Check-up for a financial advisorArticle added by Ed Morrow on December 26, 2008
Ed Morrow

Ed Morrow

Middletown, OH

Joined: October 29, 2005

In a conversation the other day, I heard a tale of woe from an established financial planner. He said he'd been in the financial services industry for more than 20 years and the economic turmoil was causing him great stress. Seeing the problems and the solutions through his eyes may be very helpful to you. First, we should learn his background, then understand his problems. Finally, we'll explore the relatively simple solutions to his current economic crisis.

Advisor profile:
  • College degree in history, age 22
  • Started selling used cars for uncle
  • Promoted to sales manager, age 26
  • Married to high school girlfriend, age 27
  • Bought his first house with 20 percent down, age 28
  • Their first child born at his age 30
  • Started life insurance sales, age 31
  • Acquired LUTCF, age 33
  • Acquired CLU designation, age 35
  • Qualified for MDRT, age 36
  • Left primary insurer, joined a B/D, age 37
  • Started preparing plans, age 39
  • Charging plan fees, avg. $800, age 40
  • Acquired CFP designation, age 42
  • Slowly started assets under management (AUM) for fees, age 44
  • Bought larger home, three children, age 45
  • Changed B/D for higher payout, age 47
  • Became RFC member, age 49
  • Moved to new office suite, age 49
  • Staffing: One assistant, two clerks by age 50
  • Current status: frightened, age 52
2007 summary:
  • AUM, avg. 1.0 percent: $15 Million
  • Four new plan clients, average fee of $2,000
  • Retainer fees (24 clients): $500 each
  • Modular plan fees (eight cases): $4,000
  • Life insurance new commissions: $22,000
  • Annuity new commissions: $48,000
  • LTCI, LTD, CII commissions: $5,000
  • Renewal commissions: $18,000
  • Securities and funds commissions: $14,000
  • Total revenue: $271,000
  • Office overhead expenses: $41,000
  • Payroll and benefits (three employees): $122,000
  • Net to advisor (40 percent of gross): $108,000
  • 2008 expectation: increase income 20 percent
2008 estimates:
  • AUM declined to $10 million (loss of three clients and market loss)
  • Two new plan clients, total fees: $5,000
  • Modular plans and retainers: $12,000
  • New commissions: $64,000
  • Securities and funds commissions: $16,000
  • Total revenue (down 28 percent): $197,000
  • Office overhead expenses: $47,000
  • Payroll and benefits (three): $120,000
  • Net to advisor (15 percent of gross): $30,000
Actions taken to adjust:
  • Refinanced his residence
  • Suspended personal IRA deposits
  • Borrowed on his life insurance
  • Cancelled employee bonuses
  • Considering laying off one employee
  • Visiting a marriage counselor
Advisor's current outlook

This advisor lives in a suburb of a medium-size city that has had major problems. The community's largest employer was acquired by a European firm, and the plant closed, leaving only a small domestic sales office. Two other large plants reduced staffing 60 percent by outsourcing production to Mexico and Costa Rico. A very large grocery chain closed its large store and so did two anchor department stores that supported a local shopping mall. Now, half the small stores are closed and businesses all over town are closing or reducing staff.

His clients in this community and in the surrounding villages are all extremely nervous, even though many have not yet been quite as affected. Most of his time during the last half of 2008 was spent reassuring and retaining his customers. He eliminated his semi-annual seminars. He has also been a very active community citizen, chairing a number of associations, committees and fundraising events.

This advisor loves his work and is proud of his ability to help his clients. While his 2007 income of $108,000 may not seem like a lot, it enabled him to live very comfortably and contribute to his youngest child's education. He fears that if he has to lay off even one employee, "The word will get around town that I am in trouble." Furthermore, he feels that he would feel even more stressed to continue a high level of service. Regarding office expenses, he has already "pared them to the bone" and has ceased all advertising, including some small newspaper display ads, Yellow Pages ads, seminars and his client newsletter.

His broker/dealer is not pleased with his production. They handle trades and products reasonably well, and he has become accustomed to their compliance interference; however, he fears they will reduce his payout percentage, further aggravating his economic woes. His plea: "What can I do about this quickly?"

Let's define the problem

Sometimes it helps to decide first what is not the problem:
    1. It is not his professional education. This man has three designations, and has religiously attended educational sessions at MDRT, NAIFA, FPA and IARFC.

    2. He is not understaffed. They may not be used most effectively, but he is well supported.

    3. He is not under-equipped. He indicates that he and his staff have all the equipment and resources needed.

    4. He has good product support. His current b/d offers him good products at a reasonable commission structure, and he can get more help when he asks for it.

    5. He is officed appropriately. While he can make some modest improvements, his location fits the community and his clientele.

    6. He is already charging fees. He has the necessary structure, although his new plans, both comprehensive and modular, are down in number and revenue. He might increase the fees modestly, but this will not solve the problem.

    7. He is not lazy. This man works from 8:00 a.m. until 6:00 p.m. five days a week, plus an average of four to five hours every weekend (as well as a little evening work).

    8. He is not distracted. He has given up his association and charitable activities for the time being, and he is not spending time on the golf course, tennis court, or surfing the Internet.

    9. He lacks no important skills. He has been well regarded as a speaker. He is a graduate of Dale Carnegie and was in Toastmasters for five years. He has no apparent fears or shortcomings.

    10. Clients respect him. Although deeply concerned about market turmoil and the economic aspects of the political future, his "hand-holding" efforts have retained all his clients except those moving out of town.
The above 10 items have narrowed the search for his practice management problems. What remains? How can this experienced and competent financial advisor stay in his chosen profession? Since he cannot or will not reduce expenses or payroll, what else can be done? Just as you would when counseling your client about a real or perceived problem, we asked several questions. What follows are those questions and his answers:

Q. What are your "elevator statement" and your "elevator extension" phrases?

A. What's that?

Q. Tell me about your business plan.

A. Well, I did one about five years ago, but I'm not sure where it is now.

Q. Tell me about your marketing plan.

A. You mean Yellow Pages? I cancelled those ads.

Q. What is your NCR?

A. Sorry, we do not have a cash register.

Q. How are you doing on referrals?

A. My clients have already given me referrals, and in this economy I doubt if they have any more.

Q. For how many persons do you propose a comprehensive plan?

A. Whenever someone seems to need one, I suggest it and they usually say OK.

Q. Do you have procedures for presenting your plan services?

A. No.

Q. When did you hold your last group meeting?

A. I cancelled that activity to save money and to have time to meet with clients about market issues and product changes, especially in variable products.

Q. May I see your client marketing brochure?

A. I don't have one, but sometimes I use the brokerage firm's literature.

Q. May I see your advisor CV, then?

A. What is that?

Q. In your entrance and nice conference room there are lots of MDRT and production plaques. Why?

A. They are nicely framed and make clients feel I am successful.

Q. Why did you suspend your newsletter?

A. I had boxes of the things lying around. We never got them mailed regularly. We ordered 200 per month, and mailed about 120 some months.

Q. How do you stay in contact with clients and prospects?

A. Whenever I can find time I write them letters, but mostly we try to call them as often as possible.

Q. Which CRM system have you implemented?

A. What is CRM, a copier or a scanner?

Q. Do you have a schedule for those client calls?

A. No.

Q. Who makes them?

A. I do, because I am not sure what my staff persons would say.

So, what's the diagnosis?

It is probably unnecessary even to write it out. This advisor has a marketing problem; a very serious, dysfunctional marketing activity pattern. However, he is well educated, well staffed, well supported -- and well intentioned.

This advisor is like the Packard Motor Company -- they failed to advertise and promote what many believe was the finest car in the world, and they went out of the business right after the war. Yes, thousands of sailors had used Packard Motors in their PT boats and tanks, but they went home to buy Fords and Chevys because the Packard folks didn't feel that marketing was important when everyone knew Packard was number one.

This advisor has everything going for him -- except marketing. And it is killing his practice, destroying his economic strength and ruining his life.

What's the treatment?

First of all, we must realize that this marketing problem has been brewing for a long time, and the solution is not going to be easy, nor will it be cost-free. He must look at this as an investment--an investment in professional survival.

The fact that he has retained 100 percent of his local clients is a testimony to the personal trust they have in him. But this can be eroded by future market declines. He has no system of regular contact, and he is not securing referrals. He has stopped all marketing activities hoping to save money, but this is having a devastating impact on gross revenue.

He has a classic cash-flow squeeze that has driven many small business owners (and some very large ones, as well) out of business. Overhead expenses have risen, despite his attempts at economy, and revenues (for some reasons beyond his control) have declined.

There is no magic bullet or panacea to correct this situation. But the solution is at hand, and it is affordable. Also, this is not a situation that will require long-term treatment, such as if he had seriously inadequate knowledge about planning topics and the products that are needed by his client.

When presented with a new client, he knows how to take the proper actions, and he has done so previously with success.

Here are the solutions, some of which are virtually cost-free:
    1. Bring the prospects into his office. This environment can be improved at no cost by removing all of the plaques that give a "producer/sales" and not an "advisor/service" image. Replace them with inexpensive prints and items that will enhance his credibility, like designation certificates, membership credentials and a Code of Ethics.

    2. Bring in more prospects. (A lot more prospects!) He needs to be willing to turn away prospective clients who do not fit the level of his practice. One way is to adjust his fee schedule upward a bit.

    3. Obtain more referrals. He has made a classic error in assuming that he has received all the referrals his clients may have to offer. They are constantly meeting new people. They can, and will, offer him more referrals. But he has to ask, and ask often.

    4. Harvest those referrals. One reason he is not asking for referrals is that he has no system to process those names. His old approach was to give them one or two calls and if not successful, he decided the name was worthless.

    5. Improve his initial closing ratio. The properly secured new client is one who has agreed to have a comprehensive plan prepared, for a reasonable price, and understands that after the plan, they can implement through him.

    6. Consider outsourcing. His revenue from long term care, disability insurance and critical illness insurance is quite modest. There may be a specialty firm that can serve his clientele and pay him the base commissions, thereby increasing his revenue and reducing his time.

    7. Automate his marketing and contacts. Discontinuing the newsletter sent negative vibes. He needs to implement a client relationship management (CRM) system, which will manage all the communications to clients and prospects, including tracking all contacts and automated "drip marketing." Staff members should make many of the calls, using his simple, pre-approved scripts.

    8. Newsletter contacts. He can switch to a shorter newsletter, and mail bi-monthly at a significant cost savings. Use the masthead to publicize and credentialize the three staff members. Also send an e-mail newsletter every month. This helps increase reception for referral requests.

    9. Hold monthly client briefings. This can be done on Saturday mornings in a local hotel. Invite clients to bring a friend for coffee and rolls, 9:00 to 11:00 a.m. Topics should be current developments and oriented toward problems and generic solutions - not sales presentations. Invite local professionals as guest speakers to encourage their clients to attend, and obtain referrals of clients. Involve his staff in the logistics and even some of the presentation. Ask both clients and prospects to sign-in at the table in front where materials are handed out. Send media releases on these briefings. Every attendee packet should contain a referral card.

    10. Enhance Internet presence. The first step is to complete his IARFC Web site profile - at no cost. Make reference to this credential as often as possible by indicating, "You should always check the credentials of any financial advisor, and you can go to this third-party Web site and check mine." Charge a staff member to determine all local Web sites where the firm can be listed free or on the basis of a swapped Web listing.

    11. Create Internet posture. He can use IARFC Web sites to create a low-cost, high-quality firm Web site and delegate the updating responsibility, re-using content from his newsletter and his CRM system. Annual cost: $395

    12. Enhance initial presentations. He doesn't feel enthusiastic about presenting comprehensive or modular planning. He just does it when needed. He needs to class-up these presentation events, increase the fees, excite the prospects and set the stage for implementation and referrals.

    13. Construct and follow a marketing plan. This will include how to increase his media presence. In times of economic turmoil the media is looking for credible sources. Modest efforts can pay off handsomely. He should re-read the great articles in the Register by Wally Cato, Beth Chapman and Maribeth Kuzmeski.

    14. Dress up his comprehensive plans. This advisor already uses Plan Builder, but places the plan pages into a drab three-ring binder he gets from an insurance company, with no tabs or structure. The advice is good; the delivery sucks! The cost and effort for a more attractive plan is nominal.
Where is the pharmacy?

What this advisor needs is not radical surgery! What is needed is for him to start taking vitamins on a long-term basis and take some specific medication for some problems he cannot solve alone. He must also insist on cooperative therapy from staff members, and follow a long-term financial health plan.

This advisor needs to implement two medications (products) immediately -- a CRM program and a presentation system. They can be purchased from a variety of vendors.

But what is really possible? What should be the goal for this financial advisor and his staff? You be the judge. But wouldn't a realistic expectation be two new clients per month? That would bring in additional gross revenue of over a quarter of a million -- and send his AUM totals on a steep incline.

Now that's what I call Do-It-Yourself Economic Stimulus!
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