As our clients age and continue on their journey in life, they create new issues that can have a material impact on the typical wealth management business. A look at these emerging issues can provide elements for thinking about our business models and how we might structure our businesses in the future.
When I first started out in this business, in 1986, I called myself a financial planner and wrote plans for clients, for a fee. Then, our clients asked if we could manage their portfolios. I agreed and quickly discovered how labor intensive posting every transaction into Centerpiece, our portfolio management software program, was. But soon the technology improved and we began downloading transactions from Charles Schwab. That made my job easier and I began to focus more on planning. As other issues emerged, technology provided solutions that made the job easier, allowing me to spend my time on what my clients really valued. Today our clients, vendors, and the competition are creating new issues that are now consuming more of our time and require us to expand our expertise. I am sure that technology will come along again and make some of these issues less time consuming.
We have continued to adapt our business model over the years to meet our clients’ needs and no longer refer to our firm as a financial planning firm. Instead we call ourselves wealth managers, which I believe is a more accurate description of what we do today.
Identifying and Addressing the Issues
So what are the issues we have been facing over the past few years that are likely to change our business model again?
1. Competition: Due to the increased competition from brokers, banks, custodians, accounting firms, insurance brokers, and investment banking firms, clients no longer line up to work with us as they did a decade ago. We now have to aggressively market and sell our services if we want to acquire new clients.
2. Additional Services: As our clients age, live longer, and become wealthier, their needs change. This leads to an increased demand for more specialized services and expertise in areas such as financial geriatrics, philanthropy, and more sophisticated planning for tax, estate, and legacy issues.
3. Commoditization: Technology has leveled the playing field and commoditized services. Today if all you do is manage money, you are a commodity, unless your returns are much better than the averages over a long period of time.
4. Compliance: The corporate accounting and mutual fund scandals of recent years have motivated Congress to implement regulatory changes that are onerous and difficult to implement. This has increased compliance expenses for all of us.
5. Protecting Clients’ Privacy: We know clients’ birth dates, Social Security numbers, mothers’ maiden names, pets’ names, account numbers and occasionally, account passwords. With the advent of the Internet and e-mail, protecting the privacy of client information from identity theft has become increasingly complex. It used to be that all client information resided in your office. Now we back up our data off-site, use web-based software that contains vital client information, and send e-mails back and forth with clients and vendors. We also need to review our vendors’ privacy policies and be sure that they have operational procedures in place to implement those policies. Staying one step ahead of the bad guys adds to the time and expense of running the business.
6. Due Diligence: Demand will increase for new products and services that attempt to address the longevity and more complex needs of our aging clients. As clients’ needs become more complex so do the products marketed as solutions to those needs. We will be spending much more time in performing our due diligence process as these products attempt to differentiate themselves.
7. Distribution Channels: The wealth management industry lacks sophisticated distribution channels for its services. Until recently we never had a formal sales process. Referrals from our existing clients are still our most successful method of acquiring new clients. As our firm grows so do the referrals we receive.
As several industry studies have already suggested, all of these issues point to reduced profit margins and an eventual industry shake out of the commoditized non-profitable firms.
Since R. W. Rog?? 1/2 & Company, Inc. plans to remain one of the profitable survivors, we are addressing these issues in numerous ways.
Adding Value: What can we do to differentiate our services so we don’t become commoditized and don’t reduce our profitability? Each of us has to look hard at our own service offerings and ask if we are truly adding value to our clients lives and if they are willing to pay for that value? Following are some of the services we have recently and successfully added to our business model.
A year and a half ago we became the advisor to our own mutual fund, The Rog?? 1/2 Partners Fund (ROGEX). We use our fund as a courtesy fund for friends and family of our wealth management clients. The process of starting and operating a mutual fund actually made us better analysts of mutual funds, a skill at which we were already very good. At the same time, we successfully figured out a way to offer a new service to clients below the minimum for our wealth management services. This new service empowered them to obtain the information they needed so that they can save for their future and eventually meet the minimum to become one of our wealth management clients.
Another area where we are acquiring knowledge is financial geriatrics. This is already becoming a very big issue for us and for the nation. As our clients age and live way beyond the old life expectancy tables, the financial issues they face are becoming more complex and important to them. In addition, younger clients who are not aware of these issues can now plan for them early to avoid problems later in life. Today we have retired clients whose parents are still living and have run out of financial resources. Our clients who are on fixed incomes want to help their parents. When you assist a client with their parents’ aging issues as well as their own, you can’t be commoditized and you have a client for life.
Outsource or Insource: Wealth managers need to determine what needs to be done in-house and what services can successfully be outsourced. Currently we outsource our accounting, compliance, legal, technology, public relations, and mutual fund back office operations with much success and are now looking to outsource some of the portfolio administration and human resources functions.
We look towards outsourcing so we can continue to focus on what our clients pay us to do — add value to their lives. My strategic coach, Dan Sullivan, calls this our “unique ability.” He says that it generates the cash flow for our “Present Company.” The projects that our “Future Company” is working on today are also funded by the Present Company cash flow. These projects will eventually become our new business model.
A Fair Price for Services: Clients need to know that wealth management is not money management. Money management is just one component of wealth management, so increase your fees to reflect the level of service that you are providing. Prospective clients will wonder why your fees are higher than a money manager but this will give you a chance to explain why that is and the value those additional services will add to the client’s life journey.
We have raised our fees three times in the last decade without any adverse effects. We carefully communicated to our clients and prospective clients why the increase was necessary and discussed with them all of the services that were added since they hired us.
What Clients and employees Want
First and foremost your clients need to know that you and everyone in your firm are trustworthy and will always act in their best interest. Your firm will act as their fiduciary. Being a “fee-only” advisor can give them a degree of confidence, since you have nothing to gain from the advice you give them.
Your client wants to have a personal relationship with you and your firm. Having a highly trained and enthusiastic staff to answer the phone, determine their needs, and get them to the right person who can handle their request, helps grow that relationship with you and your firm.
Clients want to feel confident that you have the listening skills to understand their problems and the expertise to handle their needs. This means less talking and more listening and a lifetime of growing both the firm’s and your own expertise.
They want you to say, “I don’t know,” when you don’t know the answer to something. Offer to research the matter and get back to them. Clients will find that response refreshing, and the honesty may make them feel protected from bad advice. Clients also want you to address errors quickly. If you make a mistake–and we all make mistakes–admit it, fix it, apologize for it, and put a procedure in place so it will not occur again. Share with the client that you have developed a procedure that will prevent this from occurring again. It will give the client confidence that they are working with an outstanding wealth management firm.
Don’t be afraid to be measured and accountable to yourself, your employees, and your clients. Being measured and accountable will help you grow and keep you humble. At the same time, hold your employees and clients accountable for performing their part during this mutual journey.
Clients want frictionless service. We don’t ask clients to fill out forms. The forms are filled out for them, all they have to do is sign. We don’t tell a client to find an attorney to implement their estate plan. We recommend attorneys and go to the attorney’s office with them to make sure that the estate plan we designed is implemented properly. It’s all part of the frictionless client experience.
Clients want you to provide clarity so they can make well-informed decisions with confidence. They are constantly exposed to confusing information and conflicting advice from the media, family, and friends, which leads to decision paralysis and lack of progress in their life journey.
Be grateful. While clients may not need you to be grateful, they will sure appreciate it when you thank them for their business and respect their time by being on time. Let them know that they challenge you to grow and are fun to work with.
Your employees want to be treated with respect and professionalism. They want to work in a professional environment where they are challenged every day with servicing and improving clients’ lives and their own.
Employees want to be paid a better-than-fair wage (after all, no one thinks they are average) and feel secure that the benefits and savings vehicles you provide will be there when they need them.
They don’t want to punch a clock. They want to be responsible but at the same time they want the flexibility to alter their schedule when necessary so they can function in this world that constantly places pressures on everyone’s time. Our team approach allows us the flexibility to handle business when an employee needs some time off. Client service never suffers because of this approach.
Employees want you to challenge them to improve themselves. You can do this by helping them financially when taking the courses they need to improve their professional standing or just keep up with continuing education credits. Our firm pays all association membership dues, professional licensing fees, and for related educational courses, including the exam fees.
They want to be recognized when they do improve themselves, your business or a client’s situation. Saying please and thank you goes a long way. Giving salary increases for taking on more responsibility and improving one’s professional credentials is commonplace at our firm.
Employees want to share in the success of the firm. At our firm we have two bonus systems in place. One bonus for attaining certain measurable goals, where everyone shares equal dollar amounts and a second profitability bonus program to distribute year-end profits.
The employees at our firm know my motto very well: “Good Enough Isn’t!” We intend to grow on this journey with our clients and remain profitable by being beyond compare. Who knows, perhaps in the near future we will stop referring to ourselves as wealth managers and start using “financial muse.”
Our profession is clearly not just about growing the money anymore. It’s about growing the client, yourself, your employees and your business model. It’s about anticipating, planning, and living a life by design. It’s about showing clients how to get where they want to be and presenting alternatives for the unexpected stuff that life may present on that journey.
Ronald W. Rog?? 1/2 , MS, CFP is the founder, chairman and CEO of R. W. Rog?? 1/2 & Company, Inc. a fee-only wealth management firm located in Bohemia, New York, and serving clients throughout the United States. Visit www.rwroge.com for more information.
For more information on how to start your own mutual fund see, “Build Your Own,” in the “Web Extras” of www.investmentadvisor.com