Author Archives: John Ndege

About John Ndege

Founder and CEO of Pocketrisk.com. Risk Profiling software For Financial Advisors.

How To Differentiate Your Financial Advisory Practice – Interview with Marion Asnes #FearlessFinancialAdvisorPodcast

A marketing focused interview with Marion Asnes on how financial advisors can differentiate their firms. Marion Asnes is the President of Idea Refinery a strategic marketing and communications consultancy for financial service firms. Previously she was the Chief Marketing Officer at Envestnet and Editor of Financial Planning Magazine.

Learn more about Marion Asnes

In This Interview We Discuss…

0:32 – How to differentiate a financial advisory practice managing $100-$500m

02:20 – Know how to grow by segmenting your clients

05:29 – Example – Corporate executives as your niche clients

7:35 – How to handle legacy clients that don’t fit your niche

09:30 – How to build your reputation in the community

12:30 – The power of running events

19:40 – How much marketing do I have to do to get results?

22:22 – How to better communicate with your clients

25:40 – Has it harder to be a good financial advisor today?

30:55 – What advice would Marion Asnes give to his 30 year old self?

Resources
Marion AsnesLearn more about Marion Asnes

Marion Asnes on Twitter

Interview MP3

 

Harry Beckwith - Selling The InvisibleThe planning process tends to attract perfectionists. But something paralyzes these people: their fear that executing the plan will show that the plan was not perfect. So rather than risk being found out, these people do nothing. They wait.

Many outstanding big-picture thinkers are always looking for, and burdened by, this search for perfection. But too often, the path to perfection leads to procrastination. Don’t let perfect ruin good.” – Harry Beckwith, Selling The Invisible

Client Suitability Compliance: A Comparative Review Of The USA, UK, Canada and Australia

Suitability ComplianceWe can learn a lot from our neighbours, including how to manage a client’s suitability for a certain investments. The U.S., U.K, Canada, Australia and a number of other countries have produced guidelines around client suitability including the use of risk tolerance questionnaires. Below is an overview of where each country stands.

U.S.A. – Financial Industry Regulatory Authority (FINRA) and Securities Exchange Commission (SEC)

FINRA Rule 2111 discusses client suitability when advisors recommend investments. It states advisors must…

have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person to ascertain the customer’s investment profile. In general, a customer’s investment profile would include the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance.

FINRA defines risk tolerance as a client’s “ability and willingness to lose some or all of [the] original investment in exchange for greater potential returns”. This what we would call risk tolerance and risk capacity. With regards to questions and questionnaires FINRA states they must not be “confusing or misleading“. Advisors are not forced to use a risk questionnaire but FINRA recognizes advisors use such tools as a best practice.

Financial Advisors regulated by the SEC are held to the fiduciary standard, meaning they must legally and ethically act in people’s best interest. The SEC provides little specifics on risk questionnaires. However, they do say any presentation of data must be clear and not misleading.

U.K. – Financial Conduct Authority (Formerly the Financial Services Authority)

The UK has the most prescriptive suitability rules in the world. In 2011 the FSA released “Assessing Suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection“. The assessment found that most advisors were not properly assessing client suitability for investment. Their main findings were that…

  • Advisors were not diligently assessing risk tolerance AND risk capacity
  • Advisors were not assessing clients’ investment knowledge and experience
  • Advisors were using poorly constructed questionnaires that could sway clients too far into aggressive risks. Questionnaires did not have enough granularity.

Since this paper was released standards for suitability investment have increased. All UK advisors now have to provide a Suitability Report when recommending investments to clients.

Canada – Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA)

Canada has a complex financial regulatory system due it’s decentralized government. Financial regulation happens at the national level and at the provence level. However, the responsibility for client suitability has been led by the IIROC and the MFDA.

The IIROC has a series of KYC (Know Your Client) regulations including the requirement to demonstrate a client’s risk willingness, financial ability, time horizon and investment objectives. There is no specific mention of using a risk questionnaire but KYC forms are encouraged.

MFDA has been significantly more prescriptive and even provided a basic “safe harbor” risk questionnaire for financial advisors. They are the first regulator to talk about the need to measure a client’s risk tolerance, risk capacity and risk needs. Jointly these represent a person’s overall risk profile.

Australia – Australian Securities and Investments Commission

The focus for Australian regulators is that best interests have been applied by the Financial Services Professional (FSPs). Professionals must ensure the financial products they recommend are suitable having regard to each client’s objectives, financial situation and needs. An important part of an FSP’s assessment of a client’s objectives, financial situation and needs is the knowledge of the client’s tolerance to risk.

The regulator goes a step further and states FSPs should “educate their clients about risk and reward” and ensure couples are assessed individually.

ASIC and the Financial Ombudsman are supportive of risk questionnaires but state FSPs should not be 100% dependent on their results. They should use their judgement in conjunction with a questionnaire.

Conclusion

Regulators support and acknowledge the concepts of risk tolerance, risk capacity and risk need. They are increasingly prescriptive about measuring these constructs however, they don’t want a client assessment to become a “check the box” exercise and have thus shied away from developing detailed questionnaires. What they are looking for is consistency, objectivity and diligence when advisors recommend investments to clients.

The Future Of Financial Planning Is Not What You Expect – Interview with Bob Veres #FearlessFinancialAdvisorPodcast

A wide ranging interview with Bob Veres about the future of financial planning. Bob Veres is the former editor of Financial Planning Magazine and creator of the Insider’s Forum conference and Inside Information newsletter. He has been commenting and contributing to the industry for over 30 years. He recently released a new book called the New Profession, which we also discuss.

In This Interview We Discuss…

0:34 – Why is financial planning an “Emerging profession”? Hasn’t it already emerged?

2:45 – Making financial planning a true profession.

08:15 – What is the single biggest determinant in a financial planner’s success?

10:22 – Future of AUM business model

13:20 – How to develop a flexible “change agile” mind as an advisor.

14:20 – How to market your financial planning firm.

17:00 – How should advisors manage client behavior as markets move up and down?

22:00 – What advice would Bob Veres give to his 30 year old self?

Resources

Bob Veres InterviewLearn more about Bob Veres

New Profession Book

Interview MP3

 

Buffett Risk“The strategy we’ve adopted precludes our following standard diversification dogma… In stating this opinion, we define risk, using dictionary terms, as ‘the possibility of loss or injury’.‘” – Warren Buffett