One True Thing

What motivates a client to hire a particular advisor? What separates one advisor from the next? These may be two of the more important questions to advisors, whether you’re just starting in the profession or are a grizzled veteran. After all, growing our business is what it’s about, right? Well, that’s not quite right. Some 30 months into my new life of independence, I believe that what the independent advisor is really all about is focusing all of our attention on the needs and desires of the client. If we do this, and do this well, then business success will follow. If we fail at this one true thing, then even if we experience short-term prosperity, our-long term prospects will be dim.

It is with this in mind that I write this, the eighth article in the “Road to Independence” series. Join me in reviewing my progress report at the two-and-a-half-year mark.

In the Beginning

In case you’re new to the series, a brief history might be in order. My background includes some experience as an advisor with a major wirehouse, a mid-size regional bank, and a global bank. On April 1, 2007, I left that secure environment and embraced the life of an independent advisor. At my last position at JPMorgan, I sported the title of senior financial planner and did not have my own book of business. So when I began this journey, I had only a dream. The dream was to create a company that would be completely focused on, and attentive to, the client.

My motivation for this dream was simple. I sought to eliminate the conflicts of interest and culture of sales which is so prevalent in the financial services industry.

There I stood on April Fool’s day with no custodian to hold assets, but that didn’t matter since I had none to manage. However, I did have one financial planning client. It was certainly a daunting proposition by anyone’s measure. In the beginning, my income was derived primarily from financial planning fees. A few months later I secured a custodian. Then, almost 17 months later, my custodian raised its minimum requirement for assets under management to a level I had not yet obtained. That drove me to the first of many stark business choices: to remain and pay a substantial quarterly fee until such time as my asset level exceeded my current custodian’s minimum, or find a different custodian. I chose the latter. So in February 2009, 22 months into this journey, I pulled up stakes and transferred my accounts to my new custodian, TradePMR. At 30 months from inception, I am the sole proprietor of Integrity Wealth Management in Baton Rouge, Louisiana, with a growing clientele and a partial fulfillment of my dream.

Although I felt all along that I was a good financial planner and could service clients well, one of the big things I’ve had to learn was how to be a business owner. Let’s start my progress report on this key topic.

Lesson No. 1: Learning to Run It Like a Business

According to author Michael Gerber in his book E-Myth Mastery, many business owners were once good technicians, employed by a company who decided to venture out on their own. But being a good technician is not enough to become successful. You must also be good at running the business. You must develop a sound marketing plan, properly manage your cash flow, and choose appropriate office space, furniture, supplies, software, and so on. These were just a few of the issues I faced. I remember trying to project income and expenses while at the same time defining my offerings and pricing my services. Yes, it was a bit overwhelming at times, but it comes with the territory.

As an independent there are many decisions that you alone must make. You have to decide how to measure your progress by determining which items you will track in your business. I keep track of all income and expenses, assets under management, and the average velocity on the assets. Average velocity is simply the average percentage earned on the assets managed. For example, if you had $10 million under management and received $8,333 per month, your average velocity would be 1.0% ($8,333 x 12 months / $10,000,000 = 1.0%). I also track financial planning fees.

When I passed the one-year mark, I began looking at my year-over-year numbers to gain an understanding of the practice’s growth. In my practice, asset management fees are up 53% from one year ago. However, financial planning fees are down considerably from this time last year, primarily because I have focused more time and energy on growing the assets. All things considered, total income is up 12% on a year-over-year basis.

Lesson No. 2: Using the Right Tools

From the moment I entered the financial services industry, I have held the belief that financial planning is the foundation on which to build a successful client/advisor relationship. So choosing the right software was another critical decision to make.

I chose Microsoft Excel and a Monte Carlo add-in to Excel called Crystal Ball. This has been my preference for several years and has evolved to a point where I’d say it will not only compete, but outshine most of the off-the-shelf planning software applications available today. Though it may be a bit more labor intensive, the end result is outstanding. Without exception, every client for whom I have created a comprehensive plan has greatly appreciated the level of detail and clarity of the report. This report also provides me with an excellent view of the many facets of a client’s financial life and places me in the unique position of most trusted advisor.

For it to be truly valuable to the client, and serve as the foundation for my practice, the plan must be a living document (See “Beyond the Plan” sidebar).

Lesson No. 3: Building and Managing AUM