Earlier this year I wrote a column about strategies that are overhyped to consumers. I got some great feedback and ended up writing two additional columns on the same theme.

But consumers aren’t the only ones receiving overhyped pitches. We financial planners get them too. So this month I thought I’d talk about a couple of them.

For these purposes, my definition of “overhyped” is something that gets a lot of attention but probably doesn’t have as big a positive impact as is touted—a service or business pitch that’s likely to have a negative impact, or one for which there are very few advisors who can or will attempt to execute the strategy correctly or use the product.

Services To Match Clients With Advisors

Almost every day I get hit up by outfits offering to act as matchmaker and pair me with clients. I’m sure these services have worked for some advisors, but I have yet to see any that haven’t been blasted on the message boards of the associations I belong to as a waste of time and money. A common problem is when and how much the advisor pays for the help.

Consider the programs that charge for doing little more than giving prospective clients an advisor’s contact information and vice versa. There’s little value in this. The services can’t get advisors to pay a whole lot, which means they must make money through volume, and the quality of the service tends to be poor.

I’ve seen a few services over the years that instead charge you only after your meeting with the prospect was held. To save you time, they would set up the meeting for you. This costs more and sounds a little better, but the vendor’s success is still based on volume. The schedulers clearly go out of their way to book meetings, and the quality of the service suffers accordingly. In the comments sections on these services, users complain about no-shows, or that they were set up with people who were not good fits for their practices.

The services that rely on high customer volumes also tend to give the clients’ information to multiple advisors. That means if you do not have the time or skill set (or personnel) to “work the leads” being hit up by other professionals, you are likely to end up paying for leads that aren’t a good fit. Add their low-quality matches with their high cost of marketing, and these vendors do not last long.

In a recent twist, some of these outfits ask only that you pay them if the prospective client becomes an actual one. They are legally structured as solicitors, and they drill down to ensure the fits are good. As you would expect, the fee for this service is higher than it is for those offering the other flavors. Nonetheless, we are passing.

The going rate seems to hover around 20% to 25% of your fees. You may think that’s great. The matchmaker does all the advertising and a lot of work up front to ensure a good fit. Shouldn’t those services get a significant fee for that? Yes, they should.

Our problem with the arrangement is the same one we have with the referral programs from the retail side of our custodians—they want those fees in perpetuity. Yet once we sign a new client, we’re the ones doing all the work. The client is our responsibility and we are fairly compensated for that role. We neither need nor want a solicitor involved.

Beyond that philosophical issue, the perpetual fee is unattractive for another significant reason. For years, the benchmarking studies have shown that many firms have profit margins below 25%. If your firm doesn’t have a profit margin of 25% or more, it is losing money on these deals. Even if the margins are higher, paying a 20% to 25% cut severely undermines the profitability and valuation of the organization.

First « 1 2 » Next