From the March 2006 issue of Wealth Manager Web • Subscribe!


HAVE YOU EVER WONDERED why certain things in our industry become generally accepted business practices? Perhaps you've experienced a sense of dismay when you've seen another advisor adopting what may well be a sound business practice for a particular business model, but there's just something a little off-kilter in the way they are applying the idea to their business. You hate to take the risk of offending your colleague, but sometimes wouldn't you really like to ask, "Why would you do that"?

Here's an example of a couple of my personal favorites: Keeping in touch with clients is clearly very important---and newsletters are certainly an appropriate method for doing so. But in an industry that focuses on financial planning and encourages long-term thinking, why would you send out institutional, money-manager-type newsletters full of regurgitated market data and industry jargon that only serve to have the client view you primarily as their investment person?

Further, as a financial planning professional, why would you send your clients quarterly investment performance reports? And worse yet, then compare the client's portfolio performance to the various market indices? Many advisors are proponents of some application of asset allocation. Doesn't the comparison to indices focus the clients on market returns rather than the specific investment objectives of their portfolio?

Lastly (I'm going to stop before I really get on a roll), why would you actually meet with clients once per quarter to review their investment performance? Talk about losing sight of the financial planning business model! How can clients view you as a financial planner when all of your time with them is spent talking about short-term investment performance? The above examples may be acceptable business practices in the institutional money management business. Unfortunately, many well-meaning financial planning advisors have fallen prey to the trap of the commonly accepted. They may have adopted these practices because other advisors do and they feel as if they should too. Perhaps they have not asked themselves, "why would you?"


Accept the status quo as "good enough" when this can be your most productive and profitable year yet? In working with numerous advisors over the years, one of the most valuable services my firm provides is routinely asking the simple questions like, "Now why are you doing that?" (present tense) or, "Now why would you want to do that?" (forward looking). Very often the answer to these questions is "because my clients want it." Interestingly, upon exploring this further, we often find that this is really in the advisor's mind--not the client's. If you happen to be among those advisors who meet with clients quarterly, take this challenge: During your meetings this quarter, ask clients if they would like to continue to meet with you quarterly, semi-annually or annually. You just might be surprised at what they say.

One of the very best things a wealth manager can do is to surround himself with others who are always questioning the commonly accepted wisdom.

But while challenging the status quo is always good, change for change-sake is not. Having been an independent advisor for over 20 years, I speak from experience and humility when I say I've made just about every mistake in the book. And today's biggest challenge may well be how to best allocate your time, energy and resources. If you're struggling with time and margin compression, you are not alone.


Mark Hurley and Sharon Weinberg, in their latest white paper, "Back to the Future: The Continuing Evolution of the Financial Advisory Business." (July 2005, JP Morgan Asset Management and Undiscovered Managers), say that in order for advisors to fully solve the margin and time compression issues they will likely need to consider joining a conglomerate or becoming a part of an ensemble. If you are an independent advisor, this statement probably just made the hair on your neck bristle.

The advisory community is largely comprised of a group of fiercely independent, solo advisors who get more than a little emotional just thinking about the loss of independence and control that can occur when businesses merge. In spite of the obvious benefits, most are not likely to give up their independence and form or join ensembles. A recent Moss Adams report acknowledges that the vast majority of practices are solo practices and will likely stay that way.

Independent advisors are, well, pretty independent. So while the "traditional ensemble" should be a consideration for some advisors, others will not want to give up their independence. So what is the answer for them?

The answer to solving the problem of margin and time compression is to somehow create operating leverage or scale. The good news is that there are variations of the "traditional ensemble" evolving that may provide new options for advisors to remain independent. One of these variations is something we call the "virtual ensemble." (In the interests of full disclosure, this is a concept developed and pioneered by my company.)

Perhaps the single most important step a solo advisor can take to begin to develop operating leverage is to transition as fast as possible to a fee-compensated business model. Why? The fee-compensated model is much easier to streamline and systematize. Systemization is a key factor in building operational efficiency.

But I'm "preaching to the choir," since Wealth Manager readers have likely made a full transition to a fee-compensated business model. The problem for those who have made or are making the transition, however, is that they may have slid into building a fee-based business. They began by adding some type of fee business to their existing offering of commission products. They did not have a clear vision of where they wanted to go. The fee-based model was clearly a new business for the advisor, and no advisor would suggest to a client that they start a new business without a business plan. Yet we see advisors consistently doing just that. Sliding into any business without a clear vision and a specific plan is a mistake. As a result of the gradual transition, the advisor may now be saddled with working under the weight of multiple inefficient systems.

Another problem is that in order to structure a fee-based business that offers a true service as opposed to the old product distribution model, the advisor had to ramp up infrastructure. That requires more people and likely more of the advisor's time.

The Moss Adams study ranks the top challenges for advisors as: 1) getting better clients; 2) time capacity to serve clients; 3) getting more clients; 4) time management.

There seems to be a theme here: Time compression is hampering advisors' ability to spend time with existing clients and develop the right new ones. Yet when you look at the percentage of advisors that outsource some of the most time-consuming and labor-intensive tasks, there appears to b e a bit of a dichotomy. Only 5 percent of the surveyed advisors outsource investment policy; a stunningly small 12 percent let someone else perform portfolio administration; 19 percent subcontract investment research; 32 percent farm out report production and 41 percent outsource securities trading.

Now is the time to question the status quo. Why are you doing what you are doing? And regarding your future plans, have a trusted colleague present this challenge question: Now why would you want to do that?

Brent Hicks, CFP, ( is a financial planning veteran and a fee-based pioneer. He is the founder and president of FocusPoint Solutions, a firm that specializes in helping financial advisors build profitable fee-based

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