“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.
Advisor says: I am preparing for our annual team retreat, at which my team and I put together our business plan for the coming year. Last year, we focused on making the transition from being a commission-based practice to a fee-based one. Happily, most clients accepted the change. We even received a few referrals we would not have gotten when we operated on commissions.
I now want to focus on growing revenue. In setting growth targets in the past, I simply picked a number, such as 10% or 15%, figuring that was good enough to cover increased costs and give me a small increase in income. Although I set targets, I had no real plan for how to achieve them.
Now, I want a significantly higher growth rate and a plan that leverages our new way of doing business. In your experience, what are the most effective ways to grow a successful, but complacent business into one with momentum and mojo?
Coach says: First, congrats on the shift to a fee-based structure. This is where the industry is headed, and you are better to do it by design than by decree. Regardless of how you are compensated, however, a well thought-out business plan will take you further than if you set growth targets with no strategy for reaching them.
Setting targets is easier than determining strategy, so let’s recall the familiar SMART acronym. Make your objective…
– Specific. It must be stated in real terms, such as revenue, assets under management, premiums and number of new clients.
– Measurable. Make sure you can quantify your goal and track your progress.
– Achievable. Challenge yourself within constraints such as time, money and resources.
– Relevant. If achieving the target doesn’t matter to you, success is less likely.
– Time-based. Set a date for completion, and milestones along the way.
There is a plethora of information available on setting objectives, so I will use my space here to answer your question more specifically regarding effective growth strategies.
In my experience, successful advisors typically employ one (or more) of five strategies to grow their practice. Each strategy has a different level of risk. If you have high ambitions, you may have to be aggressive to meet your targets. Alternatively, if you already have a strong practice, you may be able to use less dramatic strategies. Here are the five strategies, starting with the least risky.
1. Increase share of wallet. Capture more of what your existing clients have invested or are spending elsewhere. The most common opportunity is to consolidate investments your clients have with other relationships, such as banks and other advisors. After all, how can you create, monitor and report on an appropriate portfolio if you don’t manage all the assets?
Most clients are not aware of the full range of services their advisor offers. One of the largest insurance sales I made early in my career was to a business owner to fund a buy/sell agreement. Shortly after, he installed a sizable employee benefits plan in his business without even asking me to provide a quote. When I asked why, he said, “I didn’t know you did that.”
Make sure you educate your clients about your full range of capabilities. This is a low-risk strategy because you aren’t doing anything more than telling your story better.
2. Develop new markets. Offer your existing products and services to a new market. Let’s say you specialize in working with medical doctors. Dentists and chiropractors, among others, face many of the same challenges. You can carry your expertise in the medical profession over to these related markets.
There is some risk in this strategy. First, nurturing a new audience takes time and other resources, and underinvesting in either will lead to disappointing results. There also is the risk that if you are strongly associated with a particular market niche and you expand to include other markets, you could diminish some of the advantage you have earned as a specialist.
3. Develop alternative channels. Traditional consumer products companies often look to alternative distribution channels to promote their products in saturated markets.
In our industry, the most common example is partnering with lawyers and accountants. Another opportunity is to join a business group to meet members (and their clients) with whom you might not connect otherwise. For example, I belong to a networking group focused on business-owner succession. Its members include accountants, lawyers, bankers, business brokers and several financial advisors – all interested in working with retiring business owners.
The risks of this strategy are primarily related to the payoff for the time and expense developing the channel takes.
4. Develop new services. Introduce a product or service that you currently do not offer to your existing market. There are two approaches here. One is to offer a variation on what you already do – for example, discretionary portfolio management vs traditional securities trading. The other is to introduce a complementary, but different capability. For example, an investment advisor may begin offering insurance.
Developing a new service involves a number of risks. Doing so takes time that could distract you from other activities, such as business development. There may be licensing and regulatory requirements to meet. However, the biggest danger is watering down your brand. Offering too many services may diminish the core expertise that differentiated you in the first place.
5. New services for new markets. Offering new products and services to new markets is the riskiest growth strategy. It combines the challenges of developing and launching new capabilities with the uncertainty and costs of cultivating a new market. The opportunity must be substantial enough to justify the associated risk.
However, I have seen this strategy used successfully. The situation that comes to mind is an advisor who described himself as a traditional “commission-driven stock-and-bond guy.” Through our work together, he concluded that his business was at risk with changing consumer, regulatory and compliance demands. He also wanted to spend more time with clients, particularly his business-owner clients, although he had only a handful.
We developed a strategy to convert his business from a transaction orientation to a wealth-management approach. He did not have the knowledge to do comprehensive planning or manage portfolios, so he hired a bright young advisor who was familiar with the planning tools and portfolio- management technology the firm used.
The firm offered model portfolios and managed accounts that fit well with the planning software used. My advisor-client studied them diligently and developed an investment philosophy that he could articulate compellingly both to current and prospective clients. He was happy he would no longer have to, as he said, “pick stocks and hope the market agrees.”
He prepared for a drop in income as he converted his practice. However, many clients said they were interested in a more disciplined, planning-oriented approach to managing their investments. In fact, several clients admitted that most of their wealth was managed by someone else. They simply used this advisor for trading their “play money.”
For this advisor, who had abandoned his brand as a trader, establishing a new market was important. Given his preference for dealing with business owners, we built a marketing plan that included referrals from existing business-owner clients, seminars with specialists in business-owner issues, speaking engagements at service clubs, branding as “the business owner’s advisor” and a strong online presence.
I’d like to say that strategy worked – but there were disappointments. While the income drop wasn’t as sharp as expected, it was more prolonged. Business owners often take more time to cultivate as clients because they are very busy in their businesses. Some clients simply moved all their accounts to the person managing their “non trading” accounts. The conversion was expected to take 12 to 18 months; it took almost three years.
Today, however, this advisor will tell you his business’s conversion was the best thing he could have done. He feels his clients are better served, he is less stressed and he is building value in his practice through recurring, fee-based revenue.
George Hartman is CEO of Market Logics Inc. in Toronto. Send questions and comments to firstname.lastname@example.org. George’s practice-management videos can be viewed at www.investmentexecutive.com.
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