From the December 2008 issue of Investment Advisor • Subscribe!

Postcards From the Edge

What to do today that will make the biggest difference tomorrow

With the bailout package passed, a new President elected, and the markets beginning to settle down (we hope) a little, it's a good time for advisors to take a deep breath and do some clear thinking about the future for their clients and their practices. As the saying goes, it's turbulent times like these when independent advisors really earn their pay: Now is when your clients need you more than ever. Being there for them can solidify relationships that can last a lifetime. Now is when practices that have been properly positioned can really shine.

Over the past few months my advisor clients have asked me to share with them the top issues that they should be focusing on in their businesses to manage an increase in workload, such as the extra client service that is being done and, in many cases, the growth in new clients that they may be experiencing. Tough economic environments present unique challenges for independent advisors and in many cases call for a different set of management steps that need to be taken to ensure that their firms stay on track to hit goals and client service requests. As a result, here are eight practical suggestions on where to focus your resources in your practice today.

Suggestion #1: Keep Reaching Out

The rough economy provides a true test of our high-quality client service. The key is client contact: lots of contact. Your experience and training help you to think clearly when others are blinded by emotion. While it's doubtful that any of us have seen anything like this before, you've certainly seen enough to know what your clients should do, and more important what they shouldn't do: don't panic, don't overreact, don't run with the herd, and so forth. The more often they hear from you, and the more reassuring you can be, the better.

Suggestion #2: Conduct a Client Survey

Many advisors are already on a rotation to conduct a client survey every two years. However, it's during tough times that you need to know what your clients are thinking. Now is a great time to do a client survey, to see if they're getting what they need from you, and if there's anything else you can do for them. We recommend that in the next month, you conduct a special client survey to get direct feedback about how clients are feeling, including an open-ended comments box for clients to express their more personal or specific concerns, so that they can be addressed more individually. They'll be impressed with the timing, and you'll see an unusually high response rate.

Suggestion #3: Ask Clients for Referrals

Your high-quality client handholding during a difficult time combined with lots of friends of your clients looking for new advisors can add up to a flood of referrals. If you are experiencing growth then you know that your client service programs are working properly. It is also a good idea to extend a helping hand to clients who may have friends who are not quite as lucky in the advice that they have received. I suggest that you send a friendly letter or e-mail to your top clients, offering your services to friends and family who may be in need of independent and objective advice about their financial situations. In the coming few months, be prepared for new clients.

Suggestion #4: Don't Fire Any Clients

This is a bad time, however, to reengineer your client base. It's probably your inclination to think about cutting the cord with those bottom-tier clients you've been meaning to get rid of--the ones who take an inordinate amount of time and effort, yet contribute a disproportionately small amount to your top and bottom lines. But even though it would help to free up your already pressured time right now, dumping them when they need you most is something that you'll undoubtedly regret later, and is the kind of community buzz you don't want to create. We recommend you hold on any client base cleaning until economic times are a little less volatile and scary for the client.

Suggestion #5: Start Budgeting for 2009

If you haven't heard already, the falling market has reportedly cut advisor AUM fees in the 4th quarter substantially--on average about 15% to 25%, but up to as much as 33%. Yet among the firms we work with, we are seeing new-client growth offset the lower fees, resulting in less than an 8% net drop in revenues. Even though you may not be experiencing a huge drop in fees, here are some fiscal management moves you should be thinking about. First, you're likely going to be reducing expenditures in the first and second quarters of next year. The key is to do it without cutting client service, which as we mentioned, needs to be, if anything, increasing. Even though it's tempting, don't cut lunches or other client contact. In fact, making the effort to travel to see clients, or just have a meal with them, is the kind of extra effort that won't be lost on clients. Instead, postpone things that aren't immediately necessary: new computers, office furniture, or software upgrades can all wait until the economy and the markets start to turn. Also, while it's tempting to hire someone in a bad job market, that great new employee won't look so good if he or she tips your firm's cash flow from black to red.

In this environment, a little hesitation can be good to prevent a hit on your owner's income. If you don't have much of a margin of safety in your personal cash flow, now's the time to start making adjustments at home, to avoid any surprises later.

Suggestion #6: Share the Bonus Pain With Staff Now

With year-end revenues likely to be off, you can expect employee profit sharing and performance-based bonuses will be down as well. These kinds of developments--lower payouts for the holidays--don't make for happy surprises among employees. You need to tell your staff what's happened to firm revenues as result of the turbulent markets. Not only will it soften the blow during holiday time, but helping your staff to understand the connection between the stock market and your firm's economics is essential for them to be good team players, and to take ownership in their jobs. You'd be surprised how many young people don't automatically make that connection, and how big a help they can be once they "get it." What's more, if you're like many advisors, your instinct is to make up the employees' shortfall out of your own shrinking pocket. An admirable desire, to be sure, but if you are so inclined, you might consider letting your employees experience at least some of the realities of firm economics by not making them entirely whole.

Suggestion #7: Check Your Amex Card Fine Print

Many advisors use American Express as their sole source of business financing. Be advised that good ol' Amex has changed the terms on its cards, lowering the limits on its supposedly unlimited accounts. That means some of those payments that you have automatically charged to your card may get denied. Moreover, it could create problems paying for your ongoing expenses. In some cases, you'll need to make other payment arrangements. If it helps any, know that you're not in this credit crunch alone: this development is affecting many advisors at this time.

Suggestion #8: Start Planning Strategically

Due to the changes in the economic environment, we recommend starting your strategic planning process and programs now rather than waiting until the beginning of the new year. I know it's going to be hard for many of you to think about anything but client service right now, but for the 2009 fiscal year, your strategic planning programs and goals are going to drive your growth and recoup any losses in growth you may be experiencing this year. So start discussing strategic planning as soon as possible, even if that means you have to get some additional help on other aspects of your business management.

The next few months are going to be interesting for all of us, but remember: You, your employees, your clients, and many of your peers are all in this together. It's not the first bad market we've seen and it undoubtedly won't be the last. Focusing on great client service and sound business management will get you through the dark times just as it has in the past, and position your firm to reach even greater levels of success when things inevitably turn around. Any fool can manage a successful business during boom times (and many do), but it's times like these that separate the client-oriented, employee-oriented advisors from the brokers and sales folks. Just keep on doing what you know are the right things, and the future will take care of itself.


Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at angieherbers@cox.net.
Reprints Discuss this story
This is where the comments go.