Sev­eral trends shap­ing the financial ad­vi­sory busi­ness will af­fect your prac­tice. The keys to com­ing out ahead lie in im­prov­ing your ser­vice and em­brac­ing tech­nol­ogy

Investment Executive - - FRONT PAGE - BY GE­ORGE HART­MAN

Five key trends that will af­fect your busi­ness.

“Coach’s Fo­rum” is a place in which you can ask your ques­tions, tell your sto­ries or give your opin­ions on any as­pect of prac­tice man­age­ment. For each column, Ge­orge se­lects the most in­ter­est­ing and rel­e­vant com­ments from read­ers and of­fers his ad­vice. Our ob­jec­tive is to build a com­mu­nity of peo­ple with a com­mon in­ter­est in mak­ing their financial ad­vi­sory prac­tices as ef­fec­tive as pos­si­ble. ad­vi­sor says: i think i have a good han­dle on the long-term strategy for my prac­tice. How­ever, the chal­lenge I’m hav­ing is pri­or­i­tiz­ing shorter-term ob­jec­tives. Over­all, the busi­ness is run­ning well, so there’s noth­ing that jumps out at me as need­ing im­me­di­ate, close at­ten­tion. I would like to de­velop tar­gets to give me some spe­cific di­rec­tion for, say, the next 12 months.

What is­sues should I fo­cus on? coach says: what you’re really de­scrib­ing is the re­la­tion­ship be­tween strategy and tac­tics. Let me sum­ma­rize it in these ways:

Your strategy pro­vides di­rec­tion; your tac­tics are about im­ple­men­ta­tion.

Strategy is what you want to achieve; tac­tics are how you are go­ing to achieve it.

Strategy is fu­ture-ori­ented; tac­tics fo­cus on the present.

Tac­ti­cal plans usu­ally are de­signed to achieve in­cre­men­tal im­prove­ment, whereas real strate­gic de­signs can and should change the path of your busi­ness rad­i­cally.

I have al­ways be­lieved that the best way to de­ter­mine fo­cus for a financial ad­vi­sory prac­tice over the shorter term is first, to take stock of the longer-term dy­namisms that brought you to your cur­rent state of af­fairs. From there, you can ex­trap­o­late trends and pre­pare your­self ac­cord­ingly for the more im­me­di­ate fu­ture.

Here are five ma­jor in­flu­ences that, in my opinion, will con­tinue to af­fect financial ad­vi­sory prac­tices in the years ahead, along with pre­scrip­tions for deal­ing with them in the near term: 1. com­modi­ti­za­tion of ad­vice (and ad­vi­sors)

The global financial cri­sis of 2008-09 not only ravaged most in­vest­ment port­fo­lios, it also crushed the cred­i­bil­ity of many financial ad­vi­sors. The wide­spread ef­fect among clients was, gen­er­ally, to cre­ate an at­ti­tude of “You guys are all the same.” And when there’s lit­tle or no dif­fer­en­ti­a­tion among prod­ucts or providers, they be­come com­modi­ties.

There are two ways for com­modi­tized prod­ucts to rise above their com­peti­tors: of­fer a lower price or a higher level of ser­vice.

Try­ing to com­pete with a low­price strategy is a “race to the bot­tom” that only re­in­forces the com­modi­ti­za­tion ef­fect. In­stead, I urge ad­vi­sors to raise their fees so they can af­ford the other way to com­pete, which is by pro­vid­ing a higher level of ser­vice.

Of course, higher fees work only if the ser­vice really is bet­ter than the com­pe­ti­tion’s and clients and prospects are aware of that fact. Your strategy, there­fore, should be to pro­vide an ex­cep­tional level of ser­vice to those clients who de­serve and value it the most.

To ac­com­plish that, I sug­gest you over­weight your ser­vice de­liv­ery sig­nif­i­cantly in favour of your high­est-mar­gin clients. All clients de­serve good ser­vice. How­ever, de­feat­ing com­modi­ti­za­tion re­quires you to stand out from the crowd where it counts the most. 2. mar­gin squeeze

The dis­cus­sion of com­modi­ti­za­tion is a nat­u­ral segue into the is­sue of de­te­ri­o­rat­ing profit mar­gins. Ris­ing busi­ness costs, to­gether with de­clin­ing fees, make in­vest­ing in your busi­ness or main­tain­ing your per­sonal life­style a chal­lenge.

Un­der­stand­ing the met­rics of your busi­ness is fun­da­men­tal to man­ag­ing costs. Con­duct a deep anal­y­sis of the ser­vices and re­sources you pro­vide to as­sess whether the value your clients re­ceive jus­ti­fies the ex­pense.

Be­gin by es­ti­mat­ing your big­gest cost item: your time. As a rough guide, sim­ply di­vide your to­tal an­nual rev­enue by the num­ber of hours you work in a year.

Yes, some­times you will work at $1,000 an hour; other times, at $10 an hour. How­ever, hav­ing an av­er­age can put things in per­spec­tive. For ex­am­ple, if your av­er­age hourly rate is $500 and you spend two hours, twice



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