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Practice Management > Building Your Business

The Fast Track: The M Word Cometh

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Traditionally, Independent advisors don’t market. This has always bothered business consultants, who have used periodic market downturns to proclaim that now (whenever “now” was) is the time when independent advisors have to act like other industries and begin marketing their services to successfully compete. So far the pundits have been wrong nearly every time.

It’s a record of management advice so consistently wrong, that it seems foolhardy to even suggest the gurus might ever actually get it right. Yet, I have to reluctantly admit, I truly believe “this time it’s different.” It is, in fact, finally time for most independent advisors to get serious about marketing their firms and services, to make a concentrated effort to actively attract new clients, and continuously remind existing clients why they want to remain as clients.

This Time It’s for Real

I believe it’s different this time, because the financial markets are different. For one thing, the bear market itself has been unusual, with virtually all asset classes falling at the same time, recovery slow to materialize, and the entire financial system shaken unlike any time since 1929. It’s also been an unusually tough down market for financial advisors: Not only did the market drop taking assets under management to unprecedented lows, but highly publicized scandals involving financial advisors–Bernie Madoff, Allen Stanford, and other high-profile RIAs–have shaken the investing public’s confidence in alternatives to Wall Street’s “advice.” As a result, many financial consumers have been left paralyzed, uncertain which way to turn. And that has meant fewer new clients for independent advisors than they usually get during bad markets (such as 2001).

As a result of this unprecedented pressure on independent firm economics, I’m seeing two related trends that signal a coming of age both for NexGen advisors who are getting their first exposure to the harsh realities of owning a small service business, and for the independent advisory industry as whole, which has lost some of it’s “white knight” luster, and now has to reestablish it’s value proposition for the first time since the collapse of it’s tax-shelter roots, more than 20 years ago. Like most giant steps forward, both are somewhat painful lessons that will strengthen the business foundation of independent advice. It will also prepare the NexGen for the responsibility of assuming ownership and leadership of the independent advisory movement as the baby boomer generation begins its exit.

We’ve Got Explaining to Do

For the first time in my nearly 10 years (oh my, it really has been that long) working with independent advisors, I’m seeing advisory firm owners focus on marketing like never before. Virtually all of my clients (except a couple who at the winding down stage in their careers and practices) and an inordinate number of other advisors that I’ve talked to, are asking questions about actively increasing referrals, building their brand, focusing on a niche, and yes, even creating strategic marketing plans.

Their motivation is simple: For the first time since, well, maybe ever, financial consumers need to be convinced to seek out genuine independent advice. For most advisors, that means taking their message to the public rather than simply waiting for referrals or for new clients to simply walk in the door. I know it’s hard to believe, but it seems as if independent advisors are finally being forced to market their services. And they know it. While this new direction will require a significant adjustment in the way advisory firms are structured and managed, it’s also a major step in the maturing of the advisory industry as a whole.

At the same time, younger advisors across the industry are getting a massive dose of the realities of small business ownership. I believe that one of the primary differences keeping older and younger advisors from seeing eye to eye is their perspectives: While many younger advisors have been sheltered in the womb of the Bush bull market, more experienced advisors have a far better sense of what can happen when markets go wrong. For the first time, the NexGen has been confronted with this harsh reality, what can happen when firm revenues plummet. Over the past year, many have seen their compensation reduced, benefits scaled back, bonuses cut back or cut out altogether, and even colleagues and coworkers laid off.

A New Perspective for the NexGen Advisor

Perhaps more importantly (at least as far as their professional education is concerned), younger advisors are also seeing the owner/advisors of their firms make significant personal sacrifices to keep their employees and to maintain high quality client service: reducing their own compensation (sometimes drastically), working longer hours, scaling back their lifestyles, rolling up their sleeves to do whatever needs to be done around the office, and even, in some cases, taking on debt.

This is a valuable lesson that’s not lost on most of the NexGen advisors I know. It’s giving them a far better sense of the responsibilities of firm ownership, and ironically, for the first time in many cases, their employers’ sacrifices to keep them on staff are making younger advisors feel truly valued.

I know, until the past year’s events drastically changed the employment market, young advisors had been commanding ridiculously high salaries in the eyes of many firm owners. “How could they not feel valued, taking home those checks,” I hear them say. Well, it’s a funny thing about compensation: even at the start of a job, it’s more about getting what your peers get, and as time goes on, one’s comp recedes into the background of the job you’re actually doing, and the contribution you’re making to your firm and its clients. For young advisors who often feel they’re not allowed to contribute to their full potential, seeing their firm owners take home less to keep them on staff makes them feel, well, needed. (The reverse of this, however, is not true: employees who are under compensated usually never lose their sense of being exploited, which affects moral and performance.)

Young Advisors Step Up

To their credit, NexGen advisors for the most part are responding to their newfound sense of value by stepping up like never before to help meet their firms’ challenges, particularly in the marketing department. While firm owners typically focus on taking care of their clients and running their businesses, to jump start their careers, the younger advisors I know tend to scour the industry publications and Web sites for information about running and growing an advisory business. They’re often an encyclopedia of info on all the latest ideas about, and trends in, firm management, including marketing, which is typically not the strong suit of many owner/advisors today.

Consequently, with revenues down and many practice owners starting to actually consider strategic marketing, many young advisors view this as their opportunity to make significant contributions to their firms. In fact, I’ve never before seen NexGen advisors put this much effort into marketing: coming to owners with ideas, asking what they can do to help, making suggestions about brand and firm image, and even volunteering to help bring in new clients. It’s a very encouraging trend that bodes well both for the recovery of independent firms in the current economic environment, and for the future of independent advice.

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


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