, the questions arise: what, exactly, are CFP professionals expected todo to manage their conflicts of interest, what constitutes an “insufficient” business practice that fails to reasonably prevent Materials Conflicts of Interest from compromising the CFP professional, and what types of conflicts are CFP professionals actually expected to “avoid” versus merely “manage”? Will the CFP Board publish a list of prohibited transactions, akin to the Department of Labor, or create further regulations limiting CFP professionals from certain (highly conflicted) activities (as the SEC does)?

Without any guidance from the CFP Board, the risk to the CFP professional is that they will be found “guilty” of failing to manage their conflicts of interest, in a ruling from the Disciplinary and Ethics Commission that only explains what was “impermissible” behavior after the fact.

CFP professionals should not be left to wonder what will turn out, after the fact, to have been deemed an unacceptable or improperly managed conflict of interest. At a minimum, the CFP Board needs to provide additional, supplemental guidance. And the CFP Board should seriously consider whether certain especially-conflicted arrangements with clients are “so conflicted” that the Standards of Conduct should simply bar them altogether (as the Department of Labor did with its fiduciary rule).

Key Point: Provide further clarity about what it really means to “manage” conflicts of interest, and what types of conflicts the CFP Board expects CFP professionals to avoid. Don’t force CFP professionals to find out what is deemed unacceptable after the fact with an adverse DEC ruling.

Navigating Conflicting Duties Of Loyalty Between CFP Professionals And Their Broker-Dealer Or Insurance Company

The first requirement of the CFP professional’s Duty of Loyalty in the proposed Standards of Conduct is that the CFP professional must “Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm”.

Yet the reality is that for a substantial number of CFP professionals, they operate as a registered representative of a broker-dealer, or an agent of an insurance company, and legally have an obligation (a bona fide agency relationship) to represent the CFP professional’s firm first and foremost, and not the client.

Clearly, it is often “good business” for firms to act in the best interests of their clients, regardless of the scope of relationship, but CFP Board’s proposed Standards of Conduct are nonetheless placing a large subset of CFP professionals in a potentially untenable conflict between the requirements of the Standards, and their legal employment agreement and relationship to the Professional’s firm.

At a minimum, the CFP Board should provide additional guidance about how, realistically, CFP professionals are expected to navigate this particular conflict of interest, and in what situations a CFP professional is expected to decline a business opportunity, or outright terminate their employment relationship, if a conflict of interest emerges where the CFP professional cannot effectively fulfill both his/her duty of loyalty to the client, and his/her agency relationship and employment agreement with the firm.

Key Point: With an explicit duty of loyalty to the client for the CFP professional, clarify how CFP professionals working at a broker-dealer or insurance company, where the CFP professional has a legal employment contract that requires him/her to operate as an agent of the company and represent the company (not the client), is expected to navigate prospective conflicts of interest.

Anonymous Case Histories And Setting Precedents For Reasonableness

The final concern worth recognizing in the CFP Board’s Proposed Standards is the fact that substantial portions of the rules are based on subjective standards – beyond just the question of what is a “manageable” conflict of interest vs one to avoid – such that CFP professionals may not even know which behaviors and actions are safe and appropriate until it’s too late.

For instance, the word “reasonable” or “reasonably” is used a whopping 29 times in the Proposed Standards, pertaining to the everything from the aforementioned issue of whether a conflict of interest is Material (based on whether a “reasonable” client would have considered the information material), to whether a related party is related based on whether a “reasonable” CFP professional would interpret it that way, to requirements that CFP professionals diligently respond to “reasonable” client inquiries, follow all “reasonable” and lawful directions of the client, avoid accepting gifts that “reasonably” could be expected to compromise objectivity, and provide introductory information disclosures to prospects the CFP professional “reasonably” anticipates providing subsequent financial advice to. In addition, the entire application of the rules themselves depend on the CFP Board’s “determination” of whether Financial Advice was provided (which triggers the fiduciary obligation for CFP professionals), and CFP professionals with Material conflicts of interest will or will not be found guilty of violating their fiduciary duty based on the CFP Board’s “determination” of whether the client really gave informed consent or not.

In other words, the CFP Board’s new Standards of Conduct leave a lot of room for the Disciplinary and Ethics Commission to make a final (after-the-fact) subjective assessment of what is and isn’t reasonable in literally several dozen instances of the rules.

Of course, the reality is that it’s always the case that regulators and legislators write the rules, and the courts interpret them in the adjudication process. And using “reasonableness” as a standard actually helps to reduce the risk that a CFP professional is found guilty of something that is “reasonably” what another CFP professional would have done in the same situation. “Reasonableness” standards actually are peer-based professional standards, which is what you’d want for the evaluation of a professional.

However, when courts interpret laws and regulations, they do so in a public manner, which allows everyone else to see how the court interpreted the rule, and provides crucial guidance for everyone who follows thereafter. Because once the court interprets whether a certain action or approach is or isn’t permitted, it provides a legal precedent that everyone in the future can rely upon. Except in the case of the CFP Board’s Standards of Conduct, because the CFP Board’s disciplinary process is not public in the first place!

Which means even as the DEC adjudicates 29 instances of “reasonableness”, no one will know what the DEC decided, nor the criteria it used… which means there’s a risk that the DEC won’t even honor its own precedents, and that rulings will be inconsistent. And even if the DEC is internally consistent, CFP professionals won’t know how to apply the rules safely to themselves until they’re already in front of the DEC trying to defend themselves!

Fortunately, since 2010 the CFP Board has been providing a limited number of “Anonymous Case Histories” to provide some guidance on prior DEC rulings. However, the CFP Board’s current Anonymous Case History (ACH) database is still limited (it’s not all cases), and the database does not allow CFP professionals (or their legal counsel) any way to do even the most basic keyword searches OF the existing case histories (instead, you have to search via a limiting number of pre-selected keywords, or by certain enumerated practice standards… which won’t even be a relevant search format once the newly proposed Standards replace the prior format!).

Which means if the CFP Board is serious about moving forward with the new Conduct Standards, including the application of a fiduciary duty and a few dozen instances of “reasonableness” to determine whether the CFP professional met that duty, it’s absolutely crucial that the Commission on Standards require a concomitant expansion of the CFP Board’s Anonymous Case Histories database to include a full listing of all cases (after all, we don’t always know what will turn out to be an important precedent until after the fact!), made available in a manner that is fully indexed and able to be fully searched (not just using a small subset of pre-selected keywords and search criteria).

In addition, the CFP Board should further formalize an additional structure to provide periodic guidance to CFP professionals – akin to the Notice to CFP Professionals issued in 2013 regarding compensation disclosure, but on a more regular basis – to allow for a further fleshing out of the CFP Board’s views of what constitutes “reasonableness” in various areas, so that CFP professionals don’t have to solely rely on after-the-fact adjudication to understand how best to navigate the 29 instances where “reasonableness” is the essential criterion for determining whether the standards were met.

Key Point: With 29 instances of “reasonable” or “reasonably” in the proposed Standards, CFP professionals need further guidance on what constitutes “reasonableness” in a wide variety of situations. Establish a mechanism for providing proactive ongoing guidance, and expand the framework of Anonymous Case Histories to include all case histories, in a searchable and properly indexed archive, so CFP professionals (and the DEC itself) can have a growing body of case law that can be properly cited and reasonably relied upon for precedence. 

Thank you for providing us as CFP professionals and stakeholders the opportunity to provide public comments regarding the CFP Board’s Proposed Standards of Conduct, and I look forward to seeing how the next version of the proposed changes will address the substantive concerns raised here!

– Michael Kitces

For CFP Professionals who are interested in submitting their own comments, the official comment period closes today (August 21st), but there’s still time!

You can submit your feedback directly through the CFP Board website here, or by emailing comments@cfpboard.org. Comments and public forum feedback will then be used to re-issue a final version of the standards of conduct (or even re-proposed if the Commission on Standards deems it necessary to have another round of feedback) later this year.

And for those who want to read through a fully annotated version of the proposed Standards of Conduct themselves, the CFP Board has made a version available on their website here, and/or you can review our prior in-depth commentary about the proposed changes here.

So what do you think? Do you favor the CFP Board’s proposed Standards of Conduct moving forward in their current form? Do you see any potential issues or loopholes? Please share your thoughts in the comments below!


Why Broker-Dealers Launching Robo-Advisors Are Missing The #FinTech Point

Why Broker-Dealers Launching Robo-Advisors Are Missing The #FinTech Point

Executive Summary

Broker-dealers launching their own “robo-advisor-for-advisors” solutions for their reps has been a growing and accelerating trend. From prior announcements like the LPL deal with FutureAdvisor after Blackrock bought them, to Voya stating that they are looking to acquire a robo-advisor solution, and this week Kestra Financial announcing that it is working on a robo solution in the coming year as well. Yet the irony is that even as broker-dealers increasingly hop onto the “robo tools” bandwagon, they may actually be the worst positioned to capitalize on the trend, especially if their goal is to increase their volume of next-generation Millennial clients for their reps!

In this week’s post we discuss why broker-dealers are missing the point by launching “robo” solutions, how broker-dealers will struggle to gain any traction with Millennials – even with a robo-advisor – because of their digital marketing woes, and why broker-dealers should really be framing “robo solutions” as simply an upgrade to their entire technology stack instead!

Given the popular notion that “robo-advisors” are an effective means to grow a Millennial client base, it’s certainly understandable that broker-dealers want to pursue “robo” solutions. After all, the reality is that while the average advisor may simply be able to keep working with affluent retirees until the advisor themselves retires, broker-dealers are going-concern businesses that must focus on the long run – and recognize that eventually, the coming shift in generational wealth (as Baby Boomers pass away and bequeath assets to their Millennial children) means that they must find a way to grow their Millennial client base. And for the average broker-dealer rep who struggles to efficiently serve small accounts, who wouldn’t want a “robo” solutions where clients can come to the broker’s website and sign up and onboard themselves?

Yet the truth is that robo-advisor tools don’t actually attract Millennial clients. At best, they’re a highly efficient means to onboard and manage a Millennial client’s account, but the firm must still figure out how to market and attract Millennial clients in the first place. Which has been a challenge even for the most established robo-advisors, as companies like Betterment and Wealthfront have only averaged $1B to $2B per year in net new asset flows (and even then at “just” a 25bps price point!), and even the more eye-popping growth of Schwab Intelligent and Vanguard Personal Advisor Services has been driven primarily by clients who already had their assets with those brands, and simply moved them to their new “robo” offerings. And in point of fact, Vanguard’s solution wasn’t even the rollout of a robo-advisor, but the addition of human financial planners to clients who already worked with Vanguard digitally – a “cyborg” (tech-augmented human CFP professional) solution that is taking over the industry, with Personal Capital, Schwab, and even Betterment now offering tech-augmented human CFP advisors (and not just a robo solution alone).

In fact, when it comes to marketing to Millennials, even the robo-advisors have struggled with client acquisition costs, and they have entire companies (or at least entire divisions) with dedicated direct-to-consumer marketing, and the ability to leverage substantial existing brands (in the case of Schwab and Vanguard). By contrast, most broker-dealers have little brand recognition with consumers, a decentralized marketing process (where every rep is responsible for their own marketing and business development), and a cumbersome compliance process that makes it almost impossible to rapidly iterate the broker’s digital marketing efforts to attract Millennials online. Which means broker-dealers that launch “robo” initiatives are unlikely to see much of any asset flows whatsoever.

All this point said, it doesn’t mean that the “robo” tools themselves are bad for a broker-dealer to adopt. To the contrary, there are tremendous operational efficiencies to be gained with “robo” technology that expedites the process of onboarding clients and efficiently managing (model) portfolios. But again, that’s because robo tools are all about operational efficiencies… not marketing and business development! Which means broker-dealers announcing they are going to roll out “robo” tools will at best underdeliver on its promise of bringing in new young clients without needing to do any work – because it’s not a marketing solution for Millennials, it’s an operational solution after you do the marketing to Millennials yourself (which, most advisors don’t do well in the first place)! And at worst, brokers themselves just won’t adopt the tools, because they feel threatened by “robo” tools that imply the broker can be replaced (even if real advisors aren’t at risk of being replaced by robos). Instead, what broker-dealers should do is simply say “we’re upgrading our technology to make you more operationally efficient in opening and managing investment accounts.” Because that’s what it’s really about. And that’s the outcome that really matters!

Why Broker-Dealers And Their Reps Want A Robo-Advisor To Work

Now, I do get the appeal for a broker-dealer of launching a robo-advisor. First and foremost, I hear a number of broker-dealer reps asking for it, but not all because many are very happy with who they’re currently serving and what they’re doing. But instead, whether it’s an easier way to handle accommodation clients, those small clients where it’s hard to spend the time with them, or just the appeal of being able to have a robo-advisor button on your website to take on young millennial clients. There is a pain point, a valid pain point, for a lot of advisors in trying to work with small accounts that are time-consuming where a robo solution that automates it seems appealing.

I mean if the technology is entirely automated anyways, who wouldn’t want to put a button on their website that gets young people to open up small accounts that will grow with systematic contributions over time? And it takes no time from the advisor because they’re just clicking on a button. And from the broker-dealer’s perspective, ideally, this helps them address I think what’s actually a much broader issue, the coming generational shift of assets from baby boomers down to millennials.

For the individual advisor, however, I think the significance of this trend is grossly overstated. The average baby boomer is 62 years old. A retired couple at that age still has as joint life expectancy of about 25 years. The average age of a financial advisor is mid-50s, which means the average advisor will long since be retired themselves before their average baby boomer client start passing away and bequeathing assets to millennial children. Even a 40-something advisor will likely be retired before a material rotation of assets happens.

And of course, during retirement, although we talk about how clients are in a decumulation phase, the truth is retirees don’t actually withdraw that much at a 4% withdraw rate. Account balances actually tend to remain stable where you can grow when retirees are in their 60s and 70s because a 4% withdrawal is less than the long-term growth rate on a retirement portfolio.

But broker-dealers are corporate entities and they have a much longer time horizon. If you’re an advisor who in ten years is watching your client be slowly attritioned down due to the occasional death and ongoing withdrawals, and maybe you’re losing 3% to 5% a year in assets and revenue because of it, it’s not really that big of a deal. You’re probably already 50- or 60-something, you’re making good money anyways, your clients have been with you for a long time, they might not even be all that time-demanding anymore, and there are still 10,000 baby boomers turning 62 every day, so you can always find a few replacement clients if necessary. Simply put, the average advisor cruises it out.

But if you’re a broker-dealer that in the aggregate is losing 3% to 5% a year in assets in a decade from now, it’s a crisis because the advisors are going to retire soon and the broker-dealer still has a multi-decade open-ended timeframe as an ongoing business entity. There’s a difference in time horizons. And in point of fact, I think this is why we see broker-dealers, as well as RIA custodians, so obsessively beating the drum about advisors needing to focus more on younger clients. It’s not actually because we as advisors desperately need younger clients for our businesses to survive. It’s because they, the broker-dealers and RIA custodians, need us to get younger clients for them so their businesses survive and so they have younger clients after we’re gone and retired.

Now, from the broker-dealer’s perspective, if all the buzz is that millennials are pursuing robo-advisor solutions, then the broker-dealer wants to roll out a robo-advisor to get those younger clients.

Broker-Dealers Struggle With Digital Marketing

I get it, but here’s the problem with the strategy: robo-advisor solutions live and die by their ability to get clients online, and that’s not easy. Even Betterment is up to just 10 billion dollars of assets after 6 years. Wealthfront is at barely 6 billion total over that time period. Schwab has made news for $15 billion dollars of assets, but has actually noted that only about a third of that, maybe five billion dollars, was new assets. The rest were just existing Schwab clients that happened to switch to the robo solution. Vanguard now is over 60 billion dollars, but it’s rumored to have an even higher percentage of assets that were already at Vanguard. They were simply upsold to human advice because, remember, Vanguard already is direct-to-consumer through the Internet. Their solution, Vanguard Personal Advisor Services, wasn’t adding a robo. It was adding humans to what was already a robo-digital solution at Vanguard.

And even when you look at firms like Edelman Financial, they’ve struggled. A 15-plus billion dollar RIA working on building a national brand with centralized marketing and a huge digital presence launched Edelman online in early 2013, and after four years, they have barely a thousand clients and $62 million dollars of AUM, and their average robo client is actually a baby boomer anyways. In other words, even though leading robo-advisors are struggling to get millennials and are getting maybe one or two billion dollars a year in net new assets, which at 25basis point pricing, it’s a couple million dollars a year of gross revenue before the cost to build and service and support the robo technology for the broker-dealer itself, which means even for a mid-sized broker-dealer, that’s really small potatoes. And that’s based on what the growth is that the leaders in the robo movement are doing.

Even more to the point though, is how the leaders are doing it with platforms that are focused on building robo solutions with centralized marketing, but that’s not how it works in a broker-dealer environment where there are hundreds or thousands of reps, each of them have their own marketing plans, their own online marketing experience, or no online marketing experience, no digital marketing tools, and they have to get every digital initiative and every change on their website re-approved by compliance.

When you look at what robo-advisors do, their marketing is constantly iterating. They are running dozens of AB tests on their websites every day. Meanwhile, at a broker-dealer, I can’t even AB test whether it would be better for my robo-advisor to have a button that says, “Click here to open your account,” or to say, “Open your account now,” without getting compliance to pre-approve the change of the text on a little, tiny button. That is, to put it mildly, a very inhospitable environment to do rapid testing digital marketing to gain traction with a broker-dealer’s robo solution.

So what happens instead? The reality, again, the average advisor at a broker-dealer focuses on retirees. Their website probably shows pictures of couples walking on the beach towards a lighthouse, or maybe they’re sitting on Adirondack chairs, looking out over the ocean. So what exactly is this advisor supposed to do with a robo solution from the broker-dealer? Put a button on their website that says, “Millennials, open your robo account now,” right between the lighthouse and the Adirondack chairs? I mean does anybody really think a tech-savvy millennial is going to hit that button and transfer their life savings?

Simply put, the problem is robo-advisors don’t actually help advisors get millennial clients. Robo-advisors help advisors open millennial accounts after they successfully market to get millennial clients in the first place. And so until and unless broker-dealers figure out how to help their advisors get much, much savvier about digital marketing and how to actually attract and get millennial clients in the first place, and then use the robo tools to onboard and open the accounts, these broker-dealer robo initiatives are all doomed to fail.

It’s not an, “If you build it, they will come,” kind of asset gathering opportunity. I mean what we’ve actually found is the real blocking point of robo-advisors is the client acquisition cost, what it takes to market and get a young investor to invest on your platform. The robo-advisors were not only not a solution to client acquisition costs, they’ve been getting buried by client acquisition costs. It’s why we’ve been writing for the past two years that robo-advisor growth rates just keep slowing and slowing and slowing. Most of them have already sold and the ones that are left aren’t even really focusing on a robo strategy anymore.

Notwithstanding how it’s labeled, Vanguard is a human advisor service, hundreds and hundreds of CFPs that they’re hiring as quickly as they can. At best, it’s a cyborg solution, tech-augmented humans. Personal Capital is often branded as a robo, but it’s not. It hires CFPs in Denver. It’s a cyborg solution as well. Schwab pivoted from a pure robo solution to intelligent advisory which offers humans. And heck, even Betterment pivoted from a robo solution to offering human advisors this year. So, no one who’s actually succeeding at robo is doing it with a robo solution. They’re bringing in humans while broker-dealers are trying to roll out robo-advisors. This is not going to end well for them.

Robo-Technology Is About Back-Office Efficiency, Not Millennial Asset Growth

All that being said, I do want to point out that just because a robo-advisor solution to broker-dealer is doomed to fail at gathering millennial assets, it doesn’t actually mean the technology itself is worthless. To the contrary, there are tremendous operational efficiencies to be gained in a lot of robo technology.

After all, at its core, robo tools basically do two things incredibly well. They make client onboarding easier and faster, and then they make it much easier to manage model portfolios. And I think that’s part of why Betterment’s technology in particular was so shocking when it launched a couple of years ago.

You dial the clock back to 2012, as advisors, we’re mostly still opening new accounts by faxing physical paperwork with wedding signatures to do ACAT transfers, praying we don’t get any NIGOs, and that if things go well, maybe assets will show up in two weeks or so. And then Betterment launches and lets you e-sign everything from your smartphone to open the account, fund the account, and fully invest the account from your phone in about a half an hour. I mean just imagine how much operational administrative staff savings the average advisor could achieve if that was our account opening process.

Similarly, robo-advisors from the portfolio management end are really not much more than model management tools, what we in the industry would call rebalancing software, which we’ve already seen in the industry as tremendous efficiencies with billion-dollar advisory firms that manage all of their client accounts with one trader in a piece of software.

So I don’t want to be negative on the value of the technology, but the value of the technology is operational efficiency. It makes your back office staff leaner and more efficient. It speeds up transferring and managing assets. It reduces paperwork errors. It cuts down NIGOs. It reduces trade errors. It keeps clients from slipping off model or forgetting to have new cash invested. But it’s not a business development tool. The business development is still up to the advisor. The robo tools are just what you use to onboard the client and invest after the business development process.

And in fact, what I find is that usually once the average broker understands that, that just putting a robo-advisor on your site does not actually mean millennial money just starts automatically rolling over and you don’t have to do anything. They don’t even want a robo anymore. In fact, it frankly feels kind of threatening to most of us advisors. As though when you say, “We’re giving you robo-advisor tools,” we’re going to be replaced by robots.

As I’ve written repeatedly, we are not going to be replaced by robots because what robo-advisors do is fundamentally different than what we do as human advisors. But when a broker-dealer goes and says, “Hey, brokers, we’re working on a robo-advisor solution to help you,” it’s kind of like saying to a factory worker, “Hey, great news! We’re working on new automated machinery to help your job in the factory next year,” and then the following year, you find out you’re fired because you just installed the technology that eliminated your job.gain, I don’t see that’s how it actually plays out with robo-advisors and human advisors because they’re not actually winning business from human advisors now, but that is why it’s absurd for broker-dealers to tell their reps they’re rolling out robo-advisor tools. At best, it’s going to grossly under-deliver on its promise of bringing in new young clients without needing to do any work because it’s not a marketing solution for millennials. It’s an operational solution after you market to millennials, which advisors still don’t do well in the first place. But at worst, brokers just won’t adopt the tools and technology at all because they don’t see the value of the technology because it feels like they’re supposed to use something that threatens them.

Again, I don’t see that as how it actually plays out with robo-advisors and human advisors because they’re not actually winning business from human advisors now, but that is why it’s absurd for broker-dealers to tell their reps they’re rolling out robo-advisor tools. At best, it’s going to grossly under-deliver on its promise of bringing in new young clients without needing to do any work because it’s not a marketing solution for millennials. It’s an operational solution after you market to millennials, which advisors still don’t do well in the first place. But at worst, brokers just won’t adopt the tools and technology at all because they don’t see the value of the technology because it feels like they’re supposed to use something that threatens them.

Instead, what broker-dealers should really be doing is just saying, “We’re upgrading our technology to make you more operationally efficient in the opening and managing investment accounts with better onboarding tools and better portfolio management tools,” because that’s what it’s really about and that’s the outcome that matters.

I hope this is helpful as some food for thought.

So what do you think? Are broker-dealers missing the point of robo-advisor fintech? Will broker-dealers and their reps continue to struggle with digital marketing? How would you use robo-technology with your clients? Please share your thoughts in the comments below!