From the October 2009 issue of Research Magazine • Subscribe!

More Best Practices

Delving deeper into what sets top financial advisors apart.

Last month's column began our look at the best practices of elite financial advisors, as a valuable model for adopting new and better ways of doing things. At CEG Worldwide, we've found the essential best practices break down into five areas: growing the business; specialization; running the practice as a business; client service; business systems and practices. Having covered the first of these two areas last month, we'll delve into the rest.

Practice as Business

The most successful advisors are far more likely to treat their practices as a business, and run them accordingly. This means that they set and follow strict minimums; establish and work towards an ideal client profile; and regularly ask existing clients for additional assets to manage.

Elite advisors are substantially more likely to have a minimum asset requirement and a minimum yearly fee. Understanding that the only absolutely non-renewable and non-fungible asset that they have is their time, they appropriately price their time by setting the kind of minimums that ensure they're working with the right clients from the very beginning. Less successful advisors tend to take whoever comes through the door, and then try to make up for having inappropriate clients by having more of them.

This volume strategy simply won't work. You're much better off aiming at the right clients and sticking with the minimums you set. Make sure your minimums aren't just in your mind, but are part of your internal procedures and known to your staff. While you can occasionally take on a client who doesn't precisely meet your minimums, don't let the exception become the rule. Also, it's important to consider SEC guidelines stating that fees charged must be "reasonable in light of the services rendered."

Creating an ideal client profile and marketing to that demographic goes hand-in-hand with setting appropriate minimums. You should figure out what kind of clients you want to work with and then specialize in their needs. You want to target potential clients who have investable assets that are two to five times in excess of your minimums.

Don't worry about whether you control all or most of a client's assets. Somewhat counterintuitively, our research confirms that the higher the percent of their clients' assets an advisor says they control, the less successful that advisor is likely to be. Why? The wealthiest clients almost always have multiple advisors, so if you control 95 or 100 percent of your clients' assets, they're much likelier to be smaller clients.

The truly affluent are highly unlikely to put all their assets with any one advisor, particularly a new one. Instead, they'll want to try you out, see what your services are like, and determine whether you consistently deliver on your promises. And if you do deliver, they'll happily bring you additional assets over time, especially if you're regularly asking for these assets.

Elite advisors know that asking for additional assets is a much more efficient and effective way to grow a business than constantly prospecting for additional ideal clients, and are three times more likely to regularly ask. Given recent market turmoil, it may not seem like the best time to employ this best practice, but nothing could be further from the truth. Not only are your affluent clients likely to have substantial amounts with other advisors, they're very likely to be at least somewhat unhappy with those advisors. So assuming your clients are happy with your services, this is an ideal time to ask.

Client Service

Another hallmark of elite advisors is a client-centric focus and dedication to delivering superb service. Client satisfaction begins with the number of annual client contacts, with elite advisors averaging 14.8 contacts with their top 20 clients, versus 5.2 contacts on average for other advisors. Surveys of affluent clients confirm that they desire a consultative and collaborative relationship with their advisors. This means not only that you must make a sufficient quantity of contacts, but they must be high-quality contacts.

Advisors often tell me that their clients don't really want to hear from them. But if your clients don't want to hear from you, it's because you're not calling them about the right things. Elite advisors have fewer, wealthier clients, which means they can pay more attention to each client and learn about their dreams, interests and family members. So instead of talking about investment specifics, talk about how your client's son or daughter did in their athletic event or school play. If you find out what's really important to your clients -- starting with the very first discovery meeting -- and make that the basis of regular, high-quality contacts, you'll no longer be seen as a bothersome salesperson.

Additionally, a client-centric business necessitates having an absolutely crystal-clear picture of client satisfaction. Elite advisors are four times more likely to do a formal satisfaction assessment, usually through an annual client satisfaction survey. Not only must you find out what does and does not work for your clients, but you have to respond to their concerns and then let them know that you've done so. For example, if you find out that your clients are annoyed by your phone system's hold music, you should not only change it but specifically let clients know you've done so. Human beings are dominated by first impressions; if you point out changes you've made, your clients are much more likely to notice and appreciate your efforts.

Elite advisors also ensure client satisfaction by putting a systematic client management process in place. In most cases you'll want to use CRM (client relationship management) software and make it accessible to your entire staff, so they too can have in-depth personal conversations with your clients. Finally, elite advisors are twice as likely as other advisors to offer a formal written plan to each client, including an investment policy statement and a write-up that evaluates the client's specific situation.

Systems and Practices

If you really "get" that time is your most valuable resource, you'll also understand the need to outsource as many non-critical functions as possible. At CEG Worldwide we teach advisors that the two most critical functions -- the two you should be spending 60 percent of your time on -- are client-facing activities (client contact and relationship management) and business development. Everything else, when possible, should be outsourced.

Many advisors mistakenly believe that their personal management of their clients' assets is a critical function, but our research consistently shows that the most successful advisors are the ones most likely to outsource money management to third-party money managers. If you attempt to personally manage all of your clients' assets, you'll likely lose the crucial focus on client service and relationship management. While your clients want to know that you're diligently overseeing the management of their money, in most cases they're not looking for you, personally, to be a money management guru.

Many elite advisors have literally blueprinted their entire practice to determine which functions are critical and which can be outsourced. Far too many advisors attempt to be not just their own chief investment officer but also chief technology officer, compliance officer and administrative officer. When advisors take on all these roles, there just aren't enough hours left for relationship management and business development.

Just as you should offer your clients a formal written plan, you should also have a formal business plan, marketing plan and succession plan. The most successful advisors are three times more likely to have a formal business plan, and twice as likely to have a formal marketing plan. Your business plan, which can be written in just a few pages, should be dynamic, regularly consulted, and frequently updated. As for your marketing plan, include concrete metrics to make sure you're spending your resources efficiently.

Far too few advisors at all levels of success have formal succession plans: only 13 percent of elite advisors and 8 percent of other advisors have one. This is a key area where you can differentiate yourself, since your clients will feel better protected if they know that they won't be left out in the cold if something happens to you.

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