The Growth Resolution

This January space is a guest columnist’s dream: It comes precisely at the moment when you’ve had time to make New Year’s resolutions–both personal and professional–but not enough time to break them. If you’re like me, one of the biggest challenges when making resolutions is balancing business and personal commitments. Many independent investment advisors I talk to are thankful for a great run in2005. So what resolutions are they making for ’06? I’m hearing this: How can we grow and serve new clients with the same success and level of service that we’ve consistently delivered to our current client base?

I believe opportunities to attract affluent investors and grow your business have never been better. I speak with hundreds of advisors each year, and increasingly I’m hearing a common prediction. Whereas it took many advisors 10 to 15 years to get where they are today, they now tell me they expect to double the size of their firms within the next five years. There’s no reason that can’t happen for many of you. To see why, take a look at the trends.

First, there’s a rising tide of affluent households. According to a recent Spectrem Group study, 7.5 million U.S. households in 2004 had more than $1 million in net worth. That’s an increase of 21%–in just one year’s time.

With the rise of these “new affluents,” even negative events reinforce this trend. During the market downturn, investors discovered they wanted more input from their advisors, not less. The result: Even as the overall market declined, we saw new inflows to independent investment advisors.

There’s another way to look at this: The number of millionaires over the last couple of years has grown by 20% a year. So if your firm isn’t growing by 20% a year, you’re probably losing market share.

Adding to the challenge, as the ranks of the new affluent climb, their expectations rise, too. Today’s affluent investors have choice. Whether it’s the clothes they wear, the cars they drive, the clubs they join, or the vacations they take–they’re used to being catered to by people willing to give them things their way.

Moreover, every financial advice provider in the industry is going after the same clients. So, how do you get these new clients to choose you?

The good news is that those investors are choosing the services you provide, and placing significant value on what you as independent advisors bring to their lives. Research from Advisor Impact reveals that clients care most about the levels of trust, competence, and advice that their advisors deliver. These are areas in which you excel, and it’s making an impact across the industry. For example, independent investment advisors have now overtaken full-service brokers as the advisors of choice among ultra-high-net-worth investors. Nearly 40% of the affluent use you as their primary financial advisor–up from 30% just three years ago, according to Spectrem. Meanwhile, full-service brokers’ market share dropped 8 percentage points to 33% during the same period.

So, if you’re sitting on a gold mine, why does it feel like a roller coaster? After all, your clients love you. A recent Cerulli study reveals that referrals from existing clients and industry professionals account for over 80% of all new client relationships for advisors. Our own Schwab Institutional Market Knowledge Tools research tells us that 90% of advisors’ clients are comfortable referring colleagues, friends, and family to their advisors.

That’s an enormous opportunity and an enormous challenge. After all, if 90% of your current clients say they’d refer someone to you, what will that do to your business? First, assume that 30% of your client base is accommodation accounts that don’t fit your strategy, so let’s discount that 90% referral number by 30%. Now, most of you have an average of 100 clients, so if you asked 60% of the clients in your sweet spot for a referral and 90% of them gave you a name, your business could grow by 54 new clients in a year. That’s more than a 50% jump.

Can your P&L fund that kind of growth? Would your business model break under the strain? What about your existing clients–with all those new clients coming in, will they still get the level of attention they’ve come to expect?

Here’s one way to deliver superior service: You can stress for success, and just do more with what you’ve got. Remember that old I Love Lucy episode, the one where Lucy and Ethel are working in the chocolate factory and the conveyor belt keeps going faster and faster? Well, one way to service 50% more clients is to work 50% longer, 50% harder, and 50% faster. Lucy proved that approach makes for a hilarious sit-com, but it’s not much of a management strategy.

There’s a better way; three better ways, to be precise. Let’s treat each in turn.

Expanding Your Team

To be sure, rapid growth means that you alone cannot create a seamless experience for clients. You must recruit the right people to help you, especially if your focus is serving sophisticated, affluent investors. From the receptionist to a new partner, your human capital must not only be stellar contributors, but must share your organization’s values and commitment to excellence.

To achieve this, put into place a structure, instead of approaching each new candidate search as an isolated exercise.