Thanks to vaccines and improved treatment, the Covid-19 crisis may come to an end in 2021. This would be great for all of us, but it doesn’t mean business will quickly return to pre-Covid levels.
According to the research, 2020 was not the most successful year for most financial advisors—not by a long shot. Our team has spent some time and effort critically evaluating what worked well in 2020 and comparing what worked in previous years, including those years after the financial crisis.
In our analysis, we identified a few best practices for advisors in times like these, things that will greatly help them increase their profitability. Even when they face severe conditions—for instance, when the value of their clients’ portfolios drops substantially amid diving markets and economic fallout from a pandemic lockdown—there are certain things they can do to increase their assets under management and boost revenue from non-investment financial products.
Whether you’re seeking organic growth by generating new business or inorganic growth through acquisitions, either way you have to control expenses. Once, we encountered an advisory boasting that it had generated $5 million in revenues (before admitting that its expenses were $5.2 million).
We are going to focus primarily on what it takes to grow the top line. We’re presuming that if you can manage your expenses, your revenues and profitability can soar.
Organic Growth
There are two ways to generate more assets under management. One involves delivering more value to existing clients. As you work with wealthier clients, for example, you are increasingly unlikely to see them put all their investable assets under your purview. But there are proven methodologies that will help you bring over more of these assets. Those financial advisors who offer products and services besides investment management can deliver that expertise to more clients and see more revenues—and usually more profits.
It’s easier to deliver more value to your current clients, because, after all, you can more easily connect with them. That means they offer the easiest way to significantly increase profits. Nevertheless, most financial advisors fail to find ways they can offer more help to those current clients. They don’t even make a concerted attempt to find out.
If you think you might be one of those advisors, ask yourself these questions:
• How many of your clients have special needs or problem children?
• How many of your business owner clients are looking for effective ways to substantially reduce their income taxes?
• How many of your wealthier clients are interested in not paying any taxes on any appreciation in their investment portfolios?
It’s very likely you have clients like these. If so, there are opportunities for you to deliver greater value to them and thus increase your AUM.
New clients are also essential if you want to significantly increase your profits. And the most common way to get them is through referrals from those who are already satisfied clients. But how do you do that? When somebody asks one of your clients for a referral, your client has to remember you and make an introduction, and often these introductions are weak.
Ask yourself these questions:
• How many client referrals are you getting from the top 20% of your clientele?
• What steps are you taking to help these clients make referrals to other investors?
• If you are taking steps, how well is it going?
We find that most financial advisors are not tracking new client referrals. Furthermore, relatively few of them are being proactive. When they are, they’re often not sure about the efficacy of their approaches, and in the end, very few financial advisors are getting the number of qualified client referrals they likely could.
It’s important to get those satisfied clients to act as your advocates.
For a smaller percentage of financial advisors, new clients come from other professionals such as accountants and attorneys. These referrals tend to produce much wealthier clients.