WINDS OF CHANGE
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
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