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.

The tremendous benefit that accrues from status as a financial advisor is that you have no agenda, no product to sell, and no objective other than do what’s right for the prospect and the prospect can sense that. Because prospects do sense the difference between a financial sales person and financial advisor (no matter what term you use to describe yourself), financial advisors gather more assets per client and have longer term, far more lucrative client relationships. And, at the end of their career, financial advisors have a practice to sell—their client relationships have value.

Few people make the transition from sales person to advisor. Consider these figures: there are approximately one million people in the US with a securities or insurance license. There are approximately 80,000 people entitled to use either the CFP® or ChFC® credential. That’s not to say that only people with one of these credentials are practicing as true financial advisors (or that some with these credentials are product sales people and not advisors), but those that are serious about their financial advisor status do pursue one of these designations because they know that these designations are the best chance of quickly communicating their status as an advisor to the public. In short, about 8% of people with a license to sell financial or insurance products have made the effort to “brand” themselves as a financial advisor.

So the first step in the transition from sales person to advisor is to get educated—whether by enrolling in one of the recognized designation programs or through self study. You cannot advise if you don’t have adequate knowledge. Does this take a consistent effort to study each week over an 18 month period? Yes. Do most people make the effort? No. Do the people who make the effort get rewarded? Yes—the CFP® Board reports that financial planners with the CFP® designation earn 50% more than non-CFP financial planners. So if you struggle to earn more, knowing more is the first step to your goal.

Once you earn a credential or reach your goal. You’re not done. You need to invest about 200 hours annually in self continuing education. I know that most credentials require 40 or so hours a year of continuing education but this is insufficient. Not only do you forget what you know, and must spend time staying current, you need to continually add to your knowledge base. Since your prospects and clients are getting more knowledgeable in financial matters, the value you add will diminish if they keep growing and you don’t.

The next step in the transition is your presentation. When you sell a product, you typically spend most of the time talking, explaining the features and benefits of your product and convincing your prospect why they need it. As an advisor, you spend most of your time asking questions, because you don’t care what products and services you eventually sell. These are simply tools to accomplish your prospect’s objectives. Your job is clearly defining those objectives and then presenting a course of action, a course which uses products or services as the tools to fulfill the objective. You no longer care about the sale of a $50,000 annuity. Your objective is to be the sole financial advisor and gather all of the client’s assets so that they can be managed appropriately. When you build sufficient value and trust so that the prospect turns over their assets for your stewardship, believe me, the compensation will follow and a true advisor does not need to worry about that.

Third, you need to decide who you want to be as an advisor.What market niche do you want to serve and what market niche will value your service?How do you want to market yourself?What other professionals do you need to align with?What’s your unique selling proposition?What’s your financial philosophy or template in working with a prospect?

Unlike a sales person who just wants the sale or willingly gives the prospect what they want to buy, the most successful advisors don’t give clients what they want. Successful advisors show the prospect their formula, their paradigm for handling money (e.g. asset allocation, marketing timing, use of products that must provide guarantees, asset laddering, etc). If the prospect wants something else, the successful advisor shakes hands and removes himself from the engagement. In other words, prospects will either agree to your model for managing their finances or not. There is no other way to be a successful advisor. After all, does a surgeon ask the patient which technique should be used for the surgery?

Sound like a lot of work? It is, but the time will pass anyway. You’ve got nothing else to do than raise your level of expertise and provide greater value, or simply tread water in your career, doing re same thing day in and day out. You’re wasting time now making small sales and extracting only a small portion of business that is attainable from each client. So the time you invest in your transition from sales person to advisors pays off as a very sound investment. Isn’t life about seeing how much value we can deliver to others? So get on your journey, the clock’s ticking.

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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.

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You’ve documented your goals and your activities are aligned with your goals. You’re reaching your weekly call and appointment goals. But still your income is not as large as you desire. So what’s missing?

I have observed thousands of financial advisers and notice that many overlook this critical variable—the failure to isolate ONLY ONE objective for each activity. Let’s take a look at three examples:
When you cold call someone, what’s your objective? Is it to get an appointment, to qualify them, to get them to like you, or to set the stage for a future call? You must pick ONLY ONE objective to be most effective. If you make the call thinking, “Let’s see what becomes of this” your successful calls will be less frequent.

If you want to get an appointment on the call, then get right to it, “Mr. Smith, my name is Jon Doe. I am a local expert in helping business owners cut their personal income taxes in half using welfare benefit plans. If you have interest in reducing your taxes by 50%, I would like to meet with you for 20 minutes next Wednesday.” By getting right to the point, you will be able to make more calls, have shorter conversations and a lot more scheduled appointments!

The business owners who respond to such a call are goal-oriented, want to improve their situation and they make decisions quickly—just the type of client you want. Other business owners you call may find such an approach to be too direct. That’s fine—these people are not the prospects you want to pursue. You are looking for action takers, not procrastinators.
What’s your objective in the first appointment with a prospect? Is it to open an account, to set the stage for the second appointment or to tell them how great you are? Pick ONLY ONE because if you go into the appointment with some vague, open-ended goal, you get poor results. If your objective is to open an account on the first appointment (not a goal I recommend), then you must be clear and have your prospect be clear about that.

Open the appointment with, “Mr. Smith, my objective for us meeting today is to learn about your situation and determine if I can help you. If so, I will explain what I can do for you. I encourage you to ask as many questions as come to mind. At the end of our meeting, if there is a match, I want to open your account with me.” With the above opening, there is no ambiguity about the objective of this meeting. Let’s take another example.

When you give a seminar, what’s your objective? Is it to educate people, to get an appointment right there at the seminar or to set the stage to call them later and beg for an appointment? Your objective should be to have attendees schedule an appointment before they leave the seminar - I get 65% of attendees to do so.

You are NOT there to educate people! Just look at what we pay teachers and you will see that educating people is a fast road to the poor house. You hold a seminar to have attendees make an appointment with you. You do that by showing them you are a better advisor than their current advisor, you explain issues clearly, you answer their questions well, and you are a nice, approachable friendly character. If the attendees get educated in the process, that’s fine, but it’s not why you hold the seminar (more on this can be found at the links below).

Every time you begin an activity, first be clear about the objective of that specific activity. Doing so will focus your attention and make you more efficient and effective. You’ll be a laser rather than a shotgun in reaching your goals.

People invest emotionally. For this reason, the way we structure our recommendations, the form, is often more important than the substance.

Have you ever noticed how many people treat their IRA money more conservatively than their regular money? Except for the tax difference, all dollars are green whether IRA or not and there is no reason to treat these funds differently. Even though the substance is the same (i.e. all the dollars are the same), investors often regard these two pots of money differently. If you have an understanding of how emotion can drive investment decisions, you can use this unfounded emotional circumstance to your advantage by having your clients and prospects segregate money into separate pots that they will treat differently. Here are some examples:

Divide to Conquer
Here’s a way to divide client assets so that they more willingly invest.
For clients desiring to avoid capital gains taxes, set up a charitable trust. Note that I always call this a “capital gains elimination trust” and explain the benefits to the client before explaining the one minor downside—of the assets placed in the trust, after calculating withdrawals and earnings, a projected 10% must be left to charity. Once those assets are segregated, you, of course, will be the manager of that portfolio. The client will be motivated to use this trust for the large tax advantages (avoidance of immediate capital gains tax plus a charitable deduction), but once the funds are segregated, they will most likely ask you “how should we put this money to work?” This is the same money, while previously commingled with their other funds, took your almost arm-breaking efforts to get them to invest. Now that it’s in a separate trust, investors are often more willing to get it working.

Another example is the irrevocable trust. If you have prospects and clients who will potentially have a taxable estate, use the $1 million lifetime exclusion now (most investors think that the estate exclusion is available only at death and have no idea that it is more beneficial to use it during life). Once the money is segregated, you will find it much easier to sell a larger life insurance policy into that trust than you did when the money was part of one big pot. If the client has agreed to segregate the funds, they most likely perceive that as funds they plan to leave to heirs. Therefore, what better opportunity than to place a life policy in this trust?

Pooling funds to gain control
Sometimes, it’s best to aggregate assets for clients that they have mentally segregated.
How many investors believe that “principal” is different than “interest.” If you look at a stack of money totaling $100, can you tell which part is interest and which is principal? I can’t. But your clients will certainly act as if they can and treat the principal sacredly (i.e. “I can’t spend my principal”) yet be willing to take their interest on a fun vacation to Las Vegas. Therefore, investors prefer principal-protecting investments over those that provide a higher total cash flow, yet appear to erode principal. The classic example is bonds at a premium. Investors will resist paying 105 for a bond that can be called in 10 years at 100 because they can lose the premium paid. Even when you show them that the premium bonds provides a higher cash return over time (because of the higher coupon), they prefer a bond purchased at par which returns 100% of principal at maturity. They willingly take the lesser opportunity to serve a notion in their head that their money comprises principal and interest and the principal must be protected at all costs.

Because of the preference to keep principal intact, it’s in the advisor's benefit to take the time and explode the principal/interest myth (and therefore open up many great opportunities to clients). You will be more effective if you can do this at a seminar or public presentation. People are better able to grasp concepts when they see someone else being irrational. At a seminar, ask any attendee to stand up, reach in the pocket and pull out the money they find. Ask them which part is principal and which is interest. No matter what they say, ask them to hold up the money for the other attendees and ask the audience if anyone in the room can tell which part of the money is principal and which is interest. Then proceed to explain how this distinction keeps them from making correct investment decisions, such as:
• The purchase of premium bonds
• The purchase of natural resource sticks/partnerships that mine and erode their asset base (yet might pay several times the original investment in cash flow over the years)
• Spending non-IRA principal before taking money in excess of minimum distributions from an IRA, which may help them pay lower taxes

Next time you make a presentation to a client or prospect and notice that they have arbitrary or irrational reasons for their actions, stop and ask yourself if they are mentally segregating or aggregating their money. If so, you now have some insight into addressing their irrationality and hopefully helping them make more profitable choices and to help you gather assets more easily.

Note that this post is not for the purpose of manipulating clients for the intention of earning commissions or fees unless the recommendations are in the clients' interest.

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