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Study finds 4 strategies to increase advisor productivity

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A recent LIMRA/McKinsey study found that the economics of financial advisory distribution have significant challenges but there are opportunities to improve and remain relevant as the industry evolves.

The study found that the oft-mentioned ‘graying of the work force’ remains an issue as the industry sales force rapidly ages without adequate succession planning. The difficulty in attracting young people to the profession remains a challenge. The report found that across most channels, the majority of experienced advisors are over age 50. Sixty-five percent of independent agents are at least 50 while 65 percent of registered investment advisors (RIAs) are. These experienced professionals also reported being less satisfied in recent years especially with affiliated models.

Advisors surveyed reported that they believe that growth opportunities override compensation when it comes to choosing a firm. The fact that advisors are more concerned with growth opportunities than short-term compensation may bode well for the future of the industry—clients may shop around less if they see that an advisor is steadily climbing within one firm and not chasing short-term returns.

The study also identified four best practices that can increase advisor productivity. The most productive advisors implement teaming—where they work with other advisors to offer specialized needs to their clients. This strategy has become increasingly popular over the last few years as the number of advisors that team up with colleagues has increased eight percentage points since 2008. The survey found that today, one in five advisors use teaming and therefore share 20 percent of their revenue. Client specialization is also used by advisors to drive growth. Forty–three percent of advisors specialized in a client segment. Retirement planning is yet another strategy the study found to propel growth. Advisors that create a formal retirement plan for clients are 15 percent more productive than advisors that do not. Finally, the study found that when advisors are cognizant of their clients major life events they uncover more planning opportunities thus increasing productivity while making the client feel that their personal needs are being addressed.

The current product mix is shifting, with more advisors selling investment products than insurance products. In 2004, advisors had a product mix that was 75 percent investments, advisory or other products and 25 percent insurance products. In 2012, the ratio shifted to 80 percent and 20 percent, respectively.

The study noted that services being offered to advisors have increased over the last decade but the services are either not strongly valued or poorly delivered. There is a lack of focus and prioritization as advisors say that they want support across multiple channels.

Unsurprisingly, it was found that advisors are increasingly turning to new technologies to bolster the ease of doing business for their clients. While social media use over the next three years will double, use of Skype and video technology will quadruple.

The data for the study was collected through online surveys and phone interviews during the summer of 2012, with nearly 2,000 financial advisors across all distribution channels.