The Fast Track: When Bad Things Happen to Good Advisors

While that doesn’t mean you should run around crying that the sky is falling, it does mean that it’s time to start re-engineering your practice to survive–and thrive–in the current environment, or worse. That means coming to terms with the fact that it’s possible many of the “truths” we’ve come to believe in the past 20 years may not be as universal as we thought. Here are some of the issues you may want to rethink, as you wrestle with how dysfunctional your practice might be, and try to reposition it for a new financial reality:

Human Capital. There are two aspects to tough times like this one that will help make your practice better. The first is that it will help you identify your good people. Step one (if you haven’t done this already) is clearly communicating to all your employees how the current markets are affecting the economics of your firm. Don’t assume they’ll just get this by osmosis: If you shield them from the hard realities, how can you expect them to respond appropriately? But once they “get it,” the good ones will step up, doing everything they can to support you and service your clients in this time of need. The second “benefit” is that eroding economics will motivate you to lay off those people you should have fired long ago. You can no longer afford to carry folks who aren’t team players or don’t pull their own weight. You don’t have to be confrontational about it. Unfortunately, layoffs are occurring all over.

Financial Management. Sound financial management is tough for nearly all independent advisors who don’t have an accounting background. Most of my clients resist it, and two of them adamantly refused to engage in any talk about controlling expenses. Now they’re all listening, and I’ll bet you are, too. The reality is that advisors no longer have the luxury of running their practices like they’re Donald Trump Jr. Sure, you can be “penny wise and pound foolish,” but most firms are a long way from that extreme. Most advisors will benefit from taking a more business-like approach to their spending: expenses should be viewed as investments that are expected to generate positive returns in one form or another. Every cost you have–from your B/D or custodian to technology to office space–should be reviewed periodically for its impact on productivity, cost-savings, or generating revenues. Alternative solutions should also be explored regularly. If they don’t have a payoff, you need to let them go.

Client Management. It’s also probably past time to take a hard look at your client roster. With revenues down, staff layoffs, and workload up, you can no longer afford to carry those smaller clients who don’t generate enough revenues to cover the services they require or larger clients who are so high maintenance they drain energy out of you and your staff that you very much need in order to take care of your other clients. Then there are those clients who just aren’t a good fit; who have needs that are so far outside your expertise or your normal operations that you can’t service them efficiently. These are all clients that you probably should have jettisoned years ago, but now you have even more reason. If you need another one, don’t forget you’ll have to create some additional capacity in your workload and resources to add new clients in your target niche who are unhappy with their current advisory situation.

Client Services. For some time now, many advisors have been gearing up for their clients to make the transition from high-income producers to some form of retirement. After the Market Meltdown of 2008, clients face a whole new host of challenges from working longer to being laid off prematurely to rethinking their future lifestyles. That means many of them may require new or different services and/or financial products to meet their changing needs. What’s more, now that clients have been reminded that markets really can go down–and maybe stay down–their risk tolerances are likely to change. Moreover, if President Obama makes good on his current rhetoric to raise taxes on the “rich” (read: your clients), some form of tax shelters may regain some popularity. So it will be important in the coming months and years to stay in close touch with your clients’ changing needs and make sound decisions about what new products and services you and your firm can responsibly add–and cost efficiently provide.

Practice Marketing. I know, I know, for the past 15 years or so we’ve been hearing from assorted “gurus” that while independent advisors have had it easy up to “now,” increased competition will force you to start seriously marketing. Of course, that never happened. Yet. But, maybe, just maybe, this time it really is different. Consider that there’s currently a flood of brokers breaking away from their acquired/discredited/defunct brokerage firms to go independent and compete with you. Then consider that with client needs changing (as discussed above), you may decide/need to offer new services and products that are outside your current firm brand. So it’s just possible that for the first time in your advisory career, you’ll find it necessary or at least advantageous to actually market your firm. And that will undoubtedly require some time commitment on your part and some financial investment. So as you rethink your strategy for the future, you might also consider a plan to find some marketing resources as well.

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Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at [email protected].