The strate­gies that suc­ceeded in the past will no longer work in the fu­ture.

The ac­tiv­i­ties that made you suc­cess­ful in the past will not lead to success in the fu­ture. In fact, us­ing those old strate­gies now is a pre­scrip­tion for fail­ure

Investment Executive - - FRONT PAGE - DAN RI CHARDS Dan Richards is CEO of Cli­entin­sights ( www.cli­entin­ in Toronto. For more of Dan’s col­umns and in­for­ma­tive videos, visit­vest­mentex­ec­u­

over the past 30 years, i’ve spent time with fi­nan­cial ad­vi­sors at ev­ery level. I thought I’d seen and heard it all, but re­cently I en­coun­tered some­thing I haven’t run into be­fore.

Some top-pro­duc­ing ad­vi­sors are telling me that for the first time in their ca­reers, they find them­selves strug­gling to main­tain rev­enue be­cause older clients who pass away aren’t be­ing re­placed. As one ad­vi­sor put it: “I’m work­ing as hard as ever and do­ing the things that have worked in the past, but I’m just not see­ing the same re­sults.”

In other cases, suc­cess­ful ad­vi­sors are ex­it­ing the busi­ness, sell­ing their books of busi­ness well be­fore they had planned.

As one ad­vi­sor said: “I’m in the for­tu­nate po­si­tion that I don’t have to work if I don’t want to. And I never thought I’d say this, but I no longer want to. I still en­joy help­ing clients; but com­pe­ti­tion and the over­all busi­ness en­vi­ron­ment have be­come so tough, it’s just not fun any more.”

My con­clu­sion: not only will the things that made you suc­cess­ful in the past not lead to success in the fu­ture, but con­tin­u­ing to do the things that you’ve done to this point is a pre­scrip­tion for cer­tain fail­ure.

In essence, to be suc­cess­ful, you will need a set of new rules to guide your busi­ness.

The shift­ing land­scape To un­der­stand why some ad­vi­sors are strug­gling, look­ing broadly at to­day’s busi­ness en­vi­ron­ment is help­ful. When I speak at con­fer­ences, I some­times be­gin by ask­ing ad­vi­sors in the au­di­ence to iden­tify one­time dom­i­nant com­pa­nies that are strug­gling or have van­ished en­tirely. Typ­i­cally, a flurry of names fol­lows, in­clud­ing fa­mil­iar names such as East­man Ko­dak Co., Po­laroid Corp. and Pan Amer­i­can World Air­ways.

The U.S. au­to­mo­bile in­dus­try has bounced back from its near-death in 2009, al­though in­di­vid­ual com­pa­nies’ mar­ket share to­day is a shadow of what it was. Gen­eral Mo­tors Co.’s share of the U.S. auto mar­ket has de­clined to less than 20% to­day from 60% in 1980.

Then, there’s the l ong list of sto­ried names in re­tail, in­clud­ing Block­buster LLC, Ra­dioShack Corp., Toys “R” Us Inc. and Sears Roe­buck & Co.

Why are we see­ing this kind of dis­rup­tive trans­for­ma­tion? The an­swer comes down to two words: ac­cel­er­ated change.

Through­out his­tory, change has been a con­stant, but the pace of change has not. There have been long pe­ri­ods of slow, al­most im­per­cep­ti­ble change. For ex­am­ple, in 1800, Napoleon’s troops trav­elled us­ing the same tech­nol­ogy and at roughly the same speed as was the norm in 50 BC. Just 50 years af­ter Napoleon’s ex­ploits, the ar­rival of rail­ways for­ever trans­formed the way armies trav­elled.

That’s what’s hap­pen­ing to­day in the in­vest­ment busi­ness. We’re go­ing through a pe­riod of in­ten­sive, com­pressed change when all the rules shift. In this en­vi­ron­ment, cling­ing to the sta­tus quo and look­ing for in­cre­men­tal change is a pre­scrip­tion for dis­as­ter. And, in a pe­riod of ac­cel­er­ated change, com­pla­cency is the most dan­ger­ous man­age­ment sin.

Banks are a good ex­am­ple of the way com­pa­nies re­spond to com­pressed change. Not that long ago, banks op­er­ated in a pre­dictable pat­tern: they ex­panded and hired staff in good times as the econ­omy grew; when we hit a down­turn, banks would cut back and lay off staff. Over the past few years, though, some­thing has changed. Banks have had very healthy per­for­mance on both the top and bot­tom lines; yet, al­most ev­ery ma­jor bank has re­duced staff in its branch net­work and tra­di­tional busi­ness lines sig­nif­i­cantly.

The rea­son lies in the threat from a new breed of dis­rup­tors known as “fin­techs.” In 2015, New York-based con­sult­ing firm McKin­sey & Co. is­sued a re­port pre­dict­ing that as much as 40% of banks’ re­tail prof­its could be in jeop­ardy from fin­techs. In re­sponse, bank CEOs around the world re­con­fig­ured their or­ga­ni­za­tions to get ready for these new, high-tech com­peti­tors. “What, me worry?” Con­trast the re­sponse from bank CEOs with con­ver­sa­tions I’ve had with some suc­cess­ful ad­vi­sors re­cently. Of­ten, what I hear re­minds me of the “What, me worry?” sen­ti­ment of Mad mag­a­zine’s Al­fred E. Neu­man char­ac­ter.

Here’s what one ad­vi­sor I spoke with re­cently had to say: “I’m re­ally glad I en­tered the busi­ness when I did; I would hate to be com­ing into the busi­ness to­day. But be­cause I came into the in­dus­try 25 years ago, I’ve been able to build up a loyal client base with whom I have deep relationships. As long as I do a good job of com­mu­ni­cat­ing with my clients and main­tain strong relationships, I can’t see most of them go­ing any­where.”

As I lis­tened to this ad­vi­sor, I couldn’t help think­ing back to a con­ver­sa­tion I had in 1985 with a friend whose fam­ily had run a small chain of up­scale toy stores in Toronto since the 1950s.

Here’s what my friend said: “I get that Toys ‘R’ Us and Wal-Mart [Stores Inc.] will be en­ter­ing our mar­ket at some point. But given the rep­u­ta­tion for qual­ity and ser­vice we’ve built, I think we’ll be able to with­stand new en­trants that come in com­pet­ing just on price. In fact, to­day, we see cus­tomers bring­ing in their kids, and those cus­tomers were brought to our stores when they were chil­dren by their par­ents.”

You can pre­dict what hap­pened. De­spite a loyal cus­tomer base built over decades, five years af­ter Toys “R” Us and Wal-Mart en­tered the mar­ket, this fam­ily busi­ness shut its doors. In most cat­e­gories, of­fer enough of a price sav­ings and even happy and loyal cus­tomers will move.

That’s an ex­am­ple of the new rules that ap­ply. Some­thing is “busi­ness as usual” un­til, sud­denly, it’s not. New dy­nam­ics at work When I com­pare the way busi­ness is con­ducted to­day with the ways of the late 1980s, in most cat­e­gories, it looks en­tirely dif­fer­ent.

There are only a few in­stances in which things haven’t changed dra­mat­i­cally. One is how health care is de­liv­ered. A sec­ond is how stu­dents are taught. And a third is how many ad­vi­sors de­liver ad­vice.

Here are just two ex­am­ples of ar­eas in which the rules have changed for ad­vi­sors:

The clients you fo­cus on. Un­der the old rules, ad­vi­sors were gen­er­al­ists. You’d meet with a re­tiree in the morn­ing, a busi­ness owner over lunch and a cou­ple plan­ning for re­tire­ment in the af­ter­noon.

Un­der the new rules, you’ll need to be a spe­cial­ist to ex­cel. In pro­fes­sion af­ter pro­fes­sion, we see gen­er­al­ists strug­gling — think: doc­tors, lawyers and ac­coun­tants — and ad­vi­sors will be no dif­fer­ent. As one ex­am­ple, an ad­vi­sor in Toronto first nar­rowed his fo­cus to re­tirees, then nar­rowed it fur­ther to snow­birds who spend the win­ter in Florida. He has de­vel­oped ex­per­tise in es­tate and tax plan­ning is­sues for Cana­di­ans who own U.S. prop­erty. He talks to his clients about hedg­ing against a drop in the Cana­dian dollar, hosts sem­i­nars on hot but­tons for snow­birds and makes three trips to Florida each win­ter to meet with clients.

This ad­vi­sor de­liv­ers value to his target clients that gen­er­al­ist ad­vi­sors can’t match. Other suc­cess­ful ad­vi­sors I’ve met in­clude a woman in Los An­ge­les who fo­cuses on women who’ve left long mar­riages and an ad­vi­sor in New Eng­land whose target is busi­ness own­ers in their 60s and 70s.

How you com­mu­ni­cate with clients. The old rules re­gard­ing client com­mu­ni­ca­tions were all about face-to-face meet­ings with oc­ca­sional tele­phone up­dates.

Un­der the new rules, face-to-face meet­ings still will be im­por­tant; but a new, hy­brid model us­ing Skype and other digital means of com­mu­ni­ca­tion will play a grow­ing role.

There has been much dis­cus­sion about U.S.-based robo-ad­vi­sors po­ten­tially dis­plac­ing hu­man ad­vi­sors. Robo-ad­vi­sor mar­ket lead­ers Bet­ter­ment LLC of New York and Wealth­front Inc. of Red­wood City, Calif., have about US$15 bil­lion in as­sets un­der ad­min­is­tra­tion (AUA) be­tween them.

Com­pare that with Malvern, Penn.-based Van­guard Group Inc. In the spring of 2015, Van­guard launched per­sonal tele­phone ad­vice to its clients at a cost of 30 ba­sis points. By last March, Van­guard’s ad­vice of­fer­ing had AUA of $65 bil­lion and was at­tract­ing $5 bil­lion in new AUA a month.

In the pe­riod ahead, we can ex­pect ev­ery as­pect of how ad­vi­sors run their busi­nesses to look fun­da­men­tally dif­fer­ent. In my next few col­umns, I’ll be out­lin­ing the new rules on how suc­cess­ful ad­vi­sors will need to op­er­ate.

Banks are a good ex­am­ple of the way firms re­spond to com­pressed change

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