John M. Ludwig knew he couldn't be all things to all clients -- but, like a lot of advisors, he tried. Three years ago, he hit the wall.
"What I was hearing from customers is that they wanted more planning, more this, more that. Originally, I was doing it all," says Ludwig, who heads LHD Retirement, a retirement planning firm in Indianapolis with $200 million in assets under management. "I'd like to be a superstar, but I realized I had to relinquish the reins to some of it. I can still be a rainmaker, but I don't have to be the whole thing."
The fix? Ludwig, who is associated with Raymond James Financial Services, professionalized his practice by hiring a financial planner. Just recently, he brought on a newly minted college graduate who will be trained in planning as well.
Increasingly, forward-thinking investment advisors are adding planners in a move to help bulletproof their practices. It couldn't come at a better time. New research from Spectrem Group shows that today's investors, bruised by the market meltdown, want a planning-based advisor who can help them navigate life's issues, both financial and non-financial.
As George Walper, president of Chicago-based Spectrem, puts it: "Clients at this point in time are far more interested in someone who can help them with their life blueprint, their life plan, than they are in asset allocation. They may not use that term, but it is the mindset investors are in emotionally. Advisors need to address that."
There are rewards for building a planning infrastructure. Clients tend to be more satisfied with the advisory relationship, according to Walper's findings, and the practices tend to be far more successful. One other important outcome: a happier advisor.
"Sales skills and planning skills don't reside together in too many advisors," observes Eric Daugherty, principal and director of research for kasina, a financial services consulting firm in New York City. "The easiest way to marry these skills in a practice is to hire people with the separate skill sets and let them focus on what they do best: Salespeople sell; planners plan."
There are also stumbling blocks.
Most investors don't put an economic value on the financial plan itself -- so most advisors tend not to charge a fee for what often takes an abundance of hours to produce. "Clients aren't used to paying for advice. They think it's free. Well, it's not," notes Dennis Gallant, president of GDC Research, a consulting firm in Sherborn, Mass. "Most advisors are leaving money on the table."
Many advisors are also afraid of making the wrong hire and adding a fixed expense. "That's where the struggle occurs," says Philip Palaveev, president of Fusion Advisor Network. "That uncertainty really gets in the way." And that's unfortunate, he adds, because a paraplanner's annual salary ranges from $50,000 to $70,000 -- a cost-efficient way to boost capacity and to let the advisor focus squarely on what Palaveev calls the business's single most valuable asset: the advisor's time.
In a little over five years, Ludwig has taken his practice from zero to $200 million in assets -- a trajectory he attributes in large measure to his firm's planning side.
"Growth in AUM comes all of a sudden when clients realize you can help them with more stuff. They gravitate to it. Then they want to bring you new stuff. It's also been a huge referral engine," says Ludwig. "I can't say it hasn't been difficult -- giving up control. It's like trying to keep my fingers out of the candy jar."
But Ludwig is now doing what he likes to do most: business development, which involves peer group outreach and meeting with more clients. And that, he says, is sweet.
At some point, every advisory team needs to ask itself: Who's going to do the planning? Who's going to do the investment management? And who's going to do the rainmaking?
"Advisors are sort of struggling because they are expected to do more and more," says Gallant. "And consumers are looking for consolidation and simplicity in advice."
How to get started? First, figure out what it is you like to do most. As Rick Pierchalski, chairman and CEO of Pittsburgh-based BPU Investment Management, observes: "Brokers know how to bring in assets. That's what they're really good at. Planners are not really good asset gatherers; they're thinkers. They like to sit down with the last three years' tax returns and come up with something brilliant."
Pierchalski, a former wirehouse broker, should know. Roughly five years ago, as he steered his 24-year-old firm toward the wealth management aspects of planning, he began building a planning department. Today, BPU, with $500 million in assets under management, has 25 planners and advisors, along with a couple of staff attorneys, a risk specialist and two Chartered Financial Analysts. BPU now offers a robust wealth management platform -- what Pierchalski labels "the big hug approach."
Many advisors don't have a job description or defined role -- something Gallant says must be clarified in order to determine who is going to do what. Not only should advisors ascertain what tasks they are best at, he adds, but which ones they most enjoy and where they spend the most time.
On Gallant's checklist of key considerations: 1) areas of the business you enjoy most; 2) your strongest skills; 3) areas of the business you find most challenging; 4) areas of the business you least enjoy; 5) your perfect job description; 6) areas of the business that excite you; 7) activities that make you particularly happy while you do them, and; 8) activities that come easily to you that seem to be difficult for others.
Other questions to ask: What do my clients need? Can I meet client expectations? What can I do myself? What can I learn? How long should it take? Is it the best use of my time? What resources and support do I need?
Andy Brief, president of Andrew Brief Retirement Strategies in Elmsford, N.Y., hired a planner just over a year ago. "There's no question that immediately what it's done is free up my time to focus strictly on client meetings," says Brief, who manages $135 million in assets. "I do little meeting preparation, follow-up or paperwork. I don't even deal with inputting notes in the database. That's (the planner's) job."
It's time well spent because Brief doesn't charge clients a planning fee. "Selling plans is a barrier to relationship building," he says. "I charge you $10,000 for a plan now and it's not worth the paper it's written on next year. Our revenue is based on how many people I can see, working X number of hours per week."
To charge or not to charge? It's a tricky question. A third of all RIAs have unbundled investment advice and planning, according to Pershing Advisor Solutions CEO Mark Tibergien, but many others choose to incur a lot of heavy lifting in the asset management fee they charge.
"The risk they run if they're trying to present themselves as a wealth management firm is that the client won't appreciate that added value because you're only charging for investment advice," he says. "If you're in a business where your clients are only judging you on investment performance, the investment you are making in all these value-added services tends to be worthless."
Whether you charge separately for planning services or not, Tibergien says it's important to find a way to get the client to acknowledge all the extras that are delivered through the planning process. One way to do that: In addition to quarterly investment reports, provide regular financial planning status updates.
Walper, meanwhile, points out that true planning at a high level will pay for itself in terms of future asset growth.
"This is the very, very long stickiness part of it; this isn't about a plastic bound book. It's about establishing a roadmap for the client. Most advisors do this, but they talk about it around investing, not planning for a client's life," Walper notes. "Times have changed. This is not 2005 or 2006, and it's not going to return to that either. Today, to do nothing about having a planning-based solution is the worst-case scenario for everyone."
Steve Gallo and his two partners -- one of them a certified financial planner -- built their 20-year-old firm on a single foundation: the planning process.
"We do not take a client in unless they're willing to go through the planning process. 'Will you invest half a million dollars for us?' Sure, after you go through the planning process. I can't invest for you unless I know your whole situation," says Gallo, whose firm, Fairfield, N.J.-based U.S. Financial Services, has $200 million in assets under management.
U.S. Financial does charge for plans: $1,500 for a "soup to nuts" plan that takes 10 to 12 hours to prepare. More complex plans could cost $10,000. Even so, Gallo calls the fee a loss leader. The firm, like many, pays paraplanners a base salary plus a percentage of asset growth.
The business model has also had an unintended consequence: It's become a recruiting tool. The three partners, all in their 50s, are actively recruiting wirehouse advisors who could one day be part of a succession plan.
"At some point, the guy in the wirehouse realizes selling mutual funds is not a long-range plan. The broker may have nothing but a Series 7 license but we can tell that guy: Bring your book of business and you join our team immediately. We have the planning process intact. You bring your client and we'll take him to the process," says Gallo. "It's a great opportunity for a young guy to walk into a firm that's been around 20 years, plus the client is getting better service."
Meantime, Gallo says it doesn't surprise him that more firms are looking at a planning-based strategy.
"You can't just be an investment advisor where you're living and dying by performance. After what the market has done for the last year and a half, no one wants that," he says. "As an investment advisor, we can't control the markets. But there are things we can control -- and the planning process helps us get there."