var textForPages = ["ThinkAdvisor.com  |  OCTOBER 2022                                                 What’s                                                           Behind                                                                                 RIA                                          Growth?                                                                                                   Industry VIPs break down RIA                                                                                 growth trends — from the wave                                                                               of dealmaking to other ways RIAs                                                                                    are expanding their practices.","mak                                                                                            ement                                                                            r                                              t             W Working to make retirement                             king                     or                                                                       e                                                  o                                                                               etir                 Working to make retirement             c clearer for everyone.                                                                                     .                                                        v                                                            ery                                        f                               er                                                     e                                                                        one                 lear                 clearer for everyone.                                           or           Working to make retirement               Starting with you.                                                              y                 Starting with you.                                                                  ou.             Starting                                            with           clearer for everyone.                                                                                          ® ®           Starting with you.                                                   t y  Jac at s  c ompli ® c e’ r e  her e  t  c  help s  c  pl a r n   s.             Let Let’s face it. Retirement can be confusing for just about everyone. At Jackson , we’re here to help clear                                                       f                                              on                                                                                     k                   ac                                                                          one.                                                                         y                                             c                                                  si                                                 u                                                                               At                                                    n                                                     g                   f                 s                                                f                                                              about                                                          ju                              r                               emen                                                             t                                                            s                                      c                                       a                                    t                                        n                                                                      er                        it.                      e                                                       or                                                                     v                                                                     e                           eti                          R                                          be                                                                                       on                 ’                 Let’s face it. Retirement can be confusing for just about everyone. At Jackson , we’re here to help clear                                                                                                        o                                                                                                                le                                                                                            w                                                                                           ,               things up. Our range of annuity products help remove the uncertainty that complicates your clients’ plans.                                             pr                                                           emo                                                                                                e                                                                                                 s                      .                                                                                                             t                                                                                              at                              n                                                                                                   y                                                                v                                                                                                              ’                                                                   t                        Our                                                           r                                                                                                          en                                     n             thin                                                                                                         li                             a                                                                       unc                                                                 e                                           y                                       nuit                                                                   he                            r                 g                                                                              n                                                                                                    our                               g                                                                             ai                                e                 things up. Our range of annuity products help remove the uncertainty that complicates your clients’ plans.                                  of                                                                                   h                                                                                   t                                                    s                                                      help                    up                                                                          er                                                                            t                                                                                                                 a                  s                                              oduct                                     a                 And, our award-winning customer call center,  fee transparency, and user-friendly website make navigating   fee transparency, and user-friendly website make navigating                                                             *  fee transparency, and user-friendly website make navigating               And, our award-winning customer call center,             And, our award-winning customer call center,                                                          * *               everything easier for you. Together, we can help make retirement clearer for everyone.                 everything easier for you. Together, we can help make retirement clearer for everyone.             ever y t h i n g  e a si er  f or  y ou.  T o g et her ,  w e  c a n  help  m ak e  r eti r emen t  c le a r er  f or  e v er y one.                                                                                             ®           Let’s face it. Retirement can be confusing for just about everyone. At Jackson , we’re here to help clear               Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve risks and may lose                                                             ned             Annuiti                                     t                                     ax-def                                                                                                        k                                                                                                        s                                                                                                                   lo                                                                                                                     s                                                 v                                                     le                                                                                                                 y                                                     i                                                    c                                                 eh                                                                                                                     e                                             ed                                                                                                           a                                                       s                                                         de                                                          sig                                                                                                         s                                             r                                                                                                                a                                                                                                               m                                           er                                                                                                            nd                                                                                                       ri                                                                                              s                     s                    e                                                                        emen                                                                       r                        e                                                                     eti                       a                       r                                                                                             e                                                                                  able                                                                                 ri                 Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve risks and may lose                                                                                       a                                                                                a                                                                             t.                                                                                         nuiti                                                                               V                                                                                        n                                                                                                nv                               er                                                                                                     e                                                                    r                             g-t                                                                 f                                                                 or                                                                                                  olv                                                                                                i                          lon                                 m,                 value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax                          sange of annuity products help remove the uncertainty that complicates your clients’ plans.           things up. Our r  a r e  t axable  a s  or di n a r y  i nc ome  when  di s t ribut ed.  I ndivi dual s  m a y  be  s ubject  t o  a  10%  additi on al  t ax               value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax                    Ea                         g                      n                     r             value.                        n                       i               for withdrawals before age 59½ unless an exception to the tax is met.                                                     x                                                             t                                                              o                                                                t                                                                       s                                                          on                                                      ep                                                                    ax                                                                       i                                                                he                                                      c                                                                        met.                                                                   t                                   a                                 e                               or                                   g                                           unle                                       59½                                    e                            bef                   hdr                 for withdrawals before age 59½ unless an exception to the tax is met.             for wit                      a                          s                         al                       w                                               s                                                    e                                              s                                                  n                                                 a           And, our award-winning customer call center,  fee transparency, and user-friendly website make navigating                                                         ti *               * SQM (Service Quality Measurement Group) Contact Center Awards Program for 2020.                   (Service                                       Group)                                                  Center                        Quality                                                             Program                                                                      2020.                                             Contact             * SQM                                                       Awards                              Measurement           everything easier for you. Together, we can help make retirement clearer for everyone.                 * SQM (Service Quality Measurement Group) Contact Center Awards Program for 2020.                                                                   for               Before investing, investors should carefully consider the investment objectives, risks, charges, and expenses                                                                   investment                              investors                                                                the             Before                                                                                                       and                                                                                                            expenses                                                                                               charges,                                                                               objectives,                     investing,                                                                                         risks,                 Before investing, investors should carefully consider the investment objectives, risks, charges, and expenses                                                       consider                                               carefully                                        should           Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve risks and may lose               of the variable annuity and its underlying investment options. The current contract prospectus and underlying                                                                                                       and                                                                         The                                           underlying                                                                                                            underlying                                    and             of the                 of the variable annuity and its underlying investment options. The current contract prospectus and underlying                                                                                    contract                                                                                             prospectus                    variable                                                                             current                                        its                                                                 options.                            annuity                                                       investment           value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax               fund prospectuses, which are contained in the same document, provide this and other important information.                                                    in                                                                          provide                                          contained                                                                                      and                                                                                   this                   prospectuses,                                                                                                important                                                          same                                which             fund                 fund prospectuses, which are contained in the same document, provide this and other important information.                                      are                                                                                                          information.                                                                                          other                                                      the                                                               document,           for withdrawals before age 59½ unless an exception to the tax is met.    the  prospectuses.  Please  read  the               Please contact your Jackson representative or the Company to obtain the prospectuses. Please read the                    contact                                                             Company             Please                            your                                 Jackson                 Please contact your Jackson representative or the Company to obtain the prospectuses. Please read the                                         representative                                                                       to                                                                         obtain                                                       or                                                          the           * SQM (Service Quality Measurement Group) Contact Center Awards Program for 2020.             prospectuses carefully before investing or sending money.               prospectuses carefully before investing or sending money.                 prospectuses carefully before investing or sending money.           Before investing, investors should carefully consider the investment objectives, risks, charges, and expenses               Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York by Jackson National Life Insurance                                                                                       New                                                                                     in                 Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York by Jackson National Life Insurance                                                                Office:                                                           (Home                                                                                              by                                                                                  and                                                                                          York                                                    Company                                          Life                     are                            by                                    National                                                                                                               Insurance                                                                     Lansing,                                                                                                            Life                       issued                                              Insurance                                                                                                     National                                                                                                Jackson             Annuities                              Jackson                                                                           Michigan)               Company of New York (Home Office: Purchase, New York). Variable annuities are distributed by Jackson National Life Distributors LLC, member FINRA.                              (Home and its underlying investment options. The current contract prospectus and underlying           of the variable annuity  Office:  Purchase,  New  York).  Variable  annuities  are  distributed  by  Jackson  National  Life  Distributors  LLC,  member  FINRA.                 Company of New York (Home Office: Purchase, New York). Variable annuities are distributed by Jackson National Life Distributors LLC, member FINRA.                       New                     of                          York             Company               These products have limitations and restrictions. Contact Jackson for more information.           fund prospectuses, which are contained in the same document, provide this and other important information.                                                           for             These                                                              more                  These products have limitations and restrictions. Contact Jackson for more information.                  products                         have                                               Contact                                                                 information.                            limitations                                                     Jackson                                    and                                       restrictions.                                                                                                             ®                      ®  is the marketing name for Jackson National Life Insurance Company  and Jackson National Life Insurance Company of New York .                    ®               Jackson                                                                    ®                   ®                                                                                                               ®                                                                  ®                                                                     ®                                                                                                            ®             Jackson                 Jackson  is the marketing name for Jackson National Life Insurance Company  and Jackson National Life Insurance Company of New York .  is the marketing name for Jackson National Life Insurance Company  and Jackson National Life Insurance Company of New York .           Please contact your Jackson representative or the Company to obtain the prospectuses. Please read the               CMC25777CCCAD 04/21                           04/21                 CMC25777CCCAD 04/21             CMC25777CCCAD           prospectuses carefully before investing or sending money.           Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York by Jackson National Life Insurance                                                             Not FDIC/NCUA insured  •  May lose value  •  Not bank/CU guaranteed                                                              Not FDIC/NCUA insured  •  May lose value  •  Not bank/CU guaranteed                                                                                                  Not                                                                                                            guaranteed                                                                                       lose                                                                                •                                                                                          value                                                            Not FDIC/NCUA                                                                                                      bank/CU                                                                                               •                                                                                  May                                                                         insured             Company of New York (Home Office: Purchase, New York). Variable annuities are distributed by Jackson National Life Distributors LLC, member FINRA.                                                                     Not a deposit  •  Not insured by any federal agency                                                                   Not a                                                                      Not a deposit  •  Not insured by any federal agency                                                                         deposit           These products have limitations and restrictions. Contact Jackson for more information.       •    Not  insured  by  any  federal  agency           Jackson  is the marketing name for Jackson National Life Insurance Company  and Jackson National Life Insurance Company of New York .                                                                                                                ®                ®                                                                   ®           CMC25777CCCAD 04/21           IA_Full Page Ads_October_2022 updated.indd   2                                                       9/12/2022   12:27:19 PM                                                            Not FDIC/NCUA insured  •  May lose value  •  Not bank/CU guaranteed                                                                    Not a deposit  •  Not insured by any federal agency","10.22                                     NEW THIS MONTH @ THINKADVISOR.COM  TECHCENTER LIVE EVENTS WEB EXTRAS DIRECTORIES BLOGS                    Schwab-TD Ameritrade Integration Still on Track: Executive                   The integration of TD Ameritrade’s                  technology into the Schwab Advisor                  Center platform remains on track to be                  completed by mid-fall 2023, according to                  an executive. That’s within the 36-month                  merger timeline cited by Charles Schwab                  when it finalized the $26 billion deal in                  October 2020,                    Meanwhile, what Schwab is “starting                  to see right now is a real engagement                  from Ameritrade advisors to really want                  to understand the platform that they will                  be moving toward,” said Alison Dooher,                  managing director of Digital Advisor                  Solutions at Schwab Advisor Services, in                  an interview in August.                    Schwab also launched a program called                  Jump Start in the first quarter of 2022   “gives them a pretty granular view into   Portfolio Connect for Ameritrade                  that lets TD Ameritrade advisors “choose   their practice about how, across the     advisors could offer a portfolio                  to open new accounts on the Schwab   users at their firm, they’re actually get-    management solution for particularly                  platform,” Dooher explained.      ting work done with Schwab in the most   those who are single custody” focused,                    Jump Start is “not for converting exist-  efficient way.” Meanwhile, educating   she added.                  ing clients but it can be used for that   advisors on the tools that are available   As “part of our internal preparation                  next new client that they’re growing   to them is important and might help   for the integration” to be completed and                  into their practice and to onboard them   them avoid some of the pitfalls they face,   to “ensure that that goes smoothly,”                  directly out to the Schwab platform,   including “rework,” Dooher said, adding:   she also said, “we’re engaging not just                  giving their practice an advance view   “You will hear this messaging just more     advisors, but also the third-party vendors                  and more time to really get used to the   and more prevalent as we continue to   who serve those advisors well in advance                  Schwab platform that they’ll be moving   talk to advisors around planning ahead   so that they are prepared for the switch                  to,” she said.                    for the ultimate integration upcoming.”  to occur and for data flows to keep                    Schwab is “starting to see an uptick   But “integration’s not the only thing on     moving seamlessly.”                  of [TD] advisors really wanting to   the advisors’ minds” now. They are also   A positive sign for Schwab is “one                  take advantage of this,” the executive   “really keenly focused on driving  adoption   of the great things that we hear                  explained. “The summertime has prob-  and more efficient processes within their   from  advisors, and particularly the                  ably provided a little space for folks   own firms” and Schwab is out to find     top-performing advisors, is that they’re                  to consider making this move” if they   more ways to help them do that, she   really leaning into digital workflows and                  hadn’t done so already, she pointed out.   noted. In addition to the focus on digital   digital capabilities across their firm,”                  “We expect that that is likely going to   tools education, she said  third-party inte-  she explained. As a result, “they’re                    accelerate with more interest as time   grations also play a key role.  getting time back that they want to                                                                                      spend with clients in a more value-add                                                      “That’s why you’ll see things across                  passes” and the integration is finalized,              Adobe Stock  Dooher said.             our roadmap that are really intended to …   way [and getting] up to 20% of time                                                    provide end-to-end solutions,” Dooher                                                                                      back on an annual basis,” calling that a                    Schwab also offers a technology adop-                                                    explained. “We think, for  example,                                                                                      “big lift.” —Jeff Berman                  tion dashboard to advisors that she said                                  FOR ALL THIS AND MORE WEB EXCLUSIVE CONTENT PLEASE VISIT THINKADVISOR.COM                              INVESTMENT ADVISOR (ISSN 1069-1731) is published monthly except for combined issues in Jan/Feb, Apr/May and Jul/Aug. ALM Global, LLC, 150 East 42nd Street, Mezzanine Level, New York, NY 10017.                                                Periodical postage paid at Covington, KY and additional mailing offices. Subscription Rate is $79 per year.                                  POSTMASTER: Send all subscription orders, changes of address and correspondence to Investment Advisor , PO Box 3136, Northbrook IL 60065. Allow four weeks completion of changes                                                                                          OCTOBER 2022 INVESTMENT ADVISOR 1","Features                                                                           VOL. XLII NO. 7                                                                                                       OCTOBER 2022                                                                                 18                                                                                 Cover Story                                                                      What’s Behind RIA Growth?                                                                     By Jeff Berman                                                                     Industry VIPs break down RIA                                                                     growth trends — from the wave of                                                                     dealmaking to other ways RIAs are                                                                     expanding their practices.                                                                                                                                                    Cover Photo-illustration: Chris Nicholls                                 2 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","FIDELITY INSTITUTIONAL®                                                                                   A                                                                             DY                                                            A                                              EADY                                                            A                                                            A                                                                             DY                                                                             DY                                                                             DYDY                                R R R R R RE E E E EADY                                                                             DY                                                  AY                                D D                                DAY 1                                                  AY                                                 Is independence calling?                                   We’ll help you answer.                                     Starting your own RIA doesn’t mean you’re in it alone. You can lean on us every                                  step of the way, starting with a smooth transition plan, a next-generation client                                  approach, and future-ready solutions. So if you hear the call to independence,                                  we’re ready day 1 to help you blaze a new trail.                                                  Download our independence guide and hear                                                 from advisors who’ve made the move at                                   i.fi             delity.com/RiaReady. Or scan the code.                      Fidelity Institutional® (FI) provides investment products through Fidelity Distributors Company LLC. Clearing, custody, or other brokerage services are provided through               National Financial Services LLC or Fidelity Brokerage Services LLC, members NYSE, SIPC.               Fidelity Institutional and the Fidelity Investments and pyramid design logo are registered service marks of FMR LLC. © 2022 FMR LLC. All rights reserved. 1044023.1.0              IA_Full Page Ads_October_2022 updated.indd   3                                                       9/12/2022   12:31:39 PM","Departments                                                                        VOL. XLII NO. 7                                                                                                       OCTOBER 2022                       1 | ThinkAdvisor.com              47 | Advertiser's Index          “The typical wealth                  8 | Editor's Note                 47 | Classifieds                 management client just                                                                                     wants their needs met. ”                                                                                                     —Angie Herbers                                                                                        Columns                                                                                        The Playing Field                                                                                      33 | SEC 12b-1 Fee, Custody Rules                                                                                      Likely Out by Year-End                                                                                      By Melanie Waddell                                                                                      Both rules “are currently in the                                                                                      works,” says compliance consultant                   Beginnings                                                         Amy Lynch.                    Washington Watch                 Annuities Update                  The Fast Track                   10 | Should Social Security Be Used   16 | Why Advisors Shouldn't                   to Fund Parental Leave?          Dismiss Index-Linked Annuities    35 | 3 Steps to Transitioning                                                                                      Clients to Other Advisors                   Retirement Planning                                                By Angie Herbers                   12 | Should This Client Claim Social                               With advisors in short supply,                                                                                      firms must serve more clients with                   Security Before 70?                                                the human resources they have.                                                                                      Here’s how.                                                                                         Alternative Investments                                                                                      43 | How to Engage With Clients                                                                                      Now on Private Equity                                                                                      Broker-Dealer Beat                                                                                       44 | UBS-Wealthfront Deal Has                                                                                      Been Canceled                   Conclusions                      Portfolio Perspectives            The New School                    Financial Planning               39 | SEC Loophole Lets Funds Mislead   46 | A New Way to Train Next-Gen                                                    Investors on Performance: Study                                                                                      Financial Planners                   in Focus                   37 | 6 Tips for Advisors When    ETF Advisor                       Compliance Coach                   Talking Fees With Clients        41 | Income-Generating ETFs       48 | More States Adopt Advisor                                                    Popular in Tough Market           CE Requirements                                        Send comments to: jlevaux@alm.com; by post to: 150 East 42nd St., Mezzanine Level, New York, NY 10017                           HOW TO    Subscriptions: Visit ThinkAdvisor.com. 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Reprints: Email reprints@alm.com, or call 877-257-3382.                 4 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","INFL                                A                                    INFLATION                                                                                  TION                                                                                                              L                                                                                                    L                                                                                               VO VO VO L A TILIT   Y                                                                                               VOLATILITY                                                                                                       A                                                                                                       A                LIQUIDITY                LIQUIDIT        Y                UNCER             T AINT         Y                UNCERTAINTY                DURA         TION                DURATION                                                                                                                  RISK                                                                                                   RISK                                                            FIXED INCOME                                                                                  RISING RATES                                       SURVIVE OR THRIVE?                             Do more than survive. Our active fixed income approach strives                        to help you make the most of changing bond markets.                         Do more at mfs.com/active360                   52051.2             IA_Full Page Ads_October_2022 updated.indd   5                                                       9/12/2022   12:32:08 PM","Need help                                                                              INVESTMENT ADVISOR GROUP                         with your                                    150 East 42 Street, Mezzanine Level • New York, NY 10017                        marketing                                201-526-1230/Fax 201-526-1260/Circulation Customer Service: 800-458-1734                            efforts!                                                EDITORIAL                                                              EDITOR-IN-CHIEF, REGULATED MARKETS GROUP Nichole Morford nmorford@alm.com                                                                     GROUP EDITOR-IN-CHIEF Janet Levaux jlevaux@alm.com                                                                     EXECUTIVE MANAGING EDITOR Katie Rass krass@alm.com                                                                  WASHINGTON BUREAU CHIEF Melanie Waddell mwaddell@alm.com                                                                        INSURANCE EDITOR Allison Bell abell@alm.com                                                                      SENIOR WRITER Dinah Wisenberg Brin dwbrin@alm.com                                                                        STAFF REPORTER Jeff Berman jberman@alm.com                                                                       SR. ART DIRECTOR Chris Nicholls cnicholls@alm.com                                                                       RESEARCH EDITOR Liana Roberts lrroberts@alm.com                                                                                     BUSINESS                                                                   SALES MANAGER, WEST Neil Dant 859-692-2112 ndant@alm.com                                                              SALES MANAGER, MIDWEST/NY/NJ Lauren Rispoli 212-457-9527 lrispoli@alm.com                                                               SALES MANAGER, EAST Archer Montague 804-464-1232 amontague@alm.com                                                           DIRECTOR OF CLASSIFIED SALES Martha Frechette 213-760-6159 martha@rwwcompany.com                         REPRINTS                               CLIENT SERVICES MANAGER Debbie Maggard 859-692-2197 dmaggard@alm.com                      CAN HELP!                                SR. 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IA_Full Page Ads_October_2022 updated.indd   7                                                       9/12/2022   12:32:46 PM","EDITOR’S NOTE                                                       By Janet Levaux                               What a Growth Track!                                 e’re pleased to present the cover story for this   “Thus, organizations have been looking at ways to serve                            month’s issue, which focuses on RIA trends —   more clients with the human resources they have. And many                  W from the wave of dealmaking to other ways RIAs   are finding that the best solution is to transition clients from                  are expanding their practices via organic-growth strategies.   busy primary advisors to advisors who have excess capac-                  The latest tally of Securities and Exchange Commission-  ity. Firms often have a hard time moving forward with client                  registered investment advisory firms jumped about 7% last   transfers, though,” Herbers said. Her latest column offers sev-                  year — or by 926 firms from 2020 — to 14,806 firms, accord-  eral helpful guidelines on how to do so successfully.                  ing to the Investment Adviser Association and National   In her latest The Playing Field column, Washington Bureau                  Regulatory Services.                                                           Chief Melanie Waddell                    While nearly 88% of       The latest tally of SEC-registered                 SEC looks at likely rule-                  the SEC-registered advi-                                                       makings  this  year  by the                  sors had under $5 billion  investment advisory firms jumped about              SEC that aim to rein in                  in assets under manage-    7% last year — or by 926 firms from                 12b-1 fees as well as cus-                  ment, 92.5% of industry                                                        tody rule infractions. “The                  assets were managed by    2020 — to 14,806 firms, according to                 custody rule process is                  firms with AUM over $5   the Investment Adviser Association and                well underway,” Barr said                  billion, according to the                                                      recently in an interview                  report. Asset growth has      National Regulatory Services.                    with Waddell. “It’s not                  been strongest for advi-                                                       unrealistic” that the agen-                  sors with over $100 billion in AUM. In each of the past eight   cy could put forth a rule in late October or November.”                  years, the number of SEC-registered advisors has increased,   “Fund fees have been on the SEC’s regulatory agenda for quite                  while the number of brokerage firms has declined.   some time now,” Amy Lynch, founder and principal of FrontLine                    “The results of the [IAA and NRS’] 2022 Snapshot confirm   Compliance, noted in a separate interview. “As you know, Rule                  [that] investors recognize the value of fiduciary advice in   12b-1 fees have been dealt with rather harshly via the numerous                  helping them meet their financial goals, whether planning for   enforcement actions against funds. The industry has certainly                  retirement, saving for homeownership or funding an educa-  received the message and the use of 12b-1 fees is declining.”                  tion.  With the vast majority of firms employing 50 or fewer   At the same time, though, “other fees such as revenue                  people, it’s clear small businesses serving individual investors   sharing are increasing. The key for funds is to provide clear                  are the backbone of the investment adviser community,” said   and consistent disclosure to shareholders regarding the fees                  Karen Barr, IAA CEO and president.                 charged. I suspect any rulemaking that comes out to focus on                    Also in this month’s issue, industry consultant and The Fast   descriptive disclosures,” Lynch explained.                  Track columnist Angie Herbers looks at the shortage of finan-                  cial advisors. “Asked to name their top business challenge, firm                  after firm will point to the difficulty of recruiting, training and                  retaining talent. Amid the human resources crunch, advisory                  firms continue to grow. To accommodate that growth, they                  need more advisors — who are in short supply,” she explained.               GROUP EDITOR-IN-CHIEF                  8 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Gain Your Competitive Edge                           Join ThinkAdvisor’s online community and get exclusive                 access to vital news, analysis, market trends, practice                  management tips, compliance updates and portfolio                  strategies from our trusted experts. Plus, your membership                 includes discounts on our events, products and services.                  Our goal is simple—serve you better and help you grow                  your business!                                                                  Get Started Now                    Visit ThinkAdvisor.com and become a member today!                            IA_Full Page Ads_October_2022 updated.indd   9                                                       9/12/2022   12:35:19 PM","Beginnings                               WASHINGTON WATCH                      By Melanie Waddell                   Should Social Security Be Used to Fund                    Parental Leave?                    The New Parents Act is drawing opposition from libertarians and                  Social Security advocates alike.                                                                                        tionate reduction in monthly retirement                                                                                      benefits during their first five years of                                                                                      retirement,” de Rugy and Blahou explain.                                                                                      “In other words, every parent who                                                                                      receives paid leave benefits today would                                                                                      either begin receiving Social Security                                                                                      at a later age than other Americans or                                                                                      receive smaller Social Security benefits                                                                                      in their first years of retirement.”                                                                                        In theory, they continue, “the plan                                                                                      would be budget neutral in the long run                                                                                      because the benefits paid today would be                        hould new parents be allowed to   of paid parental leave.     recouped by the government in the dis-                        tap Social Security to fund paren-  “Unfortunately, the idea that the   tant future. The stated goals of the plan                  Stal leave benefits? Sens. Marco   U.S.  government  can  provide  generous   are to invest in American families today                  Rubio, R-Fla., and Mitt Romney, R-Utah,   new benefits to Americans today while   in a way that produces substantial social                  reintroduced last September the New   successfully financing this spending   and  economic  returns  without  increas-                  Parents Act, legislation that would allow   decades down the road is implausible,   ing the net cost of government overall.”                  new parents up to three months of paren-  not least because the plan relies on a host   The Mercatus fellows argue the plan                  tal leave benefits, drawing the funds from   of unrealistic assumptions,” Mercatus   will fail for three reasons. Contrary                  their Social Security retirement benefits.  Center senior fellows Veronique de   to the popular narrative about Social                    The debate over parental leave bene-  Rugy and Charles Blahous state in a   Security, the two write, “there is no                  fits has heated up since Roe v. Wade was   new policy brief.        actual pot of money from which today’s                  overturned in June. Rubio has rolled the   The two fellows at the libertarian pol-  young people can draw — only promises                  family-leave-for-Social-Security ben-  icy group also say the New Parents Act   of future benefits.”                  efits provision of the New Parents Act   “fails to account for political constraints   Second, “it is bad to set multiple                  into a broader bill — the Providing for   that virtually guarantee the failure of its   retirement ages for  different  Social                  Life Act.                         principal financing mechanism.”   Security participants on the basis of                    The New Parents Act has drawn     “Parents  receiving  the  benefit  would   their choices regarding parental leave-                  opposition from across the political   later pay it back either by increasing   taking,” the fellows state.                  spectrum. Under the bill, parents would   their Social Security full retirement age   The New Parents Act would also                  be able to receive a Social Security ben-  (which is 67 under current law) by three   “reverse the traditional order of Social   Adobe Stock                  efit providing up to three months’ worth   to six months or by receiving a propor-  Security  contributions  and  benefits,”  the                  10 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","two state. “Although in practice Social   tions include paid family and medical   fice some of their future Social Security                  Security is an income-transfer program,   leave, both of which should be added to   income in exchange for paid family leave.”                  ostensibly, participants must still earn ben-  Social Security. This would be complete-  There’s “no doubt that parents would                  efit entitlements; workers pay payroll taxes   ly consistent with President Franklin   greatly benefit from a federal paid fam-                  over their entire career, which makes them   Roosevelt’s vision. Indeed, he considered   ily leave program,” Richtman said. “But                  eligible for benefits later in retirement.   including short-term disability in the   today’s parents will need every dollar of                  Contributions come first, then benefits.”  Social Security Act of 1935, but ultimately   their future Social Security benefits, given                                                    decided to proceed incrementally.”  the ever-rising cost of aging in America.”                  SOCIAL SECURITY ADVOCATES           Altman continued that it’s “long past   The  Mercatus  Center,  Richtman  con-                  WEIGH IN                          time that the United States joins the rest   tinued, “is correct that the New Parents                  Nancy Altman, president of Social   of the industrialized world in providing   Act is bad policy, but mostly for the                  Security Works, agrees. The New Parents   paid family leave. But in no circumstance   wrong reasons. While it’s true that Social                  Act  “has  so  many  shortcomings  that  it   should anything like the Rubio-Romney   Security should not be a piggy bank for                  is opposed by progressives  and conser-  proposal, which forces people to forfeit   unrelated benefits, Mercatus is using the                  vatives alike,” she explained via email.   a large portion of their future retirement   Rubio bill to promote the myth that Social                  While professors de Rugy and Blahous   benefits if they take parental leave, be   Security will not be there for future retir-                  “are correct to oppose the Rubio-Romney   enacted. It would undermine working   ees.” Social Security’s chief actuary esti-                  proposal, they are wrong on a number of   families’ economic security in general   mated that the New Parents Act “would                  their specific concerns,” Altman said.  and Social Security in particular.”  have a negligible long-range impact on the                    Contrary to their views, “Social   Max Richtman, president and CEO   Social Security trust fund,” he added.                  Security is a perfect vehicle for long-  of the National Committee to Preserve   Rubio’s bill has only one  co-spon-                  needed paid family and medical leave,”   Social Security and Medicare, explained   sor — Romney, Richtman said. “And any                  Altman argued, as it “is insurance against   in a separate email that his group “strong-  change to Social Security requires 60                  the loss of wages in situations where   ly oppose[s] Senator Rubio’s New Parents   votes in the Senate. So I don’t see this                  expenses often increase. Those situa-  Act  because  it  asks  Americans  to  sacri-  bill moving any time soon.”                       Senators Release Final Text of EARN Act Retirement Bill                    In the Senate Finance Committee on Sept. 8, Chairman Ron   pate in retirement plans, and expands the saver’s credit for                    Wyden, D-Ore., and Sen. Mike Crapo, R-Idaho, introduced the   low- and middle-income workers. The EARN Act would also                    final text of the bipartisan Enhancing American Retirement   allow withdrawals for certain emergency expenses, according                    Now (EARN) Act, which passed the committee in June. The   to a section-by-section summary of the bill.                    final text includes the amendments the committee approved   Under present law, an additional 10% tax applies to early                    as well as technical corrections that may have been needed.  distributions from tax-preferred retirement accounts such                      Senate Finance’s EARN Act and the Retirement Improvement   as 401(k) plans and IRAs. “This provision would provide                    and Savings Enhancement to Supplement Healthy Investments   an exception for certain distributions used for emergency                    for the Nest Egg, or Rise \& Shine, Act, which passed the Senate   expenses, which are unforeseeable or immediate financial                    Health, Education, Labor \& Pensions Committee by voice vote   needs relating to personal or family emergency expenses,”                    on June 14, “will become the baseline text for the Senate to   the summary states. “Only one distribution would be permis-                    negotiate a final Secure 2.0 bill with the House between now   sible per year of up to $1,000, and a taxpayer would have the                    and the end of the year,” said Dan Zelinski, spokesman for the   option to repay the distribution within 3 years.”                    Insured Retirement Institute in Washington.        The EARN Act would also allow for penalty-free withdraw-                      Wyden said in a statement on Sept. 8 that the EARN Act   als from retirement plans for individuals in cases of domestic                    “includes policies put forward by members on both sides of   abuse. The bill also increases the age for required minimum                    the aisle, and I appreciate the collaboration of Senator Crapo   distributions to 75 from 72, effective after 2031, and allows                    every step of the way. I look forward to working with Senator   for indexing the limit on IRA catch-up contributions.                    Crapo and our counterparts in the House to get the EARN   “Present law permits an IRA owner to contribute an addition-                    Act signed into law.”                            al $1,000 (unindexed) annually to the IRA beginning at age 50,”                      The EARN Act encourages small businesses to adopt retire-  the summary states. “This provision would index this catch-up                    ment plans, makes it easier for part-time workers to partici-  limit, effective for years beginning after the date of enactment.”                                                                                             OCTOBER 2022 INVESTMENT ADVISOR 11","RETIREMENT PLANNING                   By Marcia Mantell                      Should This Client Claim Social Security                   Before 70?                    Some advisors do the math and say it’s better to wait. But there’s more                   to consider than math.                           n advisor asked about claim-                         ing strategies for a couple. The                  A higher earner wants to claim                  now. But the advisor heard that no one                  should claim before 70 — unless they are                  the lower-earning spouse.                    There are two distinct camps among                  advisors. One group staunchly believes                  the higher earner should always wait                  until 70 before claiming.                    The other camp is more measured.                  While they, too, can do the math and                  see that getting 8% per year in delayed                  retirement credits  yields  a  higher                  monthly payment, they  also consider                  the facts  and circumstances  that sur-                  round each client — and how their goals                  change over time.                   THE CLIENT COUPLE                 when she reaches her own FRA of 66   were favorable, allowing the couple to                  In this case, the client couple (we’ll call   and 6 months, about $1,500 per month.  live  comfortably  off  their  investments.                  Juan Carlos and Tessa) wanted advice   But until Juan Carlos claims his own   With the help of their advisor, their port-                  about timing their Social Security claim.   benefit, Tessa sits on the sidelines. She   folio had grown nicely, even with annual                  Juan Carlos reached his full retirement   cannot claim her spousal benefit until he   draws to support their  lifestyle.                  age (FRA) of 66 and 4 months. Tessa had   claims his worker benefit. That means   However, this last year with the mar-                  just turned 65.                   if he waits until 70, she must wait until   ket downturn, along with rising infla-                    He retired 12 years ago, and they   then as well. She’ll be 68 and a half.   tion, has put pressure on their portfolio.                  have been living off their investments   While his benefit will increase at 8% per   Furthermore, much has changed in                  since 2010.                       year, hers maxes out at her FRA — two   the last 12 years. Most notably, they now                    Should they claim now at FRA or con-  and a half years earlier. Spousal benefits   have grandchildren and  their top  goal                  tinue to wait until Juan Carlos turns 70?  do not get delayed retirement credits.  has changed significantly. They want to                                                                                      secure a larger inheritance than origi-                  IS THE ANSWER ‘WAIT ‘TIL 70?’     TAKE A STEP BACK                  nally planned.                  “Yes!” some advisors would say. Instead   When considering this question with                  of receiving a primary insurance amount   your own clients, take a step back.   WEIGHING THE OPTIONS                  (PIA) of $3,000 a month, he would get a   Review the client’s current personal sit-  If the clients wait to claim for four                  boost to at least $3,880.         uation and their goals. The real answer   more years, they will continue to chew                    However, Tessa is a dependent wife.   is more nuanced than simply looking at   through their portfolio. Even if there is                  She did not earn enough credits to have   the math.                 a sustained market rally, the new goals                  her own Social Security benefit. She will   For Juan Carlos and Tessa, in the   must be factored in.     Adobe Stock                  be eligible for half of Juan Carlos’ PIA   first 10 years of retirement, the markets   The question, therefore, becomes,                  12 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","“Shouldn’t they claim now?”                    There are some small trade-offs.                  Assuming a January claim date, Juan                  Carlos  will  only  get  a  6-month  bump,                  and Tessa will take an 8% reduction for                  claiming early.                    Together, they will bring in about                  $4,500 per month from Social Security.                  Medicare Part B premiums will reduce                  benefits to about $4,100. That’s an annu-                  al income of roughly $50,000.                    Claiming sooner allows them to                  reduce their portfolio draw by $200,000                  between now and age 70. Assuming a 7%                  investment return, that’s over $1 million                  more in the portfolio for their legacy.                    Connect the Dots on the Family Side                  of the Equation, Too                    When the advisor connected all the   Social Security COLA for                  current dots — market downturns,                  goal — the question about when to claim  2023 Estimated at 9.6%                  high inflation, and his clients’ new top                   became much more than about 8%    While lower than last month’s 10.5% prediction,                  delayed retirement credits.                    When planning for retirement accu-  it would be the biggest increase since 1981.                  mulation, advisors are adept at connect-                  ing dots on the financial side. But when   he  consumer  price  index  data for   Security and Medicare policy analyst,                  it comes to retirement income, it’s criti- TJuly, released on Aug. 10, shows   bases monthly COLA estimates on                  cal to connect dots on the family side of   8.5% inflation over the past 12 months   changes in the consumer price index for                  the equation as well.             before a seasonal adjustment and was   urban wage earners and clerical work-                    When considering family legacy and   unchanged from June to July on a sea-  ers, known as the CPI-W.                  inheritance goals, Social Security cannot   sonally  adjusted basis. In June, prices   “A high COLA will be eagerly antici-                  be bequeathed. Only personal assets can   rose by 9.1% over 12 months and 1.3%   pated to address an ongoing shortfall in                  pass to the younger generation.   from May.                         benefits that Social Security beneficia-                    Juan Carlos and Tessa decided to   Based on this data, the Senior Citizens   ries are experiencing in 2022 as infla-                  claim in January. They would rather   League estimates the Social Security   tion runs higher than their 5.9% COLA,”                  start Social Security now, preserve more   cost-of-living adjustment, or COLA,   Johnson said in a statement. “A $1,656                  of their personal assets, and meet their   for 2023 could be 9.6%, lower than the   benefit is short about $58 a month and                  most important family goals of the future.  10.5% it predicted last month. A 9.6%   by a total of $373.80 year to date.”                                                    COLA  would  be  the  biggest  increase   The annual COLA underscores the                  Marcia Mantell is the founder and president   since 1981. The adjustment would   financial pressures that many Social                  of Mantell Retirement Consulting Inc., a   increase  the average  retiree benefit of   Security recipients face.                  retirement business development, mar-  $1,656 by $159, according to the league.  Thirty-seven percent of participants in                  keting \& communications, and education   If inflation runs “hot” or higher than   the Senior Citizens League’s new Seniors                  company supporting the financial services   the recent average, the COLA could be   Priority Survey reported they received                  industry, advisors, and their clients. She is   10.1%; if inflation runs “cold” or lower   low-income assistance in 2021. This                  author of “What’s the Deal with Retirement   than the recent average, the COLA   appears to be more than double the 16%                  Planning for Women?,” “What’s the Deal   could be 9.3%, according to the advo-  receiving needs-based assistance before                  with Social Security for Women?” and blogs   cacy group.            the pandemic, as reported by the U.S.                  at BoomerRetirementBriefs.com.      Mary  Johnson,  the  league’s  Social   Census Bureau, according to Johnson.                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 13","RETIREMENT PLANNING                            “This suggests that the pandemic                  and  inflation  have  caused  significantly                  higher numbers of adults living on fixed                  incomes to turn to these programs to                  supplement their Social Security and                  Medicare benefits as prices have contin-                  ued to climb,” she said.                    “This group of older and disabled                  Social Security recipients are at risk                  of experiencing low-income assistance                  benefit trims when the COLA boosts                  their Social Security income … in 2023.                  In 2022, when the COLA is 5.9%, some                  14% of survey participants said their                  low-income   assistance was reduced                  due to their COLA, and another 6%                  reported losing access to one or more                  programs altogether when the COLA                  boosted their income over the limit,”                  Johnson explained.                   A high COLA will be eagerly anticipated                    The league surveyed more than                  2,557 participants from May through   to address an ongoing shortfall in benefits                  July 2022.                             that Social Security beneficiaries are                   WHEN WILL THE 2023 SOCIAL             experiencing in 2022 as inflation runs                  SECURITY COLA BE ANNOUNCED?                  There are only two months of consumer        higher than their 5.9% COLA.                  price data left before the Social Security                  Administration announces the COLA                       —Mary Johnson                  for 2023. The Senior Citizens League                  expects the SSA to announce it on Oct,   After  rising  7.5%  in  June,  the  energy   apparel indexes were among those reg-                  13, after the release of the September   index fell 4.6% in July; the gasoline and   istering declines.                  consumer price index data.        natural gas indexes declined while the   For the 12 months ended in July, infla-                    The Social Security Administration   electricity index rose.      tion on items excluding food and ener-                  uses average inflation in the third   The food index increased 1.1% in July   gy increased 5.9%, the same increase                  quarter, based on the CPI-W, to cal-  after a 1% gain the previous month, the   logged for the year ending in June.                  culate the benefit adjustment for the   seventh straight monthly rise of 0.9%   The BLS stated that over the past 12                  following year.                   or more. The food at home index rose   months the energy index rose 32.9%, a                    Medicare Part B premiums may not   1.3% in July, with all major grocery food   smaller increase than the 41.6% rise for                  grow very much next year,  accord-  group indexes climbing, led by nonal-  the year ended in June. The food index                  ing to Johnson, who doesn’t expect an   coholic beverages, the bureau reported.  gained 10.9% over the same period, the                  announcement until mid-November.    The index for all items excluding   largest increase since the period ending                                                    food and energy rose 0.3% in July, a   May 1979.                  JULY INFLATION NUMBERS            smaller increase than seen in April, May   The  shelter  index  rose  0.5%  in                  The gasoline index fell 7.7% in July   and June, the BLS reported. Indexes   July, slightly less than the 0.6% in                  after  an  11.2%  increase  in  June,  offset-  for shelter, medical care, motor vehicle   June. For the last 12 months, the shel-                  ting increases in the food and shelter   insurance, new cars, recreation, and   ter index increased 5.7%, contributing                  indexes, which resulted in the all-prices   household furnishings and operations   about  40%  to  the  overall  increase  in                  index being unchanged for the month,   increased over the month, while the air-  all items excluding food and   energy.     Adobe Stock                  the Bureau of Labor Statistics reported.   fare,  used  vehicle,  communication  and   —Dinah Wisenberg Brin                  14 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Help strengthen your clients’                   retirement portfolios with                   guaranteed lifetime income.                       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What’s driving the                              Growth is similar to expected growth                  appeal of protection products offered                               on safe bonds but without the potential                  within an annuity wrapper? Why would                                downside of term and credit risk. Still,                  any investor want a complex financial                               any attempt to position 0% floor prod-                  product that promises protection at the                             ucts as “upside with no downside” is                  expense of significant upside? And why                              disingenuous since the upside is lower                  choose an annuity when similar prod-                                at the 95th percentile than a bond fund.                  ucts exist as ETFs?                                                   Purchasing a RILA with a -10% floor                    First, they shouldn’t dismiss them as an                          allows an investor to increase the poten-                  inefficient gimmick. In a series of detailed   retire at age 65. At the 10th percentile,   tial upside to 19% at the 90th percentile.                  articles written while he was head of   they will have $410,000. At the 1st per-  The upside is limited to the call options                  retirement research at Morningstar, David   centile, stocks will fall to $265,000. A   budget available to capture modest                  Blanchett lays out the complex econom-  lucky retiree at the 90th percentile will   growth  after  the  insurance  company                  ics that underlie the potential benefits of   have over $1 million.   invests in bonds to guarantee returning                  financial products that use a combination   In  five  years, they should  be able  to   90% of principal.  A -10% floor allows a                  of fixed income investments, equities, and   withdraw about $22,000 from the por-  bigger options budget than a 0% floor.                  financial options to create a customized   tion of their portfolio invested in bonds   RILAs with a buffer allow an inves-                  distribution of outcomes.         (of course this ignores the potential risk   tor to accept a greater range of poten-                    Why might a retiree prefer an option-  of bonds). If the retiree gets lucky and   tial upside and downside outcomes.                  controlled retirement investment  to a   achieves the 90th percentile of returns,   Buffered annuities are an interesting                  traditional long-only portfolio of stocks   they’ll be able to withdraw $47,200 from   concept because they seem to be tai-                  and bonds? According to Nobel laure-  their stocks based on the 4% rule. If   lor-made for loss-averse investors. The                  ates Robert Merton and Myron Scholes,   they get unlucky at the 10th percentile,   insurance company protects against the                  financial options can be used to construct   they’ll only be able to withdraw $16,400.     first 10% of losses, preventing small loss-                  investments that “can be used by inves-  Is the retiree willing to accept the   es that often result in a big emotional                  tors to produce patterns of returns which   downside risk of spending $38,400 each   response. However, investors are on the                  are not reproducible by any simple strat-  year in order to achieve the potential   hook for losses beyond -10%.                  egy of combining stocks with bonds.”   upside of $69,200 if they get lucky? At   For example, a -10% buffer would                    Consider a 60-year-old baby boomer   lower percentiles the potential downside   turn the -37% return from the S\&P in                  who is five years away from retirement.   and upside become even more extreme   2008 into a -27% return. Big negative                  The market has performed well over   (as low as $32,600 at the 1st percentile).   returns are far less common than small                  the last decade, and they have $500,000   Is this a risk the client is willing to accept?  negative returns with a bell-shaped                  invested today in the S\&P 500 and   An  alternative is  to  give  up  some  of   return  distribution.  Investors  are  com-                  $500,000 in bonds to fund the lifestyle   the upside to cut off some (or all) of   pletely protected against most losses                  they hope to lead. The distribution of   the downside risk. In a low interest   and buffered against large ones.                  bond returns over the next five years is   rate environment, products with floors   Of course, there is a cost. The insur-                  relatively narrow. The distribution of the   offer less upside potential and more   ance company needs to employ an                  overall portfolio is wider and depends   closely resemble fixed income invest-  options strategy to provide the buffer.                  primarily on five-year stock returns.  ments. However, products such as fixed   This will limit the upside potential of a                    If we run a Monte Carlo analysis on   indexed annuities (FIAs) won’t fall in   RILA distribution. For example, at the                  the S\&P 500, we can see how much their   value if interest rates spike.    90th percentile a buffered annuity will   Adobe Stock                  future wealth can vary by the time they   In practical terms, the distribution of   have a 31% return over five years and                  16 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","taxable stocks will have an 87% return.  far higher than a buffered annuity with   age these products provide value by                    At the fifth percentile, a buffered   a 53% return at the 90th percentile and   managing  option  trading  and  providing                  RILA has a -8% return and stocks a -26%   a 66% return at the 95th percentile.   guarantees that insulate a client from vol-                  return. At any return below the 25th per-  For an investor who wants to get rid   atility swings that could increase option                  centile, the buffered annuity provides a   of any possibility that they will have to   prices. Option-protected portfolio strate-                  higher return than stocks and the differ-  cut  back  significantly  on spending  if   gies aren’t new, but the outcomes they                  ence increases toward the tail, resulting   they get unlucky with their stock invest-  produce appear to be increasingly popu-                  in significant downside protection.  ments over the next five years while   lar among investors nearing retirement.                    Another interesting protection annu-  giving up only the more extreme upside   This shouldn’t be surprising since                  ity that performed well in our analyses is   outcomes if they get unlucky might find   many retirees base their decisions about                  a variable annuity with a so-called guar-  the GMAB product more attractive than   when to retire on the lifestyle they can                  anteed minimum accumulation benefit   an unprotected stock investment.  generate  from  the  investments  they                  (GMAB).  The product used in our analy-  Another advantage of holding nonqual-  hold  today.  A  negative  return  shock                  sis offers a true five-year floor of -10%,   ified assets in products that use financial   can result in a delayed retirement, or                  resulting in a lower extreme downside   options to tailor an investment portfolio   an unacceptable drop in lifestyle that                  than a buffered annuity. GMABs also pro-  in an annuity wrapper is the ability to   could have been eliminated by cutting                  vide more modest protection than RILAs   defer short-term gains until after a work-  off some upside.                  against smaller downside outcomes with   er has retired. This is particularly valu-                  a -10% return at the 10th percentile and a   able  when a worker is  in a  significantly   Michael Finke is a professor and Frank M.                  1% return at the 25th percentile.   lower tax bracket after retirement.   Engle Chair of Economic Security at the                    The upside of a GMAB, however, was   The insurance companies who man-  American College of Financial Services.                         INDEPENDENT ADVISORS AND CONSUMERS AGREE                      Specialized Expertise                        is Needed Most                                           SERVICE CLIENTS WANT                          OF INDEPENDENT ADVISORS HAVE                                   IS RETIREMENT INCOME                          FUTURE EDUCATION GOALS                                   PLANNING.  1                                  FOCUSED ON THIS TOPIC.  2                          Access your specialized RIA Profitability Plan                     VISIT                     TheAmericanCollege.edu/RIA-Success                       1  The American College of Financial Services O. Alfred Granum Center for Financial Security. 2022 Consumer Survey. January 2022.                     2  The American College of Financial Services. 2022 RIA Growth and Specialized Knowledge Survey. May 2022.                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 17","Cover Story                                                                                                     18 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","RIA                        What’s Behind                                              Growth?                                   Industry VIPs break down RIA growth trends — from the wave of                        dealmaking to other ways RIAs are expanding their practices.                                                                BY JEFF BERMAN                             alk about a growth story: The number of invest-  “Main Street”-style firms in 2021, with 50 employees or less,                            ment advisors registered with the Securities and   according to the report. In terms of geography, gains in the                    TExchange Commission, the number of clients they   number of advisors based in the South “have outpaced gains                    served, the assets they managed and the number of people   in other parts of the country,” it says. “The growth in Florida                    they employed all reached record highs in 2021, accord-  was the strongest in the nation, while New York numbers                    ing to a report released earlier this year by the Investment   have fallen.” (Florida has 737 firms in 2021 vs. 636 in 2020.)                    Adviser Association and National Regulatory Services.  Meanwhile, assets under management by SEC-registered                      The tally of SEC-registered investment advisory firms   firms grew roughly 17% to a record high of $128.4 trillion                    increased nearly 7% in 2021 — or by 926 firms from 2020 —   in 2021. Industry assets have increased in 18 of the past 21                    to 14,806 firms, the “Investment Adviser Industry Snapshot   years, declining only in 2002 and 2008 because of market                    2022”  report  states.  The  number  of  SEC-registered  firms   conditions. As in prior years, almost all assets were managed                    has increased in 19 of the last 21 years. Registrations   on a discretionary basis (91.5% in 2021), the report said.                    declined only in 2010 and 2011, when the minimum size   The number of clients served by SEC-registered advisors                    threshold for SEC registration grew to $100 million in assets   grew close to 6.5%, reaching a record high of 64.7 million                    under management from $25 million, the report noted.   clients, including 53 million asset management clients.                      The vast majority of advisors (88%) worked in smaller   Meanwhile, some 60% of advisors provided asset manage-                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 19","Cover Story                                                                                      “RIAs had historically                  ment services for individuals, the report said.                    While nearly 88% of the SEC-registered advi-               grown faster after a crisis                  sors had under $5 billion in AUM, 92.5% of                  industry assets were managed by firms with                    because they take care of                  AUM over $5 billion, according to the report.                 their clients better than                  Asset growth has been strongest for advisors with                  over $100 billion in AUM.                                   any model out there.”                    “The industry is dynamic, with significant” advi-                  sor turnover, particularly among advisors with under $1                          —David DeVoe                  billion in assets, the report explained. “Mergers and other                  types of reorganizations have been a significant contributor to   EDGE conference in Hollywood, Florida, in late June.                  this turnover.”                                      RIAs had historically grown faster after a crisis “because they                    In each of the past eight years, the number of SEC-registered   take care of their clients better than any model out there,” he                  advisors has increased, while the number of brokerage firms has   explained. “And once that crisis is over,” those clients will talk                  declined, the report noted. “The results of the 2022 Snapshot   with their family and friends and say how their advisor helped                  confirm investors recognize the value of fiduciary advice in   them, and at least some of those they speak to will realize their                  helping them meet their financial goals, whether planning for   wirehouse rep didn’t do such a great job of helping them, he noted.                  retirement,  saving  for  homeownership  or  funding  an  educa-  That leads to more referrals, and “more than 40% of growth                  tion,” according to Karen Barr, IAA CEO and president.  comes from client referrals,” DeVoe pointed out. “So during a                    “With the vast majority of firms employing 50 or fewer peo-  crisis where RIAs really shine, we’ve typically seen an uncoil-                  ple, it’s clear small businesses serving individual investors are   ing spring after that,” he said. Although that hasn’t happened                  the backbone of the investment adviser community,” she added.   quite yet, he told attendees: “I’d like to think that the spring                    Other highlights of the report included:         will actually uncoil next year.” Based on what he’s seen so far,                    •  The nearly 15,000 SEC-registered advisors employed over   DeVoe  said  the  “good  news  is  72%  of  advisors  will  say  that                      928,000 non-clerical employees.                their growth is higher” than it was a year ago.                    •  Asset growth was highest for the largest advisors. Advisors   Why is growth so important for an RIA firm? For one thing,                     with over $100 billion in assets saw compound annual growth   its “valuation will increase, but there’s a variety of other ele-                     in assets of close to 15% over the past four years, far ahead of   ments as well,” according to DeVoe. A company that is grow-                     advisors with $100 million to $5 billion in AUM, who saw   ing is also “really in a position to improve what your company                     compound growth of about 6% over the same period.  does.” He explained: “As you achieve your scale specialization,                    •  The number of private funds grew by 15.2% in 2021.   as you get bigger, you can add more services or capabilities or                      Growth was in the double digits for all types of private   even products, you can get into deeper financial planning or                      funds, except hedge funds and liquidity funds.  alternative investments [and] a whole variety of things.”                    “This year’s report underscores the diverse nature of the   A growing RIA has to put more processes in place, but it’s                  industry and its tremendous growth, most notably in terms of the   “becoming a more industrial-strength company, and you miti-                  number of individuals and the number of private funds,” accord-  gate a lot of risk for the company,” he said. “So it’s really good                  ing to John Gebauer, NRS president. “These trends are clearly   for the company.”                  having an impact on the SEC’s focus areas for examinations and   DeVoe also explained: “It’s also good for your clients                  rulemaking, as evidenced by the proposals made earlier this year   [because] the bigger you get, the better you’re able to serve cli-                  which aim to increase protections for private fund investors.”  ents. You have more and more staff, junior and senior. You can                                                                     tailor your services more. You can be more responsive to what                  Why Growth Matters                                 their needs are. And … you can have a greater set of products                  Growth, whether organically or through mergers and acquisi-  and capabilities that you can offer them.”                  tions, is crucial for RIA firms, and it’s not only good for its own-  If the owner of an RIA firm just dwells on the growth in and                  ers but also its advisors and other staff, as well as its clients,   of itself, he warned that their engagement level may not be very                  according to David DeVoe, CEO and founder of the RIA con-  high. It’s much smarter to say something like: “Hey, you know                  sulting firm DeVoe \& Co. Since the start of the pandemic, RIAs   what?  We’re  doing  something  really,  really  good  for  the  U.S.                  have been “doing a much better job than other parts of the   investors overall. ... We’re taking care of our friends to help them                  industry,” including hybrid RIAs and wirehouses, he said at the   manage their money better. And frankly, this is a good thing.”                  20 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","There are only a small number of ways in which an RIA firm   panies before creating a plan and “focus on your weaknesses                  can grow, DeVoe said. They are market performance, adding   first,” especially those things that he said may be “constraining                  new clients, asset movement among existing clients, M\&As,   your ability to capitalize on the things that you’re good at.”                  and one-off events that raise added capital, he said.  It’s important to make sure that an organization’s plan                    Noting that his firm consults  on many M\&A transactions   has “foundational elements” in place, warning that without                  valued between $250 million and $3 billion, DeVoe pointed out   “certain underpinnings … the entire structure will collapse as                  that all too often, while “we’re working with a seller, they get   you build it.” Other important pieces of the puzzle, he said:                  pretty far down field and you had a transaction and they start   Figuring out what kind of clients your company and its advi-                  thinking” about how their staffs will respond.     sors have and want to be focused on, and narrowing down the                    RIA firm owners are often worried about what the impact   services that it specializes in.                  will be on their advisors and other staff. But DeVoe tells them                  the transaction is going to be great for their staff, he noted. For   Organic Growth                  one thing, by joining a bigger firm that’s growing faster, their   Despite the ongoing COVID-19 pandemic and other challenges,                  career paths will become better and the “compensation picture   RIA firms saw “tremendous growth” in 2021, according to Charles                  is better” as well, he said.                       Schwab’s 2022 RIA Benchmarking Study. It was an “exceptional                    Especially now, amid the Great Resignation in which many   year” for RIAs in 2021, according to Lisa Salvi, managing director                  people are leaving their firm or looking to do so, he said break-  of business consulting and education at Schwab Advisor Services.                  ing the news of an acquisition to advisors and other staff in the   “You continued to be there for your clients and you leveraged                  right way is crucial.                              a lot of the learnings and experiences from the pandemic over                    One thing to avoid is presenting them with nine or 10 bullet   the  past two years  to  drive absolutely  incredible performance                  points on how the transaction will help them, he said. As long   when we look at nearly any business metric,” Salvi said. (The                  as you have figured out why it’s important for the firm to grow,   study includes self-reported data from 1,218 firms with $25 mil-                  “you’re in a position to talk to your staff and get them to engage   lion or more in assets custodied with Schwab or TD Ameritrade.)                  [and] your rationale for growth really needs to support your   Organic growth, excluding market performance, played                  company’s purpose,” he noted.                      “a pivotal role” in RIA growth in 2021, the research found.                    If the owner of an RIA firm just dwells on the growth in and   “Driving  organic  growth  were  increases  in  assets  from  new                  of itself, he warned that their engagement level may not be very   clients and assets from existing clients, both of which also                  high. It’s much smarter to say something like: “Hey, you know   reached 5-year highs,” Schwab said.                  what?  We’re  doing  something  really,  really  good  for  the  U.S.   What factors are playing a key role in organic growth? “Having                  investors overall. ... We’re taking care of our friends to help them   intentional and documented strategies helped firms achieve strong                  manage their money better. And frankly, this is a good thing.”  client acquisition results. Firms with written marketing plans,                                                                     ideal client personas, and client value propositions attracted more                  Succession Planning                                new clients than firms that didn’t have all three in place. Firms                  Noting that he’s done “a lot of succession work over the last   with written referral plans gained more new clients from those                  19 years, working with advisors to try to put these succession   channels than firms without referral plans,” the report stated.                  plans in place,” DeVoe said the industry is, however, still “fail-  Schwab zoomed in on the role of organic assets growth gen-                  ing in that regard [and] 30% of advisors are challenged putting   erated by RIAs’ existing advisors and clients and found that this                  succession plans in place.”                        figure jumped to 8.2% in 2021 from 6.0% in 2020 for firms with                    What DeVoe determined is that many RIA owners “just get   under $250 million in assets. Organic growth for firms with over                  overwhelmed by the complexity” of a succession plan, he said.   $250 million in assets increased to 7% in 2021 from 4.5% in 2020.                  The focus is often on the client list, website and social media   For firms with performance that put them in the top 20% of all                  presence, “Pretty soon, you get overwhelmed and you’re like,   RIAs surveyed, organic growth rose to 16.1% vs. 9.2% in 2020.                  ‘wow, where do I even get started with this?’” he said.  Overall, the median RIA firm ended 2021 with $545 million                    What is needed is a methodical approach to “start think-  in assets under management, with AUM up 19.5% from 2020                  ing through this, to get started [and] to start putting action in   that led to a five-year compound annual growth rate of 14.1%,                  place,” he said, adding: “Your goal is to have [a] comprehensive,   according to Schwab.  The median RIA firm ended 2021 with                  integrated plan. This is how you drive long-term growth for   $3.2 million in revenue, up 23.2%, with the five-year CAGR up                  your organization.”                                11.3%. Meanwhile, the number of clients for the median RIA                    DeVoe also advised RIA firm owners to evaluate their com-  firm was 307, up 6.2% with the five-year CAGR up 5.1%.                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 21","Cover Story                             Among Schwab RIAs surveyed, just 6% staged a merger or   • Reverence Capital Partners — the private-equity firm that                  acquisition in 2021. The median size of assets added via such   owns 75% of Advisor Group — took an unspecified equity stake                  deals was $100 million for some 133 clients.       in Signature Estate \& Investment Advisors, a Los Angeles-                                                                     based  RIA  that  manages  over  $16 billion  in client  assets.  In                  M\&A Scene                                          connection with the recapitalization, SEIA will work with the                  Across the broader RIA arena and particularly among larger   newly formed broker-dealer Signature Estate Securities.                  firms, mergers and acquisitions (or inorganic growth) has been   The deal should help enable SEIA advisors to offer RIA                  happening at a rapid clip. It continued to be relatively strong   and BD services to clients via a unified wealth management                  in the first half of 2022, despite challenges that included stock   platform and “will result in greater access to alternative                  market volatility and ongoing inflation, according to DeVoe \&   investments, elevated client-facing technology, and more com-                  Co. and Echelon Partners. “RIA M\&A activity continues to be   prehensive family office services,” the companies said in a                  very robust, despite the environment,” DeVoe’s CEO recently   statement in mid-August.                  said in an interview.                                • RIA Sanctuary Wealth parent company Azimut Group                    “Challenging global and national economies, a volatile stock   said Sanctuary closed on a $175 million investment from credit                  market, and interest rate increases typically lead to an M\&A   manager Kennedy Lewis Investment Management on May 31.                  slowdown,” DeVoe noted. But “given the momentum of the   The funds are being used to fuel Sanctuary’s M\&A strategy and                  activity year-to-date, the year will most likely exceed the 241   the organic growth of its partner firms, Sanctuary and Kennedy                  transactions last year.” In fact, DeVoe expects 265 transactions   Lewis said in a joint announcement July 13. Launched in 2018,                  in 2022, though he thinks the “trajectory” of RIA M\&A activity   Sanctuary has accelerated its expansion in the last year, during                  “will flatten” going forward.                      which it has onboarded 20 new advisor teams from across the                    Based on deals in which the sellers were U.S. RIAs with over   U.S., taking assets under advisement to about $25 billion, it said.                  $100 million in assets under management, the top RIA M\&A   • RIA Cerity Partners and private equity firm Genstar                  deal in the first half of this year was Penfund’s $75 million   Capital jointly announced in June that Genstar was leading                  investment in Mariner Wealth Advisors ($55 billion), DeVoe   a recapitalization of Cerity. Lightyear Capital has been an                  says. That deal was followed by Genstar Capital’s investment   investor in Cerity since 2017 and continues to be an investor in                  in Cerity Partners ($45 billion).                  the firm. Cerity works in 16 markets across the U.S., with 425                    Total wealth management M\&A activity declined for the sec-  professionals serving over 10,000 clients and advising on about                  ond straight quarter in Q2 this year, according to Echelon. “Still,   $50 billion in assets.                  the activity in the first half of the year remains elevated relative   • Earlier this year, Captrust Financial Advisors said it com-                  to historic trends and keeps 2022 on pace to be another record-  pleted its 2021 acquisition of Portfolio Evaluations Inc., which                  breaking year, barring a significant slowdown in deal activity in   had $107 billion in assets under advisement. Based in Warren,                  the second half,” the firm said in its Q2 RIA M\&A Deal Report.  New Jersey, PEI helps direct, advise and educate fiduciaries of                    “Deal  activity  continues  to  be  dominated  by  ‘Strategic  \&   institutional investment programs, including retirement plans                  Consolidator’ acquirers who announced 45.6% of wealth   and family office groups. It opened its doors in 1992 and is led by                  management transactions so far in 2022,” Echelon explained.   co-founders and partners Attila Toth, Michael Sasso and Rich                  “Capital remains available due to continued interest from both   Torbinski. PEI was the 54th firm to join Captrust since 2006.                  private equity and debt sources.”                    In addition, some of the larger RIAs and RIA aggregators                    Here are some of the top RIA-related M\&A deals of the past   announced several more notable transactions over the past few                  nine months:                                       months, which are summarized below.                     Creative Planning-Wipfli RIA                  Creative Planning said it recently                  acquired  Milwaukee-based  Wipfli                  Financial Advisors — an RIA with                  offices in nine U.S. states that manages                  $5 billion in client assets — from                  Wipfli LLP, a national tax, accounting                  and consulting firm. Wipfli Financial                  22 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Advisors is bringing 95 employees to Overland Park,         “Wipfli’s RIA strengthens                  Kansas-based RIA Creative Planning, including                  CEO Jeff Pierce and 80 advisors, according                    our presence in the upper                  to Creative Planning. They will join Creative                 Midwest. It’s a great                  Planning’s 350 advisors.                    “It’s an incredible fit for all parties,” Creative          strategic relationship,                  Planning’s Mallouk said in an interview. “We                 [and] Wipfli and Creative                  share a  planning led approach, investment phi-                  losophy and  focus  on  education  and  credentials.”    will enter into a referral                  Also, he explained, “Wipfli’s RIA strengthens our presence                  in the upper Midwest. It’s a great strategic relationship,  relationship as well.”                  [and] Wipfli and Creative will enter into a referral relation-                  ship as well.”                                                                  —Peter Mallouk                    As part of the deal, the wealth management and investment                  advisory affiliate of advisory firm and CPA Wipfli will “main-  Explaining why Wipfli Financial Advisors made a deal                  tain a significant minority ownership stake” in the venture   with Creative Planning, Pierce said in a statement: “From                  with  Creative Planning, according to  a statement.  (Overall,   leading with financial planning and a similar evidence-                  Creative Planning managed or advised on more than $225 bil-  based  investment  approach,  to  the  incredibly  strong  cul-                  lion in client assets as of Dec. 31.)              tural alignment and deep commitment to both clients and                    The transaction includes Wipfli Financial Advisor’s dig-  employees, we knew Creative Planning was the right firm                  ital investment tool, Avid, and its retirement-plan ser-  for us to join.”                  vices  group.  These  additions  will  “complement”  Creative   The transaction “creates a strategic relationship that will                  Planning’s recent acquisition of Lockton Retirement   allow our clients to access a broad set of services through inno-                  Services and its emerging wealth division, Creative Planning   vative financial platforms,” according to Kurt Gresens, Wipfli                  said. Other transaction terms were not disclosed and the   managing partner and chairman of the board.                  timing of the deal’s closing is subject to certain approvals   The deal was Creative Planning’s third transaction this                  and conditions.                                    summer, following its June purchase of Rosen Capital                    Founded in 1930, Wipfli was named after found-   Management, which works with about $114 million in assets,                  er Clarence Wipfli. The firm launched Wipfli Financial   and Ferris Capital, which manages $755 million assets.                  Advisors in 1999 with a “mission to make objective, fidu-  Other recent acquisitions by Creative Planning included                  ciary-focused financial advice available to the everyday   Keystone Wealth Partners ($644 million of assets, Heritage                  investor,” according to Creative Planning. The presence of   Way Advisors ($450 million), Hatton Consulting ($440 mil-                  the Wipfli Financial Advisors team in Colorado, Illinois,   lion) and Resource Management ($1.9 billion), all of which                  Minnesota, New Hampshire, Montana, Pennsylvania and   were announced in April; it also bought Emery Howard ($1.8                  Wisconsin “will help us better serve our clients throughout   billion) in March and Reilly Financial Advisors ($2 billion)                  the U.S.,” according to Mallouk.                   in January.                    Mariner-Financial Services Network                  Mariner Wealth Advisors announced in July that it was                  acquiring the Financial Services Network, which provides                  administrative, compliance and other services to about 400                  advisors with $26 billion in assets under administration, for an                  undisclosed sum. After the deal closes, the Financial Services                  Network will operate as Mariner Advisor Network and will                  maintain its strategic relationship with LPL Financial.                    The deal aims to “expand the reach of Mariner Platform                  Solutions, an affiliate of Mariner Wealth Advisors that offers a                  suite of resources to independent financial advisors who seek                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 23","Cover Story                          to scale their businesses and focus on serving clients      “The depth of experience                  without the distractions of back-office responsi-                  bilities,” according to a statement from Mariner.            among the professionals at                    “Today is a win for advisors who seek to                    the [Financial Services]                  spend more time advising their clients and grow-                  ing their business and less time managing the                 Network and the reach and                  day-to-day operations,” Mariner Wealth Advisors              expertise of LPL Financial                  CEO and President Marty Bicknell said in the                  statement. “The depth of experience among the              will enable us to serve more                  professionals at the [Financial Services] Network and the   advisors and enhance their access                  reach and expertise of LPL Financial will enable us to serve   to some of the industry’s best back-                  more advisors and enhance their access to some of the indus-                  try’s best back-office and consulting resources.”   office and consulting resources.”                    The firm being bought by Mariner was founded in 1984. It is led                  by Daxs Stadjuhar, Christopher Mercado and Jeremy Olen, who                     —Marty Bicknell                  will stay in their executive roles after the deal is completed. “From                  the day we met the Mariner team, it was clear that we shared the   advisor-centric philosophy will accelerate the expansion of                  same advisor-centric mission and passion for helping advisors   our network, broaden the scope of how we work with advi-                  excel as business owners,” Mercado said in the statement.  sors, and help advisors overcome the traditional impediments                    “The complementary nature of our expertise, solutions and   to growth,” he added.                       Focus Financial CEO Rudy Adolf Speaks Out on Dealmaking, Investing                                     One significant challenge that RIAs   we need to have a more sophisticated approach,” he added.                                         face now is that the effective-  After closing a record 38 transactions in 2021, including 14                                           ness of the traditional 60/40   new partner firms and 24 mergers, Adolf predicted that 2022                                            investment model has been   will again be one of his firm’s strongest years for transactions                                             reduced as a result of mul-  but will fall short of 2021’s count. Last year’s total included                                             tiple factors including high   eight mergers for partner firm Connectus, which expanded                                             inflation, according to Rudy   the company’s footprint in Australia, Canada and the U.K.                                             Adolf, CEO of RIA aggrega-  Focus closed on 14 RIA and independent wealth manager                                             tor Focus Financial Partners.   transactions in the first half of 2022, including three new                                            “For sure, the traditional   partner firms and the others becoming part of existing Focus                                           asset allocation model, the tra-  partner firms, according to Adolf. The company has complet-                                         ditional investment models really   ed over 250 transactions since launching in 2006.                                     need an update. In fact, the traditional   Recent additions Octogone, Icon Wealth Partners and                    60/40 model just is not working in this environment,” he said   Azimuth Capital Management should add about $9.5 billion                    in a recent phone interview.                     in client assets to Focus. Its 87 partner firms manage a total                      “For high-end clients, you truly need to move into a   of more than $350 billion in client assets.                    multi-asset class approach and these are very difficult to                    build. It requires a lot of expertise. It requires access. It   Beyond model portfolio issues, what other major challenges                    requires sophisticated reporting, and it’s very difficult for   do RIAs face?                    many RIAs to build these sophisticated multi-asset class   Clearly, we see a very dynamic technology environment. I’m                    strategies,” he explained.                       really excited about much of the innovation that’s happening                      “Quite frankly, this is one of the areas we are very helpful to   right now from a technology perspective — whether it’s on                    our partners [with] and we can really help them leapfrog into   the CRM side, whether it’s kind of on the portfolio, reporting                    the next level of investment management. But given where   systems, rebalancing systems.                    the economy is going and where interest rates are going, the   Technology is becoming very, very helpful as an enabler of                    traditional portfolio construction approach is not working, and   more sophisticated investment management approaches and                   24 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Mariner Platform Solutions now works with 33 firms, 66   About a month before the Financial Services Network                  advisors and $2.6 billion in assets under management, while   deal was announced, Mariner said it was buying Corbenic                  Mariner Wealth Advisors and its affiliates advise clients with   Partners, a Bethlehem, Pennsylvania- based independent RIA                  some $60 billion in assets (as of March 31).       with  over  $1  billion  in  assets  under  management.  That  deal                    “It’s exciting when you get the chance to align your organi-  was Mariner’s  fourth  acquisition  of  2022, following  its pur-                  zation with a firm that shares the same vision and principles   chases of Boston-based Taylor Wealth Management Partners;                  for taking care of advisors so they can take better care of their   Bloomfield Hills, Michigan-based Emerson Wealth; and                  clients,” Matthew Enyedi,  managing  director,  LPL Financial   Miramar Beach, Florida-based Arbor Wealth Management.                  said in a statement.                               Mariner acquired 14 firms in 2021.                    Hightower-Highland Private Wealth                  In late  August, RIA  Hightower made  a strategic investment                  in Highland Private Wealth Management, an RIA in Bellevue,                  Washington that was founded in 1999 and manages $1.2 billion                  in client assets. The transaction marked Hightower’s fifth deal of                  2022 and followed its announcement two weeks ago that it facili-                  tated a sub-acquisition for Fairport Wealth, an advisory business                  in Cleveland, Ohio that manages $3.3 billion in client assets.                    Among the other deals this year, Hightower said in February                       also more sophisticated planning approaches. But ultimately,   What’s your short-term view of the markets? Would you                    these technologies are [too] complex to really integrate into   say we’re in a recession?                    the practice of an RIA. They require process changes. They   Well, you know, fortunately I’m not managing this $350 bil-                    require a higher technology IQ than you see [in] many of   lion that the Focus partners, in aggregate, manage. It is man-                    the RIAs, which ultimately is a driver of consolidation and a   aged by each of our partner firms individually.                    driver of scale.                                   But if you want my layman’s opinion … it’s a recession or                                                                     we are very, very close to a recession. It’s a very complex                    What are your RIA partners looking for and what’s your key   market environment. No question we are going to see sig-                    business strategy today?                         nificant volatility for a time to come, which really requires a                    Building the business and remaining the main decision-maker,   steady hand, a thoughtful hand here to manage assets.                    one. Two, access to real value-added programs and perma-  And by the way, one thing I should have mentioned before,                    nent capital. If these things matter to an RIA, there’s nobody   we’re seeing … more on the lower end of the high-net-worth                    else who has this mix of a value proposition. So the value-  market, [is] many people who were self-directed, who were                    added programs here [at Focus] … are really important.  kind of managing their own money, are simply throwing their                      We have two types of programs [for them]. We have   towel [in] and then basically concluding, ‘look, I really need                    everything that relates to practice management, meaning   an advisor.’”                    helping our partners run their businesses [and] get better on                    the next level.                                  What else is on your mind?                      The second area I’m very excited about is Focus Client   Maybe just one thing, because I’m very excited about it. One                    Solutions. [This is] where we use our unique scale in this   of the deals that we announced recently: a new partner firm                    industry to simplify better solutions for the end client and   is our first entry into Switzerland, Octogone, a firm of almost                    really enhance our partner’s value proposition and basically   $5 billion in client assets.                    enabling them to serve their clients better.       We really have high hopes for international in general.                      These are areas like access to alternatives. This is credit.   Today, Focus only is kind of [about] $100 million in revenues                    This is access to cash. This is trust services. There are other   from international. But we believe, ultimately, we want to                    areas that we are still working on that really ultimately are a   move this to $400 million to $500 million in revenues over                    differentiator, not just for Focus, but really for our partners.  time, or 20% or so of our total revenue. —Jeff Berman                                                                                             OCTOBER 2022 INVESTMENT ADVISOR 25","Cover Story                          it made an investment in Grant Tani Barash \&                “There is a real synergy                  Altman,  a business  management  firm based  in              between Highland and                  Beverly Hills, California, that provides high-net-                  worth and ultra-high-net-worth clients with bill              Hightower, culturally and                  payment, tax preparation and other concierge-                 philosophically. Highland                  style financial management capabilities.                    As of June 30, Hightower’s assets under manage-            recognizes that the world is                  ment were $108.4 billion, while assets under adminis-      changing. They are forward-                  tration were about $132.6 billion, it said, noting it now has                  131 advisory businesses in 34 states and the District of Columbia.   thinking in the way they’ve                    Hightower didn’t specify how much of a stake it took in   evolved their offering to meet their                  Highland or provide financial terms of the transaction. “What we                  can say is that the transaction involved cash and equity,” Bob Oros,  clients’ total life needs.”                  Hightower CEO and chairman, explained. “In all of Hightower’s                        —Bob Oros                  transactions, the principals maintain an economic interest in, as                      5 Ways Financial Advice Is Changing Now                    What does a day in the life of an advisor look like in today’s   security and help with regulatory compliance matters.                    world? The events of the last two years have completely   This is fueling a hub-and-spoke model with national brands                    transformed how advisors think, engage and work.  pushing information and products down to smaller players.                                    Future-focused advisors have an oppor-  Advisory firm leaders will need to be uber-focused on sim-                                      tunity to position themselves as   plicity and discipline when it comes to unifying tech stacks                                        multi-generational partners with   and operational processes, and eliminating outdated, complex                                         the ability to deliver holistic,   systems and methods of doing business.                                         goal-based financial advice for                                          the present and the future.  2. Technology to Optimize Client Experience                                           However, the advisor of the   As advisory firms join forces and integrate core components                                         future will need to deftly navi-  of their tech infrastructure and tools, they have an opportu-                                        gate an environment filled with   nity to drive end-to-end improvements that will ultimately                                       M\&A, changing technology, talent   improve the entire client experience.                                    wars and an ever-increasing focus on   A strategic approach to planning and implementing tech-                    diversity, equity, inclusion and relationship building.  nology changes can help drive more thoughtful decision-mak-                      How can advisors set themselves up for success?  ing about what can be automated, what has to be custom-                      Here are five trends reshaping the industry of financial   ized, and what can be scaled out depending on client needs                    advice, and how advisory firm leaders can stay a step ahead   and assets under management.                    to leverage industry transformation for growth opportunities:  This is no easy task, and one that will require strong                                                                     leadership, deep expertise (both in-house and through                    1. Growth-Fueled Consolidation                   strategic partnerships) and a multi-year execution plan.                    Advisory firms have seen tremendous growth over the past   However, with the right approach, advisors can ultimately                    few years, and as a result, have taken opportunities to assess   spend less time figuring out technology and more time                    new opportunities like mergers or acquisitions.  focusing on business.                      Numerous firms and consultancies, including DeVoe \&                    Co., Echelon Partners and others, report that last year was a   3. Clear Differentiation                    record year for M\&A in the advisor space in terms of both the   The rise of the fiduciary advice model has leveled the play-                    number of transactions and the volume of client assets.  ing field for many firms. While this is a positive for investors                      Barring any stunning economic shock, this should continue   seeking long-term partnerships with a credible advisory firm,                    in 2022, meaning additional smaller boutique firms will be   it is pushing advisory firms to work harder than ever to stand                    rolled into bigger ones looking to achieve scale, bolster cyber-  out in a crowded marketplace.                   26 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","well as strategic and management control of, the business.”  Pacific Northwest, Hightower doesn’t view geography as a key                    Although Highland is an RIA, “post-transaction it will join   factor” in deciding whether to do an M\&A deal with an advisory                  Hightower’s RIA so its assets will move to Hightower’s ADV,”   firm, Oros explained. “What Hightower looks for in an advisory                  Oros pointed out. Highland, which has 18 employees, including   business is a strong management team and bench of next-gen                  five advisors, offers wealth counseling, investment management   leaders, a history of robust organic growth, a diverse roster of                  and financial planning services to executives, professionals, busi-  clients and close cultural alignment with Hightower’s focus on                  ness owners, wealth beneficiaries and other HNW households.  helping clients find fulfillment in all aspects of their lives.”                    Describing Highland as a “high-growth organization with a   “At Highland, we believe in acting as the central ‘wealth con-                  strong bench of multi-generational leaders and a differentiated   fidant’ to clients, providing them with deep financial knowledge                  approach to client service,” Oros said in a statement: “There   and specialized coaching to help them connect their money to a                  is a real synergy between Highland and Hightower, cultur-  life of meaning and purpose,” according to John Christianson,                  ally and philosophically. Highland recognizes that the world   Highland CEO and founder. “Our strategic partnership with                  is changing. They are forward-thinking in the way they’ve   Hightower — which includes access to institutional-level value-                  evolved their offering to meet their clients’ total life needs.”  added services, operational scale and support — is a key step in                    Although the deal “expands Hightower’s presence in the   advancing how we serve our clients and grow our business.”                         More than 40% of firms are expanding solutions to remain   5. The Art of Building Relationships                    competitive, according to the BNY Mellon Pershing Elite   The industry of financial advice is a human capital business —                    Advisor Poll conducted earlier this year. The top additions   people are the most important asset outside and inside the firm.                    include alternative investment and direct indexing/tax opti-  In the post-pandemic world, the way in which humans engage                    mization, followed by digital assets/crypto, according to the   has evolved. Hybrid, remote and in-person are all realistic options,                    multibillion-dollar firms polled.                and regional and demographic preferences have emerged.                      Advisory firms need to be incredibly clear about how they   The key to success will be flexibility and awareness of                    differentiate the client’s experience, the outcome that they   which engagement models work best for each advisory firm                    provide and what makes them special from the firm down the   team and their clients. While more of the day-to-day con-                    street that is selling the exact same thing.     versations may take place virtually, thanks to accelerated                                                                     adoption of video conferencing and chat technology, human                    4. Capacity for Growth                           interaction has become appreciated on a deeper level.                    The competition for talent in the advisory community has   Advisory firm leaders take note — the old adage of absence                    never been more fierce. It is no surprise that nearly 40% of   makes the heart grow fonder may be the unofficial motto for                    respondents to the Elite Advisor Poll reported that retention   advisor-client relationships during this time. A thoughtful                    was the top people focus.                        approach to which engagements are in person versus virtual                      Regardless of firm size, AUM or location, it all comes down   can have a huge impact on the success of your business.                    to culture and flexibility. Firms must strive to be employers   The future of financial advice is being defined by moves                    of choice while providing a differentiated experience for both   made today. We’re in a true bull market, with an oversupply                    their employees and their clients.               of investors eager for advisor support to navigate complex                      Do employees feel they’re part of something bigger —   financial situations. Advisors who can strike that artful bal-                    whether they’re walking through the firm’s door or signing   ance of engagement on a human level, paired with intuitive                    on to their next video conference call? Is there a sense of   technology to enhance their relationship, have a tremendous                    community and empathy, with the added flexibility to work,   opportunity ahead.                    collaborate and learn in a way that will help employees and                    clients thrive?                                  Ben Harrison is a managing director and member                      It’s become even more important for employers to have   of the Executive Committee for BNY Mellon’s                    empathy in how they help their employees manage the   Pershing and co-head of Pershing’s Wealth                    intersection of their personal and professional lives. If talent   Solutions segment, which serves wealth-                    can see, feel and experience that dynamic, the decision to   oriented broker-dealers, registered investment                    join a new firm or stick with a current employer will be that   advisors and trust companies, and the evolving                    much easier.                                     and converging needs of these clients.                                                                                             OCTOBER 2022 INVESTMENT ADVISOR 27","Cover Story                         Dynasty Partners-Pontera                  Dynasty Financial Partners has partnered with                  fintech firm Pontera (formerly FeeX) to enable                  RIAs in Dynasty’s network to fully manage                  401(k), 403(b) and other held-away accounts for                  their clients in a secure and compliant way that                  leverages Pontera’s SOC 2 certified platform, the                  companies said in a joint announcement.                    Since 2010, when Dynasty was founded by                  CEO Shirl Penney, assets in employer-spon-                  sored retirement accounts have more than doubled from $4.9   Therefore, the need for investment advice in these accounts                  trillion to over $11 trillion as of Dec. 31, 2021, the firms said. In   has grown, they said, noting a recent J.P. Morgan survey found                  addition to market appreciation, that growth can be chalked   62% of plan participants wished they could completely hand                  up to declines in rollovers because of retiree-friendly plan   over retirement planning to an expert. Traditionally, however,                  policies and better in-plan investment options, they noted.  financial  advisors have  struggled  to  help clients  with  these                    Pointing to the findings of a recent Cerulli report, Dynasty   accounts because they are typically held off wealth manage-                  and Pontera said that, of the $3.3 trillion eligible for a distri-  ment advisory platforms, Dynasty and Pontera said.                  bution last year, 73% remained in-plan. Bipartisan support   Pontera’s technology “addresses this gap by allowing advi-                  of accommodative legislation  in the  Secure Act  2.0 and the   sors to trade held away accounts for their clients,” the compa-                  re-enactment of the DOL Fiduciary rule suggest the trend of   nies said, explaining: “Pontera’s data integrations into portfolio                  employer-sponsored plan growth will only continue, accord-  accounting systems means that wealth managers can also run                  ing to Dynasty and Pontera.                        performance reporting, portfolio analytics, and trade surveil-                       A Look at Breakaway Advisors                    While RIA M\&A and other growth continues, large teams   Moran said in a statement.                    from wirehouse and other firms keep leaving to form their   “Embarking on this entre-                    own RIAs. A Naples, Florida-based boutique financial advi-  preneurial journey is a                    sory team with over $4 billion of assets under management   critical step towards                    recently left Wells Fargo to become an independent RIA that   achieving our long-term                    provides comprehensive investment services for its clients via   vision as a true fiduciary                    personalized and customizable strategies, for instance. Moran   for our clients.”                    Wealth Management selected BNY Mellon’s Pershing as its   Also, several Wells                    custodian, MWM said Tuesday.                     Fargo and Bank of America                      “The relationship with Pershing transpired following exten-  veterans decided to team up                    sive research into their track record of strength and stabil-  and launch Fidelis Capital, an advi-                    ity,” MWM said in a statement. MWM was founded in 1990   sor-owned RIA whose team members previously advised on                    by Tom Moran, who serves as its CEO, chairman and chief   almost $6 billion in client assets.                    investment officer. The company has a fast-growing team of   The goal of Fidelis Capital is to provide clients with a                    more than 36 employees, 10 of them advisors, he said in an   “superior private banking experience by surrounding cli-                    interview. Many of the employees are equity partners.  ents with a diverse team of financial specialists who get to                      “We serve a diverse group of high and ultra-high net worth   know each client personally in order to best provide for their                    clientele including individuals, families, and institutions,”   financial needs,” the company said in a news release. Fidelis                    Moran said. Moran was a registered broker and advisor rep   Capital serves just under 200 families, custodies with Fidelity                    for Wells Fargo since 2003, according to his report on the   and its teams are based in Dallas and Tampa, Florida.                    Financial Industry Regulatory Authority’s BrokerCheck web-  “Fidelity’s commitment to working with us in developing a                    site. (Wells Fargo declined to comment on losing MWM.)  best in class client experience along with asset security, espe-                      “As an independent RIA, we can prioritize the needs of   cially in the cyber area, was a differentiator,” Maxwell Smith,                    our clients and our unwavering standard of excellence,”   Fidelis Capital chief operating officer, explained in an interview.                   28 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","lance, enabling advisors to provide clients with the                  same level of service on held away accounts as             “Since 2010, when Dynasty                  custodied accounts.”                                        was founded by CEO                    The advantage for advisors is they can                  increase their revenue while providing a com-                Shirl Penney, assets in                  prehensive  financial  picture  via  the  addition                  of retirement plan accounts, the companies                  employer-sponsored                  added. Dynasty will handle the operational ele-            retirement accounts have                  ments of Pontera’s services for advisory firms                  within its network, including billing and performance   more than doubled from $4.9                  reporting integration, “allowing them to focus on delivering   trillion to over $11 trillion.”                  best-in-class client services,” the firms said.                     What’s Next?                  Looking at where the industry is headed, Focus Financial CEO   solid fiduciary advice,” he explained in a recent interview.                  Rudy Adolf, says it’s broad “megatrends [that] really drive this   Why is the firm he leads, along with the overall industry,                  industry.” Plus, the industry is “really made for times like   weathering  the  current  market  storm  extremely  well?  “It’s                  these, meaning really complex, tough times, [whether it] was   really a reflection of the quality of the relationships our part-                  COVID in 2020 or now the current volatility, inflation, rising   ners have and the quality of our partner firms. And [it’s at a]                  interest rates, increase in taxes, and all of these things that are   time where advice like what we do is just essential for wealthy                  happening as we speak. They really put a premium [on] rock-  clients and families,” Adolf said.                         The new firm’s team of former rivals “deliver a tailored   launch of Fidelis Capital, we are on a mission to revive the                    suite of services to each client, providing access to experts in   access to a team of experts and give ultra-high-net-worth                    areas such as investment and specialty asset management,   families, institutions, and other private banking clients the                    business transition advisory services, wealth, estate, and tax   kind of team that can manage not some, but all of their finan-                    planning, personal risk management, bill pay and reporting,   cial matters, giving them back what money can’t buy — time!”                    and fiduciary lending services,” Fidelis Capital said.  The Dallas team includes an asset management team made                      Explaining why the one-time rivals decided to join forces   up of brothers Ellis and Matthew Ellis, both founding partners,                    and start Fidelis Capital now specifically, Fidelis Capital CEO   and relationship manager Libby Castle. Before founding Fidelis                    Rick Simonetti said: “A few years ago, the private banking   Capital, Neale Ellis was a managing director and senior portfolio                    model started changing and decentralizing resources; they   manager at Bank of America Private Bank, where he helped                    still offered access to specialists, but these specialists were   found and co-manage the Private Bank Managed Active Core                    no longer local, or they were phased out.”       portfolio, according to Fidelis Capital. He started his finan-                      It is “our aim to revive the client experience and surround   cial career in 2000 with Goldman Sachs as a Private Wealth                    our clients with a group of specialists that are experts in key   Management advisor, according to his LinkedIn profile. Earlier,                    areas of financial planning and that know the clients person-  he spent 12 years as a surface warfare officer with the U.S. Navy.                    ally,” he added.                                   Matthew Ellis has 24 years of experience in the financial indus-                      Simonetti spent 22 years as senior managing director of the   try, most recently serving as managing director at Wells Fargo                    Southern region, as well as national head of wealth planning   Private Bank. His experience also includes time with Goldman                    at Wells Fargo Private Wealth Management. He started his   Sachs, Smith Barney and Bank of America/US Trust after starting                    career in 1988 at Deloitte as a senior tax specialist and spent   his career as a naval flight officer with the U.S. Navy.                    11 years there, and then joined Wells Fargo, where he spent   The advisor team at the Tampa office is led by Matthew                    22 years, according to his LinkedIn profile.     Michaels, a 25-year financial services professional who was                      “In the past few years, the private banking model has   a portfolio manager at Wells Fargo, and Paul Ayotte, who has                    changed drastically,” according to Neale Ellis, Fidelis Capital   over 24 years of experience, most recently 18 years at Wells                    founding partner \& co-chief investment officer. “With the   Fargo Private Bank as a wealth advisor. —Jeff Berman                                                                                             OCTOBER 2022 INVESTMENT ADVISOR 29","Cover Story                            “The more challenging the time, the more this model   extraordinary level of growth for a second year,” he added.                  resonates. And we have proven this again and again. Ultimately,   “And you see the wirehouses, they suffer much more in the                  fiduciary advice is simply superior to any other form of advice,   crisis and recover much more slowly and this is ultimately a                  you know, that you can get in the wealth management indus-  reflection of the superior fiduciary advice model that really is                  try,” according to the CEO.                        the foundation of the RIA industry.”                    Focus reviewed the past six or so economic crises, “and   What’s driving this success and what might do so in the future?                  what you see is, in the year of the crisis, [as] was proven again   “We are constantly out there talking to our partners. We are                  in 2020, RIAs do significantly better than the traditional play-  constantly interacting with them and we’ve got, I think, a pretty                  ers. But then, even more important and more powerful, when   good cross section of what’s happening in the industry. The                  you then look one or two years after, the normal growth rate   good news is clients are so well trained to weather this storm,”                  of the RIA industry is almost double. The RIA industry grows   Adolf said. “Equally good, [and] I hear it again and again, referral                  about 10% [in] the year of the crisis,” Adolf explained.  volumes are excellent. We are seeing very good momentum from                    “The industry grows at 17%, and it then sustains this   satisfied, confident clients referring prospects to our partners.”                      5 Predictions for the Future of Advice                    “You can’t serve two masters: Under the SEC, you can be a   He looks forward to                    fiduciary for part of the [client] relationship … and then have   resolution when “the                    another account that’s a brokerage account. [But] you can do   field of financial plan-                    some really bad stuff because a different standard applies,”   ning and investment                    fiduciary expert Ron A. Rhoades argues in an interview with   advisory moves                    ThinkAdvisor.                                    closer to becoming                      Commenting on a number of industry issues — and sparing   a true profession.”                    no criticism of the Securities and Exchange Commission —   Here are excerpts                    the longtime fiduciary advocate, professor, attorney and   from the interview:                    financial advisor makes five major predictions regarding the                    future of financial and investment advice in this interview.  Let’s first discuss your                      Among them: “Regulators will eventually concede that being   prediction: “Regulators will                    a distributor of investment and insurance products is contrary   eventually concede that being a distributor of investment                    to acting in a customer’s best interest” and that “no-commis-  and insurance products is contrary to acting in a customer’s                    sion annuities will drive sales of variable annuities and fixed   best interest.”                    annuities; fee-only RIAs will expand the market for purchases.”   You can’t serve two masters: If someone has gained your                      Rhoades, associate professor of finance and director of the   trust and confidence, you should be willing to continue to be                    Personal Financial Planning Program at Western Kentucky   their trusted expert, a fiduciary, at all times in the relation-                    University, is also a financial advisor and education content   ship. The problem is there are still a lot of people saying                    specialist at ARG Investment Services, an RIA. In the inter-  they’re fiduciaries but who are just product [salespeople].                    view, he calls the SEC’s Customer Relationship Summary   The whole concept of dual registration is not a good                    form “atrocious.”                                one as it’s applied now. When you develop a relationship                      Form CRS, which firms have been required to furnish to cli-  of trust and confidence with [an advisor], you’re likely                    ents since 2020, provides no way for a consumer to “tell the   to continue to trust them even if the information you                    difference between, for example, “a product seller and a fee-  receive is contrary to your best interest, [substantial]                    only advisor,” he says. The multi-award recipient and prolific   research shows.                    author recently was interviewed from his home in Kentucky.  If someone does a financial plan as a fiduciary, for them to                      What’s blocking consumers from getting sound financial   implement it by selling you expensive products that are often                    advice tailored to their goals and needs? “There are still a lot   of a proprietary nature, they’re basically not adhering to the                    of people saying they’re fiduciaries but who are just product   duty of loyalty.                    [salespeople],” he maintains. “It’s still way too difficult for a   Consumers need to know who a fiduciary is and who a                    consumer to tell the difference between someone they can   product salesperson is. If they ask, “Are you a fiduciary?” the                    really trust and someone they can’t.”            response is “I’m legally bound to act in your best interest.”                   30 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","While  there  are  economic  challenges  like  inflation,  market   mented with largely fragmented approaches; some firms inte-                  volatility and some changing tax policies, “think medium- and   grate, others don’t; some share an investment approach, others                  long-term the impact that this has on retirement plans, [and]   don’t; some have long time horizons and others shorter. There’s                  the impact this has on the kind of wealth transferred to anoth-  a lot of diversity in approaches in our space. It makes it great for                  er generation is pretty dramatic. And this is where you really   sellers, who can really choose a firm that matches their needs.”                  need your professional good advice to help through these com-  Furthermore, Mallouk explained in a recent interview, “The                  plex times,” Adolf stressed.                       secret of the RIA space is that most firms are not growing                    “In many ways, the industry is still underconsolidated,” he   [much] at all. But that has been masked by a strong market over                  said. “[In] this industry, depending on which numbers you   the last five years. The No. 1 challenge for RIAs to compete in                  believe, there are like 250 deals a year. There should be 400 deals   the future is to have an approach that can result in growth.”                  a year. There should be 500 deals a year. And there is still too   —Janet Levaux contributed to this article                  little M\&A volume and, over time, it’s going to continue to go up.”                    Creative Planning’s Mallouk believes the RIA industry is “frag-  Staff reporter Jeff Berman can be reached at jberman@alm.com.                       Have you always been opposed to “hat-switching”?  How will this play out?                    Yes. And the CFP Board doesn’t authorize it. They say that   What is likely to occur is that there will be a binding declara-                    once you’re a fiduciary, you’re a fiduciary for that client, period.   tion or disclosure by each person either as a product or secu-                      But under the SEC, you can be a fiduciary for part of the rela-  rities salesperson or as a fiduciary. Hat-switching should be                    tionship, maybe for an investment advisory account; and then   prohibited — except in rare circumstances.                    you can have another account that’s a brokerage account. You                    can do some really bad stuff because a different standard applies.  Next prediction: “Large broker-dealer firms continue to                                                                     migrate into the RIA space.”                    Hat-switching is confusing to clients, no doubt?  I’m talking about firms like Schwab, Vanguard, Fidelity, Merrill                    The SEC says you’re supposed to be clear with your client   Lynch, Morgan Stanley and UBS. They’re all dually registered                    when you’re a fiduciary and when you’re not. I’ve never met   or have an RIA affiliate. Most advisors who work at these                    a client who said, “Oh, my broker, who’s acting as my dually   firms are doing fee-based accounts, which is more than half                    registered [representative], told me he just switched [hats]   the business of the large wirehouses. They’re doing more fee-                    to a fiduciary.” That just doesn’t happen.       based accounts than commission-based business, on average.                      It really creates a lot of trust to say to a consumer: “The only   Advisors who practice as true fiduciaries will [find it]                    compensation I’m going to be receiving is from you. I don’t receive   increasingly difficult when pressure is put on them to push                    compensation for a product or security that I recommend to you.”  products and securities that are proprietary. If you work at                      That’s the way fiduciary duties are supposed to work. But   such a firm and are being pressured to meet certain quotas,                    unfortunately, the SEC over the decades has allowed fiducia-  that’s going to rub on you.                    ries to quote-unquote manage their conflict of interest.  So instead of adding to your company’s bottom line and                      “Manage” most of the time just means [to] disclose conflicts   hurting your clients, you can go out into the marketplace,                    of interest. How do you “manage” conflicts of interest? If you’re   where there are thousands and thousands of products, some                    a fiduciary, basically that means you need to get the informed   really low-cost, and [choose from those].                    consent of your clients to have a conflict of interest — but                    under no circumstances would an informed client ever consent   Where do young advisors want to work?                    to being harmed. That’s the test that should be applied.  New talent isn’t attracted to firms where the survival rate is often                                                                     less than 25%. Rather, they‘re attracted to registered investment                    What do you think of the SEC’s Form CRS          advisors, where the retention rate for new hires is 90%.                    relationship summary?                              I train my students to become financial advisors and                    It just muddies the water. Under that document, there’s   look to place them with firms that are going to invest in                    no way a consumer can tell the difference, say, between a   and train them and also have a promotion path, including                    product seller and a fee-only advisor. In fact, the SEC would   to become an equity owner of the firm someday. These                    apparently even allow you to say you’re a fiduciary in that   are firms where they have a very good probability, 95% or                    document [if you’re not]. That’s kind of crazy.  better, of staying employed.                                                                                             OCTOBER 2022 INVESTMENT ADVISOR 31","Cover Story                              Next: “No-commission annuities will drive sales of variable   You have to be very transparent upfront on what the fee                    annuities and fixed indexed annuities. Fee-only RIAs will   is and why you’re charging it. You have to justify it more.                    expand the market for purchases of no-commission vari-  There’s no one perfect model out there.                    able annuities, including registered index-linked annuities,                    or RILAs, and FIAs.” Why will this occur?        What are your thoughts about the hourly fee model?                    Because they have so much cost embedded in them, commission-  [An advisor] doesn’t really get compensated for their                    based [annuity] products don’t perform very well. But once you   expertise using that model. I might give some incred-                    strip out the commissions and some of the riders and make them   ible advice in 15 minutes that took me a lifetime to learn.                    low-cost products, they become pretty attractive as an asset class.   Whereas somebody else might be able to give the same                    The fixed annuity is a good investment concept. I’ve just never   advice doing five or 10 hours of financial planning and                    liked how the insurance companies were implementing them.  research and analysis.                     What’s the biggest benefit of the annuities you’re discussing?  Finally: Trust will continue to grow in financial advi-                    I like to call these [annuity] products Great Depression coun-  sors once consumers will be able to make the distinction                    ters because they help preserve the value of the portfolio   between financial consultants [or some similar term], a                    if we have a period of great depression. They can serve as   fiduciary or a product salesperson. More consumers will                    a buffer in a portfolio if the large non-option portion of the   place trust in personal financial advisory. Demand for finan-                    strategy is invested in safe fixed income securities.  cial and investment advice will then soar.                      Up until recently, there wasn’t a lot out there other than   Consumers are starting to ask the right questions, such as                    U.S. Treasurys that you could invest in to basically counter   “Will you be a fiduciary to me at all times during the course                    [a great depression]. The downside risk is that interest rates   of our relationship?” Consumers will increasingly require the                    have gone up recently, so the value of bonds with an average   answers to these and other questions in writing.                    duration of nine or 10 years has fallen. But that downside risk   In a survey about whether people use a financial advisor                    is capped [with the above annuities].            and why or why not, [a frequent answer] for not using one                      Over the very long term, these products have the potential   was that they don’t believe they can trust them. If you can                    to exceed bond returns, but they possess returns lower than   get away from Form CRS [relationship summary], which is                    equities, making them lower-volatility products — an inter-  atrocious, and just have a simple form that asks a couple of                    esting asset class to add to an investment portfolio.  questions, one would be, “Will you be a fiduciary to me at                                                                     all times?”                    Another prediction: “Flat annual fees will continue to grow                    and become more prevalent for financial planning.” Why?  When an advisor tells a client they have a conflict of inter-                    The success of XY Planning Network is a testament to this   est, I would think many consumers get turned off. Do they?                    approach. Flat fees for investment portfolio management or   The fee-only advisors have a marketing advantage, obviously,                    lower AUM fees will result, once financial planning is regard-  in that regard. But every advisor has a conflict of interest                    ed as a separate service with separate fixed or hourly fees.  when it comes to setting their compensation.                      If you’re doing an IRA rollover, for example, and looking to   We’ve seen more and more advisors migrate to the invest-                    do financial planning for that client and manage their assets,   ment advisor side and also an indication of some compres-                    the regulators are going to say, ‘We want you to separate out   sion, whether it be from robo-advisors or hybrid advisors, like                    those fees so the client can see and make a meaningful com-  Personal Capital or Schwab or Vanguard, with low-cost finan-                    parison of the portfolio management services and whether   cial advice platforms. Those don’t give comprehensive advice,                    they really need them or not.”                   but it’s probably 90% of what people need.                      That’s a less conflicted model. In a way, I agree that it’s   The marketplace is working. But it’s still way too difficult for                    more fair to the client.                         a consumer to tell the difference between someone they can                                                                     really trust and someone they can’t.                    What do you think of the AUM model?                Over time, any diminution that has occurred in the fiduciary                    Flat-fee and AUM are both good models. But consumers   standard will eventually be corrected, as the field of financial                    probably feel better under a flat-fee model. It doesn’t tend to   planning and investment advisory moves closer to becoming                    lower the overall fees paid.                     a true profession. —Jane Wollman Rusoff                   32 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","THE PLAYING FIELD                                                             By Melanie Waddell                      SEC 12b-1 Fee, Custody Rules Likely Out                   by Year-End                    Both rules “are currently in the works,” says compliance consultant Amy Lynch.                                                            ndustry watchers are keeping a   tody] are currently in the works,” Lynch                                                        close eye on likely rulemakings   told me Friday in an email. The “cus-                                                    I this year by the Securities and   tody rule may come out first, but fund                                                    Exchange Commission that seek to rein   fees are also important to [the SEC’s                                                    in 12b-1 fees as well as custody rule   Investment Management Division] right                                                    infractions. In its Regulatory Flexibility   now. Both rules could come out before                                                    agenda, released in June, that agency   year-end.”                                                    said it plans to review five rules this year   Melissa Harke, senior special counsel                                                    affecting registered investment advisors.  in the SEC’s IM division, said Sept. 8 at                                                      The  SEC  said its  Division  of   the annual SEC  Speaks conference, held                                                    Investment Management is consider-  in Washington, that “custody is on the                                                    ing recommending that the SEC pro-  SEC’s rulemaking agenda; we are aware                                                    pose amendments this year to existing   of the questions” that the industry has.                                                    rules and/or propose new rules under   The agency’s regulation agenda states                                                    the Investment Advisers Act of 1940 to   that it is considering recommending                       “Fund fees have been         improve and modernize the regulations   proposed changes to regulatory require-                    on the SEC’s regulatory         around  the  custody  of  funds  or  invest-  ments relating to registered investment                                                                                      companies’ fees and fee disclosure.                                                    ments of clients by RIAs.                      agenda for quite some           On Sept. 9, the securities regulator   “Fund fees have been on the SEC’s                     time now. … Rule 12b-1         brought charges  against  eight  advi-  regulatory  agenda for  quite some  time                                                    sory firms  for custody rule  violations                                                                                      now,” Lynch told me. “As you know, Rule                   fees have been dealt with        that relate to the audit requirements   12b-1 fees have been dealt with rather                      rather harshly via the        of the custody rule. “The custody rule   harshly  via  the  numerous  enforcement                     numerous enforcement           process is well underway,” Karen Barr,   actions against funds. The industry has                                                                                      certainly received the message and the                                                    president and CEO of the Investment                      actions against funds.        Adviser Association in Washington, told   use of 12b-1 fees is declining.”                                                                                        In February, I reported that the                            The industry has        me Friday in an interview. “It’s not unre-  Investment Company Institute found                                                    alistic” that the agency could put forth a                      certainly received the        rule in late October or November.  in March 2021 that the majority of long-                     message and the use of           Commenting  on  the custody  rule   term mutual fund gross sales now go                     12b-1 fees is declining.”      actions taken by the SEC on Friday,   to no-load mutual funds (i.e., no front-                                                                                      end or back-end load, nor a contingent                                                    Barr said an exam sweep is often “a sign                                   —Amy Lynch       they’re [the SEC is] focusing closely on   deferred sales charge) without 12b-1                                                                                      fees. In 2020, according to ICI, 88% of                                                    a rule.” IAA has urged the agency to take                                                    a “holistic look” at the custody rule, as   gross sales of long-term mutual funds                                                    there are lots of aspects that are hard to   went to no-load funds without 12b-1                                                    comply with.                      fees, compared with 46% in 2000.                                                      Amy Lynch, founder and principal of   However, Lynch continued, “other                                                    FrontLine Compliance, sees the agency   fees such as revenue sharing are increas-                                                    tackling 12b-1 fees via a rulemaking on   ing. The key for funds is to provide clear                                                    its  agenda dubbed fund  fee disclosure   and consistent disclosure to sharehold-                                                    and reform. “Both rules [fees and cus-  ers regarding the fees charged. I suspect                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 33","any rulemaking that comes out to focus   safekeeping of client assets and/or to   Jim Lundy, a partner and member of                  on descriptive disclosures.”      timely update their SEC disclosures to   the Securities Enforcement \& Litigation                    The SEC said in its exam priorities,   reflect the status of audits of finan-  Practice at Foley \& Lardner LLP, told me                  released in late March, that it would   cial statements for the private funds   in an email that the enforcement actions                  focus its exams this year on RIAs’ use   they advised. The advisors, all of which   “relate primarily to the audit require-                  of 12b-1 fees in wrap fee accounts where   agreed to settle the SEC’s charges and   ments of the custody rule, and some                  the  RIA  may  be  responsible  for  pay-  pay combined penalties of over $1 mil-  of the allegations against certain firms                  ing transaction fees, along with revenue   lion, are: BiscayneAmericas Advisers   indicate fairly straightforward failures                  sharing arrangements.             LLC, Garrison Investment Group LP,   to be in compliance with this aspect of                    The agency said that RIA exams will   Janus Henderson Investors US LLC,   the custody rule. Further, enforcement                  focus on whether advisors “are acting   Lend Academy Investments LLC, Polaris   will enforce the laws and rules ‘on the                  consistently  with their  fiduciary  duty   Equity Management Inc., QVR LLC,   books’ while their policy making col-                  to clients, looking at both duties of care   Ridgeview Asset Management Partners   leagues in other divisions are engaged in                  and loyalty, including best execution   LLC, Steward Capital Management Inc.,   rule making.”                  obligations,  financial  conflicts  of  inter-  and Titan Fund Management LLC.  The  Sept.  9  actions,  Lundy  added,                  est  and related impartiality  of advice,   The SEC’s orders found that some of   “align with the public statements of SEC                  and any attendant client disclosures.”  the firms failed to have audits performed   leaders regarding increasing scrutiny of                    Ron Rhoades, associate professor of   or to deliver audited financials to inves-  compliance with the custody rule and                  finance at Western Kentucky University   tors in certain private funds in a timely   the private fund industry more broadly.”                  and director of its personal financial   manner, thereby violating the Investment   C. Dabney O’Riordan, chief of the                  planning program, told me in another   Advisers Act’s Custody Rule; and certain   SEC Enforcement Division’s Asset                  email that he’d be disappointed if the   advisors failed to promptly file amended   Management Unit, added in the state-                  SEC seeks to address 12b-1 fees “only   Form  ADV  to  reflect  they  had  received   ment that “registered private fund                  through rules that merely enhance fund   audited financial statements after having   advisers’  failures to  fulfill their  report-                  fee disclosures in some manner, without   initially  reported  that  they  had  not  yet   ing obligations make it harder for the                  severely restricting the utilization of   received the audit reports.  SEC to identify firms with possible on-                  fund share classes with 12b-1 fees.”  In  addition,  one  advisor  —  QVR  —   going issues regarding the Custody Rule.                    These 12b-1 fees, Rhoades said, “don’t   did not properly describe the status of   It is critical for investor protection that                  benefit  fund  shareholders,  and  rather   its financial statement audits when fil-  private fund advisers update their filings                  act to their detriment. Shareholders   ing its Form ADV, nor did it update its   with the SEC as required.”                  rarely understand 12b-1 fees. Outside of   response in its Form ADV annual updat-  Firms “are strongly encouraged                  the  defined  contribution  space  (where   ing amendment for multiple years, as   to ensure their compliance with the                  R-1, R-2, etc. shares exist), 12b-1 fees are   required, the SEC said.  Custody Rule and the related Form ADV                  not negotiable by clients.”         Janus — which as of May had $269   reporting and amending obligations,”                    Another problem, he says, “is that   billion in assets under management,   the SEC said. In particular, private fund                  12b-1 fees, particularly of the 1% variety   including roughly $43 billion managed   advisors registered with the SEC “are                  (often seen in Class C shares), are — in   in pooled investment vehicles — failed to   reminded that per the instructions to                  essence — ‘investment advisory fees in   timely distribute annual audited finan-  Form ADV, Part 1A, Schedule D, Section                  drag.’ There is no reason for the SEC to   cial statements prepared in accordance   7.B.23.(h), ‘If you check ‘Report Not                  permit ‘asset-based fees’ to be charged   with generally accepted accounting   Yet Received,’ you must promptly file                  by  brokers,  when  investment  advisory   principles, or GAAP, to certain investors   an amendment to your Form ADV to                  fees would be more appropriate.”  in a private fund that it advised, accord-  update your response when the report is                                                    ing to the SEC.                   available,’” the SEC states.                  SEC CUSTODY, FORM ADV ACTIONS       The SEC’s Division of Investment   Without admitting or denying the                  On Sept. 9, the SEC levied actions   Management  is  considering  recom-  findings, the firms agreed to be cen-                  against registered investment advisors   mending that the SEC propose amend-  sured, to cease and desist from violating                  for custody rule and Form ADV viola-  ments this year to existing rules and/or   their respective charged provisions, and                  tions. Two of the firms violated just the   propose new rules under the Investment   to pay civil penalties collectively total-                  custody rule and one Form ADV, while   Advisers Act of 1940 to improve and   ing more than $1 million.                  six of the firms violated both.   modernize the regulations around the                    According to the SEC, the firms   custody  of  funds  or  investments  of  cli-  Washington Bureau Chief Melanie Waddell can                  failed to comply with requirements for   ents by RIAs.              be reached at mwaddell@alm.com.                  34 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","THE FAST TRACK                                                              By Angie Herbers                      3 Steps to Transitioning Clients to                   Other Advisors                    With advisors in short supply, firms must serve more clients                   with the human resources they have. Here’s how.                                                                   ow do we transition cli-  How  to  effectively  transition  clients                                                               ents?” That’s a question   without losing them?                                                    “HHerbers \& Co. is hearing          Here are some guidelines to help                                                    more and more from financial advisors.   transition clients.                                                      Successfully moving a client from one                                                    advisor to another doesn’t have to be   1. TAKE IT SLOW                                                    complicated. But before I get into that,   The first rule of client transitions is to                                                    let’s look at why the topic of client trans-  go slow. Don’t send a letter to the client                                                    fers has become so popular.       informing them that they’ll be work-                                                      For the past decade, there’s been a   ing with another advisor; that will only                                                    perceived shortage of financial  advi-  create fear and uncertainty. Instead,                                                    sor talent within the industry. Some   aim to gradually establish a relationship                                                    have argued that there’s little to be con-  between the client and the new advisor.                                                    cerned about: Capacity challenges will   Many firms will begin the transition                                                    be solved through technological inno-  by having the “new” advisor at the next                        Asked to name their         vations. Others argue that clients need   client meeting. Rather than focusing                     top business challenge,        human  advisors  to  understand  their   on  meetings,  having  the new advisor                                                    emotions, and then help them pivot with                                                                                      answer clients’ questions between meet-                         firm after firm will       confidence to facts and figures.   ings often builds trust faster.                    point to the difficulty of        In the  past  couple  of  years,  it’s   If the client emails, the primary advisor                   recruiting, training and         become clear that we are indeed short of   forwards it to their colleague. The client                                                                                      hears back from the new advisor, explain-                                                    advisors. Asked to name their top busi-                     retaining talent. Amid         ness challenge, firm after firm will point   ing that the request was forwarded to                        the human resources         to the difficulty of recruiting, training   them, and adding that they’re happy to                                                                                      help, while explaining what’s been done                                                    and retaining talent. Amid the human                     crunch, advisory firms         resources crunch, advisory firms con-  in response, or what the client might do.                        continue to grow. To        tinue to grow. To accommodate that   Likewise, an incoming phone call may                          accommodate that          growth, they need more advisors — who   be routed to the new advisor, or the new                                                    are in short supply.                                                                                      advisor might return a call placed to the                     growth, they need more           Thus, organizations have been looking   original one. The key here is that the new                      advisors — who are in         at ways to serve more clients with the   advisor be perceived not as a replace-                                                    human  resources  they have. And many                                                                                      ment but as an added, helpful resource.                                 short supply.      are finding that the best solution is to                                                    transition clients from busy primary advi-  2. TRANSITION THE MEETINGS                                                    sors to advisors who have excess capacity.  Once the groundwork for the new rela-                                                      Firms often have a hard time moving   tionship has been laid through reactive                                                    forward  with  client  transfers,  though.   responding  to  a  client  email  or  phone                                                    One reason is that they fear a nega-  call, the next step is transitioning the cli-                                                    tive reaction from the clients that may   ent meetings. Ideally, the original advi-                                                    threaten growth. Thus, the question:   sor leads the first meeting or two, then                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 35","steps back to let their colleague run the                  meetings, and then lets them take over                  the meetings completely.                    This sounds straightforward on                  paper, but in real life, human psychol-                  ogy can get in the way. Often, it’s the                  advisor who has a harder time letting                  go of the relationship than the client.                  Many advisors believe that clients need                  them —  them specifically — more than                  the clients themselves do.                    The typical wealth management cli-                  ent just wants their needs met. They                  want  to  work  with  someone  they  trust                  to give them sound advice and responses                  to their needs.                    Our consultants often hear, “We can’t                  transfer that client.” And our response,   The typical wealth management client just                  informed by two decades of experience,   wants their needs met. They want to work                  is, “Do you want to bet on that?”                    When firms are looking at transition-  with someone they trust to give them sound                  ing client meetings, we advise them not                  to emphasize the relationship the original   advice and responses to their needs.                  advisor has with the client, but rather to                  emphasize the service that the organiza-  work directly with me and times you   We  are  all  here  to  help  you  when  you                  tion is providing to the client. The goal   may work  with [the  previous  advisor],   need it. Let’s talk with [previous advisor]                  is  to maintain or  improve  on the level   depending on schedules and responsi-  together and see how we can accommo-                  of service with the new advisor. Indeed,   bilities of staff.”      date this. Are you willing to schedule                  service often improves because the newer   In  rare instances,  that won’t  satisfy   another appointment now?”                  advisor has more available capacity.  the client, and they’ll push. A possible   At that meeting, the original advisor                    We have seen firms successfully trans-  response: “I hear you. We are all here to   should be clear but diplomatic.                  fer clients without having the previous   help you when you need it. [The previ-  Some helpful remarks could be: “I                  advisor in a single meeting. In those   ous advisor] is here for you too, and if   want to be in all your meetings, and I am                  cases, the new advisor has respond-  you have any questions or issues that   here if you need anything. As an advisor,                  ed effectively to email and phone calls   you’d like to talk directly to them about,   I have a responsibility to ensure all cli-                  over a period. When the original advisor   I can notify them for you.”  ents are taken care of. As a result, I have                  informs the client that the new advisor   Another common question: “Will   developed a team around me. What if I                  will handle the next meeting, the client   [name of previous advisor] be attending   am out on vacation and you really need                  typically doesn’t question it, because a   our meetings?”           help? I want you to have someone else,                  relationship of trust and confidence has   A good answer would be: “It depends.   not just me, you can depend on. To help                  already been established.         We work as a team and we’re all familiar   you build these relationships within our                                                    with your situation. You may not know   firm, I’ve asked [new advisor] to lead                  3. ANSWER FREQUENTLY              this, but for the last several years, I   your meetings. Are you willing to give it                  ASKED QUESTIONS                   have worked behind the scenes on your   a try and see how it goes?”                  During this process,  clients  often ask   financial plan and other services we   For client transfers to be successful,                  some  standard questions. A common   provide for you. You’ll see my face more   the original advisor must let go and trust                  one  is:  “Is  [name  of  previous  advisor]   often now in the meetings, and if there   their colleague and their team to take                  still my advisor?”                are any issues, [ previous  advisor] can be   care  of  the  client.  That,  in  the  end,  is                    A good response is along the follow-  brought into the meetings as well.”  what teams are all about.                  ing lines: “Our firm works as a team,   On a few occasions, the client will                  although it occurs to me now that   insist that the original advisor be pres-  Angie Herbers is managing partner and                  you may not have known this. In the   ent  in  all  future  meetings.  I  suggest   founder of the advisor consultancy firm   Adobe Stock                  future, there will be times when you   responding with empathy: “I hear you.   Herbers \& Co.                  36 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Conclusions                                FINANCIAL PLANNING IN FOCUS                    By Jeff Berman                     6 Tips for Advisors When Talking Fees                   With Clients                    Advisors often make the fee conversation more awkward and                  complicated than it should be, Michael Kitces and others say.                                                                                        for the fee conversation that were pro-                                                                                      vided during the webinar by Kitces                                                                                      and his expert guests: Bill Bachrach,                                                                                      CEO and chairman of AdvisorRoadmap                                                                                      and Bachrach \& Associates, and Carl                                                                                      Richards,  a  certified  financial  planner                                                                                      best known for his decade-long “Sketch                                                                                      Guy” column in The New York Times.                                                                                       1. It is crucial to convey the                                                                                      value that you offer during an                                                                                      introductory client meeting.                                                                                      “I have a favorite saying, and that’s that                                                                                      the  success  of  what you’re  currently                      f  there is one  conversation  that   on an advisor’s own knowledge and   doing is built on the foundation of what                      many advisors dread more than any   expertise but also on their ability to   immediately preceded it,” Bachrach said.                  Iother, it’s the fee conversation —   deliver positive client outcomes, accord-  “Truly comprehensive financial                  whether it’s with prospective clients or   ing to Michael Kitces, head of planning   planning, truly being a trusted advisor”                  telling existing clients that the fee they     strategy at Buckingham Wealth Partners   is much different than being a salesper-                  charge is going up.               and chief  financial planning nerd at   son who “gathers assets or uses plan-                    However, all too many advisors make   Kitces.com.                 ning  as  a  tool  to  sell  a  product  rather                  the fee conversation more awkward and   Meanwhile, because investors today   than real planning,” he said, noting that                  complicated than it needs to be, accord-  have access to much more information   advisors should convey that to prospec-                  ing to industry experts who spoke   than they did in years past, it is likely   tive clients.                  during the recent Kitces.com webinar   that, at some point, a client is going to   But “what precedes this discus-                  “Introducing The Fee Conversation To   push back on an advisor’s pricing and   sion about the value in what you do” is                  New And  Existing Clients  (How  To   wonder why they should pay more than   important,  he  said,  suggesting  advisors                  Talk About What You Charge Without   what another advisor with a seemingly   schedule a meeting with both spouses,                  Being Awkward).”                  similar “comprehensive financial plan-  asking  them  to  have  all  their  financial                    The fact of the matter is the value   ning” offering charges or more than   documents handy, “preferably in your              Adobe Stock  today is significantly more esoteric than   sor charges, according to Kitces.  home, never in their office where there                                                    what an even less expensive robo-advi-                                                                                      office” or by Zoom but “never at their                  that a good advisor brings to the table                                                                                      are a lot of distractions.”                  it was in years past and relies not just                                                      Below are some of the standout tips                                                                                         OCTOBER 2022 INVESTMENT ADVISOR 37","FINANCIAL PLANNING IN FOCUS                             He also suggested that advisors all   give people an experience.”  And they’re either going to say yes or no,                  use a financial roadmap that is   visual,   Richards explained: “I don’t think   or they’re going to ask a question.”                  “engaging” and interactive when   you can talk about it. I don’t think you                    meeting with prospects. From there, it’s   can print it on a brochure. I think the   5. Keep the fee discussion simple                  best to proceed to ask them what their   only way they can understand at some   and don’t let it get in the way of                  core values and “tangible goals” are and   level is to have the experience” and it   listening to prospects.                  what their “current reality” is, he said.  should be “an experience that they’ve   “The whole fact that you’re distracted                    All of that helps to build an  “emotional   never had before.”    in your head trying to calculate what                  connection” with the prospects,     It is highly likely that “no one’s ever   you’re going to charge and how to                  he noted. “In the first 15 to 30  minutes,   asked them” their thoughts on money   communicate” is a sign that you may                  you’re  asking  them  questions  that   and “no one’s ever listened to the   be  focusing  more  on  that  than  what’s                  have  them thinking about things that   answers,” according to Richards, who   much more important to prospects,                  the financial people they’re currently   added prospects will appreciate feeling   Bachrach said.                  working with are not asking,” he added.  heard and understood.        After all, he said: “You’re supposed to                    And all of that should be done before   What prospects are typically saying   be listening to them and all this clutter                  you actually invite them to become a cli-  to themselves is “I have a desired future   in your brain, trying to sort that out, is                  ent, he pointed out, noting it should be   state, and I am going to discount your   disrupting what you’re mainly supposed                  made clear to prospects that the reason   value — the value I place in you — based   to be doing.”                  they should become your client is that   on the uncertainty I have about your                  you have a higher probability of achiev-  ability to get me to the desired future   6. You’re probably better off                  ing all their goals that are the result of   state,” he added.      without clients who don’t want to                  their values.                       Kitces agreed,  saying: “Show me   pay what you charge.                    “The  mistake  that  most  advisors   a prospect meeting where the pros-  When it comes to the fee, the worst-case                  make” is asking too few questions dur-  pect  talked  80%  of  the  time  and  it’s  a   scenario  is  a  prospect  decides  not  to                  ing such meetings and just providing   very high likelihood that they’re going   become your client.                  prospects with a vague list of what they   to end [up] doing business” with you   “If they’re not a good fit … you don’t                  offer clients, he added.          “because, at the end of the day, if they   invite them to become a client and you                                                    feel like they got their stuff out there   move on to find the people who are                  2. Record the initial conversations   and they feel heard,” that tends to work   really the right fits,” said Bachrach.                  with prospective clients.         in the advisor’s favor. He suggested   Richards agreed, saying you can sug-                  Bachrach has been recording conver-  advisors repeat back to the prospects   gest a different advisor the prospects                  sations with prospective clients for   what  their  goals  are to  make  it clear   can go to if they’re not a good fit for you.                  decades, he noted. It’s helpful to also use   that they’re listening.  Kitces went on to point out that the                  a “scripted, repeatable process,” he said.                          same concept works when it comes to                    After recording the conversations,   4. Tell the truth ‘succinctly   raising fees for existing clients.                  advisors should review the recordings   and directly.’                If most clients are willing to pay for                  to find mistakes you should not make   Bachrach suggested that advisors tell   the  “value of  the  advice  that I  deliver,                  again and remove them from the script   prospects the truth “succinctly and   I don’t really want to spend as much                  if they’re in there, he said.     directly in a way that’s all about them;   time with clients that are significantly                    “There’s a lot of failure involved in   that’s the formula.”      below that,” Kitces explained. After all,                  actually  grading scripts  that  work,” he   It could sound something like, ‘well,   there are only so many clients that an                  pointed out.                      for the work that needs to be done so   advisor can effectively serve and if you                                                    that you can … achieve these three goals   lose a couple of clients because of a price                  3. Provide prospective clients with   that you’ve described here in the time-  increase, you will likely be able to add                  an ‘experience.’                  frame that you want….” he pointed out.  new clients who are a better fit for you,                  Richards agreed with Bachrach but   He added: “Then you confidently fol-  he added.                  added that the “best way to convey   low that by just saying the number and                  our  value  add versus the  fees  in the   ‘our fee for that is …’ and then you ask a   Staff reporter Jeff Berman can be reached at                  introductory prospect meeting … is to   question, ‘would you like to get started?’   jberman@alm.com.                  38 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","PORTFOLIO PERSPECTIVES                   By Dinah Wisenberg Brin                      SEC Loophole Lets Funds Mislead Investors                   on Performance: Study                    Some funds change their benchmark indexes to “manipulate the benchmark-                   adjusted performance they present to investors,” researchers found.                        nvestors exploring mutual funds                      and comparing their returns to                  Ibenchmark indexes may be sur-                  prised to know that funds can change                  their benchmark to make performance                  appear better than it is. A new study,                  “Moving the Goalposts? Mutual Fund                  Benchmark Changes and Performance                  Manipulation,” found that some mutu-                  al funds take advantage of a loop-                  hole in U.S. Securities and Exchange                  Commission disclosure requirements                  “to provide misleading information                  about past performance.”                    SEC rules allow funds to “freely                  change their benchmark indexes and,                  implicitly, the historical returns to which   only 13% of U.S. households invested   were generated,” they wrote.                  they  compare  their  past  performance,”   directly in the stock market, more than   “In essence, these rules allow funds                  wrote Kevin Mullally of the University   half  invested  in  intermediary  vehicles   to manipulate the benchmark-adjusted                  of  Central Florida  and  Andrea  Rossi   like mutual funds.        performance they present to investors                  of the University of Arizona finance   SEC Rule 33-6988 requires mutual   simply by changing their benchmark                  department. “Funds exploit this loop-  funds to disclose at least one appropri-  index,” they added.                  hole” by adding indexes with lower past   ate broad-based market index to which   The researchers studied funds’ bench-                  returns or dropping indexes with higher   they compare their past performance,   mark moves by examining prospectuses                  returns, “which materially improves the   providing  comparisons  of their  1-, 5-,   downloaded from the SEC website.                  appearance of their benchmark-adjust-  and 10-year returns to those of at least   They found that:                  ed performance,” they said.       one benchmark index.                •  1,050 out of 2,870 funds, or 36.5%,                    “High-fee funds, broker-sold funds   The SEC bases the requirement on   made  changes  to  their  prospectus                  and funds experiencing poor perfor-  investors’ need to evaluate how much   benchmarks at least once over the                  mance and outflows are more likely to   value management added by show-  13-year sample period spanning                  engage in this behavior,” the research-  ing whether the fund outperformed   2006 to 2018.                  ers wrote. “These funds subsequently   or underperformed the market, the   •  Among funds making at least one                  attract additional flows despite continu-  researchers noted.          benchmark change, the median                  ing to underperform their peers.”   “Given this rationale, it is perhaps sur-  number of changes was two per fund.                    Mutual fund investors base their   prising that the rule allows funds to add   •  Benchmark changes occurred in                  capital allocation decisions on funds’   and  remove  benchmark   indexes with   6.85% of all fund-year observations.                  past performance, using relatively   little justification and does not prohibit   While funds may change benchmarks                  simple  and  readily  available  measures,   funds from comparing their past returns   for many reasons, the researchers found              Adobe Stock  studies. They also cited a 2016 Federal   er than to the returns of the index(es)   tematic decrease in the past benchmark                                                    to those of  newly-chosen index(es) rath-                                                                                      that  benchmark  changes  lead  to  a  sys-                  the researchers noted, citing previous                                                                                      returns that funds report.                  Reserve survey indicating that while                                                    they  selected  at  the  time  the  returns                                                                                         OCTOBER 2022 INVESTMENT ADVISOR 39","PORTFOLIO PERSPECTIVES                            “On average, funds add indexes with   self-designated benchmark indexes to   want to know why when a firm makes                  low past returns and drop indexes with   embellish their benchmark-adjusted   such a change, “but we’re not often                  high past returns. Similarly, many funds   performance.  Simply  put,  funds  add   having that conversation” because the                  also add peer-based benchmarks (reflect-  indexes with low past returns and drop   team hasn’t dealt with many funds that                  ing other funds’ average return) with   indexes with high past returns. Investors   have switched their benchmarks, he                  low returns and drop peer-based bench-  respond to these changes by allocating   told ThinkAdvisor.                  marks with low returns,” they said.  more  capital  to  these  funds  and  sub-  “I can feel confident in saying that                    “Added  stock-based  and peer-based   sequently experience persistently low   this is not something that is happening                  benchmarks have lower returns than   returns,” the authors concluded.  ... on a frequent basis,” he said.                  those of the benchmarks that better   “In short, we find evidence that   Greengold cited legitimate reasons                  match funds’ actual investment strategy.   funds deliberately provide mislead-  a  fund  might  adopt  a  new  bench-                  Finally, added benchmarks tend to have   ing information to investors in their   mark index. The asset manager may                  low returns both because funds choose   SEC-mandated disclosures,” they wrote.   be retooling the investment approach                  to add benchmarks with low                                                 so the previous benchmark                  past style returns and because   [Funds] freely change their               no longer is the most appro-                  funds pick low-return bench-                                               priate, for example. Or the                  marks within a given style,”   benchmark indexes and ...                   manager may be trying to be                  they said.                                                                 mindful of its own costs and                    The data showed that funds     [the] returns to which                    will change benchmarks to                  add indexes with 2.39% lower                                               pay  a  lower  licensing  fee  to                  5-year returns than their exist-  they compare their past                  the index provider, he said.                  ing benchmarks and 5.56%               performance.                          A Vanguard Group spokes-                  lower 5-year returns than                                                  man, responding to a request                  the  index that best matches    —K. Mullally and A. Rossi                  for  comment about the  study                  their  strategy, results that the                                          and the mutual fund giant’s pol-                  researchers found to be highly                                             icies on selecting and changing                  statistically significant.” The probability   While the behavior appears to be legal,   benchmark indexes, said via email:                  of observing these results by chance is   it seems to conflict with the SEC’s stated   “Vanguard has developed and                  extremely low, they added.        goal to provide transparency and a clear   adheres to a multi-dimensional process                    The research said they found evi-  measure of the value that a fund creates   to evaluate and select benchmarks for                  dence suggesting funds revise their   to investors, they added.     funds and ETFs. The suitability of each                  benchmarks based on realized rather   The researchers suggested that regu-  fund’s benchmark is based on index                  than expected returns. For example, the   lators consider requiring funds to com-  construction methodology, market cov-                  returns of the added indexes are lower   pare past returns only to those of the   erage, classification criteria, rebalancing                  during the periods funds use them to   benchmark indexes they cited when the   schedule, cost and other standards.                  benchmark performance than in the   returns were generated.           “Vanguard also regularly assesses                  periods before or after, they wrote.  “This requirement would effective-  index providers to ensure their data                    Funds that change their benchmarks   ly close the existing loophole without   integrity processes and risk management                  receive abnormal positive inflows for   limiting the ability of funds to make   practices support their ability to provide                  the five years after the switch, rep-  ‘legitimate’ changes to their investment   timely, accurate and high-quality data.”                  resenting about 10% of fund size, the   strategy or benchmarks in a forward-  A Schwab Asset Management repre-                  researchers found. Investors who allo-  looking sense,” the authors said.  sentative wasn’t available to discuss the                  cate additional capital to these funds are                          study this week, an outside spokeswom-                  affected adversely, as funds that change   LEGITIMATE REASONS       an said via  email. Fidelity  Investments                  benchmarks continue to generate lower   Mutual fund rater Morningstar doesn’t   didn’t  immediately  provide  a  comment                  returns than peer funds, they said.  frequently come across funds that have   and BlackRock declined to comment for                                                    changed their prospectus benchmarks,   the article.                  ‘MISLEADING’ INVESTORS            strategist Robby Greengold said Friday.                  “We find that mutual funds system-  Morningstar  continually  speaks   Staff reporter Dinah Wisenberg Brin can be                  atically  and  strategically  change  their   with portfolio managers and does   reached at dwbrin@alm.com.                  40 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","ETF ADVISOR                   By Dinah Wisenberg Brin                      Income-Generating ETFs Popular in                   Tough Market                    ETFs featuring dividend strategies, munis and high-yield bonds                   have seen strong inflows, according to Dave Nadig.                          xchange-traded funds have been                        enjoying massive inflows in a                  Eyear marked by high inflation                  and a bear market, with income-produc-                  ing ETFs drawing significant investor                  interest. ETFs are now the vehicle of                  choice for most active investors and are                  becoming the default choice for most                  long-term investors as well, accord-                  ing to Dave Nadig, financial futurist at                  research and consulting firm Vetta Fi.                    The $6.6 trillion ETF industry in the                  U.S. has seen $375 billion in net inflows                  this year during the worst financial mar-                  ket in decades, and the funds are flowing   (VNQ), also  have attracted inflows,   firm noted that ETFs overall have expe-                  across the board, including billions of   Nadig explained.          rienced their second-highest net inflows                  dollars in positive inflows into equities,   “Anything that’s throwing off income”   on record year to date.)                  commodities, currencies and alterna-  is drawing inflows, Nadig said, noting   ETF flows mirror what investors see                  tives, he explained  recently. “It’s been   that people flood to quality during big   in the broader mutual fund and underly-                  one of the circumstances where the   drawdowns. Many advisors and inves-  ing stock markets, he noted.                  entire ETF universe has caught a bid,”   tors see dividend payers — and spe-  It’s  important  to remember  that  the                  Nadig said.                       cifically dividend payers with long track   ETF is just a wrapper that doesn’t nec-                    People see underperforming, over-  records of maintaining and growing div-  essarily make for a safer investment,                  priced active mutual fund managers,   idends — as the highest quality part of   Nadig said.  There  are incredibly safe                  “they finally capitulate,  they  sell  and   the U.S. stock market, so they are often   ETFs that hold cash and “phenomenally                  where do they put that money? They put   used as a quality proxy, he noted.  risky” ones in which investors theoreti-                  it into very cheap, very boring ETFs,” he   The  most  popular  ETFs  include   cally can lose all their cash in one day,                  said. In a high-inflation environment,   “big, boring equity funds” offering “big,   he added. “The wrapper is the wrapper,                  “income is really the place where people   cheap beta,” like the SPDR S\&P 500   and the risk comes from what’s inside.”                  have  been  headed,”  Nadig  said  in  an   Trust (SPY); the tech-oriented Invesco   While it’s rare to find ETFs in 401(k)                  interview, noting the launch  of many   QQQ ETF (QQQ), which tracks the   plans, ETFs make attractive targets for                  income-focused ETFs this year. One of   Nasdaq  100 Index; and the Vanguard   retirees rolling cash out of those plans                  the best, the JPMorgan Equity Premium   Total  Stock Market Index Fund ETF   and looking for new places to invest,                  Income ETF (JEPI), generates “a mon-  (VTI), he said. “It’s pretty straightfor-  Nadig said, noting that ETFs’ inflows                  ster yield” using dividend-paying stocks   ward  stuff  that  we’re  all  very  familiar   have surpassed mutual funds’ for years.                  and options, Nadig said.          with,” Nadig explained.           He noted significant interest in ETFs,                    “That hunt for income, we’ve seen   (Another consulting firm, ETFGI,   including  innovator  funds  and  others,                  it in dividend strategies, we’ve seen it   recently reported that fixed income   that use options to allow investors to              Adobe Stock  bonds,” he said. Real estate ETFs, like   $27 billion in net inflows in July alone,   have pulled in $7 billion year to date.                                                    exchange-traded products saw nearly                                                                                      limit downside. Options collar strategies                  in munis, we’ve seen it in high-yield                                                                                        While the launches of single-stock                  the Vanguard Real Estate Index Fund                                                    for nearly $93 billion year to date. The                                                                                         OCTOBER 2022 INVESTMENT ADVISOR 41","ETF ADVISOR                          ETFs are gaining significant attention,                  they’re not for the average retail inves-  That hunt for income, we’ve seen it in                  tor and have attracted only $80 million                  combined, according to Nadig. There     dividend strategies, we’ve seen it in                  eventually could be thousands more sin-  munis, we’ve seen it in high-yield bonds,                  gle-stock ETFs, with the potential for                  multiple funds for every stock, he said.  [and we’ve seen it in real estate ETFs].                    “They’re an interesting expansion of                  the toolkit for very active traders,” he                 —Dave Nadig                  said.  Nadig  expressed  concern,  how-                  ever, that single-stock ETFs will be                  used by people who don’t understand   Single-stock ETFs suffer from “the   ple,  the  inverse  swap  counterparty                  them  and  said  they’re  not  suitable  for   most non-intuitive math in the market,”   moves cash into a custodial settlement                  long-term investors. “They are truly   Vetta Fi’s Nadig said, explaining they   account for the Tesla ETF. If Tesla                  daily trading vehicles.”          may bear little relation to the underlying   stock rises, the fund moves money into                    Single-stock  ETFs  use  derivatives  to   stock’s actual movement if held for more   the bank’s account. “It’s a bar bet that’s                  generate leveraged or inverse returns   than a day.                 settled every night and put on again in                  on  individual  stocks,    Morningstar   These ETFs use swaps to generate   the morning,” he said.                  explained recently, strongly urging aver-  daily exposure, negotiating with a bank                  age investors to avoid these “extremely   for a daily settled swap, he explained.   Staff reporter Dinah Wisenberg Brin can be                  risky” investments.               If Tesla shares move down, for exam-  reached at dwbrin@alm.com.                                                 Looking to switch custodians or start                             an advisor business?                                  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This  means  that  advi-                  returns, measured on a both absolute and                            sors must avoid picking a bottom tier                  risk adjusted basis, 2022 ushered in infla-                         manager which could negate any poten-                  tion  and subsequent interest rate hikes,                           tial benefit of private equity.                  essentially ending the proverbial “party.”                          Further, established top tier private                    Now,  many  investors  are  exploring                             equity funds are typically difficult to get                  other options to hit long term return   market equivalent benchmarks by   into.  Without the  proper advisor  sup-                  goals. Investor demand is not the only   between 400-500 basis points per year,   port and choice, investors may “bet” on                  force  behind  the  need  for  advisors  to   but it has also demonstrated greater   an emerging manager who hasn’t found                  bone up on private markets. There is also   outperformance in years in which the   institutional backing.                  a collective push into the private wealth   public markets struggle.   With the right education and advisor                  space from leading private equity general   When public markets are flat to down,   guidance, retail investors can partner                  partners, which, in turn, is likely to con-  private markets have seen some of their   with a firm that allows them to invest in                  tribute additional pull from investors.   best relative outperformance, outpacing   a fund alongside institutional investors.                    This phenomena exists because indi-  public markets by 600–800 basis points.   Thankfully, with increased demand for                  vidual investors are vastly underweight   There are several reasons for this.   retail  private  equity  investments,  there                  to private equity relative to their institu-  Some of the outperformance may come   are now more opportunities for individ-                  tional counterparts and that fact has led   from the so-called “smoothing effect”   ual investors to partner with established                  to increased interest in the individual   where the underlying assets don’t go   private equity general partners.                  investors from capital raisers.   through the violent daily moves and                    Advisors who ignore the inevitable   have fewer “point in time” observations.   A NEW CONVERSATION                  growing swell and don’t find a way to   That, however, is not the whole story.   With performance driving a grow-                  ride the surf, risk being caught in very   Through the downturn of 2022 it’s   ing level of interest in private equity                  deep water far from shore. At the heart   clear that multiples have compressed.   from the individual investor and — in                  of good conversations between advi-  However, private equity proponents   turn — a rise in general partners’ interest                  sors and their clients are strong talking   point out factors such as long-term   in individual investors, understanding                  points, from multiple angles, about per-  investor alignment and an increased   the nuances of the performance obser-                  formance and the vehicles that have a   opportunity set, can lead to investments   vations tied to private equity will be a                  chance to register strong performance.   in companies that are more likely to   critical success factor for advisors when                                                    financially outperform during times that   engaging with their investor clients in                  KEY OBSERVATIONS                  public equity markets struggle.   this investment area.              Adobe Stock  outperforms public markets. In fact, not   vate equity are by no means equal. The   Josh Vail, CAIA, is managing director of                                                      Number two: Investments in pri-                  Number one: Private equity, on average,                                                    return dispersion among private equity                  only has PE historically outperformed                                                                                      Hamilton Lane.                                                                                          OCTOBER 2022 INVESTMENT ADVISOR 43","BROKER-DEALER BEAT                   By Jeff Berman                      UBS-Wealthfront Deal Has Been Canceled                    The $1.4 billion deal was “doomed from the get-go,” Nexus Strategy CEO                  Tim Welsh says.                           he decision by UBS Group AG                                   wirehouses) before UBS agreed to buy                        and Wealthfront to terminate                                  them,” he wrote. “And while the head-                  Tthe planned acquisition of the                                     lines proclaimed they paid $1.4 billion,                  robo-advisor by the bank, announced                                 it was actually only $700 million in cash                  Sept. 2, came  as little surprise to at least                       with another $700 million in incentives                  some tech and financial services indus-                             only if revenue objectives were met.”                  try experts. Some of them had ques-                                   That, however, still meant “UBS was                  tioned the logic of the $1.4 billion deal                           paying around 10X revenue, which is                  after it was announced in January.                                  NUTS considering that SoFi paid 10X                    Although the deal was scrapped, UBS                               for Galileo, Stripe’s last funding round                  will buy a $69.7 million note that is con-                          was  at  10X  and  Intuit  snagged  Credit                  vertible  into  Wealthfront  shares.  “UBS                          Karma for only 7X,” Iskowitz noted.                  remains committed to its growth plans   He explained: “When you acquire or   Additionally, “Wealthfront has no dif-                  in the U.S. and will continue the build-  take a majority stake in a business at a   ferentiating technology, no special sauce                  out of its digital wealth management   certain valuation, you own that stake   or moat protecting their revenue (except                  offering,” it said in a statement.  outright [and] it’s the purest, most accu-  inertia) and only 400K clients, which is                    “This deal was  doomed  from  the   rate form of valuation there is.”  a drop in the bucket for B2C providers,”                  get-go,” Tim Welsh, CEO, founder    Before the deal was announced,   Iskowitz said, pointing out mobile apps                  and president of wealth management   “somebody at UBS built a model that   such  as Acorns,  Stash and MoneyLion                  consulting firm Nexus Strategy, said.   said they could generate growth in cash   had over 4 million clients each.                  “This was always an odd deal,” Welsh   flows >$1.4B over time by owning that   Andy Rachleff, Wealthfront executive                  added, noting it “seemed to be a forced   asset,” he tweeted, noting: “UBS  truly   chairman (and previously its CEO and                  sale” without “any real strategy or long   thought the asset was worth that much   president), had been pivoting “like crazy                  term synergies.”                  back then.”                       to try to reach scale including high-inter-                    “Basically,  the  two  companies  were   But times have changed. “We may   est saving accounts, retail banking and                  diametrically opposed, so [it’s] not a sur-  never know what happened or what   cryptocurrency [but] none of these got                  prise it didn’t get consummated,” Welsh   leverage UBS had to get out of the deal,   much traction,” according to Iskowitz.                  said. “Also, the deal was at the peak of   but now they do not believe the asset is   Meanwhile, “Rachleff was trash-                  the market, so UBS was dealing with   worth $1.4B,” Klein said. He still, howev-  ing the banking industry, saying that                  buyers’ remorse and the ultimate under-  er, wondered why UBS is investing $70   they were going to lose 50 million cus-                  standing that they way overpaid.”  million at the same $1.4 billion valuation.  tomers over the next decade, which                                                      Craig  Iskowitz,  CEO  and founder of   Wealthfront was targeting,” Iskowitz                  BUYING A BUSINESS VS. INVESTING   Ezra Group, called Klein’s analysis of   said. “Then he up and sells his company                  IN A BUSINESS                     the UBS-Wealthfront breakup “spot on,”   to one of the biggest banks in the world.                  The  collapse  of  the  deal  “speaks  vol-  tweeting in response: “Bailing on a $1.4B   The promise of a big payday can make                  umes about something many people   purchase for just $70mm in convertible   people  do  or  say  almost  anything,  no                  don’t understand — the difference   notes is the deal of the century” for UBS.     matter how crazy.”                  between buying a business vs. invest-  “There were early signs this wasn’t a   Iskowitz added: “Now that this deal                  ing in a business at a certain valuation,”     great deal,” Iskowitz said in a LinkedIn   has been thrown on the dung heap                  Aaron Klein, CEO and co-founder of   post on Sept. 5.               of fintech history, hopefully someone                  fintech firm Riskalyze, said in a tweet   For example, “Wealthfront had been   involved will spill the beans on exactly                  on Sept. 5. “Why would UBS be willing   shopped  to  a  number  of  other  poten-  what went on behind the scenes. It’s got                  to do one but not the other?”     tial suitors (including RBC and other   to be a wild story.”                  44 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Joel  Bruckenstein,  publisher  of  the   WHAT WENT WRONG?        er of Ferri Investment Solutions, tweeted:                  Technology Tools for Today Technology   In a tweet on Sept. 2, Eric Balchunas,   “My take on the deal was that UBS wanted                  Hub and  producer  of the annual  T3   senior  ETF  analyst  at  Bloomberg   a  direct  indexing  business  and  WF  had                  Conference, responded to Iskowitz, say-  Intelligence, noted that there were “very   one. It was a hot market for direct index-                  ing: “I agree that the culture clash and   little details given” by UBS or Wealthfront   ing and ESG a year ago [but] not anymore.”                  the valuation made no sense from the   in their press release that day, so it was   UBS declined to comment on what                  outset. I guess UBS came to the same   “not clear what exactly went wrong.”  the fintech experts and executives said                  conclusions a bit belatedly.”       In response, Rick Ferri, CEO and found-  about the matter.                    Cambridge Taps 3 Execs for New Roles                    The shifts are “all about continuity of leadership,” said CEO Amy Webber.                       ambridge said in mid-August that   of leadership for us,” she explained,   tion,  while  advancing  and  discovering                  Cit has made organizational changes   adding: “Our goal is to remain inter-  new ways to meet ongoing needs.                  to its executive structure that include   nally controlled, in charge of our own   •  Growth  and  Development                  the  creation  of an  Office  of the  CEO.   destiny [and] keep Cambridge moving   (Vivacqua) will build strategic opportu-                  As part of the shifts, Cambridge has   with the same culture, core values and   nities centered around organic growth,                  realigned its business functions into   commitment that we’ve always had to   acquisitions, recruiting and relationship                  three areas and named three execu-  our clients.”                   management, while it enhances and                  tive  vice presidents as presidents:   Although  “I  have  no  intentions  of   expands the digital resources financial                  Colleen Bell now heads Innovation and   going anywhere ... at north of $1.5 billion   professionals need.                  Experience, Jeff Vivacqua leads Growth   [in yearly revenue], it’s probably time   • Advocacy and Administration                  and Development, and Seth Miller is in   that  I  don’t  have  two  very  important   (Miller) will create an environment to                  charge of Advocacy and Administration.  roles  and  I  hand  off  the  baton  on  one   help Cambridge associates and financial                    The  Office  of  the  CEO will  be  led   of those roles,” Webber added. “If you   professionals succeed by managing inter-                  by Cambridge President and CEO Amy   keep loving what you’re doing, which I   nal policies and controls while influenc-                  Webber, who  became the  firm’s chief   certainly do, assuming that my health   ing and navigating industry rules and                  executive officer in 2017 and was made   holds up or whatever, I plan to be here   laws impacting the firm’s business.                  its president in 1998. She succeeded   for a really, really long time.”  The firm is “committed to continuing                  founder and former CEO Eric Schwartz,   While “some of this is just preparing   the growth and success Cambridge has                  who continues to serve as executive   for something that may never happen,   experienced over the past 40 years, and                  chairman of the board of directors.  if something does, one or more of these   look forward to serving our financial pro-                    The idea for having an Office of the   three [executives] or these three togeth-  fessionals and their clients across gen-                  CEO was Webber’s, she said in an inter-  er,  I am  100% confident  ... they’ve got   erations for years to come,” Webber said.                  view. “By creating the Office of the CEO,   this company. It’s in good hands. They   “We are fortunate to have experienced,                  I am giving myself the ability to talk   can run it,” she said.     dedicated leaders and I believe this new                  about strategy and the big picture with   “As we continue to navigate an evolv-  structure will be instrumental in fulfill-                  someone other than myself or myself   ing landscape and prepare for the many   ing our purpose and future goals.”                  and Eric,” she explained.         opportunities ahead, it is important that   Cambridge continues to be made                    At the same time, she’s “bringing in   we position Cambridge with a leadership   up of two main businesses: Cambridge                  three really talented leaders that have   structure that is strongly aligned with   Investment  Research  Advisors,  its                  been with our company for a long time   our key business functions,” Webber stat-  large corporate RIA, and Cambridge                  to that higher level, visionary discussion   ed in the firm’s official announcement.  Investment Research, an independent                  earlier than we would normally do so,”   Each of the newly appointed presi-  broker-dealer that’s a member of the                  Webber said, noting that Bell, Vivacqua   dents are responsible for the following:  Financial Industry Regulatory Authority                  and Miller have each been with the   • Innovation and Experience (Bell)   and  the  Securities  Investor  Protection                  company for over 10 years.        will focus on driving associate engage-  Corp. The company now manages about                    This is also “all about continuity   ment and financial professional satisfac-  $150 billion in client assets.                                                                                            OCTOBER 2022 INVESTMENT ADVISOR 45","THE NEW SCHOOL                   By Caleb Brown                      A New Way to Train Next-Gen Financial Planners                    Hiring students to provide data entry services gives them valuable                  experience and eases the burden on experienced advisors.                           he financial planning profession                                The  planners  will  work virtually  on                        has changed substantially since                               their own schedule (after the initial                  TI joined almost 20 years ago.                                      training) and must commit to at least 10                  While these changes have been mostly                                hours per week. We will provide access                  for the better, we are still struggling                             to the various software programs in a                  with the hiring and training of new                                 secure computing environment.                  financial planners. I see it every day as                  CEO of New Planner Recruiting, each                                 FIRM OWNERS                  semester as an adjunct faculty member                                 •  Be able to leverage your internal team                  at the University of Georgia’s financial                               by outsourcing data entry and initial                  planning program, and as a certified   and data migration services to indepen-  review work, leaving  your  team  to                  financial planner with a local RIA.  dent planning firms.              higher-value activities without hav-                    Many  of  the  smaller  independent   We have experienced planners profi-  ing to hire a full-time employee.                  RIAs don’t have the infrastructure,   cient in each of the most popular finan-  •  Give back to the profession by                  desire or bandwidth to train their new   cial planning software programs. These   allowing new planners to experi-                  hires. Instead, they have been forced to   experienced planners are teaching the   ence what the planning role entails.                  hire more experienced planners away   hired students how to understand the   Firm owners who want to outsource                  from large financial service institutions   information they are receiving, enter the   some or all of their financial planning can                  after those institutions have trained new   data points into the software, identify   utilize our services for data entry or data                  planners out of CFP programs. This can   any information gaps, and provide a list   migration to streamline their business.                  work, but it hardly moves the needle if   of basic red flags/opportunities for the   If we can increase the number of new                  we are going to continue to grow the   advisor  to  consider  as  they  create  the   planners who have deep data input and                  independent advice channel to keep up   plan for their client.      software skills as well as a foundational                  with demand.                        Our intention is to simultaneously   planning understanding, our hope is that                    I have seen so many bright new plan-  help new financial planners entering the   independent firms will hire more freely,                  ners flock to these large firms because   profession, financial planning firm own-  allowing them to serve more clients.                  they will hire without prior experience   ers, and the public as a whole through   We estimate that each new planner                  and may provide new planners with   increased access to knowledgeable finan-  trained will help at least 50 more house-                  their best shot at being trained — only to   cial advice. Here is how we think we can   holds  seeking  financial  planning  ser-                  find out after a few years that they are   create a win-win for everyone involved.  vices. This is an exponential benefit and                  not being taught true financial planning,                           something that will continue moving                  at least from an independent standpoint.  NEW PLANNERS              the profession forward. We realize there                    Frustrated that these planners quick-  •  Earn an hourly rate as contractors.  are outsourced data entry businesses                  ly become disenchanted with our pro-  •  Receive hours toward the CFP   already in operation. We feel, however,                  fession, and seeing a good number settle   experience requirement.  that this builds a great long-term solu-                  for less-than-ideal situations or leave the   •  Possibly receive internship/experi-  tion to bridge the gap between inexpe-                  profession altogether, some colleagues   ential learning course credits from   rienced planners and firms looking to                  and I think there has to be a better way.   their college.          hire. Check out our website (www.plan-                    Sue Chesney, Carrie Jones and I have   •  Learn multiple financial planning   ningzoo.com).                  started a new venture called Planning   programs.                  Zoo, where we are hiring students pur-  •  And most important, learn and   Caleb Brown is co-founder and CEO of New                  suing their CFP education to provide   understand how financial planning   Planner Recruiting. His podcast is at new-  Adobe Stock                  outsourced financial planning data entry   is done!                 plannerrecruiting.com/category/podcast.                  46 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","CLASSIFIEDS                                                   Get on Board the                                             Winning Train�                                               START RECRUITING \& BRANDING                                              With the industry’s most credible and Influential.                       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Giachetti                      More States Adopt Advisor CE Requirements                    While many jurisdictions have adopted rules similar to the NASAA model                  rule, rules vary from state to state.                         n late 2020, the North Amer-                                    also registered as an agent of a FINRA                      ican Securities Administrators                                  member broker-dealer and who com-                  IAssociation (NASAA) announced                                      plies with FINRA’s CE requirements is                  the adoption of a model rule pertaining                             considered in compliance with IAR CE                  to continuing education (CE) require-                               requirements, as long as certain condi-                  ments for investment advisor represen-                              tions are met for the IAR products and                  tatives, or IARs. I recently sat down with                          practice requirement.                  my colleague Joe Antonakakis to discuss                               Many states have published guidelines                  CE requirements.                                                    to assist with determining whether an                    He explained that the model rule imple-                           IAR has satisfied the CE requirements.                  ments a products and practices compo-  jurisdiction, NASAA does have material   And in most jurisdictions, CE credits                  nent as well as an ethics component. As   influence with state securities bureaus.  completed by an IAR who was awarded                  of Aug. 12, 2022, three states have adopted   Given that investment advisor rep-  and holds a credential that qualifies for                  CE rules based on the NASAA model rule   resentatives  are governed on the state   an examination waiver (including CFP,                  that must be followed by the end of 2022:   level,  if/when  states  adopt  continuing   ChFC, MSFS, CFA, PFS and CIC) satisfy                  Maryland, Mississippi and Vermont.  education requirements per NASAA rec-  the IAR CE requirements, provided a                    In addition, CE rules in Arkansas,   ommendations, all such individuals —   few additional conditions are met.                  Kentucky,  Michigan,  Oklahoma,   regardless of whether they are associated   Firms are advised to check with the CE                  Washington D.C., and Wisconsin become   with an SEC or state registered invest-  provider to verify  whether CE courses                  effective on Jan. 1, 2023. Nevada and   ment advisor — would most likely be   for a particular professional designation                  Rhode Island are finishing up rules that,   required to comply with the state’s con-  will also be accepted as IAR CE credits.                  if established in 2022, could also become   tinuing education requirements.                  effective by Jan. 1.                                                REPORTING CREDITS                                                    RECIPROCITY                       In most jurisdictions, the onus for                  THE REQUIREMENTS                  IARs may be required to register in more   reporting the credits to the required                  The exact CE requirements may vary   than one state for various reasons. In most   state authority is on the authorized pro-                  from state  to state. Most  jurisdictions   jurisdictions, an IAR who is registered as   vider. Every IAR, however, is respon-                  require at least 12 CE credits per year:   an IAR in their home state and complies   sible for ensuring that the authorized                  six credits of IAR regulatory and ethics   with their home state’s CE requirements   provider reports the IAR’s completion of                  content, and six credits of IAR products   will be in compliance with another state’s   the applicable CE requirements, and in                  and practice content.             CE requirements as long as the IAR’s   connection with their firm, to maintain                    The course must be offered by a pro-  home  state’s  CE  requirements  are  as   appropriate records of CE completion.                  vider  who  is  authorized  to  provide  CE   stringent as those of the other state.  We anticipate  that other  states  will                  courses in the particular jurisdiction.  To determine whether the IAR’s   implement IAR CE requirements in 2023                                                    home state requirements are as strin-  and  beyond.  While  many  jurisdictions                  APPLICABILITY                     gent as another state’s CE requirements,   have adopted rules that are  substantially                  IAR CE requirements are generally appli-  an analysis of the number of CE credits   similar to the NASAA model rule, exact                  cable to IARs of both SEC- and state-reg-  is required, as well as the content break-  rules vary on a state-by-state basis.                  istered investment advisors. NASAA is   down of the credits.                  made up of representatives from each of                             Thomas D. Giachetti is chairman of the                  the 50 states. It has no jurisdiction over   FINRA-REGISTERED BDs, PROFESSIONAL   Investment Management and Securities                  SEC investment advisors. Although it is   CERTIFICATION HOLDERS     Practice Group of Stark \& Stark. He can be   Adobe Stock                  a voluntary organization with no specific   In most jurisdictions, an IAR who is   reached at tgiachetti@stark-stark.com.                  48 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com","Get the Right Articles at the Right Time:                                               inkAdvisor.com                                We’re making it easier than ever for you to stay abreast of best                           practices and developing stories so you can grow your business.                              • A focus on practical content and critical topics                            •  Enhanced coverage of individuals and companies who are                            succeeding \& regulations that impact your business                            • Story recommendations tailored for you                                                          Visit ThinkAdvisor.com Today!                                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