Jump quick

By Ed Morrow

Intl. Assoc. of Registered Financial Consultants

The financial services industry is changing. In fact, it has been in a constant state of change since 1945. The War altered work opportunities for women, initiated the use of computers, and also changed how people look at both life insurance and investments as well as at their need for personal financial independence. But what are the most recent changes that affect you?

The following may already be impacting your practice and your income:

Companies are reducing staff. Life insurance companies that used to have many training and advanced underwriting sales support staff are slimming down -- to nearly none. Brokerage firms are also reducing their support personnel, while urging their reps to sell greater volumes at lower expense.

But, so are investment firms, banks, credit unions and trust companies' employee relations departments. And, while they're slimming down domestic departments, many are also trying to outsource additional tasks abroad if they think it will save money.

When these staff reductions trickle down to the level of the financial advisor or life agent it means that you -- and the staff you are paying for -- must work harder and smarter just to break even.

Direct marketing is increasing. Every institution wants to direct-market to consumers -- whether the product is investments, insurance, mortgages, real estate or self-help financial advice. The mediums include radio, TV, newspaper, magazine, direct mail, billboards, telemarketing, e-mail and the Internet. These multiple approaches frequently confuse the customer and cause them to question the purchases they have already made. This is where much of the institutional marketing budget is being spent -- on direct marketing -- not on the support and advancement of a professional sales force.

Competition is forcing prices down. This aggressive multi-channel marketing causes the consumers to request more details on product offerings, plus it drives down the product price and related commissions.

Commission percentages are shrinking. With increased price competition also comes reductions in commission percentage, allowances, renewals and service fees. This places additional pressure on the commission-based financial advisor.

No load and no commission. There are serious efforts being made to create this form of product design and distribution. Insurance and investment companies would like to eliminate commissions. Why? Because their product would look better if they didn't have to pay "dirty" commissions. They could avoid all the expense of recruiting, training, supervising and rewarding salespersons.

Their solution is that for every product, the consumer could buy it directly from them or pay an outside consultant a fee for service. They don't care about the fee for service. The reason they don't care about the fee is because it isn't reflected in their product.

That is great for large purchasers who are accustomed to paying substantial fees for professional services. But does it fit the lower 95 percent of the socioeconomic pyramid? I think not; however, it may cause great market pressure and every advisor -- everywhere -- must be positioning to cope with it, or prepare to join the fee-only movement.

Asset management fees are declining. It wasn't too long ago that portfolio managers and wrap programs charged the full 2.5 percent allowable rate. While the market was constantly rising, this was not greatly challenged. But, when the market started to decline, investors began to question the higher charges on declining balances. Once these management fee rates decline, they are not likely to go back up.

Everyone claims to be a financial planner. Regardless of their level of experience, education, professional credentials and capacity, many firms and individuals are now claiming to be financial advisors. Some offer free or low-cost services, which further complicates the marketplace.

What might you do about this?

One solution might be to prepare a new business plan or update the one you have now. Another might be to prepare a market analysis plan. For most financial advisors, there are several obvious solutions for these issues, but they start with an identification of which concerns are the most serious.

Oftentimes, the solution is to adjust your marketing efforts, such as to:
  • Acquire more clients just like the best ones you have now

  • Acquire a more affluent group of clients

  • Sell more services to the same clients or increase your market penetration within your existing client base

  • Increase the price and profitability of your services

  • Reach out to new markets:

    • Segments of society

    • Age groups

    • Occupations

    • Geographical locations
Most marketing involves prospect management. Acquiring new clients can be very stressful unless you give a lot of thought to the process you will be using. For example, two veteran life agents who had transitioned into financial planning were faced with the threatening issues previously described. Both had studied financial planning and acquired a ChFC and RFC designation.

The first advisor decided to purchase a list of 3,000 upscale names. He planned a dinner seminar, mailed the list twice at a cost of $1.20 per piece, held the seminar for 40 couples, and ultimately harvested 15 clients for a total cost of $12,711. He was not unhappy, since his new client revenue (NCR) per client was $4,000. The seminar produced $60,000 of income. His return per dollar invested (not including his time) was $4.72.

The second advisor initiated an aggressive mailing program to his current 175 clients. He sent newsletters, articles, press releases, brochures and included referral postcards. The increased business from current customers was estimated at $25,000 in revenue. During the year, he received 30 referrals from which he secured 15 clients at an NCR of the same $4,000 each -- or $60,000. Total revenue for the effort was $85,000; the total cost was $7,340. His return per dollar invested was $11.58. In addition, his increased contact frequency with existing clients increased their loyalty.

Which approach is best for you?

It all depends on factors that involve your style, your market and your competition. In some areas, the dinner seminars work very well. In other communities, they are very expensive and now produce a lower yield. Furthermore, the regulators and media are now advising clients to be suspicious of the "free lunch or dinner" seminars.

All of the above items have a potentially negative effect on your practice and on your bottom line. There are no magic answers. No single item will cure the problem for every financial advisor, for every firm. But, you can consider a variety of alternative reactions. Some of these moves will be right for you to employ, and to do so immediately. Others many require time or investment. Some items will simply not apply to your circumstances.

What can you change?

Reduce your overhead. Many corporations immediately turn to this remedy when times get tight, but it is extremely unlikely that this will help you in the long run. Sure, you should carefully assess your budget for any areas of savings. You might be able to gradually reduce some of the operating expenses. But the major item -- labor costs -- will not go away. In fact, it will probably continue to rise unless you can reduce the number of staff members without affecting service levels.

Elevate your clientele. If you can raise the affluence level of your average client, then you will increase your revenue per client. You have no doubt made improvements in this area in the past, so you know you can achieve gains here. The solution requires focus. You must concentrate on making clientele improvements. Every aspect of your marketing should be designed to enhance client affluence levels, if that is your chosen solution.

Add new products or services. These will be very helpful, provided that you do so without a major increase in expense or effort. Consider outsourcing as one technique for this expansion. If some of your clients need a product like long term disability, long term care insurance or critical illness coverage and you aren't selling it, you may want to turn to a specialty agency to make the sales to your clients, and in return, they will pay you handsomely for the opportunity to do so.

Acquire more new clients. This can have a doubling effect if you increase the number of new clients while you simultaneously increase your overall client affluence level. This will require you to market for new customers in a slightly different way -- and try to improve both your average NCR and your ACR (average closing ratio), which is the number of prospects who say "yes" to your proposal.

Increase your planning fees. Yes, others firms may be offering cheap or free planning - but that's not what the market really wants. The market for qualified financial planning services has never been price sensitive -- it's quality sensitive, image sensitive. A slight improvement in the way you market, propose and deliver financial plans can justify a significant price increase.

One financial advisor had been delivering an average of two plans per month at $500 each -- a revenue of only $12,000 per year. He improved his initial presentation by using a well-rehearsed and professional presentation. He enhanced the planning packages with supplements to improve the perceived value and increased the fee to $1,200 while simultaneously increasing his production to four plans per month. He knew he could produce and deliver one plan per week without increasing staff or operating expenses. It took focus and concentration, but no major expense. His gross planning fee revenue went from $12,000 to $57,000 and his product sales and new assets under management also increased substantially because he was acquiring more clients.

Sometimes the solution to a problem is to go back to the basics. Many financial planners got out of the habit of producing high-caliber comprehensive financial plans when it looked as if their practice was shifting to the fee-based assets under management structure. They stopped the process that was producing new clients. To do this, you need good, easy-to-operate software that will help you produce a high-quality plan.

Add new revenue sources. One advisor decided most of his clients really needed ongoing quarterly reviews -- interviews that might take an hour or two -- just to be reassured they were making the right moves and not passing up certain opportunities. So, he instituted a coaching program and now charges an annual fee of $1,000 or $250 per meeting. Forty clients signed up for the program. He has also discovered that he was making additional sales to those clients he might have previously overlooked.

Professionalize your marketing. You must have an effective way to move a suspect to a prospect and then into a client. This requires more finesse with the more affluent clients. It won't happen by accident. You need a system that continues to nurture your prospects. Mail is non-intrusive and interesting, and carries none of the potential liabilities of "Do Not Call," "Do Not Fax" and "Do Not e-mail" lists. A steady flow of quality, nonthreatening letters with pamphlets or articles will gradually break down the barriers of suspicion and reticence.

The solution is a client relationship management (CRM) program that continues to monitor your prospects and nurtures these growing relationships. Soon your prospect wants to see you to learn what you have to offer. And your established clients want to give you referrals. However, you must ask for referrals regularly in addition to having an automatic referral response system.

Enhance your image. There is much you can do to improve the way you are perceived by your prospects. Some steps take time and expense, such as an elaborate brochure -- but a small version you can insert in a standard envelope is not a major procedure. Likewise, professional associations offer valuable flyers and brochures.

Refresh and revise your image. Many financial advisors want to shift the service functions to qualified staff members, but are surprised when clients still look to them for detailed paperwork. Having staff associate photos appear on the masthead of your client newsletter and in your firm brochure will correct that problem -- and also enhance the image of your company as a financial firm, which leads to more referrals.

Add more sizzle. One experienced financial advisor commented, "All the challenge has gone out of presenting my services to prospective clients!" Well, if you think it has gone out from his viewpoint, how do you think his prospects are reacting when listening to him? So I asked him, "What's different between how you added new clients in the early '90s when you were adding many excellent new accounts, and how you are doing it today?"

He said, "Well today, whenever someone calls in and makes an appointment, I sit down with them for about an hour. I describe my credentials; tell them how much money I manage, and ask if they'd like me to handle their funds."

Then I asked how he used to do it and he replied, "Back when financial planning was not so widely accepted, I had to sell the services more. We advertised through public seminars and direct mail. Previously when people came in I used a 35mm slideshow to explain the need for personal planning, showed them a sample plan, explained our fee chart, reviewed the fact-finder and focused on the attitude and goal questions. Most agreed to have a plan prepared for a fee. Afterwards we usually sold insurance to fill survivorship or estate needs and then started managing all their money."

You can probably guess what my next question was: "If that worked so well, why did you quit?" He responded, "It got so easy just to charge fees on growing portfolios that we stopped prospecting and planning." The solution to his marketing and revenue problem was to go back to the basics -- and just do what he used to do very well 10 years ago a little better today. This might mean the use of a PowerPoint presentation, a small video projector or the preparation of an attractive sample plan. But this advisor already knew exactly what to do and how to do it. Incidentally, the successor to that original slide presentation, Client Builder, is still available.

Sometimes we are like frogs! Remember the story about what a frog that was tossed into a pot of boiling water would do? He would immediately jump out, only slightly singed. But when that same frog was placed in a pot of cold water that was gradually heated, he would not respond to the gradual temperature change -- and he soon became a boiled frog.

The financial services environment is getting hotter. You are in the pot and you know the temperature is rising. If you've been singed while changes have been affecting you gradually, it is time to jump out of the pot. Embrace some new versions of well-tested techniques, and get your client acquisition back on track. Better to be just singed than boiled!