Tag Archives: practice management

What’s your firm worth, without you?

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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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Recovering from a Disaster

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Storm cloudsby George Ray

We’ve seen the news reports, the interviews, the photos.  But it’s still hard to comprehend the devastation that took place from Typhoon Haiyan.  Few of us will ever experience this type of disaster on the scale that occurred there.

We feel for the people.  Our hearts are heavy. We send our prayers and make donations of money, food, water, and other essentials to try to help the people of the Philippines. It will take a long time for life there to return to normal – if it ever can.

And although it’s the people that are most important, as a business consultant, I can’t help but think about the thousands upon thousands of small businesses that have had their operations disrupted by the storm — because a disruption of a business hurts many people. Employees may not be paid, or may even lose their jobs.  Vendors and suppliers may lose their customer. Clients of the business may no longer receive the goods and services that were important to them. And, of course, everything that the business owner may have been building for themselves and their families could potentially be lost — maybe forever.

I’ve spoken to many advisers who have experienced disasters – from fires and floods to Katrina and Sandy. Some have disaster recovery plans, and have shared how their plan was helpful to the continuing operation and eventual recovery of their business, but many advisers were either poorly prepared or unprepared. How about your business?

As a practice management consultant, I’ve hosted sessions for advisers on disaster recovery, and thought it timely to share a few ideas here. There is so much that can be done to lessen the effects of a disaster on your business. There isn’t room here to discuss everything, but here are some ideas to get you thinking, and hopefully motivated, to create your own plan.

If your business is going to continue to operate smoothly – maybe even able to operate at all – you need a written plan.  Think about this — every large city, and even most small towns, have disaster plans in place to minimize the effects of disasters like tornadoes, hurricanes, floods, and earthquakes on their citizens.  And, most large businesses have backup plans so that they will have office space and access to computer hardware and files for employees should something happen to cause a disruption in their day-to-day business activities.  You must have a plan as well.  And, it should be stored in several places, so that you can get to it even if you can’t get to your office

Don’t try to do it all by yourself.  There are plenty of resources available online to get you started.  Do a Google search for ‘disaster recovery’.  In the top of the results you’ll find a great site by FEMA, the Federal Emergency Management Agency.  They know a thing or two about disasters.  There are also lots of sites that offer help to small businesses.  Network with other advisers.  Talk to other small business owners in your area. Brainstorm with your employees. Contact your broker/dealer and your vendors (fund companies, software vendors, etc.) to ask how best to work with them in case of a disaster – that could occur on your end, or theirs.

Your employee, client and vendor contact information should be readily available (i.e., a copy should be stored offsite) in case you can’t get to your (or no longer have an) office. (Before storing client information offsite, talk with your broker/dealer and compliance department so that you follow privacy regulations and any internal rules regarding client information.) Do you have multiple ways to contact your employees — through different communications channels? Do you have their personal email addresses, cell phone numbers, even their social networks?  Do you know their family members or close friends, and could you contact your employees through them if necessary? What about your vendors and suppliers?  And, of course, your clients?

By the way, expect employee absences. A disaster may have an effect on your employees.  If key personnel can’t get to the office because they are dealing with the impact of the disaster on their own property or families, you must have redundancy in your operations.  How will responsibilities be delegated to various staff members during a disaster? Cross training employees can allow your business to continue operating smoothly when an employee is sick or on vacation, but it becomes even more important during times of disaster.

I find that few advisers have a written operations manual or appreciate its importance, but having a written manual will help you and your remaining staff to continue to service clients when staff members who normally perform certain tasks aren’t available.  How do you get into the software to initiate a distribution for a client when only Jane has the password — because she’s the one who usually does the distributions?

It may have taken you years to build the infrastructure of your practice, so inventory your systems and have schematics of your infrastructure. How will you recreate your business, if it becomes necessary? Do you have the ‘blueprints’ to put your business back together? How would you go about it?  What would you need? How would you access it?  Where would you start?  What would it cost?

One of the most effective suggestions that I can make to help you recover more quickly from a disaster is to choose an ‘owner’ to direct the recovery. If you are fortunate to have an employee who has strong organizational skills, who is a leader, and is very responsible, then make that person the owner of your recovery.  Having someone in your firm that you can rely upon to take charge of the administrative aspects and details of the recovery can free you to work on big picture strategic initiatives, and give you more time to talk with your clients.

Large cities and town conduct disaster drills to test and refine their plans.  You should also. Conduct a drill with your employees to walk through your plan, the possible scenarios that could occur, and how you will handle them. After the drill, ask your staff questions such as ‘how did this impact our business?’, ‘how did this impact what you do?’, ‘what can we do to accelerate the recovery and get back to normal?’

Throughout your discussions, don’t forget the most important component of your disaster recovery process – your clients.  It’s very important to clearly communicate what’s taken place and keep your clients informed of your progress. An effective recovery plan should allow you to operate in a ‘business as usual’ mode, but, if it’s necessary to make changes in your operations in order to accommodate the conditions, do your best to limit inconveniences to your clients.  Most clients will understand that it may take longer to process requests after a disaster has occurred, but will likely want to know that their assets and investments are ‘safe’.  And, they may want to be reassured that any private information is also secure.

Having a well-constructed, written disaster recovery plan that has been thoroughly prepared and effectively communicated to everyone who may be involved in the recovery of your business may help you to continue to operate during a challenging time, and get ‘back to business’ much sooner.

Find Your Piece of the Sky

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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.

Re-Positioning

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shell_game

by George Ray

In my last post we talked about building a positioning statement using as three-step approach (go here if you missed it) that starts a conversation with a potential prospect.  When suggesting that financial advisers use this approach, I often get two big questions that are valid, and should be addressed.  The first question deals with why I recommend the three-step approach specifically for financial advisers, and the second question is concerned with the fear of closing off the conversation by offering only one specific problem that you can solve.  Let’s take a look at each of these questions.

Question One: An adviser said, “George, why should I say to someone ‘You know how most people have this problem? Well, what I do to solve it is this.  And, the reason I do that is because they will feel like this after I’ve helped them.’ That seems like an awfully long and hard way to answer the question ‘So, what do you do?’. Why couldn’t I just say that I’m a financial adviser, a financial planner, or a wealth manager?”

You’re assuming that most people know what a financial adviser or financial planner really is, and what he actually does.  But, get 20 financial advisers together in a room and ask them about the services that they provide to their clients.  Ask them to describe their businesses.  You’ll likely get twenty different answers.  So, if we can’t agree on what we do and how we do it, why would we expect anyone else to understand our jobs?  That’s why describing a problem, the solution to the problem, and the emotion that results can be an ideal solution.  It focuses the discussion where you want it to go, and helps to explain what you do as an adviser (not what all other advisers do). However, this method really works best when you have a job that isn’t well understood (like a financial planner), or may have a lot of variation to it  (like a financial planner).  It doesn’t work so well for a person who has a job that we know well.  Here’s an example that shows how silly this could be:

Me: So, what do you do?

Guy: Well, you know how when people’s houses catch on fire they need to put it out?

Me: Yes?!

Guy: Well, what I do is drive up in a big red truck with a hose and a ladder and put it out.

Me: Oh?!

Guy: Because when I do people feel much safer and happier.

Me: So, you’re a fireman??

Guy: Yes.

Me: Jeez, why didn’t you just say that? I know what a fireman is. Do you think I’m a moron?

This is a ridiculous conversation.  We have a  pretty good idea of the fireman’s job, so this really isn’t necessary.  Yes, he could have just told me that he was a fireman. But when the job and its duties aren’t as clear (or if you want to clarify them), then the three-step method can help you do that.

Question Two: “George, I don’t like this method because I may introduce a problem that I can solve, but what if the person that I’m talking to doesn’t actually have that problem? Isn’t that the end of the conversation?”. For example:

Guy: So, what do you do?

Me: ‘You know how most small business owners are so busy running their company that they have little time to spend managing their investments?

Guy: ‘Gee, no I don’t. I’m not a small business owner.’

That’s OK, it isn’t end of the conversation. It would have been better to ask ‘So, what do you do?’ to him first, which would help you to decide which problem that you want to tell him that you solve, but In this situation, one of three scenarios is likely to follow:

1.     Firstly, he may disqualify himself for you. OK, so he isn’t a small business owner, and that’s you’re target market, so you’ve just eliminated him as a prospect.  Keep talking if you like — you can relax and have an interesting conversation about another subject that isn’t all about you. Or, if you’re really on a mission to find new business, then move on to someone else.

2.     Secondly, he may ask you for an exception.  “I’m not a small business owner, but I could really use some help with my rather large investment portfolio.  Would you be willing to help me?” Since he doesn’t fit your target, it’s your call on whether you want to make an exception. “Well, I usually just work with business owners, but when you say large, exactly how large is it?”

3.     And lastly, he may offer you a substitute.  “I’m not a small business owner, but my uncle is.  You should really talk to him.” Ask him why, and if he’ll also introduce the two of you.

So, don’t be afraid to build your positioning statement by using this three-step method, and use it consistently when you meet someone who asks ‘So, what do you do?’  You’ll have a better opportunity to explain what it is that you actually do, and how you help people.  Even if it doesn’t land you a new prospect with the guy or gal you’re talking to, you may find that it will still lead you to new business.

Position Yourself for Success

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chess positioning

by George Ray

Have you ever had an opportunity to introduce yourself to a potential client (maybe the big one that you’ve been waiting for years to land)  — and blown it?

I’ve talked previously about the importance of having a value proposition that resonates with your customer segments. But before you even have the chance to explain all the value that you could offer this potential client in your new relationship, you must position yourself to have a meaningful conversation with him.  Your positioning statement (the modern version of the old elevator speech) is essential.  Without one, you may never get to the point of being able to show your value.

In workshops that I’ve conducted with advisers on this subject, its unfortunate how many advisers believe that they have a great positioning statement, but don’t.  In reality, most are poorly formed and/or poorly executed. I even had one adviser, during a role play, begin by asking how much money I make.  When I told him that he doesn’t have the right to ask that question to someone he’d just met, he was flummoxed. (I’ve always wanted to use that word in a blog post.)

Poor positioning statements are filled with jargon like “I’m a fiduciary” (What’s that? Sounds boring. I’ve got to go now.) or contain irrelevant information like “I have a Series 7 and Series 63”.  (Who cares? Can you help me figure out how much I need to retire?). Poor positioning statements are dangerous – they can kill the start of almost any conversation.

I’ve heard lots of excuses reasons that an adviser can’t (or won’t) build a solid positioning statement. They say ‘George, you just can’t condense how great I am and all that I do into 30 seconds.’  (I say watch any Apple commercial on TV.  They know how to do it.) I’ve also heard ‘I don’t want to sound canned or phony with a rehearsed elevator speech.” (When well-rehearsed, you will sound natural.  Think about actors in a play.  They know their lines and how best to deliver them BECAUSE they are well-rehearsed.) Another version of this is ‘I may need different versions depending upon who I’m talking to, so I just play it by ear.’ (The best jazz musicians can ‘play it by ear’ because they have mastered the melody, chords, and rhythm of a song.  That allows them to easily improvise. You need to master your basic positioning statement before you’re good enough to start improving.)

The real problem, which needs to be tackled first, leads us back to the value proposition.  A great positioning statement forces advisers to identify and articulate their value.  You must first have a clear value proposition.  That’s hard.  It takes work. It requires knowing who your customers are and what they want (which could lead us into a discussion on another adviser challenge – creating an ideal client profile.)

So, what’s the solution? Firstly, understand that your positioning statement and value proposition are very different.  The positioning statement has only one purpose — to open up a conversation with someone you’ve just met who at some point likely says ‘So, what do you do?’  How you answer that question will determine whether he will permit you to continue.  You’ve only got about 8 seconds to get his interest (i.e., the attention span of the average adult) and you should probably know that there is a woman in a slinky red dress at the bar that he can see behind you over your shoulder – so you may only have about 4 seconds.

The best way I’ve found to create an effective positioning statement is by combining these three building blocks. If done correctly, you will accomplish your goal of opening a conversation with someone. (After that, it’s up to you where you want to take it.)  To start . .

1. Provide an example of a problem that most of your clients encounter. You can do this (after the ‘So, what do you do?) by starting with “You know how . . . “ and then use an example of a problem that you can solve. For example, ‘you know how people have trouble saving money for retirement’ or ‘you know how people can’t figure out how much they’ll need to send their kids to college’. More common and broader problems can be used when you don’t know much about who you’re talking to, but if you’re at a cocktail party with a roomful of executives from Big Local Company, Inc. then improvise (you well-rehearsed jazzman, you) by saying ‘you know how executives with stock option plans can’t decide when they should exercise their options’. (As the stock option-rich executive shakes his head and says ‘Yes, I certainly do’.)   And, then . .

2. Explain how you solve that problem. You can do this by starting with ‘Well, what I do is . . . ‘ and then tell him exactly what you do to help someone with that problem.  So, let’s carry through our last example — ‘You know how executives with stock option plans can’t decide when they should exercise their options?’ “Why, yes, I certainly do because I have that problem.” ‘Well, what I do is create customized models for my clients that illustrate all of the possible scenarios to give us the best information to make a decision on when to execute those options.’ “Wow. That’s exactly what I need. Are you accepting new clients?” Isn’t that a much better positioning statement? It got you into a meaningful conversation (and he also lost track of the slinky red dress). But you can’t stop there. Next . .

3. Tell him why this is important to him. Don’t just tell him that you can solve the problem. You must finish with emotion. Finish with the feeling that he will get when you have solved the problem for him. Tell him WHY you do what you do.  “I do this BECAUSE making these important decisions on how best to exercise stock options relieves my clients of the stress of having too many of their eggs in one basket, and often we can even find a little extra for them to treat their family to a great vacation”. “Where have you been all my life? Please help me. I want to feel like that too.”

I’ve found that using these three building blocks can be the most effective way to create a positioning statement that will open conversations.  Here, let’s see if it works.  You know how financial advisers often have trouble introducing themselves to new potential clients? Well, what I do is provide them with the building blocks to build an effective positioning statement. Because when I do, they’re able to gain many new clients and build a more successful practice by simply knowing how to effectively answer the question ‘So, what do you do?

What if YOU Created the Disruption?

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Newton Cradle Crop 2

by George Ray

(Damn. This one’s a bit long. Better grab a cup of coffee.  Or maybe Instapaper.)

We’ve been talking about the disruptive changes that could occur to an adviser’s business model and where they might originate (for a review, see this post). I’ve suggested that every business should be concerned about disruption, provided some examples, and said that financial adviser practices are not immune.  But let’s turn from the negative idea of disruption to the positive side —- INNOVATION.  Can you proactively innovate in your practice to stay ahead of the potential disruption that is inevitably on the horizon?  And, (now ‘free your mind’ as Morpheus told Neo in the Matrix), could the innovation that you put in place in your own practice actually become some other adviser’s disruption? (and, just as Neo reacted, it’s OK to say ‘Whoa’). Rather than waiting around to have your business disrupted by someone else, what if it was you who proactively innovated — and created the disruption? Hadn’t thought of that, had you?

Ideas for business model innovation can come from almost anywhere, but there are primarily four hubs (or epicenters) that can be a source for business model innovation. Each of these hubs can serve as a starting point for major changes to your business model and have the potential to create powerful changes in your practice.  Let’s take a quick look at each of these four hubs:

1. Resource-driven hub

Innovations that are resource-driven usually originate from within your organization’s existing infrastructure, but could include products and services that you get from your key partners.

For example, Microsoft used its extensive software development resources to drive the innovation of its successful gaming platform, the Xbox.  This gaming/entertainment machine wasn’t originally in their business plan, but they realized that they could use their existing key resources (programmers, hardware designers, manufacturing partners, etc.) to open up a new market for their business.

With a bit of brainstorming with your team, are there any resources that you have developed that could be utilized in a different way to provide a product or service that could be of value to your existing clients — something that your competitors aren’t offering? And, more importantly, could you use those resources or key partners to help you open up a new market for your business (much like Microsoft did with the Xbox)?

2. Offer-driven hub

Your offer is your value proposition.  You can certainly innovate by changing your value proposition, but it will create changes to other components of your business model.

As an example, we saw in our own industry years ago the rise of no-load mutual funds. Some fund companies changed their offer by telling consumers that they didn’t need an adviser, and should do it themselves.  We can argue how successful they’ve been and what this has done for (or to) clients, but it certainly created disruption in my practice back in the 1980’s.  This new offer by some fund companies increased their revenue streams (i.e., they no longer had to pay commissions to an adviser), but may have added to their cost structure (i.e. they had to pay to advertise directly to the consumer and now hire their own service staff). This offer-driven innovation certainly placed these fund companies in a different space in the marketplace.

Today, there is talk of online robots (Michael Kitces says cyborgs) that use artificial intelligence to replace advisers by offering financial advice at a lower cost to consumers (e.g., Betterment and Wealthfront). You may not be frightened by this, and even laugh it off as something that will only take hold at the lower end of the market (i.e., for consumers with lower incomes and smaller investment portfolios), but back when you owned all of those big record albums wouldn’t you have laughed if Steve Jobs came from the future to tell you that one day you could have ‘a thousand songs in your pocket’?

3. Customer-driven hub

Have you ever seen a pop-up box on a website that is offering you a chance to connect directly to a live chat with a salesperson who can answer your questions?  Have you ever shared a comment about something you purchased or about your meal at a restaurant? If so, you’re seeing the result of customer-driven innovation. Customers want to easily find someone to help them get answers (hence the rise of the pop-up chat box) and also have a way to share their comments about their experience directly with the business, or with its other customers. So, are you reacting to your clients’ needs by implementing innovative solutions in your practice that provide increased convenience, better information, or faster access to you and your staff? What are your clients telling you that they need? Are you really listening?  And (here comes the ‘Whoa’ again), why not try to listen to what your competitor’s clients are saying? If he’s not listening, and you are, your customer-driven innovation may bring you some new clients – his, actually.

4. Finance-driven hub

Changes to your business model that are driven by finances can have a significant impact on your revenue streams, and many of the other business model building blocks as well.

We’ve all heard of the razor vs. razor blade analogy.  The company forgoes the revenue stream and potential profit that it may get from selling the razor by giving it away for free — in order to make higher margins selling the blades.  Printer companies do this also – the price of the printer is relatively low upfront, but the long-term ownership costs can be high because of the price of the ink cartridges.

We’ve seen advisers who forgo a potential revenue stream by giving away a financial plan for free in order to get the product sales that may need to be implemented as a result of the recommendations in the plan.  (We’re assuming that this is a real plan, and not just a disguised sales piece.) But there are also fee-only advisers who forgo the revenue from product sales completely. Their value proposition (i.e., offer) is much different from the adviser who gives away the plan for free.  They’ve decided that they can build a revenue stream that won’t fluctuate as wildly with changes in the market or a lack of sales. And, as a result their customer segments are likely much different from the sales person.  They work with different key partners than the salesperson.  And, the other building blocks of their business model (distribution channels, customer relationships, key activities, and cost structures) are also affected.

Innovation originating from the finance-driven hub can be the toughest for your business to take.  We’ve all seen stories about the adviser who decides to switch ‘cold-turkey’ from a commissions-based business to a fee-only practice.  He’s developing a brand new revenue stream while completely giving up his existing revenue sources.  This may be noble, but it’s very difficult to manage and to survive.

So what should you do now? Well, consider these four hubs of business model innovation as you look for ways to innovate in your practice. Each of them could provide starting points and direction for innovation. I suggested a rather bold move – innovate proactively to cause disruption rather than passively waiting to be disrupted.  Your innovations may not come to you easily.  You’ll need to continually watch for ideas and search for opportunities. But, if you’re not comfortable with this, you could always just take the blue pill instead of the red one, Neo.

Are You a Pain Reliever?

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by George Ray

I was recently stung by a bee in my backyard (one of the most painful places on the body to be stung). I’ve been taking some pain relievers to lessen the discomfort, and it got me thinking about how financial advisers can provide pain relief to their clients.  In fact, I believe that there are two primary ways that we provide value to our clients — by creating gains and relieving pains.

In my last post, we briefly looked at the need for financial advisers to continue to innovate and adapt their business models in order to avoid being disrupted — or wind up like Blockbuster, Kodak, or Blackberry (maybe soon). I’m a big advocate of completing an annual SWOT analysis (and have lead adviser workshops on the subject) so that advisers can examine their current strengths, weaknesses, opportunities, and threats (SWOTs).  This can be one of the most effective ways to build (and update) your business plan for the coming year (if done correctly). And although the SWOT analysis can be effective, I believe that we now have a need (because changes are occurring so rapidly) to actually take a step back even further by re-examining our business models much more frequently.

One of the key business model building blocks is your value proposition.  It must describe how your firm’s products and services create value for your clients. If you can’t clearly show a potential or existing client how you can create value for him, you really have no business talking to the client. Most advisers think about creating value by creating gains for the client (and I’m not just talking about investment gains). We often suggest that we provide better service (although we have difficulty defining what that means exactly). We might focus on the array of solutions that we have available. Or how long we’ve been in business. Or how many credentials we have after our names.

But your value proposition isn’t about you.  It should be focused on your clients. And your clients often have pains — financial pains. You can differentiate your business from other advisers by letting clients know that you can be a pain reliever. In fact, here are some questions to ask yourself about the pain relief ability of your value proposition:

  • Can you make your customers feel better by killing frustrations or annoyances that give them a headache?
  • Can you fix an underperforming solution from a competitor by offering better performance, higher quality, or new features?
  • Can you relieve the pain of difficulties and challenges that your customers encounter by making things easier or helping them get things done?
  • Can you help your clients sleep better by diminishing their concerns or eliminating worries about their finances?
  • Can you limit or eliminate the conditions that develop from common mistakes that clients often make?
  • Can you break down barriers that are keeping your client from adopting better solutions?

Take some time to think about your ability to be a pain reliever for your clients. Consider all of the things that you do to help them to improve their financial wellness, and help them avoid getting stung in the backyard.  It really hurts.

You Must Be This Tall to Ride

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lens2255369_1263225429Height_Sign_-_Laughing_PlI was looking through some old photos recently of when my wife and I took my daughter to Disneyland. (If you’re a parent, you’ve probably been there once or twice.)  One of the few maddening things about taking our kids to ‘the happiest place on earth’ is that there are rules to be followed that sometimes cause us problems — even though they’re meant to protect us.

Some of the best rides at the park have signs with characters holding out their hands to indicate how tall the child must be in order to ride. Small children are often disappointed when they find that they aren’t allowed to ride on certain attractions. Of course it’s for everyone’s safety, even if it doesn’t make life easy, but the park has a point — they can’t just let anyone on the ride.

As I was looking at the ‘You Must Be This Tall to Ride’ sign in that old photo, I began thinking about how valuable this might be for financial advisers.  Imagine that you have determined your requirements for becoming a client and could post them on the front door of your office — ‘In Order to Become a Client With Our Firm You Must Be This Tall to Ride’.

What I’m suggesting may make some advisers a bit uncomfortable. How could we dare keep potential clients out of our offices by pronouncing the requirements to become a client right outside the front door? You might tell me that it’s ridiculous. And, I’d have to agree. But that doesn’t mean that I couldn’t keep my ‘You Must Be This Tall to Ride’ requirements on my notepad or on my desk so that I can easily refer to them as I interview potential clients. And, maybe I should share the ride requirements with my staff as well.

As a practice management consultant, I’ve spoken to advisers about the importance of having an ideal client profile, and I’ve found that many challenges that advisers face in their businesses can be traced back to the simple fact that they can’t describe what their ideal client looks like.

Not having an ideal client profile can cause many different problems for you and your business. How do you know if you’re offering the right products and services, if you aren’t clear as to who your clients are? Are you wasting time, effort, and capital serving clients who are wrong for your business? How can you gain referrals if you can’t accurately describe to your referral sources the type of client you best serve and how you help them?

How do we solve this problem? Get a piece of paper and make yourself a sign.  At the top, label it ‘You Must Be This Tall to Ride’. Now write down what ‘tall ‘ means to you and to your firm. Is your client a small business owner? An architect? An engineer? A teacher? Does he live downtown or in the suburbs? On the north side of town or west of the river? Does he belong to a particular ethnic or religious group? What is his average age? What are his hobbies? What types of problems can you help him solve?

The more accurately you can describe your ideal ‘rider’, the more likely you will be to avoid ‘mishaps’ that can be costly to your firm.  Disney decides who gets to ride, and it’s still the ‘happiest place on earth’. You can be much happier by deciding in advance who get to go on your ride as well.

Let me know your thoughts in the comments.

Welcome to the Business of Financial Advice

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Welcome to The Business of Financial Advice. As a veteran of the financial services industry, my intention is to share and comment on current news and issues that affect the management of a financial adviser’s practice. I hope that financial advisers will find some valuable thoughts, ideas, and insights on the complex business of providing financial advice to clients.

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