Practice Management
Navigating the Potholes On Your Road to Success edit
Monday, March 31, 2014 10:28

Tags: business planning | business strategy | managing | strategic planning

Living in Minnesota, as the snow begins to slowly melt on our roads this time of year, the roads begin to show the wear and tear from the long winter and ever-changing weather conditions. For anyone living in the colder weather states, you encounter this same issue. 

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One of the results of the changing and sometimes harsh winter weather conditions is that a large number of potholes develop on the roadways. Often, many of these potholes develop in a particular location or stretch of road.  Sometimes the potholes are extremely wide or run pretty deep. No matter the number or size, they always make for a potentially slower and more costly journey to your ultimate destination.

When we know there may be potholes on our journey, we have to be aware that the path will have some extra bumps and alter our way of driving. We need to drive looking not only at what is coming further down the road, but also what is right in front of us on the road to successfully reach our destination without damaging our vehicle. If we don’t pay attention to the road directly in front of us, we will continually hit the potholes. Over time, the constant pounding on our vehicle will result in costly repairs and time spent in the shop. When our vehicle needs repairs, we won’t be reaching any destination!

Additionally, if we drive in a hurry, only thinking of our future destination and not paying attention to what is right in front of us, we will hit the potholes. Similarly, if you are distracted while driving, we won’t see the potholes right in front of us.

Usually the roads are fixed fairly quickly. Sometimes the potholes on the roads are “patched” as a quick fix.  However, the patches rarely last and the same holes develop in the same location the following winter.  They reappear if not correctly repaired.

Watching drivers approach a section of road with numerous potholes at an intersection near my home, it is apparent that many drivers are oblivious to the dangers right in front of them!

Similarly, the potholes on our business journey are those issues that pop up and catch us by surprise or things that bog us down in terms of time and/or resources. Sometimes they pop up at certain times of the year or groups of them occur at the same time.  What “potholes” are you continuously running into on your journey to success?

When thinking of strategic planning and running our firms, we oftentimes focus on the distant future and forget to look at what is right before us, the tasks and projects needed to be focused on to solve current issues. These current issues need to be resolved for us to reach our intended future destination.  Additionally,  the day-to-day tasks that have to be done just to tread water often take our attention and energy away from the important tasks and projects that need to be done to solve issues that ultimately move our firms ahead. We often don’t notice the potholes on our journey.

Successful companies confront and fix their most pressing issues and don’t let them linger for weeks, months or years at a time.  If the potholes are fixed correctly right away, we don’t need to think about running into them.

What oftentimes takes the energy out of a business is not that there is too much work to handle, but rather that the business has too many issues that need to be resolved. Each unresolved issue ends up sucking up time and energy and holds the business back from moving ahead. Fixing our issues will free up time and energy to focus on more productive tasks and projects.

Are you aware of the potential potholes in your business that are right in front of you? Don’t be in too much of a hurry or get distracted, and most importantly, pay attention to the important issues and challenges right in front of you to reach your business destination. Fix the potholes in your business as they appear.

Build your business wisely.

CFA Institute's Stephen Horan Connects The Dots Of Performance Reporting, The Future Of Finance, And How To Build A Successful RIA edit
Friday, March 21, 2014 17:27

Stephen Horan, managing director and co-lead of education programming at CFA Institute, rocked the world of professional financial advisors at a webinar session just minutes ago. He nailed it. I strongly recommend viewing this session on replay.

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The CFA Institute is a powerful force in the professional financial advice business, and Horan was able to connect the dots linking performance reporting to marketing an RIA ethically using your investment track record.

Horan's simple explanation of time-wieghted return (TWR) versus money-weighted return (MWR) crystallizes the important differences in the two methodologies. He explained how cash-flows coming in and out unevenly affect TWR and MWR differently. It actually makes sense to use MWR instead of TWR in reporting performance of private equity investments, Horan said. That's something I never heard before and it is likely to be the crux of many investor lawsuits in the 10 decade ahead.

I suspect the reason more people did not show up for live session was the NCAA Tournament in which Duke was upset by Mercer. (Who is Mercer?)

Again, I strongly recommend viewing this session on replay.

Horan received a 4.7 rating form attendees, and comments from attendees show deep feelings about Horan's message:


Great job. It's nice to see the CFA Institute being proactive in the areas of educating the profession and the public on matters of trust, integrity & transparency.
Very informative
Very clearly presented and very useful, both for evaluating managers and understanding performance. Good support for fiduciaries!
Great stuff - want more - deeper dive into the numbers and calculations.
I thought the webinar was very informative!
I would have preferred to spend less time on performance measurement and more on manager selection.
Valuable information
I enjoyed it and was happy to see one devoted to this subject, which I do not think enough advisors pay attention to.
As Andy remarked at the very end, this was great stuff. Very informative and educational for those advisors who are interested in gaining knowledge. Good discussion and comparisons between TWR and IRR/MWR. Also very much liked the 6 categories being targeted by CFA in their "Future of FInance" campaign. Our firm has adopted CFA Institute Code of Ethics and today's webinar reminded me of why that is. These are very good people. Excellent presentation.

Excellent Information





Eight Ideas For Identifying and Improving Your Processes and Procedures edit
Thursday, February 13, 2014 11:28

Tags: business planning | business strategy | management

Every firm has something they want to improve.  Usually, the improvements involve a process or procedure within your firm.  A process is the high level view of what work is done in your organization, while procedures are the detailed steps that need to be performed to complete the process. Whatever terms your firm uses (system, process, procedure, task, etc.), just make sure everyone in the organization is using the same term for the same meaning. 

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Of the many projects and tasks your firm has on its “To Do” list to improve to become a more efficient firm, it is important to identify those involving processes and procedures that move the firm toward your longer-term goals. Some are more important than others.

To become an efficient firm, evaluate each step of every process your firm does, from the time a prospect is identified to the time a client exits the firm.

So, how do you decide which processes or procedures to focus on to move your firm ahead and how does a firm actually make progress toward improvement?

Here are eight ideas to help you identify and upgrade processes and procedures most in need of improvement within your firm and will help you become a more efficient firm.

  • Identify processes that need immediate attention. Which processes consume too much time (often because they are done manually), are potentially prone to errors or can be eliminated? Which processes does your staff complain about?  Have you asked your staff which processes are inefficient and need to be changed? Or, like many firms, do you continue to do things a particular way because “that is the way we have always done them.”
  • Dedicate time to identifying and examining each step in every process your firm uses. Who completes each procedural step in the process and is that person the appropriate person to complete the task? Should the task be delegated to another staff member or outsourced? How does the current process work and how should it work? Are there steps that are not needed or duplicated?
  • Create a process flow diagram for detailed processes. Some processes can be broken down into steps with a diagram. Using a diagram for breaking down the processes can help identify areas for improvement.
  • Can the process be measured- if so how?  Based on time, errors, or other measure. If it can be measured, it will be easier to identify improvements made to the processes.
  • The employee accountable for the process should be responsible for documenting how the process currently works, recommend changes, and provide input on where the handoffs should occur. This begins with having clearly defined roles in your firm. Each person needs to know exactly what their role is and what their responsibilities include. This is also important because it makes them feel engaged in their position and that they are contributing to the success of the firm. Ask your employees for improvement suggestions. Create a culture of based on continuous improvement.
  • Create a group of employees (preferably from different departments- operations, client service, advisors, etc) to develop improved processes. This works well for larger firms or firms that are growing rapidly. Have this group work on coming up with ideas for improving the particular process if it involves various roles or departments. How should the process ultimately be completed in your firm- to fit your way of doing business?  How will the new process improve the workflow in the organization and benefit clients now and as you grow?
  • Imbed and document the process. Make sure the new process is communicated and followed throughout the firm. Oftentimes, the new process will require changes to the handoff between individuals or departments. Document the new process(es) and/or procedure(s) in your Policies and Procedures Manual.  Make it the “Company X” way (your company way) of doing business.
  • Utilize  the features and functions of your software  to create more efficiency. Often, the various software used by financial advisors is underutilized.  There are features and functions that don’t get used that could help improve how work gets done. Additionally, it is extremely important that your staff receive proper training on the software to be able to use it to its full capability. If you are purchasing software in order to improve your firm, make sure to include software training in the software budget.

Continuously review your processes and procedures and identify those needing improvement. Select those that need to be corrected now and put those at the top of your list. Continually identifying ways to improve your processes and procedures will allow your firm to create efficiencies and build a more scalable and sellable business.

Build your business wisely.  



Vanguard, A Champion Of Consumer Causes, Embraces Hello Wallet, A Financial Advice App Aiming To Replace Financial Advisors edit
Wednesday, January 22, 2014 10:40

Tags: competitors | online financial advice | Vanguard

Vanguard has partnered with HelloWallet, a financial wellness service, to help employees save more for retirement by addressing the money pressures and behaviors that stand in their way.

HelloWallet provides personalized, unbiased guidance to individuals on managing their debt, spending wisely, and maximizing their 401(k) company benefits. It is the latest in a slow steady drumbeat of apps that aim to replace financial advisors that has gained a foothold with retail advice outlets.

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“Vanguard’s research and years of experience with millions of investors have shown that most employees simply want someone to tell them what to do. While we will continue to provide educational content and calculators to participants as important sources of guidance, HelloWallet is based on a deep understanding of an individual's needs, preferences, and behaviors, which results in more personal guidance,” said Amy Cribbs, head of Vanguard Participant Experience. “HelloWallet provides a financial wellness component that complements our educational content and advice services. We believe that HelloWallet has a sound approach that can make it easy for employees to manage their personal finances by nudging them into making appropriate decisions.”


For several years a shakeout in the financial advice business has been slowly unfolding. Companies like Vanguard and HelloWalllet are collaborating to serve the masses. If you've followed our coverage of deals like this one between Vanguard and HelloWallet, then you know these apps are making some headway. As great companies like Vanguard provide more advice to retail investors using third-party apps for the masses, they slowly encroach on prospective clients advisors might otherwise have captured.


"HelloWallet combines behavioral economics and the psychology of decision-making with sophisticated technology to examine individuals’ debt, spending, and savings behaviors, and provides incremental guidance on making appropriate decisions around those areas," says a Vanguard press release.  "Employee members currently access the service through HelloWallet’s website and mobile app. Members input their goals and priorities and add their financial information, including income, bank accounts, credit cards, retirement plans, medical and other insurance, and investments.


"HelloWallet creates budgets and analyzes trends in members’ financial behavior to recommend how they can make the most of their financial opportunities (e.g., 401(k) plan, health savings account, flexible spending account, or insurance), prioritize financial decisions, and identify ways to stretch their paycheck further," says Vanguard.


We're at the beginning of the shakeout, and these apps can't are not so powerful now. However, HelloWallet's deal with Vanguard and other deals like give lean, smart startups access to a mass market to begin to optimize its business. Over a few years, the collaboration between the Vanguards and Hello Wallets of the world will grow stronger.  Informed by the behavioral finance and the data about their users, these not-so-good financial apps will grow more engaging, and they will slowly replace more and more advisors. 


Some advisors are oblivious to the shakeout. Following one of my earlier stories predicting a shakeout, one prominent advisor posted a tweet saying, "What shakeout?" His business was doing just fine. That's because he has adapted his firm to the current environment. He's not delviering advice that's pretty worthless. He's actually providing financial planning for clients and not just managing their money in a model porttfolio. But advisors who do not provide ongoing financial management services to clients are the ones who will have to find new jobs. He's blogging. He's active on social media. If you're like that, you're just fine. In fact you're better than "just fine."


There are only about 65,000 CFP certificants in the nation and only about 60% of them actually practice financial planning. CPAs, CFAs, ChFCs, and CLUs providing maybe add up to another 10,000 advisors with professoinal credntials providing financial planning advice.  So,  for advisors who are professionals, there is not a lot of competition.


In the years ahead financial advice professionals can flourish, but brokers won't. If you obtain a professional designation qualiifying you to advise people on wealth management and if you provide ongoing financial conierge services as well as investment advice, you're getting your hands dirty and digging into their financial lives deeply, and you will do just fine through the shakeout. You're actually helping people and not just selling products.  But at the bottom end of the financial advice business -- the commoditized advcie models of the big brokerages -- will be under increasing pressure.


Continued defections of top brokers from wirehouses is one symptom of the shakeout. The most commoditized providers of financial advice services, the big-name Wall Street brokerages, are regularly losing top-level advisors who choose to go independent. Advisors at the big brokreage firms now have more to gain by not being part of a giant firm. They can create more streamlined technology and workflows suited to their personal way of doing business and rid themselves of the regulatory constraints and agenda of their corporate overlord. 


This partnership between Vanguard and HelloWallet is emblematic of the changes unfolding in the financial advice business. When you see a company like Vanguard, a champion of the consumer, integrating financial advice apps that aim to replace advisors, you have stop and think how your firm is positioned to compete.

Why RIAs And IA Reps Should Employ A CIPM Certificant On Staff Or As A Consultant edit
Friday, January 10, 2014 19:08

Ninety-seven candidates passed CFA Institute’s October 2013 exam for the Certificate in Investment Performance Measurement (CIPM®) program. That brings the total number of CIPMs worldwide to 1,093, including 647 in the U.S.

For RIAs, adding a CIPM certificant to your firm’s professional staff would significantly boost its trustworthiness, transparency, and professionalism.
For Investment Advisor Representatives (IARs) the CIPM certificate could be a valuable professional designation to boost your career.  

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“The CIPM program offers practice-based training in investment portfolio performance evaluation and risk measurement that helps industry professionals ethically evaluate and communicate investment performance to optimize results for firms and investors.” says CFA Institute’s website. “Approximately 70% of the curriculum and readings cover advanced performance and risk analysis (measurement, attribution, appraisal, manager selection). The remaining 30% covers ethical and professional standards, including how to use the Global Investment Performance Standards (GIPS®). Successful CIPM candidates include financial advisors, investment consultants, portfolio managers, investment performance analysts, client relationship managers, marketing managers, compliance officers, and risk managers, among others.”
For IARs and RIAs serving the private wealth market, engaging a CIPM designee as a consultant or hiring a CIPM as an employee should open significant new business opportunities and boost your firm’s value.  
“As confirmed by a recent global Investor Trust study co-produced by CFA Institute, trust is the most important consideration when an investor hires an investment manager,” according to Rahul Keshap, head, Program Management at CFAI. “These new CIPM certificants have demonstrated that they are deeply knowledgeable investment performance professionals committed to their clients’ best interests and their own professional excellence. By mastering and promoting high ethical and professional standards, they are already making a difference in restoring trust in the industry, and we congratulate them on their achievement.”
Trust indeed is the foundation of all client relationships and the most important reason for RIAs to work with a CIPM. While trustworthiness is an intangible, its foundation is more concrete.  
Hiring a CIPM as a consultant or encouraging a member of your professional staff to earn a CIPM designation would enable you to differentiate your RIA meaningfully from other. You gain a significant marketing advantage because you boost your trustworthiness in a demonstrable fashion.
CIPM certificants know how to make an RIA’s performance reports comply with CFA Institute’s Global Investment Performance Standards (GIPS). Reporting on a Form ADV that your firm’s performance reports are GIPS compliant and created by a CIPM is objective evidence of professionalism. It builds trust.
Even more important, GIPS compliance enables an RIA to advertise investment performance. This is not to be done cavalierly, of course, but it is not so difficult once you are GIPS compliant, and the marketing benefit of being able to report investment results publicly is huge. GIPS compliance is an act of transparency that inspires trust, which is marketing gold.
This is not to suggest RIAs market based on a performance track record. Performance is usually too fleeting for an RIA to build its brand on. Delivering alpha is probably not the best main focus of an RIA’s branding, advertising and brochure.
However, being able to send a brochure showing your investment results over the last five years without worrying about of violating advertising rules will differentiate you, especially if you explain the expense your firm went through to be able to report performance in compliance with the worldwide GIPS standards and why it is important to clients. It shows a commitment to building your firm based on transparency and trust.
Stephen Horan, Managing Director and Co-Lead, Education at CFA Institute, answered questions about CFAI’s CIPM program in an email exchange and interview with me over the past few weeks.
Horan says the CIPM program started in 2006 but only recently was it promoted by CFAI. It has evolved from a program focused in verifying GIPS compliance to one in which CIPMs help portfolio managers understand their performance. “The knowledge that the program developed is relevant not just to performance analysts and GIPS verifiers but is exactly what a consultant, private wealth manager, and portfolio manager need to know to make informed investment decisions,’ Horan says.
David Spaulding, CIPM, founder of a leading GIPS verification firm and a pioneer in the field, says wealth managers serving retail clients are starting to become more interested in GIPS compliance. Spaulding, who publishes The Journal of Performance Measurement,   says the demand is very different from the institutional arena. “Anyone managing money in the institutional market virtually has to comply with GIPS and there is no marketing advantage to complying because everyone wh9o wants to manage money for institutions and endowments complies,” says Spaulding. In the private wealth market, it is not being driven by clients because clients don’t know about GIPS. “But if I am an advisor and I am sitting across from you and your wife, and I say we comply with GIPS and that its been adopted by 35 countries and ti is recognized as a best practice and insures  I am providing full disclosure and the other RIAs you and your wife are considering have complied with GIPS,  I have an advantage because this is best practice.” He adds, “Bernie Madoff was not GIPS compliant.”

Amy Jones, CIPM, says she founded Guardian Performance Solutions in Sacramento, California,   in 2013 to help RIAs create the infrastructure, written policies and procedures to comply with GIPS. Her firm does not verify GIPS compliance because it would be a conflict of interest to both verify GIPS compliance for an RIA that she helped set up to comply.

GIPS compliance, for RIAs who read A4A — fiduciaries serving private investors with $50 million to $5 billion AUM — is in its infancy. But there appears to be two kinds of firms: GIPS verifiers that earn annual fees for attesting that they have verified that an RIA is in compliance with GIPS, and firms that only on a project-basis help you establish a GIPS compliance program at your firm. Spaulding, a guru of the CIPM profession, is best known as a GIPS verifier, while Jones is a GIPS setter-upper.  (Sorry for the technical jargon.)
Jones, who will be a speaker at an upcoming A4A webinar, says an advisory firm that has been downloading and scrubbing client account data daily for many years to provide performance reports will probably not face too difficult a time in becoming GIPS compliant. “If they have the data in their performance software, it’s just a matter of assigning a composite to each account,” says Jones. “In the last year I’ve had quite a few wealth managers reach out to me who fit that bill.”
Jones says that performance software does not ensure compliance and properly calculating returns is only one aspect of the prerequisites in complying with GIPS. She says RIAs are becoming more willing to take on the cost and risk of claiming GIPS compliance because they are finding ways to benefit from that effort.




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