Practice management tips for advisors in 2012Article added by Ed Morrow on February 28, 2012
Ed Morrow

Ed Morrow

Middletown, OH

Joined: October 29, 2005

Most financial advisors have survived the continued turmoil of 2011, and some have made noteworthy progress. But you cannot be like an ostrich and place your head in the sand. You must recognize the challenges and move forward.

Marketing still counts

Most financial advisors have survived the continued turmoil of 2011, and some have made noteworthy progress. We are still in economic doldrums, and there is a common obsession with political developments distracting the citizens and their financial consultants.

Those who favor the projects, legislation and regulations adopted by President Obama are concerned that he may be defeated or lose congressional control later this year, and that his measures will be undone. Those who have been displeased with his administration are equally concerned there will not be a change in control to revert those steps and return to our prior course.

No matter which way the elections go, there are important moves that you as a practitioner should be sharing with your clients. You want to protect their interests, as they perceive them. You also want to preserve all your client relationships and add more high caliber clients.

If you are not growing, then inflation is eating into the valuable equity of your firm or practice. It is not unlike what you tell your clients — the net revenue increase must exceed the rate of inflation. For you as a practitioner, this is complicated because practice growth often requires an upgrade of staffing and even new technology, furnishings or office location.

But you cannot be like an ostrich and place your head in the sand. You must recognize the challenges and move forward. One technique is quite simple, and very effective.

Make a list of 10 items you would like to improve this year. Be reasonable here and avoid pie in the sky projects. You have 10 months remaining in the year. Rearrange that list into the most logical order. Then, for March, devote a bit of time every day on that project or enhancement. You may not get full resolution, but you will have made noteworthy progress. On April first, switch to the next item.

Financial diversification

Financial diversification is getting more attention, and you should definitely start reading and planning the best ways to offer this type of service. It can be valuable to your clients and extremely profitable for you. Some clients view this as asset protection, and that is very suitable for professionals who can be bankrupted by a malpractice lawsuit. That also applies to financial consultants.

One very ethical financial consultant suggested his clients invest a small portion of their portfolio into medical notes. When the firm offering these instruments went under, the plaintiff attorneys descended on him.

They advertised locally to secure clients, and filed suits against the broker/dealer and the advisor. Yes, he had E&O insurance, but the amount of coverage was not enough, plus he had to retain personal counsel. While all this was transpiring, he lost clients, was distracted by the negativity and discontinued his periodic seminars. His revenue plummeted.
Soon, he was facing bankruptcy himself and wished that he had parked some of his money outside the easy access of plaintiff attorneys. It looks as if he will avoid the bankruptcy; however, he will be broke, his practice has shriveled, his income is reduced and his personal life has been stressed.

He had a tough choice: surrender most of his retirement plan proceeds and avoid bankruptcy or keep the funds protected, but deal with the impact of being a bankrupted financial advisor.

Plan for yourself

What are you doing to protect your own assets from avaricious attorneys or government regulators? You think it can't happen to you?

Another mature financial advisor built his practice by developing several financial counselors who were independent contractors. Their portion of the plan fees, AUM fees and product commissions was accounted for and scrupulously paid to them. But the local state claimed these were statutory employees.

These counselors used firm business cards, offices, computers, software and followed up with the prospects generated at his seminars. The amount of back taxes, fees, penalties and interest was staggering. The state attracted participation of the federal regulators. If he lost, he would be out of business and broke.

I am pleased to report that he won his battles, but the legal fees were horrendous. Only part of the legal expenses was covered, because failure to report wages and contribute all the taxes and withholdings can be a felony, and E&O does not cover that.

What if he had lost? Did he have some of his assets outside the reach of the regulators and courts? No. That is why he was in a state of panic for two years.

Reach out to the wealthy

There are many persons who want to protect themselves and their family from these risks. Maybe they are unhappy with the political and social direction of the country. Maybe they have been disturbed by media reports. It does not matter what commences their motivation. They need and want help. They will pay for this service and they will shift some of their investments into a venue that is protected and profitable for you.

Enjoy deductible travel

You can accompany your clients to offshore events and direct them to meetings and personal conferences. You guide the client and provide the entire fact finding. You will incur deductible expenses. You will have personal earnings or reimbursements. Those can be channeled for your maximum benefit and soon you are practicing exactly what you preach.
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