Compliance, Operations And Marketing For Advisors Going Independent Hot
Andrew Gluck: Good afternoon everybody and welcome to the inaugural debut event of the Advisors Going Independent Webinar Series. Thank you for joining us on this day, October 14, 2009.
This is Andrew Gluck. I am the founder and Editor-In-Chief of Advisors4Advisors which is producing this event. As I said, it is the first such event that we are planning that’s directed at advisors going independent.
I’m going to introduce our guests in just a minute or two. What I’d like to do first is just mention Advisors4Advisors. Most of you probably don’t know anything about that. It is a practice management website for independent advisors and every day Mary Rowland, a former New York Times columnist—she wrote the Personal Finance column for the Times every Sunday for about a decade—Mary is, every day, finding the news going on in the world that advisors need to read – economic news and industry news. I’m pulling in tech news that you need to see.
Every day we have bloggers – people like our guest speakers today, including myself, Blane and Chris, these are industry experts, specialists in particular areas, that can help you with practice management. The Advisors4Advisors also lets you connect to a social network of advisors who practice just like you.
You’re asked when you register which applications you’re using and as a result of that, you’re put into forums, groups, and able to chat with advisors just like you. That’s why we call it Advisors4Advisors.
We also have reviews of advisor software and you’re able to get CE credit for replays. So just to show you the site real quick while people are coming into the webinar here, this is what the site looks like. I’m just going to show you one section for now. This is the Review section.
If you want to find out about Financial Planning Software, you just click on Financial Planning and if you want to compare NaviPlan Extended to another Financial Planning application, you could just pull down which application you want to compare it to and you’re able to do it very quickly, very easily. So it’s kind of like C-Net or Edmunds. What those sites have done for cars, we’re now doing for Financial Planning software and you’re able to see side-by-side the pricing, but more importantly, different features.
So you’re able to get very granular information about each application and what its capabilities are. For instance, in insurance, on estate planning, you can see very easily what each financial planning software’s capabilities are. So please check out Advisors4Advisors. It’s just getting started. We’re still in beta. The community is just being built. This is an opportunity for you to —especially if you’re trying to go independent—for you to learn about the profession and being independent. This is a great resource for you.
The agenda today: we’re going to first introduce our speakers and then we’re going to have Chris Winn speak about compliance, Blane talk about Operations, and then I will talk about Marketing and Client Communications.
Chris Winn comes to us out of the Boston area and Chris is the co-founder of a firm called AdvisorAssist which supports start-up and existing independent investment advisory firms. He provides specifically regulatory compliance consulting, but he also consults on a number of other areas. Chris has a 17-year track record in compliance.
Our other speaker is Blane Warrene and Blane’s picture – we’re going to get him a new picture. I promise. Both Blane and Chris, by the way, are bloggers on Advisors4Advisors. The blog part of Advisors4Advisors is really outstanding and partly owing to the contributions of people like Blane and Chris.
Blane has been a technology innovator in the industry since 1991. He has a long track record of developing software and managing technology teams and operations teams in this industry. I’ve worked with Blane. I’ve seen him in action personally and he’s got a great deal of knowledge. Check out both of their blogs on Advisors4Advisors where they’re sharing their ideas.
And this is me last year in Capri with my family. We visited the Mediterranean. That’s me. I am the founder of Advisor Products which is a marketing and client communications company. We host around 1300 websites for independent advisors and build brochures and client newsletters for hundreds more.
In addition, I recently started Advisors4Advisors and I am also Editor At Large for Financial Advisor Magazine. I started my career, actually, as a police beat reporter and then just through a series of bad luck, I suppose, I began writing about personal finance in 1993 – ghost writing a column for AICPA (the American Institute of CPAs). I missed newspapers and went back to writing for newspapers. I went to the New York Daily News and then on to Worth Magazine before in 1996, striking out on my own.
The names over there – Mindy is my wife. Alison is my daughter is a freshman at University of Wisconsin, and Jason is a junior in high school.
That’s all you need to know about us, I suppose, for now. What I’d like to do now is I’m going to turn over the controls to you, Chris. I hope introduced you okay. We’ll get to hear you talk about compliance and the main things that advisors need to know when they want to go independent. So Chris, please take away.
Chris Winn: Great, thank you for the introduction, Andy. Welcome everyone. My firm, AdvisorAssist, as many of you are dealing with out there, helps a lot of folks go through everything from the decision process on whether or not to go independent, and then the myriad of options that you have there once you make that decision.
Going independent can be a very stressful time. There’s numerous decisions to make and many moving pieces, but it’s not something that has to be a daunting task. Like everything else in life, you can basically create a process around it and chip away at the milestones and take your successes as you move along through the process.
Really what we’ll talk about here – I’m going to talk a little about the process and the workflow of going independent, and then some of the compliance considerations and other things that you need to think about there. In addition, we’ll chat a little bit about the technology and then I’ll pass it along over to Blane who will get deep into the back office ops and other technology components there.
So moving along, on the business planning side there’s a number of decisions. Not only do you have to figure out what’s best for your clients, which type of model do you need to go with, whether you’re going to go completely to a fee-based or fee-only RIA, or if you’re going to continue to affiliate with an independent Broker-Dealer from a hybrid model. But there’s other decision – everything from what technologies you choose, how do you set up your infrastructure, what custodians do you select. The real important thing here is that all of these are really intertwined decisions so really thinking them through is very important.
Later on, if you have any questions about these components here, please feel free to post questions and Andy, myself, and Blane will try to help. But I’m going to dig into the background of each of these there.
So where do you start? Just like any business, you really need to start with a plan and in building your plan, they key components are developing your course of action, getting a budget around it, and of course, a timeline.
With all the various alternatives out there, whether you affiliate with another independent Broker-Dealer, you partner with another RIA, or you create our own RIA, there’s going to be numerous decisions that you need to make and very many tasks across the timeline there.
The one piece of advice I’d just give everybody is get as much help and advice as you can and I don’t necessarily mean that you have to go hire somebody to help you through the process, but leverage existing RIAs that are out there, mentors, the regulators, friends and other industry professionals, and other resources. Places like Advisors4Advisors is a wonderful place to go in and not only find out what other people are doing, but post questions where you’re going to get industry experts that can actually help you to answer your questions and move you through your process.
The goal here is to help you make the right decisions and make them once so that you can have the most effective process possible.
The last point here is it is a process. Don’t expect to do everything in one day. The regulators and other components of this are going to take several months, so pace yourself, get the key things out of the way and allow yourself plenty of time to think of the other items there.
So let’s jump in.
One of the first things you need to consider is what does your firm look like? Do you anticipate that you’re going to be registering with one or more of the states or the Securities and Exchange Commission. Primarily, that will be dedicated by your asset size or some of the services that you’re offering. For instance, if you are the advisor to a mutual fund you will be required to register with the SEC. Otherwise, if you’re assets are generally $30 million or less, you will be a state-registered advisor with kind of a swing range there from $25 million to $30 million where you have the option of either going with the SEC or the states.
One key thing to point out is that if you are a state-registered advisor, you essentially have multiple regulators if you are doing business in more than one state. I’m in Massachusetts here, so if you’re in Massachusetts and you register in another state, that other state is also your primary regulator, so you have two people that you need to answer to. From a practical standpoint, that’s not that big of a deal, but just recognize that there’s a lot of differences from state to state in terms of the requirements as well as the burden of making sure you’re keeping up with all of your ongoing requirements in each state.
From a registration standpoint, there’s some core documents and processes that you’ll need to follow. You’re probably all familiar with the various forms, but if you’re not, the SEC website (www.sec.gov) has a lot of good information as well as our website, www.advisorassist.com, and it kind of distills the details behind each of these. But generally, Form ADV Part 1 is going to be filed online and it’s really the background information of your firm that the regulators require for mostly statistical purposes. Part 1B is state-specific and that requires additional information that various states will require in terms of registration.
The Part II is really the meat of this here. Your Part II is also referred to as a brochure and that’s going to be handed out to each of your clients and it has to be provided to them at the onset of an agreement, as well as offered to them at least annually.
The Schedule H is less common with a Registered Investment Advisor having a Wrap Brochure because generally what it does is allow you to package up fee-based accounts. But as an advisor, you often can do that without having to go through the process of a Wrap Brochure.
From a timeline perspective, generally the states and the SEC have 45 days to approve or deny an advisor’s application and of course, the regulators are there to protect the interests of the public. They’re not there to prevent you from getting registered, but of course, they need to go through all the various paces in terms of validating your business model, your disclosures, the potential risk that’s out there for you to do business, and certainly to make sure that you don’t have a background that would put the public in harm’s way. That’s generally why they have the 45-day window.
That said, seasonally, sometimes they’re much more swift than 45 days, but you really want to build in a timeline or a cushion. So if you’re going independent, you really want to basically bake in at least 60 days into your overall process from end to end to make sure that you have preparation time for all of your materials and then basically the time to deal with the regulator, where most if it is going to be waiting time – waiting for them to get your turn in line for the review of your application.
Generally what we advise people to do is to try to front-end load their process as much as possible. By doing that, really what you do is focus on the registration components that the state or the SEC require initially, so that you can get a solid application in that basically describes your business model, how you’re going to charge clients, your investment philosophy, and any other particulars around your business or conflicts of interest.
With that 45-day window, after the states have the information, the waiting game starts. There’s your opportunity to now – as I said, pace yourself – there’s the opportunity to focus on all of the other components there.
Just a couple of quick things that I threw in here. The fees are all over the place state to state. Some states don’t charge anything, and other states are getting you for $400 per year. I’ll add the other component that they’re not prorated, so for those of you that are going to be starting your business late in December, just be mindful of the fact that on January 1st, they’re going to be deducting those fees again – and actual prior – from your account.
The last component here expect feedback from the regulators. They’re basically, as I said, they’re there to protect the public. They will comment on your application and they’re only mechanism for doing so is a deficiency letter. So if you get a deficiency letter in the mail or via email, don’t have a heart attack. It just means that there’s additional disclosures and things that you need to do to complete your application.
The Investment Advisor Representatives, whether you’re registered with the SEC or the states, you need to register each IAR with the states in which they’re doing business, but that doesn’t mean that every IAR in your firm needs to be registered in every state in which your firm is registered, so you can be selective as to which employee’s doing business in which region now.
But generally speaking, the requirements for an Investment Advisor Representative is one of the qualifying examinations, the Series 65 or 66, or an exemption from that which is typically an advanced designation or degree such as a CFP, a CFA, a CHFC and some others that vary state to state. Again, each state is going to vary in the information that they require from you from fingerprints to a balance sheet, to background checks and other information. And a quick tidbit – depending on what geographic region you’re in and what state, the fee’s are going to range $0 to $285 per Investment Advisor Rep per year (and again, they are not prorated).
Before we wrap up, if there are any questions on the actual registration process, you can please let us know. We’re happy to answer those, but there’s really two core things that you need to do from a compliance and regulatory perspective to get up and running and the _______________ we have here is designing a compliance program that’ designed to prevent and detect and then if, unfortunately, it ever happens, to correct any violations of State and Federal Securities laws.
So there’s a number of core components in there. This list is certainly not exhaustive, but some of the more common here. The core of this is really going to be your written supervisory procedures and that document should be a living and breathing document that grows with you as your business grows and not just something that you picked up from a friend who’s an RIA who had an attorney draft something. It really needs to reflect what you do, not every possible scenario. So some of the regulators have actually made examples of some RIA firms in recent months where they picked out things that are in the manual where they say they do something that they can’t live up to. So it’s more important to have a manual that reflects what you actually do than it is to have something that’s fully exhaustive of every possible scenario.
The other item is your Code of Ethics. I’m sure everyone on the phone has probably signed one of these to date and those potentially breaking away from wirehouses, you know that this is an area that they pay particular attention to. The Code of Ethics is generally going to be the guiding principles of your firm and how you deal with clients and conflicts of interest, so put some time and effort into that and let that, again, be a growing document as you evolve your firm.
The Privacy Policy, you know, Regulation ST is one of the core rules out there that you’ll need to follow with respect to protecting your clients’ personal information, their data, and other components.
Blane will talk a little bit about Tech and Ops, but one of the things to consider when you’re picking various technologies is to ensure that you’re basically providing technologies where you can have a reasonable assurance that you’re protecting your clients’ data all the way through the life cycle of managing the client from where they’re an initial prospect, all the way through to them being an ongoing client of yours.
The other thing about the Privacy Policy, it is required that you provide that at the start of an agreement with a client and then you have to provide that annually to the client as well.
The Business Continuity Plan is another document that probably everybody’s familiar with, but you probably have a different perspective of how important it is and how you should integrate it into your business. Many of us come from the large organizations at one point or another in our life and the rule was generally writing around the 100,000-person firm, the 10,000-person firm, and some of you might be thinking, “Oh, business continuity; I’m a one-person shop.”
Well, the law still contemplates that you have to follow the same steps, but generally what we advise people to do with the Business Continuity Plan and similar to some of the stuff that you may hear from Blane on the Tech and Ops is design an effective operating model where your technologies are integrated with each other and you have a good data model and operating model for your business. Then what you really do is you’re transforming that business continuity model more into the 90% of what you do, not the 10%. So make it more of an operating model for your business. How do you run your business? How do you protect your clients? How do you access your data? And if you do it that way, you’ll not only have a useful document and a tool, but you’ll probably be more effective overall.
I kind of touched on the books and records along the way here, but the key thing to take away is books and records in any form, whether they’re physical or electronic, need to be retained for your business. That means everything from emails back and forth to clients to your own financials to decisions around trades that you may make. Generally, each record is required to be kept for a period of five (5) years from the date of the last interaction. So think about that for a minute now and think about emails. How often do you have the situation where someone replies to an email string that was a week ago, a month ago, or a year ago?
Essentially, you could be retaining information for significantly longer than a five-year period, but really the core thing to take away here is that you have to have a plan. You’re not required to have everything in physical paper files, nor are you required to have everything electronic, but what you are required to do is to have a methodology and follow that methodology and be able to produce the documents not only to evidence the strength of your own compliance program, but to meet any of the regulatory requirements as well.
So I kind of covered email monitoring and retention in there, but that’s an important component that we should talk about a little later.
The last thought here with respect to actually designing the program itself is again, back to that example. Don’t try to make it a cookie-cutter program because it just won’t hold up. It needs to be reflective of what you do and it needs to evolve when your business evolves.
On an ongoing basis, there’s also a number of things that you need to do to maintain your firm. Some of the most notable things don’t really need to be a major burden.
Each firm is required to have a designated Chief Compliance Officer. That Chief Compliance Officer does not need to have any special qualifications. They only just need to be a knowledgeable person that has the ability to actually effect change in the firm; so basically, the ability to find a problem and the authority to fix the problem. So many of you may be one-person firms and you will also be the Chief Compliance Officer. So with that on an ongoing basis, you’re going to have a number of requirements as the Chief Compliance Officer that you need to follow for your firm.
First and foremost, you always want to make sure your registration remains effective. The states are always going to be looking for their fees and generally an email should go out to you towards late November, early December timeframe as a reminder. But if it doesn’t, not getting an email is not a defense for not having your individuals signed up. So the last thing you want to be is accused as practicing as an Investment Advisor or an Investment Advisor Rep without the proper licensing. The states can levy heavy fines on those and they can even shut you down, so by all means, that’s something you always need to be thinking of there.
The next real component is making sure that your compliance program continues to be effective. In order to do that, there’s a couple schools of thoughts with this. You can do an annual assessment or periodic assessments of your compliance program and really turn over every stone and think of all of the various components, go out and visit each of your service providers, look at things such as SAS-70 reports prepared by independent audit firms on various service providers, and then go through and do a one-time review of your policies and procedures. That’s one approach that many advisors take.
As you can imagine, if you wait until the last minute to go do a year’s worth of work, it’s going to be a lot of work. It’s going to be frustrating. So really what the best approach to do is to develop a compliance calendar that really puts out on a rotational basis all of the core tasks that you need to take care of during the year and just manage it as part of your operations.
A good example would be testing the books and records of your custodians to ensure that they continue to maintain transaction journals and position history and so forth. Instead of going through and doing an exhaustive forensic test at the end of each year, when you go in to do your fee billing, take random sample accounts and go try to look back over periods of time and pick Mrs. Smiths’ account and try to find it for last March and see if you can pull up all of the detail that you need and various quick checks that can take the burden off the compliance, but really still give you the comfort that all of the folks that you’ve delegated to are actually doing their jobs effectively.
The other part is maintaining your infrastructure – your manuals, your contracts, your Business Continuity Plan, all of those components. Things will change and you need to make sure that your documents change with them. So you need to schedule and block off some time at least once a year either to do individually or receive some assistance to go in and review and make sure that all of these things that are the cornerstone of your compliance do still meet the Securities laws and more importantly, actually what your business model looks like.
I basically just talked about the service providers there. For any of your service providers, you want to be checking in on them on a regular basis to make sure that they continue to provide the level of service that you would expect for your clients and to ensure that there aren’t any potential regulatory issues, privacy concerns, or anything else of that nature. So items like a SAS-70 report and so forth are great.
In the interest of time, I won’t go through all of the details of the other items here, but one key thing to mention. Advertisements are very different from the FINRA regime. As you’re used to on the FINRA side, some of you, the advertisement is usually a preapproval process and that can take the form of anything from a website, a mass mailing, a firm presentation, or even some tweets out on Twitter.
With the RIA, it’s a principles based approach. The foundation of it is truthfulness and accuracy. There are some disclosures that you’re going to want to put in various things — advertising pieces especially if you do performance advertising, but generally speaking, you’re not getting this preapproved by anyone, so you really need to understand what the rules are in order to do this effectively.
Excellent. I’m going to pass this over to Blane here and if there are any questions at the end, please send them on.
Blane Warrene: Thanks, Chris, and thank you Andy, for the kind introduction.
Andrew Gluck: My pleasure; go ahead.
Blane Warrene: Alright, thanks. Welcome everyone. I think this should be a good follow-up to Chris who has certainly laid the foundation for how you can structure your new firm.
Where I’m focusing is to take and build upon the foundation that Chris lays with the structural systems and some of the structural technology and processes you have to put in place and that would mean you’re also frequently either yourself or with a team, establishing a staff and you need a front office client-facing set of processes and systems.
Getting started on solid footing, before you look at any particular solution or vendor, there are a couple ideal thoughts to keep in mind and one obviously is that you start with a strategy and a plan. Frequently you already have a vision coming out of the firm that you’re exiting from to build your new business. You have a vision in your mind of where you want to be and how you want this to look both when you hit the ground as well as where you’d like to be looking out 36 months or even five (5) years.
A couple of things in the independent world is that there really is no “Swiss army knife”. Frequently you may be coming out of an organization where everything was in silo or one bucket and available for you a thumbprint away. You can recreate that same environment for you and your clients, but frequently it’s not from one sole provider.
As Chris mentioned, one of my mantras is integration and you’ll see as we progress through these slides that integration is probably one of the single most important components of building your systems in your new practice. In my own philosophy just from my experience has always been to keep it simple. I myself have gotten drawn into whether it be existing technology or exotic technology and I’ve kind of overstated what I want to accomplish and I forgot that there was some fundamental processes and workflows that I needed to achieve and you can get lost in the mix and sometimes even make a bad vendor choice. So keeping it simple really ties back to having your strategy and plan document.
And then training, you can never have enough. Frequently I’ll spend time with businesses who say “These programs just don’t work for us,” and we take a slightly deeper look into a practice and the programs and we find that perhaps that there was only a leveraging of five (5%) or ten (10%) of the solution and that really the answer was in the existing application and it was a matter of training and finding a way to map what you and your staff do over to the program. So these are really key steps to think about as you proceed.
From a strategy and a planning perspective, I’ve drawn a diagram that I’ve used before and this is a frequent thing that I do is assemble kind of a very broad high-level workflow to lay out what a practice can look like with the tools that they’re choosing. And this could be seven (7) or eight (8) different vendors paired together, or it could be one or two, depending on your particular business.
Having the strategy and a plan really helps you make sound decisions when you move to due diligence with vendors and you don’t have to draw a diagram like this. I’ve literally sat on the back of a notebook or a cocktail napkin and drawn little boxes and mapped out “here’s your CRM; here’s your Financial Planning; here’s your Analytics.” So it doesn’t have to look glorious, but it has to be a sound plan that maps back to your vision. So thinking through what happens in your practice, Chris laid the ground work and now you’ve got your registrations and your clients are set because you’ve got the proper documents in place to proceed and now you need these mechanisms to move forward and process business. So from an operations perspective and more so leading into what Andy’s going to talk about – a marketing perspective – you need some systems that can pivot back and forth and handle those workflows, whether those are new ones that you’re just designing, or old ones that you’re brining with you to your new business.
So on this particular example, we’re looking at some of the key points where you interact with your clients on the back end and frequently also then, they interact with your systems to get information and you’ll be able to look at this in more detail at a later time if you look at the slides. I believe that this evening they’ll be up on www.advisorsforadvisors.com.
You can see from this diagram also that each integration really comes into play here because if you establish a set of vendors that solve these problems, you want to be able to work through these applications in collaboration and conjunction with one another to get business done.
As I mentioned before, there really isn’t a Swiss army knife of a single vendor that can answer all those solutions at once. You really want to focus in the independent space on those vendors who have picked a major and said, “This is what we’re expert at. We know how to deliver financial planning to you,” and one thing I’ll say about the independent space – in the past five (5) to seven (7) years these tools have really matured not only from a technical perspective, if I step back and look at it from a technology view, these tools have matured phenomenally from the perspective of business continuity, security, back-up, redundancy, and reliability. Five (5) years ago, seven (7) years ago, most people didn’t even blink. If someone tried to sell you a web-based solution, it was a pretty tough sell and now there are a lot of folks literally giving up all of their software at the server level in their offices and saying, “I can outsource this and control my costs and still have confidence that this is up 99% of the time throughout the year.
So at least from a technical perspective, these vendors have matured and even perhaps more importantly to you as a business owner, they’ve matured on the business side. So they may have come at it and said, “We know how to build technology for you,” but over the last seven (7) years of working with independent practices, they’ve also almost got a minor degree in your business processes, and those are showing up in their programs and that understanding of not you buying the program and doing it how the vendor thinks you should, but the vendor actually catering the program to how you work. Many of these programs can be that flexible.
Certainly there are a number of processes you need to define and I list those out here. It’s a natural graduation that when you define these processes which in all senses, are your requirements for what you need as a vendor. They map pretty naturally down for the tools listed below, so CRM, planning, reporting, research and analysis. So it’s an interesting and fairly straight forward exercise to go through and it helps you to approach vendors when you go into due diligence mode with a lot more confidence that I know what I need. I now need to find a solution that maps to it.
As I mentioned before, integration is central. My mantra is enter it once, don’t touch the data again and I use an extremely elementary example here. There are a number of examples we can go into and I’m certainly willing to answer any questions about that. But just at its simplest level, a prospect is entered in your CRM system. When you convert that prospect to a client, there’s a number of human steps you’re going to take, but there’s also a number of technology steps you’re going to take. It needs to get to financial planning. You need to be able to load previous statements and other data into a research and analysis tool, and then you need to be able assemble a deck of paperwork that that customer will approve and ultimately that you’ll manage for them.
The idea of integration is that you should really only enter the core information once and then it should then syndicate its way across all the solutions used, and there are a number of applications that as a part of that maturity process they’ve gone through, they’ve opened their eyes and realized, “We need to integrate with as many partners as possible.”
When it comes to simplicity and training, these two really would be the next things that I evangelize after integration and that is, if you stick to your plan, you documented your processes, you’ve written your requirements. You know what you need to run your business. Stick to your plan. It delivers not only simplicity for you when it comes to working with vendors and executing business on a daily basis, but it delivers consistency to clients as they come back to you repeatedly, whether that be in the review process, subsequent business, or bringing in referrals or other family members, there’s a consistency and a confidence that that delivers out to them. It’s very subtle, but it’s also a very strong thread that you deliver to your client.
On the training front, absolutely these vendors will offer you a multitude of ways to train. Many components of that is free of charge, but I would also urge you to consider looking at the components that come from some of the vendors for a fee because frequently that’s what introduces your team to the more advanced approaches to dealing with their solutions – and especially when it comes to integration. There’s a good natural graduation you can go to as you ease yourself into this new business and into these new solutions. You can scale and grow very confidently because you know you’re following that plan.
And then this really circles back to something that Chris said that I think is really critical, and that is that I would take a look annually at both your internal processes, as well as your providers and really do – whether it be informal or formal – really do a scorecard – not just yourself as the business owner and the principle, but with your team and really identify and communicate amongst yourselves, “How can we continue to grow efficiently”, and more importantly, your vendors need to know what they can put on their roadmaps to change. So there’s a lot of opportunities there and that really circles back to training because it keeps you in touch with your providers and keeps your staff up on the latest releases from them.
With that, I’d like to pass that on to Andy.
Andrew Gluck: Again, I’m Andrew Gluck and my company is Advisor Products and we’re going to talk about once you become an independent advisor, what are you going to do to communicate? What are you going to do to market? That’s what I’m going to focus on for the next few minutes here.
I think the first step, now you’ve got some operations issues tackled. You’ve obviously gotten the compliance part tackled, but almost simultaneous with all of that, I think you want to start thinking as you go independent, how you’re going to reassure your clients.
You just moved from a corporate giant perhaps – likely – to your own firm and your clients are going to need some reassurance. So I think the first thing you’ve got to do is plan that you’re going to call each and every client and talk to them about what you’re doing. You want to make a list of the people that you have to call first and if you’ve got too many clients to call each one, you want to figure out that you’re going to send a letter to them. You want to put that letter on your new stationary, and you want to give them a URL to your new website when you do that.
So I took a couple of ideas on resources for helping you with the content that can help you assure, if you’re an independent advisor, that your clients are not going to be all that concerned. You’re going to be able to allay their fears about your going independent.
The resources that I thought of – a couple of them are actually from TD Ameritrade. One thing is TD Ameritrade has a site – and these slides, by the way, we’ve circulated the link; you can download these slides right now and the replay of this webinar, incidentally, will be made available from www.advisorsforadvisors.com, so you’ll be able to replay this or tell your friends who are interested in going independent, to replay this. But this is a great little resource – an Advisor Education Kit – because it doesn’t just educate advisors. It can help you with materials for your clients. There’s a PowerPoint Presentation here explaining the difference between brokers and RIAs. So check out that site to help you build the client communication materials that you need when you’re first moving independent.
Another resource that I want to point out for you: we produce a webinar every Friday at 4 p.m. EST and you can do a replay of that webinar by going to Advisor Products and you can see it for free on Advisors4Advisors. I believe that one is eligible for educational credit. What you want to check out is this one webinar that I did with Brian Stimpfl because Brian, in that webinar, spoke about this letter – and this is in slide number 5 that’s posted on the webinar page, so you can just download the slides here and you’ll have that link – but what you can see here is Brian actually produced a letter with some good content you can pass on to your clients to reassure them when you go independent telling them about the SITC protection that you now have with your custodial firm.
You want to make sure that your custodian is offering the same set of services, but as an independent advisor, as an RIA, your custodial firm is key to helping you reassure your clients and looking for information like what’s available here in this letter, I think is really important.
Another resource for you, I just want to point that out – I’ve actually blogged about this. You can check out my blog on Advisors4Advisors. I did a blog a few months back on ways that RIAs can reassure their clients. This is amid the scandal that occurred. So please check out my blog. There’s a blog in which I interviewed Mark Tibergien, who heads Pershing Advisor Solutions and Brian Stimpfl of TD Ameritrade Institutional. So those are just some ideas for resources for creating the content that you need to reassure your clients.
Another thing that can reassure your clients is just establishing your own brand. While to some degree I have to admit that these things are somewhat superficial, anybody can make a logo, but having a logo is going to instill credibility. It’s going to make you look larger as a firm and so that’s really important that you get that tackled early on.
Before you create any materials such as a website, a brochure, a client newsletter – before you do any of that, you really want to create a logo. And before you even create the logo, I’d suggest that you write your marketing copy. Now, I know that you’re not writers and that that’s a daunting task and I can offer some help. My company actually, Advisor Products, make something called a Marketing Copy Catalog. I’m just going to open that for you to show you how that works.
This is template copy and what we suggest is that you – and this can be used in your website or brochure – and you go into the Table of Contents and you can pick, based on your needs, the types of copy blocks that you want to use. So you just use the Table of Contents and you say, “Oh, I need something about being a multi-professional firm with a CFA and a CFP in house,” and voila, you come to the page with those copy blocks. So this is a way of getting marketing copy that really speaks to clients of independent advisory firms, and then you customize that yourself.
You can take that copy, use this as a base, and there are copy blocks about investment management. There are copy blocks for fee-only firms. There are copy blocks for all types of firms, whether you manage money in index funds or individual stocks. There are copy blocks about financial planning, Monte Carlo simulation, and the idea here is that you’re going to use that as a basis for starting the process of defining your value proposition to clients. That’s going to be really important. And what happens is, that’s helps you establish your brand. And I would do that before you even tackle the logo, you want to do the marketing copy because what you’re going to find is that your brand will kind of bubble up from the ideas that you want to communicate in the marketing copy. So before you create the logo, work on the marketing copy, then you’re ready to start thinking about a website and brochure.
Websites for financial advisors, you could go with a local firm. A lot of local firms want to design your website, of course, and the challenge is going to be that they don’t have the kinds of tools that you may need – not always – in fact, not ever. What I mean is, if you’re looking for a website with a client vault that is secure, you’re not going to be able to get that from a local firm probably. There are other companies out there that offer vaults and you might want to look at that in putting it all together.
But if you’re looking for a website where you can provide online performance reporting using any number of popular performance reporting products, you’re probably going to have to go to a specialist firm like Advisor Products. The other tools that come with a marketing website are things like a compliance engine that can be hooked into a Broker-Dealer if you’re FINRA-regulated as well as SEC-regulated – if you’re dually registered.
Automatic website archiving for an RIA is very important. It will really streamline your ability to meet the advertising requirements imposed by the SEC and FINRA. You’re able to add pages easily to your website by going with an established web vendor that is dedicated to providing websites to independent advisors.
Generally what you’re going to find is custom websites are available. You can go to our website and see samples of them. You can do custom website development or you can do template website development. To see samples, just click here and this will show you how there are so many different ways to go with your website, and they all look different. They really do. And they’re all providing content, hopefully, and that’s really where you want to go with it is providing relevant information that clients will value from your website.
I’ll just show a few quick samples of custom websites just to give you an idea. Looking at custom web development may be the way to go. If you’re on a tight budget, then hold off on doing it and consider doing a template website. It’s easy to establish your brand. You can see the difference, quite frankly, but they come with a very kind of limited set of design values, but you can do a lot with them. So there’s template versus custom website development, so you want to check out that.
Another system that I want to alert you to is something called a Client Portal. This is new technology that – and I’ll show you briefly how this works. You can go to our website and there’s a link in the slides to see all of this, but this is new technology that is just beginning to get adopted in the independent advisor arena. The Client Portal System – and I have all kinds of applications running – integrates the different applications that advisors use to manage their practice.
So over here what you’re seeing, this is actually an integration with a CRM system called Redtail. Redtail is a very popular CRM system and one of the reasons it’s popular is it’s a web-based system and it’s very flexible and you can do things like this that I’m showing you here. This is a display of all of the things that the advisor has done for his client over the past 12 months, which is very easy. When you create a task in Redtail, you just click Share with Advisor Product Client Portal and it’s automatically populated in each individual client’s portal. So just to make sure you understand what I’m looking at here, the firm name is Cornerstone. The advisor is John J. Advisor, and this is an individual website for the client, John Smith.
So Mr. Smith can see everything that you have done for him over the past year. This is where client service is headed over the next couple of years.
You can assign the client to-dos from your CRM system that pass through directly – and Blane alluded to this. This is single-data entry and it populates your client portal. That’s what you want. You want to have straight through processing of client management. That’s what you want and your client can actually, if you want, you can turn this on where the client can assign you to-dos. So that’s one application integrated into the client portal is the CRM System.
Then you have content, personal life, newsletters. Each client, based on his profile, gets an individual newsletter. This is an interface with a financial planning system. This one is Finance Logix and you can show the client how well-funded he is for individual goals. So he gets a snapshot of how he’s doing right here. He could do what-ifs on his financial plan over here until he bankrupts himself at age 75, in this case.
You can do a Net Work and Cash Flow Statement that is automatically ported from your Financial Planning software – this information is automatically populated in to the client’s portal. Accounts can be aggregated. These are Portfolio Reporting interfaces. This is one with Albridge. So this data is automatically populated when the client logs in. If you’re using one of the Desktop Reporting Systems that still remains ominent in the industry, such as PortfolioCenter and Advent, you can get your reports in very easily now using a tool like this. So I just wanted to go over that briefly so you get a taste of where the industry is in terms of independent advisor websites and basically, it’s come a long way, like Blane said earlier where you’re able now to integrate the way you practice into your client communication systems.
We’re running out of time so I’m just going to cover this quickly. If you’re looking for a brochure when you’re first starting out, I don’t think there is any easier way to create a brochure than what I’m about to show you. We have predesigned brochures at Advisor Products where if you like the look of this one, say this one’s called the Growth Brochure, those template copy blocks that I showed you a few minutes ago automatically fit in here. They’re formatted to fit into these different brochures that I’m showing you. These are just different designs, but they all accept those copy blocks that I showed you earlier. So these are all customized with your logo and you can even customize them with your own pictures and your own corporate colors. So doing the brochures, this is a 12-page brochure that I’ve shown you here. It’s very easy to design and customize a brochure now.
The same thing with newsletters – it’s very easy. You have two kinds of newsletters: template and custom. It’s very easy to build a customized newsletter where each individual story is picked by you and the custom newsletter allows you to get branding specific to your firm.
Just in summing up, I just want say that advisors are wirehouses and brokerages really need to consider the reality of what’s gone on over the last few years. While perhaps you could argue some years back that the wirehouses and regional firms, that their brands were really helpful to you, those brands have been sullied by scandal and at this point – and by the continuing news headlines that we all read about every day – and those brands are just now what they once were, which makes it a lot more attractive for advisors to become independent now.
I’m speaking very plainly here about the reality that we all know of what’s occurred over the last few years. Meanwhile, technology has revolutionized the way independent advisors practice, as we’ve shown you here and talked about. And despite the regulatory responsibilities that you face as an independent advisor, you’re going to have more flexibility when you go independent in terms of marketing and client communications. Going independent now, it’s not like it was 10 or 15 years ago when I first started in this business and started creating client communication materials for independent advisors. It’s a lot different. Going independent now does not mean going alone. There are lots of vendors that are specialized in serving this rapidly growing niche.
With that said, I want to, at this point, turn the tables on my colleagues here and ask you guys a few questions.
Chris, in terms of compliance, what would you say – and please chat in questions to me as I go through this. Please chat your questions into us now. Chris, what would you say are the greatest fears when a wirehouse rep is about to go independent, or thinking of it? With the reps that you’ve dealt with, what are the things that they’re most scared of?
Chris Winne: Sure, well, great question. There’s a number of them. The first thing is really, as you mentioned in your discussion, the fear from going to a very large organization where there were numerous people that handled every aspect of marketing support, back office, compliance, technology, all of those components, to going to either a solo business or a business with fewer individuals where you have responsibility for those items. That’s certainly one of the fears that’s always there.
More important, the transition process – dealing with the things such as your Code of Ethics, your Non-competition Agreements with your Broker-Dealer firm, as well as just trying to handle the transition with grace. You don’t want to put yourself at risk, put your clients at risk, and other components while you’re planning the transition.
That said, one of the key things to think about is making sure that you’re able to plan your departure and the set up of your business without violating any of the rules of either your non-compete or outside business activities forms. So you don’t want the compliance department to find out that you’ve started your own RIA because they got a U-5 request from the regulator. You want them to hear from you first. That’s one of the core concerns.
Andrew Gluck: Okay. Blane, a question for you. You’ve touched on this, but I’d just like to hear a little bit more. In terms of documenting your processes, why is that so important and how are you going to use that information in technology systems?
Blane Warrene: Well certainly. Documenting your processes – most of us walk around in our daily and weekly and monthly lives with our processes in our heads. We know how to do what we do and we know all of the little shortcuts and how to evade obstacles. But with a new or transitioning business, it’s really critical to get everybody on the same page and to actually write those steps down because when you look at those steps in totality, it paints a whole different picture than might have been assumed when you go to choose a technology. That’s kind of answer A.
Answer B that goes in conjunction with that, is the fact that these tools now, as they’ve matured, they actually have either semi- or fully-automated workflow capabilities. So for instance, I’ll pick on one of the vendors you mentioned, Redtail. They have a workflow engine within it that allows you to say “These are the 10 steps I do when I have a new client prospect,” and if you put those steps into the CRM system, it will trigger requests for you to send an email or make a phone call. It will put calendar activities on the calendar, and then these steps start to carry over to the other applications. So documenting is really critical. That upfront exercise really paves the road for smooth transition on the technology part.
Andrew Gluck: Chris, can you make a consultant your Chief Compliance Officer? Are RIAs doing that?
Chris Winne: From a technical answer, yes; but what I’ll say about that is there’s no specific rule that says that the Compliance Officer has to be an employee, but what the Compliance Officer does need to do is to be able to instill a culture of compliance and they have to have the ability to effect change within the organization. So I guess to really answer that question, I think it would be rather challenging to do that from afar. So, it certainly can be an independent contractor that is there and closely available to your firm that is on site on a regular basis, has full access to the principles of the firm, and really has a seat at the table and the ear of everybody there. If you can really meet all of those items, then you certainly can bring somebody in who’s a 1099 employee.
Andrew Gluck: Blane, in terms of being dually registered where the advisor might be a Registered Rep and also be an IA Rep or own an RIA, how common is that when wirehouse or regional brokerage representatives when they shift over, and could you give us any insight into the special considerations operationally that somebody like that might face? Because it seems like a lot of wirehouse and regional reps that want to go independent would choose that dually-registered path. Don’t you think?
Blane Warrene: No, I agree, and there’s a segment of the independent universe of folks transitioning out of large corporate institutions that actually chose to go to a Broker-Dealer as kind of their Phase I of going independent. They chose to become an Independent Registered Representative initially because the step from wirehouse to Broker-Dealer is a lot of – there’s some consolation around it because there’s still a dealer engine there and a dealer platform supporting you. The step to pure RIA, while you get custodial support, you’re really boldly carving out new space for yourself and you believe you’re going to support your own systems and run this business. So there’s a segment that goes with the Broker-Dealer who’s dually registered. And primarily from a technology perspective, you just have to communicate with that dually-registered entity because there are going to be some requirements that they are obligated to do to interact with you from a technical perspective. Email retention may be slightly different than if you were just a standalone RIA. Your website and some of your advertising goes through an additional layer of compliance. I will assure you that it very rarely is a long piece process because Broker-Dealers realize they have to be collaborative and efficient. But it does add another component to your consideration. I will say that ninety percent (90%) of the time, you still have the freedom of choice when it comes to technology, although they will frequently – the Broker-Dealer- offer to subsidize your technology platform similar to what a custodian might do for an RIA.
Andrew Gluck: Chris Winne from AdvisorAssist and Blane, who is a consultant on independent advisor operations, I just want to thank you both for helping us out and giving us some great information today.
To the attendees, please check out Advisors4Advisors, our new practice management website for independent advisors, especially for somebody who’s thinking or about to go independent. It’s a great resource for you over there to learn about the technology solutions that independent advisors like most, and you’ll be able to connect instantly with advisors so that you can pick their brains and find out how to do this.
I just want to thank all of you for attending this webinar. Please come back. The slides are available now. This webinar will be posted for replay and you’ll be able to get to it from Advisors4Advisors. Everybody who is attending this webinar had the ability to opt in to get a free subscription for six months to Advisors4Advisors. I hope you availed yourself of that. To all of you that are out there, thanks for tuning in and join us again. We’ll have another in this continuing series next month, helping advisors to go independent. Thank you again.
Blane Warrene: Thanks, Andy.
Chris Winne: Thanks, Andy, and this is Chris. One more thought to everyone. I see that there is actually a couple of the questions that came out here that we didn’t have an opportunity to answer. I’ll do my best to actually answer those on Advisors4Advisors right now after we wrap up here.
Andrew Gluck: Fantastic. Thank you for that, Chris. I appreciate that and once again to all of you that attended today, thank you.
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