Making Mutual Funds Perform in Your Portfolios (Livingston)

Thursday, April 4th, 2013

Mak­ing Mutual Funds Per­form in Your Portfolios

By Brian Liv­ingston, Vice Pres­i­dent, SIA​Funds​.com

Whether you are an IIROC or an MFDA advi­sor, you are most likely hold­ing mutual funds in your client’s port­fo­lio. Some of you focus heav­ily on Mutual Funds in your prac­tice while oth­ers sim­ply receive them as legacy funds when they assume a new client’s port­fo­lio. Accord­ing to research from the Invest­ment Funds Insti­tute of Canada, there was almost $850 bil­lion invested in Cana­dian Mutual Funds as of Decem­ber 2012, which was a 10.4% increase from Decem­ber of 2011. In other terms, mutual funds and mutual fund wraps now account for about 30% of Cana­di­ans’ finan­cial wealth. No mat­ter what your expo­sure is to the indus­try, know­ing how to prop­erly han­dle your client’s Mutual Fund port­fo­lio can assist in the value added propo­si­tion that you need to present to your cur­rent and poten­tial new clients to help grow assets in your book of business.

In order to really grow your book as effi­ciently as pos­si­ble, you need to be spend­ing the major­ity of your time in client fac­ing activ­i­ties. So, if we want to con­tinue on with this busi­ness effi­ciency, how do we find the time to do research and make sure your clients are get­ting into the best mutual funds? If advi­sors are hon­est with them­selves, they usu­ally do their ini­tial due dili­gence and find out the risk pro­file of the client and then place them into some funds based on their risk pro­file but not nec­es­sar­ily based on mar­ket con­di­tions or per­for­mance. Advi­sors then lock them­selves into this men­tal­ity that those funds will suf­fice in all mar­ket con­di­tions because they have them “diver­si­fied” with every­one end­ing up in sim­i­lar funds. This method unfor­tu­nately fails to address chang­ing mar­ket con­di­tions, not to men­tion the fact that the funds they may be choos­ing could be under­per­form­ing rel­a­tive to their peer group.

I was speak­ing with a mutual fund whole­saler recently who told me that his aver­age client is work­ing with approx­i­mately 25 dif­fer­ent fund fam­i­lies, but not nec­es­sar­ily by choice. Often, an advi­sor will receive a port­fo­lio from a new client and they include funds from a com­pany that the advi­sor is not famil­iar with. But if the advi­sor moves the funds to a com­pany they are famil­iar with, the client may end up hav­ing to pay a sub­stan­tial penalty. So, how do we solve the var­i­ous issues that advi­sors have with Mutual Funds? Whether it is being over­whelmed with thou­sands of choices, unfa­mil­iar­ity with a com­pany out­side of our nor­mal core group, mov­ing the clients into dif­fer­ent prod­ucts based on mar­ket con­di­tions, or find­ing the funds that are per­form­ing well right now, we need a solu­tion to help answer these problems.

The good news is that there is a Cana­dian invest­ment tool to help you answer these prob­lems, save you valu­able time from doing research, and help you pick the best mutual funds for the future chang­ing mar­ket conditions.

SIA​Funds​.com was cre­ated to answer all of these issues and more. SIA­Funds cur­rently takes 35 of the largest fund com­pa­nies in Canada and ranks the funds using rel­a­tive strength tech­nol­ogy from each com­pany on a nightly basis from strongest to weak­est to help you nar­row down your invest­ment choices. You can pick and choose the fund com­pa­nies that you want, so you only work with fund com­pa­nies that are rel­e­vant to your busi­ness. SIA­Funds also helps with Asset Allo­ca­tion rota­tion, Mutual Fund sec­tor rota­tion (see screen­shot below), and com­bined with their pro­pri­etary Equity Action Call tool, SIA has helped their clients avoid mar­ket dis­as­ters like back in 2008.

Mutual Funds have kind of got­ten a bad rap over the last while, as they carry a much higher MER than ETF’s do. But, with a well-managed port­fo­lio of mutual funds, advi­sors using SIA­Funds have been able to suc­cess­fully out­per­form the bench­marks and lower their draw­down risk while reduc­ing their time spent on analy­sis. The chart below shows the per­for­mance of the mutual fund com­pa­nies SIA­Funds cur­rently ranks, using a quar­terly real­lo­ca­tion process.

*Data was cal­cu­lated as of the close of March 31, 2013. Num­bers above reflect the out­per­for­mance as com­pared to the TSX Com­pos­ite benchmark.

As you can see, the 5-year num­bers show that 97% of the fund com­pa­nies SIA cov­ered out­per­formed the TSX Com­pos­ite bench­mark and this includes stay­ing fully invested in funds back in 2008, even though the Equity Action Call and the Asset Allo­ca­tion model had our clients in cash back then.

With over three quar­ters of a tril­lion dol­lars invested in mutual funds in Canada, you need to be able to sit down with a poten­tial new client, look at their funds and explain to them that you have a defined process to be able to help them through var­i­ous mar­ket con­di­tions and a clear selec­tion process going for­ward for their funds. SIA­Funds can help sep­a­rate you from the herd, help you gather new assets, and help your cur­rent clients meet their invest­ment goals. SIA​Funds​.com offers a free one-week trial to their ser­vice, so try it out for FREE and start redefin­ing your invest­ment process today.

Copy­right © SIA​Funds​.com

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Tags: Assets, Best Mutual Funds, Brian Livingston, Business Efficiency, Canadian Mutual Funds, Canadians, Current, Focus, Initial Due Diligence, Investment Funds Institute, Investment Funds Institute Of Canada, Legacy, Mentality, Mutual Fund Portfolio, Peer Group, Portfolios, Risk Profile, Value Added, Vice President, Wholesaler
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The Choices That Predict Future Performance

Thursday, December 20th, 2012

by Dan Richards, Cli​entIn​sights​.ca

In the Oscar win­ning film Mon­ey­ball, base­ball Gen­eral Man­ager Billy Beane (played by Brad Pitt) chal­lenged con­ven­tional wis­dom by tak­ing a data dri­ven approach to acquir­ing play­ers for the Oak­land As. Cen­tral to his suc­cess was employ­ing sta­tis­ti­cal analy­sis to iden­tify the fac­tors that con­tribute to win­ning teams and the play­ers whose value was under­rated based on those fac­tors, replac­ing intuition.

Recently, Toronto soft­ware firm PriceMetrix released a report Mon­ey­ball for Advi­sors. Using its detailed data­base of per­for­mance by 35,000 advi­sors at a cross sec­tion of Cana­dian and US firms, PriceMetrix first looked at pro­duc­tion in 2006 for advi­sors who’d been in the busi­ness for between 5 and 20 years. It then looked at pro­duc­tion in 2011 for these same advi­sors – with a view to iden­ti­fy­ing advi­sors’ behav­iour in 2006 that pre­dicted pro­duc­tion five years later.

Designed as a resource for head offices when recruit­ing advi­sors at com­pet­ing firms, the report is also use­ful for advi­sors look­ing to max­i­mize their future pro­duc­tion. PriceMetrix looked at dozens of vari­ables, before hom­ing in on three that cor­re­lated with future production:

1.The source of revenue

It’s no sur­prise that pro­duc­tion in 2006 was strongly cor­re­lated with pro­duc­tion five years later, but PriceMetrix found that when it came to pre­dict­ing future pro­duc­tion, all income was not equal. Of the three forms of income – trans­ac­tional, trailer and fee-based – fee rev­enue was far and away the most pre­dic­tive of pro­duc­tion in 2011.

2.The pro­file of client households

The sec­ond fac­tor that pre­dicted future pro­duc­tion was the com­po­si­tion of books and the num­ber of large vs small house­holds. You could have two advi­sors with the same level of pro­duc­tion but dif­fer­ent house­hold com­po­si­tion led to sig­nif­i­cantly dif­fer­ent lev­els of future pro­duc­tion. An above-average num­ber of larger house­holds (those with assets over $250,000) led to higher future pro­duc­tion, an over­weight of smaller house­holds with assets under $250,000 led to lower future production.

3.The depth of relationships

The final vari­able that cor­re­lated with future pro­duc­tion was the depth of client rela­tion­ships; PriceMetrix used hav­ing the client’s retire­ment account and the num­ber of accounts per house­hold as the proxy for depth of rela­tion­ships. The more fre­quently that an advi­sor held clients’ retire­ment accounts and had mul­ti­ple accounts, the greater the pro­duc­tion in five years time.

As you think about your own plans for 2013, con­sider how to fac­tor the three vari­ables of fee rev­enue, focus on larger house­holds and mul­ti­ple accounts into your pri­or­i­ties for next year. To read the full report on Mon­ey­ball for Advi­sors, go to  http://​www​.pricemetrix​.com/​m​o​n​e​y​b​a​l​l​-​f​o​r​-​a​d​v​i​s​o​rs/

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Tags: Assets, Baseball, Billy Beane, Books, Brad Pitt, Choices, Conventional Wisdom, Cross Section, Dozens, Driven Approach, Household Composition, Households, Intuition, Moneyball, Profile, Software Firm, Statistical Analysis, Surprise, Variables
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20 Minutes That Turned Into 2 Million

Wednesday, November 14th, 2012

by Dan Richards, Cli​entIn​sights​.ca

I reg­u­larly hear from advi­sors who’ve imple­mented an idea they’ve read in my newslet­ter or heard at one of my talks and want to share their results.

But I’ve sel­dom heard of an out­come as dra­matic and imme­di­ate as the one obtained by an advi­sor who trans­lated an invest­ment of 20 min­utes into $2 mil­lion in new assets.

Focus­ing on your top clients

The con­cept that I dis­cussed at that talk was dead sim­ple:  All advi­sors know they should pay spe­cial atten­tion to your top clients. The chal­lenge is how to do this.

One solu­tion is to learn from sophis­ti­cated sales orga­ni­za­tions like IBM. If you’re the account man­ager for IBM with respon­si­bil­ity for a major bank, you’ll spend two months each year prepar­ing a com­pre­hen­sive, 200 page plan out­lin­ing how you’ve going to max­i­mize oppor­tu­nity with that customer.

Of course, advi­sors shouldn’t spend two months prepar­ing a 200 page plan for even the largest and most impor­tant client. But in my talk I did pro­pose that for their top 10 to 20 clients, advi­sors invest 20 to 30 min­utes to pre­pare a four page plan. And then I walked the audi­ence through a four-page Client Oppor­tu­nity Tem­plate, show­ing them what that plan might look like.

Iden­ti­fy­ing key opportunities

The first three pages of the tem­plate con­tain 13 cat­e­gories of infor­ma­tion on the client, from unmet needs and hot but­tons to con­tact pref­er­ences and their net­work of fam­ily mem­bers, close asso­ciates and pro­fes­sional advi­sors. This is intended to sum­ma­rize all of the rel­e­vant infor­ma­tion about key clients together in one place.

The fourth page is where the focus shifts to action. On this page, advi­sors answer five ques­tions about this top client:

1.       Key issues / prob­lems / chal­lenges in deal­ing with this client

2.       Key oppor­tu­ni­ties to add value to the client’s sit­u­a­tion – how to drive their agenda

3.       Key busi­ness oppor­tu­ni­ties with this client – how to drive your agenda

4.       Top three pri­or­i­ties and goals with this client in the next 12 months

5.       Planned activ­i­ties to achieve these goals

Cre­at­ing an action plan

After return­ing from the con­fer­ence where I spoke, the advi­sor – let’s call him Jon — sat down with his two assis­tants and walked them through the Client Oppor­tu­nity Tem­plate. They agreed to sched­ule two Fri­day sand­wich lunches, book­ing two hours to estab­lish action plans for their top 10 clients.

They set aside 20 to 30 min­utes to develop the Client Oppor­tu­nity Tem­plate for each key client; to use their time more effi­ciently, prior to the meet­ing one of Jon’s assis­tants par­tially com­pleted each tem­plate with as much infor­ma­tion as she had available.

One of the first tem­plates they com­pleted was for Jon’s largest client, Bob, who owns a num­ber of suc­cess­ful fast food fran­chises and has accounts with sev­eral dif­fer­ent advisors.

In 20 min­utes, Jon and his assis­tants com­pleted the back­ground on Bob and iden­ti­fied key goals and actions for 2012. Here’s what the action plan with Bob looked like:

1.Key issues / prob­lems / chal­lenges in deal­ing with this client (if any)

The rela­tion­ship while good could be deeper; at times, Jon feels that he’s viewed as a sup­plier rather than a trusted partner.

2.Key oppor­tu­ni­ties to add value to the client’s sit­u­a­tion – how to drive Bob’s agenda

The mul­ti­ple accounts mean that it can be chal­leng­ing for Bob and his accoun­tant to keep track of where they stand over­all.  As well, because there’s no-one coor­di­nat­ing the over­all invest­ment strat­egy, there is over­lap in some posi­tions and the accounts are not always man­aged in the most tax effec­tive fashion.

3.Key busi­ness oppor­tu­ni­ties with this client – how to drive Jon’s agenda

Jon and his assis­tants agreed that their biggest near term busi­ness oppor­tu­nity was to become Bob’s prin­ci­pal advi­sor and to con­sol­i­date some of the accounts held elsewhere.

4.Top three pri­or­i­ties with this client in the next 12 months

a.      Help Bob bet­ter mon­i­tor total per­for­mance of portfolio

b.      Help Bob and his accoun­tant improve port­fo­lio effi­ciency and after-tax returns

c.      Increase Jon’s share of Bob’s assets

Mak­ing a plan happen

At this point, Jon had a clear sense of what he wanted to achieve. He then iden­ti­fied three things to make this happen.

First, in a meet­ing in Jan­u­ary, he offered to have his assis­tant Mary each month com­pile con­sol­i­dated per­for­mance of all of his accounts. Start­ing in Feb­ru­ary, a week after each month-end, Mary con­tacted Bob’s accoun­tant to get all of his state­ments, then cre­ated an excel spread­sheet to track month-over-month per­for­mance and any port­fo­lio changes; this was sent to Bob and his accoun­tant within three days.

Sec­ond, Jon sought out oppor­tu­ni­ties to get to know Bob bet­ter. He dis­cov­ered that the local busi­ness school from which Jon grad­u­ated hosts an ongo­ing break­fast and lunch speaker series with suc­cess­ful busi­ness lead­ers. One of those was a pre­sen­ta­tion by the chief mar­ket­ing offi­cer of a fast food chain that is a key com­peti­tor of the fran­chises that Bob runs. When Jon invited Bob to this talk, Bob changed a pre­vi­ous com­mit­ment to attend – and asked if it would be pos­si­ble to invite two of his fel­low fran­chise hold­ers.  The ses­sion took place at 5 pm and cost $25 – Jon invited Bob and his fel­low fran­chise hold­ers to din­ner after­wards to talk about what they heard. When he offered to pay, Bob would have none of it and insisted on pick­ing up the bill.

Finally, in June Jon arranged a meet­ing with Bob and his accoun­tant to talk about dupli­ca­tion and over­lap in the hold­ings in Bob’s accounts. He pointed to some areas where there was an obvi­ous oppor­tu­nity to make improve­ments, and offered to help coor­di­nate and quar­ter­back Bob’s investments.

They agreed to meet again in a week’s time; at that meet­ing, Bob told Jon that he’d decided to stream­line the num­ber of advi­sors he was going to work with going for­ward, and would be trans­fer­ring $2 mil­lion in new assets to Jon as a result.

Not all sto­ries will have an end­ing as happy as this one – but Jon’s expe­ri­ence is a dra­matic demon­stra­tion of the ben­e­fits of focused, tar­geted and well thought through activ­ity directed to your top clients.

If you’d like to get a copy of the four-page Client Oppor­tu­nity Tem­plate, send me an email at admin@clientinsights.ca.  Once you receive the tem­plate, amend to fit your prac­tice and how you work. The goal here is quite sim­ple – to develop the right for­mat for you in order to focus activ­ity on your top 20 clients – who knows, your story may have the same happy end­ing as Jon’s.

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Tags: 30 Minutes, Assets, Audience, Business Opportunities, Client Opportunity, Close Associates, Course Advisors, Family Members, Hot Buttons, Invest, Investment, Key Business, Problems Challenges, Professional Advisors, Sales Organizations, Unmet Needs
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A Conversation that Tripled Referrals

Wednesday, June 27th, 2012

Last Sep­tem­ber, a vet­eran advi­sor con­tacted his retired clients with the sug­ges­tion that they meet. The meet­ing had one sim­ple goal; to lay out detailed monthly cash flow fore­casts for the period ahead match­ing funds com­ing in with cash going out.

The response was way beyond this advisor’s expec­ta­tions. Clients who he’d had dif­fi­culty get­ting into his office sud­denly made meet­ing him a pri­or­ity. The response after­wards was gen­er­ally relief. Even clients who had absolutely no con­cerns about cash flow expressed appre­ci­a­tion for his time and the peace of mind they felt as a result.

The good news was that most clients were fine although there were a few cases where income didn’t cover expenses. In those instances, he talked about the two alter­na­tives; to cur­tail spend­ing or real­lo­cate some of their port­fo­lio into invest­ments which threw off more income. In one case, he agreed with a client that they would tem­porar­ily eat into cap­i­tal with the pro­viso that they would revisit this in a year’s times.

At the end of each meet­ing he asked clients whether they’d felt it was time well spent. With­out excep­tion they said it was; retired cou­ples were espe­cially effu­sive. A num­ber said they’d each been wor­ry­ing about this but hadn’t known how to bring it up. Another client with assets of $5 mil­lion said that he’d been uncer­tain as to whether he could afford to offer to cover uni­ver­sity tuition for his three grandchildren.

After hear­ing clients out this advi­sor men­tioned that should they have fam­ily or friends in cir­cum­stances sim­i­lar to theirs who might be inter­ested in going through a sim­i­lar process, he would be happy to meet with them also. He sug­gested that either their friends could call his assis­tant to book a meet­ing or if his clients called her with their friends’ name and phone num­ber, she would con­tact them directly.

He started get­ting calls right away as clients talked to friends about the expe­ri­ence. He saw a par­tic­u­lar bump in calls in early Jan­u­ary as his clients got together with friends and fam­ily dur­ing the hol­i­day season.

Tap­ping into hot buttons

Why was the response to these meet­ings so positive?

I’ve writ­ten in the past about the need to focus on client hot but­tons. Many peo­ple in retire­ment have always wor­ried about their finances. His­tor­i­cally, under spend­ing has been a big­ger prob­lem than over­spend­ing (although it remains to be seen if this con­tin­ues to be the case as boomers enter retire­ment, with their “I want it all and I want it now” mind­set.)

With all the uncer­tainty about the econ­omy and stock mar­kets it’s under­stand­able that clients worry; and par­tic­u­larly retired clients. The rea­son that this worked was quite sim­ply that it addressed a pre­oc­cu­pa­tion and con­cern for many retired clients, whether war­ranted or not. Quite sim­ply, it gave them cer­tainty, and clients love cer­tainty, espe­cially those get­ting on in years.

The exer­cise achieved two other things as well.

First, it pro­vided con­text for dis­cre­tionary deci­sions. In prepar­ing cash flow fore­casts, it pro­vided a frame­work within which to make deci­sions on large items; buy­ing a new car, the kind of hol­i­day to take, giv­ing gifts to char­ity or to chil­dren and grandchildren.

And sec­ond, it con­sol­i­dated every­thing into one place, both income as well as expenses. The advi­sor asked clients to bring in their last year’s tax return as well as state­ments for any invest­ment accounts out­side of his firm. By putting every­thing onto one piece of paper, it clar­i­fied exactly where they stood, and in some cases opened this advisor’s eyes to accounts that clients held elsewhere.

As this advi­sor put it, ”There were two lessons for me from this experience.”

“First, see­ing how much clients with­out a clear cash flow fore­cast were wor­ry­ing; even those who had noth­ing to worry about.”

“And sec­ond, dis­cov­er­ing how much some clients where I was pos­i­tive I had all their money held else­where. There were a few Holy S… moments that emerged from this exercise.”

Mak­ing this happen

Like many advi­sors, this advi­sor had his­tor­i­cally shied away from focus­ing on client spend­ing. While he had pro­vided cash flow fore­casts to clients in the past show­ing income from div­i­dends and inter­est pay­ments, get­ting into con­ver­sa­tions about expenses was a new expe­ri­ence for him.

He started by pulling down one of the many bud­get­ing forms avail­able online. As a point of ref­er­ence for some clients who weren’t sure where to start, he used the 2009 Sta­tis­tics Canada sur­vey of house­hold spend­ing of Cana­dian house­holds available.

http://​www40​.stat​can​.ca/​l​0​1​/​c​s​t​0​1​/​f​a​m​i​l​1​6​a​-​e​n​g​.​htm

Where clients asked for the bud­get doc­u­ments before­hand, he sent them out in advance of the meet­ing. More often, he asked clients to bring their bank and credit card state­ments along to refer to if needed, and he worked through the bud­get along with his clients. Once he’d done about ten of these, he began com­pil­ing aver­ages of his own that he used to give retired clients some per­spec­tive about their spend­ing habits com­pared to other retired clients.

Some­thing else that this advi­sor learned was to book longer ses­sions for those meet­ings. Ini­tially, he sched­uled nor­mal one hour meet­ings, but after a cou­ple of ses­sions in which cou­ples had lengthy con­ver­sa­tions about some line items, he moved to a two hour time block. Towards the end, for his smaller clients he had his assis­tant do the ini­tial work to for­mu­late their spend­ing, join­ing in for the lat­ter part of the meeting.

I fully rec­og­nize that get­ting into the details of client spend­ing is not every advisor’s cup of tea. That said, I would point out that this truly does rep­re­sent an oppor­tu­nity to cre­ate peace of mind and to add value for your retired clients; and fur­ther, that if you don’t make this offer, there is always the risk that another advi­sor will.

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Your Clients Don’t Like “Fee-Based”

Wednesday, April 18th, 2012

by Stephen Wershing

Advi­sors who don’t seek client feed­back don’t know what their clients want, they know what the advi­sor thinks they should want.

We all know that fidu­ciary is bet­ter than bro­ker, and so nat­u­rally our clients would give us refer­rals because we are fee-based and not commission-based, right? Of course. And that’s why it’s a great idea to attract clients by talk­ing about how we charge fees.

Well, that makes a lot of sense to most of us because we tend to talk about our mar­ket­ing with other peo­ple in the indus­try and not with our clients and prospec­tive clients. As it turns out, clients don’t like fees and they don’t like to be reminded of those fees. So, when Sul­li­van and North­star sur­veyed investors on their reac­tions to dif­fer­ent words we use in our mar­ket­ing, for the 2012 update in their “Rebuild­ing Investor Trust” series, they found that 64% of respon­dents had a neg­a­tive reac­tion to the phrase “fee-based.”

Since fidu­ciary is clearly bet­ter for clients, you might also be sur­prised to learn that in a sur­vey done last year by Cerulli Asso­ciates, about 47% of 7800 house­holds sur­veyed pre­ferred pay­ing com­mis­sions com­pared with 27% that would rather pay a fee based on assets.

Of course, if you had asked your client advi­sory board to eval­u­ate your mar­ket­ing you prob­a­bly would have heard about this already. Who bet­ter than your best clients to help you under­stand the most impor­tant mes­sages to com­mu­ni­cate in your mar­ket­ing? This is the group with the clear­est idea of what is most valu­able about what you do, and their lan­guage for describ­ing it prob­a­bly dif­fers from yours. It is pos­si­ble that your clients con­sider the fact that you are “fee-based” to be one of the more impor­tant things that dis­tin­guish you from other advi­sors, but I sus­pect they will talk more about what you do for them rather than how they pay you.

One of the biggest mis­takes we make in mar­ket­ing our prac­tices is to dream up what we will pro­mote and what we will empha­size with­out input of the peo­ple we are hop­ing to attract. Engage your clients in an ongo­ing con­ver­sa­tion about your value, and you will find you have a much clearer idea of what to say to attract more clients like them. And you can work together to develop what they can say to other peo­ple to get you refer­rals.

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Tags: Advisory Board, Assets, Cerulli Associates, Client Feedback, Commissions, Households, Important Things, Investor, Investors, Marketing, Nbsp, Northstar, Phrase, Prospective Clients, Referrals, Respondents
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How being an “additional advisor” can help win HNW clients

Wednesday, March 14th, 2012

How being an “addi­tional advi­sor” can attract HNW clients

When it comes to win­ning new clients, his­tor­i­cally most advi­sors have thought in terms of per­suad­ing prospects of the need to replace their exist­ing advisors.

New research from the United States sug­gests that in today’s envi­ron­ment, an eas­ier course of action might be to per­suade those prospects that they should sup­ple­ment the advi­sor or advi­sors they are cur­rently work­ing with. This is espe­cially the case if you’re work­ing at the top of the mar­ket, with high net worth investors with mil­lions of dollars.

The trend to mul­ti­ple advisors

An August report from Boston based Cerulli Asso­ciates indi­cated that about a quar­ter of Amer­i­can house­holds who seek finan­cial advice use mul­ti­ple advi­sors. For house­holds with assets of $2 mil­lion to $5 mil­lion, the per­cent­age with mul­ti­ple advi­sors is 33%. Of investors with assets over $5 mil­lion, 58% have mul­ti­ple advisors.

One Cerulli ana­lyst said: “Investors are tak­ing the idea of diver­si­fi­ca­tion one step fur­ther and diver­si­fy­ing across firms and across advisors.”

The drive for mul­ti­ple sources of advice has been dri­ven by the finan­cial cri­sis of the past three years. As Cerulli ‘s ana­lyst put it: “Today, fear is out­weigh­ing con­ve­nience.” With that trend to mul­ti­ple advi­sors, there is an increased push for quan­ti­ta­tive mea­sures of per­for­mance as well as a greater inter­est in under­stand­ing an advisor’s cre­den­tials, qual­i­fi­ca­tions and knowl­edge level.

As a result of this shift, many advi­sors over­es­ti­mate the extent to which they are a client’s pri­mary advi­sor. When Cerulli sur­veyed advi­sors about a cross sec­tion of their clients, advi­sors indi­cated that they were the pri­mary advi­sor 73% of the time; when those same clients were asked the ques­tion only 34% said that advi­sor filled this roll

Impli­ca­tions for action

There are some imme­di­ate impli­ca­tions from this trend, as well as some down the road.

When it comes to exist­ing top clients, don’t assume you’re the pri­mary or only advi­sor. Con­sider open­ing a dia­logue about how things are going and also about whether they may have begun work­ing with another advi­sor you’re not aware of.

With prospec­tive clients, some advi­sors have his­tor­i­cally had an “all or noth­ing” stance when it came to a client’s invest­ments; a posi­tion that you might want to recon­sider for the moment at least. You also need to rethink your con­ver­sa­tions with prospects, posi­tion­ing your­self as a sup­ple­ment rather than a replace­ment. Finally, con­sider relax­ing your account min­i­mums; one advi­sor tells prospec­tive clients that his nor­mal min­i­mum is $1 mil­lion, but that he’s will­ing to drop this to $250,000 for the first twelve months that he works with new clients, so they get to know him before mak­ing that big a commitment.

Finally, posi­tion your­self for the point in time when the pen­du­lum shifts and con­ve­nience becomes more impor­tant than fear, lead­ing to recon­sol­i­da­tion of advi­sors. Sug­gest to clients with mul­ti­ple advi­sors that you’ll pro­vide a monthly or quar­terly sum­mary of all their invest­ments; what you man­age as well as what they hold else­where. The oppor­tu­nity to iden­tify inef­fi­cient and over­lap­ping hold­ings could help posi­tion you to be among the win­ners when that recon­sol­i­da­tion occurs. Iif you don’t make this offer, the risk is that another of your client’s advi­sors will.

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Tags: 5 Million, American Households, Assets, Boston, Cerulli Associates, Convenience, Credentials, Cross Section, Diversification, Environment, Extent, Financial Advice, Financial Crisis, High Net Worth Investors, Knowledge Level, Prospects, Quantitative Measures, United States
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Firing Clients

Thursday, February 9th, 2012

Do you know how some­times there are things that drive you absolutely crazy and you just have to make your opin­ion heard?

Here’s one that is at the top of my list – “Fir­ing” clients.

If you have fol­lowed my blog or have heard me speak at a con­fer­ence, you know that I believe in client seg­men­ta­tion.  In fact, I am one of the first busi­ness coaches or con­sul­tants to do seg­men­ta­tion with advi­sors.  When I started this busi­ness in 1998, seg­men­ta­tion was a big part of my busi­ness.  Clients used to send me sheets of paper con­tain­ing a list of clients, assets and rev­enue and we would scan and con­vert these lists to an Excel file and sort them into A, B, C and D categories.

In 1985 when I was an advi­sor, our National Sales Man­ager did a pre­sen­ta­tion on seg­men­ta­tion and I sorted by client cards into books marked A, B, C and D and shifted my focus to the A and B clients and dou­bled my busi­ness over the next 12-months.

BUT, you should never “fire” a client! The growth of your busi­ness depends on the rate of sat­is­fac­tion and the size of you client, per­sonal and busi­ness net­works – the higher your sat­is­fac­tion rate, the stronger your busi­ness growth.

Your small clients have done noth­ing wrong.  You chose to work with them.  You made them a promise that you would help them with their invest­ment or finan­cial plan­ning needs.  They have paid you for the ser­vices you provided.

Today, we have a much more sophis­ti­cated way of seg­ment­ing clients.  We now call our categories:

• Super Ideal
• Ideal
• Mar­gin­ally Ideal
• Less Than Ideal

There are two types of clients who fall into the Less Than Ideal cat­e­gory – Good Peo­ple and Bad Peo­ple.  Good Peo­ple are pleas­ant to work with, prof­itable because they don’t take much time and are peo­ple who pro­mote you to their friends and col­leagues.  Bad Peo­ple are just the oppo­site – you cringe every time you see their name on call dis­play, they upset your staff, they are rude and demand­ing and they con­stantly com­plain about your fees.

If the Good Peo­ple are will­ing to accept a scaled back pro­gram and be 100% sat­is­fied, then keep them.  After all, if you can ser­vice three of this type of client in the same time as an Ideal Client and the total fees are the same, what’s the prob­lem?  If Good Peo­ple are not will­ing to accept a scaled back pro­gram, they will decide to leave and it is their deci­sion.  The ideal solu­tion, if you are in a large orga­ni­za­tion, is to pass these clients on to a new advi­sor who needs to build his client net­work.  He will find gems within this list that you will never know about because you don’t give these peo­ple suf­fi­cient attention.

Bad Peo­ple have to go.  No mat­ter what you do or how you do it, they will not be happy.  Bad Peo­ple rep­re­sent less than 3% of your clients but cause 95% of your prob­lems and stress.  Have a face-to-face meet­ing with them and explain why you are sug­gest­ing that they find a new advi­sor.  Pick up any trans­fer fees.

The Bot­tom Line:

Seg­men­ta­tion helps you to iden­tify prof­itable vs. unprof­itable clients and to struc­ture ser­vice tem­plates for each cat­e­gory to allow you man­age client-by-client profitability.

Your suc­cess depends on the level of client sat­is­fac­tion you are able to achieve.  Stage client expe­ri­ences that will lead your clients to give you a 9 or 10 score on The Ulti­mate Ques­tion – “How likely is it that you would rec­om­mend us to a friend or col­league?”  Peo­ple who score you 9 or 10, accord­ing to Fred Reich­held, a thought-leader in client loy­alty and sat­is­fac­tion and author of The Ulti­mate Ques­tion, are Pro­mot­ers.  Your goal should be to develop pro­mot­ers within your client net­work.  “Fir­ing” clients (Good Peo­ple) will take you in the oppo­site direc­tion from achiev­ing this goal.

If you “dis­en­gage” from unprof­itable rela­tion­ships, do it once in your career to free up capac­ity.  Don’t do it annu­ally as other coaches might sug­gest as it cre­ates Detrac­tors.  BUT, make it a hard and fast rule to never again accept a less than ideal client.

Bob Simp­son is Pres­i­dent of Syn­chronic­ity Per­for­mance Con­sul­tants.  Bob can be reached on his direct line at 905−502−0100, toll free at 866−646−6002 or by e-mail at bob.simpson@synchronicity.ca.

About Bob Simpson

Syn­chronic­ity Per­for­mance Con­sult­ing has been coach­ing finan­cial advi­sors since 1998.

Bob Simp­son, pres­i­dent and founder of Syn­chronic­ity has been involved, directly or indi­rectly in the finan­cial ser­vices indus­try since 1981. He has been a very suc­cess­ful finan­cial advi­sor with Nes­bitt Thom­son Inc., a major Cana­dian finan­cial insti­tu­tion. Between 1981 and 1989, he built a busi­ness with more than $120 mil­lion in assets under man­age­ment, was branch man­ager and SVP National Sales for Mid­land Wal­wyn and has been coach­ing finan­cial advi­sors since 1998.

You can fol­low Bob Simp­son via:

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Tags: 12 Months, Assets, Blog, Business Clients, Business Coaches, Business Growth, Business Networks, Client Cards, Colleagues, Financial Planning, National Sales Manager, Satisfaction Rate, Segmentation, Top Of My List
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30 Minutes to Secure Your Most Important Clients

Wednesday, January 25th, 2012

30 min­utes to secure your most impor­tant clients

Given that time is our scarcest cur­rency, we all need to be cau­tious about tak­ing on sig­nif­i­cant new com­mit­ments. The only excep­tion is cases where there’s absolutely clear cut evi­dence of a sub­stan­tial return.

Late last year, I spoke to an advi­sor about a 30 minute invest­ment in for­mu­lat­ing Client Oppor­tu­nity Plans for top clients that has pro­vided an over­whelm­ingly pos­i­tive result.

The con­cept of these plans is sim­ple: If you’re an account man­ager work­ing for Proc­ter & Gam­ble with respon­si­bil­ity for man­ag­ing the Wal­mart or Costco account, every year you’ll spend 30 days devel­op­ing a com­pre­hen­sive, 200 page busi­ness plan for that account.

It clearly doesn’t make sense to spend a month devel­op­ing a 200 page busi­ness plan for even your largest client – but how about 30 min­utes to develop a four page plan? This advi­sor had attended a work­shop in 2009, in which he’d seen the tem­plate for a four page plan for use with key clients, sum­ma­riz­ing the client back­ground, iden­ti­fy­ing oppor­tu­ni­ties and set­ting out spe­cific actions.

In early 2010, this advi­sor and his team devel­oped these plans for their top 20 clients – they took about half an hour each ini­tially, with a fur­ther 15 to 20 min­utes to update them a year later. As a result of these plans, his activ­ity with top clients is more proac­tive and focused and both he and his clients are bet­ter off as a result. In this advisor’s view, the time he spends in putting together these plans is his high­est return activ­ity each year.

Key back­ground

The first step is to con­cisely sum­ma­rize key back­ground on each key client. Here’s what the back­ground por­tion of the plan tem­plate might look like, doc­u­ment­ing client infor­ma­tion in thir­teen areas. Con­sider using this as a start­ing point for your own key client plans, mod­i­fy­ing it to your own situation.

1. Cur­rent sit­u­a­tion – a short sum­mary of key trends on assets and revenues:

For 2009, 2010 and 2011, show rev­enue for each year as well as assets at the end of the year.

In addi­tion, doc­u­ment how long you’ve been work­ing with this client – and how you came to work together.

2. Finan­cial priorities

Sum­ma­rize this client’s top three finan­cial issues and priorities.

3. Assess­ment of client sat­is­fac­tion – how sat­is­fied is your client on the key dimen­sions of your relationship

On a scale from 1 to 5 (where 1 is low, 5 is high), write down your assess­ment of how sat­is­fied your client is on key dimen­sions of key dimensions:

1. Per­for­mance of investments
2. Con­fi­dent that is on track to achieve goals
3. Fre­quency of communication
4. Qual­ity of com­mu­ni­ca­tion – feels lis­tened to, key ques­tions and issues are addressed
5. Over­all relationship

4. Plans in place – an overview of the writ­ten plans this client has in place

List the kinds of writ­ten plans this client has in place, whether they have been com­pleted in whole or in part, when they were pre­pared, when they were last updated and who pre­pared them.

Among the plans to include are

• finan­cial plan
• invest­ment plan retire­ment plan
• estate /insurance plan
• tax plan
• cash flow plan.

5. Key gaps

Iden­tify impor­tant gaps in this client’s plans and finan­cial affairs.

6. Pre­ferred con­tact – how does this client want to hear from you — and how often

Doc­u­ment the client’s pref­er­ence in terms of con­tact via:

• Face to face
• Tele­phone
• Email
• Mail
• Lunch pre­sen­ta­tions
• Evening pre­sen­ta­tions
• Other

As well, iden­tify the fre­quency with which you used each of these meth­ods to com­mu­ni­cate with this client in 2011 – and your goal for each of these in 2012.

7. Your knowl­edge of the client

This sec­tion iden­ti­fies gaps in your knowl­edge of the client. Rate your knowl­edge from high to low in terms of their finan­cial sit­u­a­tion (hope­fully high), work sit­u­a­tion, fam­ily sit­u­a­tion, hob­bies and inter­ests, retire­ment plans and any health and per­sonal issues.

Then iden­tify knowl­edge gaps that you need to fill in the next twelve months.

8. Pro­fes­sional advisors

List the name and con­tact infor­ma­tion for this client’s accoun­tant, lawyer and other pro­fes­sional advi­sors. On a scale from 1 to 5, note whether you’ve met those pro­fes­sional advi­sors and the strength of your rela­tion­ship with them.

9. % of Assets held

Approx­i­mately what per­cent­age of this client’s assets do you hold? Where are out­side assets held, what do they con­sist of and what is there approx­i­mate value?

What’s your his­tory in terms of bring­ing on addi­tional assets from this client? When was the last time that you talked to this client about this? Where clients hold assets with out­side firms, have you offered to pre­pare a con­sol­i­dated quar­terly snap­shot of all of their assets?

10. Rela­tion­ship with heirs – where you stand in terms of your con­nec­tion with your client’s spouse and fam­ily members.

List the name of each per­son who will receive a sub­stan­tial inher­i­tance from this client, start­ing with the spouse and includ­ing adult chil­dren. In each case iden­tify whether you have their account cur­rently and rank your rela­tion­ship with them from 1 to 5, where 1 is low and 5 is high. Include any com­ments on your rela­tion­ship with each of your key client’s heirs.

11. Past refer­rals provided

Record cases where this client intro­duced you to friends and fam­ily, includ­ing the date, the assets involved by the poten­tial client referred and the outcome.

12. Close asso­ciates

List this client’s clos­est fam­ily mem­bers, friends and work col­leagues. For each case, indi­cate whether at some point you’ve met them.

13. Past social activity

Here’s where you sum­ma­rize cases in the past where you got together with this client socially. List the event or activ­ity, the date and any response or feed­back from the client. Based on that feed­back, should you repeat this in future?

Cap­i­tal­iz­ing on opportunities

Once you have the back­ground doc­u­mented, next is a five step process to iden­tify oppor­tu­ni­ties and for­mu­late a plan to cap­i­tal­ize on those opportunities.

1. Hot but­tons

What are the one, two or three issues that this client wor­ries about the most – and that will moti­vate him or her to act. Oppor­tu­nity Check­list – a quick sum­mary of gaps in this client’s finan­cial affairs.

2. Oppor­tu­nity checklist

Here’s where you iden­tify any things that need to be done to ensure the client’s basic affairs are in good order. Here’s a list that you could use as a start­ing point – for each of these, indi­cate whether there is work to be done on them in 2012, whether for the client or for fam­ily members.

• Cash Man­age­ment Account
• GICs
• RESP
• RDSP
• RRSP
• Tax free sav­ings account
• Crit­i­cal care insurance
• Life insur­ance
• Long term care insurance
• Power of attorney
• Will

3. Key client oppor­tu­ni­ties for 2012

Write down the one, two or three key ways this client you can help improve the client’s sit­u­a­tion in the next twelve months.

4. Key busi­ness oppor­tu­nity for 2012

Iden­tify the one goal with this client that would advance your own busi­ness in the next twelve months

5. Key steps for 2012

What spe­cific steps are you going to take in 2012 to achieve these goals?

The last four years have tested many client rela­tion­ships. Going for­ward, it will be crit­i­cally impor­tant to be proac­tive and dis­ci­plined in man­ag­ing rela­tion­ships with your most impor­tant clients – a Client Oppor­tu­nity Tem­plate such as this one can play a key role in mak­ing that happen.

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Tags: 15 Minutes, 30 Minutes, Amp, Assets, Client Background, Client Opportunity, Commitments, Costco, Currency, Current Situation, Half An Hour, Minute Investment, Page Business Plan, Plan Template, Proactive, Procter Amp Gamble, Substantial Return, Walmart
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Discussion: What do you have to do (differently) to grow your business at 20% compounded annually?

Sunday, January 22nd, 2012

Advi­sor Col­lab­o­ra­tion is now a week old and we have attracted almost 60 mem­bers. This week, we are dis­cussing a blog that we posted last week – “What’s The Com­pound Growth Rate Of Your Busi­ness and What’s That Cost­ing You?” We updated our spread­sheet on this blog by adding a new front page to hide most of the num­bers so it is less intim­i­dat­ing. This week’s dis­cus­sion is “What would you need to do dif­fer­ently to achieve and main­tain a 20%+ com­pound growth rate for your business?”

Here’s the math behind build­ing a 20% growth rate:

Busi­ness devel­op­ment is a major com­po­nent of achiev­ing above indus­try aver­age growth. The two biggest dri­vers of growth are new assets from new clients (roughly 14% per year) and new assets from exist­ing clients (roughly 7% per year). Invest­ment growth, in nor­mal years, nets out against lost clients and dis­tri­b­u­tions. The good news is that new assets from new clients and exist­ing clients are under your con­trol and depen­dent on client sat­is­fac­tion.  You do, how­ever, need some help from finan­cial mar­kets to achieve 20% growth, oth­er­wise lost clients and dis­tri­b­u­tions claw back your growth.

Stud­ies sug­gest that approx­i­mately 60 – 80% of new assets from new clients come through client refer­ral. So if you have a $50 mil­lion AUM busi­ness, (aver­age new client = $500,000) here’s the math:

• $50 mil­lion business
• Tar­get growth of 21% (for cal­cu­la­tion pur­poses) = $10.5 million

New assets from new clients (14%) = $7 mil­lion (14 clients) made up of:

• Client refer­ral (60%) = $4.2 mil­lion (9 clients)
• Busi­ness devel­op­ment = $2.8 mil­lion (5 clients)

New assets from exist­ing clients (7%) = $3.5 million

The key dri­ver for client refer­rals and new assets from exist­ing clients is client sat­is­fac­tion. If you are not get­ting 8 to 11% annual growth in AUM through client refer­ral and 7% through new assets from exist­ing clients, you may need to improve your rela­tion­ship man­age­ment systems.

A good rule of thumb is focus on things that you con­trol.  You can’t con­trol finan­cial mar­kets so focus on deliv­er­ing a con­sis­tently supe­rior client expe­ri­ence to drive refer­rals and new assets from exist­ing clients.  Bud­get time for busi­ness devel­op­ment activ­i­ties (grow­ing your client, per­sonal and busi­ness net­works) and use it effec­tively.  Build a plan and then focus on the process, not the results and the results will take care of themselves.

The major mes­sage we have heard from advi­sors this week is “Sure 20% growth is easy when you are small, but it is impos­si­ble when a book reaches $50 – $100 mil­lion and it is even tougher when it reaches $300 or $400 mil­lion.”  Lack of capac­ity and the resul­tant drop in client sat­is­fac­tion cause advi­sors’ busi­nesses to plateau. A big­ger busi­ness should grow more quickly (unless you have $300 mil­lion of which one client has $200 mil­lion) because you have a broader base of clients who can refer their friends or col­leagues.  Just use the num­bers above and do the math for your busi­ness.  You will prob­a­bly need to make some changes to grow at 20% but you may gain some clar­ity to allow you to achieve this goal.

About Bob Simpson

Syn­chronic­ity Per­for­mance Con­sult­ing has been coach­ing finan­cial advi­sors since 1998.

Bob Simp­son, pres­i­dent and founder of Syn­chronic­ity has been involved, directly or indi­rectly in the finan­cial ser­vices indus­try since 1981. He has been a very suc­cess­ful finan­cial advi­sor with Nes­bitt Thom­son Inc., a major Cana­dian finan­cial insti­tu­tion. Between 1981 and 1989, he built a busi­ness with more than $120 mil­lion in assets under man­age­ment and was one of the first Cana­dian advi­sors to build a team.

You can fol­low Bob Simp­son via:

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Tags: 5 Million, 50 Million, Assets, Aum, Business Collaboration, Business Development, Business Target, Calculation Purposes, Client Referral, Client Referrals, Client Satisfaction, Compound Growth Rate, Distributions, Financial Markets, Front Page, Investment Growth, Major Component, Math, Relationship, Relationship Management, Spreadsheet
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