This publication is an overview of industry trends and hot topics heard over the course of several conferences and events Cannon Financial Institute participated in from April-May, 2022.
Conference Insights 2022 A Report from the Road
that we don't completely understand? What about the custodial policies and procedures? Risk assessment scales? Conversational competence? This last question brings me to the second most common challenge facing our industry, Human Capital. I'm not talking about the administrative side of HR. I mean the attracting, retaining, and engaging of quality personnel . A huge takeaway from the pandemic working environment is that most in the wealth management arena can successfully execute our jobs from anywhere. In fact, post-pandemic sentiments are, in many cases, "don't make me go back there." What does this mean to our preconceived notions of competitive wages when we no longer compare pay scales with the firm "down the street?" What if I can make west coast wages from my east coast office or a metropolitan city pay scale is now available within the suburbs? The war for talent was already in full swing. Now it feels like an additional patent pending suit of armor is in place. We haven't even touched on the impact of technology on our ability to source and serve clients. emerging college graduates into our space (the average age of today's advisor is 59). Finally, perhaps the biggest challenge is how a firm develops and imbues its culture and points of distinction in an ever- remote workforce. While I don't have all the answers to these and other trending discussions, I know we must work diligently to strike a balance. The time for pontification has passed. Instead, we must act to wrap our arms Nor have we discussed the downward trend in new and
C ryptocurrency , not just bitcoin, was the number one or two area of interest across all segments. The point of emphasis changed depending on the audience. However, one thing was clear; cryptocurrency is an area in which financial professionals (institutions) and supporting areas must engage , raise their level of understanding and determine their own course of action. "I don't understand it" is not an acceptable state of affairs. One interesting statistic I heard this spring was related to cryptocurrency and certificates of deposits. We were told that 24% of investors own some form of cryptocurrency. Ironically, 24% of investors hold a certificate of deposit. While these are not likely to be the same investors, the fact remains that it is a significant percentage of the population. As these investors move through life's stages, the chances that these assets will shift into a trustee relationship increase. Are we as an industry prepared to manage the nuances of an investment holding Over the past several weeks, I have attended several industry conferences and round tables. The absolute highlight has been the pleasure of reconnecting with peers and clients within all industry segments: regulatory to brokerage, trust services to fintech. My most interesting intellectual takeaway is that no matter where I was, two overarching themes were at play: Cryptocurrency and Human Capital.
J. Phil Buchanan Executive Chairman
around these bulging seams.
I have shared my thoughts with business colleagues outside our industry and across several global markets. I have challenged my Cannon colleagues as an organization to improve upon the resources available within our industry; to find new ways to simplify the complex; to advance the knowledge and skills of those among us that ensure the financial well-being of clients and their families. Yes, these and other issues are mentally taxing. But one thing remains the same – if you keep your eye on the end-user client experience, the answers to the tough questions quickly emerge.
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"We must work
diligently to strike
a balance."
that we don't completely understand? What about the custodial policies and procedures? Risk assessment scales? Conversational competence? This last question brings me to the second most common challenge facing our industry, Human Capital. I'm not talking about the administrative side of HR. I mean the attracting, retaining, and engaging of quality personnel . A huge takeaway from the pandemic working environment is that most in the wealth management arena can successfully execute our jobs from anywhere. In fact, post-pandemic sentiments are, in many cases, "don't make me go back there." What does this mean to our preconceived notions of competitive wages when we no longer compare pay scales with the firm "down the street?" What if I can make west coast wages from my east coast office or a metropolitan city pay scale is now available within the suburbs? The war for talent was already in full swing. Now it feels like an additional patent pending suit of armor is in place. We haven't even touched on the impact of technology on our ability to source and serve clients. emerging college graduates into our space (the average age of today's advisor is 59). Finally, perhaps the biggest challenge is how a firm develops and imbues its culture and points of distinction in an ever- remote workforce. While I don't have all the answers to these and other trending discussions, I know we must work diligently to strike a balance. The time for pontification has passed. Instead, we must act to wrap our arms Nor have we discussed the downward trend in new and
C ryptocurrency , not just bitcoin, was the number one or two area of interest across all segments. The point of emphasis changed depending on the audience. However, one thing was clear; cryptocurrency is an area in which financial professionals (institutions) and supporting areas must engage , raise their level of understanding and determine their own course of action. "I don't understand it" is not an acceptable state of affairs. One interesting statistic I heard this spring was related to cryptocurrency and certificates of deposits. We were told that 24% of investors own some form of cryptocurrency. Ironically, 24% of investors hold a certificate of deposit. While these are not likely to be the same investors, the fact remains that it is a significant percentage of the population. As these investors move through life's stages, the chances that these assets will shift into a trustee relationship increase. Are we as an industry prepared to manage the nuances of an investment holding Over the past several weeks, I have attended several industry conferences and round tables. The absolute highlight has been the pleasure of reconnecting with peers and clients within all industry segments: regulatory to brokerage, trust services to fintech. My most interesting intellectual takeaway is that no matter where I was, two overarching themes were at play: Cryptocurrency and Human Capital.
J. Phil Buchanan Executive Chairman
around these bulging seams.
I have shared my thoughts with business colleagues outside our industry and across several global markets. I have challenged my Cannon colleagues as an organization to improve upon the resources available within our industry; to find new ways to simplify the complex; to advance the knowledge and skills of those among us that ensure the financial well-being of clients and their families. Yes, these and other issues are mentally taxing. But one thing remains the same – if you keep your eye on the end-user client experience, the answers to the tough questions quickly emerge.
"We must work
diligently to strike
a balance."
I had the opportunity to network and learn with colleagues at the Texas Bankers Association and the Fiduciary Investment Risk Management Association conferences. While the roles and responsibilities of those I met varied, the overriding sentiments were the same. As financial professionals, we have the privilege, and therefore the responsibility, to ask hard questions, explore the emerging trends, and prepare to be the best resource possible for our clients.
Technology advancements have brought our industry extraordinary abilities to meet the changing expectations of clients and communities. But, on the flip side, they have normalized the existence of cyber threats and cryptocurrency . Adding to these concerns is the aging of our workforce and the challenge of hiring, retaining, and developing new employees capable of mitigating today's financial landscape and foresight into tomorrow's.
Natalie Kerns Client Advisor
Everyone doesn’t need to become an expert in the ever-changing world of financial technology but you should make sure you're conversationally competent.
Over the last few months, I've had the opportunity to reconnect in person with longtime friends and colleagues at events in Miami, Charlotte, Orlando, Athens,
Focusing on performance coaching for managers and ensuring employees have a career path is critical to reducing turnover. Cryptocurrency and blockchain were other topics front and center. There's no question in my mind that financial technology will change how we exchange currency and pay for goods and services moving forward. Everyone doesn't need to become an expert in the ever-changing world of financial technology, but you should make sure you're conversationally competent.
Nashville, and Tampa. While technology made
communication easy during the pandemic, nothing compares to seeing the smile on someone's face and the opportunity to shake someone's hand. One area that has come up time and again in my travels is talent acquisition and employee retention . It's been well documented that employees don't leave companies; they leave management.
Perry Hooker Director Enterprise Sales & Relationship Management
20% of adults in the US have invested, held, traded, or used cryptocurrency*
*March 31, 2022 CNBC
cryptocurrency they already hold while not providing advice but still appearing relevant to their clients about the asset class. Others wanted to understand how financial services could use blockchain without losing market share to Decentralized Finance (DeFi). Finally, trust professionals wished to understand how digital assets could and should be handled by trustees and how blockchain trusts and so-called “smart trusts” would work in the future. Given that one out of every five Americans owns cryptocurrency , financial professionals no longer have a choice in understanding it. The 10 year Rule Even though the SECURE Act was effective in January 2020, the IRS released proposed regulations for required minimum distributions (RMDs) for the Act this February of 2022. Various speakers talked about the different aspects of the SECURE Act and the implications of clarification coming some 2-years following implementation. What changed? The SECURE ACT effectively eliminated the "Stretch IRA” strategy with a rule stating that non-spouse beneficiaries of IRAs must withdraw the funds by the end of the 10th year after death. While change is constant in financial regulations, attendees were focused on how to deal with their clients impacted by the lack of clarity over
the last two years. Meaning that those inheriting an IRA in the last two years might have missed an RMD for the previous year 2021 and now might have tax considerations as a result. Further clarification is needed understand the changing landscape regarding retirement planning and distribution planning for beneficiaries. Nothing Beats Being In Person For many conference-goers, this was their first large conference or professional gathering since the end of the pandemic. We’ve all grown accustomed to attending virtual conferences and training sessions on by the IRS, but conference participants were eager to Zoom and Webex. While those platforms are great for conveying information from a speaker to an audience member, there is simply no substitution for the energy of people being together. The spontaneous conversations, overheard conversations with follow-up questions from passersby, and the ideas generated through striking up a conversation with someone you don’t know are not possible or probable using virtual platforms. It was a great sign of resilience. Speakers were better with live audiences, and the live audiences were better when interacting with representatives of the trade show sponsors. The atmosphere was alive with good conversation, and attendees were happy to be live and in-person again.
Chris Nekvinda, Ph.D. Learning & Development Director
Recently I had the privilege of speaking to 200+ financial professionals that attended the Missouri Kansas (MOKAN) Trust & Financial Services Conference in Kansas City. Three themes emerged while I was speaking, talking with attendees between sessions, watching other keynotes and breakout sessions, and talking with vendors. Of the three, two were financial, and one was social or societal. Cryptocurrency Is No Longer A Fringe Topic Despite significant volatility in the crypto markets (and financial markets in general), there was strong interest in the topic at MOKAN. Like any emerging financial topic, there seemed to be more questions than answers. Still, the adoption of cryptocurrency as an asset class by retail investors has drawn the attention of traditional financial institutions and regulators alike. Retirement professionals sought to understand how Fidelity would “custody” and service cryptocurrency in qualified retirement accounts like 401(k)s. Many advisors wanted to know how they could talk to their clients about the different types of
Holistic versus Individual Planning:
“Where else would you rather be than right here right now? "
Dr. Wade Pfau, focusing his session on recent events of the current market downturn, discussed how our psychological makeup becomes our own worst enemy. Be it an investment or retirement decision, if and when we make emotional decisions under times of extreme market volatility, we usually hurt ourselves. He points to utilizing an effective framework to set up guardrails to help one make better investment and retirement income decisions going forward. Wade broadened the scope of his conversation toward a more holistic view (mind/body/spirit/purpose) of the retirement journey and inclusion of the entire family’s lifestyle. Coordination of Resources and Communication with Client(s) Coordination: “It will take a Village” Awareness and coordination are the goals to improve our outcomes in this retirement lane. Legislative changes (SECURE and Proposed “SECURE 2.0”/DOL) are insufficient. There must be a commitment from all stakeholders; investment providers, vendors, recordkeepers, advisors, plan sponsors, and finally, plan participants. Rob Kapito of Blackrock summed it up best with the following close to his session. “Everyone in the eco-system needs to be on the same page in order to provide a secure and dignified retirement to all employees – not just domestically in the USA, but all workers throughout all nations.” A sub-theme here, if you will, is that Advice and Technology must go hand-in-hand.
That quote from Marv Levy, Coach of the Buffalo Bills, as they entered their first Super Bowl in 1991 was precisely the buzz at the Financial Advisor Next Chapter "Rockin’ Retirement" conference I attended. One of the conference speakers, Ross Levy, is often quoted as saying, “It’s Simple, Not Easy” very apropos for the tone of the four major topics within the conference: Shift Now, Longevity and Stages, Holistic versus Individual Planning, and Coordination and Communication. Shift Now: As noted by several speakers, the first theme, shift, or pivot, will be a difficult change for many financial advisors and retirement specialists. The goal is no longer accumulation and growth of wealth but has shifted to protection and security of the household's lifestyle! This focus on longevity (needs) and legacy (planning) pours over into wealth management as well as estate planning. What this shift isn't is stuff and more stuff. It is instead a move toward happiness and enjoyment. Longevity and Stages: Implementing longevity in your practice is an opportunity to build stronger client relationships, create loyalty with families, and differentiate your offering. Multiple speakers, using a variety of illustrative phrasing and categorization, emphasized that retirement at age 68 is both: 1. different from what it will be at 80 2. not the same for every household
Myles McHale Subject Matter Expert
Communication with Client(s) "Basic fundamentals here have not changed; however, failure to execute properly has unfortunately become part of some practice management processes in Wealth and RIA shops," said Tom Bradley from Charles Schwab as he spoke to Steve Gresham, Next Chapter Chair and Head Promoter. "Client(s) will not stand for that – communicate and educate or be replaced ." Regarding this crucial element of redesigning retirement, Ms. Underwood-Kotner put it this way, "It comes down to TLC: Time, Listen and Constant Communication." It is easy to blame losing a client over something out of your control, like market downturns. But according to a recent Spectrum survey, 80-85% of clients indicated their adviser's style and frequency of communication impacted their decision to retain (and refer) them.
... communicate or ...
management and cryptocurrency , are rising significantly in both the level of importance and the sense of urgency. Firms and regulatory agencies alike expressed concern about three things in the workforce: 1. Attracting and developing new talent 2. The impact of a hybrid workplace 3. The accelerating loss of expertise as the confluence of the baby boom generation and the great resignation trend meet Specifically called out was the dual hit of losing tenured employees who can manage the more complex challenges and provide mentorship to new employees. Everyone recognizes that mentor supported informal learning activities pass on expertise. This sharing is critical to developing the next cohort of audit and risk managers. In addition, it was apparent that most firms lack a key recruiting tool to fill current and future business. That tool is a description of the formal career development and advancement track which the current generation of new employees expect to see. Though some are beginning to address this, the regulators were the only group we visited that could produce a multi-year learning curriculum to demonstrate what and how the new hire is supported for success and advancement in the risk management space during the recruiting process. The impact of cryptocurrency on the firms represented at the conference is evolving rapidly. The consensus among participants is that job vacancies in the Wealth Management and Trust line of
proactively providing cryptocurrency and digital tokens is not high on the product development priority list. However, several firms have or are moving to establish house accounts with crypto-asset platforms as estate settlement activities increasingly require liquidating these assets to protect beneficiaries from volatility and establish market values for estate tax purposes. Regulators reminded participants that the same expectations of managing any first, second and third- level vendor relationship and ongoing due diligence applies to crypto-asset platforms. These platforms are not regulated exchanges but service providers. Firms must also have robust policies and procedures related to crypto-assets, codifying both the actions to take when delivering the firm’s services and for selecting and monitoring the vendor for these types of assets. We continue to see emerging impacts from the COVID-19 pandemic. Still, it has not stopped changes in the marketplace or technological advancements or slowed the pace of change or the associated risks that these professionals face. Consequently, our complicated business operating in an ever more complex environment continues to need bright, dedicated risk managers and regulators working together to help protect our economic future.
Bill Trigleth Executive Director Certifications
I recently connected with peers and clients at the Fiduciary Risk Management Conference (FIRMA) in Nashville, TN. Operations Managers, Risk Management Officers, Compliance professionals, and federal and state regulators representing banks, brokerage, and trust fiduciary activities across the financial services industry connected and analyzed the critical issues facing our industry. As standard for any FIRMA conference, a wide range of risks were covered by specific experts and peer and regulator panels provided insight into the current best practices dealing with these challenges. Keynote topics focused on identifying and managing cyber security risks, technology advances , economic conditions, regulatory audits and exams, changes to legislation and fiduciary rules, and dealing with change. Presentations added clarity and brought out a more nuanced understanding of the risks and how they should be addressed. (See Trends in Audit, Risk Management, and Compliance) While most topics presented are perennial, the issues of workforce
Trends in Audit, Risk Management, and Compliance:
What We Are Hearing
1
Staffing Insufficient resources to perform work required by audit program Lack of experience, knowledge and skills of staff members Lack of certification in Trust Audit, Compliance & Risk Management
2
Lack of knowledge on behalf of audit committee members Lack of resolution and follow-up on audit findings Lack of independence of audit committee Audit Committee
3
Failure to cover all significant activities Scope lacks depth and breadth Sample sizes are too small Audit Program
4
Lack of a continuous audit protocol Improper third-party vendor management review Failure to perform a risk assessment for use in designing audit program Systems
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