Articles About Practice Management

Starting a financial planning firm in today's world can be complex, because of the myriad of technology that's necessary to operate the business in an efficient (and regulator-compliant!) manner. While you can get a compliance consultant to help with some of the legal requirements to getting started, it's often up to you as the advisor to make the decisions about what technology - including software and systems - you will use to run the practice.

In this guest post, Gen Y advisor Alan Moore shares the comprehensive list of every software package and technology tool he's using to operate his new RIA, along with why he chose it and what it costs. It's a fascinating look at what a younger technology-inclined advisor sees and expects of today's technology marketplace for advisors.

If you're a newer advisor that recently started your own practice, or are thinking about going out on your own, this should be helpful to you as a starting point for solutions to consider and some ideas about what's important to focus on. And even if you're an existing advisor with an established practice, you may still be inspired to make a few changes or additions to your own suite of tools!

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Imagine for a moment that you just got some terrible news: you have a serious and potentially fatal illness, that requires the attention of a world-class expert to cure. Where would you go for information to find the person you need to literally save your life?

The answer probably would not be just going to your friends and family for referrals. Sure, they’re helpful for some quick advice about what kind of fabric softener is best or where to get good Mexican food, but this is a life-or-death matter, and it’s not clear that any of them would even know who the specialists are for your disease, much less who’s the best to try to cure it.

Instead, it is more likely that in today’s day and age, you’ll turn to the internet. You’ll search for who’s a recognized expert in solving your particular problem. You might seek out information from others who’ve shared your condition, to see what experts they ultimately turned to. Simply put, you’d use the power of the internet to find out who truly, really is the best person to work with to solve your problem. After all, it’s your life on the line.

Now, imagine instead that it’s not your physical health at stake, but your financial health instead. Is the value of 'getting a referral' versus 'searching for the best' really any different if you're finding the savior of your financial life instead? And does that mean that as we enter the digital age, it's time to eschew the advisory world's traditional reliance on referrals for growth, or at least recognize that it may deliver far less in the future than it has in the past?

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The profitability of a financial planning firm is a sensitive issue for many advisors. For some, the income of the business is a primary focus, and the balance between the financial success of the firm and its owners, and the services it provides to clients, is carefully balanced. For others, however, there is far less focus on the profitability of the firm, and more on the depth of service delivered to clients (even at the cost of profitability), especially if total income is "comfortable" to support the advisor's lifestyle.

Yet the reality is that whether the goal is to maximize income or not, the profitability of an advisory firm matters, in far more ways than "just" the income paid out to the owner. The profit margins of a firm are also crucial to its value; in the case of a sale to a third-party, it may be the difference between selling or not finding a buyer at all, and even for an internal succession plan, a business that isn't profitable is simply unaffordable to the next generation at any price. And of course, if the owner's exit from the business is unexpected - for instance due to disability or death - the profitability of the firm has a direct impact on whether the surviving family members receive any value at all.

But beyond the financials of the advisory firm owner, family members, and successor owners, the profitability of an advisor firm matters for another reason as well: the stability of the practice helps it to retain its staff. After all, a firm that is only marginally profitable simply has no flexibility to deal with the vicissitudes of business; like living from paycheck to paycheck, it creates an environment where even a small disruption can have major ramifications, as many firms discovered when the 2008-2009 financial crisis forced them to fire staff and reduce services to clients at the exact time clients needed them the most.

And perhaps, ultimately, that's the real reason why running a firm with healthy profit margins matter: a firm that doesn't have a healthy profit margin as a cushion to deal with inevitable difficult times that can occur may be unable to sustain the quality of its services to clients... or at worst, may have to cease serving them entirely.
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As financial planning for clients grows more and more complex, it becomes increasingly difficult for planners to recognize every planning issue, opportunity, and concern from memory alone. As a result, there is an rising risk that planners commit malpractice and make a mistake - albeit by accident - in the struggle of trying to apply everything they have learned to an incredibly wide range of client situations.

However, the reality is that this challenge is not unique to financial planning. Many professions face a similar struggle, where the sheer amount of knowledge required, and the incredible number of client/customer/patient situations make it almost impossible to remember everything that's necessary at the exact time it's needed, mean a rising risk of mistakes, negligence, and ineptitude.

So what's the solution to address this challenge? As it turns out, there's a remarkably simple one: checklists. While it may seem absurd that such a basic device could enhance client outcomes - in fact, as professionals we often bristle at the thought that a checklist could tell us something we don't already know - it turns out that checklists may be an excellent means to deal with the simple fact that we are all fallible humans.

Unfortunately, though, few checklists currently exist in the world of financial planning, especially outside of the operational aspects of an advisory firm. Nonetheless, it is perhaps time to give checklists the recognition they deserve, as a potentially critical step to ensure that we apply the proper due diligence to each and every complex financial planning situation, and that nothing accidentally slips through the cracks.

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Once upon a time, virtually all financial planners were actually life insurance agents or mutual fund and investment brokers, who were compensated by selling products and perhaps gave a little financial advice on the side. Over the past several decades, financial planning has been pushing towards becoming a recognized profession, and its practitioners recognized professionals. At the same time, the business itself has become more complex, challenging, and time-intensive, a natural by-product of shifting from the sale of products to the delivery of advice. The net result of all these trends are a greater pressure than ever for financial planners to maintain high productivity levels.

In response, financial planners have sought out ways to make themselves and their firms more efficient - such as requiring clients to come meet at the advisor's office, or to dictate that clients must gather all their data up front and bring it already-fully-assembled to the planner - to manage the costs in terms of both their time and staff, in order to run a successful financial planning business. The reality, however, is that such strategies don't actually eliminate the work to make the planner more efficient - it simply delegates the work to the clients, and makes it their problem instead!

While such an approach may be necessary for some business models, it's less than ideal for many - especially firms that pride themselves on the quality of service they provide their high net worth clients! So what's the alternative? Instead of just delegating work to clients, reimagine how to turn these challenge points into true value-adds for the client, or better yet use some of the emerging technology in today's digital age to eliminate the problem entirely!

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As the financial planning profession continues to grow, it also continues to struggle to reach and effectively serve Gen X and Gen Y, as most planners tend to focus their businesses on baby boomers - no great surprise, given that baby boomers both control the most wealth in the country, and that most financial planners themselves are baby boomers and simply find it comfortable to serve their peers.

Nonetheless, the reality is that it's actually quite possible to build business models that can effectively serve at least a fairly wide swath of Gen X and Gen Y, whether on an AUM basis by serving the "emerging affluent" clients that larger RIAs reject, an ongoing retainer basis to provide as-needed guidance in an ongoing planning relationship for the cost of a gym membership and cable TV, or even using a more "traditional" comprehensive financial planning business model that simply combines a modest level of assets-under-management with implementing the basic life and disability insurance which those in their 20s, 30s, and 40s will need anyway.

Ultimately, the true challenge of building a successful firm to serve Gen X/Y clients is not really about the business model, per se, which can easily produce a healthy personal income at a reasonable 100-150 clients, but instead how to grow and get to that number of clients in the first place. In other words, while designing the right business model helps, in the long run the real problem serving Gen X and Gen Y is a marketing problem. However, given how underserved the younger generations are right now, simply differentiating yourself by establishing a niche practice focused on Gen X and Gen Y clients may itself be an effective marketing cornerstone for growing a successful business to serve them!

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As financial planning continues to shift further and further away from selling products and towards the delivery of quality advice, many have suggested that financial planning may soon reach the point where it departs entirely from its "sales" roots - a vision widely supported by both consumers and new financial planners entering the profession, who all view sales with a highly negative stigma.

Yet the reality is that at its purest level, "selling" is really just about persuasion and influencing the decisions of others, and financial planners really are in the business of persuasion, convincing clients to: 1) pay the planner for services; 2) to engage in the financial planning process; and 3) to implement the advisor's recommendations. As a result, if you - as the planner - don't know how to "sell" your clients on the value of you, the financial planning you offer, and motivate them to act on your recommendations, then you simply can't succeed as a financial planner, regardless of whether the sale of an insurance or investment product is ever involved (though especially if clients really do need to implement such products!).

Accordingly, the reality is that perhaps it's time to ditch the sales stigma in the financial planning profession, and take a fresh look at how the noblest implementation of sales, persuasion, and influence is at the very core of what it takes to be a successful practitioner. To do this, however, also requires dropping the embarrassing history of how "sales" has been done in financial services in the past, and instead look to the latest tools and research available, so that we can develop proper training for how to "sell" effectively in the 21st century.

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For most people, financial planning is difficult and complex - which is why they seek out professionals for assistance. Yet while the outcomes of working with a financial planner are positive, the actual experience of going through the financial planning process is not always pleasant. As one focus group researcher put it, "The financial planning experience is a blend of a dental exam, math class, and marriage therapy." And the challenge for growing a financial planning practice continues to become more difficult, given an increasing number of financial planning practitioners competing for business, with less and less differentiation from one firm and advisor to the next.

By contrast, the Build-A-Bear workshop provides an entirely different experience. Notwithstanding the fact that it sells teddy bears - a product long since commoditized - Build-A-Bear differentiates itself not by the product itself, but by the experience that customers engage in to get the teddy bear, as children visiting Build-A-Bear literally build the bear from scratch. The end result - the entire process turns from a few minutes at a cash register or website into a multi-hour interactive experience, the children have a much deeper buy-in to what they get (as their tagline notes, Build-A-Bear is not where teddy bears are bought, but "Where Best Friends Are Made"), and customers spend twice as much or more to get the same commoditized product at the end!

Which raises the question - what if the client financial planning experience was more like a Build-A-Bear experience, where your clients happily pay twice as much for your services and want to spend hours going through the process and the experience of it!?

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