Posts Tagged ‘Charles Schwab’
Tuesday, July 3rd, 2012
Clients weren’t getting what they wanted, and they want to address more than the portfolio.
Charles Schwab recently released its 2012 survey Independent Advisor Outlook/High Net Worth Investors Study. Among the data was an update on why people have been changing advisors and how they found their new advisor.
Referrals continue to be the single most important way clients connected with their new advisors, accounting for over half of the clients who moved.
When it came to the reasons people moved, 66% said they didn’t get the kind of attention or service they wanted from their prior advisor and 51% indicated that they wanted someone to take a more holistic approach to their finances and investments. This reinforces other studies that have shown that conversations beyond the portfolio drive client engagement. We would expect this to be especially true in difficult investment markets, but this study was completed on February 3, 2012 – a time when the market was particularly strong.
It also indicates the importance of getting systematic client feedback. While two thirds of the clients who moved indicated they were not getting what they wanted from their prior advisor, I do not believe it can fully be explained simply by poor service. Rather, I suspect the service they received was not what they had hoped for or expected as opposed to inadequate for infrequent. Given that this is by far the most common reason for people to move, compounded by the fact that we are in a volatile or declining market, it makes more sense than ever to make sure that part of your service model includes client surveys or an advisory board.
Copyright © The Client Driven Practice
Tags: Accounting, Advisory Board, Charles Schwab, Client Engagement, Client Feedback, Client Surveys, Conversations, Declining Market, Driven Practice, High Net Worth Investors, Holistic Approach, Independent Advisor, Investment Markets, Investments, Moving, People, Portfolio, Referrals, Service Model, Two Thirds
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Wednesday, May 30th, 2012
I’ve written in the past about the fact that for many advisors their number one priority today is demonstrating their value to clients. As a result, many advisors are putting a huge amount of time and energy into exploring ways to heighten the value they provide.
That focus and priority is good thing for good or for ill. We live today in a value driven world where increasingly, clients make up their minds based not on yesterday’s relationships but on today’s value. That’s true in every industry: Look no further than the success of Walmart, Costco and Amazon based on delivering more for less.
But delivering strong value is only half the equation when it comes to optimizing the profitability in the business you run. The other half relates to charging a fair price for that value, and I want to lay out a simple test to determine if you’re not charging enough.
Operating in a price driven world:
First, let’s understand why this is such an important issue today.
Of all the changes in behaviour arising from the spread of internet, the fixation on price has to be towards the top of the list. Recent articles have highlighted consumers who go into Best Buy or Chapters to browse and then, once they’ve made a decision use their smartphone to take a picture of the UPC code and search the net for lower prices.
Price sensitivity is not new to the investment industry, for stockbrokers, discount brokers changed the landscape in the US in the mid-1970s (led by Charles Schwab), and in Canada in the late 80’s (with TD Greenline as the driving force.) Among million dollar plus investors, we’ve seen growing competition on price by independent investment counselors, with firms like, Jarislowski Fraser having a reputation as being especially aggressive on price.
Many advisors who have moved to fee-based accounts have seen a growing number of clients questioning fees. And while embedded, non-transparent compensation in mutual funds and similar products has for the most part escaped this trend to date; it’s only a matter of time until there is greater focus here also. Last year, the discount broker Questrade launched an initiative offering to rebate all mutual fund trailers to clients. These kinds of developments will accelerate focus on advisor compensation in every form, even where it’s embedded.
Dealing with price-fixated clients:
In today’s value focused world, everyone wants to get fair value; we do and our clients do. The issue comes down to what constitutes value. Good value to one person is an egregious rip-off to the next. That’s especially the case for anyone whose strategy entails pricing at a significant premium to lower cost alternatives; whether it be Apple, BMW, Tiffany’s or financial advisors.
The fact of the matter is that there is a segment of price fixated consumers who are unwilling to pay a premium for anything. Often they will push repeatedly for better pricing, and still be dissatisfied. Apple, BMW and Tiffany’s don’t work with those consumers; and nor should you.
So here’s a simple test to determine if you’re undercharging for your services: If you don’t lose the occasional client due to price, you aren’t charging enough. That’s especially true of prospective clients, who may be shopping the market, but it’s true of existing clients as well.
Now clearly, you don’t want the number of lost clients to be more than a trickle, but at the same time you do want to charge full value for your services. And remember, if you increase pricing by 10%, you can afford to lose 5% of your assets, and still increase overall profitability.
The truth of the matter is that with a premium pricing strategy it’s almost impossible to retain 100% of clients. In fact, the case can be made that to maximize your bottom line; you want clients to hesitate just a tiny bit when it comes to your pricing. Because they know they can get the service you offer for less elsewhere, before concluding that the value you offer is more than sufficient to offset the price differential.
“Here are lower cost alternatives you could consider:”
Let me close with my own experience on pricing. I regularly get calls about speaking at industry conferences, and inevitably get asked about my fee. I never answer without getting a better sense of what they’re looking for and giving them some suggestions as to how my approach might help them achieve their objectives.
When it comes to the fee discussion, I’m quite open about the fact that I charge a premium, comparable to first tier industry experts. Some companies accept the fee without question, but not infrequently I do get the response that this is more than they have in their budget.
My answer is to say that I recognize that my fees don’t work for every company, and that I would be happy to email them a list of alternatives speakers who would likely charge a lower cost; and would still do an excellent job. Here’s where it gets interesting: At least half the time, the company comes back and agrees to the fee I quoted them.
So do I lose the occasional client on pricing? Absolutely! And if that wasn’t the case, I would know that I wasn’t charging enough. This principle is true for my business, and it’s equally true for yours.
Tags: Amazon, Behaviour Arising From, Best Buy, Charles Schwab, Costco, Discount Brokers, Driven World, Driving Force, Fixation, Greenline, Independent Investment, Investment Counselors, Investment Industry, Jarislowski Fraser, Mid 1970s, Price Sensitivity, Simple Test, Stockbrokers, Upc Code, Walmart
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Wednesday, April 11th, 2012
Financial advisors are facing more competition from more directions than ever. With so much choice, there are more reasons now than at any point in the past why you must represent something specific your target clients want if you hope to attract referrals.
In an article on RegisteredRep.com last week, Kristen French enumerated some of the ways everyone is eating your lunch. E*Trade and Charles Schwab are adding managed account solutions to compete for wealthier clients’ portfolios. Private banks are going downstream from the ultra affluent to the mass affluent. Private client groups at banks have already grabbed 47 percent of the high net worth market, according to Cerulli, and their share is growing.
Andrew Gluck has written about free financial applications that are attracting young professionals before they ever show up on our radar, increasing the likelihood that they will perceive less need for an advisor once they do show up. He has also written about Wealthfront, a company that started out by trying to attract clients advisors do not want, but with plans to move into the demographics advisors want badly.
All these developments should set off alarm bells if you cannot easily articulate why your target clients are powerfully drawn to do business with you (and air raid sirens if you cannot succinctly describe who your target client is without resorting to tired and ineffective old pseudocategories like “pre-retirees and retirees with more than a million dollars to invest”).
In this environment of increasing competition and fee compression, it will become difficult or impossible to prosper unless you represent a specific solution or experience your target client is looking for. Something a large institution or computer program cannot provide. Service won’t do it – banks can credibly provide that. A good investment process won’t do it – Financial Engines Advisors has Bill Sharpe’s wisdom embedded in its code (and $37 billion under management) and you don’t have a Nobel.
To successfully attract and retain an ongoing stream of clients, it is becoming ever more important to provide something that makes you easily and clearly different from other advisors, institutions and apps. Something your clients want that other firms do not or cannot provide (or cannot articulate).
Tags: Affluent, Air Raid Sirens, Alarm Bells, Bill Sharpe, Cerulli, Charles Schwab, Client Groups, Computer Program, E Trade, Financial Advisors, Financial Applications, Financial Engines, Gluck, Likelihood, Private Banks, Private Client, Specific Solution, Target Client, Target Clients, Young Professionals
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Wednesday, February 29th, 2012
“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.
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
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
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
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
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
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.trustedadvisor.com/ website — you can also read more about rebuilding trust below.
Rebuilding trust — today’s #1 client challenge
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
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
Free webinar: Building a client lunch prospecting program
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
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.”
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.strategicimperatives.ca/blog/?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.globeinvestor.com/servlet/story/GAM.20090730.RHIGHNETWORTH30ART1944/GIStory/Email>
New York Times — Aug 1 Wealth Matters: In Search of Competent (and Honest) Financial Advisers
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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Wednesday, February 8th, 2012
Recently, I attended a talk by Fred Reichheld, a long time partner with consulting firm Bain & Company (the same firm where U.S. Presidential candidate Mitt Romney got his private sector experience after graduating from Harvard Business School.)
Reichheld is one of the pioneers in the area of promoting customer satisfaction and loyalty as a core strategy to drive business growth. In 1996, he published The Loyalty Effect, one of the first attempts to rigorously quantify the financial payoff of satisfied customers.
In 2003, he published an article in the Harvard Business Review titled, “One number you need to grow.” In that article, he introduced a simple 12 word question and a resulting measure called The Net Promoter Score that correlate with customer loyalty and can focus organizations on creating higher levels of customer satisfaction.
12 words to measure loyalty:
The Net Promoter Score starts with one simple 12 word question that customers are asked to answer on a scale from 0 to 10. That question:
How likely are you to recommend us to a friend or colleague:
Customers are then put into three categories:
- Promoters: (score 9–10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
- Passives: (score 7–8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors: (score 0–6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
The net promoter score is calculated by taking promoters and subtracting detractors; what are left is your net promoters. So, if you have 30% of clients scoring you a 9–10 (your promoters), 50% a 7–8 (your passives) and 20% a 0–6 (your detractors), your net promoter score is 10.
In the US, net promoter scores north of 70% have been attained by USAA in banking, by Costco and by Apple. Other firms using the net promoter score metric to track satisfaction include Charles Schwab, Amazon, Intuit (maker of Quicken), General Electric and Procter and Gamble.
In a presentation at a conference, a senior executive of TD Canada Trust explained how they used the Net Promoter Score in the U.S. and Canada to shift from satisfaction-focus to loyalty-focus. With high satisfaction scores it was hard to identify issues and motivate employees to improve. By moving to a Net Promoter approach using willingness to recommend as the measuring stick, they were able to uncover new issues and identify the best practices of top performing branches. TD is now rolling out Net Promoter throughout the bank to include all functions that impact customer service.
The research behind the Net Promoter Score metric:
Below is an excerpt from the Net Promoter Score website that provides rationale for NPS.
“To determine a useful metric for gauging customer loyalty, Fred Reichheld did something rarely undertaken with traditional customer surveys: match survey responses from individual customers to their actual behavior, repeat purchase and referral patterns over time.
“Working with Dr. Laura Brooks of Satmetrix, a research team tested numerous different questions to see which one(s) would be the best gauge of future repurchase and referral behavior. The test was administered to thousands of customers recruited from public lists in six industries: financial services, cable and telephony, personal computers, e-commerce, auto insurance, and internet service providers. The team obtained a purchase history for each person and asked them to name specific instances in which they had referred someone else to the company in question.
“The results allowed the team to determine which loyalty questions had the strongest statistical correlation with repeat purchases and referrals. The team hoped they would find at least one question for each industry. They found something more; one question was best for most industries. “How likely is it that you would recommend [Company X] to a friend or colleague?”
“Next, the team looked at relative growth rates for competitors in a given industry. In the first quarter of 2001, Satmetrix began tracking the “would recommend” scores of a new universe of customers; many thousands of them from more than 400 companies, in more than a dozen industries. In each subsequent quarter they then gathered 10,000 to 15,000 responses to a very brief e-mail survey that asked respondents (drawn again from public sources) to rate one or two companies with which they were familiar.
“Where the team could obtain comparable and reliable revenue-growth data for a range of competitors, and where there were sufficient consumer responses the team plotted each firm’s NPS against the company’s revenue growth rate.
“The results were striking. In most industries this one simple statistic explained much of the variation in relative growth rates; that is, companies with a better ratio of Promoters to Detractors tend to grow more rapidly than competitors.”
Implementing this in your business:
In the question and answer period after his talk, Reichheld was asked about categories like investing or airlines where there are extraneous events (market downturns and snowstorms) that depress satisfaction in the short term. In those cases, should companies look at NPS scores relative to their industry to gauge how they’re doing, rather than absolute benchmarks?
His answer was that this is eminently reasonable in the short term. He went on to say, however, that industries that chronically have low satisfaction scores can be vulnerable to new entrants. Even if your customers are less dissatisfied than your competition’s customers (or as the old expression goes, “In the land of the blind, the one-eyed man is king”), this creates an opportunity for dramatically new business models to shift the competitive landscape. If you look at the collapse of traditional business models (the legacy airlines, the Big Three US auto manufacturers), dissatisfaction was masked by the lack of alternatives right until better alternatives presented themselves.
Reichheld also pointed out that you need to make it easy for customers to answer the Net Promoter questions honestly. Ask someone directly and their scores are higher than their real satisfaction levels. That’s why successful companies collect scores either through written or online surveys that go to third parties or by having someone else call customers to get their scores; in the U.S., Charles Schwab branch managers follow up with customers to get their scores, talk about their experience and determine how the advisors serving them can improve.
In fact, following up with customers is key; Reichheld said that asking customers for their opinion initially creates a boost in attitudes. After all, the person they’re doing business with is showing they care. If there is no follow up or indication that their opinion is being taken seriously, however, that initial boost quickly evaporates.
One final note: If you are going to follow up with clients to talk about their rating on the “How likely would you be to recommend us” question, it’s important that you make it clear that your motivation is to find ways to better serve them, rather than to get referrals to friends and family. Even if referrals aren’t your motivation, you need to clarify this to engage clients in an honest and frank conversation.
Tags: Amazon, Amp Company, Charles Schwab, Core Strategy, Costco, Customer Loyalty, Customer Satisfaction And Loyalty, Financial Payoff, Fred Reichheld, Harvard Business Review, Harvard Business School, Loyalty Effect, Negative Word, Net Promoter Score, One Of The Pioneers, Private Sector Experience, Time Partner, Unhappy Customers, Usaa, Word Question
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Wednesday, December 22nd, 2010
Conventional wisdom holds that in Canada advisors associated with financial institutions will gain an increasing share of the market — whether these be advisors working for the banks’ investment dealers or as branch based financial planners.
The proponents of this view point to the advantages of scale and the reassurance for investors and advisors provided by Canadian banks, particularly important in market environments such as those in the past couple of years.
In addition, the potential to tap into referrals to existing bank customers can help existing advisors accelerate their business growth and be a strong asset in recruiting new advisors.
A contrary view from south of the border
A recent white paper suggests a very different path in the United States.
Titled The Future of the Financial Advisory Business, it predicts declining share for bank affiliated brokers and strong growth by independent advisors.
The key question: Is this an area where Canada and the U.S. will fundamentally diverge or will some of the U.S. trends in this area migrate into Canada?
This white paper was written by Bob Veres, a highly respected observer of the U.S. investment scene. For many years editor of one of the major U.S. advisor publications, he is publisher of Inside Information, an online resource for the financial planning and investment advisory profession — the full report can be found on his site.
An overview of the U.S. scene
One big difference in the United States is a thriving segment of advisors called Registered Investment Advisors, commonly known as RIAs.
These advisors typically work as sole proprietors or in small to mid sized firms, are compensated on a percentage of client assets and have no in-house products; they can offer clients a full range of investment products and generally focus on managed money solutions.
The growth of this channel was accelerated by Charles Schwab’s launch in the early 1990s of a back office platform on which independent advisors could operate; today other large firms that offer similar platforms include TD Ameritrade and Pershing Advisor Solutions.
There are an estimated 29,000 RIA firms in the U.S. - this is also the fastest growing segment, it’s projected that by 2012 assets held by RIA’s will equal those held by large brokerage firms such as Merrill Lynch and Morgan Stanley Smith Barney.
Today, most of these RIA firms are fairly small — it’s estimated that only 4,000 (or about 15% of these firms) have assets over $100 million — and half of those have assets under $250 million.
The growth of the independent segment
There are a number of factors driving the growth of RIAs, not all of which apply in Canada:
- The negative image of Wall Street
One important difference between Canada and the U.S. is investor disillusionment with Wall Street firms.
In a recent survey, 46% of U.S. brokers said that their firm’s brand was not helpful in retaining existing clients or attracting new ones.
- Disillusionment by experienced brokers
The U.S. has seen growing defections by “breakaway” brokers, leaving established firms to strike out on their own.
In part, this is driven by the push from head offices to sell inhouse products and an increasing emphasis on higher end clients, penalizing brokers who have a mid market focus.
Tags: Advisor Publications, Advisory Business, Bank Customers, Bob Veres, Canadian Banks, Charles Schwab, Client Assets, Contrary View, Conventional Wisdom, Different Path, Financial Planners, Independent Advisors, Independent Financial Advisors, Investment Advisors, Investment Dealers, Investment Products, Investment Scene, Market Environments, Money Solutions, Sole Proprietors
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Wednesday, June 2nd, 2010
Last week, U.S. discount broker Charles Schwab released a research report indicating that one in four American investors is considering changing firms or advisors, consistent with recent data on Canadian investors open to making a move.
An interesting insight emerged when investors were asked why they might switch. The top two factors, each mentioned 32% of the time, were desire for a better fee structure and better advice. Just behind in 29% of cases where investors are contemplating a move was the desire for more proactive contact.
Even with the 40% market recovery since March, many investors are still very anxious and looking for guidance and direction from their advisor. Markets over the past year created a huge spike in the demand for communication — whatever level of contact your clients were looking for a year ago, it’s almost certainly higher today.
And clients aren’t just looking for frequency of contact, substance and quality of communication are just as important.
One way to respond to this demand is by sending clients a mid year letter with your thoughts on where we are today and an outlook for the period ahead. Posted on this website today is a sample template of what that letter might look like, road tested with investors.
There are five keys to making a letter such as this one work for you:
1. It needs to be substantive.
Today homilies, platitudes and generic commentary don’t cut it — clients are seeking concrete guidance and substantive advice. Anything viewed as a puff piece will hurt more than help.
2. It has to be candid.
More than ever, investors are looking for candour and a balanced perspective — to maintain credibility, it’s critical that you be forthright in talking about the negatives as well as the positives in the period ahead.
3. It should be backed up by facts.
Given the spike in investor scepticism, we’re operating in a “Prove it” world. It’s not good enough to make a claim — you need to back it up with facts. That’s why the model letter’s comments are backed up by links to articles from the Wall Street Journal, Globe and Mail and Fortune Magazine.
4. It needs to be easy to read.
Being easy to read means using terms that your clients will understand and keeping the length manageable — the length of the template letter is at the limit of what most investors will read, your letter can certainly be shorter but it shouldn’t be longer.
5. And it has to be yours.
Advisors are all different in their perspective and you need to make any outlook reflect your own point of view. The template letter provides a starting point, but that’s all it is — to be effective you need to spend the time to incorporate your own personality and viewpoint and truly make the letter yours.
As you think about how to stay top of mind with clients in the next while, consider sending a mid year letter such as this one. The investment of time required could pay big dividends in client peace of mind and be the difference between keeping clients and losing them.
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