February 29th, 2012 by Dan Richards, ClientInsights.ca

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“Once an acci­dent, twice a coin­ci­dence, three times a trend” is a rule of thumb among observers of polit­i­cal campaigns.

That’s why I was struck by arti­cles last week in the Globe and Mail, New York Times and the Wall Street Journal.

These arti­cles describe tur­moil among high-net worth investors  …. and have pro­found impli­ca­tions for finan­cial advisors.

Busi­ness Week

First came Busi­ness Week. A story in late June out­lined how the num­ber of afflu­ent Amer­i­cans look­ing to switch advi­sors has tripled in one year, lead­ing to a spike in investors seek­ing out sec­ond opin­ions. (Links to all of these sto­ries can be found at the bot­tom of this article.)

Many find this process excru­ci­at­ingly dif­fi­cult. “My plan­ner was a friend, a good guy …. but I had to stop the bleed­ing” said one investor who had moved. “It was almost like a breakup …. you know, I’ll take the dog, you take the sil­ver­ware.” Among the advice in the Busi­ness Week arti­cle was for investors to take any sec­ond opin­ion with a grain of salt and to work hard on the rela­tion­ship before split­ting, just as they would a marriage.

Wall Street Journal

Last Wednes­day, the Wall Street Jour­nal weighed in on how afflu­ent investors are shift­ing from Wall Street bro­ker­age firms to inde­pen­dent advi­sors using firms such as Charles Schwab, Fidelity and TD Amer­i­trade to pro­vide a back-office plat­form. The key attrac­tion behind the move: The per­cep­tion that inde­pen­dent advi­sors will be more objec­tive and more likely to put their inter­ests first.

The arti­cle talked about the fact that inde­pen­dents oper­at­ing as Reg­is­tered Inde­pen­dent Advi­sors are held to a “fidu­ciary” stan­dard in the advice they pro­vide, in which they are oblig­ated to oper­ate in clients’ best inter­ests; this is a higher level than bro­kers at Wall Street firms, who are guided by “suit­abil­ity rules” in which they are merely pro­hib­ited from rec­om­mend­ing inap­pro­pri­ate prod­ucts.  (The Obama admin­is­tra­tion has made noises about extend­ing the fidu­ciary stan­dard to all finan­cial advisors.)

Just as in Canada, Amer­i­can investors strug­gle with the “Who Can I Trust?” ques­tion, plagued by the lack of con­sis­tent reg­u­la­tory over­sight and the same alpha­bet soup of cre­den­tials we have here. A sign of the times, the article’s clos­ing piece of advice urged investors look­ing to move to hone in on poten­tial con­flicts of interest.

Globe and Mail

On Thurs­day, the Globe and Mail gave this a Cana­dian spin. In a front-page story in the Report on Busi­ness, it detailed how wealthy Cana­di­ans are rethink­ing rela­tion­ships that have some­times been decades in the mak­ing. It talked about the scrutiny that once-passive investors are bring­ing to the invest­ment philoso­phies guid­ing their port­fo­lios, the fees they’re pay­ing and com­mu­ni­ca­tion from their advi­sor. And it also pin­pointed the dra­matic spike in aggres­sive mar­ket­ing to high net worth clients by other advi­sors seek­ing their business.

New York Times

And on Fri­day of last week, the New York Times focused on a Price­wa­ter­house Coop­ers sur­vey of 238 pri­vate banks and wealth man­agers serv­ing clients with assets of $500,000 to $20 mil­lion.  The study high­lighted a huge gap in the train­ing, skills and tools that client rela­tion­ship man­agers are equipped with — dri­ven in large mea­sure by the pri­or­ity these firms give to attract­ing new clients as opposed to serv­ing exist­ing ones.

One con­sul­tant quoted in the story sum­ma­rized it this way: “In the past, peo­ple were incred­i­bly loyal to their advi­sors even through peri­ods of dis­sat­is­fac­tion. Today that’s changing.”

Given the level of para­noia that dom­i­nates the psy­che of many Amer­i­can investors in today’s post Mad­off world, more impor­tant than advi­sors’ brand, per­for­mance or pedi­gree is the level of trans­parency in how they do busi­ness and how they man­age clients’ money. “Even if you think you’ve found an advi­sor you can trust, check and check again” the arti­cle concludes.

A five point response

Among the fall­out from arti­cles such as those in Busi­ness Week, the Globe and Mail, New York Times and Wall Street Jour­nal will be an increase in the num­ber of clients explor­ing their options — some investors who have been on the fence will con­clude that if oth­ers are look­ing at mov­ing, per­haps they should as well.

In some cases, dis­il­lu­sioned investors are going the dis­count bro­ker route; over the past while the self-directed chan­nel has picked up sig­nif­i­cant share in both the U.S. and Canada.

More often, clients will be mov­ing to another advi­sor. Note that investors mak­ing a move will be ask­ing tougher ques­tions than in the past. A Globe and Mail col­umn in June set out a process that investors could use in select­ing an advi­sor, includ­ing ques­tions they might ask. One advi­sor used these ques­tions to his advan­tage. You can read more about this here:

Telling your story to prospects

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​190

In light of the increas­ing media cov­er­age on investor move­ment, you have two choices: You can fume about know-nothing jour­nal­ists, ungrate­ful clients and “media whore” advi­sors seek­ing out the lime­light. Or you can accept these arti­cles as real­ity and focus on the things under your control.

Since Jan­u­ary, I’ve been run­ning work­shops that have received the best response of any­thing I’ve done in twenty years work­ing with advi­sors. Here’s a five point strat­egy you might con­sider, draw­ing on ideas from those work­shops and bring­ing together some of the things I’ve been writ­ing about over the past year.

Step One: Revisit your value

In today’s value dri­ven world, Cana­di­ans are tak­ing a hard look at the value they get from every­one with whom they do business.

Like it or not, more and more investors will be push­ing hard to under­stand how much they’re pay­ing in fees and what they’re get­ting in return . This has already started at the top of mar­ket, as Invest­ment Coun­sel­lors charg­ing as lit­tle as half a per­cent annu­ally have forced some advi­sors to change the way they oper­ate in order to com­pete. Increas­ingly, the mar­ket is cap­ping fees for mil­lion dol­lar plus clients at one and a half per­cent or less.

His­tor­i­cally, some advi­sors have pro­moted their invest­ment and asset allo­ca­tion dis­ci­pline as their key point of dif­fer­en­ti­a­tion — although for many, the last year’s events have called into ques­tion the abil­ity to define value in this fashion.

Another approach to value lies in the total wealth approach that more and more high end advi­sors are tak­ing. This was a recur­ring theme by speak­ers at last spring’s Top Advi­sor Summit.

Five take­aways for advisors

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​170

Still another exam­ple is the peace of mind and sense of con­trol that can come from a plan­ning approach, sum­ma­rized in this post from last fall:

Trans­lat­ing cri­sis into opportunity

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​107

Or per­haps you have gone the route of spe­cial­iza­tion and built expert knowl­edge in a nar­row prod­uct area or bring deep under­stand­ing and strong cre­den­tials in the needs of a defined niche market.

What­ever approach to value you offer, being able to clearly artic­u­late your value propo­si­tion and what clients get from work­ing with you will become the nec­es­sary cost of doing busi­ness going for­ward. Now’s the time to take a hard look at how you describe the value you bring.

Step Two: Start with defence.

Iden­tify your top clients, the ones most likely to be approached by com­peti­tors.   Think about when you last met and con­sider whether a meet­ing is overdue.

What hap­pens when you meet is key. In that meet­ing, you need to pro­vide per­spec­tive on what you’ve learned from the events of the past year, a point of view on where we are today and clear guid­ance on what clients should be doing going forward.

Many clients are look­ing for a depar­ture from the invest­ment approaches that failed them in the past year and have fre­quently led to dis­ap­point­ing returns over the past decade. Given that many investors are look­ing for changes from the sta­tus quo, focus on mod­i­fi­ca­tions in the strat­egy you’re rec­om­mend­ing.  Even say­ing some­thing like: “The core strat­egy we had a year ago still makes sense, but I’d like to talk about a few changes respond­ing to today’s mar­ket oppor­tu­ni­ties in invest­ment grade cor­po­rate bonds” will be well received by many clients.

If you’re advis­ing a stay the course approach, empha­size why it still makes sense and ensure clients under­stand the alter­na­tives you’ve con­sid­ered before arriv­ing at a do-nothing recommendation.

When you meet, make it a pri­or­ity to dig deep for how clients really feel and focus on hear­ing them out. A recent arti­cle out­lined five steps to an effec­tive meet­ing, with par­tic­u­lar empha­sis on get­ting clients engaged in meetings.

Five steps to high-impact meetings

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​148

Even if you haven’t con­ducted a for­mal client sur­vey, con­sider ask­ing key clients to com­plete a short report card  before the meet­ing and use that as a jump­ing off point for your conversation.

And here’s a com­fort­able way for clients to tell you how they really feel:                                                                             

Get­ting a read­ing on where you stand

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​167

Step Three: Make trust your top priority

At one time, trust was given by clients — increas­ingly today it’s earned.

Rec­og­nize that rebuild­ing client trust is your num­ber one pri­or­ity — ero­sion of trust is a can­cer that inevitably under­mines your relationship.

Research by con­sul­tant Charles Green has iden­ti­fied four dri­vers of trust  — cred­i­bil­ity, reli­a­bil­ity, inti­macy and client  focus. For strate­gies on build­ing trust, take a look at his http://​www​.trustedad​vi​sor​.com/ web­site — you can also read more about rebuild­ing trust below.

Rebuild­ing trust — today’s #1 client challenge

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​172

Step Four: Tackle per­ceived con­flicts head-on

Investors today are para­noid about con­flicts of inter­est — in many cases the pen­du­lum has swung from indif­fer­ence about con­flicts to fix­a­tion on them.

Con­sider pub­lish­ing a code of con­duct and shar­ing that with clients; this was an idea pro­filed in this post by a U.S. indus­try insider pub­lished ear­lier this year.

The case for an advi­sor code of conduct

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​153

And think about being proac­tive in embrac­ing a “fidu­ciary approach”, in which you com­mit to tak­ing the ini­tia­tive in dis­clos­ing poten­tial con­flicts and putting client inter­ests first in every­thing you do. At one time, advi­sors would have been con­cerned that talk­ing about a fidu­ciary approach would cre­ate sus­pi­cion among clients and raise con­cerns where none existed; in today’s hyper-vigilant world, we need to pre-empt the con­cerns that may be weigh­ing on clients but that they aren’t com­fort­able raising.

Step Five: Shift to offence

No mat­ter how good a job you do, today’s real­ity is that you will inevitably lose some clients.

You need to put steps in place to replace them. Start by carv­ing out a reg­u­lar time block in your sched­ule — say two ninety minute peri­ods each week, dur­ing which you focus on one prospect­ing strategy.

You could use that time to meet with pro­fes­sional advi­sors of exist­ing clients. Or sys­tem­at­i­cally reach out to peo­ple you know, offer­ing to send them the arti­cles you email clients, with the goal of increas­ing the num­ber of prospec­tive clients in your pipeline.

Alter­na­tively, you could focus on client devel­op­ment via the client sand­wich lunch ini­tia­tive out­lined in this arti­cle and free one hour webinar:

Get­ting client devel­op­ment into first gear

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​164

Free webi­nar: Build­ing a client lunch prospect­ing program

http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​180

Or you could seize on oppor­tu­ni­ties to posi­tion your­self as to the go-to resource for peo­ple who face cor­po­rate down­siz­ing; this was the topic of my August col­umn in Invest­ment Executive:

Turn­ing down­siz­ing into prospect­ing success

http://​invest​mentex​ec​u​tive​.news​pa​perdi​rect​.com/​e​p​a​p​e​r​/​v​i​e​w​e​r​.​a​spx

And don’t ignore plant­ing refer­ral seeds when meet­ing with clients. If you’re unsure about how to raise the topic of refer­rals, try this at the end of a meet­ing: “In the next twelve months, I have the capac­ity to take on 10 new clients. I have recently iden­ti­fied the pro­file of the clients I find I can help the most and work with the best — a pro­file that you fit almost exactly, by the way. I won­der if I could take two min­utes to walk you through the qual­i­ties of the clients I work with best, in case you’re talk­ing to a friend who is con­sid­er­ing mak­ing a change.”

In Sum­mary

The four arti­cles that appeared recently and oth­ers like them are a wakeup call for advi­sors. The only ques­tion is whether you answer that call or press the snooze button.

If you decide to respond, sched­ule some time in your cal­en­dar right now, per­haps along with your team or col­leagues. In that time slot, you might go through this arti­cle in detail and pick one or two areas to focus on in the period ahead, clearly defin­ing the steps you need to take in the next 30 days.

Just remem­ber:  Advi­sors are no dif­fer­ent than automak­ers or retail­ers. Those who embrace fun­da­men­tal change in response to an altered com­pet­i­tive land­scape and shift­ing cus­tomer real­ity can posi­tion them­selves for future suc­cess. Those who fail to do so risk being left in the dust.

P.S. For those who want to send this arti­cle to a team mem­ber or col­league, note that the email for­ward­ing sys­tem on the plat­form for this blog has devel­oped a glitch.

Copy and send this link instead:                                                                                                                                                           

To for­ward this arti­cle: http://​www​.strate​gicim​per​a​tives​.ca/​b​l​o​g​/​?​p​=​198

Links to articles:

Busi­ness Week — June 25 Think­ing of Switch­ing Finan­cial Planners?

Wall Street Jour­nal — July 29 WSJ​.com — Wary Investors Are Seek­ing Out Objec­tive Voices

Globe and Mail Report on Busi­ness — July 30  “Woo­ing the Wealthy” <http://​www​.globein​vestor​.com/​s​e​r​v​l​e​t​/​s​t​o​r​y​/​G​A​M​.​2​0​0​9​0​7​3​0​.​R​H​I​G​H​N​E​T​W​O​R​T​H​3​0​A​R​T​1​9​4​4​/​G​I​S​t​o​r​y​/​E​m​ail>

New York Times — Aug 1 Wealth Mat­ters:  In Search of Com­pe­tent (and Hon­est) Finan­cial Advisers

About ClientInsights.ca A breakthrough in client communication Not long ago, clients read what you sent them. Today that's changed. In the You Tube world we live in, many investors would prefer to hear from a portfolio manager directly. And instead of reading an article on tax saving or estate planning strategies, more and more Canadians would rather watch an expert discuss the topic. Clientinsights.ca was developed in response to these changes - to deliver information in the form that investors want to receive it. It provides over 150 short video interviews, each about 4 to 6 minutes - you can email them or watch a video along with clients to start a meeting. No matter how you use it, Clientinsights.ca is designed to help you take client communication to a higher level. Dan Richards Founder and CEO, Clientinsights.ca Read more from the author/contributor here.

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Tags: Affluent Americans, Brokerage Firms, Business Week Article, Charles Schwab, Financial Advisors, Globe And Mail, Globe Mail, Grain Of Salt, High Net Worth Investors, Independent Advisors, Independents, New York Times, Obama, Political Campaigns, Profound Implications, Rule Of Thumb, Second Opinion, Silverware, Wake Up Call, Wall Street Journal
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