Cybersecurity: Best Practices and Webinar Replay

Webinar Replay

AdvisorAssist recently hosted a webinar titled "Cybersecurity for RIAs: How Safe are You?" Click here to watch or download the replay.

What you need to know

When seeking to act in their client’s best interest, registered investment advisors collect private information from their clients. This information forms the basis for the advice they will provide to their client, whether through consultation or discretionary investment management. Understandably, the advisor is in continuous possession of private client information while servicing a particular client, investor, or related participant.

Section 30(a) of Regulation S-P under the Gramm-Leach-Bliley Act of 1999 requires advisors (along with broker-dealers and investment companies) to adopt policies and procedures that create administrative, technical, and physical safeguards for the protection of customer records and information. These policies and procedures must must be reasonably designed to:

• Ensure the security and confidentiality of customer records and information;
• Protect against any anticipated threats or hazards to the security or integrity of customer records and information; and
• Protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer.

The SEC has said that an RIA’s policies and procedures must include how advisors conduct periodic risk assessments, implement a firewall, encrypt private client information stored electronically, and maintain a response plan for cybersecurity incidents. Advisors are expected to anticipate potential cybersecurity events and have clear procedures in place rather than waiting to react once a breach occurs.¹.

Why You Should Care

Identify theft, cyber fraud and high profile security breaches have become common occurrences, especially among commercial merchants and asset managers. Previously, we covered common misperceptions that sometimes stop advisors from properly protecting advisory clients from cyber threats. Since then, the SEC Office of Compliance Inspections and Examinations (“OCIE”) published a series of Risk Alerts announcing a priority for examinations to identify cybersecurity risks and assess cybersecurity preparedness in the securities industry.

The focus of the OCIE during exams will be on the following areas:

• Governance and Risk Assessment, including the level of communication to, and involvement of, senior management and boards of directors.
• Access Rights and Controls, including a review of controls associated with remote access, customer logins, passwords, protocols to address customer login problems, network segmentation, and tiered access.
• Data Loss Prevention, including how advisors verify the authenticity of a customer request to transfer funds.
• Vendor Management, including due diligence with regard to vendor selection, monitoring and oversight of vendors, and contract terms.
• Training, including how procedures for responding to cyber incidents under an incident response plan are integrated into regular personnel and vendor training.

Our Recommendations

To ensure that your firm is keeping up with regulatory requirements and industry best practices in this area AdvisorAssist recommends that the CCO:

• Review written policies and procedures to ensure they include:
1. Identification of Cybersecurity risks
2. Controls in place to detect and mitigate the Cybersecurity risks
3. Assessment of points of vulnerability, both operational and technological
4. A mechanism to gauge the effectiveness of policies and procedures that protect the your networks and sensitive information
5. Descriptions of how you will respond to a breach of security
• Train your employees on cybersecurity policies. The policies must be communicated and enforced by the highest levels of management.
• Document all testing and monitoring of cybersecurity policies.
• Engage an independent third party provider to conduct internal and external vulnerability assessment scans and penetration tests.
• Review your Privacy Policy and update as needed.

^{1. See SEC Release No. 4204 published September 22, 2015. ↩ Back to note 1}

Contributors:
Brendan Furey
Michael Conlon

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CCO Series (2015) - Financial Statements

The financial statements that you maintain for your RIA firm, which include income statements, balance sheets, statements of cash flows, are powerful tools. Apart from the fact that they are a required to be maintained for books and records purposes, the data that they contain hold the key many other critical regulatory and practice management activities.

RIA Financial Statements In a Nutshell

Maintaining complete and accurate financials on your business simply makes good business sense. However, our primary purpose here is the maintenance of financial statements for compliance purposes, which may include:

• Balance Sheet and Income Statement
• Cash Journals - Documentation including cash receipts and disbursements, records, and any other records of original entry forming the basis of entries in any ledger
• Banking Information - All checkbooks, bank statements, cancelled checks and cash reconciliations for your firm
• Business Expenses - All bills or statements (paid or unpaid) relating to the business of your firm
• Other Financial Statements - All trial balances, financial statements, and internal audit working papers relating to the business of the firm

While maintaining proper financial statements is required in order to avoid regulatory sanctions, it can also be a useful tool for RIAs. Creating and reviewing financial statements on a regular basis can prove to be an indicator of the health of the firm. The financial statements can demonstrate that the firm is performing as intended and disclosed, or act as a tool to show areas where it can improve. Ensuring financial stability of a firm is an important step in gaining client and regulatory confidence. Proving to be solvent and possess secure financials could be the difference between gaining and losing clients, or spending more time with regulators during an exam.

State Specific Requirements

Many of the regulations regarding financial statements for RIAs are dependent on the advisor’s principal state of business. Along with SEC Regulators requiring specific actions regarding financial statements, each state also has specific requirements on the issue. As an advisor it is important to recognize your specific state’s requirements in order to avoid unnecessary regulatory issues. Currently, there are states that require audited financial statements to be sent to their state regulatory agency each year. This applies only if the firm is registered with the state, and does not apply to SEC firms.

It is important to stay updated on your specific state’s requirements in order to avoid unnecessary regulatory issues. Depending on the state, there may be minimum net worth requirements that are to be demonstrated through the financial statements. Where applicable, your firm’s books and records archive should contain the necessary financial statements and audit results.

Custody’s Additional Burdens

When an advisor claims custody of their clients’ assets, there are additional rules and regulations to be aware of in regards to Financial Statements. Advisors that also act as Custodians may be required to submit an audited balance sheet at the end of the their fiscal year. This balance sheet must be prepared in accordance with generally accepted accounting principles (GAAP), and audited by a certified public accountant (CPA). The audit must also include the accountant’s opinion and other qualified notes regarding the firm’s financials. Custodian advisors must also provide clients with a quarterly account statement that outlines all of the activity of their funds in the given period.

Through the Regulator's Eyes

Regulators expect RIA firms to maintain updated financial statements that are created in accordance with generally accepted accounting principles (GAAP). Regulators have put an emphasis on monitoring the financial statements of newly-registered advisors. If they are not completed correctly, it is a sign that a further examination is needed. Compliant financial statements prove to the regulators that the firm is running effectively. Proper maintenance and submission, if required, of updated financial statements is one key way to avoid regulatory sanctions.

CCO Best Practices

• Do not approach financial statements as just a way to avoid regulatory sanctions. They are important at spotting financial irregularities which might benefit you.
• Utilize financial statements as a powerful tool to indicate advisory effectiveness and compliance.
• Always stay informed of specific state requirements, which may differ from SEC and other states’ regulations, for example:
  • Alabama and New York require audited financial statements regardless of custody.
  • If the firm claims custody, the following states require annual audited financial statements: Arizona, Arkansas, California, Washington D.C, Florida, Hawaii, New Mexico and Oregon.
  • Other states may not require financial statements to be submitted at all.
• Maintain accurate financial statements, in accordance with generally accepted accounting principles (GAAP).
• Claiming custody of clients’ assets will require an audit by an independent public accountant registered with, and subject to regular inspection by, the PCAOB.

The AdvisorAssist CCO Series is a collection of blog posts that cover each of the elements of your RIA's compliance program.  Each post will provide an overview of one compliance topic, including our insights on how regulators view each topic as well as some practical steps to help Chief Compliance Officers address this topic. As always, we would welcome your comments and thoughts.

Michael Conlon

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The AdvisorAssist CCO Series: Business Continuity Planning (BCP)

Each of us tend to either ignore or underestimate the possibility of disasters occurring in our futures. This has been proven time and again by cognitive science research and often referred to as "normalcy bias."

In our experience, RIA firms place a high importance on business continuity planning, yet often (particularly with smaller firms), either postpone or abbreviate the process of creating, testing and maintaining their business continuity plans.

These tendencies leave them exposed to the risk of disruptions in their ongoing responsibilities to clients. However, they would all agree that the protection of client information is essential to maintaining the integrity of their business.

Advisor Business Continuity Planning (BCP) In a Nutshell

We employ this framework to help RIA firms implement their business continuity planning:

1. Business Analysis. Identify the critical business processes that you must perform daily, as well as those that become critical in a typical 10-day period. Think through the possible and likely scenarios that could result in a business disruption (i.e. power outages, weather, systems failures in your office building). Take an inventory of all technologies and external partners that you rely on to run your business.
2. Plan Design. Define the scope of your plan. (Will it cover disaster recovery only or should it be expanded to include succession planning to mitigate key-person risk?) Your BCP must also contain: firm policy/plan expectations, contingency scenarios, critical business functions (Day 1 vs. Day 10), critical business systems and how to access them, Contact information for employees, vendors and partners, alternate work location(s), back-up and restoration of critical information, protection of client information, and protocols for testing, updates and revisions.
3. Implementation. With the buy-in and support of your leadership, socialize and review the plan with your team and provide training (and cross-training) for key activities, data access and data protection. Ensure that your plan is accessible to everyone from a remote location (e.g. current copy at home, copy on separate secure server or Intranet)
4. Testing. Perform a "real" test at least annually by following the BCP as written. Your BCP should be self-implementing; it should contain the process for how to continue your business operations. Document gaps in the plan and document deviations from the plan. Require full participation (at the same time!) and test all critical functions and systems, including operations, vendors, and communications.
5. Maintenance. Update your plan on a real-time basis for process changes, technology enhancements, regulatory changes, and contact information. Deliver and train your team on changes.

Through the Regulator's Eyes

The SEC has identified business continuity planning as a requirement for RIA firms. (See SEC Release IA 2204) While they require policies and procedures to address business continuity, they do not mandate specific requirements for the BCP, other than it must address the procedures to meet the fiduciary responsibility to protect client interests from being at risk as a result of an advisor’s inability to operate. Some states have adopted formal BCP requirements for state-registered RIA firms. If you are a state-registered RIA firm, be sure to verify your BCP meets applicable state requirements, or check with your compliance consultant.

Regardless of the implicit or explicit requirements, all RIAs should have a formal BCP in place to demonstrate to regulators and clients that they have planned for the undisrupted performance of their fiduciary duty.

CCO Best Practices

• Plan for the 99.5% and not the 0.5%
• Ensure buy-in from senior management and owners
• Test your plan at least annually by selecting one day to conduct business from alternate location(s)
• Update your plan with new and changing contact information for staff and external partners
• Ensure that information security is a priority of your BCP, including the protection of client information during business disruptions
• For state-registered RIAs, validate against the NASAA model rule for business continuity planning
• Leverage your business continuity planning obligations by using them as a foundation for a documented operating plan (Operating Manual) for your business. Your firm's activities can run just as smoothly day-to-day as they do during business disruption!

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The AdvisorAssist CCO Series is a collection of blog posts that cover each of the elements of your RIA's compliance program.  Each post will provide an overview of one compliance topic, including our insights on how regulators view each topic as well as some practical steps to help Chief Compliance Officers address this topic. As always, we would welcome your comments and thoughts.
Brian Lauzon

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Guest Post from Susan Weiner, CFA: Legal Dangers for Financial Bloggers

Legal dangers for financial bloggers: Two misconceptions, three resources, one suggestion By Susan Weiner, CFA

No financial blogger wants to get in trouble with the law, become liable for financial damages, or tarnish his or her reputation. You’ve probably thought about compliance with laws governing advisors registered with the SEC, FINRA, or other regulators. But what about copyright laws?

I believe a significant number of advisor-bloggers are guilty of copyright violations when they share information written by others. I have come across several well-meaning advisors who mistakenly believed they acted within the law when they copied all or part of other people’s blog posts. In fact, they had broken the law and could have been on the hook for financial penalties.

To help you cope, I’ve written this article sharing two common misconceptions, three resources, and one suggestion to keep you on the right side of the law and make everybody happy.

Misconception #1: If you credit and link, that’s enough

Most advisors and other financial bloggers know you shouldn’t copy someone else’s work and pass it off as your own. However, I’ve seen advisors who think it’s okay to copy an entire newspaper article on their blogs as long as they name the author and publication details in addition to linking online to the original article.

This is not correct, as you’ll realize when you check out my resource section below.

Misconception #2: If you only copy XXX words, it’s okay

There is no word-count rule that protects you from charges of copyright infringement. If you use the “heart” of the work, you’re in trouble, as explained in the “Amount and Substantiality of Portion Used” section of the University of Minnesota University Libraries’ excellent web pages on copyright.

In fact, even short phrases may be protected by copyright, according to “Copyright Protection for Short Phrases” in the Copyright and Fair Use section of the Stanford University Libraries website.

How can you share content without violating copyright? Check out the resources in the next section.

Resources for “fair use” of copyrighted material

Lawyers use the term “fair use” to describe the legal use of copyrighted materials. Here are two websites and a printable checklist that will help you assess whether the amount of another author’s text that you reproduce in your blog post is acceptable. There are no short, easy guidelines that fit all situations.

1. “Understanding Fair Use” is a good overview of the issues, presented by the University of Minnesota’s University Libraries.
2. “Fair Use,” a book chapter on this topic, is available on the Stanford University Libraries website.
3. “Thinking Through Fair Use,” a printable check list from the U. of Minn. University library, will help you think through the issues for specific materials.

Suggestion to ensure “fair use”

When in doubt, ask the author for permission to reproduce the content on your blog. Don’t assume they’ll say “yes.” However, you may score points with writers who are anxious to spread their message. If the writer says, “No,” at least you know to tread carefully in how you use the author’s content.

By the way, I don’t oppose bloggers summarizing or adding their own spin to other people’s content. But please don’t violate copyright by exceeding what is considered “fair use.”

Susan Weiner, CFA, is the author of Financial Blogging: How to Write Powerful Posts That Attract Clients, which is tailored to financial planners, wealth managers, investment managers, and the marketing and communications staff that supports them. Read her blog or follow her on Twitter, Google+ or the Investment Writing Facebook page.

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Elements of an Effective Social Media Strategy

Industry reports show that social media adoption among registered investment advisors has grown steadily over the past several years. More recently, we are now starting to hear more about the lackluster results that these efforts have yielded.

My first reaction to this is always, "Building awareness and developing a brand takes time.", which is certainly true but there's more to the story.

Social media marketing (not unlike any other strategic initiative) needs to rest on top of a well-thought out strategy. Social marketing is not a magic potion--it will not make your firm an effective marketer by itself. Dabbling in social media is like waking up one day and saying, "Let's do a marketing mailer, follow up with everyone on the list and seeing if we can get some leads." The ROI on one-off efforts like this rarely looks appealing in hindsight. (I can attest to that personally!)

To truly give social media marketing a chance to yield positive results, devote some time to developing a social media strategy first. Here is a framework for you to use to get you thinking about developing your RIA firm's social media strategy. By performing this exercise first, you will add deliberateness and purpose to the time you devote to building awareness among your target audience(s) and fostering your firm's brand.

Elements of Social Media Strategy

1. Establish mutually-shared firm-level objectives. These typically come from a broader strategic planning exercise that defines your value proposition, positioning and key points of differentiation.
   
2. Establish specific goals for your social media activities. These may include: generating leads, establishing expertise, or driving traffic to your website or blog.
   
3. Identify which social media outlets are most prevalent among your intended audience. Let's face it, most of us don't have time to effectively embrace Facebook, Twitter, LinkedIn, Pinterest and a corporate blog all at the same time. Select a one or two to start and be sure that you are working towards building a brand-consistent social media presence across selected outlets.
   
4. Identify specific social media tactics and create a content calendar. Based on the social media sites that you prioritize, commit to a handful of specific activities like blogging, participating in LinkedIn discussions, posting articles or links on Facebook and Twitter. Whichever you choose, ensure that each tactic enforces your firm-level objectives and allows you to "humanize” your brand. Let your personality to shine through!
   
5. Establish a social media compliance policy. Remember that ANY social media activity is considered advertising (yes, even LinkedIn profiles.) Social media marketing is a very high priority for regulators these days. Make sure your firm has a social media policy in place and your social sites are properly archived.
   

Brian Lauzon

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Advisor Webinar: Share your love for Social Media this Valentines Day

If you love social media as much as we do, let's spend part of Valentines Day together. AdvisorAssist and ArchiveSocial we will share with you some insights into how advisors can confidently embrace these powerful tools by understanding the regulatory and strategic aspects of social media. Our webinar will cover topics like:

• The impact social media has had on advisor regulation and how to interpret the current "rules of the road"
  
• How advisors can integrate social media into their overall marketing strategy
  
• Strategies for simplifying compliance and record keeping

"Confident and Compliant Social Media for Advisors"

Thursday February 14, 2013 at 1:00-2:00 PM EST

REGISTER HERE

Brian Lauzon

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Top 10 AdvisorAssist Blog Posts from 2012

Here's some weekend reading: Top ten most popular AdvisorAssist Blog Posts from 2012.

Happy new year and thank you for following us!

SEC Announces "Presence Exams" for New RIAs

RIA Technology "Integration" Can Mean Many Things

Advisory Boards Bring the "Wisdom of Crowds" into Your Practice

Trends that will drive content marketing into your RIA's Marketing Plan

Cloud Computing for RIAs

"Regulatory Assets Under Management" Defined

RIA Key Person Risk: What are the options?

Regulators are Looking at the Accuracy of Advisors' AUM

Close the Perception-Reality Gap with Effective Client Surveys

A Business Model Structure to Help Advisors Manage Their Practices

Brian Lauzon

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Are You the Don Draper of Your Wealth Management Firm?

Admittedly I am a little late to the Mad Men party, but after having watched a few seasons on Netflix, I am totally hooked.

One of the reasons I have become such a fan is that the story line and setting (1960's Madison Avenue advertising agency) is chock full of business management and marketing lessons.  And given that it takes place in the early 60's, it's interesting to see how approaches to each have changed since then.

The main character, Don Draper (played by Jon Hamm) is a charismatic, talented ad executive who serves as creative director of Sterling Cooper, a fictitious boutique ad agency in New York. Since joining the firm's founders (Roger Sterling and Bert Cooper) he fast become the face of the firm and the person primarily responsible for bringing in new business.  He is revered and idolized by all.

In one episode, as Roger Sterling and Don discussed a client pitch that Don didn't want to attend, Roger insisted that he participate because in Roger's words, "Don, you..are Sterling Cooper."

What an incredible thing for someone to say (or hear)! Business models that rely heavily on creativity and relationships (advertising firms, asset managers or wealth managers) often find themselves in situations where an individual (or group of individuals) becomes "the firm". These individuals achieve this untenable position based on their seniority, power, personality or revenue-generating ability. Organizations that become overly-reliant on these "Don Drapers" ultimately face challenges, risks and limitations that will impact the performance and enterprise value of the firm.

Wealth management firms that revolve around their own versions of Don Draper bear significant key person and succession risk. Clients become trained to equate the firm with one individual. When that individual's (planned or unplanned) departure becomes a reality, so too goes the clients and the firm.

Organizations that foster these stars are also limited from a human capital perspective. With a culture that revolves around the talents of a small number of people, these firms tend to have a difficult time attracting new talent.  Their recruiting efforts often result in hiring "worker bees" rather than attracting innovative problem solvers that have the ability to grow with the firm, enhance the firm's value proposition and help it remain competitive.

Individual-centric firms also tend to suffer from the "guru effect", where one individual becomes the sole "go to" person for a particular task, like bringing in new business. If an entire organization remains reliant on the talents of one individual, growth becomes impeded by this person's capacity and the ability to scale the business is drastically curtailed.

If a future acquisition or merger is part of your firm's succession strategy, you will find yourself with more plentiful and attractive options if you have made diligent efforts to move beyond a star structure. This often means building a brand and culture that is shaped by founders but eventually permeates your entire organization.

As industries like ours mature, successful wealth management firms will evolve from being overly "people-dependent" organizations to ones that institutionalize their activities, resources and capabilities. Those that don't will find themselves competitively disadvantaged by limited scalability, a brand that lacks persistence, and a risk profile that makes it less attractive to clients, prospects and potential partners or acquirers.

Brian Lauzon

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Why you should run your business like it's for sale (even if it isn't)

The topic of RIA "enterprise value" is becoming increasingly mainstream throughout our industry.

What are the drivers of enterprise value and what can be done in the near term to improve the value that could potentially be placed on your RIA?

Hint:  All of the factors that potential acquirers expect or value are the same as those that will benefit your firm’s owners and employees today.

Check out our latest WealthManagement.com article here to learn more.

Brian Lauzon

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A Strategic Planning Success Story

One of AdvisorAssist's strategic planning clients recently launched her firm with some terrific early success. Her innovative business model has also caught the attention of the media.  

MoneyZen Wealth Management, founded by Manisha Thakor earlier this fall, was recently profiled in the WSJ as well as RIABiz.

Click here to see the WSJ article.
Click here to see RIABiz article.

Her early success comes as no surprise to anyone that either knows Manisha or had worked with her during her start up process.  She entered the investment advisory business with a crystal-clear sense of who she was, the type of firm that she wanted build, and how she wanted to serve her clients.

Chalk another one up for planning, focus and passion.

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Get Your RIA Team in the Right Positions

This past spring I helped coach my daughter's lacrosse team. Early in the season, our head coach assigned each girl a position, which ultimately became their permanent position for much of the year.

One Saturday, I was asked to coach the game solo because our head coach had a scheduling conflict. On game day, I asked my daughter what she thought about the positions that each girl was assigned. Her response went something like this:

"Katie always plays midfield (an offensive "scoring" position) because she says that's where she likes to play. She is really good but hasn't really scored much. Brooke and I have played defense all season. We both play midfield on our other lacrosse team and we both think we're pretty good at it."

We were 1-4 for the season at that point so I figured any change-ups I made might be worth trying. And even taking into consideration my bias for my daughter, she was actually pretty effective at midfield and proved it on other teams she had played on.

So I made the switch—Katie on defense; Brooke and my daughter at midfield. (If you heard the reactions from some of these 11 year-old girls, you’d appreciate that this was not an easy call to make!)

The result? Brooke and my daughter scored four goals between them (neither of them had scored all season).  Katie turned out to be a much better defensive player than she gave herself credit for.

In business, sometimes we have a tendency to slot people into a particular position and keep them there. Need an operations person?  Hire an operations person.  Done.

Over time, two things will probably happen:

1. Your needs as a firm change.
2. Your team member may develop different skills or interests.

Just about any firm will eventually undergo changes, like a new business model, different or new clients, a new technology or expanded partner relationships. Some firms may resist change because of the people they have on their team ("We can't automate that.  Mark will get upset").  Others may "hire around" change in a way that leaves excess capacity with other staff members.  And over time, hopefully your team is all growing their skill set or interests in a way that may make them a better fit for new or different activities that would add value to your firm.

In any case, RIA firm leaders should periodically take inventory of the resources they have (people, processes, technology) and their value-added activities to identify any gaps or mismatches between the two. Filling these gaps or fixing mismatches will often lead to:

• Employee training (or cross-training)
• New or modified job descriptions and role definitions
• Team changes (either hiring new staff or letting existing staff go)

Ensuring that you have the right players in the right positions at all times is a critical element to executing your long term plans, ensuring profitability and remaining competitive.  Take an inventory of your team and positions to see if any improvements could be made.

If you are interested in reading about a few thought-provoking RIA case studies, take a look at Finding Freedom to Focus on Strengths: Strategic Hires and Realignment, a white paper that Fidelity Institutional Wealth Services recently wrote.

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AdvisorAssist's debut article in WealthManagement.com!

We are excited to announce that AdvisorAssist will now be a regular contributor to WealthManagement.com!

Our articles will cover topics related to investment advisor compliance and practice management.  Our objective is to provide unique perspectives and actionable guidance to help advisors build, grow, protect and optimize their businesses.

Our debut article, Filter Failure, has been posted.  In it, we discuss some thoughts on how too many ideas can impede execution when it comes to managing your firm.

Thoughts and comments are always welcome!

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There is No Such Thing as a Marketing Problem

When we talk about our philosophy on RIA practice management, we often emphasize our “integrated approach” as a key differentiator. What do we mean by this? More importantly what does this mean for advisors?

We gained our expertise as practitioners serving on the front lines of both large and small investment advisory firms. Consequently, we developed an innate appreciation for the fact that execution (and results) hinge on coordination across each of the functions within the RIA. This coordination occurs only with an appreciation for how each of these functions relate to one another.

Understanding these relationships, we constantly view business issues through multiple lenses. So, when we work through a client’s distribution strategy, we naturally ask “Does this sync with your available resources? Are you leveraging technology appropriately (i.e. CRM)? Are there any compliance-related issues we should address?”

Russell Ackoff, a pioneer in the field of operational research once said:

"There is no such thing as a marketing problem or a financial problem or a production problem. These are points of view, not kinds of problems."

Anyone that has lead a successful business would agree. Business decisions rarely fit into neat, functional compartments.

The connections across your firm are everywhere. The key to successful execution is recognizing these connections and making sure that each function within your firm support one another.

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A Men's Soccer Coach Take on Strategy

I heard an investment advisor say recently "I don't care about strategic planning.  I do things instead."

To some people, "strategy" seems to have became the opposite of "action". Bad strategic planning (i.e. planning with inadequate buy-in from leaders, no follow through with action plan) is a waste of time. But if done right, it's usually the difference between success and failure. And if you're already successful, it's probably the difference between success and luck.

I was really glad to have found this article written by Mike Jacobs, men's soccer coach at University of Evansville. It's a quick and simple read for those that could use some convincing that strategic planning is the precursor for (not the opposite of) action.

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RIA Technology "Integration" Can Mean Many Things

Assembling a "dream team" of technology partners and vendors helps form the foundation for long term profitability and enterprise value.  With so many powerful technology options available to the advisor today, constructing the optimal "portfolio" of tools has never been more critical.

This process includes understanding key points of integration among vendors. "Integration" is not a black and white concept, but rather shades of grey along a spectrum.

• “Lite” integration, for instance, often simply means “single sign on” capabilities. Some integrations rely solely on data feeds between two programs, often with human intervention which has its obvious flaws. 
• "Application Programming Interface" (API) or web service integrations expose data from one application to another (ideally 2-way delivery) on a daily (“asynchronous”) or real-time (“synchronous”) basis. 
• “Full” integration will have all major functions updating in a real-time/2-way sync, with checks and balances and no human intervention.

Proper vendor due diligence includes developing a deeper understanding of exactly how integration occurs between two vendors.  The good news is that the prevailing winds call for more (not less) integration.  In the meantime, be sure to:

1. Develop a "technology roadmap" that identifies your desired points of integration and takes into consideration future plans for your RIA
2. Consider your workflows and processes prior to bringing on new technology
3. Coordinate among technology partners to understand exactly how technologies fit together

What are the key points of integration within your advisory firm?  

Are there areas where you could envision improvement?

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Trends that will drive content marketing into your RIA's Marketing Plan

How visible is your advisory firm?  Do you routinely produce content that positions your firm as a trusted expert on certain topics?  Marketing and positioning your firm with proprietary "content" should be on the top of your new business efforts.

Content marketing is an umbrella term encompassing all marketing formats that involve the creation and sharing of content with the intent to engage current and potential consumer bases. (Source: Wikipedia)  Think of content marketing as a super-charged, next generation replacement for the quarterly newsletter.  As a marketing strategy, it's closely related to "inbound marketing", where your efforts are focused on enhancing your firm's visibility, earning the attention and trust of your target markets with the ultimate objective of motivating your audience to seek you out.

Three major industry trends will ultimately make content marketing the most important aspect of an RIA's marketing strategy.

• Demographics.  Generation X and Y will not respond to solicitations the way their parents had.  In fact, they won't be as receptive to referrals either.  The purchasing process for members of Gen X and Gen Y begins with their own primary research.  This means that advisors will need sufficient viability to engender the trust and confidence of future wealth management decision makers.

• Delocalization.  The "service area" of the typical private wealth manager or high net worth RIA is often still defined by a relatively small geographical area.  The trend towards "delocalization" of advisory services that we are starting to see today will continue thanks to affordable, secure technology mediums.  Moreover, Gen X/Gen Y won't really care where their financial advisor is located. This trend will have an incredibly powerful impact on how and where RIAs compete for business.

• Specialization.  We believe that the wealth management industry will continue to trend towards specialization based on either a niche client need or service offering.  Comprehensive wealth management will be delivered with a team approach--a team made of all the required specialists.  This means that it will be increasingly more common for specialists to be plying their craft with clients anywhere in the world.  Technology, of course, is the key enabler to this trend.

Examples of content marketing include blogging, content curation and social media.

Blogs are a great way to warehouse and publicize your subject matter expertise.

Content curation is the process of collecting, modifying and publishing information that is relevant to your audience's interests or needs.  Good examples of web-based content curation tools include Scoop.it, Paper.li and Amplify.

Social media outlets like Linkedin, Twitter and Facebook are becoming an increasingly important option for your firm to engage with client, prospects, industry experts and peers.

Each of these tools should plug in to your RIA's overall marketing strategy and compliance program.  Your marketing strategy will help focus your efforts in these new mediums and ultimately will produce a higher ROI on the time you commit to content marketing.  With proper guidance and tools in place, utilizing social media and other content marketing tools is very much achievable from a compliance perspective.)

Have you had any experiences (good or bad) with content marketing?  What are your thoughts on these tools becoming an alternative to quarterly newsletters?  We'd love to hear your thoughts.

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Is your RIA's value proposition the missing link for client referrals?

How do advisors set the stage for client referrals?  A few recent blog posts got me thinking about this topic.

On his blog The Client Driven Practice, Stephen Wershing recently made some nice points about "trigger phrases" to help clients identify potential referrals for their advisor.  Michael Kitces of Nerd's Eye View posted some interesting ideas on the possibility that comprehensive or "holistic" advisors are less "referable" than those that focus on a particular niche.

Stephen and Michael make good cases for the importance of clarity--clarity in life events that may trigger a need for financial advice and clarity in the solutions that the advisor provides.

In our experience, your RIA's value proposition can become the central element that will make your firm more easily "referable".  A clear value proposition is also one of the keys to differentiating your practice and winning new business.

Someone taught me a long time ago that the secret to client management is to:

1) understand why you were hired,
2) deliver, and
3) remind clients routinely why they hired you and how you have delivered.

Your firm's value proposition fits perfectly into this messaging cycle.  Over time, these words become your brand.  And your brand is what your clients remember when the topic of financial advisory services comes up with potential referrals.

Solidifying your value proposition is not something that can be done in isolation.  For any strategic exercise to really gain traction, it is best to commit the time to a broader strategic planning effort.  Then, you can be sure that each of the moving parts within your RIA are all driving towards the same goals and that all of your resources are being deployed in ways that will create value for your clients.

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Cloud Computing for RIAs

As business owners and entrepreneurs, you are routinely faced with activities that distract you from your core competencies of managing clients and their portfolios. Many of these activities (managing people, business planning) simply come with running your own business and cannot (or should not) be avoided. Others, however, can be mitigated with thoughtful vendor selection and outsourcing.

Technology clearly falls into this latter category. As you know, AdvisorAssist has always advocated “cloud computing” solutions for RIA clients. (There are a small number of advisors that do have a genuine need for dedicated servers and IT infrastructure but they fall within a small minority.)

“Cloud computing” is simply the use of remote servers located on the Internet to store, manage, and process your data. Connecting to these Internet-based servers eliminates the need for you to purchase, install, maintain, and backup your own servers.

Our rationale is really based on the notion of strategic focus. Your business is wealth management and investment advisory services. Installing and maintaining dedicated servers nudges you into the IT business as well. With the proliferation of service providers that offer inexpensive access to server technology, it becomes more and more logical to outsource your IT infrastructure to those in the IT infrastructure business.

Of course, as compliance consultants we appreciate the importance of privacy and data security for registered investment advisors. The adoption of cloud-based technology does bring with it some additional responsibilities around vendor due diligence and oversight. However, we believe that the time and resources you will save far outweighs these efforts.

We have posted a presentation with some information on cloud computing, specifically dealing with the importance of data security and vendor selection/due diligence for RIAs.

If you haven’t already, we encourage you to consider moving towards a cloud-based infrastructure. If you have any questions on how to implement, please feel free to contact us.

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Close the Perception-Reality Gap with Effective Client Surveys

Are your clients happy with the value that your advisory firm provides them? Do you offer all of the services that they need (or expect) from a financial advisor? Do you fully understand their expectations and how they value each element of your service model?

Two industry surveys suggest that there is a meaningful gap between client satisfaction and advisor perception of client satisfaction. Last summer, the Institute for Private Investors (IPI) released a study revealing that 63% of ultra high net worth clients are "fully satisfied" with their advisors, compared to advisor perception of 95%. Another study conducted by Knowledge@Wharton and State Street Global Advisors (in 2006) indicates a similar gap between perception and reality.

Routine and thoughtful client surveys can help firms identify and reduce gaps between their perception of client satisfaction and actual client opinion. Here are a few best practices to help RIAs develop and implement client surveys.

1. Identify your primary objective for each survey. Depending on your circumstances, you may wish to focus your survey specifically on identifying the level of satisfaction among your clients. You could also include questions that will help you better segment your clients based on their needs, expectations, and preferred communication methods. Once you feel confident that overall satisfaction is solid, surveys are a great way to identify opportunities for new service offerings or capabilities that would help deepen client relationships.
2. Construct simple, clear, "bias-free" questions. Collecting and analyzing client data takes time-both yours as well as your client's. To ensure that you are capturing useful information, effective survey construction is critical. For instance, always begin your survey with relatively simple, "non-threatening" questions. Organize your questions in a way that makes it obvious to clients what it is that you are trying to capture. Be sure that questions are structured in a way that is not biased or "leading" in any way.
3. Analyze findings and implement change. Plan a session with your team to analyze survey results and identify ways to turn the data you collect into information that you can use to improve your service offerings. If you implement changes, find opportunities communicate to clients that the changes were based on their feedback. This is such a powerful message!

In relationship-based businesses, soliciting and receiving constructive criticism is always a challenge. (This is probably one the reasons for the perception-reality gaps noted above.) To make this effort as productive as possible, consider using a third-party consulting firm to:

• Construct effective surveys;
• Collect and aggregate data; and
• Facilitate analysis of data.

By using a third-party, you are minimizing the likelihood of bias entering into survey construction and data analysis. You are also much more likely to elicit frank, helpful suggestions from your clients.

The RIA industry is dominated by professionals that demonstrate both the willingness and skills to exceed client expectations. With that said, I am not terribly surprised when I read surveys like those mentioned here. It is particularly difficult to ask for (and receive) constructive suggestions from clients with whom you have a deep, often personal relationship. Likewise, decision-making within RIA firms usually rests with one (or a few) entrepreneurial founders that often allow personal biases to cloud their "view of the world".  (We all do it--we're human.)

Conducting client surveys through a third-party facilitator can help you move past these human factors and begin to close the gap between perception and reality among your clients.

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Advisory Boards Bring the "Wisdom of Crowds" into Your Practice

Could a diverse group of 5,000 people that know nothing about the advisory industry make better business decisions than a single 30- year industry veteran?  Setting aside the coordination needed to collect and interpret 5,000 opinions, the short answer is "yes."

Now back to the world of actionable advice!

You can improve the quality of your decisions by putting together an advisory board for your RIA firm. In his book Wisdom of Crowds, James Surowiecki shows how a collection of diverse individuals can make better decisions than any one individual (even when the "crowd" is made of of non-experts).  Here's a video clip that explains his ideas.



Your advisory firm can improve decision by forming (and using) an advisory board. Here are some thoughts on how to do each.

Forming your Advisory Board

• Confirm your motivations behind forming you advisory board.  For start-ups or newer RIAs, you may seek advisory board members that: add credibility to your new firm or investment process or serve as subject matter experts in a particular part of your service offering.  For established RIAs, you may be more interested in gaining insights from people that have experience in building and managing advisory practices.
• In most cases, advisory boards that are between three and five people work best.
• Be sure to select advisory board members that will add diversity to your decision making.  Don't pick clones!  No additional "wisdom" will come from a group of people that see the world or approach problems in the same way.
• When approaching each candidate, be clear about what role you would like them to play and the circumstances where you would likely utilize them.

Using your Advisory Board

• Frequency of your interactions with each advisory board member will likely vary depending on their role and the issues that come up for your firm.
• Communications with your board may take the form of a simple phone call to discuss a particular matter.  Alternatively, as larger issues issues or key decisions come up, schedule a conference call with your full board to solicit their thoughts.
• When soliciting their opinions, be sure to limit your role to laying out the issue.  Leave ample time for them to react/respond.
• Consider establishing a regular communication program that is targeted towards your advisory board, for example a quarterly business update.  This way you can ensure that each advisory board member feels "connected" with your firm.  And when you reach out to them for counsel, they will have a clearer sense of context.
• There are two schools of thought on compensating advisory board members.  For RIAs, the use of cash or equity compensation for advisory board members is certainly feasible, but it opens up a number of compliance issues that may not be worth the trouble for you or your board members.  Personally, I find that effective boards can be made up of successful industry professionals that are motivated by the non-economic aspects of helping an entrepreneur build a business.

I am a firm believer that decisions making is improved when multiple viewpoints are incorporated.  When done right, your RIA's advisory board can become an incredibly valuable resource to your firm.

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