Historically, most financial advisors have gained new clients by networking with local peers and centers of influence, and generating referrals from existing also-local clients. The end result was that most advisors had a base of clients who all lived in their immediate geographic area.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at whether this strategy of living where you prospect for clients is really still necessary, particular for new advisors who come into the industry with a plan to buy an existing advisor's practice. If you buy an advisory firm in a town, does that commit you as the new advisor to be there as well?
While working with clients locally is still comfortable for many, the reality is that the increasingly availability of digital tools is arguably making it less necessary than ever to live where your clients are. For many advisors, this already happens naturally, either because clients who originally lived in the area move away (and now become distance-based clients), or because the advisor moves (due to other life circumstances) and leaves a client base behind, who are then serviced from a distance (or perhaps with occasional in-person trips back to the area).
Of course, if the goal as an advisor is to build a niche as "the local advisor" in town - especially popular for many advisors living in a small town environment - living where your clients and prospects are is crucial to the networking and prospecting process itself. But with the growing potential to build a niche-based practice beyond your local geographic area, ironically being local to clients may only be necessary if you niche is being the local advisor in the first place!
For new advisors, though, the reality is that worry about where to prospect shouldn't necessarily be of paramount concern to begin with. The first priority is simply to learn the technical competency skills of being a financial advisor, completing the CFP educational requirement and passing the exam, completing the experience requirement, and learning the relationship management skills necessary to retain and service clients effectively. When it comes time to hone the business development skill, you can decide then whether you want your niche to be as a local advisor, or to work with distance-based clients, or to pursue another path altogether once you see how your career evolves!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome everyone! Welcome to Office Hours with Michael Kitces!
For our discussion today, I'm fielding another great question that came in. As many of you know, most of our office hours discussions are actually based on questions that are submitted via the blog. That's the whole point: please, ask me your questions, and I'll do my best to respond here.
I got a great recent question from Charlie. Charlie asked:
"I'm 29, just passed my licensing, working towards my CFP. I'm partnered with an established adviser. She's looking to retire in six to eight years, and the plan is for me to inherit her book when the time comes, and help her manage it until then. But her office is in a smaller town, 40 miles away from me, and I prefer to prospect where I live because it's more populous and more affluent."
So, Charlie asked this interesting question:
"Am I too ambitious, thinking I can work out of this office, while prospecting where I live? Should I reconsider a move closer to the office address?"
Do You Need To Prospect Where You Live? [Time - 1:22]
I think this is an interesting question: "Do you need to live where you prospect for clients?" Charlie's in a bind because the job's over there, but if he moves over there, he feels like he can't prospect where he is. And so now he’s trying to figure out, "Do I live where I was going to prospect or do I move near the firm I'm working for?"
A couple thoughts on this. First, I feel like I've got to say out of the gate: Kudos to you, Charlie, for being on a good career track in the first place. You're getting started the right way: get a job, work in an advisory firm, and get some experience while you work on your CFP, which it sounds like you're doing. You'll work through the two-year version of the CFP experience requirement, and start learning your technical skills and some relationship management skills.
You've got to start there and frankly, that alone might take you a couple years, before you're really feeling strong and confident in the competency and relationship management skills, before you even get into really seriously prospecting for clients.
Should You Prospect For Clients If You're Buying A Practice Anyway? [Time - 2:35]
Now, before diving into your question, I feel compelled to note another issue to me that comes out of this question. I feel like you're going two different directions here.
You said, in basically the same sentence, "I'm trying to figure out where to prospect if I move closer to the firm, will I still be able to prospect where I was?" But the whole question started out with, "I'm working with this adviser, where I am going to inherit and buy into her client-base in six to eight years."
So frankly, the first question I have for you, Charlie, is:
"Are you planning on buying her practice, or are you really planning to build your own?"
Because if she's got a full practice with clients, and you start getting your own, then in six years when she's ready to retire, you can't handle her clients because you've got a bunch of your own!
After all, any of us can only handle so many clients; there's only so many relationships any one human being can handle before hitting a cap. There's a lot of debate about where that threshold is. I know some people who think you can get up to 75, or 100, or 125 clients. I know a lot of advisers that build a great business with no more than maybe 25 to 50 of their top A-level clients.
But if you're gonna take over this existing adviser's full practice, and work with those clients up until then, and you're prospecting as well, I'm just not clear what your plan is about it at the end of the day? Are you there to buy in to her practice or are you there to build your own?
If you're there temporarily while you build your own, then I think you're answering your question about whether you want to move to where her firm is. If ultimately your plan is not to work there and buy her clients, it's to get your own clients and build your own practice, you're already implicitly planning to stay where you are! So I challenge you to consider what your path really is here, and what direction you're really planning to go with this?
Who's Your Target Client? [Time - 4:29]
Now getting to Charlie's question more directly... my first response to this, which someone mentioned in the [Periscope] comments already, is: who, ultimately, is your ideal client? Who do you actually want to be working with?
I think there's a lot to be said for prospecting where you live, if that's where the clients are that you want to work with. But I don't know if that's unequivocally necessary, either.
You obviously need to be prepared to go where they are if you're going to network in person and meet with them, but you can still drive to networking meetings! There is something to be said for being there, if you want to be "the local adviser" who’s known around town, and your niche is that town (which can work well if you're in a small-town environment). Then there is a lot to be said for living right there in the town, so that you can really immerse yourself into that environment and build a networking community around it.
But the reality is that there are lots of advisers who work at a distance, too. We see more and more advisors prospecting online, and getting clients that could be not just 40 miles away, but 400 miles away, or thousands of miles away. So who ultimately are you trying to work with? And will the geography actually be all that relevant, once you choose?
Turning a Traditional Practice into a Virtual Practice [Time - 6:12]
Conversely, because it's increasingly feasible to work with clients at a distance using video chat, if you feel most comfortable where you are, it's also not necessarily a big problem that the adviser you're going to buy out is 40 miles away. If you really want to be anchored where you are, you can meet with some of those clients virtually when you ultimately take over. If you've been working with them for six to eight years at that point, you should have a pretty good relationship with them. They may be very comfortable working with you at a distance.
Even if you just find that you can do half the meetings with them digitally, virtually, and only go periodically into town, it's feasible to stay where you are and serve those clients 40 miles away. Maybe when you go into town, you schedule one or two days every week, where you go over there and just line the meetings up, one after the other, so you can be very efficient about the meeting time. And then do the rest of your advising work with your clients from your home office, where you are in your town 40 miles away.
So even if you're going to be on this path of taking over her client base, increasingly I'm seeing a world WHERE you don't necessarily have to live that close to the clients! If it was 150 or 200 miles and you've got to go a long way to meet with the clients when you do want to meet with them, maybe that's a little bit more of a hassle. But frankly, I know advisers that work with clients and then move and the plan is simply “I come back one week a month or two weeks a quarter and just do a whole series of client meetings one after the other,” when you're there. Then the rest of the time, you're still available to clients by telephone, and email, and via video conferencing, and the tools are getting better and better to do that effectively.
In other words, there are lots of ways to work with clients at a distance. I don't know that it's necessarily a deal killer kind of problem that you want to prospect where you are, and buy out this client base that might be in another town 40 miles away.
Again, with the caveat that you still have to consider your capacity to actually do both of those? Can you literally handle that many clients - the ones you get, and the ones you buy - or is that just an untenable situation because you'll have too many clients? If so, you'll end up hiring another adviser to actually take over all of her clients, in which case I guess, you still facilitate her succession plan, but you weren't actually the successor advisor, just the buyer! You'll have to hire someone else, which you can do, but now you've got some additional business risk to at least be cognizant of. Or you'll prospect and get your own clients, and then you have hand off your own clients in order to take on her clients when you buy them!?
How Does Lifestyle Fit In With Your Career Decisions? [Time - 8:36]
One other issue I want to highlight on Charlie's question: standard of living and personal lifestyle. To each their own, but at least to me, 40 miles is a long commute. I know people that do more and manage to get by just fine, so maybe you're cool with that. But that's a long commute. That's a lot of time.
Particularly when you're still studying for your CFP, you're still learning everything you've got to do as a financial advisor, you've got (her) clients to work with, and you have who-knows-how-many client meetings to be involved with as you get up to speed with them. And you're gonna tack on a 40 mile commute...which I guess, depending on where you are, could be a 40-minute commute or a 2-hour commute, depending on what your traffic looks like.
So I'd challenge you as well to consider whether it would be a good idea to move closer to the advisor, never mind the rest of the prospecting stuff, but just so that your commute is more reasonable? I mean, if the reality is that if you want to do a prospecting event or two a month and some occasional networking, then live where the firm is because that's your daily commute, and go back to do the networking events however often they are.
And then in three to five years, if you decide you really want to go full-steam down that prospecting road, you can decide if you're going to move back there.
Get Your CFP Experience First, Finalize Your Career Track Later [Time - 10:04]
The last issue I'd note is simply to recognize that you don't really have to decide all of this yet.
I do encourage you to at least be up front about what you plan the long-term path to be at this point, because frankly if you're mentally already one foot out the door and don't really to go through with this succession plan, and you're already working on your "plan B" of prospecting for your clients somewhere else, you should tell the other advisor. Because that's really unkind for the other advisor, if she thinks you're her exit plan and there to buy the practice, and in reality you're already planning to leave in a couple of years. So at least be upfront on that end.
But if you're just not sure ultimately what the path and direction is, that's fine. You've got time. A multi-decade career in front of you. You don't have to come to a conclusion yet. I'd focus on finishing your CFP, meeting the clients, learning how to do financial planning well from an advisor that you're expecting to work with and, at least in theory, prepare to buy her practice.
And if you want to start some prospecting, sure, go for it and start learning that. It's a powerful skill to learn. But you do have a lot of other skills to learn and get up to speed on first. And if the reality is that you're going to daily commute to her office, and might just do a networking event each month, I have to admit, I'd at least consider moving to where you're doing the daily commute, and if you have to you can 'reverse commute' back to the networking events to occasionally prospect.
Down the road, when you're ready to really go out and get clients, you can decide whether you want to move back there to prospect, But you've got some time to make that decision.
But I guess if there's one thing you take away from this, it's just to recognize that you don't necessarily have to physically be where your clients are to prospect. Unless truly your niche is "I'm the local guy in that town." I'm in the Baltimore-Washington area, with about 9 million people in our metropolitan area, so that's not feasible here. But I know for a lot of advisors in the Midwest, in a smaller town environment, that's feasible, and you can be that person. So if your niche is going to be "you're the advisor in town" and that's really viable for you, you'll want to live there to really own that niche.
But short of that, I don't know that that's necessarily an issue for you, or at least not yet. It's a decision you can make in a couple of years when you have mastered some of the other skillsets first. Between now and then, finish your CFP, meet the clients in the practice you're working into, learn how to do financial planning effectively for them, and get that apprenticeship experience done first.
So I hope that's some helpful food for thought. Thanks everyone for joining us for Office Hours with Michael Kitces. Normally 1 p.m. east coast time, sorry again, this was the second week in a row I was a little off on the timing due to travel for speaking engagements, but hope this is helpful. Thanks for hanging out with us, and have a great day!
So what do you think? Do you feel it's necessary to prospect where you live? Have you ever moved just to make it more convenient to prospect? Have you had success prospecting in a location that's nowhere near where you live? Please share your own experiences in the comments below!