Have you thought about what you can do in your practice to improve how you operate your business, making sure that this year is a better year than last year? Do you think your practice needs improved focus in order to be more profitable? Please allow me to offer some suggestions that could streamline your business to a leaner and meaner more profitable machine.
1. Clean Out the Closet
Have you had an experience like I have, going into a closet or a desk drawer and finding it so cluttered with stuff that you couldnt find what you were looking for? Everything you put in that closet or drawer had a purpose at the time, but it turned out you never used it, and it most likely could have been thrown away in the first place. But, like me, you held on to it thinking someday it would be useful.
Our book of clients can sometimes get like that proverbial closet or drawer. All of us have what we would term marginal clients - those who probably dont consider you their primary financial advisor, dont totally value your advice, and maybe dont even completely trust you. Yet, they can take up a sizeable amount of your time with little profitability to show for it.
Maybe its time to clean out your book in order to make room for profitable clients. Consider referring them to another advisor. Or, if you have a large number of them, consider segmenting that block of business and selling it to another advisor - perhaps a younger advisor just getting started in the business, for whom those clients would be valuable.
This is a hard thing to do for many advisors, but, in the end, both you and those clients will benefit. You will benefit in that you will be able to structure your book with more profitable clients. The clients will benefit by being referred to an advisor who can and will spend more time with them to help them with their problems.
2. Build a Financial Planning Practice, Not an Asset Management Practice
In my experience, when I helped my clients with their financial goals (education planning, insurance planning, estate planning, etc.) the portfolio management part of the process was not a major focus, yet, I continued to gather more and more assets under management. Many experts will tell you that if you fail to help your clients address the important financial planning issues, you will eventually lose the client, no matter how good a portfolio manager you are.
3. Concentrate Your Efforts on Things Most Valuable to You and Your Clients
The best way for most of our clients to increase their net worth over a long period of time is to have a well-defined financial plan and to implement it. Having a purpose for every financial decision will help our clients remain focused on their goals and how to get there. I heard an interesting statement recently. The speaker said that, in building a comfortable retirement nest egg, the just the decision to contribute to a 401(k) was more important than how those investments are allocated. It sounds pretty simple, but how many individuals go for years without even contributing to their 401(k)? Educate your clients on the need to start investing for retirement (and other goals) as early as possible, and as much as possible. Statistics will show that this is a much more important decision than what to invest in.
Once they begin investing and understand why they are investing, then the investment and asset allocation decisions will follow. And, while asset allocation decisions are critical to the success of the investment process, an understanding of why they are investing is critical to their steadfastness with the process during both good and bad times. Dalbars Qualitative Analysis of Investor Behavior, which has measured the buy and sell behavior of individual investors since 1994, shows that the average individual investor almost always trails the S&P 400 index, according to Steven M. Sears, author of The Indomitable Investor. The primary reason, Sears said, is they dont hold stocks long enough. This is a result of the erratic way individuals invest when they dont have a defined plan or strategy.
4. Spend Less Time on Selection and Timing
My experience is that most advisors cannot consistently outperform the markets by researching individual stocks or funds, following trends or economic statistics, or using one of many techniques. Most of us cannot add a tremendous amount of value over that of professional money managers or a properly
diversified portfolio, so why waste time trying? Spend that valuable time on more productive activities, such as time with clients identifying their goals, developing a plan of action to reach those goals, and then implementing and staying with the plan.
5. Move More of Your Practice to a Fee-Based Model
If you are going to build an efficient business model similar to what I have outlined here, a fee-based compensation approach is the best practice, both for you and your client. Your clients want good advice and personal time with you to discuss issues and their plan, and they will be willing and happy to pay you for that service in the form of a financial planning or asset management fee. Everybodys life is made simpler with such a model.
6. Concentrate on Building your Client Book Through Quality Referrals
Its commonly recognized that more than half of a financial advisors new client relationships come from client referrals, the largest portion coming from passive referrals. What this tells me is that your clients want to give you referrals and, even in the absence of a request for a referral, clients will offer them. But, and this is very important, the most successful advisors are those who proactively ask for referrals. Many industry experts build seminars and workshops on how to best get referrals, but the fact of the matter is, if an advisor will just ask, clients will happily give them. If you do nothing else that I have suggested other than to just start proactively asking for referrals, you will see an amazing difference in the growth of your practice. Why not start today?
NOTE: October is Continuity Planning Month. If you think a continuity plan and succession plan are one in the same, you've missed the point. It's a matter of preparing for the unexpected to protect all the people under your stewardship family, employees and clients.
Chris Kirby, Senior Business Consultant, Securities America Financial Corporation. Chris is a business consultant for Securities America's Practice Management Group and serves as a consultant/coach for the firms Business Consulting Service, helping advisors manage a more efficient, profitable and satisfying practice.
