Last month’s column began our look at the best practices of elite financial advisors, as a valuable model for adopting new and better ways of doing things. At CEG Worldwide, we’ve found the essential best practices break down into five areas: growing the business; specialization; running the practice as a business; client service; business systems and practices. Having covered the first of these two areas last month, we’ll delve into the rest.
Practice as Business
The most successful advisors are far more likely to treat their practices as a business, and run them accordingly. This means that they set and follow strict minimums; establish and work towards an ideal client profile; and regularly ask existing clients for additional assets to manage.
Elite advisors are substantially more likely to have a minimum asset requirement and a minimum yearly fee. Understanding that the only absolutely non-renewable and non-fungible asset that they have is their time, they appropriately price their time by setting the kind of minimums that ensure they’re working with the right clients from the very beginning. Less successful advisors tend to take whoever comes through the door, and then try to make up for having inappropriate clients by having more of them.
This volume strategy simply won’t work. You’re much better off aiming at the right clients and sticking with the minimums you set. Make sure your minimums aren’t just in your mind, but are part of your internal procedures and known to your staff. While you can occasionally take on a client who doesn’t precisely meet your minimums, don’t let the exception become the rule. Also, it’s important to consider SEC guidelines stating that fees charged must be “reasonable in light of the services rendered.”
Creating an ideal client profile and marketing to that demographic goes hand-in-hand with setting appropriate minimums. You should figure out what kind of clients you want to work with and then specialize in their needs. You want to target potential clients who have investable assets that are two to five times in excess of your minimums.
Don’t worry about whether you control all or most of a client’s assets. Somewhat counterintuitively, our research confirms that the higher the percent of their clients’ assets an advisor says they control, the less successful that advisor is likely to be. Why? The wealthiest clients almost always have multiple advisors, so if you control 95 or 100 percent of your clients’ assets, they’re much likelier to be smaller clients.
The truly affluent are highly unlikely to put all their assets with any one advisor, particularly a new one. Instead, they’ll want to try you out, see what your services are like, and determine whether you consistently deliver on your promises. And if you do deliver, they’ll happily bring you additional assets over time, especially if you’re regularly asking for these assets.
Elite advisors know that asking for additional assets is a much more efficient and effective way to grow a business than constantly prospecting for additional ideal clients, and are three times more likely to regularly ask. Given recent market turmoil, it may not seem like the best time to employ this best practice, but nothing could be further from the truth. Not only are your affluent clients likely to have substantial amounts with other advisors, they’re very likely to be at least somewhat unhappy with those advisors. So assuming your clients are happy with your services, this is an ideal time to ask.