Being Prepared for 2009

A checklist to help you weather a difficult environment

Talk about the rug getting pulled out from under you. Current economic conditions are reshaping the financial industry continuously, with changes often happening overnight, and investors are nearly frozen with fear about what's coming next. Against a backdrop of unprecedented volatility and challenging market conditions, your ability to maintain your firm's strategic objectives while quelling client concerns has never been more important. That's because with change also comes opportunity. Tough times like these can be the best times for well-positioned advisory firms to grow, as investors are clamoring for advisors' objective services. Many of you are doing all the right things, including staying close to your clients and increasing focus on financial management and business planning--a trend we have recorded throughout 2008 and one that we have long advocated. This month in PracticeEdge, we offer a to-do list based on this year's research findings. Using this list as part of your planning process can help you start your business off strong in January.

Practicing Proactive Communication With Your Clients

While communication is always important, it's especially important during a crisis. That's because hearing nothing usually leads clients to assume the worst. You should have a game plan for communicating key issues to clients. Be aware of your clients' expectations and review their original goals. Those advisors who have solid relationships with their clients are more successful and have better client retention rates--the best firms lose only 3% of clients per year compared to average firms, who lose 15% of their hard-won clients each year.

Use the economic downturn as an opportunity to be better informed concerning the needs of your clients and changes in their lifestyles. Consider asking your clients whether they need to change their lifestyles based on recent economic and market events. According to our survey, more than half (52%) of advisors' clients have to change their lifestyles due to the recent market crisis. You may be surprised how asking about this can help improve your clients' satisfaction and the depth of relationship with you.

Review your existing communication deliverables to your clients. Make sure that you maintain frequent presence among your smaller clients through email correspondences, newsletters and all other systematic means of communication that do not consume a lot of your time. While it's important to continue regular communication with all of your clients, save the bulk of your personal availability for your top-tier clients.

About half of advisors (49%) declare that having close relationships with their clients is a regular business practice and that they were proactively reaching out to clients prior to the start of the financial crisis. Nearly all advisors have stepped up their client outreach since this summer in order to reassure clients. However, it was shocking for us to see that 2% of advisors are failing to do anything special to reach out or reassure their clients during these times.

Many of you were also ahead of the curve on repositioning portfolios for the market maelstrom. The graph below shows that prior to the downturn, more than half of advisors (55%) had moved to cash, 37% had employed alternative investments and 34% had reduced financial sector exposure.

Segmenting and Pricing Your Services

If you have segmented your clients into certain tiers based on size or profitability, consider limiting certain services only to your best group of clients. Determining fair pricing for non-money management services is no easy task. The last four years have witnessed the re-emergence of retainers, especially among wealth management firms, whose services extend far beyond asset management. Retainers, as well as project fees, serve to ensure fair compensation for services rendered beyond asset management. The important thing to keep in mind is that AUM fees do not properly cover the time and cost of offering more advanced planning services. Retainers, therefore, may very well be a good way to price those additional services.

Benchmarking Performance

Compare your financial performance relative to other firms of similar sizes. This benchmarking exercise should cover both profitability and productivity ratios, such as revenues per client and clients per professional, respectively (One of the sources available for this task is our free online benchmarking tool: advisorbenchmarking.com).

2009: Look to the future
Looking ahead, we all hope it will be a better year for the markets, our clients' portfolios and our businesses. So, to position your practice effectively, stick to your strategic business plans--including having communication plans for extraordinary market conditions. Plus, give your customers more face time, along with the services that they want and products that you have educated them on. It will go a long way in making sure your clients are happy and stay with you for the long haul. As the Boy Scout motto advocates, "Be prepared," and you'll help strengthen your firm for 2009.

Maya Ivanova is a market research manager with Rydex AdvisorBenchmarking.com. She can be reached at mivanova@advisorbenchmarking.com.

About Rydex AdvisorBenchmarking, Inc., an affiliate of Rydex Investments

AdvisorBenchmarking is a free practice management program designed to help RIAs better manage and grow their firms. The analysis on Rydex AdvisorBenchmarking.com is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex Investments or any of its affiliates.

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