You’ve stopped to smell the roses. Good for you! Now wake up and smell the coffee. Yes, a new era has been brewing in the financial services industry for more than a decade — and it’s a rich blend indeed for those advisors perking with the change.
To be sure, if you’re not developing your business to jibe with the diverse, expanding needs of today’s investing public, you aren’t just on a slow track, you’re stalled at the gate.
No worries, though. It’s not too late to buckle down and start using tactics and strategies to build your practice for the here and now and simultaneously plant seeds to reap business in the future.
The three bywords of today’s successful FA are “holistic, as in broad client relationships; “consultative,” as in huddling with those clients; and “advice,” as in the heart of what clients need.
“It’s not salesmanship anymore. Now it’s leadership. Advice isn’t transactions. And managing your practice isn’t managing your book. Servicing clients is different from having clients. These shifts represent an enormous opportunity for advisors — and a great challenge,” says David Kowach, Wachovia Securities’ director of business development, based in Richmond, Va.
To meet that challenge, wirehouses are putting the accent on training to provide competencies in such sophisticated areas as estate planning, intergenerational wealth transfer and business succession. More than ever, the concept is: value-added.
Electronic technology has helped advisors leverage their time; it’s also given clients access to cheap — even free — do-it-yourself investing. Thus, “as an industry…we need to be delivering services and investment advice beyond what somebody can do on their own. Technology has raised the bar as to what value-added really is,” says Phil Sieg, managing director and head of strategic leadership and development for Merrill Lynch in New York City.
And for principals of independent practices, it’s obvious that they must truly inhabit the role of CEO. “You have to wear lots of hats as opposed to simply being a financial planner. You need to be a business owner and put together a business plan, do your financials, understand processes, and be good at human resources,” says Joni Youngwirth, vice president-practice management at Commonwealth Financial Network.
“You need to get clear on what it is you do — and don’t do — for clients. If you’re going to be everything to everyone, you’ll be mediocre,” adds Youngwirth, based in Waltham, Mass.
Today’s high-net-worth investors — baby boomers, in particular — may be fundamentally shrewd about money; but many have challenging, complex financial situations with which they need help. “A lot of affluent clients are not only expecting assistance with asset management but with many other areas,” says Paul Brunswick, managing director-national business development at Smith Barney in New York City.
At the firm, beefed-up training programs pivot on the motto: “Competence equals confidence.” Beyond asset management, the wirehouse breaks out three other key competency components: lifestyle management, including estate planning; liability management, especially applicable to business owners; and risk management, which “helps clients identify their financial blind spots. The big emphasis,” says Brunswick, “is on these other areas in which advisors traditionally didn’t need to be competent.”
Building Your Business Today
So, in light of the shift from transactional to consultative, how can you build your practice right now?
First, choose or refine your target market. Acquire technical skills in the more intricate financial-planning areas. Create a mission statement, marketing strategy and client-retention strategy, plus a service standard for each client. Develop a written annual business plan — and, ideally, refer to it consistently throughout the year.
“Getting to know you” is today’s chief theme for obtaining and retaining clients. Gravitate to a specific niche. “The emphasis is on being much more narrow in the type of people you deal with — [but] much deeper in the way you try to help them achieve their goals,” says Merrill’s Sieg.
The comprehensive client profile — which helps FAs uncover financial needs in tandem with life hopes and dreams — has become one of the most important tools in building your practice.
Wachovia stresses client-profiling skills “even with [clients] our advisors have known for years,” notes Kowach. Using the firm’s Envision program, they probe to learn about life goals and “get to the heart of real issues clients face day to day.” From that, the FAs create appropriate financial plans. “We don’t want it to be the same-ol’ salesman-type of business. Now we want to play more of a role of life advisor to our top clients.”
In building an advisory business, it makes sense to have a business plan — an annual one that, as Smith Barney’s Brunswick says, “doesn’t disappear into a file in January until the next January. It should become part of the advisor’s life on a quarterly, monthly, [even] weekly basis.”
Youngwirth, at Commonwealth, believes that every independent should have a written business plan to “live by through the year. It’s essential to do one even if advisors put it in the bottom drawer and don’t look at because [at least] they will have articulated how fast they want to grow, services they want to provide and to whom they want to provide them.”
Establishing an investment policy statement and an agreed-upon client-service standard are other aids to help boost business in the short term. “A lot of research shows that a written investment plan and consistent client contact absolutely have an impact on client loyalty,” notes Kowach, of Wachovia, whose new Forefront business model for advanced FAs has an IPS, a service standard and the Envision tool at its core.
Prospecting for new clients shouldn’t be neglected — even if all you do is ask accounts for referrals. “In the past cold calling was effective, but not anymore,” says Sieg. “Identifying a niche market, networking and working with other professionals [for referrals] are probably the most effective thing to do today.” Brunswick says that FAs who have learned new, advanced competencies become “more referable” by CPAs, attorneys and the like. Seminars are excellent for bringing in new business too.
According to Youngwirth, independent FAs must market to three groups:
“First and foremost, existing clients because they get invitations every week to go to seminars with free dinners; prospects — people you’ve had some interaction with — because they’re hot; and your niche market or the larger community” via advertising and public relations branding.
Forming a partnership or team can often be the perfect move because such a union can bring together complementary skill sets. But heads up: “Partnership,” points out Youngwirth, “is an art.”
Whether an independent advisor or FA in a large firm, an entrepreneurial spirit is, without a doubt, what you need. This is a highly entrepreneurial business, says Merrill’s Sieg, “and those who do very well think of themselves as having a business within a business. They’re constantly looking at how to change for the better.”
As for running your practice, make establishing processes and efficient systems a priority. Process-oriented FAs, notes Brunswick, “talk with clients at the end of the year about, say, philanthropic giving. In January, they bring up year-end and financial plan reviews. At tax time, they discuss IRAs and other tax issues. In summer, they may be contacting clients about mid-year reviews or educational savings analyses. There’s a very thoughtful process that our best advisors use during the year with both clients and their practices.”
Superior service is critical. But what does that entail? Keeping in frequent contact? Giving clients the deluxe treatment? These days, it unquestionably means providing lots of good advice. That’s service too.
“Great service is different from making clients happy,” notes Youngwirth. “First, make them delighted with the core function of why they’re with you: financial planning, investment management. Then you can add the other stuff,” like fancy concierge services. “If you provide [the latter] without focusing on delivering on the core needs, you haven’t fulfilled the reason they came to you.”
Planting the Seeds of Future Business
Meantime, don’t ignore launching long-term strategies to bring in business downstream.
Of course you first need to build a unique set of competencies, covering both the investing aspects and cultivating client relationships. But because a number of disciplines, like wealth transfer for affluent clients, are complex, “it takes time to build on them and a little longer to take hold,” says Brunswick. “There will be a payoff in those competencies, but it won’t happen for a while.”
Acquiring meaningful designations, such as CFP, to increase skills and credibility is certainly a worthwhile investment of time and money. Other initiatives that build business in the short term will obviously bear fruit later on too: forming a partnership or team, staying on top of clients’ life issues and goals, devising a business plan, marketing yourself by writing articles or books, liaising with spheres of influence to generate referrals.
It’s wise, though, not to take on clients who, at first meeting, don’t seem right for your practice. Says Youngwirth: “Better to have the strength and discipline at the interview to say, ‘This isn’t a good fit. You need some [services] my practice isn’t designed to deliver.’” If you add such clients, “it will lead to inefficiency in the practice, frustration and probably a bunch of [other] negative emotions too.”
To heighten productivity and profitability, FAs should surely consider shifting from transactions to a fee-based practice. “Greater productivity is a byproduct of FAs’ expanding their fee-based managed money business,” says Brunswick, “provided that method of compensation benefits clients.”
Determining what’s happening in your clients’ lives that reflects on financial goals should be a prime piece of your long-term strategy. Sensitivity training has taken on new meaning with Wachovia’s Life Event Services. The department trains FAs in how to speak with clients about touchy topics such as a parent with Alzheimer’s disease who’ll soon need nursing-home care. “These aren’t things that have a direct impact on us from a revenue perspective. But,” notes Kowach, “they have a direct impact on our ability to better serve what the client needs from a trusted advisor.”
One of the most potent ways to develop future business is by forming relationships with the adult children of existing clients right now. That’s taking the multigenerational approach. Find out if they have a similar orientation about money and the same value system as their parents. Do they live in the area?
Not all parents and children will readily agree to a family chat about wealth transfer. Parents may be secretive; children may feel guilty about their potential inheritance. In such cases, mail out general information concerning your practice. “Drip on [the children irrespective of] your relationship with their parents,” advises Youngwirth.
With today’s tremendous competition across brokerage firms, banks and the financial planning community, advisors need to both expand their services and refine the ways they deal with clients. “That’s a good thing for the investing public,” says Sieg. He predicts that five years from now, advisors will be “continuing to improve what they offer and the way they work with clients. The market is going to demand that. And the bar will [continue to] be raised as to what value-added is.”
Will Hardee dubs himself a “dinosaur” because he loves to personally put together stock-and-bond portfolios. But the financial advisor is also highly evolved: He uses cutting-edge psychological profiling to scope out prospects’ personalities and learn about their financial needs. In fact, he cites that as the top way of developing his practice long-term.
Prospects getting two thumbs down from the get-go are what the RBC Dain Rauscher senior vice president-investments calls “The Kamikaze” and “The Ultimate Safety Player.” Red flags show up on their profiles. “Kamikazes are wild risk-takers. Safety Players take no risk — they want to dig a hole and bury the money in it,” says Hardee, whose practice is in Houston.
“When Kamikazes lose, they blame it on somebody else. Safety Players are very alluring, but they disappoint advisors because they can’t make decisions. You spend a lot of time with them,” he says, “but eventually get aggravated because you can’t get anything done.”
Hardee, 30 years an advisor, manages $450 million in assets. He focuses on high-net-worth clients, mostly grandmas, moms, daughters and granddaughters. Minimum account size: $1 million.
The FA’s White Glove Service supplies advice not only about investments but mortgages, college education — all “matters of life.” Hardee spends face-time with each client (“I make house calls!”) and isn’t shy about asking for referrals while working up portfolios at the kitchen table.
On the boards of some New York Stock Exchange companies, he knows “what it’s like to make decisions that [drive] stocks up and down.” And he uses such knowledge to build portfolios. “The buck stops here!” he says.
Every month a consultant comes in to give him a “tune-up.” That means reviewing his business strategy and “making sure,” says Hardee, “that I continue to be disciplined in my approach.”
The advisor encourages clients and their families to discuss wealth transfer, though that notion is often greeted with a pass. He typically won’t accept no for an answer. Last December he set up a family limited partnership for an elderly widow with a large estate. It took him six years to show the woman that the partnership, protecting her estate and children’s inheritance for at least three generations, was the right strategy.
Apart from client profiles, what’s his other best method for developing business? “Making money for clients. Nothing works better than having accounts grow!” says Hardee. — J.W.R.
Jane Wollman Rusoff is a contributing editor of Research and is the founder of Family Star Productions