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Things to Think About

At the AICPA PFP conference, I was asked to provide one idea that I think advisors should be paying attention to in the coming year. Those of you who know me will not be surprised that I insisted on coming up with two.

The first is pretty obvious. I think the whole robo-advisor phenomenon can be a friend rather than a foe to the profession. How? The institutional robos offer advisors a way to manage assets for their “C” and “D” clients-friends and family of their “A” and “B” clients-without busting up their revenue model. They create an appropriate portfolio and monitor it, but the reporting is handled online, along with the rebalancing and tax loss harvesting.

As I've said elsewhere, this also allows advisors to turn on their referral spigot and not worry about who's going to walk in their door. Before, advisors would ask for referrals and cringe at the possibility that a close friend would be referred, but not fit the model client profile. It puts the original relationship at risk.

The second thing to pay attention to this year also comes out of the robo-competition. These websites offer a much more interesting “pre-client” experience than most advisors. They're engaging, interesting, and they focus more on the client than on the credentials of the advisor.

I believe that most advisor websites of the future-starting this year-will have engaging and interactive material that lets clients become more self-aware of their money personalities and their goals. They will, as a result of using these tools, feel like they're understood before they walk into your office, and they will have invested some time and energy, which makes it more likely that they'll schedule that appointment.

A better pre-client experience will become an important marketing tool. As one example, United Capital has reportedly spent millions on its Money Minds self-assessment tool.

Others in my little brainstorming group had other thoughts that are worth your attention. Lyle Benson, who practices in Baltimore, said that increasingly advisors will be focusing on their clients' income and expense statements, which will make a lot of planning activities more precise and grounded in reality. Not only will advisors be offering budgeting advice and helping clients understand what they're spending, but this information will inform the investment process (how much is being set aside each year), future tax and investment portfolio projections, and ultimately how much clients will spend in their retirement years.

Of course, you know why advisors haven't done this in the past; you would have had to go through the client's checkbook, line by line, and it's certainly debatable whether the additional precision is worth the additional cost of your (labor-intensive) time. But today, with and a variety of other online budgeting and cash flow management tools, plus the online expenditure tracking offered by credit card companies and banks, this information is suddenly easy to slice, dice and analyze creatively with clients.

Clark Blackman, who has offices in Houston and Kingwood, TX, offered a startling vision of our future. He noted that the SEC and FINRA are pushing the idea of independent audits of all financial planners, basically offloading the chore of examining your office to a CPA firm or attorney who understands the SEC's audit procedures.

He's alarmed. Why? Because, by his estimate, these audits could end up costing in the neighborhood of $100,000 each-far more than most practitioners can afford every three or four years. Blackman bases these costs on the audit procedures that are already underway for planners who have custody of client assets, plus the hourly fees charged by attorneys and higher-end CPAs who would be authorized to handle this chore.

Recently, for a column for Financial Planning magazine, I estimated-using numbers directly out of the SEC's 2015 budget report-that the on-site visit to your office, by SEC examiners, has an internal cost to the SEC of $150,000. This not only confirms Blackman's estimates, it actually suggests that the cost could go UP in the future. If the SEC gets its requested funding from Congress, the estimated cost would balloon up to $200,000 per on-site audit.

The message: be prepared to fight against this encroachment by FINRA and delegation by the SEC. And if this fight is lost, be prepared to create bigger firms by merging or otherwise achieving more scale that you can amortize this amazing cost over.

I'm hoping we gave the audience a lot to think about. I'm thinking that 2015 could be a very good year for the evolution of the profession, marketing, adding value, and hopefully, for one more year at least, staving off intrusive regulatory expenses that don't seem to be adding much to consumer protection.