Even though the stock market soared by more than 50% from March to mid-October, 2009 was a terrible year for most advisors.
Despite the fact that this was the best six-month performance for stocks since 1933, advisors still took a huge pay cut on fee income because that great performance followed a 50% loss in stock prices. And we all know that when you sustain a 50% loss, gaining back 50% only gets halfway toward even. If an advisory firm expected to earn $1 million in asset management fees before the market crash, by March 2009 that firm was expecting 12-month fee income of $500,000.
Maybe the market rally had hiked it to $750,000 by mid-September, but that was still far short of the pre-plunge mark.
My sense is that most advisors were so violently tossed about over the past year by market turbulence that they're just beginning now to get their bearings. The past year was so full of turmoil that advisors were constantly putting out fires and trying to seize opportunities.
Caught in the chaos of the global financial crisis, many were forced into a reactive mode focused on self-preservation and, in some instances, survival. They had to put out fires every day for months as their clients lost faith in the financial system. Retirees freaked out about busted nest eggs and families faced the crises of job losses and business closures. Only now, with stability taking hold and the recovery in sight, are advisors able to adjust to the new normal.
After all the chaos of the past year, now is a great time to think of restoring order in 2010. So when Scott Cohen, a partner at Focus Partners, suggested that this was a good time for advisors to focus on 2010 business planning, I agreed. But where do you start? What should your plan comprise? These are the questions Cohen asks.
After 11 years as an advisor, Cohen was hired by Ameriprise in 2005 to consult with its advisors on practice management. Then seven months ago he joined Focus, a practice management consulting firm started three years ago by two other former advisors: his college buddy Michael Silver and Eric Sheikowitz, who knew Silver from his neighborhood. Focus now has five practice management coaches in addition to these three partners. The firm offers individual and group coaching, consulting, workshops and educational presentations for wholesalers, managers and advisors at independents, regional companies and wirehouse firms.
In explaining why business planning is so important, Cohen invokes Yogi Berra's famous observation: If you don't know where you're going, you could end up someplace else.
Even though it isn't so different from the financial planning they already do for their clients, when it comes to planning for their own businesses, many advisors are like the proverbial cobbler who lets his children go barefoot. So here are ten tips from Cohen for creating your 2010 business.
1. Articulate a vision. As with any plan, you must begin with the end. Cohen says you should establish a vision for success in 2010, but you must connect the vision with a detailed road map for getting there. Your vision must be grand. It's not about how much revenue you'll make; it's about whether you're going to move your firm toward a specialty, like focusing on clients with charitable intentions because you find them most rewarding. Your vision can be about your lifestyle, the type of wealth management you want to do or your ultimate destination. Don't confuse goals, such as getting to $100 million under management, for vision. Cohen says it's natural to begin business planning by focusing on such goals and bypassing the vision. But that's a mistake. Your vision will be about inspiration as much as aspiration. Vision is qualitative, not quantitative.
2. Get your bearings. In addition to articulating where you want to be, your business plan must examine where you are right now. To assess your current status, Cohen suggests writing down your firm's strengths and weaknesses along with the opportunities you see and the threats to your success. Your strengths will be the attributes of your practice that help you achieve your objectives. You might be surprised by what you find out during this exercise. You might find out that one of your employees is an asset, but another is a weakness. Still, in making these lists, you must prioritize. Not every weakness is important.
3. Set goals. In writing down your visions and listing your strengths and weaknesses, you probably started thinking about specific goals-specific milestones you set for yourself that you grade on a pass/fail basis. Your goals are the means for achieving your vision. Be sure, Cohen says, to make them "SMART," in other words, "specific, measurable, achievable, realistic and time-specific." For instance, if you wish to work with charitably inclined clients, you might want your goal to be setting a target date for installing software that screens stocks according to socially responsible criteria. You must also create business-results goals that quantify how much business you aim to achieve. "The act of writing down your goals in and of itself makes it far more likely you will achieve them," says Cohen.
4. Action items. Goals are good, but they must be detailed with action items-the specific steps you take to achieve them. These items should have 30-, 60- and 90-day deadlines. While goals are strategic, action items are more tactical.
5. Focal points. In writing your business plan and defining your goals, it's wise to focus on four key areas to organize your thoughts: business development, client solutions, client engagement and operational efficiency. How will you develop new business from existing clients and prospects? What are the key two or three solutions or products you will offer clients to make them more loyal? At the same time, what are the two or three services and solutions you'll use to entice new clients? Client engagement, meanwhile, may sound strange, but it is actually ingenious, something akin to client loyalty, though not quite the same thing. A client's loyalty determines whether she will fire you or stay with you.
Client engagement is what spawns client loyalty-what brings in referrals and a bigger share of a client's wallet.
Especially after the year we just had, clients may have lost faith in your ability to help them; they're wary of all things financial-including advisors. So it's important to focus your business plan on steps you can take to engage your clients more deeply. Finally, your last area of focus, Cohen suggests, should be increasing operational efficiency. Write down the steps you will take to become more efficient. Maybe it means embedding processes in your CRM system (a favorite focus of mine). You could do this month by month until you have documented and embedded 12 processes in your CRM, perhaps client intake, or the rebalancing of client accounts. List your most common processes and figure out which ones are most important to document and embed.
6. Revenue goals. Many advisors are facing the "withdrawal effect," which poses a subtle but possibly fatal challenge to your business. As more and more of your clients get into their sixties and seventiess, you face a dwindling base of recurring revenue as annual portfolio withdrawals by retirees lower your firm's total assets under management. Unless you create revenue goals and find ways to replace these assets as they are being spent down, your business will become weaker every year. Especially if you're looking to sell your business in five or ten years, now is the time to start fighting this. Cohen says you must quantify the total amount being drawn down by your clients and plan to make up at least that much in new client revenue. "The idea is to figure out how many new clients you need to bring in to make up for the withdrawn assets," he says.
7. Client segmentation. Every advisor has "A" clients who are more important than "B" or "C" clients. You want to be sure you are spending as much of your time as possible with "A" clients and not being distracted by the "B" group. The only way to do this is to painstakingly go through a list of your clients and label which is which. For help with this task, download Cohen's client segmentation workbook at www.focusvpm.com/clientsegmentation.
8. The alignment of client segments with services. Once you have rated your clients as "A," "B," or "C," you must align each type with a level of service. This ensures that you will spend the most time and resources
on your most valuable clients. For instance, do you provide a financial plan for every client? Probably not. Maybe you can provide all "B" clients with goal-based plans that get updated annually, while "C" clients don't get any financial planning. Meanwhile, maybe you could carve out a service for "A" clients that gives them detailed cash-flow based plans updated every year. Advisors have many ways of bundling their services, and you have to create different levels of service that are realistic and match your firm's strengths. "This is a lot of work, but it is key to success," says Cohen.
9. The elevation of less-active clients. Less-active clients are those you never hear from and who do not do much business with you. You'll need a strategy to convert these clients into "A" clients. Since less-active clients are already working with you, it is easier to deepen your relationships with them than hunting for new clients. If you have not reached out to your less-active clients, design a system for doing so and track the results. For instance, Cohen says you might focus on clients who only have one or two accounts with your firm. Even though your firm may be managing hundreds of thousands of dollars for these clients, the fact that it's all in one or two accounts may mean that you have a low share of their total assets. If you fail when you try to engage them, then you know that this relationship is unlikely to get deeper and you can definitively classify them as "B" or "C" clients instead.
10. Client acquisition plan. Write down a plan for acquiring new clients. Mass mailings, Webinars, seminars, newsletters, e-newsletters. Choose the vehicles that best match your budget and abilities. But whatever you choose, you must do it consistently. "If your strategy is to acquire clients by holding seminars, you don't want to hold just one seminar," says Cohen. Fill up a calendar with the date by which you will conduct various client acquisition vehicles. For instance, fill in dates on your calendar for conducting four Webinars, e-mailing 12 monthly newsletters and writing a weekly blog post. By marrying the activities to your calendar, you can hold yourself accountable. Don't judge yourself by your intention to do these things; judge by whether you actually do them.