New Schwab Study Shows Why Clients Have Been Moving

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.

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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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How to tell if you’re Not Charging Enough

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.

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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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A Clear and Unique Value is Critical Because Everyone Wants to Eat Your Lunch

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 Reg​is​tere​dRep​.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).

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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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A wake up call for advisors — Turmoil at the top of the market

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.

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

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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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The question that predicts customer loyalty

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.

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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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Is there a future for independent financial advisors?

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.

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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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Guidelines for an effective mid-year letter

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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Tags: American Investors, Balanced Perspective, Canadian Investors, Candour, Charles Schwab, Communication, Concrete Guidance, Credibility, Desire, Discount Broker, Fee Structure, Five Keys, Frequency Contact, Insight, Investor, Platitudes, Puff Piece, Scepticism, Spike, Substantive Advice
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