Financial Advisor Blog on Marketing, Lead Generation, Prospecting and Sales

What do you really provide clients—a hope that maybe the mutual funds you help them select will reach their retirement goals, that maybe the UL policy you sell them will earn enough to sustain itself, that maybe the LTC company wont raise its rate? When you think about it, you offer prospects nothing firm and you expect people to give you their money. Maybe it’s surprising that we have any clients at all as we guarantee them nothing and expect them to jump into the financial pool with us, with no life vest.

Of course, you cannot make guarantees. Only the product providers can make these when they apply. But you can make promises about your own actions—something that few financial advisors do. If you don’t make promises to clients, why should they make commitments to you?

You CAN make promises about your individual performance, such as:
• To provide an in-person bi-annual review of their portfolio or policies. Show them what this means. Pull out copies of a client’s biannual review report—the copies of the Morningstar reports, the Vital Signs report on the insurance company, the Value Line Reports on their stocks, etc. and the performance reports showing the change in portfolio value against relevant benchmarks (if this sounds like too much work, you need wealthier clients with bigger accounts to justify this quality level of service).

• To provide a telephone review between the bi-annual reviews

• To return all calls in one business day. Show them your written policy. That calls received before 11 am are returned the same day and if received after 11 am, are returned the next day before 9 am. If comfortable as your policy, give your home phone number to clients.

• To teach your new client how to read their statements. How many times have clients told you they cannot read their statements. So why not end this by providing a lesson or getting software like Advent or Captool that allows you to provide a statement in plain English that’s easy to read.

• To provide all explanations in plain English

• To never talk down to a client

• To quickly admit and correct any error. You might show them an example of how you purchased IBM twice in Mrs. Jones account. You corrected the error by selling the extra shares and paying $500 for the loss that was incurred. People know that everybody makes a mistake. What they really respect are those that admit, correct and take responsibility for their mistakes. It’s okay to show you are human--but a quality human.

Imagine the trust that you could build if you approached prospects with your list of promises. Few other advisors do this. Do you think you might segregate yourself as a superior advisor if at the end of a first meeting you said, “Mr. Smith, I am unable to guarantee the performance of any investment. However, I can make you several promises,” as you hand him your laminated typed list of promises and read them one by one.

So many mutual funds have problems with poor performance, high fees, excessive tax impact; it is simple to show a prospect why the funds or managed account you offer is better. However, realize that your prospect has some allegiance to their existing holdings even if those holdings have been poor performers. The inertia to do nothing is large and for many investors, “the devil you know is better than the devil you don’t know.” Therefore, before presenting your recommendations, you must loosen their grip on their current investments. In other words, before you "sell" a new approach, you must "unsell" what your investor already owns.

Use this technical approach. When meeting a prospect, tell the prospect you want to obtain independent reports on their current funds that will show them how their funds are really doing (most investors have no clue about their performance other than “up” or “down”). Then get Morningstar reports on each fund for your next meeting. That report gives you so much detail that you can shoot bullets into almost any fund as follows:

At the next meeting, I make enough space on my desk for two piles, “see” and “hold.”I show the first Morningstar rating to the prospect. If the Morningstar Star rating is low, point out the rating. Explain to the prospect the rating system (5 great, 1 terrible). I often see people with 2 star funds. I explain the rating and explain that their fund is worse then average and ask them if we need to continue. They usually say to me “sell that dog.” I place that page in the “sell” pile. If the rating is good, you still have plenty of data to show as follows.

Point out the turnover. A Financial Analysts Journal article in 1993 calculated that 100% turnover was equal to a 1.2% fee (see Bogle on Mutual Funds by John Bogle). Additionally, high turnover creates short-term gains and taxes at ordinary income rates (rather than capital gain rates). You can then show the tax-adjusted return of the fund, which Morningstar also calculates. Even if the fund has performed well, you might ask the client “Were you aware that this fund, although it’s done okay, has caused you to lose almost 3% off of the return due to taxes each year? Would you like to see a solution (a low turnover fund that you recommend) to cut down those taxes?

Draw the prospect’s attention to the numbers on a Morningstar page showing the fund’s performance relative to its peer group and relevant index. Even though the fund may have done well, it might be a real laggard in its group and should be sold.

If you are a fee-based advisor, you will of course, disclose your fee. Then point out that by using your services, they will reduce their investment expense by using you. When you add up many funds management fee, 12b-1 fee and turnover impact, many funds are taking 3% to 5% of the account value, annually. Your fee, at say 1.25%, plus your recommended institutional fund fee of .2% is a huge bargain over what the prospect currently pays.

I have used these reports for years to gather ALL of the client’s assets because investors don’t really understand what they own and have most likely relied on some advisors unsupported verbal recommendation. Additionally, it’s likely that no advisor has ever presented compelling third-party evidence for their recommendations. By the end of the meeting, I have a stack of pages in the “sell” pile and the prospect asks me, “What should we do with this money?”

People who like to spout opinions as facts plague our industry and so we hear so much about the activities of CPAs as financial advisors. Well the truth is it ain’t happening.

In three conversations with major financial institutions that recruit CPAs to be financial advisors, approximately 90% of those CPAs do less then $50,000 gross commissions a year. I used to do that much production in 2 weeks when I was a full time financial advisor.

So what went wrong?

There are three barriers that will continue to keep CPAs low producers:

1. They don’t like to sell and they do not know what selling is. CPAs think that selling is convincing people to do something they may not want to do—like what happens on a used car lot. And that’s uncomfortable for your average introvert. The fact is, selling is the science of asking appropriately timed questions to have the prospect realize the right solutions for themselves. The master salesperson can say very little and through the mastery of powerful soul-searching questions, can have any prospect see what financial changes should be made to reach their goals. But that description of selling is many levels beyond the average interaction capability of most CPAs.

2. Accountants do not like uncertainty. For the average accountant, the IRS code provides a security blanket. The rules are black and white and knowing the rules are considered fulfillment of the position. The securities markets are fickle. Investors can lose money. There are no rules to insure an adequate return. This uncertainty is many light years from the comfort of filling in little boxes on a tax return. Additionally, financial services are a whole new intimidating body of information to be mastered. It’s like shoving a halogen flashlight down a mole’s hole—very unsettling and causes a scampering away from the light.

3. Success in financial services is about getting “messy” with people. You have to get involved in their emotions, their hopes and dreams and regrets. You have to deal with people in times of death, divorce and catastrophic illness. They may even start crying. Many CPAs would find such behavior quite unsettling as they attempt to maintain the cold indifference of a professional. Financial advising is a contact sport, better suited for a psychology major than finance major. This entire emotional arena is quite off-putting to someone originally attracted to the cloaking of eyeshades and the formidable insulation provided by oversized ledgers.

There are in fact many successful CPAs in financial services, but these are not the average practitioners. The successful practices I hear about are:

1. Organized as fee-based financial advisory practices. The CPAs have registered as RIAs and manage client finances themselves or through a 3rd party money manager. Most, if not all of their business, is form existing clients from their CPA practice.

2. Have staff dedicated to marketing. They do client seminars, they call clients and set individual appointments and they even ask for referrals.

3. Run by entrepreneurs who know that the IRS code is not black and white and fails to give guidance in serious tax matters, that there is indeed creativity in accounting. That accounting advice and financial advice are both inexact sciences based on probabilities.

4. Run by CPAs who have long been getting involved in the emotional mess of their clients’ lives.
But these accountant entrepreneurs are the minority. They have and will continue to seize the day and take market share from existing financial advisors. But these practitioners are a small minority of the CPA body.

Thus, for most CPAs and financial advisors, it might be best to form alliances and each realize that they have a particular expertise, body of knowledge and a particular comfort zone. I cannot think of a better match than a CPA who refers to his financial advisor colleague the business of financial advising and the financial advisor who refers the intricate issues of taxation and calculation to the CPA. What a beautiful marriage if they would stop being so suspicious of each other.

Most sole practitioners or small CPA firms would do well to join their local FPA chapter, meet the local advisors and find a comfortable alliance relationship to pursue.