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Monday, September 29, 2008

What Value do You Add-- Really

Survival of Asset Gatherers Threatened

Here’s my conversation with a typical asset gatherer, a type of financial advisor heading toward extinction:

Me: what do you do?
Advisor: I’m an asset gatherer
Me: so you gather assets from clients and then place them with other professionals for micro management?
Advisor: correct
Me: so what value do you add?
Advisor: I select the right professionals, the micro managers—such as mutual fund managers and individual account managers to manage my client assets
Me. So are the managers you select better—did they make your client money in equities in 2008 or can you show me their superior risk adjusted return?
Advisor: well I don’t have these types of statistics but….

This advisor, like so many others, adds no value and simply repeats his firm’s mantra that he is an asset gatherer. Or, he justifies his value with helping to “keep the client from emotional knee-jerk reactions.” But if he cannot pick superior managers or market time better than his client, then the advisor is of no value and is simply extra overhead in the investment process. Why should the client pay two fees, one that adds no value, rather than one fee that has some chance of adding value—the micro managers fee? The client should not and more investors are realizing that.

Large firms tell their advisors to repeat this story: through individually managed accounts, we can give your little clients access to managers that usually only handle accounts of $5 million or more. My question: these managers who handle accounts of $5 million or more, are they any better than mutual fund managers or managers that will take smaller accounts? The evidence please?

The educated baby boomers have no problem using the Internet or the Morningstar subscription at the library to select their own funds. And as the big assets pass to the baby boomers from their older parents, the boomers won’t be handing it to advisors who add no value. The boomers will seek advisors who add value and can show that, on paper, in black and white.

So let’s look at ways to head off extinction and add value.

Comprehensive Financial Manager—if you cannot get superior risk adjusted returns or pick “better” managers than the client, you can at least off load this responsibility for your clients. In other words, get compensated for doing what the clients could do but don’t want to do. If you add value in this fashion, then the service level must be very high:

  • You must call at least monthly
  • Provide statements that clearly reflect changes, and performance inception to date, year to date and for the current period
  • Provide your cell phone number so that clients may reach you anytime
  • Provide a monthly communications with “have you thought of this” communication—this can be a newsletter or email
  • Add related services like tax return preparation and mortgage brokerage to off load the clients entire financial life (does not need to be done by you)

Be the micro manager—manage portfolios yourself. There are mechanical models like the Dow Dividend Strategy or Value Line or the S&P Stars Portfolios that have beaten most professionals over time, so why not use these models and do the managing yourself? This strategy also sets you apart from all the “asset gatherers” because you can show that you actually do the work. The work is actually done by the model so you won’t need to invest your time with research and an assistant could even make the portfolio changes when necessary.

Be a specialist--get all of your clientele from professional referrals. For example, maybe you specialize in retirement plans. You do nothing else. You have third party administrators, CPAs, insurance agents, attorneys and others send you business. Your marketing is focused on referral sources, not retail clients. Your articles appear in local business newspapers, you speak at the local chapter meetings of the National Association of Insurance and Financial Advisors, you speak at local Estate Planning council meetings and you send a monthly newsletter focusing on retirement plans to your professional referral network. You may get little business now from other [professionals bu8t is amazing what happens you brand yourself as a specialist.

Whatever model you select, transition from being an “asset gatherer.” That model will bring fewer and fewer clients as the baby boomers inherit more and more of the assets and demand real value from their financial advisor.

Post provided by Javelin Marketing


Jonathan loves Innovative Marketing said...

I think many of us get so caught up in tactical execution of our responsibilities that it's easy to forget what the whole point of it is, i.e. what actual value we add to an organization or to our clients. It's always good to take that step back and reassess.