From the March 2004 issue of Investment Advisor • Subscribe!

Take a Stand

Figure out who you are--take your stand--then stick to it. Your clients will respond

Watching the Iraq air war cov-erage on CNN, viewers may have gotten the impression that our military has pilots who merely select a target, point, click, and a smart bomb hits its objective. But it's not that simple to locate a bunker at night from 30,000 feet while traveling at subsonic speed.

If they took the time to think about it, those viewers probably would realize that satellite technology plays a part, and they may have some vague Hollywood idea about Special Forces going behind enemy lines to observe, identify, and laser-mark their targets long before that bomb was dropped. Few, however, have any exposure to the basic principles of network-centric warfare: See first; understand first; act first; finish decisively.

You can employ those same principles with deadly accuracy in your struggle to out-maneuver your competition--even the Goliaths of the industry. But before you can begin your intelligence gathering, you must first commit to what you stand for. The Constitution defines the stand of the American people and that is what our military swears to defend. By definition, the purpose of every U.S. military engagement should be to correlate with that stand.

While not a perfect analogy, don't doubt its applicability to you and your business. If you don't take a stand, your client base will determine one for you, by default. Your daily actions and words reflect what you believe. Like a beacon, your stand guides prospects to you, attracting the type of client who fits and repelling the type who doesn't.

Determining what you stand for can be a powerful experience. It is your core belief that dictates the rules of your business; makes relationships clearer; manages expectations; and helps product selection.

When you direct money into a mutual fund, for instance, you select it based on the manager's stand--his or her investment objectives. You are counting on the fund to stick to that style. Value managers are a good example. They've had to be true to their stand, even while watching assets pour into the hands of growth managers. They know that value will outperform growth over time; they just don't know when it will. So they must stick to their stand even when the whole financial world and media say they're wrong.

In selecting your products, you'll have to make some decisions. Do you believe the markets are efficient, or not? Do you believe in market timing and stock selection, or asset allocation? A stand is your core belief, not a judgment, made without proof of the final outcome.

When I was a stockbroker, I focused on putting my clients into a 3% wrap management program. Not long ago, I mentioned this to a magazine editor (not at Investment Advisor) who responded by telling me wrap accounts were a ripoff. He was obviously too young to know that when I put my clients into the stock market in 1975, other brokers laughed at making such a small fee. Meanwhile, my firm's product department gave us incentives of 8% commissions and bonus trips to exotic locations to sell tax shelters and limited partnerships on which they received a 25% management fee. Ten years later, most of those people had lost their principal, but my clients had just entered the greatest bull market in our financial history. Investors who stayed in the market turned $100,000 accounts into millions, net after fees. I didn't know that was going to happen, but I believed fee-based money management was best for those clients.

Standing Out

Here are some examples of professionals who have taken stands and stuck with them. Dale Rogers, president of The Rogers Companies in Ft. Worth, believes the 401(k) plan is the salvation for the average 50-year old's retirement. He also believes that asset class investing is the only way to manage those assets. He is unwavering in his stand.

Michael F. Lane, director of TIAA-CREF Advisor Services in New York, believes that "financial planning is about advice and direction, an ongoing client-counselor relationship designed to educate and increase the likelihood of the client achieving defined goals and objectives so as to make a difference in their lives and their ultimate legacies,"

Lewis Walker, an independent advisor at Walker Capital Management Corp. in Norcross, Georgia, believes that his job is to help clients "understand the true purpose of their money, and then develop an investment strategy that gives them the best chance to achieve that specific purpose." John Byrd, of Byrd Capital Market Advisers, Inc., in Arlington, Texas, argues that it's not enough to just take a stand. "You must then make a truthful assessment of your own offerings and align those with your beliefs. This will determine the effectiveness of your marketing activities to become a viable and preferred choice of your target market. If you miss this step, your actions to reach your objective may waste valuable resources and you may lose ground."

So how do you form your stand? First, begin to gather intelligence (see first; understand first), and ask these questions: What, exactly, is at stake (market share, niche, prospects, existing client base)? Who are your opponents (Wall Street firms, CPAs, attorneys, other advisors), and what is their stand? How do their weaponry (products, services, pricing) and delivery systems (advertising budgets, adjunct services, name recognition, strategic alliances) demonstrate and facilitate their stand?

You might say this research seems like a lot of work, and wonder if is it useful. But don't take my word for it; listen to a peer.

Ray E. LeVitre, a former Merrill Lynch office manager and now president of New Worth Advisory Group in Salt Lake City, uses his behind-the-lines knowledge of this giant competitor to fashion his own marketing strategy. He educates prospects by exposing Goliath's high-commission products (B shares) with back-end charges and no incentive to provide service long term, in comparison to his practice of ongoing, consistent service with objective financial products and a transparent pricing model.

Today's investors are shell-shocked and bewildered. They hear that the financial markets are up, but the balances on their account statements may still be below where they were three years ago. They're scrambling for knowledge and guidance.

Unlike in past bear markets, these investors aren't blaming Wall Street's Goliaths or their brokers for their losses. According to a study cited by Daniel Leemon, chief strategy officer for Charles Schwab Corp., at the Schwab Impact show last November, corporate executives top the list with 60% of the blame (although corporate misdeeds actually account for a mere 10% of all losses in the market), followed closely by technology companies. Next on investors' list of blame is themselves.

"What investors want most is to feel in control of their financial destiny," added Leemon. But being in control does not require doing it by yourself nor does it preclude getting advice. According to Leemon, 20% of investors surveyed in 2000 said they were self-directed. Two years later, that number had dropped to only 9%.

Dazed by the results of their recent decisions and confused by the clutter of media misinformation, these investors don't know where to turn. So by default, they go to a known entity, name, or brand that is telling them they can time markets and find price inefficiencies. Investors are bombarded by deep-pocketed Goliaths clamoring for their attention through sensational headlines, heart-tugging commercials, and satellite offices on what seems like every street corner. Familiarity and perceived expertise based on size are comforting to people, but big only means big, not better.

Investors want transparent pricing, a track record, accountability, reputation, high levels of service, open architecture, and independent research benchmark reporting. Sound familiar? That's because it's what you provide! So the Goliath firms and tax and accounting professionals are mimicking your services. Yes, imitation may be the sincerest form of flattery, but this is not great news for you.

You are facing relentless competitors who have established a loud presence on every front--whether it's print or direct mail, radio or television, billboards or storefronts, or the Web. Their business plans are built around absorbing your business.

While you've been sidestepping Merrill Lynch, Smith Barney has been quietly poaching your market share. How? When Merrill Lynch was laying off its brokers during the downturn, Smith Barney didn't lose a serf. At the same time, they were distancing themselves from their firm's research department so they could tell prospects and clients, "Those New York scandals are about the other guys, not me."

Smith Barney doesn't push house product and doesn't have incentives to do so. Instead, local offices figure out what the local market wants and needs, then provide that to the brokers. Because of that, Smith Barney has higher assets per broker with lower support costs, and surveys report that their clients are more satisfied.

Strong, but Vulnerable

Smith Barney may be an obvious competitor, but not so obvious are firms that provide services and products to you, including accounting firms. Allies at first glance, these businesses are looking for a piece of the pie and are well aware of their built-in, predisposed prospect list.

Still, your well-funded competition is vulnerable. They market in lock-step, all anchored in the same stand and structure. Goliath's serfs can't afford to truly think or act independently on behalf of the client because they're financially dependent on the firms that employ them. They are pressured to live or die by the company quota, while at the same time being commanded to annuitize their business.

Let Goliath battle out the new "no-call rules." The game of "If you just call enough people and get enough no's, you win," is over. You can't stand on that!

Your focus should be on how to get your ideas into your prospect's mind, not methods of getting them on the phone. Your job will become more fun and your results will be measurable. Stay tuned for future columns where we'll explore how you can achieve those results.

Larry Chambers spent 10 years as a broker before becoming an independent coach and writer. In addition to his 30-plus investment-related books, he has helped high-profile industry spokesmen gain expert-recognition status. He can be reached through www.competitiveforce.com.

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