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April 18, 2023
The College’s inaugural 2023 FinServe Network Summit was ripe with opportunities for discussion on many of the most important topics in the financial services industry.
These included the challenges independent advisors face in maintaining stability and consistent organic growth during times of market volatility. According to a 2022 benchmarking study by Charles Schwab, many RIAs’ target of 4% growth in 2021 failed to account for rising inflation, leaving many firms at a net negative and starving for organic growth.
Wealth Management Certified Professional® (WMCP®) Program Director Michael Finke, PhD, CFP® hosted one such discussion: a panel focused on Registered Investment Advisor (RIA) firms. Along with four members of The College’s FinServe Network from thriving RIAs, Finke led a meaningful conversation that ranged from what to do when markets go south to managing charitable giving, helping clients plan for their eventual retirement, and more.
Steady Hands Amid Shaky Markets
One of the primary subjects involved recent changes in interest rates and market declines, which have put many clients on edge. Finke and the panelists acknowledged that it would be objectively foolish to believe markets would only go up, but also that many younger investors who may not have experienced high-interest rate environments or market volatility don’t always properly understand the risks of investing.
“There's a lot of anxiety,” said Scott Winslow, MSFS, ChFC®, CLU®, RICP®, AEP®, CCFC, managing partner at Nabell Winslow Investments & Wealth Management. “We’re getting a lot of calls from people who thought every advisor was doing a great job until we suddenly hit this market turbulence, and they want to know what went wrong. We focus mainly on educating clients upfront on possible outcomes so that when downturns happen, they’re prepared for them.”
Chief Wealth Coach at Alchemist Wealth Andrew Tudor, CFP®, CAP®, agreed that advisors must better convey to clients that risk is an accepted part of the game when investing. “Like Mike Tyson once said, ‘Everyone has a plan until they get punched in the face,’” he said. “A lot of people got punched in the face this year, and I think we’ve gotten into a space where people in our industry want to sell certainty. We need to be more upfront that certainty isn't a given. Positive charts and graphs are great, but we need to uncover what their fears are, see the questions behind the questions, and make sure we give investors a feeling of control over their outcomes while still steering them toward the best ones.”
Angela Ribuffo, CFP®, RICP®, ChFC®, CDFA, CLTC, WMCP®, president and financial advisor at Raion Financial Strategies LLC, added that one way of protecting against client panic in market downturns is to talk about the potential downsides to investing first. “A lot of advisors focus on the gains so that when the losses come, they have to walk things back a little,” she said. “My philosophy is that if we protect against the downside, the upside will come eventually – that’s natural market recovery. So let’s focus on the downside: what are you willing to give up? What are you willing to do differently? What’s your Plan B? That way, when the downside comes, there’s no fear factor with clients because they can sit back and say, ‘We planned for this; we’re going to be okay.’”
Turning Lemons into Lemonade
Turning away from the pure downside aspects of the current market, Finke encouraged panelists to talk about what opportunities might exist in a high-interest rate, high-yield environment. Several of the panelists spoke about how there could be hidden benefits in the form of new planning strategies.
Heather Welsh, CFP®, AEP®, MSFS, vice president of wealth planning at Sequoia Financial Group, brought up how to reduce the pain of taxation through Roth conversions. “Down markets can really be an opportune time to do those conversions and then capture the appreciation in a tax-free environment on the upside,” she said. “You can turn that low into an opportunity for somebody to continue progressing toward their goals. At its core, financial planning is about establishing that pathway to financial success for clients regardless of the variables outside our control.”
Finke and Winslow had a discussion about how many advisors who stretched investment strategies for yield in the low-interest environment of the past 10 years were punished, along with their clients, when rates shot up in 2022. Winslow said it had forced his firm to rethink how they approach working with high-net-worth clients.
“We were really trying to use some hedging strategies before, but now that you can build a portfolio of treasuries or less risky assets in the short term, we can get back to old, academic portfolio management,” he said. “What I’ve been doing more now than I have in almost my entire career is buying up a lot of three-month to two-year treasuries just to fund short-term needs.”
Tudor added that there are now also increased opportunities in the charitable giving space. “A lot of our financially-savvy and income-based clients are still often the charitable ones in their communities,” he said. “We have our definitions of high-income and high-net-worth, but they aren’t always the same inside a community. I’ve found that at certain levels they’re still giving at a higher percentage, so we can approach charitable giving in a really impactful way. $10,000 may not seem like a big deal to some, but if it’s from one of the largest donors in a local church, for example, it can be. And there are many strategies we can use to offset taxes or increase their yields to give them a nice experience around safe money.”
Assets to Clients in Need
Finke also asked the group whether asset location, rather than asset selection, might be the primary value proposition of a financial advisor. The group generally agreed that products and asset types are not the end-all, be-all of an advisor’s role with clients.
“Working with clients is an education process, not just an action process,” Ribuffo said. “It’s not us telling them what to do but helping them understand the why of it. If they understand the why of it, they’re more likely to execute it and keep on the path versus getting distracted by outside noise. This is the perfect opportunity for advisors to say to clients, ‘This is why you have me.’”
Winslow said this collaboration with clients and across the profession has become even more important with new SECURE 2.0 Act regulations on the books. “We’re using this opportunity to go out and talk to CPAs and attorneys, particularly in the qualified plan market, on the changes that are coming up,” he said. “There's a lot of unique little provisions in there, and decisions have to be made. So we spend more time with clients and go out to the other centers of influence to discuss those things.”
The group also reflected on changing attitudes between generations to money management: they noted that while the post-World War II generation was driven by a desire to leave their children better off than they were in their lifetime, the later Baby Boomers are simply trying to navigate not running out of money in retirement. But many, they said, are still looking to give back to their communities with what they have left.
“Conversations start to shift toward ‘I would really like to see my impact while I’m still alive. How can I start giving these dollars away now?’” said Tudor. “People want to know how they can be an active member of their community with their money and not just leave it behind, hoping their kids will take care of it.”