Strategic Business Management

- Monitors the providers and replaces investments if they fail to meet my objectives

- Tracks the providers to be sure they don’t stray from the investment style they were hired to implement

- Monitors my portfolio constantly and recommends adjustments to my strategy based on conditions in the capital markets, changes in my life situation, and progress towards my goals

- Provides education and guidance to help me understand my investments and to keep my goals in sight and portfolio on track regardless of current market conditions

- Feels my pain directly on the bottom line when times are tough

Investment advisors, like all other financial professionals whose earnings are based on performance, will undoubtedly feel the pinch in this disturbing market collapse and slow recovery. There is no doubt that your earnings will be affected in the short-term, so your task is to do everything you can to lower your personal and business operating overhead. Just as investors have been forced to make tough financial decisions, you too must do the same. You need to apply “breakeven analysis” on yourself just as businesses do all the time. Take your Total Fixed Costs and divide them by your commission rate. For example:

- Total Business and Personal costs (after reducing where possible): $13,000 per month

- Commission basis for your earnings (I am making a middle assumption here): 28%

- Monthly breakeven gross sales required at 28%: $46,428

Now simply look at the gross sales number required, evaluate this number in light of current market conditions, and set this goal across your entire client roster to see if it is possible. Since your commission basis is not generally under your direct control, it stands to reason that you must carefully analyze and evaluate your fixed operating overhead, and see where cuts can be made. Naturally, it is ‘crucial’ for you to utilize a financial accounting tool (I prefer QuickBooks Pro over all other software) on a strict and rigorous basis.

I am constantly amazed and astounded to see how this requirement is avoided by financial professionals. Without being armed with financial data on a monthly basis, you are financially ‘out of control.’ Without taking a long, hard look at your expenses, there is absolutely no ability to control those costs. A monthly P&L, delineating every expense you have, will give you strong insights into where and how reductions can be made. I worked with a C-level executive, earning six-figures-plus, who simply operated on the philosophy I call, “expenses rise to meet income,” and when his company suffered a downturn and his income was cut by 23 percent, he was devastated. After completely entering his income and expenses for 2008, and then spending some considerable time with him, I was able to reduce his operating overhead substantially, refinanced some high-interest debt (he never even looked at it), and got his financial life back in control. As I said to him: “We never plan to fail, we just fail to plan.”

What you know for sure is that at some point in the future, this financial crisis we are in will end. Those who take the time now to attend to their clients’ needs, even if it produces little net income now, will reap huge rewards when the pent-up demand for financial products lets loose. Notwithstanding the fact that some of your current clients have suffered significant losses in the current market downturn, you also need to focus a great deal of attention on building a new base of clients.

Your choices for selecting a target market can either be a “red ocean strategy” — trying to outcompete the competition and dislodge clients from other advisors (like rowing a boat with one oar, the outcome should be obvious), or you can adopt a “blue ocean strategy” and embark on a course of action that will make the competition irrelevant. (I strongly recommend that you read “Blue Ocean Strategy” by Dr. Chan Kim and Renee Mauborgne. This book was on the business bestseller list for almost 18 months). Here is some blue-ocean thinking that might you might find motivating.

I graduated from the USC Graduate School of Business (MBA) in early 1972, which turned out economically to be a disastrous year to be looking for a new job. The economic outlook was bleak, and in fact in 1971, then President Richard Nixon imposed wage and price controls. The 90-day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. Inflation had been raging, exceeding 6 percent briefly in 1970, and by prevailing historical standards, such inflation rates were thought to be completely intolerable.

There were about 70 MBAs and few were landing jobs. We all had a stack of similarly outlined resumes, and so I decided to be a contrarian. I purchased some extra fine paper stock from a well known paper company, and had the paper cut 8 1/2 ” by 11 1/8th. I also had my resume offset-printed at a local print shop.

On the top 1/8 of my resume I paid for a strip of USC Crimson to be printed. When a recruiter would gather the resumes and tap them on the table to get them into a neat pile, one would stick out 1/8 of an inch — mine. I received at least six to eight calls from recruiters who gave me ‘kudos’ for being innovative. I have taught that lesson over the past 37 years that I have been teaching and, of the well over 5,000 students I have been in contact with, that is the story they remember the most. The point I am making is to watch what the competition is doing and do the opposite.

In 1979, I started an accounting and business management firm, and had to begin getting clients. Trying to dislodge a client from a competitor was a total waste of time, so I “reached beyond existing demand.” I applied to teach at the USC medical school, dental school and law school. I taught a course in practice management, general managerial accounting skills and some investment strategies (using The Intelligent Investor by Ben Graham as my resource). I knew full well that there would be a lag period between the time I met these ‘future clients’ and their need for my services, but I kept in contact with at least 90 percent to 95 percent of them.

The dividends were huge, and in a period of two to five years, I had built up a significant number of these professionals who needed the services of my accounting firm. In fact, from 1978 to 1986 I spoke at literally hundreds of business seminars, and kept on teaching my practice management courses at USC, UCLA and Pepperdine. I spoke at hundreds of medical seminars and symposiums, legal practice management courses, and also expanded my client list to the music industry, using the same marketing strategy. It was the legal application of what bank robber Willie Sutton said when asked, “Why do you rob banks, Willy?” “Cause that’s where the money is.”

Those who take the time now to show their clients that they care, by investing time into being a problem solver, will be the first to reap the rewards when we come out of this downturn. The pent up demand for investment vehicles which provide safety and growth potential will be enormous, and who better to turn to for advice than someone who was there in the tough times. Additionally, take the time now to begin to build a new layer of non-customers, and convert them into a stable and growing community of new clients.

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Errol Gerson is the principal at the Gerson Group – Management Consultants and provides strategic financial, management and financial planning to mid-size companies (less than $100m). He also teaches business management and entrepreneurship at the Art Center College of Design (www.artcenter.edu) in Pasadena, Calif.) in Pasadena, Calif.