Unlocking Real Value Blog

Winning and Losing Clients - June 1st, 2011

In a recent survey of advisors conducted by IMCA and Cerulli Associates (the two organizations team-up each quarter to present industry research), the top reasons were given for both how advisors acquired new clients as well as why they lost others last year. (I give these reports a lot of validity since both of these organizations are top notch and the advisors they survey – IMCA members – tend to be high quality advisors.)

The top two ways clients were acquired? REFERRALS – coming in at number one were referrals from friends/family/existing clients and at number two were referrals from other professionals. These results are not surprising, and reinforce the notion that if you don’t have a formal referral program in your practice, and if you are not actively seeking referrals, then you are missing out on perhaps the best and surest source of new business.

The top reason why clients were lost? They passed away. (Clients unhappy with performance came in at number two and client has relationships with other advisors came in at number three.) While it is inevitable that clients die, this does not mean that you have to lose their family as clients. This result reinforces another notion that a lot of people in this business talk about, but not a lot of them do well – cultivating multi-generational relationships.

Just as referrals should be easy – a happy client should be more than willing to refer others to you – so should getting to know your client’s family so that they too become clients. Do you know your client’s children? Their birthday’s? If you don’t, there is no time like the present to start.

In a way, these results should be heartening because both the best way to get new clients AND not lose current ones, are relatively easy things to do – if you do them!

AK Quoted in Article on Private Bank RIA Acquisition - May 27th, 2011

The article I am quoted in concerns the acquisition of Analytic Asset Management by Fieldpoint Private Bank and Trust. Click here to read the article, which appeared in FundFire. Analytic is relatively small – managing approximately $275 million. But it represents the bank’s strategy of increasing its number of locations via strategic acquisitions of advisors.

The article explores the question of whether it is more important to expand into particular locations – in this case New York City – or expand in locations where you can hire the highest quality advisors. This is the topic the reporter queried me on, and I agree with the bank’s CEO that acquiring the right people – human capital – is more important today than hiring in particular locations.

This phenomenon is partly a result of the financial crisis, where firms are being more prudent in how they spend money. But it is also a result of technology and the growth of social media. With more efficient ways to communicate with your clients being discovered every day, the location of your office is less important. The one caveat here is if you are in a location that is isolated and makes it difficult for you to get to your clients.

The cache of being in one location versus another takes second place to acquisitions that make strategic and financial sense for a company and help it execute its plans. I know, this is ironic coming from someone who just move to NYC – but in all honesty, my clients don’t really care where I live!

 

What High New Worth Clients REALLY Want - May 24th, 2011

Last Friday’s blog was entitled “Do You REALLY Know What High New Worth Clients Want?” It discussed the results of a Cerulli Associates/Phoenix Market International survey of the top nine things that high new worth individuals look for in advisors. My blog listed the nine things, but not in order of importance – go back and read last week’s blog now, because this is your last chance to try and rank the nine things yourself before I show you the answers…….

 

  1. Maintain lifestyle in retirement – 31.4%
  2. College education funding – 19.6%
  3. Protect current level of wealth – 14.6%
  4. Aggressively grow wealth – 14%
  5. Leave an estate for heirs – 9.8%
  6. Charitable giving – 4.2%
  7. Minimize income and capital gains taxes – 2.4%
  8. Improve household cash flow – 1.9%
  9. Better manage market risk – 1.9%

 

Now – how does your marketing strategy and product and service offerings match up with these results? We all know that surveys will come-up with different results, but the general lessons are all pretty consistent these days:

Especially in light of the economic difficulties that so many people have experienced over the past few years, more and more people are worried about their retirement, about funding their major obligations – such as college – and about preserving the wealth that they have attained. Preservation has for most surpassed growth. The new mantra for many has become Retirement, Retirement, Retirement.

Consistent with the above, high net worth individuals are more concerned with long-term concerns than shorter-term ones – such as minimizing taxes this year and managing market risk. That is not to say that these concepts are not important and that they should not be addressed – they should. But they should be somewhat down the line in the presentations that you give clients and prospects.

Make your clients concerns your concerns and your focus and you will be more successful in growing your business.

Do You REALLY Know What High Net Worth Clients Want? - May 20th, 2011

Do you REALLY know what high new worth clients wants from their advisors? Are your services and strategy – whether you’re an advisor, RIA, sponsor firm or investment manager – aligned with what people REALLY want? Investment News recently printed the results of a Cerulli Associates/Phoenix Marketing International study which ranked the top nine reasons why high net worth clients use advisors.

(Full disclosure – the article did not detail how many people were surveyed, what their average investible assets were or what the definition of high net worth individuals was; but given that these guys are well known and respected in the industry, I’m going to assume that this was a fair sampling.)

In any case, the results should make you sit back and ask yourself the questions – Given my services, am I targeting the right audience? If not, what should I change and how should I change it? Do I change my target audience? Do I adjust/fine tune the services that I offer? A little of both?

Here are the top nine answers – I’m going to present them today in no particular order and provide the answers next week – take some time to think about the answers and rank them – also, think about the relative importance of each. Here’s an interesting point- the top answer was selected by 31.4% of respondents, while the second most popular answer was selected by 19.6% of respondents – quite a difference.

Here you go – the top nine answers – have fun sorting them out! Remember – today they are in no particular order.

  • Protect current level of wealth
  • Leave an estate for heirs
  • Better manage market risk
  • Minimize income and capital gains taxes
  • Maintain lifestyle in retirement
  • Charitable giving
  • College education funding
  • Aggressively grow wealth
  • Improve household cash flow

Have a great weekend!

Is Your Website a Dinosaur? - May 17th, 2011

As the financial services industry increasingly embraces social media, a natural question becomes the role of you or your company’s website vis-a-vis its overall social media strategy. The days of discussing whether or not your website is a dinosaur only in the context of how old it is and whether it serves more of a purpose than just being an electronic brochure, are long gone.

(By the way, if when you read the words “social media strategy” above and thought to yourself “what’s that?” your marketing problems probably run deeper than just the effectiveness of your website!)

If you haven’t updated your website in awhile it could very well be a dinosaur – especially if it is just an electronic brochure – and you probably need to update it, make it more interactive and make it more relevant.

If your website is up-to-date you have passed the first test. However, it still might be a dinosaur if it does not have a well-defined place in your overall marketing and social media strategy. In fact, given the interactive nature of social media, and the ability it gives you to form a community with clients, some are now even questioning whether you still need a website.

My answer is an emphatic YES. In fact, the issue is addressed quite well in the recent article Is It Time To Shut Down Your Website? There are definite advantage and disadvantages to social media – e.g, LinkedIn, Facebook and Twitter – and to websites. Each tool has different strengths and weaknesses, which means that those who can integrate the best of each together into a cohesive marketing and asset gathering strategy will be the most successful.

For example, and most importantly to me as the article points out, while you will be able to reach portions of your clients with each of the social media tools mentioned above, you will be able to reach all of them with your website. Might there be some duplication? Sure. But overlap is better than missing anyone. Websites are also your property and you own it – unlike social media sites where you don’t have ownership.

I am a big fan of social media. But I am also a fan of well designed and integrated websites. At the end of the day, the first thing most people usually do to find out more about you is “Google” you or go to the website listed on your business cared – use this as a springboard to link to your social media sites. It is still a red flag in terms of credibility if your answer to a prospect is that you don’t have a website. A website ads instant credibility (of course as long as it is a good one!)

So it is actually now more important than ever to make sure that your website is not a dinosaur!

Why Can’t BofA Merrill Get it Right? - May 10th, 2011

With all of the money that BofA Merrill likely spends on PR and advertising, it amazes me that they can’t control their corporate message better – at least as far as their wealth management unit is concerned.

Yesterday’s Investment News is another example of this phenomenon, where an article entitled “Grumbling Herd Complains About Cross-Selling” appeared. I have blogged about this topic before – old Merrill Lynch brokers feel that their parent is pressuring them to sell BofA products such as mortgages and credit cards – and many don’t like it. (I use the word broker here, even though I don’t like it, because the article does.)

The headline is negative as are many of the unidentified brokers that “grumbled.” Not in the headline are the few brokers that also commented in the article that they actually like having these addition products to sell and that they feel that being able to address their client’s liabilities is actually a competitive advantage.

Reality is that whenever a bank buys a brokerage – or in any merger for that matter – there will always be some pressure to cross-sell. Whether we like it individually or not, it makes sense from a corporate point of view. In fact, whether you want to sell these additional products or not, it certainly makes sense to let clients know that you have the ability to sell them – an additional arrow in your quiver.

So what is the problem here? The problem is that BofA has sidestepped the issue rather than address it head on, and therefore the media and some of its more vocal brokers are controlling the issue. As an outsider, we don’t really know how much pressure is being put on brokers to cross-sell. There are always two sides to every story. But we do know that the company’s response has been less than adequate because the negative publicity continues.

What should BofA do? Grab the issue back from the media – tout the advantages to clients and the general public of the vast array of competitive products that are available – leverage your strengths! A PR or advertising campaign targeted on the advantages of the breadth of offerings would certainly silence some of the internal critics and demonstrate that the firm is on top of the issue. It certainly couldn’t do any harm – I for one am getting tired of seeing these headlines, and I’m not even a client or prospect!

Brokers have always had to fight the battle of being “pressured” into selling in-house products. But trust me, if the broker is successful enough, he or she will be able to resist the pressure and run their business however they want to – BofA is not going to lose a million dollar producer over credit cards – I guarantee it. But they are losing the public opinion fight right now – they should aggressively address the issue now before it gets any worse.

Are You an Alpha Advisor? - May 5th, 2011

At the end of March I blogged about the rebellion of wealthy investors, and the growing trend of these investors hiring multiple advisors. (See March 28th blog entitled “The Wealthy Rebel – Advisors Beware.”) The issue continues to get more and more press as additional studies with similar results continue to be published.

If you aren’t an Alpha advisor – beware – your business might be at risk. Unless you want to focus on smaller investors – those that tend to be a lot more fee-sensitive and who don’t have enough assets to hire multiple advisors – your marketing strategy MUST include a way to position you as the leader of the group of advisors you clients are likely to hire. The Alpha advisor acts as the client’s financial hub, is aware of the other relationships, has the ability to report on these other assets (and is given access to the information) and is likely to take a holistic approach – having the capability to address the client’s most in-depth financial issues.

The latest study I referenced above was released by State Street Global Advisors and Knowledge@Wharton. 55% of respondents indicated that their primary advisor was unaware of the decisions and performance of their other advisors. What does this mean? It means opportunity for advisors who can explain the downside to such a isolationist strategy. Without someone overseeing the client’s entire investment portfolio, investors who are trying to protect themselves by diversifying across advisors are actually increasing their risk – overlapping sector or individual investment exposures for example could result in an overall portfolio which does not match the client’s investment goals and risk tolerance levels.

In addition to being able to charge for oversight – adding a new revenue stream to your practice – you greatly increase your chances of keeping clients by being the Alpha advisor. But you won’t know the answer to the question of whether your clients have multiple advisors unless you ask – why not make if part of your regular quarterly meeting/referral process?

One other interesting result from the study to keep in mind – the best practices of Alpha advisors usually includes transparency of fees, open architecture and solid rationale and documentation to back-up their recommendations.

What Type of Wealth Manager Are You? - April 25th, 2011

Every quarter, Cerulli Associates partners with IMCA to produce a research piece of interest to the industry. The latest is entitled “Understanding Wealth Managers: Practice-Type Analysis.” The study differentiates advisor/wealth manager practice types that exist today. Categories generally vary by the amount of advice offered that is not directly related to investment management. In general, the more services you provide above and beyond traditional investment management, the more sophisticated and wealthy the clients that you are serving.

Are these categorizations perfect? No. Are they always adapting? Yes. The lesson to be learned here, however, is to get a general idea of whether your practice and your resources match your target audience and your business plan. If there are mismatches, there is no time like the present to make some adjustments.

Cerulli’s categories – from least comprehensive to most are:

  • Money managers – desire to be valued solely on their investment performance
  • Investment planners – work with investors larger financial needs on an as-needed basis – typically would use modular planning tools
  • Financial planners – strive to deliver comprehensive financial advice, but still many clients do not receive comprehensive financial plans
  • Wealth Managers – additional services included to meet the wider needs of high net worth individuals, including philanthropic giving and concierge-type services

Which type of advisor are you? Now, here are some of the results of the study to see if your practice is in sync:

  • The percentage of fee-based business is higher as you move up the scale from money manager to wealth manager, as wealthier clients are more likely to understand the-based arrangement and are used to paying that way
  • Wealth managers tend to work in team practices and provide either in- or out-house resources for the specialized and more sophisticated services that they provide (advanced planning and wealth preservation)
  • Wealth managers utilizing a holistic approach are more likely to be the Alpha advisor
  • Wealth managers are more likely to have larger books of business – fewer clients with larger amounts of assets

And last but certainly not least – wealth managers are more likely than other types of advisors to get referrals – from either clients or other professionals. On average, according to this report, 55% of the new business of wealth managers comes from referrals.

All in all, these results are very interesting. While there is compelling evidence to strive to become a wealth manager, it’s important that you make sure that you have the capabilities, finances and resources to do so. If not, create your own compelling reason for choosing the type of business that you become. There is enough room for advisors to be successful in a number of ways – but it’s always good to know what the competition is doing.

 

AK Quoted: Fund Industry Article – Usefulness of Social Media Grows - April 20th, 2011

Ignites today published results of a poll which indicates that fund industry professionals are increasingly embracing social media and recognizing its applicability; click here to read the complete article.

More than 58% of the almost 250 respondents characterized social media as either “important” or “useful,” up from 51% a year ago. The number of respondents who indicated that they believe the hype around social media is greater than its usefulness dropped to 26% from 35% a year ago.

My two cents as cited and quoted in the article:

  • Social media oriented strategies will only gain more ground in the future. Fund companies and other sponsor firms are ahead of advisors and RIAs because of continuing monitoring/compliance issues.
  • “For those who think the hype is bigger than usefulness and to those that bemoan the end to face-to-face communications, I would say you are looking at social media in the wrong way. Social media should not replace anything — the heart of all relationships remains personal. Social media should not replace the handshake or anything else. It should supplement it and deliver more value to the client or prospect, and deliver in a way that they want. Social media should increase your reach, improve your communications and help attract new prospects and cement relationships.”

Investment Managers: Stability Continues to Top Performance - April 18th, 2011

Another survey has confirmed what has been the “new” conventional wisdom post-Madoff and post-financial crisis: institutions are weighing organizational stability more heavily in deciding their manager mandates than they are performance. We all know that past performance is not necessarily an indicator of future performance. Organizational instability, on the other hand, will most certainly lead to future under performance.

This latest study is entitled “Institutional Investor Brandscape” and was conducted by Cogent; 590 institutions were questioned for the survey.

A staggering 88% of respondents placed organizational stability at the top of their list as the most important criteria they use when selecting a manager. While I would have expected stability to top the list, I was surprised at the magnitude of this number.

Institutions have clearly become much more focused on the long-term – whether a manager can retain its people, whether its systems capabilities can match its growth and whether the future level of service and performance will be adequate.

Other answers that ranked highly in the survey in the decision process included strength of investment philosophy, investment team and risk management practices. While investment philosophy is important, respondents indicated that just as important if not more so is the process by which that philosophy is implemented. Institutions want to make sure that the philosophy is repeatable over a long period of time.

Respondents also consider consultant recommendations, a firms research and though leadership, fees and reputation. Interestingly, service and support models, relationship management and product innovation were at the bottom of the list.

This seems a little counter intuitive to me – after all, the relationship management and service teams are the ones that communicate and articulate what makes the firms stable in the first place, they the ones who update clients if and when changes take place, and they explain and how the firm is dealing with it. Perhaps respondents were making the assumption that good investment managers have good relationship management and service teams; to me, these are two distinct areas and firms might not necessarily excel in both.

So while I am confused by some of these results, I do think the survey clearly once again confirms that performance, while important, is certainly not the deciding factor for institutions when hiring investment managers.

The important implication for these results is that investment managers must be able to articulate their entire firm story during both good and bad performance periods. In fact, viewed from this perspective, these results should be somewhat comforting to managers – it means that if clients are comfortable with the organization and its stability they are less likely to fire them during the inevitable periods when they do under perform.