feed - Part 62

#FASuccess Ep 074: Why Solo Financial Advisor Success Is All About Self-Confidence In Your Own Value with Diane MacPhee

May 29, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 74th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Diane MacPhee. Diane is the founder of DMAC Consulting, a financial advisor coaching and practice management consulting firm that specializes in solo and emerging ensemble advisory firms.

What's unique about Diane, though, is that before she was a coach for financial advisors, she was a fee-only financial planner herself for 16 years, and as a result brings a unique perspective with both the experience of a financial advisor and the training of being a professional certified coach.

In this episode, we talk in depth about the challenges of being a successful solo financial advisor, the self-limiting beliefs we sometimes inflict on ourselves that prevents us from growing and being as successful as we could be, why it's so hard to set the "right" fee for clients (and especially to raise fees when we should), and why the #1 element to success as an advisor is to really find and get control of your own self-confidence, so you can confidently articulate your value to clients and prospects.

We also talk about strategies to break through when you hit "The Wall" in your practice – that point where you're at capacity with the number of clients you serve, and you can start to feel tired, or overwhelmed, or outright drowning in your own practice – and why eventually, the key to continued success is not about figuring out how to hire more staff or use technology more efficiently or new marketing ideas to grow and add more clients, but how to transition to the right clients for you... even if that means it's time for an "amicable termination" from some of your existing clients.

And be certain to listen to the end, where we talk about the key transition to make if you do want to grow into an ensemble practice beyond yourself... which is all about hiring people you can trust, and learning to let go and not be the bottleneck in your own advisory firm. Which, unfortunately, is much easier said than done.

So whether you are interested in learning more about the challenges of being a successful solo financial advisor, are interested in how to identify the right clients for you, or are wondering how you can build a true ensemble firm that extends beyond yourself, I hope you enjoy this episode of the Financial Advisor Success podcast!

Weekend Reading for Financial Planners (May 26-27)

May 25, 2018 02:52 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the 5th Circuit Appeals Court has denied what appears to be the last and final appeal of the states to intervene and defend the Department of Labor's fiduciary rule, in what will probably prove to have been the final effort to revive it (although the court itself still hasn't actually issued their final mandate to vacate the rule after their March 15th decision). On a happier note in the news this week, Focus Financial began the paperwork process to file for an IPO, in what would be the first ever initial public offering of an independent RIA providing wealth management (or at least, a holding company that has aggregated dozens of them together).

From there, we have several tax-related articles this week, including a look at savings strategies for high-income individuals who want to save more above-and-beyond maxing out their 401(k) plans and IRAs, workarounds for families that have (unwittingly?) saved money in grandparent-owned 529 plans and now realize the adverse financial aid consequences of the arrangement, and tips and strategies for estate tax (and broader estate) planning when working with ultra-HNW clients (where it's not just about the technical strategies themselves, but ensuring they are properly implemented to avoid IRS scrutiny, and appropriately communicated to the family to avoid future disputes).

We also have a few practice management articles on attracting and retaining employees, including: new research that what employees want isn't just a progression of Maslow's hierarchy but a combination of 3 core areas (career, community, and cause); why it's a good idea to try customizing job descriptions to individual employees (essentially fitting the job description to the employee, instead of the traditional approach of trying to find an employee who fits the job description); tips for handling underperforming employees; and why some advisory firms are exploring new employee benefits like month-long sabbaticals to attract and retain top talent.

We wrap up with three interesting articles, all around the theme of the advisor's role in not just providing advice and recommendations to clients, but helping them actually implement the advice: the first looks at how coaches often command much higher fees than advisors (because people will pay 'something' for good advice and expertise, but even more for someone that helps ensure they actually get it done!); the second looks at how the research on trust in professionals (including advisors) isn't just about demonstrating the advisor's competency and expertise, but his/her "warmth" and caring (because client's won't implement the advice if they don't believe it's really in their best interests); and the last draws on Dr. Moira Somers' new book "Advice That Sticks" and the research from the medical industry on what leads to patients actually adhering to the advice and prescriptions their doctors provide... and what advisors can learn from it about how to make our own advice "stick", too!

Enjoy the "light" reading!

Why RIA Custodians Should Start Charging A Basis Point Custody Fee

May 24, 2018 01:41 pm 0 Comments CATEGORY: Practice Management

A custodian is one of the most crucial vendors for RIAs that manage client assets. From the core custodial services of trading and holding and keeping records of electronically-owned securities, to the ancillary technology that custodians provide to help advisors run their business, a good RIA custodial relationship can help firms attract and retain clients. However, as the advisory industry has shifted from a focus on sales to advice, custodians and the RIAs they serve are increasingly in conflict with one another, as many of the ways in which RIAs can help their clients reduce costs and further grow their wealth (reducing unnecessary trading costs, seeking out the best cash options, etc.) are actually detrimental to the bottom lines of the RIA custodians they use!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why RIA custodians should start charging the RIAs they serve a custody fee, and why a basis-point custody fee would ultimately better align the interests of RIAs and the custodians that serve them, allowing custodians to actually focus on providing the best services and solutions to RIAs, instead of just seeking new ways to make money off of an RIA's clients instead!

To better understand why an RIA custody fee would be an improvement relative to the status quo, it is helpful to first look at how RIA custodial platforms actually make their money in the first place. In practice, most RIA custodians make money in three ways: (1) earning money on cash (either through the expense ratio of a proprietary money market fund, or by sweeping the cash to a related bank subsidiary), (2) servicing fees for mutual funds and ETFs, such as sub-TA fees along with 12b-1s via "No Transaction Fee" (NTF) platforms, and (3) ticket charges earned whenever a client makes a trade. In practice, many of these fees may ultimately be trivial to the end consumer (e.g., it's unlikely a 50 basis point fee on a 1% cash position is going to make or break a client's retirement), but when companies like Charles Schwab have almost 1.5 trillion dollars on their RIA platform, these expenses result in substantial revenues for RIA platforms when aggregated across all clients... albeit at the direct expense to the client.

And the reason this structure matters is that it means RIA custodians are fundamentally misaligned with the advisors they serve. Because a situation is created where we as RIAs create value for our clients by trying to systematically dismantle the custodian’s revenue and profit lines! Instead of just leaving cash in whatever money market fund is available, we look for ways to reduce cash balances or shift that cash to institutions that best compensate our clients for holding cash. Instead of using an NTF fund with a higher expense ratio, we'll shift our client's assets to a non-NTF fund when the ticket charge will reduce costs for them (or vice-versa). And unlike broker-dealers who stand to profit from increased trading (by marking up the ticket charges for themselves), RIAs try to reduce trading costs by helping clients avoid unnecessary trading. In short, the problem is that as RIAs, custodians have put us in the position where we look better by sticking it to the custodian... and the more we manage to ‘play the game’ and dismantle the custodian’s profit centers, the more money we save our clients, and the better we look to our clients!

And this is why the future of the RIA custody business will eventually be RIAs simply paying a basis point custody fee to the RIA custodian instead. Which is a huge leap relative to the “free” that we as RIAs currently enjoy with our custodians... but basis point custodial fees would actually be better for all of us in the long run! Suppose RIA custodians charged 10 basis points, tiering down to 7, 5, and then 3 basis points for large firms (intended to simply approximate what they already make off of RIA clients on average). If custodians did this in lieu of making money off of our clients, now their incentive is not to try and figure out how they can make more money off of our clients, but instead to truly create the best RIA custody platform out there for gathering client assets! With a custody fee in place, RIA custodians could then pay better rates on money market funds, eliminate ticket charges that annoy our clients (and time spent by advisors devising ways around ticket charges for our clients), and eliminate both 12b-1 fees and sub-TA fees, instead providing a new version of truly "clean shares" that strip out all back-end fees (regardless of what fund company is used). In other words, once the RIA custodian gets an RIA custody fee, the custodian is freed up to actually give us as advisors the best possible solutions for our clients!

Of course, there may be some challenges in getting RIAs to adopt such a model, particularly given that a subset of RIAs – namely those that use buy and hold portfolios for clients and actively seek ways to get clients the best deal on cash holdings – are already paying less (as they're effectively subsidized by the RIAs that do not use such strategies!).

But the bottom line is just to recognize that, in the long-run, both RIAs and the custodial platforms they use would be better off with custodians charging a basis point custody fee, rather than just looking for ways to make money off of our clients. Even though it may feel really awkward to us when we’re not using to paying that custody fee, it will ultimately be better, both for the custodian and for the RIA itself, by properly aligning their interests… which means, in the end, it’s better for the client, too!

#FASuccess Ep 072: The Financial Mechanics Of Buying Into An Advisory Firm And RIA Valuation Trends with David DeVoe

May 15, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 72nd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is David DeVoe. Dave is the founder of DeVoe and Company, a practice management consulting firm for RIAs with a focus on business valuations, succession planning, and facilitating mergers and acquisitions of advisory firms.

What's unique about Dave, though, is the deep history that he has in consulting on and tracking trends in advisory firm mergers and acquisitions, and the valuation of advisory firms, both previously at Charles Schwab where he led Schwab Advisor Services' Mergers and Acquisitions program, and now as an independent consultant who runs one of the industry's leading "Deal Book" tracking studies on financial advisor M&A activity.

In this episode, we talk in depth about current trends in the valuation of advisory firms, the flaws in the traditional "2X revenue" valuation estimate for a firm (and why it can actually vary as low as just 1 times revenue or as high as nearly 3X), why focusing on profits and a multiple of free cash flow leads to better valuations than looking at revenue alone, the Growth, Profitability, and Risk factors that impact the valuation multiple for an advisory firm, and how in the end an advisory firm is still, like any business, priced based on the present value of future cash flows, and thus why Dave's firm takes a discounted cash flow model approach to providing accurate advisory firm valuations.

We also talk about the mechanics of advisory firm deals from the buyer's perspective, why deals were historically transacted primarily with seller financing, how the rise of third-party bank financing is changing the actual terms and even the valuation of a firm, and why arguably the most important factor in determining the affordability of a purchase is not actually the price of the firm, or the interest rate charged on the note, but the number of years over which the payments are financed that determines whether the buyer has some skin in the game, or if the profits of the firm can actually fully finance the purchase with no ongoing out of pocket cash.

And be certain to listen to the end, where Dave shares his perspective on the buyer and seller trends in the industry, why he sees it as both a "buyer's market" and a "seller's market" right now, and why he thinks the greatest risk to valuations is the danger that too many firms try to sell at once... not because there isn't enough capital to fund all the purchases, but simply because there are still too few buyers for them all to be able to collectively handle the operational challenges of implementing so many mergers and acquisitions at once!

So whether you are interested in learning how to best value your own firm, what you should consider when deciding to purchase into or acquire another firm, or are simply interested in the general market dynamics in a continually evolving market for mergers and acquisitions of advisory firms, I hope you enjoy this episode of the Financial Advisor Success podcast!

11 Action Steps To Design An Extraordinary Client Experience

May 14, 2018 07:01 am 1 Comment CATEGORY: Practice Management

Examples of Services Provided To Different Client Segments

As financial advisors - like any business owner - we want our clients to have a "great experience" when they do business with us, providing a high level of service and proactive communication. Yet the challenge is that what constitutes the "right" level of communication and engagement with clients will itself vary by the client, making it difficult to standardize "good service" across the entire firm. And ultimately, it's hard to differentiate on good service anyway, as virtually all advisory firms like to pride themselves on providing "good service" to their clients. Which means if we truly want to provide an extraordinary service to our clients, we must go beyond just great service and think much deeper about what an extraordinary "client experience" truly is.

In this guest post, Julie Littlechild of Absolute Engagement (a firm that helps advisors craft a client experience that makes them attractive to the right clients) shares her 11 action steps that advisory firms can take to design their own extraordinary client experience, recognizing that the key to a create experience starts with clearly understanding who the firm is trying to serve (and not trying to serve) in the first place, and then crafting a plan to execute the plan profitably. Though ideally, it's not just about segmenting clients, creating a service matrix for the firm to follow, and assessing capacity and profitability, but also better defining what your target clientele or niche is in the first place, and then working with them to co-create the client experience and map out the client journey, along with the supporting client communications plan and necessary business infrastructure.

Ultimately, though, the key point is simply to acknowledge that what we tend to think of as delivering great service in an advisory business is simply too narrow when it comes to really defining experiences, and great service alone isn't the differentiator it once was. A broader and more holistic client experience really can differentiate a firm, but only if the firm clearly understands who it wants to serve, so it can create an extraordinary client experience for that particular target clientele. Because in the end, it's not about finding the one particular tactic that is going make the difference, but instead, the building of a strong foundation that supports a specific target clientele and is consistent with the client's journey that truly makes a client's experience extraordinary!

#FASuccess Ep 070: Taking Leaps Of Faith As An Introverted Career Changer To Build A Successful Advisory Firm with Sue Stevens

May 1, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 70th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Sue Stevens. Sue is the founder of Stevens Wealth Management, an advisory firm in the Chicago area that serves 150 clients with nearly $350 million in assets under management.

What's unique about Sue, though, has been her ability to take "leaps of faith" in making several major shifts in her career, both in the decision to launch her own advisory firm, to create her own job opportunities at major companies like Vanguard and Morningstar... and her decision to enter the financial services industry in the first place and eventually get her MBA and become a CPA, a CFA, and a CFP professional, after spending her 20s as a freelance and professional cellist who played in the Chicago Symphony Orchestra!

In this episode, we talk about the leaps of faith that entrepreneurial financial advisors have to take, why even as such an entrepreneurial person Sue still took an entry-level job and worked for years in a lower-paying apprenticeship position when she started her career, why building your own self-confidence is such an ingredient for success as a financial advisor, and why managing your own personal finances is also a crucial ingredient for success as a financial advisor and an entrepreneur who sometimes has to take leaps of faith.

We also talk about Sue's own advisory firm, including how she cultivated clients over time as an introvert through writing on Morningstar.com, why she started out with a flat-fee retainer model but eventually switched to the AUM model, the annual strategic planning process she uses to keep the business on track, how she leverages the Strategic Coach framework of having free days, focus days, and buffer days, and why all of the employees in her firm are women (even though she didn't set out to hire an all-female staff).

And be certain to listen to the end, where Sue talks about the process she went through to craft her own dream job description as the owner of the advisory firm... and why that ultimately led her to decide to sell her firm to a much larger one, not so that she could retire, but so that she could regain the freedom to focus her energy where she wants to, both inside and outside the business.

So whether you are interested in learning more about taking a leap of faith as a career changer, why an advisor who set out to run a flat-fee retainer model switched to AUM, or how you can craft your own dream job description as an advisory firm owner, I hope you enjoy this episode of the Financial Advisor Success podcast!

Managing Personal Productivity When Telecommuting From A Home Office

April 30, 2018 07:01 am 2 Comments CATEGORY: Personal/Career Development

With the rise of internet connectivity, it is increasingly feasible to work from anywhere, and simply rely on technology to accomplish key tasks and facilitate important communication. Which for many, is appealing simply to escape the distractions of the busy office environment. Not to mention the opportunity to reduce what for many is a 15-mile driving commute down to a 15-foot walk down the hall!

The caveat, however, is that the traditional office environment provides a lot of structure that is actually very important to maintain personal productivity. As a result, shifting to a home office environment may increase available time – by eliminating the commute and the work colleague distractions – but may not necessarily improve productivity, given the introduction of all the distractions of home and family!

Consequently, to maintain personal productivity in a home office environment, it’s necessary to establish some “office” structure of your own. Including having an office space that is physically separate – at a minimum, with four walls and a door that you can close – to establish (both to family and in your own head) when you’re really “at work” and should not be interrupted with the distractions of home. Similarly, even though you’re at home and can work “anytime”, it’s more effective in practice to have set Office Hours when you intend to be in your office and working… both to set expectations (for yourself and family), and so that you can draw the line of when to stop working (or else, for workaholics in particular, a home office can become all-consuming!).

In addition, it’s important to recognize that while working from home can eliminate the distractions of work colleagues, most people will ultimately crave at least some human interaction with others. Which means those who choose to work from a home office need a plan to deal with the loss of human interaction. From using technology for video conferencing to conduct team (and client) meetings, to using chat tools to maintain inter-office conversation and social interaction, engaging in social media (as a true social engagement channel), and even joining a local association or networking group to have opportunities outside the house, it’s vital to have a plan to maintain your social connections, as one of the most common reasons that people stop working from home is the feeling of social isolation.

And for those who are happy working from home, and intend to do so for a long time to come – be certain to (re-)invest into making your home office into a real space of your own for work, from buying quality office furniture and a comfortable work chair, a good keyboard and mouse, well-sized screens, and even creating multiple workspaces in your home office (to the extent that space allows)… as even though the office may be in your home, you should still treat it like a real office, especially since you may spend a lot of cumulative hours of time there in the years to come!

What “Works” In Digital Marketing And Social Media Advertising For Financial Advisors

April 26, 2018 03:01 pm 2 Comments CATEGORY: Client Trust & Communication

As social media usage continues to grow amongst financial advisors and their prospective clients, advisors are growing increasingly interested in whether spending money on social media advertising can provide a good return on investment to amplify their digital marketing results. Because, as I've learned myself through many years of testing and experimenting with social media, while it can be a powerful tool, it can also be easy to waste money if not done properly.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore how financial advisors can use digital marketing and social media to grow their business, and particularly why it's important to have a clear understanding of what you are trying to accomplish in the first place (e.g., awareness, engagement, or acquisition) in order to get a good ROI on social media and other digital advertising!

When it comes to potentially spending on social media advertising, the first question to consider is what, exactly, you’re trying to accomplish. Because the reality is that digital marketing, like any kind of marketing, is actually a multi-step three-phase process: Awareness, Engagement, and Acquisition. The Awareness phase is simply about making people aware that your business exists in the first place. The people you reach are not necessarily ready to do business with you, but you want to make them aware that you exist. The Engagement phase is where you try to actually help a prospective client begin to know, like, and trust you... because as the famous saying in the marketing world goes, people need to engage with your brand 7 to 9 times before they’ll be ready to do business with you! The Acquisition phase is where you actually try and acquire a client, where you transition from marketing into the sales process, because the prospect is ready to do business, is interested in doing business with you... and now you just have to convince them to actually take that action.

These phases (Awareness, Engagement, and Acquisition) matter in a social media context, because they influence what you are trying to do through social media in the first place. For instance, if you broadcast useful content on Twitter or via Facebook, its very effective for building awareness, so it may make sense to spend some dollars to try to further build your audience. Particularly on Facebook – with their ad tools specifically built to help you target people who are not already following your page but would likely be interested in learning more about you with.

However, building awareness alone isn’t enough to actually get new clients, and no one will ask you to manage their life savings based on even the wittiest of 280-character tweets. You actually have to engage prospects in order to get them to know, like, and trust you enough to want to do business with you. On social media, engagement means doing something that prompts people to take a further action, from running a TweetChat on Twitter or asking a provocative question to stir conversation on Facebook... but the key is that you have to get them to do something. Which you might then pay to promote (e.g., a particularly popular tweet, a Facebook article or survey that you pay to boost), though these still aren’t necessarily big ad spends, because you may only be spending to promote to the audience you've already built.

The third part of the funnel is acquisition, where a different set of strategies are relevant. This is the domain where very targeted ads, that really invite people to actually hire you and do business with you, can work. But this still doesn't mean just plastering ads out for the whole world to see. Your targeted messages should go to the people who are already engaged with you... such as paying to target a particular offer or invitation to do business with you sent to the already-engaged audience that has 'Liked' your Facebook page. But it's not about asking people to 'Like' your Facebook page at this stage; you're paying to an offer in front of them to take a next step towards actually becoming a client of yours!

Ultimately, though, the key point is to recognize that any digital marketing advertising you do has to align with what you're trying to accomplish. There are lots of strategies which may or may not be effective – from keywords and organic search, to SEO and retargeting (all discussed in greater depth in today's Office Hours below) – but the key is that you need to do more than just throw ads out into social media. Digital advertising can work great, but it's almost never about sending out a magic ad or Tweet. You need to build awareness, find ways to engage your audience, and then prompt them to take action that allows you to acquire them as a client. If you don't have a well thought out process, digital advertising will likely not provide the return on investment that you want!

SEC Advice Rule Proposals: Regulation Best Interest, Disclosure Form CRS, & Title Reform

April 23, 2018 07:01 am 0 Comments CATEGORY: Regulation & Compliance

The Four Main Initiatives Of The SEC Advice Rule

After years of debate over the Department of Labor’s fiduciary rule, and a nascent movement of states adopting their own fiduciary standards, the SEC has finally issued the first proposal of its long-awaited “Advice Rule” to reform the standard of conduct for broker-dealers, after being authorized under Section 913 of Dodd-Frank nearly 8 years ago to harmonize the regulation of brokers and investment advisers with a uniform standard.

As it turns out, though, the SEC’s proposal is not actually a uniform standard that would require brokers to be fiduciaries, but instead would only partially lift the conduct standards for broker-dealers, with a new “Regulation Best Interest” requirement that would obligate brokers to act in the best interests of their customers when making an investment recommendation… but only at the time they actually make the recommendation. And not at all if the broker is implementing recommendations that were crafted while wearing his/her investment adviser “hat” under a dual-registered B/D-RIA firm.

To help further clarify the nature of the relationship between customers and their brokers, and investment advisers and their clients, given that the SEC is not harmonizing fiduciary regulation for investment advisers and brokers, the regulator also proposed establishing a new Disclosure Form CRS – short for customer/client relationship summary – which would provide a “simple, plain language” 4-page explanation of the consumer’s relationship with the broker or adviser, albeit with wording that will likely be hotly debated in the coming year.

In addition, the SEC’s Advice Rule would formalize an RIA fiduciary’s expectations under the Duty of Care and the Duty of Loyalty, proposes several new potential requirements for RIAs where their standards are actually lower than broker-dealers (in particular, for investment adviser representatives to have a Continuing Education obligation, and for RIAs to potentially have basic Net Capital requirements to ensure they can make good to clients in the event the firm must be liquidated and unwound), and raises the question of whether it’s finally time for “title reform” by proposing that brokers would no longer be permitted to use any title with the word “advisor” or “adviser” (though dual-registered brokers would still be permitted to do so given the RIA “adviser” hat).

Ultimately, the good news of the SEC’s Advice Rule proposal is that it does aim to at least partially lift the standards for brokers, with an aim to further clarify the nature of the broker’s relationship with the customer (and how it differs from an advisor’s relationship with its clients). Yet at the same time, introducing a “Regulation Best Interest” may be so on-the-nose that consumers will actually just be more confused about the difference between a “Best Interests” standard for brokers and a “fiduciary” standard for RIAs… which the SEC defines as the RIA being obligated to act in the Best Interests of its clients, too. And by exempting dual-registered brokers from both the obligations of title reform, and Regulation Best Interest itself, it’s not entirely clear if the SEC is really aiming to clarify the differences between brokers and investment advisers… or to simply induce all broker-dealers to launch corporate RIAs as a safe harbor for their advice-related activities to avoid ever really facing greater scrutiny of the broker-dealer model and how their advice is implemented in the first place?

Why Prospects Need Help Preparing To Leave A Soon-To-Be-Former Advisor

April 19, 2018 02:28 pm 0 Comments CATEGORY: Client Trust & Communication

In the past, financial advisors encountered many prospective clients who were either previous do-it-yourselfers who didn’t already have an advisor, or individuals who had just gone through a “wealth creation” event like selling a business or retiring and getting a lump sum rollover from their pension. Which means they didn't already have an advisor. Increasingly, however, financial advisors are encountering prospects who already have a relationship with another financial advisor. And this distinction between working with prospects who already have an advisor and those who do not is important, because the dynamics of winning a new client away from an existing advisor are different than just winning a new client who has never worked with an advisor before!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore why it is difficult for some prospective clients to fire an existing financial advisor (even when that advisor is not doing a good job), and what financial advisors can do to help prospective clients prepare themselves to switch away from an existing financial advisor!

Many financial advisors have had the experience of talking to a prospect who was not being served well by their existing advisor (or “advisor” who was actually just a product salesperson selling them a bunch of stuff that may not have even been very good for them in the first place), where the prospect says they want to work with you, but then, at the last minute, decides to stay with the former advisor or broker after all. Oftentimes these prospects may abruptly cancel meetings, start to communicate sporadically through only email or voicemail, or simply just stop communicating at all. Unfortunately, in many of these cases, it is likely that the prospect is struggling with how hard it is for most people to “fire” their former advisor. After all, this is a relationship business, and most people don’t like to terminate relationships and fire people they have a relationship with (regardless of whether it was the healthiest relationship to begin with). The key point: we often underestimate how uncomfortable it will be for prospects to fire former advisors, and, as a result, don't do anything to help prepare these prospects for such potentially difficult conversations.

So what should financial advisors do about this? First and foremost, if you’re talking to a prospective client who is going to be leaving a soon-to-be-former advisor or broker to come work with you, then you have to prepare them for that conversation. One approach is just to say, “I’m so glad you’ve agreed to work with us, and we’re excited to start working with you. But I need to warn you that when you tell your former advisor you’re leaving, he’s going to try to keep your business and win you back. Have you given any thought to how you’re going to handle that situation?” And let the prospect talk through the challenge. Additionally, financial advisors may want to help clients think through scenarios such as what the client would do if the existing advisor offering to cut his or her fees to retain the client.

Because the reality is that by merely getting the client to talk through these scenarios (even without the advisor providing recommendations, which the prospective client could see as biased anyway), an advisor can still help a client better prepare themselves for that conversation. And, as a result, the client may be less likely to get caught off guard by an aggressive advisor who tries to retain their business (even after not serving them well in the first place), and less likely to be tempted to back down. Alternatively, prospective clients may even decide that it's best to start the transfers or the new financial planning process with the new advisor now so that they don't even have to confront the soon-to-be-former advisor, who will only learn once the money leaves.

Ultimately, though, the key point is to recognize that there is a real challenge and pressure that clients feel, in the moment, when they have to break the news to a soon-to-be-former advisor that he or she is being fired and the relationship is being terminated. Which means anything you can do to help them prepare in advance, even if it’s just to point out that it will be a challenge and invite them to think through how they’ll handle it – can make a big difference in bolstering their courage and confidence to actually do it, terminate their former advisor, and follow through on hiring you, when the time comes!