Thanks for joining us today for our workshop on making the jump to holistic wealth management. I’m very excited about this session. I feel like a lot of times you show up to a meeting and you speak on a topic and you wonder, Does anybody care what you guys are talking about? And what we’re able to do with this topic is build a presentation based off of what you guys had submitted as topics that you were interested in that were given to me in advance. I’m really excited about this conversation. And it should be just that, a conversation, OK? I don’t want this to be a monologue of a 90-minute presentation.

So strategically, I have built in time for us to have Q&A and dialogue. But as we are going through the conversation today, if there’s something we want to press in on a little bit more, raise your hand, ask a question. Let’s press in on that OK; it will certainly move forward that way.

As a start, I’ll provide who I am with a little bit of perspective on the perspective that I bring to the conversation. I’m with Valmark Financial Group. We’re an independent broker-dealer in RIA. I’ve been with them for 12 years, and I started out on the product side, working with life insurance products and annuity products. I earned my CFP and migrated over to our financial planning side of the house. And now I’m in more of a business development role, where I work with our independent business owner advisors to help them plug into the tools and resources that are available to them, and also to help them and make necessary shifts inside of their business, as we look at the horizon to see what’s coming down the road.

Valmark Financial Group, if you’re not familiar with who we are, like I said, we’re an independent broker-dealer in RIA; we weren’t always that way. We were founded 56 years ago, when we were an insurance agency. But it was in the late 1990s that we launched a broker-dealer and in RIA for our life insurance specialty firms. OK, those specialty firms focus on wealth transfer, just like you would expect back in the 1960s, wealth transfer, a lot of business planning-type cases. As we launched our RIA and BD for those lives insurance specialty firms, we wanted to create a broker-dealer and RIA that complemented the high-end insurance planning that those advisors were already doing.

So, in our work, in that space, what we’ve worked to do is to bring the high-end expertise of these life insurance specialty advisors down to the retail level and their financial planning conversations. Simultaneously, as we’ve gotten into the RIA space, we wanted to adopt the really good thing of the RIA world — the things from the SEC, like the 1940 fiduciary act — and how to elevate that back up to the life insurance, a little less regulated space that they were operating prior to that, and then by doing those two things, really helping our insurance advisors to build a recurring revenue inside of their business with underlying value and sustainable growth.

Let’s jump into the conversation. You didn’t come here to learn about who I am and what we do as a business. I know you guys have seen this quote before. [visual] But, as I thought about this conversation, I thought about where we’ve come from over the last 2 ½ - 3 years, with everything that we’ve seen with the Department of Labor, everything that we’ve seen with the government. We didn’t only have a glimpse into what the government thinks about us; we actually had a front row seat into what the government thinks about us and what it thinks about our industry. And then through that, we got a front row seat on what it is that clients think that we ought to be doing to serve them better.

When we think about it, sure, maybe we got a little bit of reprieve from what the Department of Labor rule is coming out with in little bit, but we still know that’s the direction that the puck is going. You can’t turn on TV and watch “Monday Night Football” without seeing a commercial from Schwab, where they’re asking questions that we have to know and address when we’re working with our clients. Things like, “What if you’re not happy with the returns?” Right? Can your advisor give you back the fees? Good question, right? Now we have to ask if they were to answer those questions. You turn the channel, and you see Ken Fisher. Ken Fisher literally says, “I would die and go to hell before I would sell an annuity.”

That’s a question that we now have to answer that we didn’t have to answer before. We know where this is going. You get on any form of internet, on social media, and you see these pop-ups for robo-advisors. In fact, I just got on my banking app, and I even see them now connected to my checking and savings account. I can invest money automatically with the robo-advisor without even interacting with an advisor at the bank, straight through my own app with the bank. Those are the things that our clients are beginning to hear, those voices that are speaking to them, and now we have to address those things with them.

And then you have us; what voices do we hear in the financial advisor arena? We hear things like to sustained low interest rates and maybe you’re an insurance-only advisor in the room right now, right? And you feel the threats of that. And then you also have the Trump tax act, and you’re feeling what’s happening with your insurance business over here. It’s getting harder and harder to do what I historically did. Or you may be saying, “I want to go where the pack is going.” So I started to incorporate my trail business, and I was doing mutual funds. I did business and the DLL came out, and my broker-dealer discontinued the allowance of my business for my long-term investments.

Or maybe you’re saying, “Hey, you know what? I’ve already been there and done my annuity business.” I always strategically chose not to do the commissions. And I always did the semi-heaped. And then I started to make the jump over to the trail-based compensation.” And just a few weeks ago, we see a major player in the annuity space completely pull out of the annuity market and discontinue the trail-based compensation on a significant block of business. There are probably a lot of you in here who have on your own personal books.

So we’re also hearing those voices. We hear it from clients, we see the government, we’re getting it directed at us. I think the question here is, How do we, as business owners, create a business that’s sustainable, that listens to the needs and the demands of our clients, and then ultimately makes recommendations for them that can fill these unique needs that they have? So for the conversation that we’re having today, I’m going to follow this outline. [visual] And at the end of each of these three major areas, I’ve built in time for conversation and Q&A.

We’re going to start out with the need for a holistic wealth manager, work our way into the client experience and portfolio construction and then wrap up the conversation with how to actually set up your business, which I know was a big point of interest based off the feedback I got coming into this conversation.

So if you’re not familiar with the Government Accountability Office, I would first start out and say you should get familiar with it because it’s a great way to see what the government is talking about and a great way to see what reports are being written by the government to other government officials. And one of my favorite reports that I came across in the recent past was this report written to Congress that said, “Ensuring income throughout retirement requires difficult choices.” All of us in the room, we get that. That’s what we do with our clients. We help them talk about trade-offs; we help them work through delayed gratification.

But basically, in this report, the GAO got the smartest group of people in the room, right? They went to all these government bodies and said, “Let’s get the smartest person from the DLL, the smartest person from the IRS and the smartest person from the NIC. And let’s get them to come together and come up with what the problem is; and how do we fix this problem?” Any guesses on how complicated this recommendation was to fix the problem? It was actually quite simple. I was actually quite impressed. They said Americans can avoid the risk of outliving their assets by doing four things: by saving more, by working longer, by delaying Social Security and by investing wisely. I think you could have asked a group of sixth graders that question, and they could have come up with at least three of those four things, probably.

But let’s just break that apart a little bit. And not saying sixth-graders are stupid either, right? They’re actually quite smart. So saving more. We work in the space. You guys work in the space. You see this in the retirement crisis, the financial crisis happened; and we saw savings hit all-time lows. Savings has rebounded since then; that’s old news. I think that we’ve seen that. I think people’s risk appetite has been suppressed. And they said, “Hey, I need to save more. I wasn’t saving anything before, and now I’m going to save something.” That’s an easy one. Working longer. I don’t know if that’s a great Plan A, but it is an option. I was going to retire at age 69. I think I’ll retire at age 62 to meet my retirement need. Not a great plan A for a couple of reasons.

What if your health takes a turn for the worse? What if your job is outsourced? What if technology completely eliminates the job that you do? So maybe that’s not a great option. When you read Social Security reports from their own internal body, they actually self-proclaim that they’re projected to deplete in the not too distant future. Again, interesting concept.

Then investing wisely. And this is the topic that we’re here to talk about. So what does investing wisely mean? The other ones, at least, I have a point, and I could delay that point or I could make a decision off of that point, increasing my savings from X to Y.

But investing wisely is a pretty vague concept. What does it even mean in the first place? And if I am investing wisely, am I even investing enough money in the first place? So when we talk about what does investing wisely mean, the perspective that I’m looking at is something, I think, that is more than just building a portfolio. I think it’s more than slicing and dicing an investment portfolio pie and saying we’re going to have X percent to large caps and small caps, internationals and emerging markets. And I would say that investing wisely is helping clients to interact with these unique risks that they have when they’re in that income-distribution mode, helping them interact with those unique risks that they have while they’re working to accumulate wealth for retirement, things like when you hear your client say, “Hey, I don’t want to be a burden on my kids, like my parents have been financially when they entered a health care facility.” OK, that’s a health care risk. That’s different than building a portfolio for a client.

Or, “How do I know, my great grandparents lived to be in their late 90s; my health has been pretty good. What if I lived to be mid-90s? What if I lived to be 100 years old?” That’s more possible now than it ever was before? OK, well, your clients saying that is the longevity risk, right? What if I retire in the wrong year? The market is doing relatively well. Sure we had a little bit of a hiccup in October, but on the whole, we’re doing pretty well as of late, right? I don’t want to lose all that. OK, that’s market risk sequence of returns. But these are unique things that we’re talking about. What does it mean to invest wisely? As a financial advisor, I’m helping my clients navigate through these unique risks that typically, when I’m just focusing on portfolio management, maybe I’m missing out on entirely what I’m really talking about. How do I do holistic wealth management for my clients?

So there’s a tough reality, though, and these are a lot of statistics that I know you are familiar with here that I’m throwing around. Fifty-six percent of Americans say they don’t have a budget at all. Fifty-five percent of Americans have no idea how much they should be saving to even reach their retirement goals, which goes back to that opaque topic of retirement planning. One out of five Americans making over $100,000 still lives paycheck to paycheck. That’s staggering, right? And this last one, I think, is super interesting. So 49 percent of Americans between the ages of 45 and 65 who are saving for retirement, believe they need to catch up on their retirement savings. Yet only 39 percent of the people in that group are actually working with a financial professional.

So what are the 61 percent of people who are not working with a financial professional doing right? Any guesses on how they’re doing compared to other major asset classes? Now, we had a little glimpse of it with the guy from Brinker who talked and compared it to other major asset classes not doing too high. It’s a little better than putting it under the mattress, but not much better, and slightly better than inflation when they’re not working with a financial advisor. When they’re left on their own accord to say, “Hey, I’m going to get in the market at the right time; I’m going to get out of the market at the right time,” what ends up is they get in at the wrong time, and they get out at the wrong time. We see that stuff happening.

So this summer there’s an article on wealthmanagement.com, and basically the fold was what do clients really want? And then in this article on wealth management, for the truly wealthy, from August, basically there’s a summarizing point that said that the vast majority of advisors focus too much on investment management things that are likely to be commoditized in too little unplanning, right? So when we work with a client, our normal conversation looks like, let’s say we’re not working with a client. Let’s say when a client goes to a robo-advisor, and they work with them, and they say, “I only want to replace 80 percent of my income when I’m 65 years old. Here’s how much I earned today. Here’s how much should I be saving.”

And they’ll go through and say, “Based off your risk tolerance and based off of these projected market returns, here’s your plan, OK.” And then the normal client goes through and says, “OK, well, right now, we’re growing our family, and sure, we’re going to probably get into a larger house. I hope that I get a promotion or maybe a better job, or here, there’re going be checkpoints along the way, right? That we’re going to check in to see how is it we’re doing.” But in reality, what our clients are going through is something like this, right? [visual] This is what it feels like. The checkpoints along the way feel a lot more like job loss, like disappointing market returns, like business failures, like divorce, things like that. Financial clients look to financial advisors. They need our help, and they need our guidance to help them through those troughs and help them to see what the perspective is and how to get to that other side.

So this summer, we participated in the ETF insights conference, and during that conference, Tim Buckley, the president and CEO of Vanguard, gave the keynote opening address. And in that address, he basically put this slide up there. [visual] He started talking about how he charged the research and development team to go through and look at this environment, where investment allocation is becoming more of a commodity like we just saw in the last article. In this world, where clients can go get it on their own, we’re talking about how do we help clients navigate through the ups and downs in the market.

What areas of a financial advisor or money manager’s responsibilities can be outsourced? Or can be programmed through an algorithm? As we said, here are the three major functions that a typical money manager will spend their time doing: finding low-cost funds, building portfolios and rebalancing those portfolios, and making sure they’re doing tax-efficiency plays within the portfolio. But you look at the x- and the y-axis, and so the variability on the y-axis between clients, not a lot of variability. So if I go out, and I’m saying, “Hey, I’m going to build you a low-cost diversified portfolio,” it doesn’t matter really if I’m working with client A or client B. Not a lot of variability there, like that low-cost portfolio that’s growth-oriented is probably going to be the same regardless. As I start to work with client A or client B, and I start moving up this chart, the variability for maybe tax-efficiency plays might look a little bit different based off the individual holdings that they have or the other raw assets that they have inside of their portfolio.

What he said is that we know now what these three items are worth. How much does it cost to do these three things? We go out through you look at the robo-advisors, Betterment they call somewhere between 25 and 35 basis points. Yeah, the average money manager will spend about 40 percent of their time on these three things. So clients are now saying, “If these three things are commodities, it’s an expectation that I can go to a robo-advisor. I can get this stuff directly myself.” It was almost assumed. Aren’t you guys doing the same thing? What are clients actually looking for when they’re engaging with us? We make the argument, and Tim Buckley — we borrow the slides from him — would say, “Well, it’s things like behavioral coaching.”

So if I could get my time back rather than fight this trend that we see happening, and rather than fight the algorithms that are out there, what if I could get this time back and engage my clients to help them understand those ups and downs, when the market feels as volatile as it’s felt over the last 30 or 45 days, here, things like behavioral coaching? What if I could get this time back, and I could go ahead and build custom solutions for my clients? Things like unique long-term care planning, things like unique wealth transfer strategies that are actually specified that you can’t go to a robo-advisor? I can’t go to just any general advisor out there; I’ve got to go to an expert or a specialist to get those. What if we get this time back below the line and invest above the line with our clients? [visual]

So it brings us to this unique spot that we’re in, where we’re seeing this shift in the marketplace, where we see this dilemma between the traditional landscape of financial services and this new landscape that’s beginning to emerge in financial services. And so, looking around the room, I know that we probably get this concept, but I want to just work my way through what it looks like.

You have your traditional agents who are licensed with the state, and that’s the only license that they have. They’re able to sell general account products like fixed life, long-term care, whole life, disability insurance, fixed annuities, those types of products.

You go ahead, and you look at the next group of people on here who are with broker-dealers. These people are registered representatives; they adhere to FINRA as the regulatory body. They’re able to receive commissions for the recommendations that they put in place for the products that they sell things like variable life, variable annuities, 529 plans, mutual funds.

And then we look at our registered investment advisors, the RIA space, here’s the SEC. [visual] They’re able to charge a fee for their financial planning advice. They’re able to charge a fee for their assets under management.

So let’s play out what this looks like for a second. Let’s say that in this turbulent market that we’re in right now, a client who is in that retirement red zone, maybe they’re five years out from retirement. [visual] And they say, “Hey, you know what? I’m going to start interviewing financial advisors.” And they go into the first financial advisor’s office and say, “Hey, I’m 60 years old, and I plan to retire within five years. My portfolio has finally rebounded from the financial crisis; things are looking pretty good. We not only rebounded; we actually grew quite a bit too, but I’m a little bit concerned about what happened in October. What do I do? Help me make sure that I don’t lose it all by retiring in the wrong year or retiring just at the wrong time.” OK, you’re staying the course a little too long.

So the state insurance guy, he’s got it. His fixed license says, “Hey, those tools out there are perfect for you. There’re index products that allow us to invest in the market without actually investing in the market. We’re going to track the upside; we’re going to participate in it. But you know what? If the market declines, we’re not going to take any of the downside risk. And you get a portion of the outside of the market because we’re not going to take any of the downside. So you don’t get all the upside, but it’s perfect for people just like you.” The client says, “OK, that sounds interesting. I wasn’t aware of that before. Let me just continue my interviewing process, and I’m going to walk down the street.”

So the same client walks into the next office. It’s a registered representative and only operates in the BD space. He goes through the same fact pattern. He’s concerned; he adds another fact to this and says, “By the way, I was the only breadwinner in our family, and so all the retirement assets are in my name.” And the financial advisor and the broker-dealer, the registered representative, says, “These are great things. They used to have pensions, remember? Your grandparents just got a paycheck for life. These are great things. You can create your own personal pension. We’re going to invest in the market; you still have a long time to go. So we’ve got to make sure we participate in the market. We also want to make sure that the account value that you have today is utilized for creating your pension like income for the rest of your life.

“By the way, because all the assets are in your name, what we can do is add this joint income rider to it so that it doesn’t outlive you or your spouse. It’ll go for as long as you both live. Oh, and even better, there’re great insurance companies out there that allow you to invest 100 percent of the market. So, because we’re creating a pension-like income on your benefit base, let’s swing for the fences; let’s go all equity on this portfolio. No subaccount restrictions, and it’s fine. If we get it right, you’ve got luck in the gains; if we get it wrong, your benefit base is going to grow by 5 percent a year.” And they give him that pitch, and the guy goes, “Wow, that’s really interesting.”

When I go down the street, owners make sure that I’ve got all my options. He walks into an RIA, goes through the same fact pattern, the response he gets from the RIA, “You know, it sounds like we need to de-risk your portfolio a little bit. I think that you’ve also been interviewing other financial advisors. I just think it’s important you know that we operate in a conflict-free environment. We’re not going to make any commissions off of what we sell you; we’re only going to charge you a fee for the advice and state a flat percentage, but we’re going to go through and run a de-risk on your portfolio for you. And you still have to be invested because you have five more years to retirement, and then, from that point in time, we’re going to look at life expectancy, and you might have another 25 or 35 years from that point in time. So instead of maybe a growth portfolio, maybe we ought to be inside of a balanced portfolio.” So it gives them that type of pitch. It’s not good; it’s not bad. Those are just the pitches that are going to begin when you look at people. They’re operating inside of a siloed portfolio or a siloed option that they can do.

I liked the past presentation. He talked about this old house; he talked about the tool belt because when you have a single tool, you only see opportunities to use that tool. Index annuity, variable annuity, we need to invest your money with a little bit less risk inside of it. What we would make the argument and what we start seeing in the marketplace is the advisor shifting into a duly registered type state. So advisors hold their BD registration and their RIA registration, and they continue to operate inside of the fixed insurance world, right? And really, when you look at what is your strategic advantage as a financial advisor, it’s not being able to offer the best in class from any one of those, in any one of those only; it’s being able to offer the best in class when you’re able to pivot based off of the client’s unique needs.

And they will say, “Hey, instead of a tool, I’ve got a tool belt, and you know, when I need to use a hammer, I’m going to use that hammer. When I need to use a level, I’m going to use that level. When I need to use a saw, I’m going to use the saw. But it’s being able to bring the best in class from each of these regulatory bodies. That’s where I would say a truly objective advisor lives, and that’s where I would also say in this world where we see a lot of exodus. And you see a lot of these conversations where the advisor is saying, “Hey, I’m going draw my registrations go to the RIA space because it’s all conflict free.”

I would say that if I remove two-thirds of the options from the table and some conflicts free because I only operate with one- third of the options that are available, I would make the argument that you’re not, in fact, offering a conflict-free type recommendation. “Sometimes I can offer you a fee-based solution; sometimes I offer you a commission-based solution; sometimes I offer you insurance-type solution. But I educate you, Mr. and Mrs. Client, on what options are available and also disclose to you what the compensation is that I might receive from those recommendations.”

Does anybody in here hold their CFP, their CLU, CHFC? A lot of people inside of the room. By holding those marks, you’re already adhering to a fiduciary standard, just by using those marks after your name, right? I’m a CFP holder myself, and so I look at them in the top and see a professional who holds a CFP. Our firm is committed to meeting the highest ethical standard in dealing with clients no matter what services are provided. CFP professionals shall at all times place the interest of the client ahead of his or her own. That’s one of the rules and the ethics standards that we are required to adhere to. Very similarly, I’ll let you read the CLU and CHFC. [visual]

We look at the shift from the traditional landscape into the truly objective landscape of financial advisors, this idea of educating your clients on what standards you actually adhere to in the first place. And when I do make recommendations, I’m not going to be shy about the fact that there might be different compensation based on the recommendations that I make. But why not actually educate your clients? They can get on Google, right? They can see that annuities pay commissions, and that RIA solutions pay fees. They can see all that stuff anyway.

So why not be proactive about it? Let’s not be bashful about it, and let’s actually educate our clients on what some of the solutions are that we might recommend, and what standards we’re adhering ourselves to, and then how the compensation would work for those recommendations that we ultimately would make. I would encourage you that if you’re not familiar with something, like what this may be creating, take it to your compliance officer, your broker-dealer, your RIA and say, “Hey, this is something that I would like to utilize.” I probably would go out on a limb and say they would probably encourage you to utilize something like this. And this is something that we’re seeing a lot of advisors begin to utilize within their firm as they’re navigating through this shift from the traditional landscape to the objective landscape.

So I’m going to pause there, OK? That was a setting of kind of the need for a holistic wealth manager and some of the questions that I’d encourage you to talk with among yourselves at your table. Some questions, maybe to prompt some dialogue here, but for the next five minutes, Why do clients work with you? Let your tables express that to your tablemates. What services do your clients value the most? Is your service model aligned with your clients’ expectations? And then going back to the quote we started with, what must happen in your business to move to where the puck is going? So any questions we want to press in on at this point in time?

Audience: [inaudible]

Nitz: I think that we’re at the point right now where the RIA space is beginning to see what’s possible. And I think that we’re going to continue to see that shift. But I think the products that are available right now have not quite caught up with financial engineering of what the RIA space would like to see. So I think that we’ve got a policy that continues to change, but I don’t think it’s quite there yet. The investment-only variable annuities, a lot of those don’t have riders on them, so you lose out on that joint spousal income option there. But I think that we’ll see that trend continue, and it will likely change that graph for sure. Right now, though, I haven’t quite seen it catch up over there.

OK. Let’s go ahead and move forward then. So let’s move into the client experience and portfolio construction. [visual] As we start in this space, I want to just start out with a question. So when a client gets on your website, when you’re pitching your value proposition to see whom you want to get referrals from, do you sound just like everybody else? I’d ask what if there’s a better way to stand out from the crowd, right?

So in this portion of the conversation, I want to look at what are those tools that can help you stand out for the right reasons, OK? What types of tools are available to help you have a more thoughtful approach when engaging with your clients? What tools are available to help you have a more meaningful conversation, improved relationship, and really, even I would say, have a more sustainable business model for yourself? It’s interesting, this landscape that we’re in and the financial services world. We build our businesses with high, fixed overhead costs, and our revenue as a variable model seems kind of backward and dangerous when you’re looking at sustainability, and even having a more thoughtful approach to ultimately build your business with a more sustainable underlying solution for you.

So now, with the conversation from Tim Buckley, if we’re seeing that clients now are beginning to demand these custom solutions, what are those custom solutions? All right. I would make the argument that most retail client conversations can fall into one of two buckets or categories. You’re either in this accumulation bucket, or you’re in the distribution bucket. [visual] And depending on which bucket I’m in, I’m going to have different conversations with my clients. And so I’m in the accumulation space; I’m working; I’m earning a paycheck. Would I need help with maybe its cash flow analysis, maybe its wealth projection? So, how much should I be saving? What is my nest egg? Am I going to have a shortfall in that wealth projection? And then I’d say probably wealth protection. What if there’s a premature death? What if there’s a disability? If my whole plan blows up, what happens to my loved ones, right? So this is the accumulation conversation, and they say, “OK, well, I just retired or I’m at my summit, and I’ve got to figure out how I can turn my nest egg into a retirement distribution stream.”

Does anybody remember those old commercials? I think they’re the ING commercials with people walking around with big numbers under their arms. You are the 1.5 guy, and you are the 2.6 girl, and they see what that is? Well, that’s part of the conversation. And that’s when you reach the top of the mountain, right? But that conversation is, Who cares how much you have? Really, it comes down to, what is your distribution rate? What’s your percentage? It’s not as sexy of a conversation, people walking around with a 3 percent or 4.5 percent under their arm. But really, at the end of the day, that’s what we’re doing all the time. As advisors, we’re working with our clients in helping them turn that nest egg into a distribution portfolio. And helping them navigate now through these unique risks that they did not have when they were climbing up the mountain. Things like longevity health care, sequence of return, inflation risk are not as big of a deal when you’re climbing up the mountain as when you’re coming down the mountain.

I understand that’s a basic conversation, and that’s a basic concept for us sitting inside this room. But break that apart a little bit because if we’re making the shift now into a holistic wealth management space, if we’re saying, “Hey, instead of looking at product sales and looking at one-off type solutions, I’m going to engage with my clients every single step of the journey.” Well, now I know that the real opportunity exists because I educate my clients on what those unique solutions are and the unique recommendations that exist at each phase of that journey.

So let’s break this apart. If I’m working with a client, and they’re in this first phase — arguably, probably not your ideal client, you’re 25- to 35-year-olds. But the 25- to 35-year-olds are the people who are at the beginning of their journey. And these are the ones who need help with the basics of building their financial plan, cash flow analysis, getting set up with their employer benefit plans, doing some of their basic kind of wills and estate planning documents, beneficiary-type designations.

What’s really cool about working with clients in this space is, although they’re probably not your ideal clients right now — And probably I don’t like spending a lot of time with them. I want to spend quiet time with my clients who have a lot more assets accumulated and have a lot more unique and interesting financial planning needs that I can work with — I’d make the argument that these people, if you’re going to go on a journey of being a holistic wealth manager, the time that you invest with them is going to pay you great rewards because they are going to be your future clients. And you get to make your ideal client from the very, very beginning.

Also, look around the room and think, Hey, the big topic that we hear all the time is succession planning. If you’re going to talk about succession planning, you know the debate is always that I don’t want to pay the young advisors’ way; they’ve got to carry their own weight. Well, what if they carry their own weight with somebody like the younger clients that you’re bringing in, and they can begin to build their book of business based off of the individuals that maybe you’re not spending a lot of time with or where they don’t have an opportunity to spend your time with?

As you move up that conversation, what’s neat is that the seeds we planted become the foundation now for each subsequent phase and this financial planning conversation. So now we’re in the second phase of the family planning clients and the 35- to 50-year-old.

There’s a lot of stuff here. [visual] What happens if you die too early, if you have an unexpected death happen? What if you have a disability that happens? How do we ensure they have income replacement? What about your kids? What are you planning to do for college? College is really expensive. What are you planning to do here? We have those conversations.

You go to the retirement ramp-up phase, and this is where it really starts to get exciting. The kids now are almost done with college; maybe they’re out of the house on their own, but we get to say, “Let’s focus that energy. Let’s redirect the expenses from one side over here to the other side over here.” So you start having retirement, ramp-up conversations, maxing out your employer plans, looking at nonqualified options. You’re starting to talk about tax diversification; maybe you started to have that conversation in your Phase two. But with tax diversification, you can’t get to retirement and say, “Hey, I’m tired of paying so much money to the IRS.” If the only assets you have are qualified, they’re all tax.” First, they’re all going to be taxable when they come out. We’ve got to have that tax diversification conversation at this point, or maybe a little bit before in the conversation, and then begin to set what his retirement spending expectations actually look like.

From there we look at the retirement red zone transitioning assets into an income stream doing the Social Security analysis, looking at trade-offs between pension election options. Should I take the lump sum? Should I take the single income? Should I take the joint income? What does that mean? There’s a discrepancy in age between me and my spouse, so what options are best to do? Start doing that analysis; start projecting. Or if you want to delay Social Security, sure, you get to step up every year if you delay Social Security.

Let’s talk about opportunity cost, right? If you delay Social Security, we’re going to take it from over here. [visual] Can we earn more money over here than you would in your step up over here? Let’s have those conversations with our clients and engage them on this financial planning discussion. And then you get into the wealth transfer phase. With clients age 75 +, start doing annual gifting strategies. Start talking about wealth transfer, charitable giving, if your broker-dealer allows you to do it, life settlements, a great opportunity for planning that you begin to have in this stage.

Again, this is basic. I think we understand that each client conversation is going to look different. But I think the thing that we don’t think about too often is that your clients are great clients, your ideal clients. And the fifth step of this financial planning cycle: They know what you do for them. They know that you will help them to sell their business, and sold it for $10 million, $20 million invested with you, and you’re doing all this estate planning and will transfer stuff. But they might not know what you do for everybody else who are your clients.

How many clients do you have? How many different client conversations are you having? And so making this the step into the holistic planning space, and simultaneously taking the time to educate your clients on what it is that you do on a holistic basis, what it begins to do, as it begins to turn this conversation of a single mountain, start to turn it into a mountain range. Now, I’m looking at the mountain range, and I’m beginning to engage my clients. When you look at a mountain range, you go to Colorado, and you look the mountain range of the Rockies. You see mountains that are close; you see mountains on the horizon that are farther off. When you look at it, you see all these different planning opportunities that exist.

So if you go to mountain range 1, and you look at what that looks like, you look at what this looks like, you see this generation 1. [visual] These are your ideal clients. These are the ones whom you love spending your time with. Your time is most well spent, you would say, working with these clients because you can do for them what nobody else can do for them, right? Well, now, I educate them on, “Hey, this is what we do for you.”

But let me tell you what we do for people who are in the retirement ramp-up zone. You start going through that, and then, “Let me ask you, When your children inherit the money from the planning process that we went through, do you know what impact that will have on their financial future? Are they prepared to inherit that money? Are they in a bad spot? Do they have a lot of bad financial habits?”

You begin to engage them and educate them on what solutions you have available and what your planning conversations look at across that mountain range. And Allison and G1 says, “Yeah, let me introduce you to G2. I want to introduce you to my kids; I want to make sure they know what’s coming. And I want to make sure they’re in a good spot to optimally use the money that we worked so hard to accumulate or build a business so that they don’t blow it all when they get it.” And what’s really neat about that is when you engage G2, what happens is they’re probably like, “You know what? We do have some additional cash flow, and we kind of do have some bad habits right now.”

The kids just got out of the house. They just got their first jobs. They’re finally off the payroll, right? What do we do? They introduce you. “Hey, our kids need some help. I need some guidance here.” And so they introduce you to their children. Through that, if you want to talk about creating sticky client relationships, if you want to make G1 really happy, start working with their grandkids. You want to talk again about your business and creating a more sustainable business model yourself. Well, if I have my own succession plan worked out because I’ve got the second generation of advisors in my office, and they’re able to work through the process that we just worked through with their grandparents and their parents and work with G3 now, now you’re starting to have a holistic wealth management conversation. You want to talk about referability when your clients can refer you and actually say, “Hey, here’s what my advisor does for me, and here’s everything else they do. You’ve got to work with my advisor.” That’s an interesting conversation to have.

So what are the trends and what are these conversations that we’re seeing the top holistic wealth managers having? Well, they integrate education into the conversation early. They let their clients know starting with “Here’s the world that I operate in. I can do BD, RIA, insurance agency type work. Here’s the compensation and how it would work for myself.” That’s an education conversation. “Hey, as we’re engaging you, as you’re climbing the mountain, you’re coming down the mountain, here’re some of the planning topics that we’re going to be working through.”

So rather than a long-term care contract to a client for the very first time when they actually need it, why not be having those conversations 10 years out, right? And as you’re going through this holistic wealth management conversation with your clients, you’re beginning to plant the seeds, educating them on what’s coming next. And that when you do make the recommendation, you’re not on a sale at that point in time, and they understand the contingency planning that you’re introducing to them. They’ve seen the projections on your money that you’ve walked them through, and they understand the context and why you’re making that recommendation like you are. They shift from a product sale to a process orientation. This, I think, is one of the most unique things that, as we survey financial advisors, and we look at advisors, they are doing holistic financial planning for their clients.

Advisors who are doing on average one financial plan a month, so 12 financial plans a year, when we look at our advisor base, we see their year-over-year revenue growing by 38 percent compared to advisors who are doing more of a product-type sale. And the reason why is because when you begin to engage your client, you’re engaging them on a financial planning process. And I can’t really even give you a referral, an accurate recommendation, for your IRA if I don’t know what else is going on here, how Social Security is going to tie into this. How about your pension that you have from your previous employer? Or you have an IRA with your past employers that you never even rolled over here? You’re expecting an inheritance, what are you expecting that to be when your parents die? Let’s have that conversation.

And all of a sudden, you start engaging your clients on a holistic basis. And you’re starting to have these financial management conversations without even talking about financial management in the first place because you’re going to a goal-based recommendation. Another one here is they manage expectations back to the client’s stated goals, unless you’re doing a financial plan, and unless I know what my progress is toward that financial plan when my return sheet says that I’m down this month.

And how many emails have you guys all got from your clients because of what happened in October? Probably a lot of emails are stirring up from that. But also when we’re able to go back to our financial plan and are able to have that conversation with our clients say, “Here’s what it actually means for your plan. You remember, in 2017, we had high, double-digit returns, right? In the 20s. We stayed the course; the market did really well. We’re not claiming success for that; we’re not saying that we properly picked investments. We had a diversified portfolio, and that was the consequence of having a diversified portfolio. We stayed the course, and you know what? Now, when the market is down, we’re going to continue to stay the course. And here’s how both of these, the 17th and 18th returns, all tie together. And here’s the effect of the impact on your financial plan.”

Top holistic wealth managers tend to establish value beyond a return sheet. It’s a slippery slope — getting into “my returns are better than this guy’s returns,” right? It’s a slippery slope saying “my fees are less expensive than this person’s fees.” So, it’s being able to establish that value beyond that return sheet.

And then finally, I would say, simplify the decision for clients. I think when you go through a financial planning process, this holistic wealth management, we begin to have a different conversation. And they begin to see how the recommendations that we’re making tie within the bigger picture of their financial plan. And now all of a sudden, as they’re making decisions about whether or not they ought to buy long-term care, it’s not a trade-off. It’s not why I own any long-term care insurance. But I also want to save for retirement. I don’t want to take away from my retirement to buy this expensive, long-term care insurance when I also want to show them where this long-term care insurance fits within their holistic plan, and they’re able to have both of them. That’s a different conversation to have with your clients. It helps to simplify that decision that they’re working their way through.

So then that brings us to what role asset allocation plays inside of a holistic wealth management conversation. And it plays a very meaningful role. You guys get that. It’s why we’re in this conversation. It plays an extremely relevant role in that conversation. But I would say that it doesn’t play as big of a role as what it historically was thought to. Rather than it being the end of the discussion, the asset allocation becomes a means to an end, OK? The end is: I want to retire securely. The end is I don’t want to run out of money. The end is I don’t retire in the wrong year. The portfolio is going to help us through that process, but the portfolio is not the end of that conversation. It is part of a broader conversation.

So a lot of the conversations that we’re having with clients or seeing our advisors have with clients is an example like this. [visual] Individuals within 10 years of retirement ask, “I’m positioned for a successful retirement regardless of how long I live, right?” They’re not asking, “I’m positioned for a successful retirement based off of what my emerging markets exposure is.” They’re asking, “How long will I live? I’m positioned for success, retirement, regardless of my portfolios performance or my spouse not outliving me and not needing assistance with normal activities of daily living.” Right?

It’s not our clients asking, What’s your expense ratio? Hey, what’s your rebalancing strategy? Do you have quarterly duty annually? It’s not them asking that and really listening. What our clients are actually saying is, “I’m concerned with longevity risk. I’m concerned with market risk. I don’t want to retire in the wrong year. I’m concerned with survivor risk, health care risk.” These are the things that, when clients are saying these things, they’re concerned with. This is really what they mean. And asset allocation plays a role, and, like I said earlier, it’s not the primary focus of the conversation, but it’s a part of that conversation.

So what part does it play in that conversation? We’re working with clients and migrating from this asset allocation to this income distribution phase, and we help them transition their nest egg into a sustainable retirement income portfolio. What we begin to see is that a completely diversified portfolio as “I’m climbing the mountain; I’m building my wealth; I’m creating a nest egg for myself,” actually becomes a diversified portfolio as I transition that nest egg into a retirement distribution phase. My asset allocation gives me exposure to the hedges against inflation risk; stocks are a great hedge against inflation risk. Sure, I get liquidity for my diversified portfolio that’s inside of the market. But what about longevity risk or health care risk? What about survivor sequence of return risk?

Now, all of a sudden, we start to transition that conversation, saying rather than 100 percent of the focus being on my asset allocation, it’s really a broader conversation on income allocation. And let’s talk about what role my asset allocated portfolio plays within my income allocation that I’m proposing and implementing for my clients. And so things like introducing income guarantee products, longevity insurance, long-term care insurance — what role does life insurance play in your financial plan? OK, but start now to diversify that portfolio throughout the broader process.

So as we’re talking about clients climbing up the mountain, you’re talking about clients coming down the mountain, the conversation then becomes, what are the ongoing planning opportunities that exist now for my clients? If I’m supposed to be engaging with them for this journey, and I’m supposed to have an ongoing financial planning conversation with them, how do I make sure that I’m continually adding value to my clients? And so these are a lot of the conversations you’re having, once you build that portfolio for them that does have asset allocation inside of it. Things like, “Am I confident that my investments are suited for me based off my time horizon, my risk tolerance?” “Am I certain that my ears want to hear what I intended them to?”

Those are great conversations that engage the client beyond the asset allocation, engage some beyond the traditional money management conversation. Do I understand my existing insurance and annuity contract? I mean, this is a conversation that we’re seeing become more relevant today than it previously was, but do I understand my contract features? I’ve got a big perspective from the contract that I’ve got here. [visual] And there’re all sorts of pages that explain the guarantee. What does that guarantee really mean? Do I actually understand what that means? Do I have confidence that my needs will continue to be met, or even do I have confidence in the issuer of my contract? It was on somebody else’s paper, and now it’s a new company I’m not familiar with, so what does that mean?

So in that investment allocation conversation, you oftentimes have what’s better: Is it active? Is it passive? And there’s plenty of good content material on both sides of the argument. Inside of this room, I would venture that we’re probably divided on what’s better. And so when I look at the data and the side of the line that I would sit on, the world that I view things through would be I turned a data. And so the S&P puts out the Indices Versus Active report based on an annualized basis that looks at the percentage of active fund managers that underperform the respective benchmarks. On this page, I’ll just look at the large cap. You can look at the other asset classes and comparison indexes here. [visual]

But on a one-year basis, 63 percent of all active managers are active funds will underperform the respective benchmark. It gets worse on a three-year basis; it gets worse on a five-year basis. It’s data; it’s stuff that the S&P is putting out there on active portfolio managers. And so when we look at the world or say, “OK, where should we be spending our time as financial advisors?” and if we’re building these money management portfolios, “What are the best solutions?” Tim Buckley already made the argument that said 40 percent of advisors’ time is being invested doing these three things, yet clients think that they are a commodity, and we already know what the cost of building, that is, by robos being 25 to 35 basis points, right?

So let’s just play out this conversation, and it’s the spirit of Thanksgiving coming up here in a couple weeks. Are you familiar with the Callan chart? Basically, it will stack up returns by asset class on an annual basis, the top performers to the worst performers. So in the spirit of Thanksgiving, let’s just play this out that every Thanksgiving we have our family come to the dining room table — and you know what? The last couple years our uncle hasn’t been able to join us. Crazy uncle. He’s always out on adventures. And this year at the Thanksgiving table, he joins us and tells us all about these adventures he’s been on. He tells us all about where he’s been and how much fun he’s been having, and it ultimately ends on this investment conversation.

And by the way, I’m an incredible investor. Let me tell you how great of an investor I am. In 2008, coming off 2007, actually, I was a little concerned with things. I said, “I’m going to sideline all my money, I’m going to put it into the U.S. government bond market.” When everybody else lost 40 percent, 50 percent, I guessed almost 18 percent rate of return. On December 31, I reevaluated my situation. I said, “You know what? I think emerging markets are going to hit big this year.” So on January 1, I put 100 percent of my money inside the emerging world. It’s got almost an 80 percent rate of return. You know what? I thought real estate was coming back. And so on January 1, 2010, I put it all inside of real estate.

And then I was a little concerned, and the government bonds did pretty good back in 2008; I put my money back in there, and so on. Now, as tradition would have it, in our family, we typically have other people join us as well for Thanksgiving. And this year, our crazy uncle invited his friends who have been on journeys with him. As our uncle goes through all of his exciting life stories and adventures he’s been on, his friend starts telling us about some of the unfortunate things that have happened to him over time and how he ended up in the situation he’s in. And as he continues to talk, he eventually ended up on his investment experience. He said, “I just don’t get it. Every year my friend, your uncle, tells me about how great he is at portfolio picking.

“So every year I listen to what he tells me, and the next year, I put all my money into what he just had all his money in. So I put all my money in the U.S. government bonds market in 2009; I put it in emerging markets in 2010; I put it in a real estate in 2011. And I’m doing exactly what he’s telling me he’s doing, and he’s a great investor. He’s getting high, double-digit returns, and I’m over here just barely getting by making all these mistakes. What’s going on?”

There you go, and so let’s look at what that looks like. So our uncle’s the smartest investor in the world. For a market timing perspective, he’s getting in at the right time. So he’s invested in the best-performing asset class each year. The one-year-behind-not-so-fortunate friend who joined us for Thanksgiving invested one year late in the asset class. By way of comparison, we’ll look at the S&P 500 in the diversified portfolio one step further, OK. With large cap, small caps, internationals rates and bonds. So we look at returns, our uncle is getting almost 25 percent rate of return, really not too much standard deviation, but we know it’s not possible, right? We just saw it on this Beaver report, and we know it’s not possible to consistently pick the best performing asset class and put 100 percent of your money in that asset class on a year-in, year-out basis. But for conversation, almost 11 percent standard deviation.

The one-year-behind guy is 1 percent versus the 25 percent. But he picks up 170 percent of the risk for that by being one year late. As an alternative, let’s say I put all my money inside of the S&P 500. I’m getting a decent rate of return, 9 percent rate of return. I’m picking up still about the same amount of risk as our fortunate friend who’s traveling with our crazy uncle, right? And so what if there was a different way? What if there’s a different way to do that through diversified portfolio? Basically still pick up the same returns as the S&P 500 would, but I’m reducing the risk by almost half inside of that portfolio.

That’s where when we’re talking about making the shift and holistic wealth management. The conversation isn’t just about picking a good asset allocation; it’s where am I going to invest my time as an advisor? When I’m engaging now with our clients, what am I engaging them on? I’m making these custom solutions for them; I’m helping with behavioral coaching rather than picking the best asset classes each quarter and building these portfolios for my clients. It might be aligning yourself with a strategic solution that you can implement and spend your time on those higher, those above the line, things that we talked about previously. [visual]

So as you’re looking at this, what kind of philosophy and strategy are we talking about here? [visual] Making this leap into holistic wealth management, we’re talking about strategic allocation that’s the philosophy. And very similar to what we heard on the platform earlier, we’re talking about producing asset class exposure from stated ranges.

When we build our portfolios working with third-party money managers who are building those portfolios, we’re aligning ourselves with those who are saying, “Hey, we’re going to stick to these prescribed ranges.” On a one-year basis, on a three-year basis, as we look forward five years, we might make shifts in the portfolio from maybe 20 percent down 15 percent exposure inside of a large cap, for example, OK?

By way of comparison, you’ve got your tactical money managers who might say, “We’re concerned with this going on the market, and we’ll go all the way from 20 down to zero.” You look at the market timers, and you’re going to see a very frequent type trading that’s happening there. So I think we’re all familiar with that. I think also on this, a lot of the pushback that they will receive when we talk with advisors about this approach to money managers will say that hope and hold is not a strategy, right? And I would say, “Well, that’s not what we’re talking about; we’re talking more about a strategic allocation. And so it is saying that diversified asset classes will perform this way on a regular and consistent basis. But as there are things that are going on among those asset classes, we can change the allocation within a prescribed range because we know what diversification does. So we’re not going to go all the way down to zero on them but will stick within these prescribed ranges. [visual]

I’m going to pause there. That was a lot on building portfolios and that client experience conversation. Some of the questions that I put up here, did it prompt conversation as to what makes your business stand out? Do your clients know all the services that you provide? And I would measure that by, Are they able to articulate that to a nonclient? What impact would a consistent pipeline of right that clients have on your business? And then finally, going back to our first question here, What must happen in your business to move to where it is that the pack is going?

I’m going to pause here for questions and dialogue. I want to make sure that I’m not doing all the talking. Any feedback? Are we on point with what you guys are looking for? Well, that’s a good segue. How do you know that you’ve answered questions for the next portion? We’re talking about how to set up your business. I’ve got a couple of tools that are going to help to identify those land mines that are inside of your business, and also identify the hidden gems that exist inside of your business that can be refined. So we’re going to work through that.

Audience: On your previous chart you eliminated [inaudible]. Maybe you could explain the difference between the strategic and the static.

Nitz: Yeah, let’s go back. [visual] So the static that I was starting to say there was, people will say that hope and hold is not a strategy. OK, that’s not a good investment management strategy to have. And I would argue that is typically what a static strategy is. A lot of times to the question that you’re asking, it gets confused with a strategic allocation. But rather than hoping and holding, it is having a model that basically goes through and says, “How are we going to allocate our portfolio on an ongoing basis? And what ranges are available for us?” So through our investment policy statement, through the quarterly investment committee reviews, it’s basically going through and saying, “What ranges are we able to go down to or scale back or go up to?” OK, so there’re typically prescribed ranges, and you might go plus or minus within those prescribed ranges compared to the hope-and-hold type strategy.

Audience: I was just wondering if [inaudible].

Nitz: I think it does have a place in the conversation. So, I want to include this because I communicated what it is that I would believe that we would believe as we’re looking at the world of investment management, but there’re different strategies. And so when I’m looking at more of a tactical-type strategy, that’s typically where you’d see it. So if you, as a business owner, say, “You know what? I think that there is a lot of value beyond diversified, more of an active indexing type or a strategic-type allocation.” If that’s the value that you bring to the table, then you would probably fit inside of the tactical market. It is a viable option. And it is something that advisors are working with their clients and incorporating inside of their business and does play a role. And so it’s a viable pathway and a philosophy that’s utilized a lot, absolutely.

Let’s keep on going through the conversation because I want to work our way to how do you actually set up the business, OK? And so in preparation for this conversation, I’ve had preparation calls with MDRT, and they provided the survey results. And some of the questions that came back were these:

How do we set up our business with broker-dealers?
How do we set up our business with IRA?
How do we set up our business with the proper technology to be able to serve our clients well?

And so I want to go through and basically look at the service providers who are strategic business partners. I want to be intentional in saying a strategic business partner, because you’re evaluating different partners in the space, who ought to be strategic business partners, ones who are as invested in the business as you are, and ones who, as you’re building your business, you know and have confidence that they’re going to continue to be around in that business to continue to serve you and help serve the clients whom you serve.

So you had asked the question: What’s the answer to No. 4, right? The tool that we’ve used is a 10x scorecard. And at MDRT, I think it’s safe to talk about Dan Sullivan. He’s a great friend of our firm, and we’ve been Strategic Coach advocates for a long time and participated in the meetings. And so one of the tools that he helped us to create is this 10x scorecard.

But basically this is a diagnostic tool. He didn’t create the tool; he created a framework and basically, as we started to consult with business owners, financial advisors, clients of ours, we helped them to say, “Well, before we can give you a recommendation or advice on what technology you should make inside of your business, what investments and people should you make? What should you do with regard to shifting your business over here, over there? Let’s look at what the strengths are inside of your business, and let’s look at one of the weaknesses inside of your business. And let’s go through a self-diagnostic process.”

And as I said earlier, this process is going to help identify these land mines but also probably identify gold mines at the same time. And if we can refine those gold mines, how great is that? If we can identify the land mines before we step on them, how great is that? Address, cultivate those land mines; get them out of the way. How great is that? And so the seven areas that we look at — I’ll start with practice profitability, typically the bottom line. But frankly, I think it’s probably one of the first things that we want to talk about before we start talking about restructuring a business and looking at how do we set up our business. Because if this formula is off, everything else is off. “Oh, I can’t afford the technology because we’re not making profits.” Well, let’s talk about that formula, OK?

So I would ask some questions here: As a business owner, are you making enough money for the amount of risk that you’re taking on? Only you know what enough money means. What’s your profit margin? Every time that you go out and you land that new client, do you have to add on additional expenses to be able to service that client? So, sure, we’re growing our revenue, but our expenses are growing too, and our profit margin is not really growing at all. The formula is off. Should we invest some time to figure out what that formula ought to be? And figure out what the practice profitability ought to be?

Team development and staff leverage — do you have a team? If you do, do you have a team you can trust? Does your team know what play you’re calling? Are you able to hand the baton off to them? And are you able to walk away, and do they know what to do with that baton? Maybe, maybe not. But that might be an area that we want to focus on.

OK, consistent client process. [visual]A lot of times, I think No. 2 and No. 3 tie in together, right? Every meeting I go into, I go in with the yellow pad, and I come out with a completely different recommendation, different carriers. It’s whatever flavor of the day, coach of a wholesaler was in my office last, right? So I don’t have a consistent process or product set or carriers that I align with. Maybe that could be some of the problem behind why you’re not getting good staff leverage, why you’re having a lot of turnover inside your office. But do you have a select list of solutions that you work with carriers whom you partner with? All right, those are some of the questions I would ask.

Do you have a consistent pipeline of new right-fit clients? The clients whom you want to work with, the clients who are going to add meaningful revenue to your firm and the ones whom you are able to add meaningful recommendations and meaningful value to when they work with you?

So I would ask here, and some of the questions that are up here, would be when you make a recommendation to your clients, do they implement those recommendations? [visual] Are they on board to implement the recommendations that you make to them? Do your best clients refer clients to you consistently? Have they ever referred clients to you? That’s another question, right? What if they went through some of the slides that we talked about earlier and your clients started referring their family members? Could your business even handle being referred one new client a month, five new clients a quarter? What would happen to your business if that happened? Sounds like a problem of abundance, but nonetheless, it could be a problem if your business isn’t set up to handle that type of inflow, new clientele, into your business.

The implementation of technology. [visual] Sometimes you might say, “Hey, I’ve got to implement new technology” or “Hey, we have our CRM system, but we’re primarily using it as a phone book and address book for our clients; we want to use it to be better. But you know what? I don’t have good staff; I don’t have good team development; I’m not leveraging them.” Again, you can see how some of these tie in together.

So, to answer your earlier question, this, I think will help to identify what are the pinpoints. And if I need to shift my business to where the pack is going, before I go to my technology issue, maybe I need to go back to my staff issue. Someone’s actually going to run that technology for me; someone’s going to help make sure that integrates so that every time I get a new technology offering, I’m not having to duplicate my efforts. Put it in here. Oh, and then I want to do financial planning, so I have to open up that and get it in over here. Let’s make sure it’s all talking together to create some efficiency.

I always love talking to the MDRT constituents and members because life insurance and annuity play a pretty meaningful part in your business. But what role does life insurance play in your practice? Play 10 percent of your revenue, is it 50 percent of your revenue? Is it where you want it to be? So now we’re what you want it to be, but let’s have that conversation there.

And then business continuity. [visual] A lot of problems stem from the business continuity. Is the next generation identified? You have a buy-sell agreement, what happens if you don’t show up to work the next day? What happens if we have a client who lives in Santa Barbara and as a financial advisor with the fires, or with the problems that they’ve had over the mudslides? They had to work remotely for two months this year. Is your business set up to work remotely?

What if you don’t come back into work the next day? And those types of challenges exist. So if you guys want this, I’d be happy to get our team to send it out to you. But that tool right there will help you to go through and identify what some of those problems are. [visual]

Dan Sullivan was Strategic Coach. The 10x scorecard. So when we’re going through, and we’re looking at those strategic business partners, I’m going to just go through what are some of the conversations that when you’re looking at the BD, the RIA, the agency and technology, what are we seeing advisors weighing, and what are the conversations that they’re looking for? Or the value add, I should say they’re looking for, in the conversations they’re having with these business partners? So start out on the broker-dealer side. One of them, the big one, is do they have a common sense approach to compliance? That’s a big one. I think it goes without further explanation. Do they have professional staff? Is the BD that I’m working with somebody who’s actually adding value to my business, or are they a necessary evil that basically I’ve got to pay a toll for going through every single time with whatever grid they get?

Competitive payouts, diverse carrier and product portfolios, the ability to own my own business. [visual] Now whom do you align with? It’s going to say a lot about what type of business you have set up, right? And so do I have the ability to own my own business? Integrated reporting from outside business activities and even aggregated determination of my grid by way of IRA fees, commissions, that type of stuff. Under the RIA space. So do they have an RIA platform, or do I want to create it all myself? There’s not a right or wrong answer there. But I think for you, as a business owner, you’ve got to ask yourself, What am I looking to do in the RIA space? Do I want to start it myself from the bottom up, or do I want to partner with somebody else who already has it created on a turnkey platform? Do I have access to third-party money managers, or do I have the ability to manage money in house myself?

It’s not a right or wrong answer there. But for you to say, “I’ve got a great team; I’ve got a team of CFPs, a team of CFAs, maybe we want to build it in house. Does the RIA that I’m looking at partnering with allow me to do that in house? Those are some questions that I would ask there.

[visual] Again, the ability to own my own business. And based off of the feedback we got coming into this session today, do they have a demonstrated success at building recurring fees inside of the business? Helping advisors to make that shift from the commissions world into the fee-based world?

Under the insurance agency, competitive underwriting, diverse carrier products, professional staff, customized client, deliverables that may or may not be a thing that you need help with. If you’ve got a great team and you’ve got a great process, you might not need them to have customized deliverables. At the same time, hey, we’ve got turnover here. You know, when our staff doesn’t know what recommendations we’re making all the time, maybe you need to lean on an insurance agency that has those customized level deliverables that you can work with your clients to implement. There’s the ability to outsource key functions of the life insurance and the fixed insurance world process, such as application fulfillment or policy management.

And then we get into the technology side, so the ability to select and integrate my own technology preferences. [visual] So some businesses you align yourself with say, “Hey, this is a CRM system; this is the money management system; these are the solutions you have to use.” Or do you want to be able to have the freedom to say, “Hey, I want to pick whatever I want to pick that’s based off my own business needs.” There’s not a right or wrong answer, but there’s a question to ask, nonetheless. CRM integration, streamline client experience, that’s a big one now. When my clients interact with me, is it streamlined? Do they feel that it’s as easy for them to work with me as it is for them to return something they bought on Amazon? That’s the question that you should be asking yourself, right? Portfolio reporting, instant reporting, compelling visuals and engagement tools. But what technologies are out there to help me engage clients in a different manner? And then client portals is a big one that we see being utilized.

So on the RIA space, so Charles Schwab put out a survey basically, in a white paper, I should say. But in a white paper, they talk about choosing RIA providers and basically analyzing what options are out there. And in this room. So I guess the question that I got leading into this was, What is the difference between major IRA solutions and danger IRA providers? I found this chart from their white paper on exploring independence, so the IRA space. But basically on the far left side, you have your pure independence, and on the far right side, you have joining an existing IRA firm. [visual]

I was talking with a financial advisor who was with a wire house. And basically, they were a pretty nonindependent-type model. And they had a conversation, let’s say, “Hey, I want to go independent.” So we introduced them to a compliance officer; we introduced them to attorneys to help them draft their ADVs and get set up and identify the right people and technology and everything that they needed to have, basically going through the whole process. They came to the point and said, “You know what? I don’t want to start my own IRA. I think if that’s a 10, if I’m at one right now and that’s a 10, maybe I want to go to like six.

I want to partner with maybe a pre-established IRA who has technology and tools and people that I can begin to adopt myself. Well, that’s a different conversation. That will be somewhere maybe right in the middle going through independent with a platform or maybe even setting up your business as part of an established firm. But we’re looking at IRA providers, and not all IRAs are the same. At some of the IRAs, you might be an employee; you might have a partner; you may be able to come in as a partner in the firm. But I wanted to include this because it seems like it is pretty relevant during preparation for this based off of your own feedback.

From there, I want to jump into technology. So Michael Kitces, is anybody familiar with him? Anybody read his blog, his white papers, everything he puts out there? Great resource for financial advisors and has a ton of great insights. So you put together a baseless technology road map. Basically FinTech solutions, and there’s no shortage. I mean, we’re seeing a ton of advancement and innovation inside the space. But the problem is, it feels chaotic, and how do I know what technologies are available for me, and what value that’s going to add inside of my own business? And so as I’m working with a technology road map, I say, well, let’s try to simplify this a little bit.

And if I’m an advisor, I’m saying, “Hey, I need to invest in my technology and my own business. What is the stack that I ought to have?” OK, so how do I create order from chaos? And basically, if I’m to create a technology map or stack for my business, there’re really four primary areas that as a business owner you’d want to have incorporated inside of your business.

So first basically starts as CRM forms management, financial planning and portfolio management reporting. And so we’re not biased one way or another on who it is, but the ones that we see on the CRM space, red tail juncture, SMART Office, I think that’s pretty basic. I think we all probably have CRM that we’re using and leveraging here.

But I think the question here is does a CRM then talk to and create efficiency for the other technologies, solutions that we have? In my forms management, am I able to push information securely, down to my Ops side using Dropbox, using Constant Contact, using laser app? Am I getting efficiency in scale there? These are things that the RIA provider you would work with likely has something in place to help do this and efficient basis, your BD likely should have some stuff there. If you’re not using it right now, it’s probably just a practice conversation to have with them. A lot of times, we see the technology side at those business entities, the strategic business partners helping you to plug in to these different solutions.

As our forums stuff talking to our financial planning. [visual] So for financial planning talk into our CRM, a couple of the primary ones that we see are eMoney Advisor and Money Guide Pro. And then finally for portfolio reporting and management: Morningstar, Albridge. Are you guys familiar with these? I don’t know if I want to go into a lot of detail if you’re familiar with what these all are.

So Riskalyze is actually a provider that’s really been helpful, I think, when we talk about this holistic wealth management conversation, helping clients to really conceptualize what is their Riskalyze number. So when I’m at a cocktail party, and some portfolio manager got Max, and you’re only getting me, why? Well, let’s talk about risk. OK, how fast are they going with your Riskalyze score? And we’re really able to bring a complex conversation down to a level that can really be consumed and understood by all.

I’m going to pause there on the technology deck. Is there anything we want to go into more detail? I know we went through a lot, but it seems like you guys are tracking this pretty well.

So another tool, going back to your question here. I identified the pain points, right? And now I’m ready to evaluate providers. And I don’t know, should I do read Taylor, should I do juncture over here; which one’s going to be better, right? I found RIAs, and I got this one on the scale of independence, and this one was a little less independent. But basically identifying now, and that’s another tool that we use, but basically, it helps to objectively score out different options.

And there’s a Word document that we use. I’ll email this to you guys, but it’s basically scoring metrics. What’s your relative importance here? How do you prioritize those tallies? And it really helps you to objectively have that conversation about which providers are going to help you fill that void that you have inside of your business. This is a valuable tool because what we see too often is that in the world of too many choices, there’s no decision that’s ultimately made. And also, as we’re seeing all those choices, a lot of times, the major deciding points get sidelined because of these tertiary points that are easy to weigh the pros and cons. Say, “Hey, they have this and they don’t have that.” This helps to boil down to what the real issue is in an objective-type manner.

So again, if you want this, I can email this out to you based off if you also want that score card; I can include them both together. What we’re seeing is the major differentiators. So if you’re looking at BDs, you’re looking at RIAs, you’re looking at technology providers, and you’re saying, “Is this a strategic business partner whom I want to build my business off of?” The platform really comes down to three things. If you’re aligning yourself with a group of advisors, what’s the culture? Are those people I want to hang out with? Are they people I want to affiliate with? Are they people whom I would be comfortable having my clients work with? What’s the culture of advisors?

Stability of ownership. [visual] So this, I think, is a little bit more relevant in the BD space than probably any of the other spaces right now. But in the BD space, we see that since the financial crisis, I think it’s 40 of the Top 100 BDs have sold, have merged, have been aggregated with private equity. So you see a lot of that, and you’re saying, “Hey, what does that say about what they think about me as a business owner? Where do I fit into that mix?” And you’re going to talk about conflicts of interest and prioritization. Where do I fit in that equation? And then we’re going to talk about moving to where it is that the puck is going. Is the group that I’m talking to innovative, and do they have entrepreneurial platforms that are helping me to continue to shift to where it is that the puck is going? So again, that’s a tool that’s available; I’m happy to share that with you guys if you want.

So that’s the end of that section on structuring your business. I know there’s a lot there we were grazing the surface of. Some of the questions that I would pose:

What changes must occur for you to become, for your business to become, more profitable?
Is the staffing, is the technology, is it going back that 10x scorecard?
What do you need to do or what do you need or value the most from your BD or RIA partners?
How would you rate your adoption and integration of technology and your business on a scale of one to 10?

And then go back to our fourth question:

 

What do you need to do to move to where the puck is going?