Become Counterintuitive
Your vision or mission statement can be as simply stated as, I want to be the best financial planner for divorced women. You can substitute doctors or engineers or small business owners as you see fit. But making that simple declaration is likely to do miracles for your workflow, staffing, productivity and profitability. In and of itself, it will say volumes about where you should direct your energy and effort and what types of results you should begin looking for. While it sounds simple and rewarding enough, consultants know this stumps a lot of planners. That's because the very notion of turning away clients who don't fulfill a firm's vision, and limiting what your firm does, feels counterintuitive. "Oftentimes a planner calls me in because they believe their practice is languishing, and it is," says Mark Tibergien, head of the financial services consulting practice at Moss Adams in Seattle. "It isn't producing the returns the owner thinks it should. There are no efficiencies and no top-line growth."
What does he frequently find? "That the firm has too many different clients and offers too many product and service lines to really harness its resources." What are the signs? "I'd find your staff, if you had any, would be unhappy because they don't have a sense of direction. I'd find compensation is misaligned with what you're trying to accomplish. Your gross profit margin would probably be diminishing, caused by poor client mix, poor pricing and poor productivity. At the same time, I likely see your overhead costs rising."
No one is asking advisors in the early years of launching their business to turn away clients. But as practices grow and mature, focusing on the client group you want to serve can make running either a small one-person boutique or a large multi-planner firm more gratifying for you and clients. Simply put, it will allow you to develop the depth and breadth of experience needed to serve clients well without having to reinvent the wheel every day.
Draw Your Line In The Sand
It's easy and exciting to get caught up in the demands of growing a business, especially when it begins to take on a life of it's own. But years or even decades later, it's likely that your likes and strengths will have changed. Cambridge's Bert Whitehouse used to like managing his four-state firm, hiring and firing and training staff and organizing all of the activities that go into running a business. Then he stopped liking it so much. He began to hire staff to do those things he didn't like to do, right down to reading the 100 or so e-mails he gets every workday, a task he began delegating about three months ago. Whitehead calls it "e-mail triage."
Every morning a staffer deletes all his junk e-mail, answers what she can and directs other e-mail, where appropriate, to paraplanners and team advisors on his staff. "E-mail was fun ten years ago," Whitehead says. "Then it started taking me an hour-and-a-half just to plow through it." Now he receives the three or four e-mails that need his attention, and gets to spend more time in front of clients earning the hefty retainer fees he charges (the fee ranges from $2,000 to $25,000 and averages $6,000, depending on assets and complexity). "Fee-only planners think of their work as a calling, and one of their sins is they don't charge enough," he says. "I charge what the service is worth, and that gives me the resources to hire paraplanners and others to help run my business." The strategy isn't all self-serving. In the past 20 years, Whitehead has trained 20 different planners who went on to buy their client list from him.
Get A Real Compliance Officer
It would be hard to talk about the quality of your life as an advisor without underscoring how important it is to avoid raising red flags with regulators. And so it stands to reason that the days when advisory firms appointed their receptionist, administrative assistant or proverbial low man on the totem pole as the firm's chief compliance officer are drawing to a speedy close. That's because starting in October, the Securities and Exchange Commission will require that you appoint a chief compliance officer and that he or she create, implement and review compliance policies and procedures at your firm annually.
"Nine times out of ten when we do mock audits and the person responsible for compliance is the low man, the audit doesn't go well," says Gary Watkins, a partner with Adviser Compliance Associates in Washington, D.C. It won't fly with regulators soon, either. "The SEC wants to see that the person in charge of compliance sets the tone at the top, has knowledge of how the business operates, what conflicts there are and can operate independently to change procedures where necessary."
The last thing you want during an audit is to trigger regulatory ire over who you've appointed as chief compliance officer. "Besides, the low-man types are getting wise," says Watkins. "They're shying away from the job once they realize they have real liability."
How Ethical Are You Really?
Sometimes advisors believe that because they're honorable, they don't need to disclose activities that the SEC will undoubtedly view as a conflict of interest. "That's the biggest mistake I see," says Michelle Heyne-Wyrick, a partner with the Seattle-based consulting firm BD/IA Complete. "Referral arrangements advisors have with their broker-dealer or custodian are big deals. So is anything that an advisor is deriving economic benefit from, whether it's practice management software or lower execution fees for greater volume," Heyne-Wyrick says.
It's important to have the mindset where you recognize the need to disclose any items or benefit that may impact how you make decisions affecting clients. Lori Richards, director of the SEC's Office of Compliance, Inspections and Examinations, says that as many as 70% of advisors are found to use deficient disclosure materials with clients. Richards says SEC examiners will step up the frequency of audits for advisors found to have disclosure deficiencies.