Nobody ever asks the most important question: 'What's your termination rate?' Because your termination rate is to some extent a determination of how happy your client base is. Instead, people always ask 'What's your performance?,' when they may not understand that you may have had hot numbers in a category that was hot. . . . Your readers have a very low termination rate because they have a small client base and they service the hell out of them, but when you step up to the wirehouses, they have a very high termination rate. Among large advisors you have a 10% to 12% termination rate; wirehouses are double that number, and small independents are probably down around 5%."
That torrent of words came from the lips of Ken Fisher, who is about as ubiquitous as any investment advisor has ever been. From his long-running weekly "Portfolio Strategy" column at Forbes, to his frequent appearances in the electronic media, to his writings in the trade press, and to his heavy presence in television advertising and in your mailbox–and probably in your clients' mailboxes as well–Fisher's prominence is as evident in the financial services world as it is in the consciousness of consumers. But don't mistake his ubiquity and media savvy for shallowness. Fisher is a businessman who has built an advisory firm that is as successful in attracting clients and assets–and keeping them–as it is in public relations.
As the most successful RIA in the universe as measured by his $35 billion in assets and more than 900 employees, Fisher Investments is in many ways the benchmark that other advisory firms should measure themselves against (it was no accident that when Focus Financial Partners' Rudy Adolf described his firm as the largest wealth management firm in the country following a spate of recent acquisitions, he was quick to qualify it: "We're the largest, except for Ken Fisher, of course.") Adolf's qualification was accurate in another way, when he mentioned that while Focus Financial's firms provide comprehensive wealth management, Fisher Investments only provides investment advice to its 18,000 clients. True, but Fisher's focus, history, current strategy, and future goals–and the way he gets and services those 18,000 clients–are not only instructive to advisors much smaller than him, they can also provide some helpful guidance to firms that wish to emulate his success, if not his precise business model. But make no mistake about it: Fisher is very opinionated not simply on what constitutes a good investment, but on what constitutes a good investment advisory firm. By turns contrarian, frank about his past mistakes, and critical of his peers and the industry, Fisher has much to offer.
Retaining Quality Control
Take, for instance, his biggest criticism of the industry. "There are a million things you can say that our industry doesn't much do that most other industries do, and it leads to a mindset that I think of as rubbish–that you have to be either a distributor or a manufacturer." Fisher's experience over time has led him to believe that when you separate manufacturing from distribution, "you give up quality control of the other side. So if you want to be a totally quality control guy, you can't do it."
Fisher is obviously that "totally quality control" kind of guy. "If you're just going to be a manufacturer, you give up control of who your client base is; if you're just a distributor, you really have no control of the product." He admits that the potential for a conflict of interest exists when a firm both manufactures and distributes, but argues that as long as you fully disclose that you just "sell your own product only, and everyone knows what you're doing," then you can go ahead. In fact, he thinks that the rest of the industry's separation of the two arms of investing "is something that I've found to be an attractive, kind of contrarian play," that provides him with an advantage over
his competition, especially in light of his "Three Questions" approach (see sidebar, below). Fisher says he "doesn't want some distributor to say to me, 'You have to take on this client and put up with him, or I'll jerk my other clients away from you.'"
Focus Groups and Client Proselytizing
"If you were to compare" the advisory business with most other kinds of mainstream business practices, Fisher says, "the level of general business orientation just doesn't exist." Going back to his point on termination rates, Fisher would like to see an industry standard on those rates developed and disclosed to clients. "If people had to correctly calculate their termination rates and disclose them–that would tell people a lot."
There's another business practice that advisors would do well to emulate, he argues–the use of focus groups to fine-tune everything from product offerings to prices to the service approach.
Fisher notes that Chip Roame wins plaudits, "rightly," he says, for the consumer panels he runs at his CEO conferences, where actual consumers who could be, and often are, advisors' clients speak frankly about their needs and their experiences interacting with the financial services world. Fisher Investments does focus groups, and has instituted more than one program using what it learned in those groups. "When you do focus groups, one of the things that will pop out at you is that consumers don't have a good sense of the menu of financial services available to them. They know a very limited menu."