Remember the story of Rip Van Winkle? This Washington Irving story, written in 1819 is about a guy who fell asleep and woke up in the future. If this sounds too college-like and academic for you, how about Austin Powers, International Man of Mystery (1997)? Doctor Evil returns after being frozen for 30 years, learning holding the world for a ransom of $1,000,000 gets him laughed at, so he later changes it to $100,000,000. In both cases characters learn lifestyles and values have changed. This leads to a lesson for advisors today.
Suppose you, a financial advisor, were cryogenically frozen like Walt Disney was once claimed to be, and you woke up in the financial services world of 2024. What would you see? The DJIA stocks have changed a lot! The markets are at unbelievable highs. Someone invented cryptocurrencies. People are trading stocks on their phones and talking about commission-free trading. Oh—they are getting excited about 5% yields. What a change from the way business was done in the 1970s and the 1980s.
Suppose you liked the value from the days before you were quick frozen and wanted to continue doing business that way in today’s world? How would you go about positioning yourself?
Let us start with how you did business. What was the old-fashioned way? You met with clients and completed a financial plan. This led to a series of investment objectives and a proposal to help the clients get there. The clients fit into a risk tolerance category aligned to an asset allocation. The advisor recommends investments, often individual stocks, bonds or packaged products, then meets with the clients periodically to monitor performance and rebalance. As trust develops, the clients bring in more money and do additional business in areas like insurance and lending products. The advisor earns money from trailing fees and transaction costs.
How would the advisor position the “old-fashioned” way of doing business in today’s world?
1. The client would have a face-to-face, in-person relationship with a real advisor. The client and the old-fashioned advisor might meet in person only once, but that would be the client’s choice. They would know this advisor was committed to a long-term relationship.
2. The advisor would have fewer clients than expected. Some people might think technology allows advisors to have 10,000 client relationships. This large clientele would be managed through client relationship management (CRM) systems, preprepared texts and prompts that would be sent out automatically. The old-fashioned advisor would have 250 or less clients. The logic of 250 is that is about the number of production days in a year. The advisor could spend one day a year servicing each account relationship. If a day was 8:00 a.m. to 6:00 p.m.—10 hours— spread across a year, that is a lot of face-to-face meetings and phone calls.
3. The client relationship would expand up and down the family tree. The advisor would go for quality, not quantity, growing their book of business to include the past and future generations. If allowed, the advisor becomes a member of the extended family, attending holiday events and remembering to send greeting cards. The financial advisor transitions into the role of family advisor.
4. The client would get periodic reviews. These would be done face to face, in person, assuming the majority of clients lived nearby. If clients retired to Florida, it would not be unusual for the advisor to fly to Florida and spend a week driving from client to client, conducting at least annual reviews. Although the daily aspects of the relationship might be via phone or other medium, there would be at least one in-person meeting annually.
5. The advisor would be accountable. The purpose of the face-to-face meeting would be to update the client on progress to goals and how each individual position fared since the last review. The advisor is standing behind their recommendations, admitting if some did not work out while others did. This is different from a modern model where it is assumed the client bears all the responsibility, even if they don’t know it.
6. The portfolio would include individual stocks. It is easy to make the case that index funds are all a client needs to participate in the stock market. Before industry professionals were known as financial advisors, they were called stockbrokers. Many investors associate being “in the market” with owning individual stocks. They want the feeling of getting in on the “ground floor” of a new trend or idea. The “old-fashioned” advisor would make stock recommendations and advise clients concerning ideas they initiate.
7. The advisor’s firm would have an in-house research department. Research would not be outsourced. The firm would have research analysts and strategies on the ground in major world markets. The analysts would visit the companies they follow in person and ask the tough questions. The advisor would offer advice based on the firm’s proprietary research.
8. The advisor would plainly explain the risks involved. There is no free lunch. There are no sure things. Free advice is often biased advice. The old-fashioned advisor would introduce new ideas to their client, explaining the benefits of diversification. They would also focus on “what can go wrong” so the client embraces new ideas with their eyes open.
9. There would be favorable pricing. The old-fashioned advisor would discount fees and commissions. This is often based on friendship, loyalty or the amount of assets in the account relationship. The advisor would seek out benefits for the client, like a more favorable mortgage interest rate because they are an investment client. The client would feel they are getting value for money.
10. The advisor would seek to educate the client. The old-fashioned advisor would explain “commission-free trading” simply means the company is making money another way. They would understand if a client chose to do some business elsewhere, but their eyes would be wide open. They would also explain each investment in detail, including what needs to happen for the investment to work out.
11. The advisor would be available. If the stock market took a tumble, clients want to hear their advisor’s voice for many reasons. They might want answers or reassurance. They rationalize they are paying fees, so they should have access to their advisor, often on demand. The old-fashioned advisor would call every client back, even if they had to work long into the night at home to return all those calls.
12. The advisor would be proactive. Some investors are happy if they can get someone on the phone when they have a question. The old-fashioned advisor is constantly in touch with clients. If the market goes down sharply, they know who needs the most reassurance. Clients feel they are a person, not a number. The old-fashioned advisor is calling, sometimes with suggestions about what to buy, when others are selling.
13. The advisor would help friends in need. This translates into referral business, but not always. If a client has a friend who needs help, the old-fashioned advisor does not pick and choose. They will listen and give advice, even if on a pro-bono basis. In return, the client keeps their ears open, seeking out people who might need help, referring them to the advisor.
14. The advisory relationship is based on trust and transparency. Both parties seek a long-term relationship. Both recognize advice, experience and expertise have value. The long-term aspect of the relationship builds trust and grows the relationship. The old-fashioned advisor always explains: “This is what this investment costs and this is how we make money.” The client is OK with that.
There are people who seek transactional relationships, like finding the cheapest place to buy gas when they need it. There are others seeking a long-term relationship, recognizing they are paying more sometimes, yet the relationship will pay off in different ways in the future.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.