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In late January, I delivered a keynote talk at a conference for an RIA’s top advisors, with the explicit mandate of helping those in the room get off to a fast start in 2014. In the question and answer period that followed, the first question was deceptively simple: “ If I was starting from scratch as an advisor today and had the goal of getting to $250 million in assets in 10 years, assuming I didn’t had have a big network, how would I make that happen?”
As an entrepreneur who’s built and sold a couple of businesses, I know that startups are never easy. Indeed, when I was recruited just after the tech wreck to serve as CEO of a broker dealer with 3,500 advisors, I saw first-hand the challenges facing advisors. But hard as it’s been in the past to build a business from scratch as a rookie advisor, intense competition and investor skepticism make it dramatically tougher today. This was reinforced by a recent article suggesting that historically 80% of rookies who entered the Merrill Lynch training program failed to make it past the three-year mark.
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But the fact is we can learn from rookie advisors who, despite all the obstacles, are building large practices from scratch. To achieve a peak level of success entering the financial advisory space today, you have to get a lot of things right. I’ll cover four foundational decisions today and wrap up with some others in next week’s column.
Step One: Deliver differentiated value to a defined audience
If there’s one unassailable truth about highly successful financial advisors of the future, it’s that they’ll be specialists.
I’ve previously written about how specialists across a variety of professions earn twice as much as generalists due to their higher level of expertise, both perceived and real. But specialists don’t just excel because of expertise – by focusing their efforts, they provide demonstrably superior value. Indeed, Michael Porter of Harvard Business School, generally acknowledged as today’s leading thinker on strategy, believes that the big trap that most businesses fall into is trying to be better than their competitors when they focus on being different.
When I talk to advisors who’ve come into the business in the last 10 or 15 years and are excelling, they almost always focus on being different, concentrating their efforts on a defined niche:
- One star advisor who came into the business six years ago markets to affluent women who have become widowed or are getting divorced after long marriages; last fall I wrote about a veteran California-based advisor who specializes in high-net-worth divorcees.
- Another advisor who’s seen her businesses get off to a fast start targets the lesbian and gay communities in her city.
- Other advisors focus on parents with special needs children and on boomers who are grappling with succession planning and health issues around their parents, especially related to dementia (Alzheimer’s has been referred to as America’s silent epidemic.)
- And a good number of advisors who’ve seen early success have focused on entrepreneurs, either looking to sell their businesses or to transition them to family members.
This is far from an exhaustive list of potential niche groups around which to build your business. Successful target groups have a number of common qualities:
- Members of the group have unique needs and pressing problems and the assets to be profitable clients.
- The group can be reached efficiently through associations, publications or centers of influence.
- They’re not oversaturated with other advisors. (Physicians probably attract more advisors per capita than just about any group.)
The group also has to represent the right fit for the advisor. You need to already have or be able to acquire the expertise to meet your group’s unique needs. You have to be able to relate to them and they to you. And preferably you have a starting point of at least a few existing clients or acquaintances in the group.
For more on how to find your perfect niche, here’s an article by an advisor who went from zero to 100 fee-paying clients in 18 months, by focusing on faculty at the local university.
Step Two: Define your business
Once you’ve identified on the group that you want to serve, the next step is to shape the way you work so that it’s aligned with their needs.
For many years, Professor Ted Levitt of the Harvard Business School stood alone when it came to leading-edge thinking on marketing strategy. In his classic1960 Harvard Business Review article, Marketing Myopia,he identified the key issue for successful marketers as defining the fundamental problem you aim to solve or as Levitt put it, “the business you’re in. “
Historically, most advisors were in the business of providing superior investment advice and better returns. Increasingly, more and more advisors have evolved into risk management, financial planning or wealth management as their core deliverable. In a Barron’s article last fall, Merrill Lynch head of U.S. wealth management John Thiel made the case that the future of financial advice lies in solutions beyond investment management alone, incorporating processes around cash management, lending and liability management, as well as wealth structuring and transfer.
Step Three: Identify your target clients
It’s obvious that advisors who want to operate at the highest level of success need to be disciplined about minimum assets and revenue for their clients. . Over the past decade, there has been growing recognition that compliance costs and the minimum threshold of communication and service that every client demands mean that advisors can’t afford to take on small clients. Math alone means that four $500,000 clients will seldom be as profitable as the same assets with a $2 million client.
But assets are only one dimension that top-producing advisors look for in the clients they choose to work with – there also needs to be a fit with your approach. If you’re focused on a planning approach, clients need to buy into that planning philosophy and be prepared to invest the upfront time to open up about their goals and situations. If you take a wealth-management tack, clients need to see value in your advice beyond investments. And if your emphasis is on risk management and disciplined diversification, then you need clients who accept that over short timeframes, their returns are unlikely to be as good as their golfing partner’s.
The most successful advisors are selective about the clients with whom they work. They cull out the bullies, sceptics and malcontents early on and focus on working with clients where there’s a minimum threshold of mutual trust and respect, no different than what lawyers, accountants and doctors expect of their clients. When I talk to advisors who went against their instincts to pursue a client simply because of his or her assets, even though there were warning signs with his general attitude and comments about previous advisors, they’ve inevitably ended up regretting it.
Step Four: Become a safe choice for your target audience
Once you’ve determined what you deliver and who you deliver it to, the critical next step is to begin marketing yourself to your group.
To do this most effectively, you first need to build credibility and position yourself as a specialist within your target group, so you become a “safe choice.” I’ve written in the past about how advisors who’ve done this have consistently spent four to six hours a week (and sometimes more) attending meetings of their group, getting involved in their niche’s industry associations, writing articles, talking to centers-of-influence, exploring opportunities to speak at meetings and to get quoted in the trade press that serves their niche. For more on the logistics of making this happen, click here.
One you begin to build your profile, you need reach out to your niche with the goal of securing initial meetings and building a pipeline of prospects with whom you’ll systematically communicate. Just as you need to budget time each week for activity that builds profile and credibility, you need to set aside time in your weekly schedule for follow-up calls to members of your prospect community.
There’s one big downside to focusing on becoming the safe choice for a defined target group – and that’s the length of time it can take before initial efforts translate into clients. Unfortunately, trying to rush this is likely to backfire and to hurt more than it helps. Next week, I’ll outline how successful rookie advisors have responded to the need to generate assets in the short term while at the same time positioning themselves for medium- and long-term success.
conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries, go to www.clientinsights.ca. Use A555A for the rep and dealer code to register for website access.
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