Surveying the Future

By Sharla D. Hamil

The future of the business is being shaped every day. Given today's environment, your success may depend on your ability to scrutinize your own practice and learn the lessons that others have to offer. We believe that advisors will do well to look at the successes of the different advisor segments within the financial services industry. Registered Investment Advisors (RIAs), independent broker/dealer representatives and brokers have a lot to learn from each other. The goal of our newly published research, The Future of the Business, is to enable advisors to do just that.

Reprinted from: The Monitor The Voice of the Investment Management Consultants Association

We surveyed 1,117 advisors across the three major advisory segments concerning their beliefs about the future and how to respond to it. We surveyed 371 independent broker/dealer representatives, 204 RAIs and 542 stockbrokers, all randomly selected.

To further understand how the more and the less successful advisors approach the same issues, we further segmented the survey population into two groups: advisors with annual net incomes of $100,000 or more and advisors earning a net income of less than $100,000. We found that 80.8 percent of the stockbrokers had a net income of more than $100,000. In contrast, just 23.5 percent of independent b/d representatives and 35.8 percent of RIAs earned this much. We would suggest that any advisor aspiring to become an elite advisor should look carefully at the differences between your own outlook and those of the advisors in the higher income group.

In this survey, we asked key questions about competition, technology, the numbers and types of advisors who will continue to practice and business models. The responses gave us insight into what was working now and clues to what will work in the future.

Will There Be More or Less Competition?

An overwhelming majority of all advisors believe that competition in the financial services industry will grow more intense. Brokers and independent b/d representatives almost unanimously believe this. Fewer RIAs have the same view. As advisor income increases, so does the perception of future competition. We find that the most successful advisors have not grown complacent. In fact they are more aware of the looming competition.

Will the Internet Replace Financial Advisors?

As the Internet gained prominence in the 1990s, you can remember hearing and reading about the media's prediction that the advisor would be replaced by technology. Of the entire group surveyed, only 3.3 percent believe that the Internet will ever replace them. Only RIAs appear to be modestly concerned with the Internet replacing them.

How Many Will Survive?

We found that a solid majority of all financial advisors believe that there will be fewer but much more successful advisors in the future. As income increases, so too does this perception that there will be fewer advisors. There is a sharp contrast between the different types of advisors on this issue. Brokers overwhelmingly (82.8 percent) believe that fewer advisors will remain in the business, while only 36.8 percent of the RIAs agree.

Will the Generalist or Specialist Prevail?

Conventional wisdom suggests that the specialist should prevail. However, only 16.7 percent of all three groups believe this to be the case. This finding clearly illustrates that advisors recognize the value of being a general practitioner. The general practitioner offers a variety of products and services. Our prior research suggests that this is why the general practitioner has the most satisfied clients, who in turn make the most referrals. While it is important to be a generalist in terms of the products that you offer, this does not extend to how you market your practice.

Which Business Model Will Dominate?

Wealth management—the integrated process for helping clients manage their wealth on a consultative basis—is seen as the dominant business model by a large majority (86.2 percent) of advisors. All segments of financial advisors generally concur about the importance of wealth management, although fewer RIAs (72.1 percent) are in agreement. As income increases, so does the perception that wealth management will be the dominant business model.

The Top Five Concerns About the Future

Our study showed that advisors are clear about what they believe the future will bring and what type of business they should pursue. Their expectations raise a number of concerns about how they will succeed. Understanding these concerns, as well as how the different advisor groups view them, is essential to formulating an effective response in your own practice.

1. Finding wealthy clients. This is a concern for the majority of all advisors—85.6 percent—and the highest concern for the independent b/d channel. The higher earning independent b/d representatives and brokers both show greater concern about attracting affluent clients. We found the same concern in our earlier research.

2. Generating significant asset growth. This issue is of concern to most of the advisors (81.1 percent), but to only 59.6 percent of the independent b/d representatives. For brokers (91.3 percent) and RIAs (93.1 percent), this is the number one concern.

3. The market going down or sideways. This is a source of anxiety for 78.2 percent of all advisors, but most especially stockbrokers. This is the issue that the advisors have the least control over, but it also offers the best opportunities. Previous research shows that difficult markets can mean substantial new assets for the advisors who understand the importance of client communication during these times.

4. Working with a top flight wholesaler. While 53.2 percent of all advisors see this as a concern, it is a bigger issue among the more successful advisors. This is much in line with our previous research that correlated higher advisor income with effective institutional partnering.

5. Increased fee pressure. Slightly over half (51.8 percent) of all advisors cite this as a concern, with the most worry coming from the RIA channel.

Finding wealthy clients, heading off increasing competition, dealing with difficult markets, growing assets and fees and finding the right institutional partner to help do all of this successfully—these are the matters of concern for advisors today. CEG Worldwide has developed a set of five strategies that implemented together enable the advisor to meet these challenges. Each has been identified through our "best practices" research and has been proven by CEG Worldwide to work over and over in practical application.

These five strategies enable advisors to take advantage of opportunities offered by our changing business environment, fully leveraging the help available by institutions. The strategies will help you find niches where you can succeed, help you respond to your clients and fend off competition. These strategies include:

1. Focus on affluent private clients.
2. Use the investment consulting process.
3. Manage your practice as a business.
4. Partner effectively with institutions.
5. Commit to ongoing learning. For purposes of this article, we will focus on the first strategy: Focus on Affluent Clients. We will address the other strategies in future issues of the Monitor.

1. Create a compelling vision of success. The first step to focusing on affluent private clients is creating a compelling vision of success. You need to know where you want to go so you begin with the end in mind. You should mentally paint a picture of what your business will look like in five years. It will become clearer if you have written your thoughts down in the form of a business plan.

2. Develop a target market. You must narrow your focus and develop your target market. Most financial advisors jump from opportunity to opportunity, never establishing a long-term business strategy. The most successful advisors establish themselves in one marketing sphere. With a concentrated effort, you can learn your target market's unique needs, effectively meet those needs and understand their frustrations and concerns. Create a set of solutions that you can effectively communicate. Remember to position yourself as a problem solver, not a product pusher.

3. Discover niche opportunities. All of us have unique talents. We have comparative advantages, skills and interests in different areas. You want a high quality of life and that comes from working with a group of people with whom you have an affinity. You need to take advantage of niche opportunities. The choice could hinge on an interest as specific as sailing, marinas and large boats. Look at the market that you enjoy being a part of but make sure this market has a high concentration of qualified affluent prospects who have money in motion or pooled capital available. In identifying a niche, make sure that the prospects have a shared perception and similar problems, values and desires for solutions. You should focus on no more than three niches. You need to research the issues in each niche. It is extremely effective to interview your key clients, centers of influence, local experts and industry leaders to identify the niches that are best for you.

4. Position yourself as an expert. Positioning is the art of controlling your clients' and prospects' perceptions. It is an important key to setting yourself apart from the competition. Position yourself as an expert and let your expertise be known. One way to communicate your expertise is to write articles for trade publications that your target market reads. Speak at their trade shows. Become deeply involved in their community.

Your unique positioning statement should have a strong promise of benefits for your ideal affluent client. It should solve a problem that already exists in your prospective client's mind. Your positioning statement will make your offer appear different and better than the competitions. Design your positioning statement so that you're first in the mind of your client when it comes to the asset management business.

Describe yourself so that you get your prospects' attention. The prospect wants to know what is in it for them and how they will benefit. They want to know that you understand their challenges and that you have solutions for them. Understand that the positioning model that an advisor uses has a significant impact on his or her level of success. Keep it as short, simple and consistent as possible. Make sure it is believable and obtainable. Remember, in order to "wow" your clients you have to keep the promises that you make.

5. Communicate your benefits cost-effectively. Once you have identified your target market and begun positioning yourself, you need to deliver the right message to the right prospect at the right time. The right message should touch upon a prospect's emotional as well as financial needs. There are three main channels:

• The relationship channel works though one-on-one interactions that you generate through referrals or strategic alliances.
• The credibility channel opens up doors through public relations such as writing articles and books that address the issues of your target market. You should also consider media interviews, speaking engagements and appearances on your local television and radio stations.
• The mass marketing channel relies on direct response advertising, mass mailing and cold calling to reach a large number of prospects.

Which channel should you use? Understand how affluent people want to be contacted.

According to research conducted by our research partner, Russ Alan Prince, referrals are a major source of business. They have been broken into eight different sources. The sources, starting with the most important, include:

• Referral from satisfied clients 31.6%
• Referral from business owners 28.9%
• Referral from accountant 23.7%
• Referral from financial advisor 14.1%
• Referral from attorney 6.1%
• Referral from insurance agent 5.6%
• Referral from friend 2.8%
• Referral from another division of institution 1.6%

Research shows that when it comes to reaching affluent clients, only one channel makes sense: the relationship channel. They go to a trusted friend or business associate and ask for a recommendation. The most successful advisors align their marketing efforts to how the affluent client wants to be contacted, word of mouth and referrals. Credibility marketing should play a supporting role.

It takes quite a bit of preparation to work with the affluent. You need to find out who the profitable prospects you want to work with are and target them. Identify no more than three niche opportunities. You want to understand their concerns, frustrations and problems. Position yourself to attract the qualified prospects. Differentiate yourself from your competitors. And finally, communicate your costs effectively on a relationship basis and establish a high degree of credibility. Follow these steps and you are on your way to creating successful relationships with affluent clients.