"Top advisors’ standout success is not the result of good fortune, but of making the right decisions in a few pivotal areas of their practices."

The Best in the Business

By John Bowen

One of the best ways to become more successful at what you do is to understand and implement the best practices of the industry's top advisors—the ones generating the highest profits and building long-term, sustainable businesses.

One of my strongest beliefs is that advisors have much to learn from one another. With that in mind, CEG Worldwide conducted a comprehensive survey of 2,094 financial advisors from across all advisor channels with a minimum of $50 million in assets—the largest such study of top advisors ever conducted. Our goal was simple but powerful: Identify the most remarkably successful advisors and determine how their business practices differed from those of their less-successful peers. Armed with such information, more advisors will be empowered to reach the level of success they desire.

The results were striking. We discovered a distinct group of leading-edge advisors who had higher incomes, fewer clients and markedly different methods of conducting business. As you will see, their standout success is not the result of good fortune or of the number of years they've spent in the industry. It's the result of making the right decisions in a few pivotal areas of their practice.

THE ADVISOR LANDSCAPE

Our survey included advisors across the three primary channels: registered investment advisors, independent broker-dealer representatives and stockbrokers with wirehouses. We sought to include in the survey only those advisors who have had time to implement and assess their business practices in full. For that reason, we limited the study to advisors who had been in business at least five years. Some of the most revealing insights emerged when we examined the different business practices employed by advisors with various levels of income and numbers of clients. We segmented advisors using two primary criteria: whether their 2006 income (net before personal taxes) was more or less than $300,000, and whether they served more or fewer than 150 clients. That methodology resulted in four categories of advisors.

Quadrant One advisors. These advisors have 150 or fewer clients and incomes of $300,000 or less. We can speculate that these advisors generally are still engaged in building their practices and have not yet managed to implement the most successful business practices.

Quadrant Two advisors. These advisors have more than 150 clients and incomes of $300,000 or less. They may have built up their client bases, but they have not translated that growth into high incomes.

Quadrant Three advisors. With incomes of more than $300,000 and with more than 150 clients, these advisors generate relatively high income—but must serve a large number of clients to do so. Together, these three groups represented 87.2 percent of the advisors we surveyed.

Quadrant Four advisors. This is the most successful group, with incomes of more than $300,000 and 150 or fewer clients. These advisors have clearly figured out how to generate strong income from relatively few clients, a feat that other advisors would be wise to emulate. This is a highly select category, representing just 12.8 percent of surveyed advisors.

The level of success enjoyed by Quadrant Four advisors is truly impressive. In 2006, these advisors earned average incomes that were $30,000 higher than those of their Quadrant Three counterparts, while serving fewer clients.

What's more, advisors in the fourth quadrant appear to be widening the earnings gap. This group generated income growth in 2006 of 14.7 percent, on average—versus growth of 8.7 percent or less for advisors in the other quadrants.

Clearly, Quadrant Four is the place to be if you're looking to maximize your success relative to your peers. Not only do these elite advisors generate more income and income growth, but they do so while serving a relatively small number of clients. For them, therefore, running a business is almost certainly simpler and more efficient than it is for advisors serving larger numbers of investors.

KEYS TO SUCCESS

Interestingly, top advisors aren't more successful because they're more established than their competitors. Advisors in Quadrant Four are relatively young (the average age is only 41.8). In addition, they have provided financial products for just 15.5 years, on average—versus 17.2 years for advisors in Quadrant Three and 16.8 years in Quadrant Two. Obviously, time spent in the business is not an automatic driver of success.

Neither, it turns out, is the menu of products and services advisors offer. With minor exceptions, advisors across all four quadrants generally proffer the same things to their clients. That doesn't mean it's not important to give clients a full range of financial solutions—it's just that doing so may not do much to differentiate you from the competition and generate greater success for your practice.

So what accounts for the much stronger position of the advisors in Quadrant Four? Our findings reveal a number of key factors, including:

Outsourcing. Outsourcing non-core duties frees up time and enables advisors to focus on their clients. Elite advisors are much more likely to outsource the money management component of their businesses to third-party providers, such as turnkey asset management programs. Consider that 33.8 percent of highly successful advisors in Quadrant Four outsource—versus 28.3 percent of advisors in Quadrant Three, 22.3 percent of Quadrant Two advisors and just 18.7 percent of advisors in the first quadrant.

Specialization. Nearly half of the elite advisors (45.7 percent) say they specialize in serving a particular type of client. In sharp contrast, just 15.4 percent of Quadrant Three advisors and 11.8 percent of Quadrant Two advisors specialize. Specialization can allow advisors to develop a deep understanding of their clients' needs and to design more comprehensive solutions that resonate better with clients. In addition, serving a market niche can maximize workplace efficiencies. Instead of trying to take on any and all types of investors, you can dive deeply into the special needs of one set of circumstances.

Focusing on client needs. Advisors in Quadrant Four demonstrate a much sharper focus on providing best-in-class service. Consider, for example, that these advisors are much more likely to create formal plans for their clients—61 percent of the elite advisors do so, versus 35.4 percent to 38 percent for the other groups. Likewise, 43.1 percent of top advisors say they're concerned about better understanding their clients' needs—versus 17.3 percent for Quadrant Three, 11.1 percent for Quadrant One and a mere 7.2 percent for Quadrant Two.

Asking for referrals and assets. Advisors in the fourth quadrant grasp a simple yet oft-overlooked concept: If you want more business, ask for it. For example, 45 percent of top advisors regularly ask their clients for referrals. The other advisors—Quadrant One (13.3 percent), Quadrant Two (11.0 percent) and Quadrant Three (12.7 percent)—simply don't match up. Just as important, the top advisors who ask for referrals tend to get them. Consider the average number of referrals from each of the advisors' top 20 clients last year: three for advisors in Quadrant Four, 1.8 for Quadrant Three, 0.9 for Quadrant Two and 0.3 for Quadrant One.

TRUE CLIENT FOCUS

The industry's top advisors—those who serve 150 or fewer clients while earning at least $300,000 annually—make their clients the true focus of everything they do, which creates tremendous client satisfaction. They then tap that satisfaction by asking clients for new business—and they get it.

The next step is yours. Ask yourself in which quadrant you fit and examine your business practices as they relate to clients and prospects. Are you making the kinds of decisions that bring you closer to your biggest business goals? And then, are you consistently following through? Chances are, you'll be able to identify major areas of your business that you can tweak (or perhaps even overhaul, if necessary) to get you to those goals—and empower you to raise your company to the highest level of success.

Reprinted from: FINANCIAL PLANNING