From the January 2009 issue of Investment Advisor • Subscribe!

First Aid Kit

Some quick steps you can take now to get your practice under control

When I started my consulting firm seven years ago, I went through hundreds of different scenarios of what could happen to advisory firms in the best of times and in the worst of times. I poured through data, research, business management books, and everything else that I could get hold of to come up with practice management models that enable independent advisors to outperform during both up and down markets. We have those models in place today.

What I learned in that process, and has been proven even more through my client work, is that advisory firms suffer from a phenomenon that affects very few other industries. In normal businesses when revenues go up, so does the workload, and decreasing revenues usually means less work. But when advisory firms experience bad economic times the opposite occurs: declining revenues and increased workload.

That's because when revenues are up, the markets are usually up, which makes clients happy, and so the workload is down. Conversely, in turbulent times like these when assets and revenues are down, clients tend to be unhappy, so the workload goes up, often way up. Then, adding to the stress, independent advisors often get a flood of new clients (fleeing their wirehouse brokers) who won't boost revenues for at least a few more months. It can be a flurry of punches that will have an advisory practice reeling.

The most successful advisory practices are already positioned for increased client handholding, so they can take maximum advantage of the opportunity for new clients. Yet, in my experience, the vast majority of advisor practices aren't well positioned to withstand these challenging markets, and it's a little late to suggest a one-year repositioning program. Still, there are some quick steps advisors can take to counter that one-two-three pummeling, and get their practice under control, and ready to take advantage of those new clients.

The long-term solution to the market conundrum is what I call a comprehensive client services program. The biggest problem that advisors face when the markets go south, is the unusually high client demand results in the need for contact with their advisor. The solution is to have high-touch systems already in place, scheduled, and working in your practice: newsletters, reports, client surveys, and group conference calls, all happening regularly and frequently, even in good times. Then when some major crisis does occur, you can adjust your message to address it, and without throwing your staff into a tailspin.

The second biggest problem is new clients. With revenues down, the natural inclination is to try to stop the bleeding with any and all new clients who will fog a mirror. In the relative calm of where ever you're reading this, you can perhaps begin to see the problem here. Setting up new clients into a system is the most labor-intensive thing you and your staff do. And clients who bear little similarity to your existing clients take the most work of all. So, taking on a host of new clients at a time when your practice is already swamped by increased servicing of existing clients (and revenues are falling so you're not likely to be adding any new help), can bring the meltdown from Wall Street to your front door.

To counter this new-clients-at-any-cost impulse, we establish systems that control the growth of practice. Determining your niche, and your target clients is the first step, followed by the discipline of practicing accepting only those clients who are a good fit. Next is controlling the rate at which new clients are added. Predetermining how fast your practice can and should grow based on workload, allows you to be more selective about whom you take. So when the going gets tough, it's a relatively simple matter to determine that whether your practice needs to slow down its growth even further, pushing new clients into the future, and turning away even more prospects.

Of course, putting these systems and procedures in place is all well and good if you have a year or so to create and implement them. The question that most advisors have today is "what can I do now to stabilize my practice and hopefully work on the larger projects when things calm down?" If you don't have a client service program already in place, and are wrestling with myriad client calls and issues, and the temptation to start taking new clients, on top of it all. Here are some steps you should think about taking right now to give your clients what they need, while managing your workload:

o Conduct a client survey. I know, I said manage your workload, but there's no better way to find out what your clients need than to ask them. An e-mail survey doesn't take a lot of time or effort. At a time when clients feel the most needy, just having you ask will go a long way toward calming them down. The last thing you want to do right now is to fail to address their needs, and force them to go looking for an advisor who will.

o Client conference calls. We are in the age of mass media. We now have the technology to get all of your clients on the phone at the same time, so you can deliver your message just once. What's more, having them all on the line together, able to ask questions and comments, gives them a sense of community, and helps them to feel less alone. Having them experience that you actually do have other clients--a lot of other clients--is also a powerful reminder that many other people think you know what you're talking about, too. That never hurts.

o Send out regular client communications. These should be about once a week, by e-mail. Talk about what the markets have done recently, what you think it means, focus on financial goals, and don't forget to ask about any questions or issues they might have that you can help with. Again, most of the content can be used in all client letters, with relatively small sections customized for each client. The point here is that the more they hear from you, proactively, the less they'll feel the need to call you for personalized service. The decrease in workload can be dramatic.

o Segment your clients. While we're talking about personalized service, I suggest you just take a minute or two to make a list of your best clients--the ones you absolutely don't want to lose--so you can make absolutely sure to get them what they need.

o Give timely advice. It's also an excellent idea to give your clients tips on what they should be doing now, such as keep their debt low, stay in their jobs and don't make any other major moves if they can help it, and that they'll probably need to revise their financial plans to reflect lower assets and longer time horizons, and then come to terms with whatever changes in their future that implies. These points don't have to be rocket science, in fact, telling people to do things they are already doing makes them feel good, at a time when feeling good is no small thing. During troubling times, being able to do something always feels better than doing nothing.

o Control growth. Even though you may not have a system in place to do this, you're going to have to make a concerted effort to resist your impulse to take every new client who comes along. Your first priority is to your existing clients: the last thing you want to do is lose some of them. Take the stress pulse of your staff, and get a feel for how much more work they, and you, can handle. Then match the rate of adding new clients to what you all can do without jeopardizing current client service. You might also consider staff bonuses for taking on the extra workload of new clients--especially at time when year-end bonuses probably weren't what anyone expected them to be.

These steps will enable to you to control your workload, focus on high priorities such as your best clients, and hopefully add some new clients to boost your practice when the markets inevitably turn. When the dust settles, you can think about creating more efficient systems to make these solutions a permanent part of your practice, so you can service your clients better, and handle even more new clients. If there's a silver lining in all this, that might well be it.


Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at angieherbers@cox.net.
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