What makes a financial advisor a top performer? Many attributes and practices, but a key factor is the ability to keep things simple, according to a panel of experts at Envestnet’ s Advisor Summit in Chicago which concluded last Friday.
Here are five things top-performing advisors do, according to the panel:
1. They stick with five or fewer investment models.
From an investment perspective, keeping it simple means no more than five models, said Tony Svach, a managing director and national sales manager at BlackRock. “We typically see three to four models as core and then, depending on the clients, adding alternative investments.”
Advisors need to consider what outcome they’re trying to create, whether it’s reducing risk or enhancing returns, said Svach. But no matter what the stated outcome, advisors should not allocate less than 15% to 20% to alternatives if they’re investing in that asset class, said Svach. “Don’t waste your time. Ten percent does not move the needle and is expensive.”
Svach noted that “most advisors use their own models but a portfolio of their best ideas is not necessary the best portfolio.” He suggested the advisors consider what needs to be customized and what doesn’t and can be outsourced.
The growth of ETFs is making it easier for advisors themselves to create “more precise models,” said Svach. These include strategic equity models and fixed income models targeting different yield levels, both customized for different market environments,.
“A lot of models today have specific outcomes you can create on your behalf and put together for clients,” said Svach.
He recommended that advisors monitor the results among different models, comparing for example, the returns of a 70/30 mix of stocks and bonds, respectively, to a 50/50 mix. “Are they different? And look at the risk analysis. Fewer is better than more.”
2. They have two client segments.
Alyssa Von Herbulis, practice management consultant at Russell Investments, said advisors should segment their clients into just two levels: below $5,000 in revenues and $5,000 and above in revenues.
If the advisor charges a fee of 1% of assets under management, that works out to investors with less than $500,000 AUM and those with $500,000 or more AUM, but the AUM cutoff could be lower, depending on other services an advisor provides and their costs.
“Keep it simple. Start with two tiers,” said Von Herbulis. “At the end of the day that pays the bill … and it’s easy and sustainable long term.”
She noted that “advisors have the best intentions of creating different service models for clients but typically the client who demands the most gets the most,” sometimes unrelated to the revenues they bring in.
Then customize services around those tiers, including planned events that give clients something to talk about to their friends.
3. They plan appropriate events.
After customizing services around those two tiers, advisors should plan events that give clients something to talk about to their friends and that are appropriate to their tier.
First, advisors should consider the intention of the event, what they want to achieve, said Von Herbulis. If they want to deepen the relationship with a $5,000-plus revenue client and provide an opportunity for an introduction to new potential clients, they should arrange a small-scale event, for example, a cooking class for a client concerned with his or her cholesterol level, plus a friend.
For the less lucrative client, an advisor might go the educational route, holding a meeting for 50 to 1000 people to learn about some finance basics.
In addition, she suggested regular correspondence with both tiers of clients – an annual review by phone whenever possible for lower-tier clients plus regularly scheduled events such as a coffee club every quarter, akin to having office hours every quarter, and quarterly reviews for upper-tier clients. “Send something to them, like a goals update. It doesn’t have to be face-to-face” but it should be personalized, according to Von Herbulis.
4. They interact with CPAs and lawyers.
Von Herbulis also suggests that advisors regularly interact with clients’ accountants and lawyers — centers of influence who also have key relationships with advisors’ clients.
“You need a service model around COIs,” said Von Herbulis. She suggested that advisors invite those professionals to the events they are planning for clients.
Svach suggested that advisors do a financial plan for the accountants of their clients so that the accountant can see what you do. The accountant may then become a client, too, and one who can refer more clients to the advisor.
5. They enhance their value propositions.
All the services that an advisor performs should be focused on publicizing and enhancing the value proposition of their service, according to the Envestnet panel.
“Your value is your relationship to clients,” said Don Bennyhoff, investment analyst at Vanguard. He suggested that advisors use robo technology to allocate assets and rebalance portfolios, which not only keeps clients focused on their long-term plan but allows more time to interact with them and their families, to be the person clients can turn to when needed, including when markets are volatile.
“The headline that matters to the client is the headlines in their lives,” not in the markets, said Bennyhoff.
Given the growing popularity of robo-advisors and the expectations that more broker-dealers will be looking like RIAs as a result of the Department of Labor fiduciary rule, it’s incumbent upon advisors now to differentiate themselves, said Svach.
“Financial planning is at the core of what we provide clients,” said Svach, who sees increasing demand for that service. And for continuity and growth, he suggested that advisors “attach themselves to the family overall, build an education plan, help younger members learn about wealth and money,” as “successful teams” do.
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