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.