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.
Structure will help you hire the right person who fits the job profile, as opposed to chasing a ‘star’ and changing the organization to accommodate her strengths. Defining the specific activities for each job will help you align each new position with your firm’s business strategy, making it far more likely you’ll hire the best person. Once they’re on the team, that structure will provide the template for performance reviews, professional development, and compensation plans.
To keep them once you’ve got them, create a career ladder inside your organization. That will help you run a better business today, and maybe groom a successor generation to keep you growing tomorrow.
Even the best team needs the right tools; that’s why it’s critical to leverage technology as a “force multiplier.” Many firms have seen their client rosters and AUMs double in the past year, which means there can be huge increases in the time it takes to conduct the most routine daily tasks. Advisors must scale their businesses to accommodate such growth.
Advisors tell me it’s often not so much needing new technology as it is better using the technology they’ve already got.
But technology is always a tool, never an end in itself. It should augment and amplify service, not substitute for it. So focus on systems that help automate data handling, ensure data integrity, speed up billing and reporting, and manage client relationships at every contact, as well as document and archive crucial paperwork and e-mails.
Use model portfolios in your portfolio management system to streamline the portfolio rebalancing process. Use a trade order management system to automate trading workflow. Each of these systems contributes to a level of speed and organization that will free you and your staff to focus on providing exceptional service to your clients.
Advisors also need to think about not the technology they need today, but what they will need a year or $10 million in new assets from now.
Establish a Business Development Discipline
Now that you’ve got the right team in place with the right technology, remember that gold mine of referrals? It can be a tremendous source of new clients if you have the time and discipline to make it work for you. While there are many approaches to creating a business development discipline inside your firm to grow your business, the best place to start is by tapping existing clients. Even if most of your business comes through your clients today, with 90% of them willing to recommend you, you may be barely scratching the surface.
Can Your Current Clients Help You?
You’ll never know if you don’t ask. Yet many advisors say they often feel that asking for referrals makes them look pushy. It doesn’t have to be that way. Asking for referrals can show your clients you’re proud of the service and value you deliver. Advisors who really excel at asking for referrals are very focused. They are specific about the clients they’re seeking and about the unique value they can provide. If you’re specific, it helps your current clients think of specific people who might appreciate a referral. That way, you’re more likely to make a good fit with a new client.
You can also benefit by forming relationships with centers of influence–those individuals who interact with potential clients who fit your target profile. Whether it’s CPAs, attorneys, or community leaders, these relationships take time to build but can be mutually beneficial over the long term.
Where does all of this leave us in these first few days of another new year? In the perfect place to polish up those resolutions, both personal and professional. Resolve to find a way this year to laugh a little more and stress a little less, to see all seven innings of your daughter’s softball game, or spend more time with that special someone. But let’s remember that whether we keep those resolutions will depend on the resolve we bring to the greatest business challenge of all: Successfully capturing and managing growth.
Deborah Doyle McWhinney is president of Schwab Institutional, the largest custodian to the independent advisor community. Ms. McWhinney can be reached at email@example.com.