The Tech Investment Squeeze According to Financial Planning’S 2021 Tech Survey, Large ﬁ Rms Are Ramping up Spending While Smaller ﬁ Rms Are Keeping Budgets Modest

Ric Edelman Steps Away pg 18

INVESTED IN ADVISORS | JULY/AUGUST 2021

The tech investment Squeeze According to Financial Planning’s 2021 Tech Survey, large ﬁ rms are ramping up spending while smaller ﬁ rms are keeping budgets modest. Are they starting to fall behind?

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Columns 10 CFP Board shirks on 24 shielding public from bad advisors The nonprofit protects The tech its own executives at the expense of investment squeeze benefiting investors. According to Financial Planning’s BY ALLAN S. ROTH 2021 Tech Survey, large firms are ramping up spending while Tax Planning smaller firms are keeping budgets modest. Are they starting to fall 12 behind? Biden’s proposed tax hikes may bite family BY RYAN W. NEAL businesses A near-doubling of the capital gains rate and the tightening of the step-up in basis loophole would make a sale expensive. BY LYNNLEY BROWNING

Industry News 14 $36B firm eyes credit union expansion with LPL Most credit unions don’t offer planning services, and affiliating with the IBD could help CUNA change that, its president says. BY TOBIAS SALINGER 16 Morgan Stanley ex-diversity chief drops discrimination suit, advisors left in the dark This likely means the executive will no longer be able to testify in a class action lawsuit with similar allegations, an expert says. BY CYNTHIA FERNANDEZ 18 How Ric Edelman stepped away from his advisory firm Can Edelman Financial Engines keep its star quality under private equity owners — with its founder gone? BY LYNNLEY BROWNING

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VISIT FINPLANCEQUIZ.COM TO TAKE FINANCIAL PLANNING’S CE QUIZ.

From: The overlooked ROI of ROP term insurance 6. If your client makes an after-tax, nondeductible 1. If a client has return-of-premium insurance for a 30-year contribution to her traditional IRA, which form should she term, in which they pay a $1,000 premium annually, how file when she does her taxes to ensure she isn’t taxed again much money will they get back if they outlive the term? when it is time to take distributions? 1. Half the premiums paid, or $15,000 1. IRS Form 6808 2. Three-quarters of the premiums paid, or $22,500 2. IRS Form 5626 3. All premiums paid, or $30,000 3. IRS Form 8606 4. All premiums paid, inflation-adjusted 4. IRS Form 7808

From: Big tax bills to hit even modest inheritances if step-up From: The best inflation bond play for the wealthy in basis narrows 7. The Treasury sets the maximum individual purchase 2. Under current law, a couple would not owe federal estate amount at how much apiece for five-, 10- or 30-year TIPS taxes for inherited money until the amount went above this when they are initially auctioned off? much? 1. $1 million 1. $11.7 million 2. $500,000 2. $23.4 million 3. $750,000 3. $24.3 million 4. $5 million 4. $15.6 million 8. The Treasury sets the maximum individual purchase From: Optimize tax breaks for retirement planning amount at how much for I bonds? 3. What is the annual contribution limit for a fixed indexed 1. $10,000 annuity? 2. $50,000 1. $19,500 3. $100,000 2. $6,000 4. $1 million 3. $10,000 4. There is no annual contribution limit From: These 20 technology funds have the best 10-year returns From: Reconstructing lost IRA basis to avoid double taxation 9. Which of these funds has the highest 10-year average 4. If your client has an employer-sponsored retirement plan, annualized return? is single and has a salary of $85,000 per year, how much of 1. USAA Science & Technology (USSCX) a $6,000 traditional IRA should she be able to deduct from 2. Fidelity Select IT Services (FBSOX) her taxes? 3. Berkshire Focus (BFOCX) 1. $6,000 4. Jacob Internet Investor (JAMFX) 2. $4,000 3. $2,500 10. Which of these funds has the highest one-year return? 4. $0 1. Firsthand Technology Opportunities (TEFQX) 2. Fidelity Advisor Technology A (FADTX) 5. If your client has an employer-sponsored retirement plan, 3. Vanguard Information Technology Index Admiral (VITAX) is married, filing jointly and makes $100,000 per year, how 4. Putnam Global Technology A (PGTAX) much of a $6,000 traditional IRA should she be able to deduct from her taxes? 1. $6,000 2. $5,500 3. $3,000 4. $0

Financial Planning offers its Continuing Education Quiz exclusively online at FinPlanCEQuiz.com To earn one hour of continuing education credit from the CFP Board of Standards, please visit our website and answer the questions above. Planners must answer eight out of 10 questions correctly to pass. Credit will count under CFP Board subject A: financial planning process/general principles. The deadline for participation is June 30, 2022. In addition, the Investments & Wealth Institute, formerly the Investment Management Consultants Association, has accepted this quiz for CIMA, CIMC and CPWA CE credit. Advisors must answer eight out of 10 questions correctly to pass. The deadline is June 30, 2022.. If you need assistance, please contact Arizent customer service at [email protected] or (212) 803-8500.

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DATA BASED INSIGHT FROM FINANCIAL PLANNING AND ARIZENT RESEARCH

Retirement Advisor Confidence Index Confidence soars amid reopening

Advisors report clients feel optimistic as vaccine rollout helps stoke economic revival.

By Kenneth Corbin

While investors have some concerns about the economic AMOUNT OF CLIENT ASSETS USED TO PURCHASE policy of the new administration, clients planning for EQUITY-BASED SECURITIES retirement generally are feeling bullish about the business 75.0 69.3 70.0 climate and the progress of the vaccination rollout, accord- 65.0 65.7 65.0 62.3 62.8 61.5 63.3 ing to the Retirement Advisor Confidence Index, Financial 60.0 62.7 57.7 60.6 Planning’s monthly barometer of business conditions for 55.0

50.0 wealth managers. 50.8 46.2 45.0 April’s survey saw confidence markers that were consider- 42.2 40.0 ably higher than the same period a year ago, continuing a April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March April 2020 2020 2021 2021

sharp uptick that has accompanied the widespread distribu- Source: Arizent Research tion and administration of COVID-19 vaccines. “Reopening of the economy leads to more optimism and risk tolerance,” one retirement advisor says. RISK TOLERANCE Clients’ views on investing in the stock market reveal signs 65.0 60.8 59.8 60.0 of that confidence. The RACI component that tracks invest- 57.0 55.3 57.0 55.8 ments in equities posted a score of 69.3, an all-time high in 10 55.0 52.0 53.2 years of polling. 50.0 52.4 45.0 RACI scores higher than 50 indicate a rise in confidence, 44.4 with scores lower than that signifying a decline. 40.0 38.1 37.8 35.0 The April equities score was the sixth consecutive month 34.7 30.0 that category checked in above 60, and it also marked a April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March April 2020 2020 2021 2021 jump of 8.7 points over March and 27.1 ahead of the same Source: Arizent Research period in 2020. Overall, the composite RACI checked in at 56.7, the highest score since January 2018. April’s mark was a modest uptick of always more enthused about investing during a strong stock 1.7 points from the previous month, but 13.2 points ahead of market, that advisor says. “Unfortunately,” he adds, “they are the same period a year ago. not as excited after a couple of bad years in the stock market.” Advisors don’t always share their clients’ enthusiasm, with But it was hard to read April’s report as anything other some expressing concerns that markets might be overvalued than a good-news story. Another key measure of advisor and due for a correction. sentiment — risk tolerance — also had a strong showing. One advisor noted the psychological trap some clients can That component of RACI posted a score of 59.8, up 6.5 points fall into following a long run of market increases. Clients are from March, and up 25.1 points from last year.

The Retirement Advisor Confidence Index, published in partnership with ADP®, is created by the editors of Financial Planning and is based on a monthly survey of about 300 advisors. Visit financial-planning.com for more results. ADP and the ADP logo are registered trademarks of ADP, Inc. ADP does not provide tax, financial, investment or legal advice, or recommendations for any particular situation or type of retirement plan.

Financial-Planning.com July/August 2021 Financial Planning 5

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An improved economy meant that more businesses were with concerns over inflation and potential tax increases, one of hiring again, which translated into more funds moving into the few trouble spots in April’s report. retirement plans. The RACI component that tracks dollar However, as one advisor says, “Some government pay- amounts of contributions to retirement plans posted a score of ments to citizens have been used to fund retirement plan 65.3, the highest mark since December 2019, and a 24.1-point contributions.” increase over April 2020. He adds, “Investors are more confident as we exit the Some advisors say they are fielding more calls from clients pandemic.” FP

DOLLAR AMOUNT OF ALL CONTRIBUTIONS RETIREMENT ADVISOR CONFIDENCE INDEX

RECEIVED FOR RETIREMENT PLANS 58.0 56.3 56.7 70.0 56.0 53.6 55.2 65.0 64.6 65.3 54.0 55.0 55.0 65.0 52.9 52.2 53.6 63.9 52.0 60.0 51.9 57.3 56.3 60.2 56.8 50.0 55.0 51.5 54.8 48.0 53.3 50.0 47.5 46.0 45.2 45.0 44.0 41.2 42.7 43.5 40.0 42.0

35.0 40.0 April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March April April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March April 2020 2020 2021 2021 2020 2020 2021 2021

Source: Arizent Research Source: Arizent Research

Kenneth Corbin is a Financial Planning contributing writer in Boston and Washington. Follow him on Twitter at @kecorb. Purpose-driven leadership in 2021

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DATA BASED INSIGHT FROM FINANCIAL PLANNING AND ARIZENT RESEARCH

Financial Wellness Report The pandemic left clients worried, doubting their financial wellness

In a new survey, advisors say clients’ finances are fine, but their confidence is shot.

By Kenneth Corbin

A year of economic dislocation has left goals, according to Financial Planning’s people to stop thinking long term,” one many clients thinking more deeply about quarterly Financial Wellness Report. advisor says. money, with many advisors reporting But that was not a universal senti- Advisors variously described clients as that clients have low levels of confidence ment. Advisors described the frustration spooked by market volatility or con- in their ability to reach their goals. of working with clients who reacted cerned about immediate financial needs, The COVID-19 pandemic instilled in emotionally to COVID-related headlines. factors that led some clients to want to clients a greater appreciation of their Some advisors even saw clients moving pull out of the markets altogether. vulnerabilities, leading them to think away from goals-based plans. But overall, advisors were fairly strategically about retirement and other “This last year has caused too many positive about their clients’ financial wellness — even if the clients didn’t feel that way themselves. As the pandemic ends, what are the most For instance, half of the advisors important financial wellness priorities you polled say that the percentage of their clients who were on track for retirement are advising your clients to focus on? had increased since March 2020, while just under 14% say their clients’ retire- Building up cash reserves 50.0% ment readiness had decreased. Continuing to save for retirement 84.3% The pandemic experience cut both Increasing health insurance coverage 4.8% ways when it came to clients’ retirement Increasing life insurance coverage 21.7% plans. Some advisors polled say that at Getting estate planning in order 63.5% least half of their clients are now either Delaying large purchases or investments 10.9% Making contingency plans for next planning to retire earlier (20.5%) — or 23.9% in-line sources of cash later (24.8%) — than expected. Shifting education strategies 6.5% Reducing interest rates on 43.0% One advisor suggests an explanation mortgages and other loans Reducing loan payments to lenders 14.8% for that bifurcation, observing that clients

Holding off on paying down debt 8.3% redoubled well-established habits. Reducing tax bill through financial 17.8% contributions to charitable organizations “The pandemic has exacerbated client Harvesting tax-loss 26.5% behavior,” that advisor says. “For poor Relocating to more tax friendly state 11.7% savers, [with] the surplus in cash savings Investing in long-term care insurance 23.0% (through stimulus or savings that they

The Financial Wellness Report, published in partnership with ADP®, is created by editors of Financial Planning and is based on a May survey of 230 individuals working at firms that provide financial advising to their clients. ADP and the ADP logo are registered trademarks of ADP, Inc. ADP does not provide tax, financial, investment or legal advice, or recommendations for any particular situation or type of retirement plan.

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couldn’t spend because they couldn’t go From your own perspective, how well out), they’re finding new ways to spend the money instead of putting it towards prepared do you think your clients are overall their goals. For the good savers, they’ve to advance theirfinancial wellness? taken the opportunity to pay down debt, including the mortgage, aggressively.”

Advisors say clients are too hard on 8.5% Not at all prepared themselves: 79.7% of advisors say their 18.9% clients were somewhat, very or extremely Not very prepared 11.8% prepared for financial wellness. Somewhat prepared “The pandemic has made my clients Very prepared 32.1% 28.7% more focused on the importance of being financially prepared and more open to Extremely prepared taking advice on how to be better prepared,” one advisor says. Advisors also reflected on how they adapted their own practices to pandemic realities. Sixty-five percent of respondents say that they began conducting virtual Since the pandemic began, how many of meetings this year, which, combined with your clients are considering retiring later? the 31% who say they were already doing

remote meetings, suggests nearly all 2.2% advisors are doing so. Fifty-three percent of respondents say they began working A majority of my clients from home during the pandemic, with 23.5% 22.6% 36% saying they were already doing so. About half of my clients A majority of those surveyed expect A minority of my clients that they will continue working from None of my clients 51.7% home (72%) and holding virtual meetings (85%) after the pandemic is over. Advisors were also asked to rank a long list of financial wellness priorities they intend to focus on with their clients following the pandemic. Most advisors say their top priorities would be working Since the pandemic began, how many of on retirement and estate planning, 50% say they are focused on helping clients your clients are considering retiring earlier? build up cash reserves, while 43% are

looking to help clients reduce interest on 0.9% mortgages and other loans. “Our role as fiduciaries should involve A majority of my clients not only managing their wealth,” an 21.3% 19.6% advisor says, “but helping them increase About half of my clients their knowledge so we are working A minority of my clients together towards the same goal.” FP None of my clients 58.3%

Kenneth Corbin is a Financial Planning contributing writer in Boston and Washington. Follow him on Twitter at @kecorb.

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FP0721.indd 9 7/7/2021 10:20:53 AM IN PRACTICE Roth ments said it already did. Indeed, Jack Brod, the 2020 Board Chair, even scathing. The committee reached out to me. noted that the problems the Jack was a former Vanguard WSJ reported were not new executive who worked under the firm’s and were systemic. late founder, John C. Bogle, whom I’ve One of the task force’s long admired. Hopefully, I wrote an recommendations read: “The open letter to Jack and the Board. enforcement program should include proactive The CFP Board rarely elements, including periodic took enforcement audits of certificants based actions of its own on: (1) risk factors, history of against advisors noncompliance and other before regulators did. systematically applied objective indicators and (2) Could Jack Brod do for financial random sampling.” planning what Jack Bogle did for Instead, the CFP Board giving investors a fair shake? rejected this recommenda- I was surprised to learn that the CFP Board shirks on shield- tion, deciding instead to CFP Board’s top two executives prioritize spending money received considerable raises in 2019, ing public from bad advisors on advertising. despite the hypocrisy that the Journal exposed about the organization’s Hope for change inattention to enforcement that year. The nonprofit protects its own executives at the expense of ben- I am one of, I’m sure, tens of (The CFP Board had refused to efiting investors. thousands of planners who release compensation figures previ- obtained a CFP because I ously, but IRS Form 990 requires such By Allan S. Roth wanted to be held to the disclosure for nonprofits.) strict standards the group advertises and have Public failures The CFP Board states it has a lofty mission, need this cop to toughen up. financial planning be When asked how they could reconcile but is no longer trying to live up to it. According to the Journal’s coverage, the viewed as a profession. these large pay increases with such a Here’s what the group espouses, as seen CFP Board was failing to do even the most Having been a CFP holder public exposure of failures, a spokes- on its website: basic internet searches that would have since 2004, I do my best to person replied, “Compensation “The mission of Certified Financial revealed which certificate holders were in uphold these standards on discussions are confidential.” Planner Board of Standards, Inc. (CFP trouble with FINRA and other regulators. behalf of my clients. The group also changed its Board) is to benefit the public by granting Furthermore, the group rarely took enforce- I’ve been talking about marketing strategy. Instead of its the CFP certification and upholding it as ment actions of its own before regulators the lax enforcement traditional messaging — that CFPs the recognized standard of excellence for did — and frequently did not take action problem for years. I’ve also are thoroughly vetted and held to a competent and ethical personal financial even once the regulators had gotten been requesting, again for higher standard — the group put out planning.” involved. years, that all of my CFP a new “CFP Professional” campaign. I don’t think that’s what’s actually Rather than vetting the advisors who dues go toward enforce- When I asked them about the ads, I happening. Here’s the background: On July hold its designations, the CFP Board was ment and not toward was told: “Our 2021 Public Awareness 30, 2019, an article in The Wall Street not really enforcing much at all. advertising. My request is Campaign was informed by extensive Journal detailed that the CFP Board had always denied. consumer research conducted by 6,300 CFP certificants with FINRA disclo- Scathing findings Yet I still had hope that, Heart + Mind Strategies, which found sures who appeared on the group’s site as if As a response to the WSJ articles, the CFP after the task force’s report, that consumers who work with a CFP they were in good standing. A subsequent Board formed an Independent Task Force the CFP Board would start professional feel more confident, WSJ column made the case that investors on Enforcement. Their findings were doing what its advertise- optimistic, secure and at ease.

10 Financial Planning July/August 2021 Financial-Planning.com

010_FP0721 10 7/6/2021 12:56:54 PM IN PRACTICE Roth

ments said it already did. Indeed, Jack Thus, our advertising emphasizes The CFP Board initially lost the Brod, the 2020 Board Chair, even the peace of mind that comes from complaint, but, after we sent it in again scathing. The committee reached out to me. having a CFP professional help to a year later, found no wrongdoing. I noted that the problems the Jack was a former Vanguard prepare a financial plan.” wrote a piece in 2012 on the case for WSJ reported were not new executive who worked under the firm’s To me, this sounds a lot like the The Wall Street Journal: Is the fiduciary and were systemic. late founder, John C. Bogle, whom I’ve Annuity Alliance marketing campaign standard a joke? One of the task force’s long admired. Hopefully, I wrote an for working with annuity professionals. CFP Board CEO Kevin Keller recommendations read: “The open letter to Jack and the Board. Is that what CFPs — fiduciaries — responded by writing a counterpoint, enforcement program want to emulate? Why our fiduciary standard is no joke. should include proactive The CFP Board rarely I also noticed that the disclaimer In his article, Keller claimed that elements, including periodic took enforcement on the site is getting longer, essen- under standards in effect by 2012, the audits of certificants based actions of its own tially putting the responsibility to outcome of my client’s case against on: (1) risk factors, history of against advisors verify planners’ disclosures on the his CFP would have been different noncompliance and other before regulators did. consumer rather than the CFP Board. and that a breach of the CFP Board’s systematically applied This makes me wonder: If a CFP lies fiduciary duty would generally result objective indicators and (2) Could Jack Brod do for financial to the Board about having FINRA in a suspension from using the CFP random sampling.” planning what Jack Bogle did for disclosures on their record, why would mark for one year and one day. Instead, the CFP Board giving investors a fair shake? they be expected to tell clients the rejected this recommenda- I was surprised to learn that the truth? There is a conflict tion, deciding instead to CFP Board’s top two executives The Board responded that lying to between the CFP prioritize spending money received considerable raises in 2019, a client or the CFP Board is against Board saying it’s a on advertising. despite the hypocrisy that the Journal the CFP standards. small organization with exposed about the organization’s I think there is a conflict between the “limited resources” and Hope for change inattention to enforcement that year. CFP Board telling the public that it’s a it then spending large I am one of, I’m sure, tens of (The CFP Board had refused to small organization with “limited amounts of money on thousands of planners who release compensation figures previ- resources” to vet planners and enforce advertising. obtained a CFP because I ously, but IRS Form 990 requires such its standards, and it then spending wanted to be held to the disclosure for nonprofits.) large amounts of money on advertising. Recently, I asked the group to point strict standards the group The CFP Board doesn’t see it that to any cases where it disciplined a advertises and have Public failures way. They think the ad campaign fits CFP before regulators did. The board financial planning be When asked how they could reconcile into the group’s four strategic priori- declined to share any examples. viewed as a profession. these large pay increases with such a ties: Awareness, Access, Accountability Having been a CFP holder public exposure of failures, a spokes- and Authority. No corrective actions since 2004, I do my best to person replied, “Compensation “The campaign’s goal is to increase The 2019 task force found that “the uphold these standards on discussions are confidential.” awareness of CFP certification and CFP Board’s enforcement program behalf of my clients. The group also changed its the value of working with CFP has not met the reasonable expecta- I’ve been talking about marketing strategy. Instead of its professionals, not to increase aware- tions created by its bylaws reinforced the lax enforcement traditional messaging — that CFPs ness of CFP Board as an organiza- by its public characterization of the problem for years. I’ve also are thoroughly vetted and held to a tion,“ they told me. program.” been requesting, again for higher standard — the group put out Rather than taking corrective years, that all of my CFP a new “CFP Professional” campaign. Any progress? actions to live up to its advertisements dues go toward enforce- When I asked them about the ads, I More than a dozen years ago, I helped of a higher standard and enforcing ment and not toward was told: “Our 2021 Public Awareness a client file a complaint against a CFP fiduciary duty, the CFP Board decided advertising. My request is Campaign was informed by extensive certificant who, among other things, to: always denied. consumer research conducted by double dipped in selling the client an 1. Abandon the messaging to the Yet I still had hope that, Heart + Mind Strategies, which found annuity, taking both commission and public of enforcement of higher after the task force’s report, that consumers who work with a CFP an ongoing AUM fee so that the client standards and adapt a marketing the CFP Board would start professional feel more confident, was paying an estimated 5.29% campaign using the term “profession- doing what its advertise- optimistic, secure and at ease. annually. Continued to page 15

Financial-Planning.com July/August 2021 Financial Planning 11

011_FP0721 11 7/6/2021 12:56:54 PM Tax Planning

“Green Book” that families who sell their business or who cease to both operate and own them would have 15 benefit means that, when a years to pay any tax owed. person inherits a business, That might seem to be a partial property, stocks or other reprieve for the nearly 7 million family- assets, they don’t owe tax on owned businesses in the U.S. — around the gains those assets made one in five of all small businesses — ac- before they inherited them. cording to data from the Small Business Biden wants to end the Administration. Most are in manufactur- loophole starting next year ing, construction, retail and the food for people who make more and restaurant industry. than $1 million a year, includ- Treasury’s reasoning, says Ali ing through inherited assets Hutchinson, a managing director and ($2.5 million for couples). senior wealth planner at Brown His plan has a special Brothers Harriman in New York, is that exception for family-owned many owners won’t have piles of cash businesses, which range from on hand to pay a new tax bill all at aluminum screen manufac- once when they sell, so giving them 15 turers to mom-and-pop years can ease the pain. restaurants to the maker of By contrast, paying upfront could Purell hand sanitizer. Heirs require more money than the business wouldn’t owe capital gains actually earns in a year, and thus force tax unless they eventually the owner to sell business assets or take

The Biden administration says family farms should not suffer under its proposed tax hike plan. sell the firm. on new debt — moves that could The second punch in weaken or kill the enterprise, according Biden’s proposal is a to an EY analysis for the Family Biden’s proposed tax hikes near-doubling of the current Business Estate Tax Coalition. 23.8% capital gains rate That’s probably not as big an issue (including the 3.8% Obam- for the deep-pocketed heirs to the may bite family businesses acare levy) to 39.6% for Mars, Cargill and Chick-fil-A fortunes those making at least should they decide to sell their stakes. A near-doubling of the capital gains rate and the tightening of $400,000 a year, with the But advisors say it’s definitely not good the step-up in basis loophole would make a sale expensive. start date retroactive to April news for owners of much smaller family 28. That’s also Biden’s top enterprises. So the 15-year payment By Lynnley Browning proposed individual rate (the proposal is seen as a positive for small current is 37%). business owners. The proposals have to When it announced the pass Congress, where they’re headed The Biden administration has promised that The tax increases are “a huge negative for plan on April 28, the White for a big fight and potential changes family-owned businesses and farms won’t somebody who’s built up a net worth in that House pledged that it “will before becoming the law. suffer under its proposed tax hikes on the business, if they sell that business,” says be designed with protections wealthy, the linchpin of a $1.8 trillion Duane Donner, the founder and CEO of so that family-owned The key questions package of spending and tax cuts aimed at Founders Advisors, a mergers-and-acquisi- businesses and farms will not Here’s what advisors say are the big boosting workers, families and children. tions firm in Birmingham, Alabama. have to pay taxes when puzzlers regarding the proposal: What In fact, financial advisors say, a giant tax President Joe Biden says his plan would given to heirs who continue happens if an owner dies suddenly but bill can eventually materialize for owners who shield business owners from a tightening of a to run the business.” the heir can step in only months later to decide to make a quintessentially American long-standing loophole that vastly reduces The Treasury Department run the business, because she’s already move: cash in on a lifetime of hard work by taxes on assets when passed to heirs. attempted to provide detail,

BLOOMBERG NEWS BLOOMBERG selling the successful family enterprise. Under current law, the “step-up in basis” saying in its accompanying Lynnley Browning is a reporter for Financial Planning. Follow her on Twitter at @BrowningLynnley.

12 Financial Planning July/August 2021 Financial-Planning.com

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“Green Book” that families who sell tied up running another company and a wine distribution company two their business or who cease to both needs time to sort things out? decades ago. operate and own them would have 15 Would she now immediately owe The business initially had no market benefit means that, when a years to pay any tax owed. capital gains tax on the appreciated value. When that founder dies in 2025, person inherits a business, That might seem to be a partial value of the inherited business — that his daughter inherits the company, now property, stocks or other reprieve for the nearly 7 million family- she will eventually run — since it began worth $550,000 with annual revenues of assets, they don’t owe tax on owned businesses in the U.S. — around decades ago? $40,000. Under current law, the the gains those assets made one in five of all small businesses — ac- What happens if a family owns a company’s value for tax purposes would before they inherited them. cording to data from the Small Business business but contracts its daily be “stepped up” to that new amount, Biden wants to end the Administration. Most are in manufactur- operations to a highly skilled profes- and the daughter wouldn’t owe capital loophole starting next year ing, construction, retail and the food sional — a vineyard, say, that hires a gains taxes on her inheritance. for people who make more and restaurant industry. Silicon Valley executive as CEO? Next, say she sells the distributor five than $1 million a year, includ- Treasury’s reasoning, says Ali years later for $710,000, when its ing through inherited assets Hutchinson, a managing director and It can be easy for annual income has grown to $50,000 ($2.5 million for couples). senior wealth planner at Brown small business owners and she’s ready to cash out. Under His plan has a special Brothers Harriman in New York, is that who sell to push their current law, she would owe the 23.8% exception for family-owned many owners won’t have piles of cash taxable income over $1 capital gains tax on its appreciation businesses, which range from on hand to pay a new tax bill all at million, where the tax under her wing, or more than $38,000 aluminum screen manufac- once when they sell, so giving them 15 hit kicks in. ($710,000-$550,000 = $160,000; turers to mom-and-pop years can ease the pain. $160,000 x .238 = $38,080). restaurants to the maker of By contrast, paying upfront could What if a family business — such as Under Biden’s proposal, she wouldn’t Purell hand sanitizer. Heirs require more money than the business a restaurant that wants to open new owe tax upon inheriting and running the wouldn’t owe capital gains actually earns in a year, and thus force locations — brings in an outside business her father started, but neither tax unless they eventually the owner to sell business assets or take investor, either with a minority or would it get a stepped-up basis. So when sell the firm. on new debt — moves that could majority stake? she eventually sells the company for The second punch in weaken or kill the enterprise, according Are real estate holdings considered $710,000, she would owe capital gains Biden’s proposal is a to an EY analysis for the Family a family business? What if no heirs tax, at Biden’s higher rate, on its total near-doubling of the current Business Estate Tax Coalition. want to actually run the business but appreciation since it started from zero. 23.8% capital gains rate That’s probably not as big an issue still want control of it? That’s a tax bill of more than (including the 3.8% Obam- for the deep-pocketed heirs to the “We don’t know,” says Hutchinson. $281,000 ($710,000 x .396 = $281,160). acare levy) to 39.6% for Mars, Cargill and Chick-fil-A fortunes “There is a lot of legislating to do.” Under the proposed plan, her tax bill is those making at least should they decide to sell their stakes. Data on how many businesses pass to over seven times higher. She can pay it $400,000 a year, with the But advisors say it’s definitely not good the next generation is wildly varying: a over 15 years, at over $18,700 a year, but start date retroactive to April news for owners of much smaller family 2018 study by U.S. Trust, Bank of America may not have the cash from its sales. 28. That’s also Biden’s top enterprises. So the 15-year payment Private Wealth Management and the When someone who earns perhaps proposed individual rate (the proposal is seen as a positive for small University of Virginia Darden School of $300,000 a year sells a company after current is 37%). business owners. The proposals have to Business found that only one in three 20 years, “the liquidity event is going to When it announced the pass Congress, where they’re headed outlive their founders to survive through push them over $1 million in taxable plan on April 28, the White for a big fight and potential changes the next generation; even in some of income” — the level at which Biden’s House pledged that it “will before becoming the law. those cases, the company needs an higher capital gains rate kicks in — says be designed with protections outsider to step in and run things. Alyson Nickse, a CFP at Crestwood so that family-owned The key questions Here’s a look at how things could Advisors, an RIA in Boston. businesses and farms will not Here’s what advisors say are the big change. Say — in a simplified example “The pain,” she says, “is going to be have to pay taxes when puzzlers regarding the proposal: What from the EY report that Financial largely on the high-income earning given to heirs who continue happens if an owner dies suddenly but Planning modified to reflect the current families, but also lower-earning families to run the business.” the heir can step in only months later to total capital gains rate and Biden’s when they’re looking at the sale of a The Treasury Department run the business, because she’s already proposed increase — someone started family business.” FP attempted to provide detail, saying in its accompanying Lynnley Browning is a reporter for Financial Planning. Follow her on Twitter at @BrowningLynnley.

Financial-Planning.com July/August 2021 Financial Planning 13

013_FP0721 13 7/6/2021 12:47:47 PM Industry News ALSO IN INDUSTRY NEWS: HOW RIC EDELMAN STEPPED AWAY FROM HIS ADVISORY FIRM, P. 18 advisors to reach a record 17,672. “We try to be the best possible partner that we can be for those advisors,” says Although LPL has always Rich Steinmeier, LPL’s divisional president LPL has added advisors with more than been a force in the bank of business development. “We have a $56 billion in recruited assets in the past 12 months channel with more than 2,500 reverence for advisors. What you see advisors at 800 institutions, culminating now is that belief, plus a $23.8B the CUNA Brokerage deal privileged position in the ecosystem to be

$20B comes after M&T Bank and able to invest in capabilities.” BMO Harris agreed last year In fact, Steinmeier adds, the com- $15B to bring about 285 advisors pany is only in the early stages of its and $35 billion in client assets recruiting success. LPL’s ability to serve $11.1B $10.7B $10.8B $10B to LPL in 2021. fee-only planners as an RIA custodian $8.4B With institutional moves on one side all the way to employee $5B posing more complications and bank and credit union advisors at and often representing many the other is driving the firm’s substantial $0 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 more assets than a standard growth, says recruiter Jodie Papike of practice’s transition, CUNA Cross-Search. Source: Company data, April 2021 Brokerage is expected to “They literally check every box in the complete the migration to financial services industry of ways that LPL’s BD, RIA and custodial advisors can affiliate with them,” she says. $36B firm eyes credit union services early next year. The broadened scope of LPL’s

“We try to be Tobias Salinger is a senior editor of Financial Planning. Follow him on Twitter at @TobySalFP. expansion with LPL the best possible partner that we Most credit unions don’t offer planning services, and affiliating can be for those Continued from page 11 with the IBD could help CUNA change that, its president says. advisors.” — als,” which is similar to that of annuity Rich Steinmeier, sales. By Tobias Salinger divisional 2. Add fine print to protect and president benefit the CFP Board, essentially of business stating it has no responsibility to the With its mega-move to LPL Financial, a wealth In the case of Madison, Wisconsin-based development, public. manager and insurer aims to expand access to CUNA Brokerage, the wealth management LPL Financial 3. Reward the two most highly planning services among members of credit arm of insurer and financial services firm compensated officers for growth while unions. CUNA Mutual Group, the decision came down The firm has been on a it ignored its mission to benefit the The nation’s largest independent broker- to its plans to boost wealth management multiyear recruiting tear: After public. dealer secured what will, in all likelihood, be services among credit unions, President Rob two announcements involving 4. Change the bylaws the task force the biggest recruiting move in the sector of Comfort said in an interview. Only roughly practices each managing found it had previously violated with 2022 when CUNA Brokerage Services agreed 1,000 out of 6,000 credit unions nationwide more than $1 billion in client its actions. I made multiple requests last week to align its wealth management offer wealth management, and just 3% of assets, LPL has grabbed five for a copy of the previous bylaws to business spanning 550 financial advisors and members at the institutions with planners use out of the 13 teams of that size see exactly what changed, but was $36 billion in client assets with LPL’s Institution the services, according to Comfort. or greater changing firms this refused; the old bylaws have similarly Services. Bank and credit union investment “More than likely, they’re not getting year in the IBD sector, been removed from the website. programs increasingly are seeking to outsource helped at all with these critical needs,” he according to Financial John C. Bogle took a difficult path compliance and operational tasks while says. “To really fulfill our mission, we aligned Planning’s tracking. In the past in doing the right thing to benefit the dropping their own BDs and RIAs or cutting with an integrated technology platform that three years, the firm’s public, and Vanguard grew into a them drastically. That’s making them hot will help us reach credit union members in headcount has surged by recruiting targets among IBDs. multiple ways.” more than a net 1,600 Allan S. Roth, a Financial Planning contributing writer, is founder of the planning firm Wealth Logic in Colorado Springs, Colorado.

14 Financial Planning July/August 2021 Financial-Planning.com

014_FP0721 14 7/6/2021 12:56:56 PM Industry News Industry News ALSO IN INDUSTRY NEWS: HOW RIC EDELMAN STEPPED AWAY FROM HIS ADVISORY FIRM, P. 18 advisors to reach a record 17,672. recruiting has arrived at a good time for helping firms offload risk are well-posi- “We try to be the best possible partner CUNA Brokerage and firms of its type tioned for further industry consolidation,” that we can be for those advisors,” says searching for larger partners in an era of Spitzner says. Although LPL has always Rich Steinmeier, LPL’s divisional president higher compliance and tech costs, Gavin Comfort agrees with Spitzner’s view of been a force in the bank of business development. “We have a Spitzner of Wealth Consulting Partners the direction of the marketplace, though channel with more than 2,500 reverence for advisors. What you see said in an email. he says CUNA Brokerage offers credit advisors at 800 institutions, culminating now is that belief, plus a union-based advisors relationship the CUNA Brokerage deal privileged position in the ecosystem to be “What this deal tells us management, strategic planning and comes after M&T Bank and able to invest in capabilities.” again is that custody data analytics that go beyond commod- BMO Harris agreed last year In fact, Steinmeier adds, the com- and clearing are itized services. Although he spent five to bring about 285 advisors pany is only in the early stages of its largely commoditized.” years with LPL before joining CUNA and $35 billion in client assets recruiting success. LPL’s ability to serve — Gavin Spitzner, Brokerage in 2017, he notes that the to LPL in 2021. fee-only planners as an RIA custodian president, Wealth company spent roughly a year of due With institutional moves on one side all the way to employee Consulting Partners diligence with an outside consulting firm posing more complications and bank and credit union advisors at before picking the No. 1 IBD. and often representing many the other is driving the firm’s substantial “What this deal tells us again is that “Our arrangement with LPL was really more assets than a standard growth, says recruiter Jodie Papike of custody and clearing are largely com- customized for what we need so that we practice’s transition, CUNA Cross-Search. moditized and self-clearing firms with could continue doing the things that Brokerage is expected to “They literally check every box in the scale that can offer that in combination we’re really good at,” Comfort says. “We complete the migration to financial services industry of ways that with value-added technology, practice felt like that could really move the needle LPL’s BD, RIA and custodial advisors can affiliate with them,” she says. management and other growth-based and make a difference, so that’s what’s services early next year. The broadened scope of LPL’s support at attractive economics while really exciting about this.” FP

“We try to be Tobias Salinger is a senior editor of Financial Planning. Follow him on Twitter at @TobySalFP. the best possible partner that we Continued from page 11 can be for those giant as a result. abreast as an insider and provide advisors.” — als,” which is similar to that of annuity transparency to the public that the Rich Steinmeier, sales. The easier path CFP Board seems unwilling to share. divisional 2. Add fine print to protect and The CFP Board has chosen the far president benefit the CFP Board, essentially easier path of advertising for growth. The true mission of business stating it has no responsibility to the I get bombarded with pop-up ads, Here’s what I think the true mission of development, public. direct mail and live telemarketing calls the CFP Board is: to benefit CFP Board LPL Financial 3. Reward the two most highly imploring me to renew my member- top management by growing revenue compensated officers for growth while ship — all marketing activities paid for through providing all dues-paying CFP The firm has been on a it ignored its mission to benefit the with money that should have been certificants (irrespective of commitment multiyear recruiting tear: After public. spent catching CFPs who don’t uphold to a fiduciary standard) a collective two announcements involving 4. Change the bylaws the task force our standards. advertising channel to grow their practices each managing found it had previously violated with In short, the evidence leads me to businesses. more than $1 billion in client its actions. I made multiple requests believe the CFP Board has completely This does not sound like a charitable assets, LPL has grabbed five for a copy of the previous bylaws to given up its mission to benefit the nonprofit mission to me. out of the 13 teams of that size see exactly what changed, but was public. This is terrible news for the majority or greater changing firms this refused; the old bylaws have similarly My CFP renewal is due on June 30. of us CFP certificants that embrace year in the IBD sector, been removed from the website. Will I renew? putting the client first and want according to Financial John C. Bogle took a difficult path Probably, not only because, like financial planning to become a true Planning’s tracking. In the past in doing the right thing to benefit the most of us, I continue to believe in the and ethical profession. It’s terrible news three years, the firm’s public, and Vanguard grew into a stated CFP mission, but also to keep for the public as well. FP headcount has surged by more than a net 1,600 Allan S. Roth, a Financial Planning contributing writer, is founder of the planning firm Wealth Logic in Colorado Springs, Colorado.

Financial-Planning.com July/August 2021 Financial Planning 15

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[CEO James Gorman] Stanley, that has similar allegations of testified before Congress — systemic racism against the investment as nothing but a loss for bank. workers at Morgan Stanley, The plaintiffs in the class action especially Black financial lawsuit allege that Black financial advisors, women financial advisors at Morgan Stanley “are often advisors, and for the treated with disrespect and experience investing public, frankly, who a hostile work environment,” according will never hear evidence of to court documents. Plaintiffs’ claims for the important things she had that case are still pending in court but to say and the damning are hamstrung by a lack of access to allegations she had the critical information, Bish said. courage to raise,” said Bish, “Morgan Stanley has fought plaintiffs’ who was not involved in attempts to subpoena or depose Booker’s case. Marilyn Booker, court-appointed settlement monitors, and others with “I hope it was knowledge of the firm’s racially biased a good result corporate culture and has also refused for Ms. Booker, to produce its internal corporate reports but I view her that evidence its analysis and knowl- settlement — the edge of the firm’s discriminatory Marilyn Booker’s filing to dismiss her lawsuit “with prejudice” means she will likely be unable to file similar claims again. day before [CEO practices and how they uniformly harm James Gorman] African American financial advisors,” testified before Bish said. Congress — as Booker’s latest filing to dismiss her Morgan Stanley ex-diversity lawsuit “with prejudice” means she will nothing but a likely be unable to file similar claims loss for workers chief drops discrimination again. at Morgan “I would be stunned if Morgan Stanley.” — Stanley did not require her to sign a suit, advisors left in the dark Suzanne Bish, non-disclosure agreement to stop her partner, Stowell from helping other victims of Morgan & Friedman Stanley’s discrimination and require This likely means the executive will no longer be able to testify cooperation with the firm,” Bish said. in a class action lawsuit with similar allegations, an expert says. Booker’s attorney did not respond to a request for The allegations By Cynthia Fernandez comment and a spokesper- Booker was the Global Head of son for Morgan Stanley Diversity for 16 years, according to court declined to comment on the documents. In 2010 she was removed Marilyn Booker, former chief diversity officer to sign a nondisclosure agreement, all but stipulation of dismissal. from the position and later appointed at Morgan Stanley, filed to dismiss her case in assuring more details of Booker’s allegations Booker is not alone. Since the head of the new Urban Markets May, after previously accusing the wirehouse are kept from the public and other employ- at least the 1970s Morgan Group. She was ousted from the of systemic racial and gender discrimination. ees, according to Suzanne Bish, a partner at Stanley has been accused of wirehouse in December 2019. This filing in the Eastern District of New Stowell & Friedman, which specializes in civil race and sex discrimination, Booker claimed in court documents York likely means there was a settlement rights cases concerning workers and is according to Stowell & that she was tokenized and that between plaintiff Booker and New York- representing plaintiffs in a similar class-ac- Friedman’s 2016 class action leadership at Morgan Stanley mostly based Morgan Stanley. But little of the tion lawsuit in court against the wirehouse. lawsuit underway in the mentored white, male financial advisors settlement is publicly known. “I hope it was a good result for Ms. Booker, Southern District of New

BLOOMBERG NEWS BLOOMBERG Morgan Stanley probably required Booker but I view her settlement — the day before York, Frazier v. Morgan Cynthia Fernandez is a reporter for Financial Planning. Follow her on Twitter at @CynthFernandez.

16 Financial Planning July/August 2021 Financial-Planning.com

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[CEO James Gorman] Stanley, that has similar allegations of and trainees — while ignoring minori- sented, making up 18% of advisors. She testified before Congress — systemic racism against the investment ties, including women of color. Black also said women advisors are more likely as nothing but a loss for bank. women especially faced unequal pay to have women as clients.“Specifically, workers at Morgan Stanley, The plaintiffs in the class action and retaliation after complaining about when it comes to advisors of color, we especially Black financial lawsuit allege that Black financial issues at the workplace, Booker alleged. know that advisors are more likely to advisors, women financial advisors at Morgan Stanley “are often She said four unnamed Black advisors work with clients who are like them,” she advisors, and for the treated with disrespect and experience complained to her about unfair said. “There are investor segments right investing public, frankly, who a hostile work environment,” according commission splits, being barred from now that are being underserved by the will never hear evidence of to court documents. Plaintiffs’ claims for attending meetings, not having mentors wealth management industry for a the important things she had that case are still pending in court but and not being invited to join teams at number of reasons — but one of which to say and the damning are hamstrung by a lack of access to the wirehouses, court documents said. is they do not see their communities allegations she had the critical information, Bish said. reflected in the financial advice commu- courage to raise,” said Bish, “Morgan Stanley has fought plaintiffs’ “I would be stunned nity. And so by broadening the diversity who was not involved in attempts to subpoena or depose if Morgan Stanley of their advisory force, a firm can also Booker’s case. Marilyn Booker, court-appointed did not require her to broaden the diversity of the types of settlement monitors, and others with sign a non-disclosure clients they serve.” “I hope it was knowledge of the firm’s racially biased agreement to stop her Booker also sharply criticized the a good result corporate culture and has also refused from helping other wirehouse’s mandatory arbitration for Ms. Booker, to produce its internal corporate reports victims of Morgan process, which can bar employees from but I view her that evidence its analysis and knowl- seeking legal relief for civil rights edge of the firm’s discriminatory Stanley’s discrimination violations, per court documents. settlement — the and require day before [CEO practices and how they uniformly harm “Unless Morgan Stanley abolishes African American financial advisors,” cooperation with the forced arbitration for its Black employ- James Gorman] firm.” — Suzanne Bish testified before Bish said. ees,” Booker said previously in court Booker’s latest filing to dismiss her documents, “any purported claim of Congress — as lawsuit “with prejudice” means she will Booker alleged in court documents ‘meaningful efforts’ to fight against nothing but a likely be unable to file similar claims that she was fired shortly after pushing racism means nothing.” loss for workers again. leadership to adopt Project Genesis, a Bish similarly said that the arbitration at Morgan “I would be stunned if Morgan program she spearheaded which would process is unfair. Stanley.” — Stanley did not require her to sign a have confronted systemic racial issues “It’s a rigged system set up by Suzanne Bish, non-disclosure agreement to stop her advisors of color face, like a lack of Morgan Stanley for Morgan Stanley that partner, Stowell from helping other victims of Morgan support, inability to get onto teams, denies employees due process and the & Friedman Stanley’s discrimination and require unfair commission splits, and barriers to ability to join together to challenge the cooperation with the firm,” Bish said. partnering with white financial advisors. discrimination they face. It hides Booker’s attorney did not In her filings, Booker also criticized evidence and wrongdoing and is a big respond to a request for The allegations the firm’s diversity numbers — but the part of the firm’s deeply entrenched comment and a spokesper- Booker was the Global Head of Diversity low representation of minorities is an race discrimination,” Bish said. son for Morgan Stanley for 16 years, according to court docu- industry-wide problem. Three of the plaintiffs in the class declined to comment on the ments. In 2010 she was removed from A 2020 Cerulli report found that less action lawsuit were “compelled” into stipulation of dismissal. the position and later appointed the than 3% of advisors self-identified as private arbitration, Bish said. Booker is not alone. Since head of the new Urban Markets Group. Black, 5% as Hispanic or Latino, and 4% “They set up all the rules. It’s private, at least the 1970s Morgan She was ousted from the wirehouse in as Asian. By comparison, the U.S. it’s confidential. It’s behind closed doors Stanley has been accused of December 2019. population is 13% Black, 18% Hispanic in a conference room. There is no race and sex discrimination, Booker claimed in court documents or Latino, and 6% Asian, Census data meaningful right to appeal — I mean, according to Stowell & that she was tokenized and that show. it’s a sham,” Bish said. “There are also Friedman’s 2016 class action leadership at Morgan Stanley mostly Marina Shtyrkov, a senior analyst with very, very few African American lawsuit underway in the mentored white, male financial advisors Cerulli, said women are also underrepre- arbitrators.” FP Southern District of New York, Frazier v. Morgan Cynthia Fernandez is a reporter for Financial Planning. Follow her on Twitter at @CynthFernandez.

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advisors froze in stunned end of the year. While he would silence. Many began continue as a “strategic advisor” and weeping. More than a few remain on the board of directors, he blubbered. “This was a shock was shifting his focus to cryptocurren- to everybody,” he says. cies. The letter went out that day to Because he and his planners 95,000 retail clients, part of 1.3 million “have a very close relation- customers, including nearly 450,000 ship, I was blunt and to the individual customers (the rest are in point,” he says. Normally company 401(k) plans the firm advises). with a composed, radio And the $5.7 trillion independent voice, he burst into tears on advisory industry began asking: What the Zoom — then readied does this mean for the future of himself to drop the same financial advisors? bomb on the rest of the firm. An hour later, more than Lessons for the industry 550 other advisors and With $260 billion in assets under another 900 employees got management, Edelman Financial Ric Edelman’s recent move could have a broad impact on the financial services industry. the shocking news in a Engines is a bellwether. What the firm company-wide Zoom that does can impact how legions of Edelman led with CEO Larry consumers will get financial advice on How Ric Edelman stepped Raffone and Jason Van de everything from retirement to wealth Loo, the retail and marketing head. While they were in the away from his advisory firm loop on the secret, other senior managers were Can Edelman Financial Engines keep its star quality under stunned — “they did not private equity owners — with its founder gone? know,” Edelman recalls in a series of interviews with By Lynnley Browning Financial Planning. Employees watched a On June 3, Ric Edelman sat down in his oped with them over decades. video that included Edelman home office in Great Falls, Virginia, to log on Edelman began the meeting by recapping reading a five-page, deeply to an unusual Zoom with his inner circle. For recent triumphs. In March, a new investor, personal farewell letter he’d years, he had routinely chatted with the two private equity firm Warburg Pincus, bought a penned to clients and dozen senior financial planners at his minority stake in Edelman Financial Engines, employees but not yet sent successful investment advisory firm, all loyal, giving the firm a $7.3 billion value — more out. There were other videos, long-term employees spread out from West than double its $3 billion value in 2018. At the too. Those came from Palm Beach to Los Angeles. Over time, he same time, the firm refinanced its debt and Warburg Pincus and Hellman had rewarded them with fancy “executive tacked on new borrowings, to bankroll more & Friedman, another private director” titles and company stock. More than $1 billion in special dividends to its equity firm that has a than half a dozen of them had joined him on shareholders. All told, Edelman intoned majority stake in Edelman a sweaty, “guys-only” road trip through the slowly, the moves made his namesake firm, Financial Engines. They were Australian Outback in early March 2020, the largest independent advisory firm in the sleek, corporate productions. right before the pandemic surged. “We are a country, “well positioned for its next chapter Four days later, on June 7, close-knit, tight family,” Edelman, 63, says. of growth.” He took a breath, then dropped Edelman Financial Engines He and Jean don’t have kids, “so these guys his bombshell. announced that Edelman are our children. They’re our babies.” He was leaving. would step down as chair- He knew he was about to rock the founda- “I told them that Jean and I will not be man of financial education Edelman in the Australian Outback in March 2020. “Flynets were essential to protect against the zillions of flies intent on attacking us — we offered the only moisture they could find,” he says. EDELMAN FINANCIAL ENGINES FINANCIAL EDELMAN tion of the special relationship he’d devel- joining them on that journey,” he recalls. The and client experience at the EDELMAN RIC

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advisors froze in stunned end of the year. While he would building. But Edelman’s “transition” out and transactions advisory firm in silence. Many began continue as a “strategic advisor” and of the firm he and Jean started 35 years Phoenix. “There will be a lot of lessons weeping. More than a few remain on the board of directors, he ago brought to the fore a burning there for advisors around the country.” blubbered. “This was a shock was shifting his focus to cryptocurren- question: What ultimately happens to a And a lot of questions. Hellman & to everybody,” he says. cies. The letter went out that day to successful, award-winning RIA and its Friedman and Warburg Pincus scored a Because he and his planners 95,000 retail clients, part of 1.3 million clients when private equity investors big payday in March when they “have a very close relation- customers, including nearly 450,000 — known for buying up everything from squeezed $1.25 billion in cash out of the ship, I was blunt and to the individual customers (the rest are in hospitals and housing complexes to firm in a so-called dividend recapital- point,” he says. Normally company 401(k) plans the firm advises). Staples and Taylor Swift’s music ization. Will they seek to cash in further with a composed, radio And the $5.7 trillion independent catalog — increasingly call the shots? by flipping Edelman Financial Engines voice, he burst into tears on advisory industry began asking: What Can a firm that rewarded employees to the likes of a Fidelity or a Bank of the Zoom — then readied does this mean for the future of with front-row tickets to Wolf Trap America (or “could be Apple or Amazon, himself to drop the same financial advisors? Performing Arts concerts, family trips to if they ever get in the game,” Edelman bomb on the rest of the firm. Disney World and, after 10 years, a laughs)? Will the firm do an initial An hour later, more than Lessons for the industry Rolex, keep its culture — its recipe for public offering on Wall Street — or sell 550 other advisors and With $260 billion in assets under success — under professional investors? to a SPAC? another 900 employees got management, Edelman Financial “It’s a big move for the industry, as With independent advisors centered the shocking news in a Engines is a bellwether. What the firm most advisors and owners are looking on the best interests of their clients, company-wide Zoom that does can impact how legions of at long-term succession and continuity,” how can the business that Edelman and Edelman led with CEO Larry consumers will get financial advice on says Brandon Kawal, a principal at his wife started from scratch in 1986 Raffone and Jason Van de everything from retirement to wealth Advisor Growth Strategies, a consulting survive the cost-cutting and “profits Loo, the retail and marketing first” culture of its private equity head. While they were in the masters — or the earnings pressure of loop on the secret, other being publicly traded? Edelman senior managers were Financial Engines’ calling card is stunned — “they did not conflict-free advice — it’s been Barron’s know,” Edelman recalls in a #1 ranked independent advisor for the series of interviews with last three years. But what if it’s courted Financial Planning. by a firm with proprietary products to Employees watched a push and sales quotas to meet? video that included Edelman “If EFE can maintain Ric’s combined reading a five-page, deeply loving spirit, client orientation, yet personal farewell letter he’d toughness for the nonsense the world penned to clients and throws at every business, it will do just employees but not yet sent fine,” says Ken Fisher, the founder, out. There were other videos, executive chairman and co-CIO of too. Those came from Fisher Investments, a $169 billion RIA Warburg Pincus and Hellman that has shunned private equity & Friedman, another private ownership. Then he adds another equity firm that has a thought: “Ric’s biggest error, in my view, majority stake in Edelman was surely too many involvements over Financial Engines. They were time with varied private equity firms; sleek, corporate productions. they’re usually deadly over time to Four days later, on June 7, most” SEC-regulated advisory firms Edelman Financial Engines “that get sucked in by them.” announced that Edelman would step down as chair- Dancing with Wall Street man of financial education Edelman in the Australian Outback in March 2020. “Flynets were essential to protect against the zillions Edelman has tangoed with Wall Street of flies intent on attacking us — we offered the only moisture they could find,” he says. and client experience at the EDELMAN RIC for decades. “This latest transaction

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was the sixth time I’ve sold the com- of stars and planets (astronomy is an and Warburg Pincus didn’t respond to it’s “sponsor-owned, which could result pany,” he says. “There will be a seventh.” obsession of his). “I’ve become the most emails requesting comment. in aggressive financial policy decisions.” One big takeaway of all the deals, he highly acclaimed financial advisor in Edelman won’t say how much of his Moody’s said Edelman Financial says: “Your lawyer is probably the the country,” his letter said. Was the eponymous firm he owns, or what he’s Engines “plans to use net proceeds from contract that’s going to matter at least brash star nudged out by his main worth. While Hellman & Friedman is the the debt issuance plus cash on the as much as the financial terms the shareholder? majority institutional owner, and balance sheet to fund a dividend investment bank negotiates on your “The rumor mill was always a little bit Warburg owns close to one fifth of the distribution of up to $1.25 billion to behalf.” Each time, he says, he has that he was more of a front man than a company, he’s the single largest private equity funds affiliated with negotiated blocking rights on major manager, and for whatever reason, in individual shareholder. The firm’s ADV Hellman & Friedman, the company’s issues like acquisitions, hiring and the current composition of that disclosure doesn’t identify him as a private equity sponsor.” compensation. “I still have the ones that business, they don’t feel like they need shareholder, instead listing several How much excess cash? Anywhere matter the most,” he adds, including the him involved at the level he was,” says Delaware entities that he controls that from $240 million to $300 million, not right to block the sale of the firm if he Matthew Crow, the president of Mercer own stakes. “I own through both my including the $150 million credit line, doesn’t like the bidder. Capital, a valuation and advisory firm. name and through one of my corpora- S&P Global wrote. Edelman says a tiny But for giant advisors, private equity tions, a predecessor company to the piece of the payouts, made last month, is increasingly calling the shots. The Pandemic Zooms, the Weimaraner current holder,” Edelman says. Welsh also went to employees, including industry typically aims to scale up a and Edelman’s net worth says that combined with his media advisors. “We kind of have a philosophy portfolio company over five to seven Edelman says that since 2015, he and earnings, Edelman’s net worth “should of pushing it down,” Raffone says. But years before flipping it to a new buyer Hellman & Friedman partner Allen be north of nine figures, easily. I would the professional investors reaped the at several times what they paid, or, less Thorpe, who is on the board of Edel- expect it’s very significant.” lion’s share. commonly, taking it public. Either way, man Financial Engines, “always talked Private equity’s signature move the focus becomes maximizing profit extensively about the need for the Dividend recapitalization wasn’t immediately obvious in an- margins, adding clients and cutting company to prosper and grow without Largely unnoticed in the March nouncements of the firm’s “recapitaliza- costs. “Above all, Ric got ‘client first’ as a dependence on me.” Still, he says, citing transaction was that Warburg quickly tion.” Raffone downplays the payout, guiding star when precious few did,” the pandemic and his age, those got some of its $1 billion to $1.4 billion saying that because low interest rates Fisher says. Can the firm’s original conversations “accelerated” around the back. So did Hellman & Friedman. make borrowing less costly, “this is just culture — its recipe for outsize success start of this year on regular Zooms. That’s because the private equity good business hygiene.” He compared it — avoid being diluted by Wall Street? “This wasn’t an adversarial situation,” he firms had Edelman Financial Engines to refinancing a house, adding that the The often-quirky Edelman is known says. “This was a collaborative effort to make a sometimes-controversial for his fast-talking, self-assured recognize what [Jean and I ] built and financial move. A dividend recapitaliza- demeanor — honed through his 10 respectfully acknowledge the economic tion involves private equity saddling personal finance books (some New York value we provide to the firm, and what portfolio companies with debt in order Times bestsellers on his own or with would be appropriate for our continued to give themselves cash payouts from Jean, including “The Squirrel Manifesto” involvement.” the borrowed money. Critics say the for children), 1,500 episodes of his By noon on May 25, after months of move squeezes cash out of a company, weekly radio program “The Ric Edelman ironing out details on Warburg’s stake potentially weakening it by pinning it Show” and podcasts. That’s not to and his “transition,” he signed the final under new debt. mention Youtube videos, paid speaking documents. He and Jean, 62, sat in their Here’s how it worked, according to a gigs as a “celebrity” financial planner kitchen, amid custom exotic hardwood note by S&P Global on March 15. First, (at one agency his fee starts at cabinets, a quirky sculpture of a crazed Edelman Financial Engines borrowed $100,000) and Congressional testimony chef and a pandemic rescue Weimara- $900 million, tacking the amounts on to on retirement and wealth building. ner named Satoshi, after the reputed its existing $1.9 billion bank loans. It And presentations at high-profile inventor of Bitcoin. Neither Edelman nor also extended the payback period of investment conferences, freewheeling his wife said a word for a long time. the loans and of a $150 million line of interviews and talking-head gigs on “Ric is really all about himself, so I‘m credit by several years. The moves gave CNBC and CNN. An eclectic collector, sure he left on his own terms,” says Tim the company $2.8 billion in debt — one of his prized possessions is an Welsh, the president, CEO and founder close to 50% more than before, making

original copy of Johannes Kepler’s of Nexus Strategy, a consulting firm for it highly leveraged. A “key risk” to the Edelman in Chile’s Patagonia region, with current and former advisors at Edelman Financial Engines:

Rudolphine Tables from 1627, a catalog wealth managers. Hellman & Friedman firm, Moody’s wrote in March, was that EDELMAN RIC Marty Corso (retired), son Brandon Corso and John Davis.

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and Warburg Pincus didn’t respond to it’s “sponsor-owned, which could result firm’s debt is “very manageable and dish: RIAs with $1 billion or more in emails requesting comment. in aggressive financial policy decisions.” reasonable ... we wanted to leave some client assets. Data from Echelon Edelman won’t say how much of his Moody’s said Edelman Financial room for acquisitions, so you don’t want Partners, an investment bank for wealth eponymous firm he owns, or what he’s Engines “plans to use net proceeds from to leave yourself tapped out.” (In a rare managers, shows private equity firms worth. While Hellman & Friedman is the the debt issuance plus cash on the deal, the firm bought Viridian Advisors, fuel the industry’s biggest deals, with majority institutional owner, and balance sheet to fund a dividend a $846 million RIA, in May.) five out of the 10 biggest transactions in Warburg owns close to one fifth of the distribution of up to $1.25 billion to The special payout wasn’t Edelman the first quarter of this year involving company, he’s the single largest private equity funds affiliated with Financial Engines’ first time at the direct investments by private equity individual shareholder. The firm’s ADV Hellman & Friedman, the company’s dividend recap rodeo. In October 2017, firms or acquisitions by firms that are disclosure doesn’t identify him as a private equity sponsor.” nearly two years after Hellman & partially backed by a private equity shareholder, instead listing several How much excess cash? Anywhere Friedman first acquired a majority partner. “We’re seeing the emergence of Delaware entities that he controls that from $240 million to $300 million, not stake, it borrowed money that was used 24 or 25 ‘META’ RIAs that are going to own stakes. “I own through both my including the $150 million credit line, to send $225 million to the private be shaping the industry,” says David name and through one of my corpora- S&P Global wrote. Edelman says a tiny equity shop. Devoe, the founder and CEO of Devoe tions, a predecessor company to the piece of the payouts, made last month, Kawal argues that private equity & Company, a consulting and valuation current holder,” Edelman says. Welsh also went to employees, including owners “can professionalize the firm firm for wealth managers. The acronym, says that combined with his media advisors. “We kind of have a philosophy and add strategic value.“ The downside: from the world of Minecraft and other earnings, Edelman’s net worth “should of pushing it down,” Raffone says. But “These are professional investors, so you online games, means “most effective be north of nine figures, easily. I would the professional investors reaped the have to know what you’re signing up tactics available.” But Devoe says that expect it’s very significant.” lion’s share. for. A lot of owners in the space are not the trend “isn’t the death knell for the Private equity’s signature move going to have the appetite.” rest of the RIA space.” Dividend recapitalization wasn’t immediately obvious in an- Most firms get flipped to a buyer. But Largely unnoticed in the March nouncements of the firm’s “recapitaliza- Private equity muscles into RIAs CEO Raffone says that for Edelman transaction was that Warburg quickly tion.” Raffone downplays the payout, With the fragmented advisor industry Financial Engines, “you gotta assume got some of its $1 billion to $1.4 billion saying that because low interest rates now in its sixth frenzied year of mergers the next transaction will be a public back. So did Hellman & Friedman. make borrowing less costly, “this is just and acquisitions, private equity transaction. We’re more likely to take it That’s because the private equity good business hygiene.” He compared it increasingly sits at the head of the public than remain independent.” He firms had Edelman Financial Engines to refinancing a house, adding that the consolidation dinner table. Its preferred adds that “it’s a multi-year exercise. I make a sometimes-controversial don’t want to go public now, because financial move. A dividend recapitaliza- we’re hiring a bunch of planners and we tion involves private equity saddling need to get the technology right” — a portfolio companies with debt in order reference to the firm’s push into AI and to give themselves cash payouts from Big Data to find clients. the borrowed money. Critics say the Steven Levitt, the founder and move squeezes cash out of a company, managing director of Park Sutton potentially weakening it by pinning it Advisors, a boutique investment bank under new debt. for financial firms, says he thinks Here’s how it worked, according to a Edelman’s firm could be worth $25 note by S&P Global on March 15. First, billion to $30 billion if it goes public in a Edelman Financial Engines borrowed few years. $900 million, tacking the amounts on to its existing $1.9 billion bank loans. It Conflicts of interest also extended the payback period of When Edelman merged with Financial the loans and of a $150 million line of Engines in 2018, it added a giant credit by several years. The moves gave robo-advisor for company 401(k) plans. the company $2.8 billion in debt — The deal meant a new revenue stream close to 50% more than before, making from the latter’s $169 billion in man- it highly leveraged. A “key risk” to the Edelman in Chile’s Patagonia region, with current and former advisors at Edelman Financial Engines: aged assets, but it also created a

firm, Moody’s wrote in March, was that EDELMAN RIC Marty Corso (retired), son Brandon Corso and John Davis. potential problem. Edelman advisors

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are fiduciaries, but they now had a rolled over $534 billion from company- nearby volcano erupted. He relies financial incentive to recommend that sponsored retirement plans to IRAs, “heavily on the counsel of colleagues” clients roll over their 401(k)s to advisor- according to IRS data cited by the for personal financial advice. “Success managed IRAs or other investment Investment Company Institute. is entirely dependent on our planners accounts. After all, a huge chunk of the “You have to ask about what happens and staff,” he wrote in his letter, a copy firm’s total AUM, or around $200 billion, at the nexus between the drive for profit- of which Financial Planning obtained are in those 401(k)s. The firm acknowl- ability and meeting the best interests of from a client. “To my fellow financial edges in its ADV that “a conflict of clients,” says Leila Shaver, a securities planners within the firm, keep doing interest may exist for Edelman Financial lawyer who works with investment firms. what you’re doing.” Engines planners as they have an Citing RIAs whose private equity masters But he’s well aware of the terms of economic incentive to offer certain impose sales quotas, she says she’s his latest deal — and the bargains he’s advisory services, including recom- “surprised we haven’t seen more from made over the last half-dozen transac- mending rollovers, to clients.” our regulators about it.” tions he’s done. “Your private equity The firm “does not solicit rollovers Edelman has often traveled with his partners are likely to have a very from 401(k) plans” and has “strict closest financial advisors — racing different array of emphases than you safeguards” to ensure that any rollover dune buggies with Porsche engines in have,” he tells Financial Planning is in the client’s best interest,” the filing Baja (“like being in a plane crash for 24 emphatically. “Their priority list trumps Just 4% of the complaints logged in BrokerCheck from 2015 to 2020 have been expunged, data show. says. But the market reality is that as hours,” he laughs), and whitewater yours. You are going from being the aging Boomers retire, rollovers are rafting the Futaleufu River in Chile’s owner of your business to being an where the money is. In 2018, investors northern Patagonia days before a employee for someone else.” FP FINRA nixes expungement Lynnley Browning is a reporter for Financial Planning. Follow her on Twitter at @BrowningLynnley. rule, advocates eye reform The PE-backed hybrid RIA is acquiring a practice with nine Ric Edelman’s dance with Wall Street financial advisors managing $1.46 billion in client assets. By Kenneth Corbin

1986: Ric and Jean Edelman found and Edelman becomes the co-CEO. majority stake in The Mutual Fund After FINRA withdrew its proposal to overhaul Edelman Financial Services. The move makes Edelman’s firm part Store, which Financial Engines then the mechanism for erasing complaints from 1996: Financial Engines is born. of a publicly traded company. acquires. It sells its stake in 2017, one brokers’ public records, investor advocates are Co-founded by Nobel economics 2012: Lee Equity Partners buys year before Financial Engines is hoping for further-reaching revisions. laureate William Sharpe, former SEC Edelman Financial Group, which takes merged with Edelman’s legacy firm. Following discussions with staff at the SEC chief Joseph Grundfest and Silicon it private. The deal is Edelman’s first 2018: Hellman & Friedman pays $3 reviewing the revisions to the expungement Valley lawyer Craig Johnson, Larry with private equity. billion for Financial Engines, the process, FINRA withdrew its proposal, saying Raffone joins the firm in 2001 as an 2015: Sanders Morris Harris sells its original robo advisor that at the time that it remains committed to improving its executive vice president, coming from stake in Edelman Financial Services was the largest RIA. It takes that system for reviewing complaints from the Fidelity Investments’ institutional side. to Hellman & Friedman. publicly-traded company private and BrokerCheck database but without offering a He becomes CEO of Financial 2015: Lee Equity Partners sells merges it with Edelman’s firm. The reason for the about-face. Engines in 2014. most of its stake to Hellman & blockbuster deal creates Edelman A spokeswoman for FINRA declined to 2005: Publicly-traded Sanders Friedman. Edelman steps down as Financial Engines and turns Edel- comment on the record beyond the group’s Morris Harris, an advisory firm CEO and moves into an executive man’s roughly $800 million company statement, though she pointed to a new page founded by the former head of chairman role, his first easing out of into a $4.5 billion company overnight. on the regulator’s website touting recent Prudential-Bache, buys a majority the day-to-day of his company. H&F Edelman says he “strongly urged” changes to the expungement process accom- stake in Edelman Financial Services. becomes the largest institutional Hellman & Friedman to buy Financial panied by data compiled from 2015 to 2020 In 2011, it changes the combined firm’s holder of Edelman’s firm. Engines. Raffone becomes CEO of the that seem to downplay the scope of the issue. name to Edelman Financial Group, 2016: Warburg Pincus holds a new firm. FP One notes that just 4% of the complaints logged in BrokerCheck from 2015 to 2020 have

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nearby volcano erupted. He relies when expungement requests “heavily on the counsel of colleagues” were filed with the goal of for personal financial advice. “Success involving them earlier in the is entirely dependent on our planners process. Those changes only and staff,” he wrote in his letter, a copy nibbled at the margins of a of which Financial Planning obtained critically flawed system, PIABA from a client. “To my fellow financial argued. planners within the firm, keep doing “The proposal was a tiny what you’re doing.” step in the right direction, [but] But he’s well aware of the terms of it failed to address the his latest deal — and the bargains he’s fundamental problem with made over the last half-dozen transac- expungement,” says Lisa tions he’s done. “Your private equity Bragança, vice president of partners are likely to have a very the PIABA Foundation and different array of emphases than you one of the authors of the have,” he tells Financial Planning expungement report. emphatically. “Their priority list trumps Just 4% of the complaints logged in BrokerCheck from 2015 to 2020 have been expunged, data show. yours. You are going from being the “The proposal owner of your business to being an was a tiny step employee for someone else.” FP FINRA nixes expungement in the right direction, [but] it Lynnley Browning is a reporter for Financial Planning. Follow her on Twitter at @BrowningLynnley. rule, advocates eye reform failed to address the fundamental The PE-backed hybrid RIA is acquiring a practice with nine problem with financial advisors managing $1.46 billion in client assets. expungement.” Ric Edelman’s dance with Wall Street — Lisa By Kenneth Corbin Bragança, vice president, PIABA majority stake in The Mutual Fund After FINRA withdrew its proposal to overhaul been expunged, while another illustrates that Foundation Store, which Financial Engines then the mechanism for erasing complaints from just 1,300 of an average of 632,500 registered acquires. It sells its stake in 2017, one brokers’ public records, investor advocates are individuals over the same time period have had PIABA hopes that FINRA year before Financial Engines is hoping for further-reaching revisions. a complaint expunged. will now consider more merged with Edelman’s legacy firm. Following discussions with staff at the SEC Those figures offer a counterpoint to structural changes, such as 2018: Hellman & Friedman pays $3 reviewing the revisions to the expungement research from PIABA. Last month, as the embedding an investor billion for Financial Engines, the process, FINRA withdrew its proposal, saying deadline for the SEC to approve FINRA’s advocate in the proceedings original robo advisor that at the time that it remains committed to improving its proposed rule was approaching, PIABA and the to argue in opposition to the was the largest RIA. It takes that system for reviewing complaints from the PIABA Foundation released their third study of broker’s expungement request, publicly-traded company private and BrokerCheck database but without offering a the expungement process, concluding that the with an eye toward preserving merges it with Edelman’s firm. The reason for the about-face. number of expungement awards has been the integrity of the Central blockbuster deal creates Edelman A spokeswoman for FINRA declined to soaring in recent years, while the arbitrators Registration Depository, the Financial Engines and turns Edel- comment on the record beyond the group’s who hear those cases overwhelming side with data hub that powers man’s roughly $800 million company statement, though she pointed to a new page the brokers, granting 90% of requests PIABA BrokerCheck, Bragança says. into a $4.5 billion company overnight. on the regulator’s website touting recent examined in its most recent study. FINRA’s proposal doesn’t Edelman says he “strongly urged” changes to the expungement process accom- FINRA’s withdrawn proposal recommended address “that nobody is Hellman & Friedman to buy Financial panied by data compiled from 2015 to 2020 empaneling a specially trained roster of responsible for the integrity of Engines. Raffone becomes CEO of the that seem to downplay the scope of the issue. arbitrators to weigh expungement requests, CRD and potentially opposing new firm. FP One notes that just 4% of the complaints with three assigned to each case. It also these petitions,” she says. “The logged in BrokerCheck from 2015 to 2020 have proposed to alert state securities regulators Continued on page 37

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023_FP0721 23 7/6/2021 12:57:19 PM The tech investment squeeze

According to Financial Planning’s 2021 Tech Survey, large firms are ramping up spending while smaller firms are keeping budgets modest. Are they starting to fall behind?

By Ryan W. Neal

ow wealth management firms plan to move beyond the coronavirus pandemic may reveal an emerging gap between how large and small practices can invest in technology. Most advisors intend to increase their tech budgets over the next year, according to Financial Planning’s annual Tech Survey. Four out Hof 10 firms plan to keep budgets consistent, while only 2% are planning a decrease. Another 2% aren’t sure. But a different picture emerges when looking at survey responses according to a firm’s assets under management. A quarter of advisors at practices with at least $1 billion in AUM say their firm already spends more than $5 million per year on technology (another 31% either didn’t know or preferred not to say), and 73% plan to increase that investment over the next 12 months. Sixty-one percent of firms with between $100 million and $1 billion AUM also plan to increase technology outlay, though the majority of these practices are spending less than $500,000 annually.

24 Financial Planning July/August 2021 Financial-Planning.com July/August 2021 Financial Planning 25 The tech investment squeeze The tech investment squeeze

Has your firm On the other hand, firms with less than $100 subscription any time if it isn’t adding value. Is your firm’s planned technology spending for the next 12 million in AUM are the least likely to increase Marianne Nolte of Imagine Financial prioritized technology spending. Only 47% anticipate Services in Fallbrook, California, says some of months expected to increase, decrease or remain about the technology investing more, even though nearly all of them the best digital additions to her firm have been same compared to the previous 12 months? (91%) spend less than $500,000 annually, while free versions of software like Zoom, Grammarly spending Increase Decrease Remain about the same Not sure 49% plan to keep budgets the same. (for grammar and spell-checking) and over other It could be a sign that small, independent MailChimp (to email newsletters). practice firms are hitting a limit of what they are willing “Not a dime spent, but my efficiency has or able to spend on technology, especially risen greatly,” Nolte says. “The slow-moving 22% needs in after COVID-19 and the move to remote giants may have a lot of money to throw at the past 12 working forced many to adopt digital client creating proprietary tech solutions, but this months? communication tools. Six out of 10 firms — does not mean it is better than what the and 55% of small firms — say they prioritized smaller masses are utilizing.” 11% Not sure technology spending over other practice needs in the past 12 months, Financial Planning’s The advisor as quarterback survey found. However, smaller firms could find themselves When asked how they are addressing falling behind the larger firms investing 28% 60% technology gaps exposed by the pandemic, significant capital in building unique product No Yes 69% of large firms and 66% of mid-sized firms offerings, says Alois Pirker, research director for said they are investing in new technology. Just Aite Group’s wealth management practice. This Is your firm addressing gaps exposed by the pandemic under half of small advisors said the same; the is especially a risk as the largest financial rest are instead focusing on better using institutions — the banks and wirehouses — in- primarily by investing in new technology or more fully existing resources. troduce next-generation wealth management utilizing existing resources? Small advisors aren’t worried about keeping technology platforms that connect products up with the expensive technology at the larger and services across multiple business lines in Investing in new technology More fully utilizing existing resources firms because they target different markets tightly integrated packages. and use affordable third-party options — even “More and more, [advisors] get asked to be 31% if there are some compromises. the quarterback across the client’s entire Derek Delaney, founder and lead planner of financial life, not just investments,” Pirker says. PharmD Financial Planning in Owatonna, “It takes resources, tools, data and people to Minnesota, says he is “proactively sacrificing manage all of that. It’s hard.” some traditional amenities that an RIA usually Where large institutions really have an has, like office space, to allocate those dollars advantage is in emerging fields like big data toward technology.” While he believes small analytics, machine learning and early firms can piece together a tech stack of applications of artificial intelligence, Pirker affordable third-party vendors, it might not adds. These can be the next real differentiator have the same operational efficiencies of the for firms that get them right, but they are very expensive software developed for someone expensive to develop and implement. with a larger budget. But it’s worth it, he says: The emerging industry dynamic is technologies, but that doesn’t doom indepen- “That is a trade-off I am willing to make every somewhat akin to Amazon versus small dent advisory firms, according to Michael day at this point in my firm’s tenure.” bookstores. “It’s an extreme comparison, of Kitces, a Financial Planning contributor and For example, Bloomberg may have the best course, but you’ve got to be focused, nimble co-founder of the XY Planning Network, a technology for investment research, but it just and really have a clear business model in mind coalition of more than 1,000 RIAs, many of isn’t affordable, says Jordan Benold, a certified to be successful as a small advisor,” he says. which are smaller firms targeting Gen X and financial planner at Dallas-based Benold millennial investors. In fact, a more apt Financial Planning. But the firm can try The swinging wealthtech pendulum analogy for the advisor technology landscape lower-cost alternatives like Y-Charts or Kwanti Wirehouses are better positioned to take would be a swinging pendulum, he says. for a fraction of the cost, and cancel the advantage of some of these next-generation In the 1990s, wirehouses owned the best

26 Financial Planning July/August 2021 Financial-Planning.com

026_FP0721 26 7/6/2021 1:20:23 PM The tech investment squeeze The tech investment squeeze subscription any time if it isn’t adding value. Is your firm’s planned technology spending for the next 12 Marianne Nolte of Imagine Financial Services in Fallbrook, California, says some of months expected to increase, decrease or remain about the the best digital additions to her firm have been same compared to the previous 12 months? free versions of software like Zoom, Grammarly Increase Decrease Remain about the same Not sure (for grammar and spell-checking) and MailChimp (to email newsletters). 4% 3% 1% “Not a dime spent, but my efficiency has 35% 49% 47% risen greatly,” Nolte says. “The slow-moving 22% giants may have a lot of money to throw at creating proprietary tech solutions, but this $100M to Less than $1B or more does not mean it is better than what the $999M $100M AUM smaller masses are utilizing.” AUM AUM

The advisor as quarterback 1% However, smaller firms could find themselves 73% 61% 3% falling behind the larger firms investing significant capital in building unique product offerings, says Alois Pirker, research director for Aite Group’s wealth management practice. This Is your firm addressing gaps exposed by the pandemic is especially a risk as the largest financial institutions — the banks and wirehouses — in- primarily by investing in new technology or more fully troduce next-generation wealth management utilizing existing resources? technology platforms that connect products and services across multiple business lines in Investing in new technology More fully utilizing existing resources tightly integrated packages. “More and more, [advisors] get asked to be 31% 34% 51% the quarterback across the client’s entire financial life, not just investments,” Pirker says. $100M to Less than “It takes resources, tools, data and people to $1B or more $999M $100M AUM manage all of that. It’s hard.” AUM AUM Where large institutions really have an advantage is in emerging fields like big data analytics, machine learning and early 69% 66% 44% applications of artificial intelligence, Pirker adds. These can be the next real differentiator for firms that get them right, but they are very expensive to develop and implement. The emerging industry dynamic is technologies, but that doesn’t doom indepen- software for trading, managing portfolios and somewhat akin to Amazon versus small dent advisory firms, according to Michael financial planning. The internet, cloud bookstores. “It’s an extreme comparison, of Kitces, a Financial Planning contributor and computing and new software development course, but you’ve got to be focused, nimble co-founder of the XY Planning Network, a strategies gave rise to third-party fintechs and really have a clear business model in mind coalition of more than 1,000 RIAs, many of building innovative software to match and to be successful as a small advisor,” he says. which are smaller firms targeting Gen X and even leap past what advisors could find at millennial investors. In fact, a more apt wirehouses. This helped fuel the move to The swinging wealthtech pendulum analogy for the advisor technology landscape independence over the past 20 years, and in Wirehouses are better positioned to take would be a swinging pendulum, he says. turn made these technology startups attractive advantage of some of these next-generation In the 1990s, wirehouses owned the best Continued on page 40

Financial-Planning.com July/August 2021 Financial Planning 27

027_FP0721 27 7/6/2021 1:17:40 PM Practice ALSO IN PRACTICE: SUBSCRIPTION FEES, P. 30 | DON’T UNDERESTIMATE WOMEN CLIENTS, P. 32 manager insisted on it. When one of the original cast members injured himself using a router and couldn’t perform, the things that I learned about understudy filled in. The unfortunate scaling an advisor practice accident actually sparked the growth of from Blue Man Group. the Blue Man brand. Not only could the original cast members take a much- If you wanted to needed break from their rigorous become a Blue schedules, but also the move ultimately Man, you would led to rapid expansion. You can scale need to fit the up your practice in a similar fashion by job description cross-training staff and preparing the because there next in line to help you expand the are a handful reach of your advisor business. of essential things to the 3. Own your IP production. Blue Man Group has created some unique musical instruments like the 1. Know whom you want musically enchanting PVC-pipe to hire Drumbone mentioned above. Their First, you need to understand instruments are part of their image, what people you’re looking brand, and identity as performers. But for on your team. If you more importantly, they created and wanted to become a Blue owned these instruments, one of only a

The performances were standardized, but mesmerizing to audiences around the world. Man, you would need to fit handful of people in the world to do so. the job description because That’s important for financial advisors, there are a handful of too. Advisors should have their own 7 lessons from Blue Man Group essential things for the unique “instruments,” whether it’s some production. You have to be type of plan or process that you can somewhere between 5 feet claim as your creation to help you build to scale an advisor practice 10 inches and 6 feet two and your name and brand. have an athletic build. The wacky performers created a show that became a global Drumming experience is 4. Put your processes in writing phenomenon — and can teach us how to grow our businesses. helpful, but more so is a team When Blue Man tried to scale their player attitude both on and production to include a new venue in By Chip Munn offstage. If you’re five feet Boston, its first location outside of New eight, there’s no need to York, they ran into trouble. After seven apply. years with the original three performers In the late 1980s, three friends living in a Blue Men founders Chris Wink, Phil starring in and overseeing all the shows, cramped New York City apartment had the Stanton, Matt Goldman and company have 2. Train your understudy they discovered hiring new Blue Men outrageous idea of painting themselves blue since entertained more than 35 million Be prepared for the next Blue cast members and crew was a lot after donning bald head wigs. They proceed- people. There are continuously running Blue Man in line. The original harder than it seemed. New cast ed to put on shows entertaining people Man shows in New York, Boston, Chicago, Las three Blue Men performed six members were having trouble interpret- without speaking a single word. The group, Vegas and Berlin, and even a world tour. days a week over three years. ing scripted words like “excited” and Blue Man, began performing unique, fun- From PVC pipe musical instruments such That’s 1200 shows without a “tense” that the original cast effortlessly filled performances that drew ever-increasing as the “Drumbone” to splashing paint on break. They had a single performed (remember, without any audiences and stellar reviews. Their bold, drums bathed in electric light, the Blue Men understudy if one of the Blue spoken dialogue). The Boston show edgy mix of comedy, music and humor know how to capture an audience’s attention Men couldn’t perform, only

LINDSEY BEST LINDSEY proved irresistible and appealing. — and grow a business. Here are seven because their business Chip Munn CEO, Signature Wealth Group

28 Financial Planning July/August 2021 Financial-Planning.com

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ALSO IN PRACTICE: SUBSCRIPTION FEES, P. 30 | DON’T UNDERESTIMATE WOMEN CLIENTS, P. 32 manager insisted on it. When one of the risked failure if the founding members their New York City roots into a global original cast members injured himself didn’t figure out a solution. Putting their entertainment brand. But in the using a router and couldn’t perform, the three blue heads together, they mercurial world of show business, things that I learned about understudy filled in. The unfortunate produced the Blue Man Actor’s Journal, Blue Man founders realized that scaling an advisor practice accident actually sparked the growth of a detailed manual of how to do things thinking too far ahead would hurt, not from Blue Man Group. the Blue Man brand. Not only could the and why certain things were done so help, their scalability efforts. So they original cast members take a much- that the Blue Man spirit and attitude limited their growth vision to 18 to 24 If you wanted to needed break from their rigorous could be conveyed and replicated to months for the purpose of their plan. become a Blue schedules, but also the move ultimately additional performers anywhere. I’m not recommending that same Man, you would led to rapid expansion. You can scale Having a written set of instructions that short-sightedness for everyone; my need to fit the up your practice in a similar fashion by can be replicated effectively as you planning practice, Signature Wealth job description cross-training staff and preparing the scale your practice makes sense for Strategies, has a 25-year plan. What I because there next in line to help you expand the advisors looking to grow their business, am advocating is taking bite-size are a handful reach of your advisor business. as well. growth objectives and incrementally of essential scaling your practice into a larger things to the 3. Own your IP Blue Man Group, by vision. production. Blue Man Group has created some In 2017, Blue Man Group was sold to unique musical instruments like the being able to replicate global entertainment luminaries 1. Know whom you want musically enchanting PVC-pipe themselves and Cirque du Soleil, putting over $60 to hire Drumbone mentioned above. Their expand and grow from million in the pockets of Blue Man First, you need to understand instruments are part of their image, a scale perspective, Group founders. The shows continued what people you’re looking brand, and identity as performers. But not only ensured following the sale since the founders for on your team. If you more importantly, they created and their own success but had already scaled up and established wanted to become a Blue owned these instruments, one of only a also provided career a succession plan with new Blue Men, Man, you would need to fit handful of people in the world to do so. security for their team. staff and infrastructure. the job description because That’s important for financial advisors, Had the Blue Men not prepared for there are a handful of too. Advisors should have their own 5. Stay close to your clients succession, they could have ended up essential things for the unique “instruments,” whether it’s some Even though Blue Man Group scaled its like Vegas entertainers Siegfried and production. You have to be type of plan or process that you can shows by hiring new Blue Men perform- Roy. The duo, whose magic shows somewhere between 5 feet claim as your creation to help you build ers worldwide, founding member Chris were once among the most visited in 10 inches and 6 feet two and your name and brand. Wink conveyed the hefty meaning of Vegas, essentially folded following the have an athletic build. staying close to the brand. He insisted 2003 tiger-mauling incident of Drumming experience is 4. Put your processes in writing on putting his executive role aside to performer Roy Horn. helpful, but more so is a team When Blue Man tried to scale their wear the blue paint and perform in a However, Blue Man Group, by being player attitude both on and production to include a new venue in show periodically. In an advisory able to replicate themselves and offstage. If you’re five feet Boston, its first location outside of New practice, founders and leaders must expand and grow from a scale eight, there’s no need to York, they ran into trouble. After seven continue to meet with clients face-to- perspective, not only ensured their apply. years with the original three performers face and wear the paint, too (if you ever own success but also provided career starring in and overseeing all the shows, took it off in the first place). You need to security for their team. 2. Train your understudy they discovered hiring new Blue Men stay close to your core values and Blue Man Group remains one of the Be prepared for the next Blue cast members and crew was a lot principles that got you where you are best-known brands in entertainment. Man in line. The original harder than it seemed. New cast today and will help get you where you Every year, new audiences line up to three Blue Men performed six members were having trouble interpret- want to be tomorrow. watch them perform. It’s a lesson in days a week over three years. ing scripted words like “excited” and enduring brand awareness and scaling That’s 1200 shows without a “tense” that the original cast effortlessly 6. Plan your growth in small incre- growth that any advisor could emulate break. They had a single performed (remember, without any ments — whether or not they choose to paint understudy if one of the Blue spoken dialogue). The Boston show Blue Man wanted to grow big beyond themselves blue. FP Men couldn’t perform, only because their business Chip Munn CEO, Signature Wealth Group

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life moments when they might need advice from a trusted professional to meet their evolving financial situations Likewise, we’re seeing a and goals. trend in which financial professionals and those A customizable program seeking financial advice The level of service provided in a have begun to opt for the subscription-based plan is completely subscription-based fee customized to a client’s unique needs service model. and objectives to ensure value is being delivered. Each client’s financial A subscription- realities vary in complexity and require based plan different guidance. Clients can choose allows a client from core services such as cash flow to work with and debt planning analysis, compiling their advisor a net worth statement, or simply during critical organizing documents and getting their financial house in order. life moments Advanced services such as chari- when they might table planning, wealth transfer need advice planning and business succession from a trusted planning strategies are also available. professional Depending on the client’s circum- to meet their stances, these situations could take a

Just as Spotify represents the popular subscription model sweeping consumer services, advisors should also consider evolving few months to several years to com- how this model might work for them and their clients. financial pletely resolve. Additional services can situations and be added or removed at any time as goals. the client’s needs change. Embracing subscription fees Pricing for these services can also be Financial control adjusted accordingly throughout the A leading reason clients process. This flexibility creates the gives clients more options request a subscription-based opportunity for targeted financial service is because they feel planning and the ability for clients to For advisors, this model can deepen relationships and help bring they don’t have a grasp on obtain the right guidance at the right interaction with new populations and prospects. their financial situation, and time. customized, ongoing advice By Marianne Caswell provides organization, Subscriptions drive engagement comfort and control. For advisors, the subscription-based A subscription-based model can deepen client relationships In the age of Apple, Netflix and Spotify, more entertainment lovers cut the cord, model allows clients to have and help bring interaction with new clients want a more flexible approach to the opting for subscriptions to enjoy their access to an advisor when populations or prospective clients. services offered to them, and the subscrip- favorite TV series, movies and music. Many they need one most, gain Clients who pay for advice are usually tion-based planning model is the next physicians are starting to charge their confidence over their more serious about their financial financial industry evolution. Advisors are patients membership fees instead of financial futures and choose futures, more engaged with dependents seeking ways to adapt their offerings to meet accepting insurance. The auto industry is their payment plan, typically prior to wealth transfer and more likely changing client needs, including how, when, leveraging monthly vehicle subscriptions — monthly or quarterly. A to return for future needs. where and what type of financial guidance is even products like daily vitamins, clothing subscription-based plan also Subscription-based financial needed. and beauty needs are available to consum- allows a client to work with

GABBY JONES/BLOOMBERG NEWS JONES/BLOOMBERG GABBY Over the past several years, we’ve seen ers via subscription services. their advisor during critical Marianne Caswell President, Park Avenue Securities

30 Financial Planning July/August 2021 Financial-Planning.com

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life moments when they might need planning can meet the needs of a wide advice from a trusted professional to range of clients and help advisors and meet their evolving financial situations firms identify gaps in the client’s Likewise, we’re seeing a and goals. financial well-being that could poten- trend in which financial tially keep them from meeting their professionals and those A customizable program goals and objectives. Ultimately, the seeking financial advice The level of service provided in a real benefit is in the ongoing advice have begun to opt for the subscription-based plan is completely and relationship-building advisors subscription-based fee customized to a client’s unique needs provide to clients. service model. and objectives to ensure value is being delivered. Each client’s financial Clients who pay for A subscription- realities vary in complexity and require advice are usually based plan different guidance. Clients can choose more serious about allows a client from core services such as cash flow and debt planning analysis, compiling their financial futures, to work with more engaged with their advisor a net worth statement, or simply organizing documents and getting their dependents prior to during critical Marianne Caswell financial house in order. wealth transfer and life moments Advanced services such as chari- more likely to return for their high incomes to furnish a comfort- when they might table planning, wealth transfer future needs. able lifestyle and may not put much need advice planning and business succession thought into saving for the future or from a trusted planning strategies are also available. Meeting consumers where they protection for themselves and their professional Depending on the client’s circum- want us to be families. to meet their stances, these situations could take a As consumer preference for subscrip- Divorced clients who are starting evolving few months to several years to com- tion-based services continues to drive over again have appreciated the financial pletely resolve. Additional services can forward, investment advisory firms and personalized service to assist with situations and be added or removed at any time as advisors should pay attention to this inventorying assets and developing goals. the client’s needs change. trend. In adapting to this model, we are strategies to work toward new life Pricing for these services can also be meeting clients in a place they’re goals. High-net-worth clients have also Financial control adjusted accordingly throughout the increasingly familiar with, rather than benefited from this platform through A leading reason clients process. This flexibility creates the asking them to adapt to us. This allows in-depth review of tax mitigation request a subscription-based opportunity for targeted financial our advisors to continue to meet an strategies, asset protection and overall service is because they feel planning and the ability for clients to array of client needs in a method coordination of their financial affairs. they don’t have a grasp on obtain the right guidance at the right outside of the traditional planning Tailored ongoing advice is helping to their financial situation, and time. format. Clients still receive unbiased meet clients where they are, providing customized, ongoing advice financial guidance, but now an evolved guidance when it’s needed most. provides organization, Subscriptions drive engagement format can easily expand or contract Advisors are helping clients meet their comfort and control. For advisors, the subscription-based depending on the client’s needs. financial goals and are building client A subscription-based model can deepen client relationships Our advisors work with clients at relationships essential to a successful model allows clients to have and help bring interaction with new every point on the financial spectrum planning engagement, working to access to an advisor when populations or prospective clients. and have found that many benefit from create value for every client. they need one most, gain Clients who pay for advice are usually this model. For example: Most importantly, we are evolving confidence over their more serious about their financial HENRYs (High Earners Not Rich Yet), our practice to adapt to how clients are financial futures and choose futures, more engaged with dependents a group that spans generations, have increasingly engaging with their their payment plan, typically prior to wealth transfer and more likely needed assistance with planning debt coveted lifestyle brands and moving monthly or quarterly. A to return for future needs. payoff or better understanding their from a commodity to a community subscription-based plan also Subscription-based financial cash flow. These clients tend to use partner. FP allows a client to work with their advisor during critical Marianne Caswell President, Park Avenue Securities

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proachable way, but also in a way that respects their intelligence and their capabilities.” Financial advisor Nicole Middleton Don’t underestimate women clients Holloway, founder and CEO of Strategy Squad in the San Francisco If advisors make female executives, entrepreneurs and heiresses feel dumb or Bay Area, which partners with RIA self-conscious about personal finance, they’ll take their portfolios elsewhere. Natural Investments, sees a growing and “pretty underserved” demograph- ic in her practice: single-women By Dina Hampton inheritors.

It’s a wealth management “Women have more financial earning worth women may not recognize them- “When you’re advising paradox. and decision-making power today than selves in the stereotypical images they a woman managing a Women currently control ever before and yet, too many limit the see reflected back at them. multimillion balance $10 trillion of wealth in the benefits of that power by shying away This may have the effect of souring sheet at work, I don’t U.S., an amount expected to from taking control of their financial them on a particular advisor — or on think you start by triple by the end of the futures,” wrote Kathleen Murphy, presi- advisors overall. saying, ‘Let’s print out decade. dent of personal investing at Fidelity, for It also risks distorting an advisor’s view your grocery budget.’” Why, then, does the the release of a report titled The Finan- of their clients and blinding them to advisory industry tend to treat cial Realities of Being a Woman. emerging sectors of wealthy single These clients, Holloway says, “are them as if they can’t possibly Experts can also use language familiar women and their unique needs. very worried about things like climate understand how to handle the to readers of old-fashioned women’s Melissa Joy, president of Pearl change, wealth inequality and similar money they’ve earned or magazines, zeroing in on perceived Planning in Dexter, Michigan, is careful to issues, and so the main planning inherited? character flaws and offering self-help- assume a high level of sophistication [task] is [to determine] what they Granted, in studies, reports like solutions. about the female clients she serves. really need and how much they can and white papers, analysts Such language can be picked up and “When you’re advising a woman give away.” take care to point out the very repackaged by consumer-facing publica- managing a multimillion balance sheet Such clients often feel conflicted real obstacles women — sin- tions to be absorbed by women them- at work, I don’t think you start by saying, about how they’ve inherited their gle women in particular — selves. ‘Let’s print out your grocery budget.’ money, which makes exploring those must scale in order to reach One danger of this negative feedback We’re diving deep into high-level issues an integral part of crafting a the same retirement plateau loop is that the most desirable high net retirement topics, and in a very ap- financial plan, she says. as their male counterparts. Holloway says she caters to But much of that literature another emerging niche of single also contains a parallel Percentage of never-married adults on the rise women: high-earners who hail from message suggesting that a working- or middle-class families. woman wealth-builder’s Such clients, she says, often want 2006-Women 2006-Men 2016-Women 2016-Men biggest enemy is — herself. help planning an off-ramp from the Women are portrayed as corporate grind fairly early in life. 60% indecisive, cautious, anxious That’s because, although they may and risk-averse, with lower be in their 20s and 30s, “It’s like 40% levels of both perceived and they’re in their 50s or 60s because real financial literacy when even if they don’t have children, compared to men, as seen, for 20% they’re sole caretakers of parents — example, in a 2017 Retirement or even siblings — because they’re the

Income Literacy Gender 0% ones that went out and got a good Differences Report from the 25-29 years 30-34 years 35-44 years 45-54 years 55 years and older education and good jobs ... and American College of Financial Services. Source: U.S. Census Dina Hampton is a business journalist in New York City. She contributes regularly to Financial Planning.

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proachable way, but also in a way therefore they’re not only worrying to support a better car, whereas with that respects their intelligence and about their own financial affairs but a man the assumption would be he’s their capabilities.” also the financial affairs of [others.]” frugal and doesn’t want to spend Financial advisor Nicole Middleton excess money,” she says. Don’t underestimate women clients Holloway, founder and CEO of Women retiring solo Bost says it all comes down to the Strategy Squad in the San Francisco Unmarried women without children spreadsheet: “If they don’t have the If advisors make female executives, entrepreneurs and heiresses feel dumb or Bay Area, which partners with RIA can find themselves at a singular cash flow to put away in their 401(k) self-conscious about personal finance, they’ll take their portfolios elsewhere. Natural Investments, sees a growing disadvantage trying to save enough … we’re not only having a discrep- and “pretty underserved” demograph- for a secure retirement, says Kimberly ancy in the current ability to build ic in her practice: single-women Foss, president and founder of wealth but for the long term.” inheritors. Empyrion Wealth Management in The solution is easy to understand Roseville, California. but difficult to pull off, she says. “[It’s] worth women may not recognize them- “When you’re advising Often, “they have no one to rely on being savvy at how to keep the selves in the stereotypical images they a woman managing a but themselves as they deal with the dollars you’ve earned and how to see reflected back at them. multimillion balance inevitable effects of aging and the make more of those and keep more of This may have the effect of souring sheet at work, I don’t related increases in medical costs,” she those.” them on a particular advisor — or on think you start by says. advisors overall. saying, ‘Let’s print out It’s a prospect they can face with “I left the workforce for It also risks distorting an advisor’s view your grocery budget.’” less money than their single-women- several years in order of their clients and blinding them to with-children counterparts, Joy points to take care of both of emerging sectors of wealthy single These clients, Holloway says, “are out, as they absorb financial setbacks my parents when they women and their unique needs. very worried about things like climate taking time off from work to care for had major medical Melissa Joy, president of Pearl change, wealth inequality and similar their parents, “and then they have no difficulties. ... But I Planning in Dexter, Michigan, is careful to issues, and so the main planning one to care for them when they are don’t have a ‘me’ to assume a high level of sophistication [task] is [to determine] what they old so they may have to play catch- take care of me.” about the female clients she serves. really need and how much they can up to bridge that gap.” “When you’re advising a woman give away.” Foss recalls one client poignantly The gender cash-flow imbalance is managing a multimillion balance sheet Such clients often feel conflicted telling her: “I left the workforce for one reason the industry isn’t taking a at work, I don’t think you start by saying, about how they’ve inherited their several years in order to take care of more clear-eyed view of a demo- ‘Let’s print out your grocery budget.’ money, which makes exploring those both of my parents when they had graphic that will soon control a $30 We’re diving deep into high-level issues an integral part of crafting a major medical difficulties. ... But I trillion block of assets, Bost says: retirement topics, and in a very ap- financial plan, she says. don’t have a ‘me’ to take care of me.” Women currently don’t have the level Holloway says she caters to Jess Bost, an advisor with Consoli- of assets men have, nor can they another emerging niche of single dated Planning in Martinez, Georgia, make up for that shortfall in planning Percentage of never-married adults on the rise women: high-earners who hail from says the fact that women earn less fees. working- or middle-class families. than men (currently 80 cents on the Since no institutional fixes are on Such clients, she says, often want dollar) is just the beginning of the the horizon, it’s up to advisors and 2006-Women 2006-Men 2016-Women 2016-Men help planning an off-ramp from the problem. their clients to fill in the gaps. corporate grind fairly early in life. Outlays for wardrobe, hair, make- “Understanding and seeing our 60% That’s because, although they may up and even bigger-ticket items choices and then being empowered to be in their 20s and 30s, “It’s like women must, or feel they must, buy to make the one that best serves us is 40% they’re in their 50s or 60s because stay even with male colleagues are going to get us much further down the even if they don’t have children, significant and ongoing. road,” Bost says. “Not only crunching 20% they’re sole caretakers of parents — Bost gives the example of two real the numbers with [clients] but really or even siblings — because they’re the estate agents meeting a client in a ‘92 teaching them to feel empowered in

0% ones that went out and got a good Honda Accord. “[A woman] might be their decisions is a big part of 25-29 years 30-34 years 35-44 years 45-54 years 55 years and older education and good jobs ... and judged as not having enough income that.” FP

Dina Hampton is a business journalist in New York City. She contributes regularly to Financial Planning.

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thanks to digital technology, we had direct access. We launched our podcast, “The air to discuss wealth-build- Momentum Advisors Show,” last ing. Of course I agreed. October and are now steadily ap- On the day, not wanting proaching 10,000 listeners per week. to go alone, I asked my We have a 5-star rating on the Apple partner, Tiffany Hawkins, to Podcast app, and Spotify’s algorithms come with me. regularly suggest our podcast to potential listeners based on their Today, my listening patterns. We have over 8,000 10-person firm followers on Twitter, and every now and brings in 5 to then our tweets go semi-viral (emphasis 10 leads a week on semi!). from across the Today, my 10-person firm brings in country. Nearly five to 10 leads a week from across the half fit into our country. The potential clients are aware firm’s client of my background and nearly half fit profile. into the firm’s client profile. Most of the qualified prospects become clients Turns out it wasn’t just any after two relatively brief meetings. radio show, it was a drive- To be sure, we have also continued time program on one of the to leverage traditional print and biggest talk stations on the electronic media, from writing for Allan Boomer and partner Tiffany Hawkins did an interview on the Sirius XM radio network that led to a weekly show. network. What was slated to Financial Planning to appearing on After their show was canceled last year, they started a podcast that has brought in a steady stream of qualified leads. be a 15-minute interview CNBC, Yahoo Finance, Bloomberg and turned into an hour-long the Black News Channel. However, we session with live callers have found the biggest lead sources to How our podcast delivered seeking financial advice on be social media and podcasting. air. That evening our website Not every financial advisor stumbles nearly crashed and the onto a national radio show on SiriusXM, a steady flow of prospects phones rang constantly. The but almost all planners and firms have host was so impressed with the ability to launch a podcast or Launching was the easy part. Our success depended on our segment that she invited YouTube channel. surmounting three challenges, my partner and I quickly learned. us back, which led to a In order to do so successfully, monthly segment on her however, there are three major chal- By Allan Boomer show, and ultimately our own lenges that need to be faced and weekly SiriusXM show on overcome. Sunday mornings. It was 2011. I sat in Madison Square Garden, goal of placing my financial advisory skills in Tiffany and I hosted that Consistency one of 20,000 fans watching Prince perform front of a larger audience. show for three years as the If you set out to create a weekly what would be one of his last big concerts. Fast forward to 2016. One day I found leads poured into our firm. podcast, you have to actually put out a At the time, I worked out of a small office myself sitting in the office of an old friend But in fall 2020 we learned weekly podcast. It is easy to start a managing a portfolio of around 20 clients. who worked in the insurance industry. our contract would not be podcast but difficult to stick with. My reach was very limited, my phone never While doing the usual networking renewed. I was extremely Episodes should drop the same day rang unless it was a wholesaler and I spent a center-of-influence dance seeking introduc- disappointed until I realized each week and at around the same significant amount of time prospecting. tions to each other’s clients, she shared that that during those years we As I watched in awe as the iconic artist she co-hosted a daily radio show on had developed a national Allan Boomer, a Financial Planning columnist, is managing partner and chief investment officer of Momentum Advisors in New York. He co-hosts

MOMENTUM ADVISORS MOMENTUM performed his catalog of hits, I set myself the SiriusXM and asked if I’d like to come on the following — one to which, a weekly podcast that focuses on wealth building and entrepreneurship. Follow him on Twitter @MomentumAdvice.

34 Financial Planning July/August 2021 Financial-Planning.com

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thanks to digital technology, we had time. Many would-be podcasters own slant. direct access. become discouraged with the process For instance, when we covered We launched our podcast, “The and find it challenging to come up with socially responsible investing, we titled air to discuss wealth-build- Momentum Advisors Show,” last fresh content each week. the show, “Is your money racist? Is your ing. Of course I agreed. October and are now steadily ap- It’s also nearly impossible to host the money sexist? Is your portfolio ruining On the day, not wanting proaching 10,000 listeners per week. show alone, so find a broadcasting the world?” When we recently discussed to go alone, I asked my We have a 5-star rating on the Apple partner. estate planning, we called the episode partner, Tiffany Hawkins, to Podcast app, and Spotify’s algorithms If you over-rely on guests, you’ve just “Trust fund babies.” Our holiday come with me. regularly suggest our podcast to made your job even harder. gift-giving show was “No body wash for potential listeners based on their You have to not only coordinate Christmas.” Today, my listening patterns. We have over 8,000 schedules but also ensure the guests Not only do we lure people in with 10-person firm followers on Twitter, and every now and are actually interesting. catchy titles, we keep them listening brings in 5 to then our tweets go semi-viral (emphasis with conversations that you’d have with 10 leads a week on semi!). Ironically, many of the a friend over a drink as opposed to from across the Today, my 10-person firm brings in most popular financial sounding like we’re delivering a country. Nearly five to 10 leads a week from across the “experts” out there who seminar. half fit into our country. The potential clients are aware are the best at building firm’s client of my background and nearly half fit followers on social Building an audience profile. into the firm’s client profile. Most of the media happen to also The final challenge is finding and qualified prospects become clients growing your audience. Building it to a Turns out it wasn’t just any after two relatively brief meetings. have the worst advice. crescendo may take months, if not radio show, it was a drive- To be sure, we have also continued Social media needs years. Ironically, many of the most time program on one of the to leverage traditional print and strong, credentialed popular financial “experts” out there biggest talk stations on the electronic media, from writing for planners like you. who are the best at building followers network. What was slated to Financial Planning to appearing on on social media happen to also have be a 15-minute interview CNBC, Yahoo Finance, Bloomberg and And, news flash, many of the guests the worst advice. Social media needs turned into an hour-long the Black News Channel. However, we you may have in mind will come across strong, credentialed planners like you. session with live callers have found the biggest lead sources to as boring in front of a microphone. Not You can build a following by seeking financial advice on be social media and podcasting. everyone is a perfect radio interview. guesting on other people’s podcasts air. That evening our website Not every financial advisor stumbles Equally as important as releasing — any podcasts. I love being on nearly crashed and the onto a national radio show on SiriusXM, episodes regularly is engaging with platforms where audiences are not phones rang constantly. The but almost all planners and firms have your social media pages afterwards. specifically looking for financial advice. host was so impressed with the ability to launch a podcast or After each new episode is released, we You also want to cross-pollinate a lot of our segment that she invited YouTube channel. send out 20 to 30 tweets summarizing different channels — that’s how you us back, which led to a In order to do so successfully, the content we covered. We respond to get crossover listeners. monthly segment on her however, there are three major chal- every listener’s tweet with actual You can also gain listeners by show, and ultimately our own lenges that need to be faced and answers — not just rote invitations to leveraging your own social media, weekly SiriusXM show on overcome. schedule a call. writing thought leadership pieces and, Sunday mornings. as mentioned above, staying consistent Tiffany and I hosted that Consistency Original content with your broadcast and social media show for three years as the If you set out to create a weekly The second challenge is creating activities. leads poured into our firm. podcast, you have to actually put out a interesting and unique content. There Follow this advice and, while I can’t But in fall 2020 we learned weekly podcast. It is easy to start a are so many financial advisors out guarantee that you’ll have the success our contract would not be podcast but difficult to stick with. there and most of us sound exactly the of Prince Rogers Nelson, I do believe renewed. I was extremely Episodes should drop the same day same. You have to find your own voice you will help a lot of people — and disappointed until I realized each week and at around the same and use it to deliver advice with your gain some clients in the process. FP that during those years we had developed a national Allan Boomer, a Financial Planning columnist, is managing partner and chief investment officer of Momentum Advisors in New York. He co-hosts following — one to which, a weekly podcast that focuses on wealth building and entrepreneurship. Follow him on Twitter @MomentumAdvice.

Financial-Planning.com July/August 2021 Financial Planning 35

035_FP0721 35 7/6/2021 1:38:17 PM Portfolio ALSO IN PORTFOLIO: THE RISE OF ESG’S S AND G, P. 38 about your salary or pricing are you not having? Why? Does it feel awkward? Embedded in their answer is the life. This gives you intimate degree to which your client feels access into what role money comfortable being transparent with plays in their lives, and puts friends, colleagues and professional you in a unique position to peers. Same for when it comes to their talk about the missing pieces comfort with negotiating. Not to of the money conversation: mention if they feel proud of or self- transparency, power and conscious about what they’re earning. intimacy. You can tell a lot 2. With whom do you share your about your client’s relation- savings and investing targets? How do ship with money based on you choose these people, and what these pieces. influences how much you disclose? Do Your starting point is the you share the current balances or financial plan you’ve created market value of your holdings? for them. Even if you don’t This will tell you the degree to which work as a traditional financial your client is not only transparent, but planner or advisor, you’ve likely designed a plan to Jacquette Timmons, a financial behaviorist, is the president and CEO of Sterling Investment Management. Follow her on Twitter at @Jacqmtimmons. close the gap between their present and future. Continued from page 23

Clients should main issue is that these events are understand the happening, these petitions are decided oft-overlooked, without opposition.” Help clients with their more nuanced The regulator’s framework for a emotional specialized roster of arbitrators and other money relationship dimensions of changes to the expungement process money. also drew attention from industry groups. Advisors need to focus on more than just the mechanics. SIFMA weighed in with a comment letter Each dimension of this expressing support for the proposal, but plan exposes where there’s a warned against other aspects of the rule By Jacquette Timmons need for them to be more such as a limitation on the grounds on transparent, to express or which an expungement could be There’s a common cultural myth that says “safer,” less emotional dimensions of money. share their power and to awarded. A spokeswoman for the group people don’t talk about money. I disagree; I But I believe if you got your clients to also practice more intimacy — declined to comment further, saying that think we talk about money all the time. Just focus on the oft-overlooked and more and with whom. SIFMA’s position was “adequately not enough about what I describe as “the nuanced emotional dimensions of money, As an example, let’s use addressed in our comment letter.” missing pieces of the money conversation.” you could serve them even better. These are questions related to the four A spokeswoman for FSI stressed the Here’s what I mean: You talk with your the invisible elements that impact one’s things anyone can (broadly) importance of preserving “access to clients about their personal and financial results, one’s feelings and one’s experiences do with their money, regard- information about a financial advisor goals, their appetite for risk (and what type) with (and because of) money. These put a less of where they are on the that is pertinent to the advisor-client and the financial decisions they need to spotlight on their relationship with money. income and wealth spectrum: relationship,” while ensuring that advisors make to meet their short- and long-term And you don’t have to be a financial earn, save, invest and spend. “have the ability to reasonably remove goals — investing and otherwise. therapist or financial behaviorist, like me, to On the surface, these claims that are misleading or have no These talking points are, indeed, critical. do this. questions may seem paro- regulatory or investor protection value.” They also happen to focus mostly on the As an advisor, you already ask your clients chial. But they are from it.

BLOOMBERG NEWS BLOOMBERG mechanics of money. In other words, the questions about their personal and financial 1. What conversations Kenneth Corbin is a Financial Planning contributing writer in Boston and Washington. Follow him on Twitter at @kecorb.

36 Financial Planning July/August 2021 Financial-Planning.com

036_FP0721 36 7/6/2021 1:06:11 PM Portfolio

ALSO IN PORTFOLIO: THE RISE OF ESG’S S AND G, P. 38 about your salary or pricing are you not also practicing financial intimacy and they feel awkward or safe talking about having? Why? Does it feel awkward? who their financial partners are. money, and why. Embedded in their answer is the Their answers also reveal whether You’ll also learn if they need to be life. This gives you intimate degree to which your client feels they are saving and investing from a more direct (or share less) with a access into what role money comfortable being transparent with place of fear or hope. (By the way, I think specific partner or family member. plays in their lives, and puts friends, colleagues and professional you can be transparent and not intimate Their answers provide insight as to you in a unique position to peers. Same for when it comes to their with someone. But it’s hard to be the motivations and emotions that drive talk about the missing pieces comfort with negotiating. Not to financially intimate and not transparent.) their behavior and choices, as well as of the money conversation: mention if they feel proud of or self- 3. When do you share how much you where self-shame and judgment may be transparency, power and conscious about what they’re earning. paid for something? getting in the way. These questions intimacy. You can tell a lot 2. With whom do you share your From this answer, you’ll be able to facilitate a conversation that helps you about your client’s relation- savings and investing targets? How do glean clues about their sense of control to be a better professional for them. ship with money based on you choose these people, and what and power (are they exercising or Likewise, by helping your clients these pieces. influences how much you disclose? Do abdicating it?) and perhaps find out if discover more about their relationship Your starting point is the you share the current balances or they are secretive. with money — via the dimensions of financial plan you’ve created market value of your holdings? Aside from their conversations with transparency, power and intimacy for them. Even if you don’t This will tell you the degree to which you, their answers (or lack thereof) to — you end up doing the same for work as a traditional financial your client is not only transparent, but questions like the above reveal where yourself. FP planner or advisor, you’ve likely designed a plan to Jacquette Timmons, a financial behaviorist, is the president and CEO of Sterling Investment Management. Follow her on Twitter at @Jacqmtimmons. close the gap between their present and future. Continued from page 23 The FINRA spokeswoman would not Bill Singer, a securities attorney and Clients should main issue is that these events are discuss the feedback the group received frequent FINRA critic, says withdrawing understand the happening, these petitions are decided from the SEC, and a spokeswoman for the rule preserves a status quo of “a oft-overlooked, without opposition.” the commission, reached by email, did too-facile system whereby fraudsters are more nuanced The regulator’s framework for a not immediately offer any comment. But offered the troubling ability to clean emotional specialized roster of arbitrators and other some industry observers took FINRA’s records that likely should not be redacted dimensions of changes to the expungement process move as a reaction to new SEC leader- from public view.” money. also drew attention from industry groups. ship, and as evidence that Chairman Now that FINRA has withdrawn its SIFMA weighed in with a comment letter Gary Gensler may be more inclined to proposal, PIABA hope it will embrace the Each dimension of this expressing support for the proposal, but prioritize consumer protections when idea of embedding an investor advocate plan exposes where there’s a warned against other aspects of the rule weighing a proposal such as FINRA’s in the arbitration process to make the need for them to be more such as a limitation on the grounds on expungement revision. proceedings more adversarial. PIABA’s transparent, to express or which an expungement could be “I think this is an early signal that Chair ultimate goal, Bragança says, is to move share their power and to awarded. A spokeswoman for the group Gensler is going to take those sorts of expungement away from arbitration and practice more intimacy — declined to comment further, saying that concerns from investor advocates very into a regulatory process, where officials and with whom. SIFMA’s position was “adequately seriously,” says Barbara Roper, director of from state agencies, the SEC or FINRA, As an example, let’s use addressed in our comment letter.” investor protection at the Consumer would make the final determination of questions related to the four A spokeswoman for FSI stressed the Federation of America. whether to remove a complaint from a things anyone can (broadly) importance of preserving “access to “As a practical matter, if FINRA had broker’s record. So far, she says, FINRA do with their money, regard- information about a financial advisor forced the issue, instead of voluntarily hasn’t warmed to those ideas. less of where they are on the that is pertinent to the advisor-client withdrawing the proposal, it wouldn’t “Has FINRA been receptive? In a income and wealth spectrum: relationship,” while ensuring that advisors have gotten its relationship with the new word, no,” Bragança says. “I’m still earn, save, invest and spend. “have the ability to reasonably remove chair off to a great start, assuming (as I waiting for a phone call. I would On the surface, these claims that are misleading or have no do) that this action was taken in response absolutely welcome the opportunity to questions may seem paro- regulatory or investor protection value.” to concerns raised by his office,” she adds. work with FINRA on this.” FP chial. But they are from it. 1. What conversations Kenneth Corbin is a Financial Planning contributing writer in Boston and Washington. Follow him on Twitter at @kecorb.

Financial-Planning.com July/August 2021 Financial Planning 37

037_FP0721 37 7/6/2021 12:57:23 PM Portfolio

mine — let’s call them Emily and Steve — recently asked me, “How can our one family investment portfolio make good financial return while a difference?” supporting fairness to all I asked them if they had ever who face discrimination in attended a demonstration to support corporations and society at a cause. large, based on characteris- “Of course,” they answered. tics such as gender, race, I asked them to imagine if they and ethnicity, sexual orientation others who attended had decided not and gender identity, as well to go. as disability, age, geography What if, instead of being counted or personality. that day, they thought, “Well, they’ll When you add gender have a good turnout without me, so I’ll and diversity as a screen to stay home.” your clients’ investments, you not only offer them a chance Showing up to invest in companies that We all know the end result of such a research shows have a mindset: No show. No voice. No power. chance for financial outper- No change. formance, but you also give Emily and Steve got it. them a chance to have an Collectively, by aligning their impact on fairness in investments with their values, our corporate America. clients can help change corporate

Demonstrators at the fourth annual Women’s March in Washington, D.C., on Jan. 18, 2020. behavior. Investing in companies that S&P 500 support diversity and withdrawing companies with money from companies that don’t is, in Rise of the ESG’s S and G more gender fact, showing up to make change. diversity on As the former U.S. senator Barbara Leadership and diversity representation can guide advisors boards see 15% Mikulski said, “Each one of us can make when making investment decisions. higher return on a difference. Together we make equity. change.” To help our clients like Emily and By Eve Ellis The business case has Steve, we select managers who seek been well researched. strong financial returns and fairness in When most people think of ESG investing, advisors to learn about gender lens and S&P 500 companies with the workplace. they think of climate change — portfolios diversity investing. more gender diversity on How do we do this? that avoid companies that harm the Many may not know about investment boards see 15% higher return We look for companies that priori- environment, or those that invest in compa- tools to identify companies that are contrib- on equity, according to a tize fair compensation; hire, retain and nies that protect the environment. uting to or detracting from fairness at their new report by BofA Global promote women and diverse talent; But the potential impact of ESG invest- workplace. Research. have strong family leave policies; bring ments broadened in 2020 with the attention Looking at boards, leadership representa- This is the latest of reports on more women and people of color for to and prioritization of social and equity tion, diversity representation and other that complement earlier their executive teams and boards; and issues. Beyond the “E,” the “S and G” rose to indicators can guide advisors when consider- studies by McKinsey, Harvard implement policies that will achieve a prominence for investors, particularly ing investing in companies that align with Business Review, Morgan high score on the Human Rights families and foundations that care about their clients’ objectives. Stanley, Catalyst and others. Campaign Foundation’s Corporate gender and diversity. Like broader ESG investments, gender Let’s dig deeper on this Equality Index. This heightened priority provides an and diversity lens investing helps meet client matter of impact.

BLOOMBERG NEWS BLOOMBERG ample and proactive opportunity for values. In this case, clients seek to have a Prospective clients of Eve Ellis is a wealth advisor at The Matterhorn Group at William Blair Private Wealth Management.

38 Financial Planning July/August 2021 Financial-Planning.com

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mine — let’s call them Emily and Steve As I further explained to my pros- amount invested defines ESG as a — recently asked me, “How can our pects, social impact can be assigned a massive movement. one family investment portfolio make collective monetary value. Though they have not yet gathered good financial return while a difference?” The level of AUM invested by retail as much AUM as the older and more supporting fairness to all I asked them if they had ever and institutional investors in gender established ESG funds, gender and who face discrimination in attended a demonstration to support and diversity funds is growing. diversity lens investments are already corporations and society at a cause. In the U.S., by the end of 2019, $3.4 part of a movement and therefore are large, based on characteris- “Of course,” they answered. billion was invested in gender lens already a force for change. tics such as gender, race, I asked them to imagine if they and investments. Companies are responding posi- ethnicity, sexual orientation others who attended had decided not tively to the public conversation, as and gender identity, as well to go. When the world’s largest well as to investors and other stake- as disability, age, geography What if, instead of being counted pension plan invested in holders including employees, custom- or personality. that day, they thought, “Well, they’ll gender lens investments, ers, vendors, suppliers and their When you add gender have a good turnout without me, so I’ll AUM in the category communities. and diversity as a screen to stay home.” grew to $11 billion. your clients’ investments, you How to make a difference not only offer them a chance Showing up At the end of 2020, when the largest If your prospective client asks, as Emily to invest in companies that We all know the end result of such a pension plan in the world — Japan’s and Steve did, “How does my money research shows have a mindset: No show. No voice. No power. GPIF — invested in gender lens make any difference?” below are a few chance for financial outper- No change. investments, AUM grew to $11 billion. affirmations that you can provide: formance, but you also give Emily and Steve got it. At the same time, organizations, • Many companies now report their them a chance to have an Collectively, by aligning their corporations and government entities social performance in their investor impact on fairness in investments with their values, our that pressure companies to become a meetings and corporate social respon- corporate America. clients can help change corporate force for fairness represent substantial sibility reports. behavior. Investing in companies that AUM. • Many companies now tie executive S&P 500 support diversity and withdrawing One example is the 30 Percent compensation to achievement of companies with money from companies that don’t is, in Coalition, a nonprofit pressuring diversity goals. more gender fact, showing up to make change. companies to increase the number of • The organization 20/20 Women on diversity on As the former U.S. senator Barbara women and people of color named to Boards, having achieved its goal of boards see 15% Mikulski said, “Each one of us can make board positions. 20% representation of women on higher return on a difference. Together we make Coalition members include state and corporate boards by the year 2020, has equity. change.” local treasurers, asset managers, recently changed its name to 50/50 To help our clients like Emily and nonprofits and private equity firms, Women on Boards. The business case has Steve, we select managers who seek among others. • At one of the largest investment been well researched. strong financial returns and fairness in The coalition now represents $7 bank’s annual meetings this spring, S&P 500 companies with the workplace. trillion in AUM. 49% of shareholders voted in favor of more gender diversity on How do we do this? examining how the bank uses manda- boards see 15% higher return We look for companies that priori- Collective monetary power tory arbitration in employee complaint on equity, according to a tize fair compensation; hire, retain and Your clients’ investments add to this cases. new report by BofA Global promote women and diverse talent; collective monetary power. This issue would not even have been Research. have strong family leave policies; bring According to the Forum for Sustain- discussed just a short while ago. This is the latest of reports on more women and people of color for able and Responsible Development, Clients increasingly want to align that complement earlier their executive teams and boards; and one in three dollars of U.S. invested their investments with their values. studies by McKinsey, Harvard implement policies that will achieve a assets are in ESG funds. They want to show up. But don’t take Business Review, Morgan high score on the Human Rights That’s having an impact. And just my word for it. Stanley, Catalyst and others. Campaign Foundation’s Corporate business managers notice this. Ask your clients — before they ask Let’s dig deeper on this Equality Index. So, too, do government officials. The you. FP matter of impact. Prospective clients of Eve Ellis is a wealth advisor at The Matterhorn Group at William Blair Private Wealth Management.

Financial-Planning.com July/August 2021 Financial Planning 39

039_FP0721 39 7/6/2021 1:46:03 PM The tech investment squeeze

Did your Continued from page 25 Burns says. “We are hearing and seeing that investments for custodians as well as venture they are wanting us to provide more and firm address capital and private equity firms. actually adopting more of what we provide.” pandemic- After years of wirehouses deploying Charles Schwab, which has faced questions related gaps considerable resources to acquire startups, about how it will support the small advisory build next-generation software of their own, firms on the TD Ameritrade custodial platform with new tech incorporate advanced data analytics and it acquired in 2020, offers its Portfolio Connect or existing solve the integration problem that still plagues platform for free to advisors who custody independent fintechs, the pendulum is exclusively with Schwab and those with under resources? swinging in the other direction, Kitces says. $100 million in AUM. The program has seen a “The next stage is starting to begin, and “good uptick in usage,” says Andrew Salesky, because it’s so focused broadly around senior vice president of digital advisor solutions. 40% automation, which is particularly profit- “All advisors, generally being small business No 60% enhancing for large-scale enterprises, I do owners, they’re all expense-sensitive,” Salesky Yes think you’re seeing a disproportionate amount says. “They’re already spending a considerable of investments,” he says. amount on tech, and just looking to get more But the pendulum will eventually swing back from it. As a custodian, we are seeking to the other way. If financial institutions find enable that.” success with these new technologies, it only validates the business case for a fintech “Too small to be big, too big to be small” developer to replicate the functionality for As for why many small advisors aren’t planning independent advisors, Kitces says. to increase their technology budget, it could “If wirehouses demonstrate how to do this just be the fact that most smaller firms are well with practical business applications, newer and already using modern software, someone’s future pitch to a venture capital while larger firms are more likely to have firm is a next-best-action engine for the outdated systems, Kitces says. And new independents,” he says. “It just takes several technology often only produces a few years to play out.” percentage points of increased productivity — enough for a measurable impact to a large Where custodians fit in firm’s profits but less meaningful for a sub-$100 Custodians have a role to play in helping the million advisor, he adds. entire independent market — large and small “Small in this nomenclature is almost all firms — keep pace with the wirehouse channel, solo advisors,” Kitces says. “Once you get to especially as advisors increasingly demand where you’re comfortable with your more tightly integrated technology technology, you reach a point where it’s not all ecosystems. Fidelity, for example, is focused on that appealing to make changes.” making its Wealthscape platform a holistic If anything, the large RIAs could face tool that will largely meet advisors’ needs, escalating technology expenses as they while bolstering support for other third parties. continue to grow, but before they can afford to It’s not a surprise that smaller advisors are build in-house tools like a wirehouse can. looking to get more out of existing technology “Just from a pure profit margin, small firms rather than invest in something new, says Lisa are doing fine,” Kitces says. “The challenge Burns, head of platform technology at Fidelity large firms are finding is it’s really hard to scale Investments. an advisory firm when you’re too small to be “Most [advisors] use about 20% of the big, and too big to be small.” FP functionality, and that is starting to change,”

Ryan W. Neal is the technology editor at Financial Planning. Follow him on Twitter at @ryanWneal

40 Financial Planning July/August 2021

040_FP0721 40 7/6/2021 1:17:41 PM It’s time to hear their voices Access Denied is a revolutionary podcast featuring more than two dozen professionals providing a comprehensive examination of institutional barriers and outright racism across many sectors of ﬁ nancial services.

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