Some think that advisors are after the wrong group of wealthy clients

    Earlier this year, Tiburon Strategic Advisors issued a report entitled Consumer Wealth, Target Markets & Marketing Strategies that sounded relatively innocuous. But it included a few findings that should get every advisor's attention.
    Says Tiburon founder Chip Roame: "There are far too many advisors for today's number of affluent households. If one includes brokers, independent reps, life insurance agents, private bankers, et al, Tiburon counts 400,000 advisors and approximately 40 million households having $100,000 or more of investable assets. We're finding that about three-quarters of these households will use a financial advisor, so that's an average of 75 clients per advisor. An advisor at the lower end [of the wealth spectrum] would have just 75 clients at $100,000 apiece. If he charges 1% on the total account value of $7.5 million, that's $75,000 of gross revenues. At that rate, it's going to be pretty difficult to make a living."
    Tiburon report, though, has much more to say. We discussed its other findings with Roame to uncover additional issues, along with Tiburon's proposed solutions.

 First, part of the solution to the above dilemma is in the numbers themselves. To a large extent, "the liquefaction of boomer wealth will allow them to survive," says Roame. The statement would seem to be true for both boomers and advisors.
    But mere survival doesn't mean it will be life on Easy Street. Roame believes that boomers will liquefy dollars that are now tied up in 401(k)s, home equity, small businesses and stock options-not to mention inheritances-into investable assets. In fact, says Roame, this will take boomers' investable assets from a present $17 trillion to approximately $30 trillion.
    Second, there is a strategy for capturing more than one's average share of this wealth. "The winning strategy will be around serving fewer, more wealthy clients with more comprehensive services," says Roame.
    There's a lot more to it than that, of course. Advisors need to think about their businesses correctly, they need to "touch" clients more often and they need to be aware that boomers are very different from earlier generations of clients because they're validators as opposed to delegators.
    Don't independent RIAs, as a group, tend to serve far fewer, wealthier clients than their counterparts in the independent broker-dealer and wirehouse communities? "RIAs are probably further down the path [than other advisors] towards the model we see as successful," says Roame. "We find that the wirehouse advisor's average account size is $333,000, the independent BD rep's is $142,000, while fee-only RIA accounts average $510,000."
    RIAs may have the best mousetrap at the moment, but Roame thinks they focus too much on how many clients their firm serves when they need to take a more productivity-oriented focus toward how many clients each principal can serve. "Each partner should be able to manage 100 clients," he says.
    No doubt many advisors might think that figure is high. Thinking about their businesses correctly, in sync with recent studies by other organizations, also means developing a niche geared toward a target market. This is not earthshaking news, you might be thinking, yet Tiburon finds that fewer than 15% of all advisors have a target market. Could that be correct?
    Maybe that depends on the definition of "target market." "A target market is clients with common needs," Roame says. "There are lots of ways to define them-they could just be employees of the same company-but they have something in common that allows the advisor to serve them much more in depth because the advisor will make the same choices for many of them and serving them will, therefore, be more cost-efficient."
    As for touching clients, the Tiburon report claims advisors should be spending more time with clients on the phone or in meetings. However, the time required for phone calls and meetings is precious; can't clients be touched in more efficient ways? "Sure," says Roame, "e-mails and other e-communications are effective, too. The point is that savvy advisors recognize that touch points are critical. Historically, advisors have had infrequent communication or overly comprehensive communication with clients. For example, they'll send out six-page newsletters to their entire client base on topics clients don't really care about."
    The answer, he says, is to touch them with short, one-issue e-mails or newsletters. "Don't say, 'Here's 19 products we may want to consider.'  Most consumers don't like investments; that's why they're using an advisor." An even better way to touch clients is to base e-communications on the calendar or on current events. "Clients want to know, 'How does this issue that's in the news apply to me?'  Answer this question and your clients will feel you're truly focused on them," adds Roame.
    All of which gets to the issue of service. "Customers' satisfaction with their primary advisors is decreasing," he explains. "They may stay with their advisor anyway out of inertia. But those who do fire their advisors do so based on poor service."

Finally, Roame reiterates that boomers will be of the validator type, which could provide challenges for some old-school advisors. At the very least, they'll want participation in most decisions, including investments. Some will want their advisors to validate them and their own ideas about financial planning, a far cry from the delegator type that lets the advisor make most of the decisions unilaterally.
    "This [change from earlier generations]," says Roame, "is a reflection of recent market volatility and the more informed nature of clients today. Not all boomers will want to do their own planning, but they're not as ignorant about investments as their parents, who may have had defined benefit plans. Boomers, instead, have had 401(k)s."
    Unlike research firms or investment houses that unleash potentially negative findings on advisors for sheer exposure, Tiburon's clients are largely institutional. Nonetheless, when a writer parades these kinds of study findings in front of advisors, as I have, he gets somewhat reactive, though usually well reasoned, commentary.

What Advisors Think
    Not too surprising, for example, is the fact that established RIAs feel quite comfortable that they have and will continue to have more than their "average share" of the market, as Tiburon characterizes it. "In fact, only a fraction of that [400,000] number make the grade," claims Lew Altfest of L.J. Altfest & Company Inc. in New York. "The market isn't as saturated as it looks-qualified advisors are likely to continue gaining market share." In agreement, Mary Malgoire of The Family Firm Inc. in Bethesda, Md., says, "Ninety-nine percent of the 400,000 advisors [noted in the Tiburon study] are 'wishin' and hopin' and just don't deliver anything near the service that the bulk of the 40 million households are increasingly expecting."
    Which is to say, established RIAs believe they've captured the share of the market they have because they're already doing many of the things Roame would counsel them to do. In fact, some go after fewer wealthier clients, making Roame's 100-clients-per-advisor number seem too ambitious.
    Observes Deb Wetherby of Wetherby Asset Management in San Francisco, "That seems a big number to me. We have ten people, 400 clients and $1.3 billion in assets, so we're trying for a much lower ratio [of clients to principals]. The number doesn't need to be 100 for financial success; the larger the client, the less able you are to handle a high number."
    Yet that just reinforces Roame's main point: Successful firms will handle fewer, wealthier clients. Yet, Richie Lee of Lee Financial Corp. in Dallas-another billion-dollar-plus advisory firm-finds Roame's prescription too confining. "Having fewer wealthier clients is one winning strategy. Everyone's looking around for the single business model that defines success. Much of this has been driven by [Mark] Tibergien and others defining 'best practices.' This industry is still young; it's still trying to define itself. With individual clients, there's so much emotion and change involved that dominant business models aren't going to do the trick. There will be multiple winning strategies."
    As proof, Lee points to financial journalist Mary Rowland's book, In Search of the Perfect Model: The Distinctive Business Strategies of Leading Financial Planners (Bloomberg Press, 2003), as evidence that successful advisors "make it" in many different ways. He also takes a contrarian position to the common wisdom that planners must do an "80-20" analysis and cull out of their practice their least profitable clients. "I'm not going to give up smaller clients," Lee declares. " I've got enough clients so I can view those clients as a different block that I can serve [profitably] with a different and separate business structure and the right kind of high-quality employee."
    Our sources all had very distinct target markets, because they represent some of the more successful RIA firms in the country. For advisors who aren't sure what their target market should be, Bert Whitehead of Cambridge Connection Inc. in Franklin, Mich., states his opinion that, "The pot of gold, especially for newer advisors, isn't the $100,000-plus client, but Middle America-young, smart people starting out. If advisors to these clients can add value beyond investment advice, they'll build their future practice of wealth-management clients."


Both Whitehead, through his Alliance of Cambridge Advisors, and Sheryl Garrett, through her Garrett Planning Network, have proven that properly trained advisors can add value for "regular people." The key, says Whitehead, "is to stop focusing on investment returns and focus instead on tax savings-how much to put away and what kind of pension to use that can save the client thousands of dollars a year; real estate-how much house the client needs to buy and how much to leverage, when to refinance, and when to move up; and basic financial planning such as saving insurance premiums and effective charitable strategies." Although Whitehead personally works with many wealthy clients, members of his Alliance learn how to serve the less wealthy, a target market he is certain yields dividends.
    Do advisors agree with Tiburon's assertion that Boomers are validators? Not necessarily. "Boomers want good information, but we're not seeing them wanting to make direct investment decisions themselves," Wetherby says. "However, the reason may be self-selection." That is, Wetherby's Boomer clients may be more of the delegator type by virtue of the fact they sought out a financial advisor.
    These sources may not have much personal experience with what is perhaps Roame's most disturbing news: clients' satisfaction with financial advisors, in general, is on the wane. However, another industry researcher, Russ Alan Prince of Connecticut-based Prince & Associates, couldn't agree more. "Advisors think things are much better than clients do," he says. "Most of the advisory industry is doing a poor job of dealing with clients. Advisors are ineffectual; they run through clients left and right."
    In one of Prince's many studies of affluent investors-this one conducted in late 2002, near the end of the three-year bear market-he found almost half had changed primary advisors in the last year. Sure, you say, clients were frustrated with three straight years of losses and many blamed their advisors so, of course, they jumped ship.
    But what Prince also found is that, without exception, investors who had switched had had less regular contact with their primary advisors than those who had not switched-the same finding that Roame makes about "touching clients."
    They also agree on Roame's formula for success, sort of. "The prescription to have fewer, wealthier clients is stating the obvious-that's 'wealth management,'" says Prince. "I'm not sure where he's getting the 100 clients per principal, though." In other words, Prince's own prescription for success differs somewhat. "Those who are successful in this industry will either be 'super-specialists' or wealth managers; anything in between is 'me too' and will fall by the wayside," he says.
    How does Prince define a "wealth manager?" "That's a person who provides multiple services and products to clients in a consultative manner to achieve client goals. The key is the advisor's ability to meet the client's needs." Adds Prince, "One aspect of this business model is platform. Do I have access to the array of products and services I need? This is where companies and advisors think they begin and end as wealth managers, but just having a platform isn't enough."
    Advisors must also have the ability to get an in-depth understanding of clients and discover their true needs, says Prince. "That's where everyone falls on his face, and 'life planning' doesn't get it either." What Prince advocates is what he calls a "whole-client model," or fact-finding system, built from a process called "mind mapping," a powerful graphic technique for analyzing, on just one page, large volumes of data. "When an advisor moves to this brand of wealth management," says Prince, "we've found income can rise 35% in a year's time. It's a matter of having fewer, better, more dedicated clients; that's what the future is going to evolve to," says Prince.

    Joan Bloom, executive vice president of marketing at Fidelity's Registered Investment Advisor Group, confirms this phenomenon. The market for virtually every client group when segmented by wealth is highly competitive, she says.
But advisors structuring their firms as wealth management operations represent the fastest-growing part of Fidelity's RIA business, and Bloom believes that's not unique. "It's harder to do wealth management because you may not have an estate planning attorney or a CPA on staff," she says. "But when people's [net worth] reaches $2.5 million or $3 million, estate planning and tax management become critical.
    "It's also partly due to the maturity of the firms themselves," she adds. "As their business grows, their confidence increases. Also, when they hit a critical mass where they don't need a lot of resources to grow, they can focus on growth, not the back office."
    Wetherby identifies with this approach. "I believe clients want a coordinated approach, but I'm not sure it makes sense to do everything under one roof," she says. "For our clients, we need high-level specialists in each of the fields; we're the investment piece and the quarterback of the team, and we also have the most client contact."
    "The client wants answers and solutions," adds Prince. "Small boutiques can win with this formula; size isn't the issue. It's 'can I get to the client and do I have the support structure?'"

David J. Drucker, M.B.A., CFP, a financial advisor since 1981, now writes, speaks and consults with other advisors as president of Drucker Knowledge Systems. Learn more about his books and the new practice management portal, Practice Lifecycle, at