Are You An Independent Financial Advisor? Then Read These Articles

6 min read
March 16, 2020

As an independent financial advisor, you likely have a to-do list that seemingly never ends. Staying up to date with your reading likely gets pushed to the bottom, if it makes the cut at all. With so much content produced on a daily basis, just shifting through the noise can be time-consuming.

So we've done the heavy-lifting for you. Let's just say that when it comes to creating compelling, informative, and leading-edge content for financial advisors, we know a guy. These must-read posts from XYPN co-founder Michael Kitces's popular blog, Nerd's Eye View, will, in true Kitces fashion, offer more expertise than you know what to do with yet still leave you hungry for more.

The New 1% Advisory Fee: 1% Of Income, Instead Of 1% Of Assets

"The AUM model for financial advisors has experienced tremendous growth over the past 20 years, from the rise of the independent RIA to the broker-dealer shift to fee-based accounts. And despite the rise of critics questioning whether the AUM model is the most effective way to align what the client pays with the value being provided, the accelerating momentum of major firms transitioning to the model suggests that not only is the AUM model here to stay… but there may soon be too many financial advisors using the same AUM model to pursue the same relatively-few households who have sufficient liquid assets available to invest and who are actually willing to delegate them to an advisor in the first place. In fact, if the entire advisory community makes the AUM shift all at once, there may be no more than about 23 clients per advisor available!"

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The Most Efficient Financial Advisor Marketing Strategies And The True Cost To Acquire A Client

"For more than 20 years, industry benchmarking studies have helped financial advisors understand how to manage the profitability of their businesses, and ensure that the costs to service clients are in line with the fees they’re being charged. However, remarkably little research has been done into the costs that must be incurred to actually obtain those clients in the first place and the cost-effectiveness of various client acquisition strategies that financial advisors use.

And it turns out those client acquisition costs are substantial!"

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The Economics Of Growth: Why The Second 100 Clients Are Far Less Profitable Than The First

"The traditional path to growing an advisory firm – or any business – is fairly straightforward: craft a product or service that you can deliver profitably, and then deliver it profitably to more and more people. The greater the number of clients or customers who are paying for the solution, the more total revenue the business generates, and the more in profits that accrue to the owners (assuming a reasonable profit margin in the first place). In the early years in particular, when a financial advisor still has a lot of capacity (i.e., time) and not a lot of clients, adding more clients and the revenue they bring can quickly ramp up the income of the financial advisor themselves."

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SEO Strategies Financial Advisors Can Use To Attract The Right Clients Through Google Search

"Search Engine Optimization, or SEO, is the practice of trying to maximizing how often a website comes up at the top of search engine results for various keywords, increasing the number of website users to visit a particular website (i.e., website traffic), and ideally bringing visitors who are part of an appropriately targeted audience (and thus are likely to find value in the website and decide to do business). Which is a valuable marketing strategy for financial advisors to make themselves “findable” for consumers who are seeking out a financial advisor to work with (or more generally, someone who can help them with whatever financial problems they’re searching online for answers to!)."

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How To Profitably Price Fee-For-Service Financial Planning

"A considerable challenge for financial advisors providing standalone fee-for-service financial planning advice is figuring out the “right” price that is both profitable to the advisor, and attractive to consumers. Notably, this is a challenge that largely did not apply to past generations of advisors, who typically either just sold products with commissions (that were determined by product manufacturers and not chosen by the advisor anyway), or charged an AUM fee (in which there was strong convergence on the 1% price point for all advisors). As a result, fee-for-service advisors who are aiming to reach clients through a different compensation model have both an opportunity to expand service into previously unserved markets (particularly those prospective clients who cannot be reached through traditional advisor business models like commissions or AUM), but also a challenge in needing to take more responsibility for determining how to price their services in the first place."

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Scaling The Efficiency Of Comprehensive Financial Planning By Creating Repeatable Expertise

"In the early days of being a “financial advisor” at a broker-dealer or insurance company, having ’expertise’ meant being well-trained on the company’s products and their features and benefits. ‘Training’ at large financial services firms was primarily focused on product training (and perhaps training in how to sell those products), with the benefit that when the scope of required knowledge is fairly understood – just the features of a handful of the company’s most popular best-selling products – it takes relatively little time to train in the first place. In other words, training up an advisor’s expertise was rather simple and speedy, because the advisor just had to master the inner workings of a few select products."

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How Much Does A (Comprehensive) Financial Plan Actually Cost?

"It is a simple question: how much does it cost to get a comprehensive financial plan? Yet despite the rising popularity of financial advisors offering financial planning services, remarkably little has actually been published about what financial advisors charge for the service. Which is striking for both consumers – who want to know what a plan might cost – and for financial advisors themselves, who may want to benchmark whether the pricing for their financial plans is “reasonable” relative to their advisor peers and competitors (rather than solely setting the price based on its time-and-labor cost to the advisor)."

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The Great Convergence And The Death Of Fiduciary Differentiation (For RIAs)

"For the past several decades, RIAs have increasingly differentiated themselves and their advice from competing broker-dealers by the “best interests” fiduciary standard that RIAs owe to their clients, from outright marketing themselves as fiduciaries, to signing “Fiduciary Oaths” for clients (that other broker-dealers wouldn’t and couldn’t sign).

The fiduciary distinction for RIAs wasn’t originally intended to be a marketing differentiator for advice, though. Its roots lie in the fact that RIAs were created from the start to be providers of investment advice, while broker-dealers originally were created to play a vital role in the capital formation and capital markets process (which included selling investments, in the form of stocks and bonds to prospective investors, often underwritten by the broker-dealer’s investment banking division). For which RIAs were subject to a fiduciary standard – as the providers of advice – while broker-dealers were subject to a lower suitability standard consistent with the sales-centric role they were created to fulfill."

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How The Financial Planning Process Differs For Young Clients: Not Simpler, But Different Complexities

"The rise of the asset-under-management (AUM) model has driven a concomitant shift in financial advisors to focus increasingly on Baby Boomer retirees – for the same reason that Willie Sutton robbed banks: “That’s where the money is.” To the point that some in the industry have raised the question of whether the pendulum is swinging too far to retirees, and that it’s time to start doing more financial planning for next-generation clients as well.

Except the challenge for most advisory firms is that it’s not profitable to do financial planning for younger clients, who simply don’t have sufficiently-sized investment accounts to generate enough AUM fees for the advisory firm to deliver the advice."

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How To Find Your Niche As A Financial Advisor

"As more and more people earn their CFP certification and become financial planners, the mere fact that one is a financial planner is no longer the differentiator that it once was. In turn, financial planners find themselves increasingly compelled to focus into a niche where it’s easier to stand out and win clients… being a generalist may bring a lot of prospects but few clients, while settling into a niche may narrow the field of prospects but results in an incredibly high likelihood that clients (in the niche) will say yes and choose to do business.

Of course, a niche is not just conceived overnight; in practice, it’s established and refined over time."

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Financial Advisor Success Requires Just 50 Great Clients

"For many businesses and industries, it’s crucial to do a proper analysis up front to estimate the size of the “target market” – how many total potential customers are there and how much would they spend on your products or services, so the company can figure out if there’s a big enough market opportunity amongst those tens or hundreds of thousands of consumers (or more) to make it worthwhile to launch that new product or service for them.

In the context of a financial advisor, though, the reality is that the sheer intensiveness of the time it takes to serve financial planning clients in an ongoing advice relationship means most advisors will struggle to ever handle more than about 50-100 “real” client relationships on an ongoing basis."

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