The 21st Century Adviser

TOM BOCZAR: Hello, everyone. I'd like to take a moment to welcome our audience from around the world that's joining us remotely via the CFA Institute website. Questions for our panel can be submitted via the chat box for those calling in remotely. My name is Tom Boczar. I'm the CEO of Intelligent Edge Advisors, and I'm your advisor-- or your moderator-- for this session. Very excited to participate in this first ever panel of the wealth management event, the 21st Century Advisor Building-- A Practice to Serve Today's Emerging Clients. The goal of the session today is really to give you the perspective of two very, very successful and battle-tested CEOs on both the opportunities and challenges of building a client-oriented firm really designed to serve clients of the 21st century. To do this, we could have done a lot of ways. We broke it into three segments. First, we're going to be covering considerations regarding the targeted clientele and client relations with a focus on women clients. Second, we're going to be discussing the importance of practice management focusing on client communications, building on some of the things that Scott had laid out this morning, as well as Meyer. He focused on social media, as well as other operational challenges-- technology, information, security, compliance, staffing. We're going to finish up by touching on certain key industry trends, including the growing importance of technology and, also, the possible impact, as we're discussing this morning of fin tech and robo advisors, as well as what it means to be a fiduciary and why this is important in the client-advisor relationship. So having said that, I'm very excited to introduce our two distinguished panel members. You can refer to their detailed bios, which are included in the materials. Rita Cheng is the CEO of Blue Ocean Global Wealth and Blue Ocean Global Technology. And Stacy Francis is the CEO of Francis Financial. So thank you each for joining us today. Appreciate that. And to begin our dialogue, would each of you like to take five, six, seven minutes and just give us your background and the background of your firm, so we have a perspective of where you're coming from? STACY FRANCIS: So I started my firm. I was 27 at the time, and they say that sometimes when you're young and you've got a lot of energy, you can do things that you look back 15 years later kind of in awe of. But I started my practice 15 years ago, and I started a nonprofit at the same time. Both of them had a focus on women. In particular, the nonprofit, Savvy Ladies, focused on helping women, empowering women, typically, that were very, very low income. And then I started my firm, and that is Francis Financial, to focus on working with high net worth women, who typically have not necessarily managed money before. I will tell you-- and we'll go into some of the mistakes that I made-- but I definitely made a lot, a lot of mistakes when I started. So I hope that I can be really honest and also very open to show you what I've done, what's worked, what hasn't worked. How are we now today? We didn't manage money in the very beginning. We started to manage money a couple of years ago. We did that more out of necessity than by actual wanting to do that. And that's because the hourly model we saw was not a sustainable model going forward to be able to hire staff and grow. So we've grown. We're still essentially the little engine that could. We have about $200 million under management. We are in New York City downtown. There are 11 of us, and we are growing. Last year, we brought in about $3 million of new money a month. This year, our goal is $5 million a month. We've actually been hitting that target, which is great. And that gives you a little bit of an idea of what we're looking to do, our background, and also where we've been. RITA CHENG: So my name's Marguerita Cheng. You can call me Rita. Blue Ocean Global Wealth is three years old, but I have been an advisor since '99. I'm going to tell you just a little bit about myself, and you can follow up and ask me any questions, because I think it's so important to be approachable. I'm ABC, so that means American-born Chinese. And my dad came to America by way-- so he was born in China, came to the US by way of Taiwan. I believe I was always destined to be a planner. I did not major in financial planning in college. I majored in finance, and I approached this from an analytic standpoint. In my first job, I was an analyst, and I learned so much about personal finance, because I'm one of three girls. So my dad told me that all these things that you need to know how to do that. That's not a boy's job. That's not a man's job. That is a job that you need to know how to do. So I took the time to educate myself, just like Stacy. You know, when you're young, you think you're invincible. So after I gave birth to two of my children, I guess I was the smartest mommy on maternity leave. I had stacks of personal finance books. I studied for the series 63, 65, 7 in life and health. And I said, that's it. I am going to be a financial planner and help people reach their life goals and dreams. I was a little bit naive, but here I am still standing. How many years later is that? Like 17. TOM BOCZAR: Well, those were great introductions. We appreciate that very, very much. Let's turn our discussions to the first segment, and let's discuss clientele and client relations. And a lot of people said this. It all begins with your client. That's the first thing, and what have you found in your experience to be the most effective approaches to building your clientele and your advisory board? STACY FRANCIS: To be honest, when I started, this was one of my big mistakes. If you had a heartbeat, you were my client. In fact, I think there were a few people that may not have had a heartbeat. And so when I started, I was young. I was hungry. I was trying to pay the bills. I had moved from the Midwest, where I grew up, essentially, growing our own food with 13 cats, dogs, rabbits, three horses. Don't judge me, but that's where I grew up-- to New York City knowing no one. And so I really came in having to build this practice from scratch and up. So I worked with anyone. What I realized long term, number one, is that the hourly model, at least for me, was not going to work, that I needed a sustainable model that I could bring in ongoing assets under management. So that came to me starting to build that practice. That's a harder practice to build. Why? Because the hourly model, everyone is happy to work with you, because there are so many people who are mass affluent and lower. But if you're looking at the higher net worth, where we work-- we have a minimum of a million and more-- it gets much more competitive, especially if you're trying to get those $5 million, those $10 million, those $20 million accounts. So we looked at, what can we do to differentiate ourselves? And that was becoming the premier place to come for women thinking about, going through, or post-divorce. So 70% of our clients are exactly those women. We also have other women, who come to us, who are referred by trust and estate attorneys, whose husbands have passed away. The reason why we get so many referrals is because we put in place a very specific process that can be replicated by anyone in the firm so that every woman coming into this door, such as there's discovery meetings going on today, has the same exact experience. A lot that we've heard about is listening. Well, I'm a numbers person too, and having those nebulous emotional intelligence skills, it's, for me, a little daunting. And I don't really know what to focus on, because there's not a formula. If there's a formula, we can follow the formula, right? But there's not a formula for the emotional piece. But guess what. We created one. So when a client comes in for their first meeting, we have a formula that we follow. We ask them all of these questions, and before you get scared, we ask about 60 questions, everything from the first question, what's your first money memory? Now do we get looks back and kind of confused puzzlement? We do. But after a moment, and we're all quiet, maybe saying a thing of, I'm sure this is something you've never thought about, people start to spill their first money memory. Then we ask them what's important about money to them. And from there, the entire meeting is completed within an hour to hour and a half, and we have been able to ask them everything about their financial life that makes them tick, that helps us know what they want. That second meeting, we then put in place a way to show them that we listen. And we are fancy. We're foofy. We're new edge. You can call us whatever you want, but we actually mind map their answers. So we give them this wonderful presentation, and in it, of course, we're looking at their portfolio. Of course, we're telling them what tweaks need to be made. But we also then have their mind map of all the answers they gave us to those really important questions they asked about their goals, their values, the people who are important, where they want to go. We listen. We let them talk. And this proves to them, this proves to them that we care, that we trust them, that they can trust us, and that we're going to be there for them for the long term. Our close ratio has never been higher. Our growth rate has never been higher, and this whole process that takes us about 15 hours on the back end, we don't charge for. Now I know there's gaps there too. But I have to tell you, it has been our main successful piece of getting many more referrals from potential clients that come to us, then referring their client, their friends, and then also matrimonial attorneys, trust and estate attorneys, CPAs. So that has been our way of, I would say, building our practice and putting in a really important process that yields great customer and great client relationships. TOM BOCZAR: It looks like a very extensive data intake up front, and then you have probably taken a long time to fine tune that list of 60 questions. STACY FRANCIS: Yes, and we do change the questions. If it's a divorcee, there are different questions, also where she might be in the process, versus a woman who might have lost her husband. TOM BOCZAR: Rita, how do you approach the target audience? How do you grow that? RITA CHENG: So, just like Stacy, we put a lot of time in the beginning of the relationship. Many times, when people come to us, we are the first family's financial advisor. Our clients are multicultural. They're diverse. And it's not me selling against another firm. It's me educating them, our firm educating on what financial planning is, the designations, wealth management, all the players. I was so excited to be on this panel with Stacy, because we share a lot of the similar approaches. I think our differentiator is when people come in, we do lists, and we take the time to allow and create a safe environment, where people can ask questions. I send out or I ask Sameer or other team members to send out a detailed questionnaire, and we allow people to present the information the way that makes sense for our younger clients. And it could be younger clients. It also could be older clients that are more comfortable with technology. There is a secure portal. They can bring it, or they can come in person, whatever is right for them. And it's about meeting clients in the space that is right for them literally and figuratively. What doesn't work? I'll tell you what doesn't work. So in the beginning, you're under a lot of pressure. It doesn't mean I wasn't unethical, but I realized that life is short. I only want to work with nice people. I've had some very wealthy people that weren't very nice to me, and I have certain people who really didn't have a lot that were so nice to me that referred me to many of our largest clients. So what I realized is life is short, and they have to buy into our process. And I think what we really offer that others don't is I've been criticized for being too patient and empathetic. So I am a double major, actually double degree-- East Asian language and literature and finance. So I can be right-brained and left-brained, but I've been criticized for being too patient. Rita, you're too empathetic. You spend too much time with people. And that's when I was like, wow, you know what? I need to break off and do my own thing. So I think long and short of it is just really when you invest a lot of time into the relationship, and you have better inputs, you can't guarantee a great output, but what you can ensure is a better outcome for the client. And that's why we're all here. We're here to help people better manage their wealth to realize their life goals. TOM BOCZAR: Great, Rita. Stacy, you talked about things that work. What about for you in your practice, some things that didn't work out as planned? STACY FRANCIS: Oh, boy. Where do I start? Yeah, so I've definitely done a lot of things that didn't work. I first thought that you had to have-- you had to dress a certain way. You had to have a designer bag. I don't know if the women probably get this a little bit more than you guys there, but I thought that people were hiring me, because if I exuded this feeling of wealth, of my own success, that they would definitely want to come and work with us. What I found is that that is not true. Of course, they want to make sure that you are not bankrupt or gone bankrupt. That's obviously, I think, a really important thing to do. But trust doesn't come from you yourself being successful in your money management and how much money you make. Trust comes from other ways. And women, in particular, and individuals today versus 10 years ago, it takes them much longer to build trust. Trust does not happen over one meeting or potentially two. My big mistake is that I thought it did. After meeting with us, you should know whether or not you're going to hire us at the end of that meeting. And we found very clearly that individuals wanted to experience more from us than just that one meeting, and not just a meeting in the office where you're talking about finances. But they wanted to experience us in different ways. So we now have circle events, where several times a year, we have 10 women coming to talk about money. And we have wine, and we have a little portable campfire in our office. The security doesn't know, but we do that. And we just picked up a $10 million client two weeks ago, who came to that, interviewing other advisors. And she said, I'm going to pick you, because I trust you. We've thought about other ways to get them to engage with us, so coming over my home. I have playdates with their children, and I tell my children that if they behave, they get more candy, so things like that-- really important. We have a beautiful little sailboat, and they come out sailing with us. And I let them know that when you join Francis Financial, you're joining a community. You're joining a family, because we are, again, the little engine that could. We don't have the dollars of a Charles Schwab or any of the many competitors you see out there. So we need to form relationships that last, that endure, and really make a difference. And I will tell you it's added to our bottom line, because I can tell you we probably charge more than most wealth managers. We don't even start a relationship for anything less than 150 basis points. And people never ask us to reduce our fees. Why? Because they're hiring us not because of the fee. They're hiring us, because they trust us, and they know that we will be there, and we will help them achieve their goals. TOM BOCZAR: Let's dig a little deeper into your value proposition. What would you say in a few sentences that your firm offers that others don't? RITA CHENG: Me, Marguerita? I would say-- so it took me a while to come up with this, but we basically, in a nutshell, offer clarity, confidence, and control. It doesn't matter if you are a millennial, meaning the children of a boomer, or you're the boomer, the parents of a client, or from the greatest generation, because we serve multigenerational families. Our value proposition is we want every client to have clarity about the options that are right for them. We want them to have the confidence to be able to plan for the future, and then finally, know that they can control what they can control. So I'm from DC. I was born in New York, but I've been in DC longest. And we can't control who's in the White House, interest rate, the stock market, but we sure can control where we save, how we invest, and how we react to these things, so the three Cs. I would say that's our value proposition. TOM BOCZAR: Let's talk a little about women clients. Each of you serve women clients, maybe Stacy a little bit more than you, Rita. But right now, we hear over and over again that there seems to be a disconnect between women as clients and their male advisors. Industry survey after industry survey, women report that their advisor doesn't understand them, isn't interested in them, and, perhaps, at the heart of this disconnect could be some flawed assumptions about women. I was having breakfast this morning, as an example, and one of the advisors I was speaking with said, the biggest mistake we make as advisors is assuming women are more risk-averse or more interested in certain things, such is impact investing or philanthropy. And your thoughts on this, each of you-- what are some of the most commonly repeated stereotypes that you've encountered about women, and are they true? STACY FRANCIS: So this is really important for us, because when a woman is going through trauma, talk about seeing someone at their worst. In fact, I have a wonderful saying that criminal attorneys see their clients at their best, and matrimony attorneys, including us, we see our clients at their worst. And what we find is that our clients are raw, and they don't mince words. So that's part of the reason why we ask so many questions, because often, we will assume that she does not feel comfortable with high risk investing, where actuality, she feels very comfortable. So that helps us. But yes, the biggest misconceptions we see is that women are conservative investors. That's not always the case. We find that women will take on risk if they understand the ability of it allowing them to achieve their goals. We also find that women are more comfortable taking on risk if they understand investments, and they understand and have educated themselves. So you can see them move along that way. The other piece that we see a lot of individuals saying that women are not interested in money. Women are much more active with day-to-day money management historically in couple relationships. However, they are less often involved with the long-term investing piece. Often, it's just because of divide and conquer that we often do, especially when we have children. It's not that she's not interested. It's just that she's going to manage the day-to-day, and he's going to manage the investments. Impact investing-- a lot of our women clients are interested in that. But trust me, not all. Many of them are happy to invest in whatever god forsaken company there is out there if it gets them to their goals, because they're going to take that money, and they're going to use it however they want to for their goals. And sometimes it even goes into charity. So that's something to think about. They may think about changing the world in a different way than through their portfolio. They may think about changing the world by setting up a donor advised fund and making decisions with their children about how they're going to make a contribution each year, to which charities. So whatever you thought about women, just throw it out the door. The only thing I can say and truly really stand behind 100% is that no woman I've ever met wants to pay maintenance or-- maintenance is what we call it in New York-- alimony for the rest of the country to her husband. That I can definitely say I've not had any woman excited about paying alimony to their husband. TOM BOCZAR: Rita, how about your thoughts on this? RITA CHENG: Sure. I think some of them are very similar. I don't think women are risk-averse. I think they are more risk-aware. The other thing that I think is a wrong stereotype is that women can't make decisions. They're indecisive. Women are always thinking two, three, four, five, six steps ahead. It's not that they can't make decisions. They need to think about-- they need that time and that space to think ahead. And then finally, in certain cultures, just because the woman doesn't come to the table and meet, make no mistake. She controls the purse strings. It's really important to allow women, regardless of their marital status or income, the opportunity to participate in meetings in a way that's meaningful. So they aren't interested in investing. You have to speak to them, and I think this is true in New York, DC, and everywhere. Women don't want to be talked down to, and they don't want to be talked over. Just speak to them in clear, concise language. TOM BOCZAR: How do you do that? How do you actually bridge the gap between what we're discussing? Is it more inclusive conversations? Is it somehow better engaging them? RITA CHENG: Well, sure. I think if I'm-- so one of the things I do, this is very, very simple. So if we're talking about a discovery meeting, I make sure that I don't assume who's going to take the lead. Many times I'll address both the husband and wife or the wife and the husband. If we're prioritizing goals, this is a little exercise I still do to this day. I was surprised-- I'm jumping a little bit-- how powerful this is. I told you a little bit about my personality. I don't handle conflict well, because I am an introvert empath, empath introvert. So I remember one time-- and I know we have to deal with conflict, and this is something that I've learned. So when I'm working with a couple, how do you improve engagement? I always print out an informal agenda, and I have different highlighters, and I have three copies-- one for the husband, one for the wife, and then one for me. And I put highlighters in the middle, and I ask them to prioritize their goals. And I say, it's OK if your priorities are different. It's very common. And then we may do something that's an icebreaker. I'm like, I want you to prioritize your goals. No copying or cheating. Your answers are your answers. And if they're the same, that's great. If they're not the same, then they go back and forth. So it's me guiding them to set the agenda. Yes, I'm prepared to discuss whatever I want to talk about, but it doesn't make sense for me to talk about retirement if the mom is stay at home and is concerned that there's not enough life insurance. The flip side is the husband would be very upset if I went in there and spoke about life insurance. So it's about listening and framing and pausing to allow that dialogue. TOM BOCZAR: Interesting. And I'll stick with you, Rita. It sounds to me like, from the beginning of our conversation, your EQ could be almost too high in your opinion. Obviously, you have to have the intellectual. Emotionally, you have to have the EQ as well. Given that women tend to have the higher emotional quotient, is it surprising that there are so few women advisors out there? I mean I'm looking at an article from January of this year in ThinkAdvisor. Women represent 50.8% of the population according to the US Census Bureau, but only 15.7% of the financial advisor headcount. To me, that's really amazing given the discussion we're having here. RITA CHENG: Well, sure it is. So oh, my goodness. So I have the stage, so I think it's OK to say this. I think our industry, we need more female advisors. We need more male advisors. There are more-- it depends what definition used for advisors, but to be honest, there's more advisors over the age of 70 than there are under 30. Having said that, I think about my journey, and sometimes I know I have an unfair advantage. If you Google the zip code, Bethesda, Maryland, and you say you want a female CFP, there aren't that many that come up. Then if you say you want an independent female CFP, the search is fewer. Then if you-- there's a lot of working women in DC, who are moms. Say, you know what? That's it. I want a female CFP with an independent firm, who is a mom. Like for a long time, I was the only one. So I think that sometimes people in my office would get mad at me, but I think that we as an industry need to do a better job of sharing what an amazing career we have. To make a difference in the lives of our clients, we put their needs first. The work is intellectually stimulating. It's emotionally gratifying, and we earn respectable livings. So I think that we all have a responsibility to share what an amazing profession this is to be able to be wealth advisors. TOM BOCZAR: Great. Stacy, you had mentioned you had a lot of referrals from divorce attorneys. Maybe touch on what's been effective developing those relationships, which are hard to do. And also, if a client approaches you directly-- I'm sure that happens sometimes-- how do you get the divorce attorney to buy into your role? STACY FRANCIS: So getting referrals from matrimonial attorneys is like trying to get water out of a rock. People say CPAs are the hardest. I will go head to head between a CPA giving you referrals and a divorce attorney. Typically, divorce attorneys, especially if they've been in the business for many years, don't see the need for any type of other type of financial expert, except for maybe a forensic to go ahead and value the business or be able to trace or find assets, which we can help them with too. But the reason we are finding more and more matrimonial attorneys referring to us is for three reasons. Number one, we're sending them clients. Are they not going to respond to my email when I send them a client? I just invited one of the top matrimonial attorneys to be my guest at a gala next week, where they're honoring me. And he refused-- he was not answering any of my emails. I've been reaching out to him for two years, but then I sent him a client. Funny enough, within 10 minutes, yesterday evening, he said, I will be there. I'm so excited to be looking to talk to Donna. So I got very smart about how can I source individuals to be able to refer out to matrimonial attorneys, so they actually take my call? And so we get a lot of clients coming to us through press, media, our website. Our website, if you go to it, Francisfinancial.com, you'll see that we have put so much love and care into it. So that's number one is we send the clients to them. Number two, any client they send to us, the client gets this beautiful document. And so they have an actual tangible piece of, oh, my gosh, this is what you do. They finally understand what we can do in this room. And any time I meet a matrimonial attorney for coffee, they are getting one of these also to go away with that is a sample. I don't put my clients' names in there, although I can think of a couple I would like to. So that's the second thing we do. And then number three, we're really good about remembering everything that a matrimonial attorney or referral partner might want to know. So during tax season, we often have sent individuals to do 10-minute back massages for the entire staff for CPAs, especially if it's a smaller firm, because it's cheap. This month is actually the new official divorce month, because this is when most divorces are actually filed. Women start looking into divorce right after the holidays, because they have been with their in-laws, but then they actually file this month. So all of our clients, all of our matrimonial attorneys are getting money trees with an invitation to an event we're going to have this summer talking about a survey that we took interviewing 150 women about their divorce experiences. So these are all things that we do to try to add value, to create relationships with, typically, a very difficult referral source to get clients from. TOM BOCZAR: We're going to move on and talk about certain aspects of consideration of practice management. Rita, could you give us a-- I don't want to put you on the spot-- but a success at your firm, however you define that, that was a direct result of good practice management? RITA CHENG: Absolutely. As I mentioned, I probably listen too much. I'm also very analytic. So I really take the time to review things, and I respond to people. I'm very good about being timely. If I get an email, I say, you know what? I'm still working on it. I don't know the answer, but I'll get the answer for you. So I think that builds a lot of-- Stacy mentioned trust. When people trust you, they feel more comfortable referring. So a concrete example is there was this situation, where I'm not allowed to give tax advice. But for a CFP, certified financial planner, I know taxes quite well. A client had been complaining-- oh, gosh, I owe a lot of taxes. I'm like, well, you know, this is good. The market's been up many years in a row. Why don't you just send me your tax return? I'll review it. Again, I'm not giving tax advice. So I happened to review it, and I noticed the cost basis information was not entered correctly. I have a good relationship with that client's CPA. I got on the phone, and she's like, Rita, thank you so much for just looking that over. I really appreciate that. The client saved $11,000 on their taxes. So that is practice management, building trust, getting referrals, and making sure that you serve the client well. And it wasn't an awkward situation again. I didn't say that this was wrong or bad. Just review-- some extra set of eyes and ears. $11,000-- like a robo is not going to do that. I mean the relationship with the client-- don't want to be smug or arrogant, but you kind of build a moat around yourself and competitor-proof your practice. TOM BOCZAR: How about you, Stacy? STACY FRANCIS: So as you can see, we believe in a lot of systems and operations and things like that. What we have done over the years is been able to create what we call a wealth management total client profile. So that beautiful mind map, we also have a second mind map that we use, where we talk about their charitable giving, their wealth protection, their wealth enhancement, and then wealth transfer. Wealth transfer includes things like estate planning, wealth protection, looking at all of their insurances. That's life insurance, disability, long-term care, umbrella, auto, homeowner's, DNO, business. And then we look at all the other areas of wealth enhancement. So of course, their portfolio, but even credit and getting their credit reports, monitoring their credit reports for them. All these pieces together are very helpful in us, by using this system and showing our value to that client, that yes, investment management is in there. And that's under wealth enhancement, but that's one piece of the pie that includes nine other pieces. So that's been very helpful, because it helps us to have a higher retention rate for our clients. And we're more likely to be able to convince a client to leave their current advisor to come to us, because we know that their current advisor is not doing anything like that. TOM BOCZAR: Let's dig a little bit deeper into, specifically, client communication. Try to build out on what Scott Welsh's presentation was earlier today, in each of your firms, what do you report right now, why, and how often? STACY FRANCIS: So they get a monthly report, we do custody at Charles Schwab. When I first started many years ago, I had not a nickel to my name as far as AUM. So I also worked with Shareholder Services Group. So we have a good amount of legacy clients there. They get a quarterly report. It includes-- this is where you started, and here's the beautiful chart of where your money is now. It also includes, this is the dollar amount that you contributed. This is the dollar amount that we made for you, trying to show our value. And then we also show them their performance at different times. That comes quarterly. Of course, they get a monthly report from the custodian. We meet with them-- every client, their meetings are set in January based on when they want to meet and how frequently. So they know exactly when they're meeting now for the whole entire year and with whom. That's very helpful for them in knowing that we're always going to be there, and it's helpful for us for scheduling. We meet typically quarterly with our clients. We have a few that will only meet twice a year. I only have two that will meet with us only once a year. We try not to do that. So we invite them to many more social events to stay in contact. TOM BOCZAR: What about goals-based planning, performance reporting, as was discussed? Have you thought about that as something for your firm? And if you have, how long into that process are you? STACY FRANCIS: So we have changed the way that we talk about our portfolios, because women-- we were losing them when we were using words like fixed income, equity. And now we explain their portfolio as an engine and an airbag. Engine-- obviously, the stock portion. Airbag is the bottom portion. Before we create an investment allocation, we are writing their financial plan. That financial plan helps us back into how their portfolio should be invested. So they know immediately from the beginning that we have a goals-based approach to how that plan is going to be actually implemented. And then we update that plan to make sure that we're on track and that the portfolio is accurate and appropriate for those goals, but then also, that their spending and their income is appropriate. TOM BOCZAR: Rita, how about your firm? RITA CHENG: So deliverables, so our clients receive a monthly statement from their custodian. We custody our clients assets at Pershing. We do not take on money management only clients. The clients have to do a comprehensive financial plan. And so clients can see their statement, but the other thing that we do at the end of every planning cycle-- and each client has their own planning cycle when they join-- they receive a deliverable. It's a checklist, Blue Ocean Global Wealth follow-up, and a client follow-up. And so they can not only check to see how their investments perform, but they have progress towards their goals. Goals could be sending a kid to school, seed money for a business, retirement, whatever the case might be. So clients are able to see the progress toward their goal. The other thing that we've done is we have a client app and portal. We don't require people to use it, but we allow that opportunity. And they can check to see their progress right from their smartphone or mobile device. TOM BOCZAR: Regarding communications, are each of you connected in any way through technology, through some of the social media platforms? STACY FRANCIS: Yes. So we are very active with social media, and I play no part. It's my team that does it for me. But we are obviously on Facebook. We do a lot of Twitter. We do some LinkedIn, and essentially, what we're doing is we're pushing out content. That's what we're doing, and we're staying in touch. And the content is always going to be about women, divorce, money, typically. We also-- when a client comes on board, we send them a friend request on Facebook. Totally up to them whether or not they accept it, but if they do, which most of them do, it allows us to stay much more in close contact with them. So a client of ours lost her mother. We were able to give her a call, write her a note from all of us in a card, and be able to reach out to her proactively versus waiting another two months for her check-in call to tell us that. It helps us be more involved with our clients in their life, and in turn, we also share our real lives on that Facebook as well. TOM BOCZAR: Rita, what about your firm's approach? RITA CHENG: Sure. So our team manages social media. It's so interesting, because me, personally, I'm not really on Facebook. But for our firm, yes, I am. We are active on Facebook, LinkedIn, and very active on Twitter. We also have our blog, and when someone joins our firm or has been referred and maybe hasn't set an initial meeting, we ask their permission if they want to be added to our newsletter. So that's another way, which we stay in touch. TOM BOCZAR: Terrific. RITA CHENG: And I'd be remiss if I didn't say this. So you can be on social media. Just make sure you're archiving your social media. TOM BOCZAR: How does the social media-- your involvement-- has it met your expectations? And has it led to new business for either of you? STACY FRANCIS: You know, it's really hard to tell. You know, when you think about what is that one tipping point in your career that made you successful today, well, there's probably a couple tipping points that you can really point to. And I would say the same thing for us. The more active that we've become on social media, having the website revamp that we've done, we get many more individuals from the web. I would say we get, typically, two to three people reaching out to us every day from the web. Before you get too excited, the majority of them are not at our million dollar threshold. But the social media, again, is just another way that we can engage with our clients. So I wish I had better metrics of what it actually does, but it helps us with a client, who sends out baby pictures of her brand new twins, to be able to say, oh, my gosh, this is just amazing, and be able to know that name, and then send them a piggy bank with their daughter's new name on it. So that's helpful. And again, it's just the more you get out there, the more searchable you are, you're much more likely to be able to use your website and online as a funnel, another funnel. RITA CHENG: Sure. I mean, I think when you look at social media, you have to think about what you're trying to accomplish. Of course, we all want to grow our businesses. Social media, I think, has been successful for me, for us because you can see a client's job change like, for example, on LinkedIn, you can congratulate them. You can wish them happy birthdays and so forth, promotions. That's been very meaningful to stay connected with people. I think that when you're able to improve connections and increase engagement, that that makes you more referable, because you're able to share in what's going on and what your clients are experiencing. But I can't say, oh, based on 600 posts on LinkedIn, we generated-- we brought in $10 million of money that month. I don't have that metric. But I would say that people appreciate the fact that we're connected. TOM BOCZAR: Let's talk about some operational challenges that all firms face. How does your firm address regulatory and compliance issues? Obviously, the burden-- it just keeps getting bigger and bigger and harder and harder. RITA CHENG: So Stacy, you want to go first? STACY FRANCIS: Sure. Yeah. I hate this topic. I'll just be honest. So when we first moved from state registered to SEC registered, we tried to do all of our compliance in office. And it was awful. It was just awful of not quite knowing all the answers, because I feel like in compliance, in that area, there's a lot of gray. There's still a lot of gray. I mean if there was just a manual to say it has to be done this way, and there weren't new topics or new issues coming up on a weekly basis, it'd be much easier. So we work with an amazing woman, Cindy, out of Texas. And she is our compliance consultant, and she audits us every year as if she is the SEC. And from there, we get a lot of feedback of what we need to do differently, what we need to implement, if there are new issues that we really need to be focusing on. The good news is that because of all of this, we have systems and operations in place. We have operation manuals for everything. So like Rita had said, we have all of our email archived. We have all of our social media archived. We have all of any posts that our team members are putting on. We're going in and just double checking their social media too. But it doesn't have to take a long time to put these processes in place, and it doesn't have to be done by you, because your time is better spent elsewhere. But you just put operations in place, and then you have your junior staff that that's part of their role. RITA CHENG: Absolutely. Can I do compliance? I absolutely can do compliance. I know compliance, but I would never want to be a compliance officer. We outsource that, but we don't just like outsource it and forget about it. We work on it a little bit every month, so it's not overwhelming. I mean my advice is for everyone to look at what you're good at, what you like to do, and think about if that's really the best use of your time. And there's a lot of professionals that can help you be proactive. TOM BOCZAR: What about information security? That seems to be a topic that, obviously, is important, but at the broker-dealer level, the RIA level, it's critically important. Anything special that you're doing in that area? STACY FRANCIS: That's another area that we outsource, and we have a great IT firm that works with a lot of financial planning firms to help us. We also are paperless. We were out of our offices because of Hurricane Sandy for about two and 1/2 months, and we were fortunate to be up and working within 12 hours of the flood, even though our offices were essentially condemned. But we have very specific ways that we can dial into our computers, where it's safe, and trust me. That is another area that I have no expertise whatsoever, so it's just kind of we hired the IT people. They tell us what to do, and as painful as it is, we write very big checks every month to make sure it's all working and what we're doing is right. RITA CHENG: So we want to make sure that we serve our clients and are responsive and attentive to their needs. But we also have to make sure we're compliant. So sometimes clients will be like, can you just email me that tax form? No, I can't, because, well-- so we have evolved. We also use secure encrypted email, and that's been very helpful for our clients. We have secure backup in the cloud. I mean this is like belts and suspenders, but to me, it's priceless, because you don't want the wrong information in the wrong hands of the wrong people. TOM BOCZAR: Let's move on-- excuse me-- let's move on and talk a little about, how do you find and recruit talent in terms of diversity? We had mentioned previously the article about this small percentage of women advisors. Are you actively recruiting more women and minorities these days? RITA CHENG: So I think I would actually rather teach someone and mold them from scratch than have to undo bad habits. So I think that a lot of times, you just have to think about what skills that you value and where you need, and you have to always-- the saying is, we'll always be closing. You always have to be recruiting or always to be out there looking for talent, because you are always going to want to make room for talented individuals. As far as diversity is concerned, I think that we have to be intentional with this, meaning you can't just say, you know what? I've heard a lot of firms talk to me about this. So many people said, hey, Rita, how do we find more people like you? I'm like, well, you know, it's not that easy, but you have to think about who you're serving, who you want to serve, and the skills that you're looking for. And instead of saying, hey, I want this type of candidate, you have to prioritize and think what's important to you. The numbers are shocking, but the good news about the numbers is being what they are, it only can get better from here. I think that the other thing when we're talking about recruiting more women and minorities, I mentioned this earlier. We have to think about how we're communicating the value being an advisor. A lot of the surveys-- CFP Board just did this survey, and they surveyed women. And they asked women, what do you enjoy most about being an advisor? What attracted you to this? And they'll say, helping people. So we need to be emphasizing helping people, making a difference in our clients' lives. And I think that we can connect with other people. The last item on this list is compensation models. For some women and also minorities and people of multicultural background, they don't necessarily understand how our industry works. They think that it's all commission or that they have to sell. So those are things that we need to be very intentional on how we're even creating a job description. TOM BOCZAR: How about succession planning, Stacy. Do you have a plan in place for your firm? STACY FRANCIS: So I have a plan in place, and essentially, it's on two areas. It's both for the charity, because I am the founder of the charity, and also for Francis Financial. So once I die and everybody's done with the funeral, they'll be putting their party hats on, because the firm gets $2 million for Francis Financial, and then the charity gets a million dollars. And what I've done is I have built a team for each, where they can operate without me. Now I will tell you that's not 100% true. There is still one function that I play that could be detrimental to the firm, and that is business development. Right now, for Francis Financial, I bring in 99.999% of every single dollar that comes in. Now that's something that I realize is not sustainable for the firm. And so we all are learning how to do business development. And so that is the piece that we are working on. We have a book club. It sounds really odd, but we meet once a month. We talk about different books, about how to grow your business, how to network without any pressure so that they still have their salary. They still have their bonus. But we have an incentive comp structure, where they get anywhere from 10% to 30% of AUM revenue straight to their pocket, if they bring in clients. And we're starting to see more traction with that. So that is the positive that it's in place. But I will tell you, there's a lot more work to be done. TOM BOCZAR: Rita, how about on your end? RITA CHENG: So I do have a succession plan in place. I have three life insurance policies, because I still have children under the age of 18. But if anything were to happen to me, there is life insurance that would go for a business continuity. If I don't die, I also have disability insurance. I think if there's anything you take away, it's like Rita likes insurance. So I made-- it's not perfect, but at least there will be resources. If I leave this world, there's going to be resources. If I don't leave this world, there'll be resources. But I've been more of the center of a lot of the client relationships, because these were legacy clients from my former employer. So we're working on teaching everyone to develop business, but I didn't want it to be a situation, where you just give people a stack of leads and say, hey, go call, and bring in business, and they don't know what to do. I'd rather build people from the inside out. TOM BOCZAR: We're going to now talk about industry trends, and as sort of a general thought to get us started, what do you think about the-- right now would be the greatest threat to your firm's continued existence? STACY FRANCIS: You know, if you had asked me six months ago about this whole fee compression, because I've been reading about it for years, I would have looked at you and said, you're absolutely crazy. We're not feeling any of that. And as I mentioned, we're probably more expensive than most wealth managers out there. But over the last six months, since I had that, you know, a couple glasses of wine with friends saying that to other advisors, we've started to feel it a little bit. We lost a potential client couple coming in, who just sold their business. Realistically, not on our ideal client, not really our ideal client. But they were going to a firm offering them 50 basis points. There was just nothing, absolutely nothing that we could do to be able to match that. So we have, from this, just gotten that much more devoted and that much more serious about who we serve, who we serve well, and continuing to develop solutions so that the price tag doesn't matter, because otherwise, if we're going to try and go head to head with the 50 basis points or the Vanguard wealth management solution, we're absolutely going to lose. So that would be, I would say, something that we think about and is a big part of our planning. TOM BOCZAR: Rita, your biggest risk ? RITA CHENG: Sure, so I think about how the world was back in the day. Back in the day wasn't that long ago. It was like 2001, 2002. The mindset was, OK, if I give you my portfolio, you're going to give me advice. The notion of separating investment advice from financial planning seems unconventional. Why should I pay you a fee? I can get it for free. It doesn't mean that they're not sensitive to fees. I've seen this over the past 10 years, and I see this continuing, is people are going to value financial planning advice and goal tracking. There are robos out there, and the notion of robo technology isn't necessarily a bad thing. We all use robo technology for our newsletters, but to compete with robo advisors, it's been clear to me that you definitely need to emphasize the value you provide to your clients. And in our case, it is the ongoing advice and goal tracking. Should I refinance my house? I have these stock options. I have restricted stocks. So it's things not just related to the money, but the taxes. And then independent advice-- that's going to be really important, because people are a little bit skeptical. And there is a period in time, where trust was at an all time low, skepticism an all time high. I feel like trust is getting better. So I see people being more savvy and asking more questions. And in my mind, I think that advisors of the future need to be empathetic, but they also need to not fear technology. TOM BOCZAR: In terms of the competitiveness in the landscape, if you go back 30 years, you would've seen RIAs would be managing money. You would see that the CPA would be doing the taxes. The estate lawyer would be doing the estate plan. Now it seems that it's all converging. These seemingly different disciplines, you have now estate planning attorneys, who are fearful there's not going to be an estate tax. So they're now doing more financial planning than the estate planning. You have RIAs doing planning. You have CPAs through platforms like HD Vest, doing investment advice and planning, not just the taxes. So do you feel that competitive pressure not just from other wealth managers, but other? STACY FRANCIS: Yeah. Yeah, so we lost our biggest referral source that we had ever had, because he took his moderate to small tax practice and joined our biggest competitor in New York, which really upset me. Really upset me. And there was a huge funnel that just got turned off, and we suffered significantly. In fact, our AUM growth that year-- we barely grew. It was absolutely, absolutely pathetic. And it taught me a couple of things-- back to mistakes. Don't put all your eggs in one basket, number one. Number two, think about other ways to grow your practice other than just referrals. So, of course, not just have one, but have many referral sources. You yourself put other ways to get clients through the website, through speaking, and things like that, because the market is only going to get more competitive, because we talked about the hourly model does not work. That's what CPAs use. That's typically what estate planners use. And those areas are becoming more and more commoditized, just as parts of our field are. So if you don't get smart about who you're going to serve and how you're going to be different other than just choosing one investment product or the other, you're probably not going to be in this room in 10 years. TOM BOCZAR: Rita, do you feel the same competitive pressure? RITA CHENG: Sure, I feel that there is competition out there, but as competitive as it is for all of us as advisors, think about the confusion it's causing the consumer. And I have no problem sharing this. In 2008-- 2008 was like a rough year for all of us. But remember how I mentioned the focus of our firm is financial planning. We do not take pure AUM clients. That year, our revenue was down 8%. How could you only be down 8%? Well, because if clients really needed the money within three years, they were in cash. And people pay us a financial planning fee, which is separate. We're not double dipping. It's separate from investment management, so that allows us to serve younger clients and allow us to serve younger clients more profitably, and then build wealth over time. I think that's going to be really important. Of course, I know some of the clients that we serve, particular niches, multicultural families like mine, there's probably not a lot of people going after those families. But there's still a lot of competition out there. TOM BOCZAR: Let's talk about the move towards passive management. You combine that with the advent of robo advising, and it almost seems that some bad things can happen in terms of the entire tide is going up. It's lifting the boat, so the bad stocks are going up with the good ones just because of all volume that's just moving indiscriminately. What do you think about that trend? Is that going to continue? And if it does turn, how would that impact the wealth management business? STACY FRANCIS: We actually made some very strategic changes in our portfolio over the last couple of years, moving a little bit away from active management towards active management in certain sectors with additional high risk, such as emerging markets, develop international, Europe, for example. And we did that for a couple reasons-- partially to bring down expenses in the portfolio, also to bring down taxes. It gives our clients a lot of comfort that we can control what we control when you have everything else that you can't control. But there is going to be a little bit of a shift back to more active management when the tide that is right now in goes out, and you see that the person bathing was actually naked, because over the last, essentially, decade, passive has outperformed active. You tend to see active do better in markets like 2008 markets, where there's actually significant downturn. And we will see a big downturn, eventually. And that's where I think that there might be a little bit more willingness to have some parts of the portfolio, at least in some more actively focused. TOM BOCZAR: Rita, your thoughts on that? RITA CHENG: Sure, so you asked me earlier, what is the value proposition we provide to our clients? And I mentioned clarity, confidence, and control. But this is what I think all of us in the room can do a better job at communicating with our clients. Our job is to help our clients reach their life goals in the most efficient manner with respect to risk, taxes, and time. At the end of the day, yes, it's active versus passive, passive versus active. But sometimes it's really both. And if you help your clients reach their life goals, so a client never thought she'd get remarried and see love twice. Got remarried. She said, Rita, I want to retire when I'm 60 instead of 62. My husband's nine years older, and I want to spend time with him. I mentioned this to Stacy before we started the panel. It's really comforting when you can tell the client, it's OK. You can take a two-year hit on your pension, but then you're going to delay social security to maximize your benefits. She did get to her life goal, which is to spend time with her husband in the most efficient manner with respect to time, 60 versus 62, taxes by helping her defer social security. You're able to mitigate the impact on taxes, because she's taking out money in her 60s and not hitting as large a RMD over 70 and 1/2. That's a little bit nerdy, but I just wanted to throw that out there. And then finally, risk. She's able to sleep at night, and these are really important at the end of the day. They're not going to ask, did I pay you 80 more basis points? TOM BOCZAR: Don't know if you had the opportunity to sit into Professor Statman's decumulation presentation this morning. If you did, anything to add to that? Is that a risk that you're facing? How do you feel about that? STACY FRANCIS: You know, it's interesting. We have a wonderful client, who we update her plan once a year and say, Doti, you can retire. And she's like, I know. I know I can, but I just don't feel comfortable retiring and taking anything from that portfolio. And she's the woman who gets so excited to be able to write $1,000 check to her portfolio on a monthly basis. And granted that portfolio will last her for the rest of her life at several million dollars, she is a person that we have dealt with that the decumulation phase is very scary. I also realize that so many of the women that we work with through divorce, even though they might be in their 40s, guess what. They're in decumulation. You wouldn't think of it, but they are, because they're getting a $5 million portfolio, and they have to buy a home in New York City. It doesn't sound so bad, but guess what. It is, because $3 million goes to the house. They have to live on $2 million for the rest of their life, and they're 40. So how do we give them comfort? Well, sometimes there may not be comfort. Maybe you can't make that work. But you need to then be updating their financial plans, because guess what. The numbers don't lie. So if there's decumulation issues, updating their plan more regularly is a must, not an option, because you need to show them that, again, it's still working, even though you just had your roof replacement for $20,000 that we didn't plan for. TOM BOCZAR: Rita, I'm going to hit you with another question. We're running out of time, and I wanted to hit some of the questions. In your view, what has changed the most in the business the last 10 years, and what do you think is going to change most in the next 10 years? RITA CHENG: I think what's changed the most-- because if you go back 10 years, that was when the global financial crisis was starting to happen-- is a long time ago, people would be like, why do I want to work with someone independent? It was like you trusted the large names. Now people really value independent advice. Even if-- and I'm not like picking on the large firms. They love their advisors at the large firms, but they might not necessarily trust the company that they work for. I think the trend that I've seen-- and I think this is only going to continue-- is people really do like-- they value objectivity and transparency. And this is a place where I think independent firms can shine. I mean you have the opportunity to have your own special website and branding and communicate in a way that large firms can't. TOM BOCZAR: Stacy, your thoughts? Past 10, forward 10. STACY FRANCIS: Yeah, past 10, forward 10. I mean what's happened in the last 10 years and the change is nowhere near what we're going to see over the next 10. We're going to see a mass shaking out of the industry itself. Those that survive will survive, because they've been very clear about what they do, and they do it differently in a unique and special way. As far as for me, the biggest piece that I'm getting my head around that we're all going to have to get our head around in this industry is merging the beautiful high touch with technology. So that means having web portals, having screen scrapes so that people can go in and see their assets that they have with you and outside like a mint.com, having the ability to track their budgeting versus what you have in the plan, being able to potentially offer even less expensive solutions by also using robos for those not as productive or economically viable clients that we might still have coming on or that we want to bring on, because they're family members of higher net worth clients that we have. There's a lot of change. It scares me, but if anything, kind of what we talked about earlier today-- pivoting-- this is a big pivot point. And if you don't pivot, you might accidentally go off the cliff. So I think that we all need to think about pivoting. TOM BOCZAR: Real, fast your thoughts on where we are with the fiduciary rule. Is that inevitable? Is that important to your clients to raise that? RITA CHENG: So being a fiduciary, I talk about that a lot with clients-- fiduciary versus suitability. I mean I think that perhaps DC clients are more in tune to this, but it's really important. I've had people like message me, you're a fiduciary, Rita, right? Right. Oh, that makes me feel really good. I think this is going to be really important. I don't know the details of what's going on with the regulators, but I have always-- that's one of the reasons why I wanted to be independent is I really wanted to be able to deliver fiduciary level advice. But being a fiduciary, a lot of people confuse being a fiduciary with your compensation model. We are all fiduciaries, so I'll give you an example is if you're doing a comprehensive financial plan for people, it doesn't matter if you have your insurance license or not. If you have held yourself as a fiduciary, you better make sure that those beneficiary designations are where they need to be and not to an ex. TOM BOCZAR: We're almost out of time, so I'm going to hit you with one last question and ask you in one sentence, what's the most valuable advice you can impart to an advisor who's seeking to build a truly client-focused advisory firm to serve 21st century clients? STACY FRANCIS: That's a tough one. It comes down to God gave you two ears and one mouth. Use them appropriately. And actually show the client that you listened and proved it to them. TOM BOCZAR: Very good. Rita, any thoughts? RITA CHENG: Sure. So Zig Ziglar said, people don't care how much you know. They just need to know how much you care. TOM BOCZAR: Well, we're out of time, but I want to thank each of you for being so generous with your time and in joining us for this first ever panel discussion at the CFA Institute's Annual Wealth Management Conference. I think our panelists did a terrific job. Let's give them a round of applause. [APPLAUSE] Thanks for being here. RITA CHENG: Thank you. You did good.