Definable, Repeatable and Scalable...

Michael Kitces recently wrote an article on market volatility and our, FA's, ability to scale our model if we "customize" our client investments. The last link is below is to Kitces' article.

PFGC has always maintained that we have to have a "definable" investment process. This simple means that we must be able to tell a prospect/client on why/how we invest their money to meet their needs and goals. FAs are encourage to first develop an investment philosophy. Yes a philosophy before we build a portfolio. Two reasons. First how can we tell a prospect how we are going to invest their money to assist them in meeting their needs and goals before we have done a Discovery? A process designed about how you, the FA, invests is the old way. Today relationship selling is driven to "why" we invest the way we do. Fully 50%, the first 50%, of your approach to investing should be designed to tell the prospect/client "why" . Second, your Investment Philosophy has to take into account that prospects/clients are different, with different tolerances, tax needs and time horizons. This is explored in depth in PFGC's Retention/Attrition Webinar and the link is immediately below.

 https://attendee.gotowebinar.com/recording/611154028166285059?assets=true

Repeatable is simply that your Investment Philosophy is applicable to a wide spectrum of your clientele. If an FA wants to "bet" on the market by over weighting an Index, Sector or Stock to such a degree that it disregards prudent Portfolio Management then the FA has not developed a "repeatable" process. Portfolio Management is a skill set and any skill set can be honed. FAs should consider getting the CPM designation, Certified Portfolio Management, to learn the basic fundamentals of portfolio construction and maintenance.

Scalable is simple, FAs must be on a discretionary platform. How can you scale your business and effectively and efficiently manage our client's assets if two (2) conditions are not met. First you have a standardized investment model and second the model is on a discretionary platform. It takes three (3) months to move a book with over $100 million in assets if the FA has a "customized" investment process. This "customized" process is not indicative of us being a prudent steward of our client's money when the world trades in a 24/7 cycle in millionths of a picosecond. We must be better.

I have asked many FAs what is their value proposition versus a robo-advisor? Amazingly to me the overwhelming response is I hold in my clients on the way down, hand holding! I could not disagree more.

If a FA has a standardized investment process built on prudent and accepted portfolio construction rules that resides on a discretionary platform then the FA can mitigate some of the downward market moves. I know, I have heard I am not a market timer and if the client holds through the market will come back. These are true statements but also simplistic when a client can have a robo-advisor and quickly and easily move money to the sideline on their own. Where are we in this scenario? Does a thirty (30) year old hold through market corrections? Possibly as the thirty (30) year old has time to recover but what about a sixty (60) old? Hold through?

We must change. Products are dead and strategies are now driving our value propositions. Ask your Asset Management's wholesalers. Asset Managers now know that they have to be part of strategy and no longer a stand alone investment choice. Look at State Street. They just announced lower costs on fifteen (15) ETFs. The fifteen lower (15) ETFs are not news but that the fifteen (15) can be used to build a portfolio is news. State Street is offering a strategy not just a product.

When I started as a baby broker 43 years ago the largest Merrill Lynch FA in Florida, Customer Man in those days, had $10 million in assets.  Today FAs are literally managing billions today. To put in perspective if you have over $250 million in assets your book is larger than 90% of mutual funds and Hedge Funds. You are a business. Act like it. We must train ourselves to portfolio management, CPM, get on your firm's discretionary platform and develop investment strategies that allow us to positively affect maintenance our client's capital.

We have been in the biggest and longest bull market in history. Could it continue, sure. But the deciding factors in our success will be driven by our ability to adapt to a low cost, standardized investment solution on a discretionary platform that allows us to meet our client's goals in an effective and efficient manner. Because where the market going up is always good, our revenues go up with the market, the main driver of our business is the gathering of net new assets and a "customized" business model is just not scalable.

https://www.kitces.com/blog/market-volatility-customized-client-portfolio-rebalancing-model-management-client-relationship/?utm_source=rss&utm_medium=rss&utm_campaign=market-volatility-customized-client-portfolio-rebalancing-model-management-client-relationship&utm_source=Nerd%E2%80%99s+Eye+View+%7C+Kitces.com&utm_campaign=5f6d4cc74e-NEV_MAILCHIMP_LIST&utm_medium=email&utm_term=0_4c81298299-5f6d4cc74e-57148589

Danny

"One left-footed step per day"

Process for Growth Consulting 

Daniel G Gallagher - CEO

Business: 866.515.9995

processforgrowth@gmail.com

Twitter: @PFGC1

Blog: processforgrowth.blogspot.com

Good morning (Mrs./Mr.) Client this is your Sales Person

Good Morning

Hard to imagine using the words, "Sales Person", instead of Financial Advisor? As crazy as it seems to us there is a real possibility this will be on our cards in the near future.

PFGC's blog, link below, covered this issue in June of 2017 and stated that the new SEC Fiduciary Rule would be a lot closer to the BIC standard than the Suitability Standard. If reports are to believed very soon Financial Advisors will be forced to identify themselves to clients by what standard they are working under. Adviser/Advisor or Sales Person?

https://www.blogger.com/blogger.g?blogID=4582280342037209616#editor/target=post;postID=7427197525600435201;onPublishedMenu=allposts;onClosedMenu=allposts;postNum=7;src=postname

Let's explain. The Investment Act of 1940 stated that if an Adviser takes a fee for advice we are fiduciaries. The Industry for years, decades, fought and won a proviso which was referred to as The Merrill Rule. The Merrill Rule was simple. Financial Advisors could be paid in fees and not be a Fiduciary. The Fiduciary Industry fought for years with the SEC/FINRA to no avail and finally sued the U.S. Government, in court, for not enforcing the laws of the United States. And really to no one surprised the Fiduciary Industry won around 9 to 10 years ago. The Courts ordered the SEC/FINRA to set the standard. 

The Financial Industry then went into the four corner offense, in other words stalled, for another 10 years. Interestingly ERISA Accounts did not fall, legally, under the SEC/FINRA. So President Obama ordered the DOL to come up with a fiduciary standard for ERISA Accounts. We have all lived through this process but let us clarify the role of the courts. The Financial Industry lost decisively in the Dallas Federal Court last year and then appealed to the New Orleans Court and that decision is expected maybe next month or in March, after the Mardi Gras. First things first in New Orleans. This lawsuit is separate from the Fiduciaries suing the U.S. over the 1940 act. The Financial Industry claimed that the rule was hurried through with no input from the Industry. Unfortunately the DOL was in the works for 7 years and the courts ruled that they followed all the rules and everyone had time to comment. The interpretation of the Courts ruling was that the Financial Industry lost decisively.

http://www.investmentnews.com/article/20180110/FREE/180119989/court-decision-on-dol-fiduciary-rule-expected-in-february 

I don't think think the Financial Industry is looking forward to the decision. At all.

Yesterday Investment News, link below, published their thoughts on what the SEC will announce in the next couple months. There is a lot in the article but the second to last sentence caught my attention. See below. If this is true, I say if, then we have a problem. 

https://mail.google.com/mail/u/1/#inbox/16083c148c7a20da?compose=160e532ba9df9713

The SEC’s fiduciary rule proposal may ban brokerage firms from allowing their salespeople to call themselves financial advisers unless they accept a customer-first fiduciary obligation,  according to the “Journal.”

The link below is also from Investment News from December of 2017 which states that 40% of client assets are on a fiduciary platform. Hence the challenge. We must be aware that if we want to portray ourselves as Advisers we must move as quickly as possible to a discretionary platform. Nothing indicates that we will be given a pass.

https://advisorhub.com/fiduciary-standard-governs-40-retail-assets-cerulli/

There has been a lot of thunder and lighting about the DOL and fiduciaries. Most of what I read are uninformed opinion from FAs with an axe to grind.  But soon it will not be thunder and lighting, ie above our pay grade, but a reality that we will be asked to deal with.

So take a first left-footed step today and control your own future. Start your CFP and move to a discretionary platform. PFGC believes in 10 years we all will have to be minimum a CFP. Take tha step today.

Danny

Fidelity's Custodial Report on RIA Fees December 18th 2017

Good morning

Fidelity just released a report this morning from their Clearing & Custody Solutions division on what they are seeing as it pertains to RIA Pricing, aka fee compression, in 2017.

Several interesting facts. First below the headline before the article starts is the line below stating that advisers are unbundling fees for financial planning. This has long been a basic tenet of PFGC philosophy. As fees compress we will want a transparent pricing model so we can charge for wealth management services.  If this is true then Designations and Centers of Expertise will have to be an important part of our business model.

The impact of robo-advice is driving more advisers to unbundle fees to highlight the value of planning

Next with markets at all time highs and the biggest and longest bull market in history the average revenue per RIA dropped 4%. This can not be a good sign. 

Meanwhile, annual revenue per adviser dropped to $538,00, down from $561,000 a year earlier.

PFGC believes that our fees will decline but that we are far more valuable than a robo if we can change our investment process, scale it and most importantly articulate it. 

"The unbundling is driven by the robos providing asset management for a very low fee, and that makes it apparent to clients that the asset management is the lowest value provided to them," 

PFGC has had a target of 50 to 60 basis points for our fees in the next 5 years. The Fidelity Research, below, shows we are well on our way. If we are going to be charging a fee of 60 bips for an average account than I think we can assume larger accounts are going to be lower, maybe 25 to 30 bips.

The research found a median fee gap between stated and actual fees of 21 basis points, with actual fees charged across all clients averaging around 64 basis points.

PFGC believes in connecting the dots. 

• If our fees goes down we will need to manage a lot more assets to maintain our lifestyles
• To manage a lot more, think a billion, then we will have to employ a standardized investment process, think models, so we can efficiently and effectively manage our client's assets
• If you are going to build a model PFGC believes the model will have to be low cost and tax efficient with much better performance than we have delivered in the past.
• If you run a standard model then Metrics will be incredibly important
• If we are paid less, asset management as a low valued offering, then we will have to incorporate wealth management into business model. REAL WEALTH MANAGEMENT!
• Charging a fee for Wealth Management means that we can add value and clients will want to know why they should pay us for Wealth Management advice.
• That means designations will be critical for our ability to charge for wealth management advice
• To deliver a wealth management offering we first must know all the needs and goals of our clients so developing an in depth Discovery Process is essential.
• If we do the Discovery and understand our client's needs and goals we will be forced to incorporate Centers of Expertise into our business model so we can meet the needs and goals of our clients.
• If we want to incorporate multiple Centers of Expertise, SO WE CAN GET PAID, then we need to standardized our interaction with Centers of Expertise.
• Finally we must move to a business model that that has a standardized Business Development Process.  The main business driver to grow our businesses is new relationships not performance.

As a Financial Advisor we must become "the tip of the spear". This means all our functions, teaming, strategic partnering, affiliations must be designed to get us in front of new prospects.

                  All assets are good assets, any relationship is better than all assets. 

https://www.fa-mag.com/news/ria-fees-and-revenues-down--fidelity-says-36223.html

http://www.investmentnews.com/article/20171218/FREE/171219933/fidelity-report-says-rias-are-cutting-fees-working-harder

Danny

"One left-footed step per day"

Disruption of our Business Model

Michael Kitces email today addresses what PFGC has maintained for several years, our business model is being disrupted as the fees for AUM is declining. PFGC believes that fee compression is accelerating as the adoption rate for ETFS is accelerating. Kitces speaks of several different possible outcomes including that we give away for free managing investments while charging for wealth management advice. What Kitces fails to mention is that wealth management is a spotty proposition in that I doubt we could charge a fee every year as we do for AUM. Just saying we service your wealth management needs for fee and give you AUM advice for free doesn't feel like it would hold up to scrutiny. 

https://www.kitces.com/blog/cross-subsidy-industry-disruption-financial-advisors-bps-custody-indexing-2-0/?utm_source=rss&utm_medium=rss&utm_campaign=cross-subsidy-industry-disruption-financial-advisors-bps-custody-indexing-2-0&utm_source=Nerd%E2%80%99s+Eye+View+%7C+Kitces.com&utm_campaign=76c679cec8-NEV_MAILCHIMP_LIST&utm_medium=email&utm_term=0_4c81298299-76c679cec8-57148589

PFGC doesn't believe in an either or world or future. ETFs are simple, diversified and low cost but as PFGC points out in the Retention/Attrition Strategies webinar  we can still, will and do add value. Link is below.

https://attendee.gotowebinar.com/recording/611154028166285059

What PFGC has great clarity on is that whatever the outcome our fees will be lower, much lower. So a standardization of all our business processes is necessity so we can manage a lot more assets as we move to add wealth management to our offering.

I realize a lot of us consider ourselves wealth managers but the litmus test for PFGC is are we willing to move to a model like CPAs and Estate Lawyers where we are paid by the hour for our advice? I think not. We could do it but I doubt we would be paid at the same level we are today. Yes we do offer some aspects of wealth management but I believe we are many iterations of our business model away from not only claiming to be wealth managers but are licensed, certified and trained to deliver that offering.

Whatever the end game we will not leap to the conclusion. We need to concentrate on next steps in both managing AUM and adding wealth management capabilities and not worry about the ultimate endgame. Don't worry what you can't control/influence but concentrate on what we can change.

"one left-footed step per day" is PFGC's attempt to focus on the art of the possible and not on the impossible.

Danny

Value Proposition and Pricing

Good morning

As we enter the fourth quarter of 2017 it is becoming more evident to me that FAs are thinking through their business model and specifically their Value Proposition and how they price their business. There are no easy or pat answers and at this time we have many more questions than we have definitive answers. 

But I believe we do realize one thing for sure, what we did in the past and up until now will not be what we offer clients in the future. We will move from a financial advisor to a holistic wealth manager even though that will be about a 10 year journey and we will have to adapt our basic value proposition in how we manage and charge for investment management. 

We are value added partners. Let me say it again, We are value added partners. But in the new world we need to rethink on how we speak to our clients and how we manage their money to assist them in meeting their needs and goals. Change is here, pick your path.

Below are three items.

1) A link to a webinar on how to build a investment process that is value added and how to communicate to prospects/clients.

2) A link to a study on pricing and where we are today so we can understand where we may be going.

3) An attachment on an article from FT on the CEO of Eaton Vance and their Parametrics, direct indexing, offering.  Please read carefully as Mr. Faust has an view of the world that is relevant to us.

https://attendee.gotowebinar.com/recording/611154028166285059 https://www.kitces.com/blog/independent-financial-advisor-fees-comparison-typical-aum-wealth-management-fee/?utm_campaign=coschedule&utm_source=twitter&utm_medium=MichaelKitces&utm_content=Financial%20Advisor%20Fees%20Comparison%20%E2%80%93%20All-In%20Costs%20For%20The%20Typical%20Financial%20Advisor%3F

Designations

The link below to an article on Bloomberg today is no new news. People are concerned about fees. I'm shocked! The information on what people are charging is interesting but what caught my attention were that last four paragraphs. 

PFGC has always focused on what is our business model today and tomorrow? One of the basic tenets of PFGC is that our pricing model will eventually change because it is not transparent. What we mean by that is we charge for money under management and then our value-add is any other services we can provide. Some FAs are trained and have the proper designations to deliver wealth management services as part of their model. It is all inclusive. Some FAs (most) do not have the ability deliver a wealth management offering. The end of the Bloomberg article asks some very important questions. 

First, "there is no clear consensus on how to value wealth management services effectively". This is an issue as the article goes on to state that clients are questioning on how we deliver our financial advice. Some FAs are moving to hourly rates and retainer fees. 

Second, the article questions that we charge by the amount of assets under management than by the actual work we do. This is my greatest fear; flat fee pricing.

Third and finally the article ends with that "there's going to a need to be a tighter match between what you charge and the service you provide".

What does this all mean to us? Nothing changes overnight, it's a process but the other side of the coin is we also don't change overnight, it is also a process. If our offering is going to be teased apart over the next 5 years or so Designations will become critically important. 

So we have time but designations take time. Take a left-footed step today and look into what designation will be the most helpful to you in maintaining your business and lifestyle.

https://www.bloomberg.com/news/articles/2017-08-09/your-financial-adviser-may-be-charging-way-too-much

Danny

"One left-footed step per day"

Happy 4th of July

As we head into the long weekend to kick off the summer I thought I would reflect back over the last three years since Process for Growth Consulting was launched in June of 2014. PFGC has always been predicated on the fact that fee pressure would force us to manage a lot more assets efficiently and effectively if we wanted to maintain our lifestyles.  

The last three years has not only reinforced this view but if fact the landscape is demanding far more from us than just managing more assets. Clients have told us through studies that they want us to address all their needs and goals and not just investments. 

So clients now are questioning our basic value proposition (how much they pay us in fees) in how we manage their assets and they also want us to be wealth managers in the truest sense of the phrase. The problem is very few of us have a CFP designation and even fewer of us employ a business model that incorporates basic principles of wealth management. 

If we want to be compensated as a value-added partner our basic business model must change on how we function on a daily basis. There are two basic functions we must address in building our new business model.

First to become a valued partner the way we articulate our investment philosophy and then execute it should entail us having an open, honest, transparent and professional discussion on why and how we build a portfolio based upon our client's risk profile by actively managing low cost investment vehicles in a dynamic market to attain after tax risk-adjusted returns based on metrics to assist our clients in meeting their needs and goals.

Second we need to standardized our processes so we can affiliate with multiple centers of expertise so we can deliver all wealth management services our client's desire.

And while you are working to change your business model we must pay attention to improving ourselves through designations. The future is cloudy but one thing is clear. If we want people to pay us for our expertise then we must have the requisite designations to prove our worth. CFP for wealth management and CPM to manage money.

No small thing.

This first link is to PGFC's Retention/Attrition Strategies on how to become a valued partner in managing our client's assets.

https://attendee.gotowebinar.com/recording/1773846889891524866

This next link discusses in detail the way FAs are adopting to the new world. It is very rare where I agree so much with someone's point of view of investing but this article some of my client's think was plagiarized from me. It's not and it's a great article.

Kitces on the disintermediation of mutual funds and the rise of the Financial Advisor portfolio manager

https://www.kitces.com/blog/passive-investing-mirage-financial-advisor-etfs-disintermediate-mutual-fund-managers/

Investment News on fees and account demographics

http://www.investmentnews.com/article/20170628/FREE/170629927/wealth-management-firms-struggle-with-lower-fees-fewer-new-clients

Finally PFGC will be raising it's prices as of August 1st 2017. PFGC has come a long way since June of 2014 and now with highly competent standardized groups running successful affiliation models PFGC has proven to be a valued-added partner. 

So pricing as of August 1st will be:

Teams will go to a one time fee of $5,000.00 from $3,500.00

Individuals FAs will go to a one time fee of $3,500.00 from $2,500.00

Babies (less than 6 months in the business) remain at $500.00

A new product will be available to Branch Managers soon:

Structuring a Complex in an Organic Growth Environment which has a one time fee of $10,000.00

The life blood of my business is referrals and if there is someone you believe that will benefit from PFGC's coaching I will treat them with the same professionalism and courtesy I treat you.

Speaking of partners PFGC welcomes a new partner in SS&C Inc. We are all very excited about this partnership and look to bring to PFGC clients new meaningful learning opportunities to drive our new business models. Look for PFGC to sign several new partnerships in the near future so we can continue to bring unique solutions to our clients.

So it has been a crazy three years but like the changes in our industry the changes at PFGC are accelerating to keep pace with all the challenges we face. PFGC believes we can control our future, that we are not at the mercy of the vagaries of the business and that we and we alone are responsible for our own success.

"Between the small things we will not do and the great things we can not do, the danger is that we do nothing". Adolph Monod

Take one left-footed step today!  

Danny

"One left-footed step per day"