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Now Is the Time for Advisors to Invest in Growth: TD Ameritrade

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Advisors should continue to seek out growth and other opportunities during turbulent times such as the COVID-19 pandemic we are experiencing now and not just rest on their laurels, according to TD Ameritrade.

That is a message that came through loud and clear during the Great Recession of 2008 and 2009, when standout advisors who continued to grow and expand their teams managed to thrive, even if it meant taking a hit on profitability on a short-term basis to take advantage of new opportunities, Dan Inveen, senior consultant at TD Ameritrade Institutional, said Wednesday during the webcast “Finding Opportunity in Turbulent Times.”

The Great Recession was “really a story of two different types of firms,” he said: the majority, who just focused on getting through those challenging times and made little effort to grow, and those who “never lost sight of pursuing opportunity.”

The standout advisors wound up more than doubling what the others achieved in both four-year revenue growth and 2011 operating profit, he noted, referring to 2008-2011 data from TD Ameritrade’s FA Insight Annual Study of Advisory Firms.

Those standout firms also consistently attracted new clients to their firms before and after the recession and never wavered from their focus on growth despite the challenges they faced, he said.

While the standout advisory firms achieved a client growth rate of 5% in 2009, all other advisors achieved only a 0.6% client growth rate, he noted. From 2008 to 2011, standout firms saw an 11% average annual growth in new clients compared with only a 0.4% increase seen by other firms, according to TD Ameritrade.

The standout firms also kept a close eye on expenses and overhead, according to the company. For standouts, median overhead expense margins dropped from 45% to 42% from 2008 to 2009, while other firms saw them widen to 56%, up from 46%. Standout owners also took deep pay cuts, reducing their share of total firm revenue from 31% down to 19%, while owner pay at other firms hovered around 25% of total revenue.

Standout advisory firms, meanwhile, invested selectively to improve their capacity, according to the company. While investments during the Great Recession may have decreased productivity for those standout firms initially, these firms were better positioned for growth in the years that followed, according to the firm. In 2011, revenues per revenue generator at standout firms were 22% greater than in 2008, while productivity at other firms slid 10%.

The typical size of a standout advisory team grew a whopping 43% from 2007 to 2009, while other firms opted to hold off on recessionary hiring, Inveen said.

There was a surplus pool of talent advisors looking for work in the last recession and that is likely going to be the case during the current economic downturn, according to Inveen, who conceded that the two downturns aren’t exactly the same.

The decisions that those running advisory firms make today will have long-term impact on their companies, according to Vanessa Oligino, managing director of business performance solutions at TD Ameritrade Institutional.

Her clear message to advisors: “For those of you who are spending a lot of time just keeping the lights on and making sure your current clients are OK, I would say: Don’t be afraid to embrace that opportunity that’s before you because there is ample opportunity to grow during times like this. And the firms that do so are the ones that end up riding through this in a much healthier and sustainable way.”

They should, however, first “prioritize the essentials” now, she said, pointing to five key ones that advisors should think about if they haven’t already done so:

  1. Cash flow analysis
  2. Productivity impact
  3. Business continuity
  4. Client engagement and feedback
  5. Taking care of yourself and your team

“We are all forever changed” by the current pandemic, and it is important to figure out what the “new normal” is, she said. Some business practices may indeed need to be changed or at least modified, including how advisors share their message with prospective new clients, how they serve and engage with clients, and how they lead and support their teams, she noted.

There are three distinct types of investor clients that advisors should be crafting their message to, she said, pointing to: DIY investors who are realizing just how hard it is to go it alone right now; investors rethinking their relationships with existing advisors; and new investors.

And advisors should focus their efforts on how they can serve and engage with clients best right now. They should take into account a few key areas: Potential new or increased service demands including rebalancing, refinancing, tax loss harvesting and estate planning; updating health care documents including living wills, health care proxies and do-not-resuscitate orders; and education about various business and employment assistance programs, she said.

During the Q&A, Oligino shared an additional tip. “People are consuming more and more digital content than ever before, so one of the best ways” to find new clients, “I think, is to start creating your own educational content.”

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