Professionalizing Your Practice

John M. Ludwig knew he couldn’t be all things to all clients — but, like a lot of advisors, he tried. Three years ago, he hit the wall.

“What I was hearing from customers is that they wanted more planning, more this, more that. Originally, I was doing it all,” says Ludwig, who heads LHD Retirement, a retirement planning firm in Indianapolis with $200 million in assets under management. “I’d like to be a superstar, but I realized I had to relinquish the reins to some of it. I can still be a rainmaker, but I don’t have to be the whole thing.”

The fix? Ludwig, who is associated with Raymond James Financial Services, professionalized his practice by hiring a financial planner. Just recently, he brought on a newly minted college graduate who will be trained in planning as well.

Increasingly, forward-thinking investment advisors are adding planners in a move to help bulletproof their practices. It couldn’t come at a better time. New research from Spectrem Group shows that today’s investors, bruised by the market meltdown, want a planning-based advisor who can help them navigate life’s issues, both financial and non-financial.

As George Walper, president of Chicago-based Spectrem, puts it: “Clients at this point in time are far more interested in someone who can help them with their life blueprint, their life plan, than they are in asset allocation. They may not use that term, but it is the mindset investors are in emotionally. Advisors need to address that.”

There are rewards for building a planning infrastructure. Clients tend to be more satisfied with the advisory relationship, according to Walper’s findings, and the practices tend to be far more successful. One other important outcome: a happier advisor.

“Sales skills and planning skills don’t reside together in too many advisors,” observes Eric Daugherty, principal and director of research for kasina, a financial services consulting firm in New York City. “The easiest way to marry these skills in a practice is to hire people with the separate skill sets and let them focus on what they do best: Salespeople sell; planners plan.”

There are also stumbling blocks.

Most investors don’t put an economic value on the financial plan itself — so most advisors tend not to charge a fee for what often takes an abundance of hours to produce. “Clients aren’t used to paying for advice. They think it’s free. Well, it’s not,” notes Dennis Gallant, president of GDC Research, a consulting firm in Sherborn, Mass. “Most advisors are leaving money on the table.”

Many advisors are also afraid of making the wrong hire and adding a fixed expense. “That’s where the struggle occurs,” says Philip Palaveev, president of Fusion Advisor Network. “That uncertainty really gets in the way.” And that’s unfortunate, he adds, because a paraplanner’s annual salary ranges from $50,000 to $70,000 — a cost-efficient way to boost capacity and to let the advisor focus squarely on what Palaveev calls the business’s single most valuable asset: the advisor’s time.

In a little over five years, Ludwig has taken his practice from zero to $200 million in assets — a trajectory he attributes in large measure to his firm’s planning side.

“Growth in AUM comes all of a sudden when clients realize you can help them with more stuff. They gravitate to it. Then they want to bring you new stuff. It’s also been a huge referral engine,” says Ludwig. “I can’t say it hasn’t been difficult — giving up control. It’s like trying to keep my fingers out of the candy jar.”

But Ludwig is now doing what he likes to do most: business development, which involves peer group outreach and meeting with more clients. And that, he says, is sweet.

Getting Started

At some point, every advisory team needs to ask itself: Who’s going to do the planning? Who’s going to do the investment management? And who’s going to do the rainmaking?

“Advisors are sort of struggling because they are expected to do more and more,” says Gallant. “And consumers are looking for consolidation and simplicity in advice.”
How to get started? First, figure out what it is you like to do most. As Rick Pierchalski, chairman and CEO of Pittsburgh-based BPU Investment Management, observes: “Brokers know how to bring in assets. That’s what they’re really good at. Planners are not really good asset gatherers; they’re thinkers. They like to sit down with the last three years’ tax returns and come up with something brilliant.”
Pierchalski, a former wirehouse broker, should know. Roughly five years ago, as he steered his 24-year-old firm toward the wealth management aspects of planning, he began building a planning department. Today, BPU, with $500 million in assets under management, has 25 planners and advisors, along with a couple of staff attorneys, a risk specialist and two Chartered Financial Analysts. BPU now offers a robust wealth management platform — what Pierchalski labels “the big hug approach.”

Many advisors don’t have a job description or defined role — something Gallant says must be clarified in order to determine who is going to do what. Not only should advisors ascertain what tasks they are best at, he adds, but which ones they most enjoy and where they spend the most time.