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Practice Management > Building Your Business

Ready for a Rebound

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With the credit crisis, real estate dive and market meltdown, 2008 is a year we would all like to forget. Our best advice: Don’t. The tumult, painful as it was and continues to be, has set the stage for what could be a new era in the delivery of financial advice.

As John Bowen, CEO of CEG Worldwide, the Northern California consulting firm, frames it: “It’s really getting clear the world has changed and what’s made us successful in the past isn’t going to be what makes us successful in the future. If we want to take advantage of this opportunity and realize our full potential, we need to change what it is we do — and how we do it.”

What advisors do over the next couple of quarters will dramatically impact their success quotient. And, no, “Surviving 2008″ does not constitute a sound business plan for 2009. In fact, Bob Veres, who produces the Inside Information newsletter, says that in order to be successful, advisors must adopt “live-or-die” best practices to manage their way through the significant revenue shortfall that’s currently pulling practices down as well as to position them for an eventual rebound. “If you’re breathing, you’re anxious,” he adds. “This marks an end to complacency in the profession.”

Veres, author of a new 108-page white paper called “Success Factors,” points to two emerging trends that will reshape the advisor-client engagement. First, he says, there will be a much deeper emphasis on the ancillary things the advisor does for the client — not just portfolio construction. Second, with the “glass barrier” between client and advisor nicked if not shattered, the relationship will become much more of an alliance and interactive in ways that have never even been thought about.

While it is true advisors have been through challenging markets before, there has been nothing like this one. In fact, a new report from Chicago-based Spectrem Group concludes that the epic economic downturn experienced around the globe last fall will “forever change the way individuals invest, utilize advisors and rely upon financial services organizations.”

As Rebecca Pomering, CEO of Moss Adams Wealth Advisors in Seattle, notes: “What’s different this time is on the investment side. In the past, there might have been one asset class or another that’s tanking. Right now, it’s every asset class.” As always, falling revenues create a practice management challenge. “So many advisors base their revenue on a percentage of assets. We feel that hit. Our revenues are going down at a time that client needs and labor demands are going up. It’s not a good storm,” she adds. “This is uncommonly difficult from a practice-management perspective because no one knows how long this is going to last.”

It is often during difficult times that advisors, like anyone else, tend to examine what they are doing — and how they are doing it. Joe Lukacs, president of International Performance Group, a financial advisor coaching company in Melbourne, Fla., urges advisors to believe. Do you believe you can grow your business in 2009? Do you believe assets will become available in 2009?

“It was like going through combat last fall. You need to adjust your mindset,” he cautions. “Just because the market is down doesn’t mean you’re sentenced to death in this industry.”

As 2008 drew to a close, we asked industry experts to share their best advice on what financial advisors can do to bulletproof their practices in a year that promises, if nothing else, continuing change. Their advice breaks down into four categories: client service, the regulatory climate, staffing and cost management. Here is what they said.

Client Service

Going forward, clients will demand more from their advisors in the way of collaboration and interaction. And advisors better get ready because they are on trial. The Spectrem Group report, “Attitudes of Affluent Investors on Surviving the Economic Crisis,” says overall satisfaction levels dropped from 60 percent in the spring of 2008 to 40 percent at the end of the year. Additionally, investors, having become more vigilant and protective of their assets, are expected to give their advisors a hard look as the year progresses.

Advisors would be well served to include clients in the problem-solving process, says Veres. Talk to them about boosting their savings rate, budgeting, adjusting their priorities. “Involve them in the process of digging America out of this problem,” he adds. “All of us want to contribute. This is a mess none of us wants to see persist.”

Advisors may be scared, but clients are more scared. As Pomering observes: “Right now it’s about marketing, business management and staff management — the trifecta to taking care of our clients. Advisors need to focus first and foremost on their clients. Are they in front of their clients?”

One important caveat: Don’t assume you know how your clients will react. “If you’re not proactively communicating with your clients, you’re at risk. Don’t send a letter, make a phone call,” notes Matt McGinness, who heads Best Practices Research in San Diego. “E-mail may be good for pushing information at a client but it doesn’t tell you if it’s sunk in, if they agree, how they are taking it — which is what you need to know.” McGinness, in fact, suggests using a behavioral finance tool like Financial DNA to help advisors better understand how their clients are hardwired, not just as it relates to money, but in a broader sense.

Maureen Wilke, who operates The Connected Advisor program in Glen Ellen, Ill., suggests advisors form an advisory board made up of six to eight select clients who meet as many as six times a year. The goal: to get input from your best clients on how you can be more effective. There’s an added benefit as well: referrals. Wilke knows one advisor who has gained as many as 10 referrals a quarter from his board.

Finally, Bowen strongly encourages advisors to conduct client rediscovery meetings. “We need to recognize that all our clients are hurting. You need to have a proactive conversation with every client you want to keep for the long term and ask about their values, their goals and their relationships because the world has changed for them, too,” he says. The upshot: Treat your valued clients as totally new clients.

Regulation & Compliance

As if the sub-prime crisis wasn’t enough, the litany of events since — Wall Street’s dismantling, the Bernard Madoff debacle — will ensure tighter regulation and enforcement, according to Lou Harvey, president of Boston-based Dalbar, a consulting firm. “So much stuff is up in the air,” he says. “It’s hard to imagine what’s coming.”

Old World compliance, as Harvey views it, was about writing a client communication in a certain way — minutiae. Not so now. Harvey says the most important thing an advisor can do is to focus on client needs and to provide the appropriate services.

Among other things, the market meltdown has caused advisors to reassess investment strategies and such fundamentals as portfolio diversification. Harvey’s best advice: Identify and eliminate highly leveraged instruments.

“If we had measured the leverage on Lehman Brothers, or even going back some years to Enron, we would have avoided them. If all you do is look at their credit rating and their stock performance and their earnings, you miss leverage,” he says. “Right now, before new protocols are in place, look for high leverage and eliminate it. And you can do it without coming up with a replacement for modern portfolio theory.”

Advisors should also take client “inquiries” about shrinking portfolios more seriously — treating them as potential complaints instead, according to Nancy Lininger, founder of The Consortium, a Camarillo, Calif.-based compliance and marketing consultant.

Lininger, who foresees a litigious 2009, adds: “[Record] in a complaint file that a regulator might see that you are taking these little things seriously and demonstrate how you are resolving them.” If you’re associated with a broker-dealer, “escalate it up” to your OSJ manager or home office compliance officer and let them make the call.

Also, says Lininger, “Document, document, document.” Advisors should get in the habit of documenting each and every conversation they have with a client — even if it is routine.

Registered investment advisors have an annual responsibility to contact clients as opposed to broker-dealers, who are obligated to update suitability every three years. Lininger’s advice? Don’t wait for the deadline. “Because of these volatile times, you can’t assume that because a client is not calling you, they are OK,” she says. “Reach out now.”


There’s no better time than now to take a critical look at your staffing model. And what you’ll discover in all likelihood is that your staff has way more capability and much more to offer than they have been asked to contribute.

“Now is the time to tap into that enormous resource that’s not fully being realized,” says Veres. “What you’ll find is that you have a pretty good team — or not.” In the latter case, it’s important to be quicker to fire non-performers for their sake and yours. Veres says his own research has shown that the leaders of larger planning firms report that their biggest regret was not pulling the plug sooner.

Pomering agrees. “If you have some fat in your staff model, this is the time to address it. If you have underperformers, this is the time to address that,” she says. “Maybe you can make a decision you didn’t have the guts to make six months ago.”

However, Pomering cautions against the knee-jerk temptation to lay off “non-client-facing” staff simply because client service is so critical at the moment. “If you get rid of an operations person, you are potentially overloading the remaining operations people you have or you’re creating a compliance risk,” she adds.

For financial advisors who can afford it, McGinness suggests re-investing in your practice and your people. “Your staff needs to be reassured that this is a going concern — that there will be work, a paycheck, a job in the next week, six months, a year from now,” he says. “Market downturns don’t last forever,” he says.

Chip Roame, managing director of Tiburon Strategic Advisors, a San Francisco Bay Area-based consulting firm, suggests taking this self-inventory: How do you motivate and compensate your people? If they’ve been working longer hours because they are dealing with distraught clients, what do you do to alleviate that tension? Are you promoting your people appropriately?

“On a permanent basis, one of the best ways to grow your company is to raise the responsibility level,” he says. A very simple way to do that is to segment your client base, pointing clients who produce less revenue to your junior staff.

Cost Management

Generally speaking, creating operational efficiencies in your practice is the best long-term solution to cost management. Not surprisingly perhaps, that process starts with your staff.

“Talk to your staff and get your staff involved in the process so that they are participants instead of victims,” notes Veres. “If you’re able to systematize, you are able to delegate. If you’re able to delegate, you are able to rain-make.”

Veres is also a big believer in the wise use of interns. For starters, give them something real to do — beginning with the evaluation of software programs. “They know more about this stuff and can look at it with fresh eyes,” he says. “It’s a tremendous opportunity.”

Veres also says he has been dumbstruck by the number of advisors who don’t have a customer relationship management, or CRM, program at the heart of their operation. Routinely at conferences, he will query an audience of 500 people and only 25 to 30 will raise their hands. Yet simple programs like ProTracker, RedTail and Juncture, according to Veres, not only allow you to systematize your marketing and contacts but also track all the procedures in your office. “You’re no longer having to manage: ‘Did you do this? Did you do that?’ Your staff knows exactly what to do and when to do it,” he adds.

Mark Palmer, a managing director of business consulting for Charles Schwab Institutional in San Francisco, says he’s been surprised at how focused the company’s top advisory firms are on technology right now — more so than 12 months ago. “Their big question is: How can we improve our efficiency? They want to get leaner so that they are positioned well for the rebound.”

It goes without saying that advisors should be looking at tools that don’t get leveraged as costs that might be cut or “repurposed,” as McGinness puts it. His only warning: “Some are mission-critical. There’s no point in cutting something that’s a critical link to your service model.”

The Baltimore Sun,.


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