Enjoy the current installment of "weekend reading for financial planners" – this week’s edition focuses on practice management and personal/professional development issues! We start off with an interesting discussion from Abby Salameh on RIABiz, suggesting that while early on the hybrid B-D/RIA model was just a waypoint for advisors transitioning from their broker-dealer roots to an RIA future, in reality the hybrid model may not be just a layover on the journey but the actual destination. From there, we look at a few articles focused on how to grow your business and service clients, including a discussion of how to "Wow" Gen Y clients (although many of the tips are relevant to all firms regardless of their clients’ generational demographics!), the ways some firms are offering concierge services to clients, and some tips on how to ask more proactively for referrals (if, in fact, you wish to pursue referrals that way). There are also a number of articles focused on some of the internal issues of financial planning businesses, including a remarkably candid discussion by Ross Levin of Accredited Investors about transitioning ownership and control of a firm he founded to the next generation of owners, a look at how to structure compensation for partners of advisory firms (hint: it probably shouldn’t be equal for everyone), how to better develop your own home-grown star employees to avoid the cost and challenge of trying to hire "star" talent, and how to go about raising your client fees if you need to (and the fact that for most firms, the fear of how clients will respond is far worse than how they actually respond!). After reviewing two quick articles – one is a guide about how to hide LinkedIn endorsements in a quick single step (if your compliance requires you to do so), and the other is a list of providers that offer ready-to-use content for advisors on their websites/blogs/newsletters – we wrap up with two very interesting pieces: the first looks at how the small gifts we receive as advisors (e.g., from vendors) may impact our behavior and bias our recommendations far more than we realize; and the second about how setting goals may actually not be a good business strategy, and that instead it’s best to focus on tasks and key activity areas. Enjoy the reading!
Weekend reading for December 29th/30th:
What Swayed Me To The Hybrid Cause After An Early Indoctrination As A ‘Pure RIA’ Disciple – This article by Abby Salameh on RIABiz provides an interesting perspective on the hybrid B-D/RIA business model, as someone who previously advocated for the pure RIA model but has now made a shift. Salameh starts by discussing the acknowledged benefits of the RIA model, including the elimination of many conflicts of interest, and notes how many advisors have spent years transitioning from being a "captive" advisor under a broker-dealer to one that has the "freedom" of an RIA. In that context, the hybrid model was merely a layover at best, and usually just a short one at that. Yet many advisors who went to transition from B-D to RIA have ended out making the layover their new permanent destination; early on, Salameh attributed this to advisors who just didn’t want to let go of old commission income or brokerage products, but ultimately found that it’s simply about providing a comprehensive approach to a wider range of clients, many of whom really are best served by having an advisor help implement all solutions, including ones that may be commission-based, as long as the advisor manages the conflicts of interest and remains client-centric. In point of fact, Salameh suggests that many clients may prefer this approach; while RIAs can remain "pure" the reality that they must refer out many aspects of implementation means the client is stuck with multiple advisors for multiple solutions and loses any "one-stop-shop" simplification benefits.
Top 7 Tech Trends for Advisors in 2013 – This article from Advisor One provides a good summary of some of the key high level technology trends for advisors in 2013. Major themes include a continued explosion of Mobile Apps for advisors (enhancing their productivity and ability to interact with important vendors and providers to run their businesses), a continuation in the rise of social media (as regulators slowly provide more guidance and compliance departments figure out how to handle it), firms navigating the Windows 8 upgrade (notwithstanding the popularity of iPad tablets, the overwhelming majority of firms run their offices on Windows), ongoing improvements in tech integration across software platforms as the trend towards APIs and more open architecture continues, more outsourcing (not necessarily overseas, but just to firms or providers with specialized skillsets), a rise in technology-assisted financial planning for the mass affluent (e.g., with simplified web-based or tablet-based financial planning tools, integrated with CRM), and deeper software analytics for portfolio design.
How To Wow Generation Y Clients – This article from Financial Planning provides some nice tips about things you can do in your practice to wow younger Generation Y clients – although it strikes me in reading through that most of the tips are equally relevant for all firms, regardless of the client generation. For instance, author Dave Grant notes that because first impressions are so important, your staff – right down to the person who answers your phone (or greets people when they enter the office) needs to be well trained. Think about providing some small touches that may help prospective or current clients feel more special, such as priority parking spaces for your clients (if you can control the parking around your office), trained warm greetings by staff when they enter the office, and set the conference table where you’ll sit with individual place cards, freshly baked cookies, and a tablet (where they can browse through the company’s mobile app before the meeting). Make sure the tablet has a note-taking app as well, so that clients can record notes during the meeting, and have them emailed out and waiting for them when they arrive home. Offer clients a drink, and notably Grant suggests you shouldn’t be afraid to offer wine or beer (in reasonable amounts, of course!). Grant also suggests displaying photographs of your current clients (with their permission, of course!), to help demonstrate to clients that you work with people just like them.
Rewarding Top Clients: Concierge Service Tips – This Financial Planning magazine article provides a glimpse of how some firms are offering "concierge" services to their top clients. Although different firms define "concierge" in different ways, the services appear to fall into three primary categories: managing [personal/cash flow/bank] transactions; helping clients find goods and services they need; and assisting clients with family issues. Yet concierge is defined not just by the nature of the services, but also the depth; helping to buy big-ticket items might include not just finding the item, but helping to negotiate for it (e.g., accompanying the client to negotiate for a car purchase), or bringing in other experts (e.g., for complex real estate transactions). The ways concierge is implemented in the business also varies: some firms charge for additional concierge services separately, while others include it as a part of their fee; some firms only help "top" clients with concierge services, other firms provide it to all their clientele. Ultimately, concierge service seems to be about building a tighter and more integral bond to the client, but only appears viable for firms where the revenue per client (or per top client) is high enough to justify the investment, which means concierge services still may not go mainstream anytime soon.
Making Introductions Happen: Request and Receive Referrals From Existing Clients – Whether or not it’s a good idea to ask clients for referrals to receive more of them is widely debated in practice management circles these days (for instance, see Fixing The Weakest Links In Your Referral Growth Strategy), but for those who do want to try the more direct asking approach, John Bowen provides some nice tips in this Financial Planning magazine article. First, Bowen suggests that advisors need to get over their fear of asking, and realize that it isn’t entirely self-serving to ask for referrals, if you really do deliver value to your clients and can help their friends and family. Accordingly, Bowen suggests an easy way to start the process is to offer a "second-opinion service" where you simply suggest clients refer their friends and family for a complimentary review of their current situation. And don’t ask just once; continue to ask as long as the client continues to volunteer names for introductions. Make sure you gather as much background information on the prospective referral as well, and ideally have the client suggest the best way to initial contact. Once you receive the referral, commit to following up, thank your client, and then do the outreach to the prospect – with the sole goal of just getting a "yes" to the offer for a second-opinion review. Once there’s a commitment for a meeting, send out an invitation or follow-up letter with further information and any details of what the prospect needs to bring to prepare for the meeting. After it’s all done, make sure you remember to follow up with the original client about the results of the meeting (but ask the prospect’s permission first so you don’t breach privacy!), and thank the client again for the referral.
Covenants For Surviving A Business Transition – In the Journal of Financial Planning, Ross Levin of Accredited Investors shares some of the challenges he has faced as a business owner trying to transition his practice to the next generation – recognizing that he firmly believes in the 30+ people his firm has hired over the years, which suggests the reality is that most of the difficulties lie within him. One of the first difficulties Levin acknowledges is that some future owners of his firm still may not ultimately stay forever at the firm, as the founding partners did; in part, this may simply be because the bond amongst 5, 10, or 20+ staff and multiple owners is not as strong as it was/is with the 3 founding partners. Levin also acknowledges the challenges that ego present, and being so personally invested in a firm after so many years. Levin makes a good analogy, that it’s kind of like being an aging quarterback, who can’t just scramble for the next first down anymore and has to rely on wits, experience, and quick passes and sweeps to move the team forward. In the business case, be a leader, but delegate so you’re not the sole person in charge; yet that can be difficult, as the firm hires staff that Levin hasn’t met, retains clients with whom he’s not involved, and forms relationships with outside professionals who may only recognize him from a picture and not as the pulse of the firm. Another notable distinction is that Levin acknowledges the firm may not need to hire people as entrepreneurial as the founders were, suggesting that the strongest entrepreneurial drive is best for starting up the firm, while continuing to grow a more established firm with structure requires a different set of talents. So where does growth come from, then? Levin suggests that the next generation may be (and may have to be) better at generating growth from referrals by serving existing clients, in part because that’s the skillset they excel at (rather than being entrepreneurial and bringing in business), and also because the reality is that younger planners simply don’t necessarily have relationships with people who meet the firm’s minimums. At the end, Levin also acknowledges the importance of growth – not to make his personal net worth larger, but because a growing firm is more attractive to both the best employees, the best future owners, and the best future clients.
Are All Partners Equal? – In his monthly Investment Advisor column, Mark Tibergien tackles the issue of compensation amongst partners of an advisory firm – making the important point that it’s not necessarily "fair" to pay all partners equal compensation, although not doing so can evoke some challenging emotions and dynamics. The challenge is especially complex in partnerships where the different partners bring unique and different skills – and each has an ego investment in believing that his/her own unique talents are the most important. Nonetheless, different partners make different contributions, and just because a share of profits may be evenly divided amongst owners doesn’t mean salary compensation plans should be identical, too, especially in firms that have partners with specialized functions as a true ensemble and not just an "eat what you kill" environment. To help facilitate the conversation, Tibergien puts forth a series of questions to consider when setting compensation for the owners, and recommends that a full compensation plan should include base bay, short-term incentives, long-term incentives, perquisites and benefits, retirement, and equity. Ultimately, Tibergien suggests that these conversations about partner compensation need to be had, and sooner rather than later, as trying to maintain good relationships is noble, but ignoring significant issues can lead to resentment that may undermine the business and relationship anyway.
Home Grown: Talent Tips From K-State’s Football Coach – In her monthly Investment Advisor column, practice management consultant Angie Herbers draws on lessons from Kansas State football coach Bill Snyder about how advisors can achieve greatness – specifically, in looking at how Coach Snyder has built a football program that creates blue-chip players (including 108 All-Big 12 players, 51 All-Americans, 70 players who reached the NFL, and one of this year’s Heisman finalists) out of prospects who go unsigned by larger universities (since K-State has neither the size, glamorous location, or national championships necessary to easily attract the top talent). After all, many advisor firms are in a similar position – as small businesses, they have limited resources to recruit top talent, and instead may be best served by trying to create great employees in-house instead. So what has Snyder done to achieve such success in cultivating talent? Herbers notes that Snyder begins with his "16 Goals" – guiding principles that outline Snyder’s core values and expectations of his players, both in how they approach the game and their lives, and Herbers suggests that firms should focus on clearly establishing core values as well. In addition, Herbers emphasizes other aspects of preparing employees as well, including training them about what the firm really does and how it does it (internally, firms are not as similar as you might have expected!), why the firm does what it does (as working towards a higher purpose can be highly motivating for employees), and how the employee’s job fits into what the firm does (don’t assume your employees know this already!), what the owner/advisor considers success at the employee’s job. Once that is done, Herbers suggests owner/advisors then need to get out of the way, and create space to allow the employees to work, make mistakes, grow, and learn.
Don’t Fear Your Fees – This article from Wealth Management tackles the challenging advisor problem of how to raise your fees. The articles notes that while many advisors are fearful to do so, whether to reprice recent clients or raise fees on legacy clients, in practice it’s often far less of an issue for clients than anticipated, especially if current fees are below market; one firm had to nearly double fees on a large segment of legacy clients to bring them up to industry averages, yet in practice only 3% of clients chose to leave, in part because it would have cost them something similar to get service elsewhere anyway. At a deeper level, the article also emphasizes that it’s important to understand the costs for your firm to deliver services to clients, in order to set a proper pricing schedule in the first place (and only then determine how to deliver the news to clients). The article also notes some interesting pricing trends, including a tendency to set minimum fees rather than minimum asset levels, and that fee increases are disproportionately directed at clients on the lower end of the asset spectrum (suggesting firms are adopting more progressive fee schedules). At the end there’s are some good suggestions about how to talk through common client questions and objections regarding fee increases, drawn from a report by FA Insight and Pershing Advisor Solutions.
Hide ’em — All Those LinkedIn ‘Endorsements’ That Is – This article by Davis Janowski at Investment News notes that as LinkedIn rolls out its new profiles, it has also released a new ability to hide all endorsements in a single click – a welcome change for advisors whose compliance departments have required them to hide endorsements to avoid being construed as testimonials. The article provides a brief walkthrough of how to do the change; if you want further guidance, check out this 2 minute "how to" video walkthrough on hiding LinkedIn endorsements from technology consultant Bill Winterberg.
Ready-To-Use Content For Financial Advisors – This brief article from Susan Weiner provides a handy list of publishers that provide ready-to-use content that advisors can purchase for use – for instance, as articles for the company blog or newsletter. The list include Wendy Cook Communications, Marketing Library, Broadridge, Bob Veres’ Consumer Articles, AdvisorDeck Marketplace, AdvisorCopy, AdvisorProducts, and more. Remember some fund companies like Dimensional Fund Advisors and coaching firms like CEG Worldwide may offer content libraries as well. Ultimately, though, Weiner suggests that it’s still important to customize the content to some extent for your clients to make it feel more like yours (although make sure modification is permitted in the agreement with the provider!).
The Big Corruption In Small Gifts – This article by Jason Zweig from the Wall Street Journal’s personal finance blog takes an interesting look at a phenomenon all-too-common in the financial services industry: the giving of small gifts and conference or wholesaler swag, and the impact it may have upon our behavior. The greatest issue is that most people shrug off small gifts as having no impact on their behavior, yet recent research suggests that not only do gifts have impact regardless of size, but ironically small gifts may be more likely to create a reciprocal desire to give back, in part because we don’t acknowledge their potential impact (and therefore do little ensure we won’t be swayed). Yet in practice it becomes a slippery slope; small gifts lead to more small gifts, which may eventually become slightly larger, and ultimately have more impact. In addition, advertising research makes it clear that constant visual reminders of a company and its products makes them more familiar, more comfortable, and ultimately more likely to be recommended, even if we’re unaware of the effect. Notably, this problem implies not only should professionals consider eschewing all gifts, but it specifically suggests that setting limits on the value of gifts (such as no gifts greater than $25, $50, or $100 of value) may be ineffective in combating the problem (or worse, exacerbate it by condoning the gifts). Zweig’s review of the research also shows how, despite all the data suggesting we are influenced by small gifts, we continue to think that we, personally, are immune to the effects, even while thinking it’s inappropriate for others to accept such gifts. Ultimately, Zweig suggests that consumers steer clear of advisors whose offices are scattered with freebies, which suggests they may not be so objective (even if they think they are); on the other hand, this also suggests that we may underrate the value of gift giving and thank-you gifts to our own clients and referral sources (if you want to pursue such a path!).
Consider Not Setting Goals In 2013 – As we all prepare for our New Year’s resolutions and 2013 goals, this article from the Harvard Business Review echoes a prior article published on this blog as well: "Does Setting Goals Lead To Success, Or Limit It?" The article starts out with an anecdote to make the point that sometimes setting a goal can cause such a singular focus on achieving the goal, that there is a lot of unintentional collateral damage done in pursuit of the goal. And the reality is that despite all the discussions about the importance of setting goals, or at least "stretch goals" (the so-called "Big Hairy Audacious Goals" or BHAGs popularized in Jim Collins’ "Built To Last" book), there is actually remarkably little research substantiating the benefits of goal setting; instead, a recent review of the research in a Harvard Business School working paper suggested that the upside of goals has been exaggerated, and the downside has been disregarded, despite some clear potentially adverse side effects, including "a narrow focus that neglects non-goal areas, a rise in unethical behavior, distorted risk preferences, corrosion of organizational culture, and reduced intrinsic motivation." And ironically, the "best" goals – those that are specific, measurable, and time bound – may also be the ones most likely to backfire due to the myopia it causes. So what’s the alternative? Instead of identifying goals, identify areas of focus. The difference is that goals define an outcome, while an area of focus simply establishes activities you want to spend your time doing; put another way, a goal is a result, while an area of focus is a path. Yet the benefit is that by focusing on the path, you can tap into intrinsic motivation, and create no incentives towards unintentional harmful outcomes. So the bottom line as you enter into 2013: find areas to focus on and tasks you want to do, not just goals to pursue.
I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column! And click here to sign up for a delivery of all blog posts from Nerd’s Eye View – including Weekend Reading – directly to your email!