From the June 2007 issue of Research Magazine • Subscribe!

June 1, 2007

Unconventional Wisdom

Quick. What's the chief quality of top advisors to the affluent? Skill? Ability? Style? It's probably not what you think.

Following a two-year research-based "random walk" around the financial advice industry, "Advisor For Life" author Steve Gresham concludes that the most successful advisors share a single distinguishing characteristic: consistency.

"It's the exact same story that's true of success in every other profession, including sports. It's not about ability. It's about the consistency of that ability. It's about the consistency of the result," says Gresham, 46. "It's Fed Ex arriving by 10:30 anywhere in the world on a more predictable basis than everybody else. If you can't put it together on a consistent basis, it doesn't happen."

One of the industry's most original thinkers, Gresham in his new book provides insight into the relationship between advisors and their millionaire clients. Among the subjects he tackles: What do millionaire households expect from their advisors? Which tools increase your success at "closing" an affluent client? What are the most important strategies to capture market share?

Gresham, director of retail markets for the $45 billion asset-management division of The Phoenix Companies, was a security analyst at 19 and a registered investment advisor at 21. Prior to joining Phoenix, he managed his own wealth-management consulting firm, which served a global clientele of 50 financial services companies. Today, he is a sought-after speaker on the financial services conference circuit.

It doesn't take more than a few minutes of shop talk to understand that Gresham is skilled at debunking conventional wisdom. Here's his take, for example, on the age wave of retiring baby boomers: "Conventional wisdom says this could be a windfall for financial advisors -- but only if they can provide the kinds of creative and flexible strategies that are going to be demanded. This is not a bailout retirement plan for the financial advice business. Actually, this might be extremely bad news for a whole lot of advisors."

Gresham says advisors must pay close attention to two key demographics that could represent huge competitive threats: the meteoric rise of simplified packaged solutions and the shift from returns management to risk management.

On packaging: Most millionaire investors, according to Gresham, got into the market no sooner than the early 1990s, lured by the expectation of outstanding returns. However, they also suffered unprecedented losses. "Most people who have money invested probably have been flat in their overall investment success," he says. "I think we're rapidly approaching a time when most investors are looking for return and income and they don't care where it comes from or how it's generated. They care about the quality of the ride, not what's under the hood."

On top of that, he adds, there has not been overwhelming acceptance of full-service financial advice by baby boomers. "That's a big deal," he says. "A lot of these people might just continue on in that path. There's a package default out there if you don't want to make a decision. Most of the industry advances will take place in product creation for this market -- it's already happening."

The bottom line: Unless handled correctly, packaged solutions represent what Gresham calls "dead-on competition" for advisors who don't want to dig deeper into the client relationship, becoming an advisor for life.

On risk management: The conventional wisdom is that millionaire households expect returns. But what happens when baby boomers get older and begin to experience problems, risks, vulnerabilities?

"What happens when your 89-year-old mother needs care for her growing Alzheimer's condition? What happens when instead of your mother, it's your spouse?"

Going forward, financial advisors must manage for risk.

"The basis for marketing and managing a practice will be your ability to minimize and prevent risk. Risk management replaces returns management as a point of differentiation of one financial advisor over another," says Gresham.

To help advisors stay competitive, Gresham suggests several strategies:

o Conduct a systematic audit of risks faced by each client. Identify at least three significant concerns, and create options.

o Do a timing evaluation. List the most important people in your client's life -- family, associates, friends -- and project their ages and potential issues at the time of the client's retirement. Identify risks and protective strategies.

o Create a case study for your client, reviewing solutions. Sort by problem or need, not product. Develop options and competitive alternatives.

o Show you're smart. "Ironically, after all of this warm and fuzzy holistic view of the world, you will still be held to a standard that says you must be a person who can source interesting alpha-generating investment ideas from time to time. Show you're smart and plugged in. Regardless of everything, if you can't show people you're smart, you're toast."

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Stephen D. Gresham

Executive Vice President, Director of Retail Markets, Phoenix Investment Partners

Headquarters: Hartford, Conn.

His new book: Advisor for Life: Become The Indispensable Financial Advisor To Affluent Families.

Sound Bite: "The notion that the industry is now focused on distribution instead of accumulation would be very alarming to the average client. I'm not aware of any time when a client didn't think this wasn't about distribution. Accumulation is for one purpose: to take it out and spend it. It's tragically sophomoric to refer to a shift in orientation."

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Ellen Uzelac is a Chestertown, Md.-based freelance writer and contributing editor of Research.

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