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Practice Management > Building Your Business

How to Think Big

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The term “producer” rubs me the wrong way. It’s insulting to clients. Someone who trusts you with his wealth would cringe if he heard that because you sell a lot of securities, insurance, or financial advice, you are referred to by colleagues as a “big producer.”

Steven Drozdeck concedes that the title of his latest book, The Mega Producers (Dearborn Trade, 2003), was a mistake. But beyond its title, the 200-page volume has a lot that will be helpful to many advisors.

Practice management is the great weakness of independent advisors. Many planners and investment advisors simply do not know how to run a business. Even the Certified Financial Planner Board of Standards does not give credit for practice management topics in its continuing education program. It’s no wonder that while we have many qualified financial technicians, only a small number of successful independent advisory businesses compete effectively with the giant Wall Street firms. So Drozdeck’s contribution is important. Drozdeck was a broker in the 1970s, trained thousands of Merrill Lynch brokers in the ’80s, and started his own broker training company in the 1990s before becoming a coach, consultant, and motivational speaker.

Explain the concept behind your book. Mega Producers are mostly people who started off as transactional brokers and then shifted their approach to business. Instead of being a typical top producer who manages between $100 million and $300 million, these people are managing anywhere between $500 million to $27.5 billion, with an average of well over a $1 billion apiece. Steve Winks at Senior Consultant, a newsletter, says there are approximately 5,000 such senior consultants in the U.S. managing 25% of all U.S. personal assets. They represent not only the best producers or the best advisors, but also the model toward which the industry is headed. They have really well-integrated teams, processes that are superior, and are able to manage large amounts of money efficiently.

You interviewed about 50? The big thing that I did was to say, “Talk to me,” and then shut up and listened. I’d ask about the biggest mistakes they made, what they wished they had done differently, what they will do differently now.

Where were they from–wirehouses, regional brokerages? A combination. A few came from wirehouses and regional brokers. Some were RIAs. I would say about 50% were independent.

What were their most important ideas? I like to divide that up into four categories, with one or two key ideas in each. These categories represent the key things that everybody needs to master to be very successful: communication skills and client management, practice management, professional knowledge, and personal and personnel motivation.

Where do most advisors go wrong with regard to these four categories? They are deficient in one or more of them. Maybe they are not running their businesses effectively or are trying to do things by themselves instead of creating a team and delegating responsibilities.

You advocate building a team and building your business and adding people to do so. A growing number of advisors are saying they do not want to grow. They say they can’t find the right people. The payoff is not there. And it requires different skills. Yes, yes, yes, yes.

Why do it, then? If you want to have a large business, manage substantially larger sums of money, and create an organization, then there is a different approach. Some people aspire to this. The fact that some advisors have tried the bigger business model and failed doesn’t mean it doesn’t work. It really means they tried in an inappropriate way. That’s what this book says: There are a number of approaches of doing it well.

But why do it? Remember, we are not living to work. We are working so that we can have a lifestyle that we want to achieve. Being a financial advisor is a profession that allows us to achieve a lifestyle that gives us fulfillment. The vast majority of Mega Producers are able to step away from their businesses and spend a lot of time with friends and families, or working on charitable activities. They have created a business where they can walk away and have other people do the work, allowing them to take vacations or to do only that aspect of the work that they truly enjoy the most, whether it’s being the rainmaker or the portfolio manager. If you have a smaller business, you not only have to play to your strengths but to your weaknesses. But I don’t want to say that this is the only way for everybody to go.

You also create an entity that you can transfer. Most certainly, you are creating a business organization that you can sell. So when you are transferring a business that is managing $1 billion or more, it will go for a substantially higher price than a one-man shop.

Where do you begin? You start with where you want to be in 10 years–the ideal. If you decide that you want to have a business in which you are able to take vacations and not worry about what the market is doing while you are away, then you need to create an organization toward that end. Imagine it is 2014 and write down the clients you are serving, the people you’re working with, the services you’re offering. Then determine if your current business plan is aimed at getting to your ideal business. If not, why are you going down this path? If so, then fine. Continue and analyze your business to make sure that you are getting more of the clients that you like and fewer of the types of clients that you don’t want.

You say advisors should create a scorecard for each client and rate them from A to E. The concept was developed with my friend Karl Gretz. We suggest an advisor look at a client from a complete perspective: commissions or assets under management plus assets held at other firms, how much you enjoy working with a client, the number of referrals they give you, whether they are working in the areas that you want to participate in. When we get advisors to rate their clients, more often than not they find that the people they thought were their best clients because they gave them a lot of commissions last year are not their best clients. So, are you giving first-class service to your first-class clients? If you are giving coach service to your first-class clients, then there’s a high probability they’ll leave.

So it’s the 80/20 rule? If you have 100 clients generating $100,000 of fees and commissions, and 20 are generating $80,000 of the total, you need to be aware you are spending the majority of your time on the bottom of the 80. You can be spending the majority of your time with the top 20 and looking for more of ideal clients.

The client scoring system is meant to help you figure that out? Yes. If you find that your clients are matching the business model that you want in 10 years, fantastic. But if you find that certain clients, even though they might be great clients, are the opposite of what you want, then perhaps you need to rethink working with them. Maybe you need to farm them out to an associate in your organization, if you create one. For example, maybe you have a client who is a high-level trader, generating bunches of commissions. If your business model is to adopt a managed money approach in 10 years, then that client does not fit into the 10-year plan. You have to make a decision. You either modify your dream or slowly get that client to adopt the managed money model.

But many advisors are so busy. Delegate as much as you can to an assistant, who can write down information like how much revenue the client generated last year. That should be easy. But you have to find out where you are and manage your business like a business. You have look at where you are going. You have to take time off to review and develop your business instead of just doing things.

You also say advisors should do a demographic study of their clients. Once you have identified a number of clients that you like to deal with, you’ll want to find more like them. To do that, you need to learn more about them. Find out about their political affiliations, community activities, charitable activities. Are they from a particular industry? If a number of them are attorneys or physicians, you’ll start to notice a pattern. You may modify your approach and say, “You know, I specialize in helping cardiologists and upper-level executives.” You could then bring in the products and services that upper-level executives and cardiologists need and become more focused. Instead of being a floodlight, you become focused as a laser beam to get specific types of clients. Your marketing effort can be made more efficient this way. But you cannot determine your focus until you describe what the demographics are of your client base.

Explain how Mega Producers relate to their staff and want to make a difference in their lives. You found a common thread there, didn’t you? Not only do they want to make a difference in the lives of their clients, they know they are making a difference in the lives of their staffs. They know who they are as individuals. They know their birthdays. Staff is an absolutely essential component to their success. They help people to get their licenses or, in some cases, allow the staff to take music appreciation courses.

How does that approach differ from the way most businesses are run? Many advisors have a sales assistant who just answers the phone and does trivial administrative work. This is not really staff. It’s an assistant. Mega Producers do things in a very systematic way. Their staff people love the business and get involved with clients on a personal level. They adopt the clients as a group. It’s not just the principal’s client. The group takes responsibility and works with each other for the benefit of the group as well as the client. That is different from a typical sales associate.

How should advisors ask for referrals? The typical way to ask is, “Do you know anybody else that needs a good broker?” But let’s pretend that I just helped you do some work putting together a program for Alison and Jason’s college education. And you put, say, $5,000 in as a good first step in helping Alison or Jason get into Harvard or Stanford, or whatever college they want. As an advisor, what I now need to do is say, “I would like to help other people get their kids ready for college. Do any friends of yours have kids in middle school?” If I ask you about your kids’ friends and parents, you probably do know a few who would be interested in getting their kids into a high-quality college.

How do you bridge the gap between reading about these ideas and doing them? Take one area and do a 1% shift. Don’t try making a 360-degree turn or even a 180-degree turn. Learn how to communicate a little bit better, and practice those skills for two or three weeks. Do 1% at a time. Assess where you want to be and then make a 1% shift every month. Over the course of a year, you will have made a 12% or 15% change in direction. But you are not overwhelmed. Too many people try to implement too much all at once and end up going nowhere.

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (, which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at [email protected]