What’s your firm worth, without you?

Empty office 2

by George Ray

Over the last few years there have been numerous practice management articles on the subject of succession planning. And, as you may know, few advisers have done much about it. In sessions that I’ve conducted, I’ve asked advisers ‘How many of you have a succession plan?’ Typically, fewer than half of the advisers in the room will raise their hands. Even more telling, when I’ve asked those who actually have a written plan to keep their hands raised, most of the hands go down.  And, when asked to keep their hands up if their written succession plan includes a funding mechanism in place to actually complete the sale or transfer of the business, usually there are no hands left.

Why do so few advisers have a succession plan? Here are some of the most common answers I’ve heard:

  • Too busy building the business currently to deal with it
  • It’s too far into the future to think about now
  • Not sure what the business is worth, or will be worth
  • Haven’t found the right candidate to take over

The first two answers are really just excuses. Succession should always be an objective for a business owner no matter how busy you are or how far into the future it will be before you retire.  We don’t let our clients wait until the last few years before retirement to start planning, so why should we?

In an article in Investment Advisor Magazine’s January 2014 issue titled “Untangling Ownership”, Charles Farrell and Fred Taylor of Northstar Investment Advisors of Denver, CO understand the real issues.  “In order to build any kind of enterprise value, to be worthy of receiving some sort of buyout when you retire, you have to build a business not a practice”, says Farrell, CEO for Northstar.

And this is the issue. Most independent advisers, build a practice that is unique to them.  They market themselves and their own money management philosophy.  Advisers desire to show clients that they are unique in order to attract new business. But this ‘uniqueness’ can backfire on you because when you leave, your business is no longer about you. So, what’s left for your clients after you told them that you are the pied piper?

Farrell goes on to tell us that “Saying you have a practice that’s unique to you, the clients are tied to you, the philosophy’s tied to you; there’s really no way for anyone to buy you out because there’s no way to tell how many of those clients will stay, what sort of revenue you’ll generate, not a year or two out, but really 10 years out”. Why would another adviser want your mice? They must be retrained to follow him. How long will that take? What will it cost him? And, how much effort will be needed?

This is why many succession plans have to include a transition element as well.  The outgoing adviser has to remain on board for a period of time so that he can introduce his mice to the new adviser’s tune. (The transition is also usually necessary because no funding mechanism was put in place early on, so the adviser must accept a note for a portion of the purchase, which doesn’t give him all the cash that he needs to walk away cleanly and fulfill his own retirement plans.)

How do you avoid some of the challenges to succession planning? Unfortunately, it may not be possible for some advisers.  Charles Farrell mentions that many advisers who start their own firms are Type A personalities. “They don’t like to listen to other people. They don’t play well in groups.”  Many independent advisers leave wire houses or larger practices because they want to strike out on their own.  They want to avoid ‘managing people’ and dealing with all of the issues (i.e., hassles) that go along with working (or managing, or owning) a large firm. But, it’s the avoidance of dealing with those very issues that will also prevent you from turning your practice into an ongoing business that will have value after you leave.

If you want your business to have value, you need to build value throughout the life of your business by recruiting associates who will eventually become partners.  You’ll need a program to transfer ownership to those partners to provide incentive for them to remain with the firm (‘their’ firm). You’ll also need to change your thinking when it comes to making the business all about you, Mr. Type A, by creating an offering (including processes, communications, etc.) that will make clients loyal to the firm – rather than just you.

This is no easy task, and cannot be accomplished in the few years before you’re ready to retire. Just like we tell our clients, the sooner you begin, the more likely you’ll be to accomplish your objectives. I reccomend that you read this excellent article at thinkadvisor.com for more insights from a group of advisers who have been successful in creating a business that will be able to transfer value to its advisers when they are ready to depart, while retaining value for their clients who stay on.

So, what’s your firm worth, without you?  Well, that’s really up to you — but not just you.

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Putting Empathy on the Map

Cropped Map

by George Ray

As we get closer to Christmas, we’re naturally thinking about what we’re going to give the people who are on our Christmas list.  We typically go through a process that attempts to help us by asking ourselves “What would my brother like for Christmas?” or “What would my 12-year old nephew want?” To accomplish this (and to come up with the perfect gift), we practice ‘empathy’.  Merriam Webster defines empathy as ‘the action of understanding, being aware of, being sensitive to, and vicariously experiencing the feelings, thoughts, and experience of another of either the past or present without having the feelings, thoughts, and experience fully communicated in an objectively explicit manner’. In other words, when we ask those questions, we try to place ourselves in the mindset of the person who will be receiving our gift.  By doing so, we hope to give them something that they will value, appreciate, or enjoy.

Empathy is an important concept when it comes to your business. As you think about your goals and objectives for the new year, now may be the perfect time to practice empathy with regards to your clients, and prospects.  The idea is to project yourself into your clients’ experience with you, your firm, and staff in order to gain a deeper level of understanding of your client — by placing yourself ‘in their shoes’.

To accomplish this you can use something called an Empathy Map that was developed by David Gray and his visual thinking company, XPLANE. The map is described in his book Gamestorming – A Playbook for Innovators, Rulebreakers, and Changemakers. Its use for businesses is also discussed in Business Model Generation by Alex Osterwalder and Yves Pigneur where it’s referred to as a ‘really simple customer profiler’. Osterwalder says that ‘it allows you to devise a stronger business model, because a customer profile guides the design of better value propositions, more convenient ways to reach customers, and more appropriate Customer Relationships. Ultimately it allows you to better understand what a customer is truly willing to pay for.’

Your use of the Empathy Map should include a visual representation of your ideal customer in the center. Around the customer are six areas that will help you to brainstorm the needs of your customer by ‘empathizing’ with them about their needs and desires. The map helps to get the process out of your head (where it usually stays when thinking about buying Christmas gifts for your family) and onto paper (where it will do you and your staff a lot more good). To help you, I’ve created a map that you can print and use for this exercise.  Empathy Map TBoFA 121113. (You’ll also find other examples by doing an online search.)Empathy Map TBoFA 121113

It’s wise to start with some basic demographic characteristics such as income, marital status, education, portfolio size, etc.  Much of this information can be found with a little digging through your CRM, financial planning software, and asset management reports. After pulling together a basic ‘objective’ profile of your typical client, the true value comes from ‘getting inside his head’ (developing a ‘subjective’ profile).  You’ll then want to ask the six following questions (which can be recorded in each of the six areas on the map):

1.    What does my client see? His environment. What does it look like? Who is around him? Who are his friends? What types of offers is he exposed to?
2.    What does my client say and do? Imagine what he could be telling others. What is his attitude? Are there conflicts between what he says and what he does?
3.    What does my client hear? What does his spouse say? His friends? Who really influences him? Which media channels are influential?
4.    What does my client think and feel? What goes on in his mind? What is really important to him? What are his emotions? What moves him? What keeps him up at night? What are his dreams and aspirations?
5.    What is my client’s pain? Biggest frustrations. What obstacles stand between him and what he wants to achieve? What risks might he fear taking?
6.    What does my client gain? What does he truly want to achieve? How does he measure success? What are strategies that he might use to achieve his objectives?

The goal of producing an Empathy Map is to create a customer viewpoint for continuously questioning your business model assumptions.  Understanding your customers’ needs and desires will enable you to better determine if you have the right Value Proposition for your business. It will help you determine if your customer will be willing to pay you for this value. And, it may help you determine how to better reach new customers who have the needs and mindset that match your Value Proposition. The point is to truly understand and empathize with their situation so you can design and provide a better product or service — as well as create deeper relationships with your clients.

So, what does your client want for Christmas? The same thing we’re all are interested in — your empathy.

Giving Thanks

Thanks 1

by George Ray

It’s that time of year.  Time to think about and give thanks for all that we have. What do financial advisers have to be thankful for?  So many things. Here are just a few.

Firstly, the upfront costs or investment needed to build an advisory business provides those who possess an entrepreneurial spirit with the opportunity to build a business with much less capital than most other types of small businesses. Even many franchises require tens of thousands of dollars to get up and running.

Advisers have many different ways to structure their businesses, and also determine what products and services they will offer to their clients.  You can even decide what type of clients you want to service by building your business around a niche market (it’s actually quite a wise move).

You can choose from a wide variety of vendors that can become strategic partners – allowing you to gain scale in your business by outsourcing important functions and processes that could be accomplished more cost effectively and efficiently by someone who specializes in performing that service. There are money managers, marketing specialists, practice management consultants, social media experts, IT consultants, web design firms, and on and on. In fact, if there’s something that you need, but don’t want to do yourself, you can likely find someone who will do it for you.

We can be thankful for advancements in technology that are making us more efficient than ever before.  An investment in office technology can save you thousands of hours of work, and can help to lessen the need to expand staff positions. Today’s software programs can perform processes such as monitoring and rebalancing portfolios, and automatically mailing client newsletters. (You do still have to write the newsletter.) (Oh, wait, I’m wrong.  There are people who will write your newsletter for you as well.)

Technology is also enhancing and providing new (and often better) ways to communicate.  Advisers can place Skype calls to meet with clients ‘face-to-face’ without being in the same room, or even in the same city – allowing you to expand your business beyond the local geography. Online webinars can provide opportunities to update your skills and knowledge, and Google Hangouts can  offer a chance to collaborate with associates.

Advisers are also increasing the use of video to tell their story.  More and more adviser web sites are using videos to introduce the adviser in a friendly and nonthreatening way. Some videos are more formal — filmed professionally. Others are using a ‘down-home’ informal and friendly approach that can be very engaging and will resonate better with certain types of clients.

Advisers (much like their clients) are more mobile than ever.  It’s no longer necessary to sit down at your desk to access your client accounts.  Broker-dealers and custodians have recognized the need to provide their advisers with easy access to client information on smart phones and tablets.

And we should certainly give thanks that our regulators and compliance departments have gained some comfort around the use of social media, and lessened our reluctance to use it to build a market presence. More advisers are beginning to see the benefits of using Facebook, Twitter, LinkedIn, Pinterest, and other platforms to build their brand, create conversations, and gain new clients.

By the way, it also doesn’t hurt that we’ve had a stock market (DJIA) that has been generally rising over the past year, as well as the last 5 years, and recently topped 16,000.

Yes, there are many more reasons that we should give thanks, but let’s not forget the most important reason — our clients. Our profession gives us the opportunity to meet so many people.  People who need our help. They come in all shapes and sizes. Some successful. Others struggling. Most care about themselves and their families. Some want to provide charitable help to others.

They’re concerned about lessening the impact of taxes on their income, investments, and estates. They worry about outliving their money, and whether Social Security will be around for them when they retire.  They want to know how to prevent losing the large amount of money that they’ve accumulated in their 401(k) over the many years that they’ve worked, and they’re scared as hell that they will lose something even more valuable after they retire — their sense of self-worth and purpose when they are no longer a nurse, or a baker, or a Vice President.

This is the ‘WHY’ behind what we do.  It’s why we battle with the regulators. It’s why we suffer through the negative media stories. It’s why we endure the countless interviews to find the right people to staff our practices. It’s why we come in early. It’s what keeps us up late. It’s because we care. We care about helping people to reach their goals, to fulfill their dreams.  It isn’t easy, but when we are successful, there is no greater reward.  And for that alone, we should give thanks.

Find Your Piece of the Sky

vapourTrail wideby George Ray

The voice on the other end of the phone said, “Here’s my problem, George. I have so much business that I don’t know what to do. Can you help me?”

In my time as a practice management consultant, I’ve talked with many financial advisers about various issues and challenges to their businesses, but this was certainly the most unusual call that I’d ever received.  My initial reaction was that it was a prank. I was being ‘punked’.

“OK. Very funny. Which wholesaler put you up to this?” I said to the adviser.

“What? No, I’m serious” he said.

“OK, then tell me about your problem.”

“Well, I spent many years as an airline pilot for one of the big airlines.  Flew all over the world, and really enjoyed my job, but I was always interested in the financial markets, investing, and the economy. I managed my own money, and did pretty well.  I decided that when I retired from flying for a living that I was going to be a financial adviser, and that’s what I did. I became a CFP and an RIA and have my own firm now. And, I’ve become known as the ‘financial adviser for airline pilots”.

“That would not seem easy to do” I said. “I imagine those guys are pretty tough to cold call. (Lame attempt at humor.) How do you market to them?”

“Well, that’s the thing. I don’t. I started off working with some of the guys that I flew with. Because I really understand them and understand the company’s benefits, they’ve been giving me tons of referrals. Pilots in the cockpit on a long flight get to know each other.  We spend a lot of time talking while flying. We start out complaining about the company, then our ex-wives, and eventually the conversation turns to where we want to retire and what we want to do.  By the end of the flight, my client has the other pilot convinced that I’m the only guy that he should be talking to. The other pilot gets off the plane and immediately calls me to ask if I can manage his money.”

“Well, that makes sense. You’ve got a real affinity with that group. You were one of them.”

“Sure, but here’s the real problem.  Financial advisers usually have most of their clients located within 20 or 30 miles from their office. My clients are literally all over the world. I work with pilots in Singapore, London, Mexico City, and Auckland.  My business has grown to become a global firm, but it’s just me and my assistant right now.  I wanted to keep this simple. I’m actually supposed to be retired. But this has been so successful that I’ve got to get some help to decide which way to go. That’s the reason for my call. Do I refuse to take on new clients, or should I start growing my firm?”

I have to admit that I tell this story almost weekly. It’s usually because I’m trying to help an adviser to see the value of choosing and building business in a specific niche market.  (I work to connect advisers with Federal employees.) But finding the right niche isn’t the biggest challenge for most advisers.  It’s convincing them in the value of having a niche in the first place.  Most advisers are afraid to choose a niche because they are worried that they will be limiting the amount of business that they could do.

An adviser: “But, George, if I limit myself to working with only one group of people, I could be missing out on lots of other potential business. That’s not what they taught us at adviser camp.”

Me: “What I’m saying is that if you focus your business on a niche then you won’t be scrambling to find clients within 30 miles of your office. They could actually be seeking you out from around the world – just like the former pilot.”

Another adviser: “But, George, I’ve never been an airline pilot, so I don’t think pilots will want to work with me.”

Me: “OK. So, you were listening (at least he caught the part about the pilots), but you need to understand the lesson in my story. Find a group that you have an affinity with.

An adviser may find a ‘natural’ niche based upon an affinity with a particular group. For example, a former teacher will likely find it easier to relate to and work with teachers.  An adviser who worked for a large employer in his city may find his niche in working with employees of his former company. People feel comfortable working with someone when they have something in common – like the pilot and his pals. A natural niche may be based on geography, common philosophies, race, religion, or a job.  Niches are well-defined groups of people with something in common. Products (e.g., annuities or mutual funds) are not a niche.  Women are not a niche (too broad a category). And stop telling me that your niche is ‘people with money’. That’s not a niche either.

Still another adviser: “But, George, I don’t have a natural niche. So, what can I do?”

An adviser who has difficulty finding a natural niche can still develop one by gaining a body of knowledge that may be unique or specialized.  In other words, if you learn more about your subject than anyone else (by becoming an expert), people in need of your expertise will flock to you for your help.  An example of this in the financial services industry is Ed Slott. Simply Google his name and you’ll find his website – irahelp.com.  His name has become synonymous with IRAs, and he has built a large (and certainly profitable) business on being the best person to contact on Individual Retirement Account questions – whether you’re an adviser needing training, or a consumer watching one of his television shows on a PBS station.

But what about the financial adviser to airline pilots? Well, we had a good conversation about direction and strategy. He just needed help with setting the coordinates on his compass for his next destination. You see most advisers believe that the sky is the limit, but it’s pretty big and mostly empty up there. Unless, like the former pilot, you’ve managed to find the ‘right’ piece of the sky — your sky.