As usual, I have a lot to say and not enough space to say it. That’s why I invite you to carefully consider the five threats to your business listed below and to visit https://www.billgoodmarketing.com/5threats, where I have posted more strategies and webinars to help you deal with these threats.
Threat 1: Fee compression
Don’t think for a minute you can escape fee compression. It’s happening now and will continue to happen.
Fees are now 1% or even a little less. Ten years ago, they were double that. In another decade, or sooner, they will be half what they are now. Why?
- Supply and demand. The Department of Labor fiduciary rule has chased thousands of commission-based advisors over to the fee side of the business.
- Price competition. Vanguard fees are about 35 basis points. Robo advisors are charging 25. The math is simple.
Let’s say you have $50 million in assets under management. At 1%, your annual revenue is $500,000. At 0.75%, your gross revenue is $375,000. On the way to 0.75%, you need another $16 million just to stay even.
But more clients are taking additional principal to live on. And then there is that dreaded sucking sound because you didn’t get accounts open with the beneficiaries. When the last primary client dies, 85% of his or her assets likely will leave the firm, and that can result in a nearly impossible situation from which to recover.
Obviously, the solution is more assets — and quickly. But there’s another problem. Most advisors today only rely on two channels to bring in new assets.
The definition of a channel is “passage for water or other liquids to flow.” Like water, assets flow. As I said, most advisors today (43% of whom are over 55) rely on just two channels — assets from clients and assets from client referrals. These two channels rarely produce a growing business. They mostly sustain, unless of course fees are going down.
To grow a business, especially in the face of fee compression, you need three to five channels producing new assets.
Threat 2: Forgetting how to sell
Sadly, there is a problem to reaching out beyond the comfort and warmth of clients and their referrals. The “seniors” have forgotten how to sell. The “juniors” never have been taught.
Let’s talk about you seniors. You came into the industry with the wave of baby boomers in the late 1980s or early 1990s and built a successful career. You have a good life, work a few hours a day, generally take Fridays off and probably take at least six weeks of vacation.
You have been able to maintain your standard of living, but you have been on a plateau possibly for as long as 12 years. And that’s been OK.
But it’s not OK any longer. Clients are dying, and it takes four new clients from referrals to replace the assets that grew legs. Despite the booming market for the last 18 months, assets under management are shrinking.
You take a pledge. “I’m going to start prospecting.” You start networking, cold calling even, perhaps hold some seminars. You start generating some leads. But your closing rate, to use a technical term, sucks. You are closing 15% and you need 40%. You used to close 80% — what happened?
If you are having trouble closing, you’re not. The real problem is earlier in the presentation, most likely in the first meeting.
A properly executed sales presentation flows naturally to a close, which is just a tiny piece of the overall presentation. If the close is not happening, I assure you, the problem can be found earlier. Most likely, the problem is in the first meeting when you should only deal with discovery. And not just any discovery, as I will explain.
Here are two closing situations:
After hearing the usual tale of woe about closing, I ask, “What do you do in the first meeting?”
Advisor 1: “I go through a questionnaire provided by my firm.”
Me: “Can you send it to me?”
Advisor 1: “Yes.”
Me (after briefly looking over the questionnaire): “This is possibly the worst I’ve ever seen.” And it was. It was six and a-half pages of detailed questions about investments. There was no question such as, “Why are you here?” There was no chance find out about a prospect’s family, goals or fears.
I can imagine George and Lil leaving the office. George says, “Let’s talk to your cousin Ralph. Maybe he will introduce us to his guy.”
Here’s the second conversation:
Me: “What do you do in the first meeting?”
Advisor 2: “I listen and try and find a product to pitch.”
Me: “Let’s don’t do that. Let’s focus on your discovery meeting. Find out why the prospects are meeting with you, what they want to accomplish and what keeps them awake at night. Determine if we can help them.”
In both cases, I sent each advisor a questionnaire about family values. In the case of Advisor 2, simply by following “The Good Way to Sell,” his closing percentage jumped to close to 60% from about 20%.