Many advisors are quietly complaining that their firm’s growth rate has stalled. Without market appreciation, they’re finding that they have to bring on a growing number of clients in order to maintain their historical 20% increase in top-line revenues. Plus every year, the assets corresponding to that 20% number grows accordingly.
What to do? In addition to the traditional things like working your client referral network, courting centers of influence and hitting the social media with tweets and blogs, a few nontraditional avenues of growth have opened up. If you aren’t exploring them, you may be leaving a lot of money on the table.
Client surveys
Let’s start with the simplest: creating new lines of communication with your clients via regular client surveys.
Spenser Segal, CEO of ActiFi, Inc. in Bloomington, MN argues, persuasively, that collecting consistent feedback from clients is the best way to increase wallet share and prevent client attrition. His firm recently purchased the industry’s top survey system from Julie Littlechild at Advisor Impact, and his staff has spent months analyzing the metadata: client responses to tens of thousands of questionnaires plus the answers to thousands of advisor questionnaires.
Segal’s first conclusion was fairly straightforward: Referrals are the source of between 80% and 90% of all new clients across the profession.
The second insight about the data, which Segal found profoundly revealing, is the fact that ‘engaged’ clients – that is, clients with whom you have more than a strictly professional relationship – will provide 100% of your referrals.
The rest of your clients, who are probably receiving excellent advice and service, will contribute 0% of your referrals and add nothing to your marketing efforts.
Adding fees, conserving clients
So how can you use surveys to raise your top-line revenues?
“At your next meeting with Client A,” Segal says, “You add to the agenda: Mr. Client, what are you most worried about? If he says he’s concerned about his overall risk profile and how well he’s insured, you offer to do a comprehensive risk analysis.”
This simple feedback loop uncovers client concerns, raises your project-based fees and helps you adapt your service model to your clients’ needs as their lives evolve. These projects add up over time.
If you send out a professional survey once a year, ask what services are missing from your menu. Propose new ones. Ask if there are any services being provided currently that are not high on clients’ priority lists. (Cutting back on labor-intensive services doesn’t boost your top-line revenues but it does enhance the bottom line.)
Your survey can also identify instances where clients are not happy. Many times an advisory firm will do a client survey and discover that 90% of clients report themselves to be ‘satisfied’ or ‘very satisfied.’ Everything’s good, right?
“That kind of survey becomes a feel-good exercise, where you conclude that you’re doing pretty well overall,” says Segal. “But what you really need is a client-by-client breakdown, because at the end of the day, every client relationship is different. Just because you’re doing a great job for Clients A, B, C and D doesn’t mean you’re meeting the needs of Client E.”
How does this boost top-line revenues? Segal’s survey data shows that, on average, 11% of advisory clients are dissatisfied, and of those, 64% have never expressed any sign of dissatisfaction to their advisor. Segal says that many times an advisor will be surprised when a client decides to move on, and then realized too late that there hadn’t been a lot of contact between them lately. In other words, most of the time, these are problems that can be fixed quickly and easily with a little more attention.
To perform a cost-benefit analysis, suppose you have 200 clients, and you discover through the survey process that 20 are at-risk to leave you, even though they haven’t complained or given you any indication that they’re dissatisfied. Let’s say that with 10 of them, you’re not terribly surprised, and (how to put this delicately?) you’re not mourning their decision to pester another advisor and heap abuse on her staff.
But the other 10 are good clients. Let’s suppose they average $500,000 in portfolio value and you’re billing under an AUM process. If you can catch the dissatisfaction early enough and repair the relationship, it could result in roughly $50,000 a year more in revenues than you would have had if those clients had walked – and this increase is cumulative, meaning that the second year your boost is $100,000, and $150,000 the third year. Multiply that over 10 years and we’re talking real money, just from that one survey, once a year.
Creating engagement
Meanwhile, you could be raising the number of new clients coming in the door. If 100% of client referrals are coming from clients who are ‘engaged’ with you, then your best strategy for raising referrals is to have more engaged clients.
How? At the recent Shareholders Service Group conference in San Diego, Segal drew a matrix which divided clients into three categories: ‘at risk;’ ‘satisfied’ and ‘engaged.’ Typically, for a healthy planning firm, 25% will fall into the ‘engaged’ category; they’re your biggest fans, and they believe that it would be a favor to others to tell them about you.
If you can raise the percentage of clients who fit into this category, just by moving just a few clients from ‘satisfied to ‘engaged,’ it opens up all the people those newly-engaged clients happen to know to your referral network.
To move clients from ‘satisfied’ to ‘engaged,’ Segal recommends that you, first, identify which clients fit into which category. Then identify 10 ‘satisfied’ clients who you feel you have a good connection with.
Finally, create a very simple face-to-face client survey that costs you roughly 25 seconds of your time. Ask two questions at the end of your next annual meeting.
The first is: “On a scale of one to 10, where “1” is that you plan to leave tomorrow, and “10” is that I have exceeded every expectation, where would you rank us?
“I actually don’t care what number they give me,” Segal said. “There are clients who would never give anybody anything higher than a ‘7.’ But,” he continued, “I’m paying a lot more attention to their answer to the second question: “What would it take to get us to a “10?”
Chances are, the client will tell you something very specific that you would never have heard otherwise. Your client is telling you how to move her from ‘satisfied’ to ‘engaged.’
The cost-benefit analysis here is straightforward. You have this conversation with 10 clients and maybe you move five of them from the ‘satisfied’ status to ‘engaged.’ They start referring clients, and with conservative estimates, you might end up with five additional clients a year, total – one for each new engaged client.
Multiply the value of a client relationship by five and that’s the projected boost to your top-line revenues – each year – from a marketing strategy that is totally different from anything you’ll hear from sales gurus who speak at industry conferences.
Referral discrepancy
Getting your clients to refer to you is one challenge. Getting those referred prospects to call and make an appointment is another.
How can you raise the odds that somebody who receives a recommendation for your services will actually give you a chance to have an exploratory conversation?
Segal’s analysis of thousands of client surveys, alongside surveys filled out by advisors over roughly the same time period, revealed something astounding: There was a huge discrepancy between the number of referrals that clients said they were providing, and the number of referrals that advisors said they were getting in the form of prospects coming in the door.
Segal’s best estimate is that out of every 10 referrals, advisors were seeing at most one prospect. In many cases, the differential was one in 20.
And here’s the punchline: Advisors had no idea that so many prospective clients were being sent in their direction! They were complaining that their clients were being stingy with referrals.
Why were advisors doing such a poor job of collecting their referrals? Many of them are still stuck in a past era when a website was a glorified brochure. When prospects go to your website, there is very little that engages and incents them to explore it in more detail. Advisors are doing a poor job of managing what might be called the ‘pre-engagement engagement.’ And this is costing them clients.
Follow the client’s lead
How can you do a better job of attracting the ghostly prospects who visit your site but never become visible? Segal offers a process that enlists your client’s aid.
First, ask your engaged clients if they’ve recommended you to any of their friends or colleagues lately. If they have, and you haven’t heard from these people, simply ask what the next step should be.
“You don’t want to overstep your boundaries,” Segal says. “If the client isn’t comfortable having you reach out to that person, then this is where you find out if this is an enthusiastic referral or not. If it’s a strong referral, and is truly a favor to their friend,” he adds, “then they’ll coach you in how to make that connection.”
You can offer several possibilities. Would the client be open to having a lunch together with the friend or colleague, to get to know you better? (Segal whimsically calls this a ‘three-person client event.’) Or could you schedule a larger client appreciation event, and have your client invite the friend/colleague?
The pre-engagement engagement
How can you do a better job of attracting the ghostly prospects who visit your site but never become visible? Start by offering free content. Whenever a client asks you a financial planning question, post that answer in blog and video format on your website, recognizing that prospects are probably asking themselves the same questions.
Putting blog posts and videos on your website is a start toward getting them engaged. But we’re only a couple of years away from the day when this is mere table stakes. A whole new technological ‘engagement arsenal’ has opened up, and the early adopters are going to experience an increase in market share at the expense of their more sluggish colleagues.
What arsenal? You already know that robo-advisors have built automated features into their software (I call it Software 2.0, intelligent software) to, at a minimum, perform online comparisons between a consumer’s portfolio return and a model portfolio. The entrepreneurs and venture capitalists who started these firms studied the way that their entrenched competition – you and thousands of advisors and brokers – interact with consumers, and they found a blind spot that they believed would allow them to disrupt the competition.
They realized that there is an increasingly important point of engagement between the prospect and the service provider, which precedes the first face-to-face meeting when most advisors believe the engagement starts. In this age of Internet due diligence, these robo-firms created more attractive, interactive web environments in order to dominate the pre-engagement engagement space.
This actually did the profession a huge favor. It showed us how to close that referral gap from one-in-10 or one-in-20 down to something far more manageable.
How?
The consumer-facing robos help their customers compare costs and portfolio returns to their existing investments. Betterment’s home page starts with a very simple quiz. On the second page, you’re already selecting goals. On the Wealthfront website, there is little more than a button which starts your online quiz. FutureAdvisor promises a free financial plan in two minutes. There’s no brochure; just an invitation to participate. To engage.
Using a new array of Software 2.0 tools, you can do them, not one better, or two better; you can engage prospects along four different vectors:
- Financial planning software programs like MoneyGuidePro (via MyMoneyGuide), Advizr Express and Investcloud are allowing you to put their software online and invite prospects to explore their planning options.
Prospects go to another financial planning site and they see a nice picture of the staff. They go to your site and they’re invited to explore whether they’re on track to afford a comfortable retirement. They can select other goals that they’ve always dreamed of, enter basic financial information and see a Monte Carlo evaluation of their current chances of affording those goals.
They can play with the assumptions. What if they retire earlier or later? What if they save more? The exercise becomes addicting – and because the assumptions can be changed with a slider instead of tedious data input, it’s fun to explore.
At some point, they realize they’re in over their head, and they want the advice of somebody who is proficient with these tools and better understands the possibilities. Who do you think they’re going to call: you, or the advisory firm with the nice picture of the staff?
The prospects click a button to find an appointment date on your schedule and – guess what? Much of their financial information, plus their goals, has already been input into your planning software.
- A variety of institutional (aka advisor-driven) portfolio management robo platforms are now available, including Jemstep Advisor Pro, Vanare/NestEgg Wealth, Folio Institutional, Adhesion/UMAX and Schwab Intelligent Portfolios.
Many of these platforms – soon all of them – allow prospects to upload their portfolio account information and compare their performance with your model portfolios. Some – and soon this will be all of them – allow clients to fill out the paperwork online that would transfer their assets over to your management.
This gives your website the same level of interactivity that the consumer-facing robo-firms are offering. But it also gives prospects the option of having a human relationship if they want it. And once again, when they make an appointment, a lot of their data is already in your system.
- Several of the leading online client document-performance information vault providers are empowering advisors to visitors to their website to upload their documents and account information to the Cloud, and keep track of their financial lives in one safe, convenient online location. The leading players in this space are Oranj and eMoney Software.
Younger advisors who primarily work with Millennial clients say that this service – providing a convenient place to organize all their financial ‘stuff,’ is as valuable as the actual advice those advisors are providing. Eventually, everybody will have their own online financial organizer, and whoever they store their data with will be the logical financial planner to call when they need advice.
- Finally, there are a variety of engagement tools that have been developed for prospective clients to play with, giving them an opportunity to self-explore their relationship with money. The most familiar are the risk tolerance assessment tools, including FinaMetrica and Riskalyze.
A new questionnaire called Financial Identities is designed to give prospects another reason to linger on your site. They take a self-assessment quiz that lets them explore their relationship with money and preferences regarding finances and a financial planning relationship. They get immediate access to a report that gives them insights into how they’re wired. Do they get a thrill from investing, or are they extremely careful with every penny that they spend? Do they have better things to do than think about their portfolio? Are they inclined to spend extra to project a lifestyle beyond their means?
Everybody is unique, and there are literally millions of possible outputs to the questionnaire. All of them celebrate the uniqueness of the prospects, and help them better understand how they’re unique.
At this point, I need to insert a conflict-of-interest alert: Financial Identities is my own invention, in conjunction with another software provider called PreciseFP– which provides customizable forms that you can put on your website to collect a client’s basic data, which then populates your CRM, financial planning and portfolio management software. I became interested in PreciseFP when I discovered that it sits on top of the software stacks of the most tech-sophisticated young advisors. Using PreciseFP means they don’t do much manual entry anymore.
Where Financial Identities differs from other self-assessment instruments is that it is specifically designed with the professional financial planner in mind. While the prospect is learning about his/her tendencies around money in a very detailed way, the planner is also learning whether this is somebody you want to work with, and if so, how to manage the client relationship.
Does this prospect want to avoid anything to do with the money management process? Is this a saver, a hoarder, somebody who tracks her finances obsessively or, at the other end of the spectrum, tends to be surprised at what she sees when the credit card statement arrives each month – and pays what she can?
Via another series of questions, the instrument gives you insight into the hot buttons that are buried in this client’s psychology. You know if these prospects are highly focused on data security, or want their portfolios to be more interesting and exciting than bland investments like index funds and ETFs. This raises the possibility that you and they will do a better job of connecting in that all-important first meeting, and should theoretically raise the close rate.
What’s the cost-benefit analysis for turning your website into an engagement magnet? Suppose that your clients have been giving out 100 referrals a year to your firm in the past, but only 10 people a year were actually calling to make an appointment. If you’re good at “closing,” then seven of them would become clients.
With a variety of engagement tools on your website, let’s conservatively estimate that you’ll get 16-25 of those 100 referrals engaged enough to call you. In addition, because you now have information about their hot buttons and maybe even a partially-completed financial plan on your website, you’ll be able to close 12-20 of them.
What’s the top-line revenue boost of 5-13 new clients a year? $50,000 to $130,000 a year? (And remember, once again this is cumulative.)
And best of all, it doesn’t take any additional effort on your part to add this new revenue.
Moving into the Blue Ocean
The final nontraditional way to boost your firm’s top-line revenues is to avail yourself of the robo-technology to allow your firm to multiply its potential prospects 10-fold.
Chances are, you’ve been told that switching accommodation clients to an online portfolio management system can move them from a hassle to at least marginal profitability. Eventually, you’ll save a lot of staff costs by serving all clients with the use of these automated platforms, but that’s an article for another day.
The question now is: How can a robo-platform boost your firm’s top-line revenues?
When you reduce the back office overhead of servicing smaller portfolios, it becomes less expensive to offer your services to the ‘other’ 90% of the human population – literally 10-times or more than the traditional advisor market of people who meet normal account minimums.
You can afford to have your younger advisors provide advice and services that these clients probably weren’t receiving before. Because the advice comes from people closer to their age, this builds a relationship with your existing clients’ heirs, which will help conserve client relationships across generations in a way that has never been done before.
With the advent of Software 2.0, you can give younger advisors more client-facing responsibilities. You leverage your back office and technology stack to allow them to market their services to their peers. This has been shown to be the number one attractant when you want to hire new talent. Caleb Brown, of New Planner Recruiting says that if your goal is to attract graduates of the top college financial planning programs, nothing else comes close.
And, of course, this trains your younger advisors in important client-facing skills. This is one of those skills that cannot be learned by reading a book.
Middle-income younger professionals and executives represent an enormous Blue Ocean of new potential clients for the profession as a whole – and, if the service model is carefully adapted to their needs, they can be profitable from day one. The net present value of these younger clients, if they can maintain a 20% savings rate, is much greater to your firm than an aging de-cumulator with a seven-figure portfolio. And there are so many more of them than upper 1% traditional clients!
You create the initial portfolios and put the asset management services on auto-pilot for clients with nothing more than a few thousand dollars to invest, you charge a retainer for your advice, and you (or a young associate, if you’re targeting millennials) provide cash flow and budgeting advice profitably. You get the new clients saving aggressively, and as the dollars add up, you might raise your retainer fees or add an AUM component.
Call it farming clients, raising them from seed into traditional wealthy clients, and doing it profitably as you go.
Which robo-platforms should you use? Once again, I would recommend Jemstep and Vanare/NestEgg, but you can accomplish the same thing on the more traditional outsource options like the SEI platform, and Adhesion Wealth Solutions has recently unveiled a robo-like solution. The point is to get the labor-intensive activities of rebalancing, tax-loss harvesting and creating performance reports off your desk and into the reliable hands of an intelligent computer system.
Yes, I know that there are reservations in the industry about how the robo-platforms create portfolios and the advisability of certain rebalancing protocols. But in each of the platforms I’m recommending, you create the portfolios yourself, and you set the opportunistic rebalancing parameters yourself. The human element plus Software 2.0 will be far more powerful than either of them individually.
I also know that many advisors have had trouble figuring out how to integrate robo-technology with their existing back offices. The subject is about to be addressed through a coaching program created by Advisor Touch – formerly Deborah Fox’s Fox Financial Planning Network.
Adding traditional clients
Having access to a much broader array of clients is one way to maintain your 20% top-line revenue growth. But you may also discover that marketing to a broader audience is the key to attracting more of your traditional clients as well.
How? Consider what would happen today if you were to open up your referral spigot all the way. Suppose you were brave enough to go to your clients and tell them, hey, I want to help your friends and neighbors, sincerely, and I know they’re facing significant financial challenges and issues in their lives, and could use the help of a professional. What would happen?
You’d get friends and neighbors and uncles and aunts and the person down the street, and at most one-in-10 of them would be an appropriate asset management client, not to mention in your target niche. Under your present system, with no automated advice platform in place, you would have created a huge problem for yourself, a flood of accommodation clients. Do you turn dozens of them away after telling your clients that you were ready to work with them? Do you want to risk your existing (and valuable) client relationships just to get incremental revenue in the door? Or do you take on 10 unprofitable relationships in order to get that one ideal client?
If you have a way to serve those other nine clients profitably, you can open up your referral network without having to cringe at the possible results. Not only do you get more traditional clients, but you end up with additional profitable relationships (and revenue growth) on the side.
Cost versus benefit? I have no idea how to do a cost-benefit analysis on hundreds of new retainer clients plus an expanded number of traditional new clients, but I suspect that you’d be looking at a lot more than 20% growth a year.
Taken together, all these things – surveying your clients and reducing defections; boosting the number of engaged clients; creating a better engagement process on your website; and using robo-technology to make it possible to serve more clients profitably – probably represent a bigger revenue opportunity than all the traditional things you’re doing to grow your firm. The profession will multiply its total number of clients, not just by 20% a year, but more than 100-fold over the next decade.
Are you ready to get your share?
Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. Check out his blog at: www.bobveres.com. Or check out his Insider's Forum Conference (for 2016 in San Diego) at www.insidersforum.com.
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