As the advice industry evolves, focusing on landing the right
clients increases in importance
Today's
advisory landscape presents unique challenges for advisers. The numerous forces
at play are mostly outside advisers' control, including fee compression,
consolidation, rising operating costs and highly correlated markets.
There is,
however, one thing that is very much in an adviser's control: the clients with
whom they engage.
This
realization came to me during my decade-long career as an RIA. Early on, I
often felt alone on the island of independence, unsure of where to take my
business. I quickly realized I needed to focus my attention on a subset of
individuals that provided my practice with real scale. High net worth (HNW)
individuals, defined as those with $5 million or more in liquid net worth,
proved to be the clients I needed—and wanted—to work with, and who yielded a
mutually beneficial relationship.
In this
country there are millions of millionaires, 84% are self-made, and 75%
accumulated their wealth through entrepreneurial
endeavors and real estate investments. I knew I wanted to focus my practice
on them, but first I had to understand what these wealthy, business-savvy
individuals valued in an adviser. How could I stand out among the other
advisers vying for their attention?
As I built
my business, I learned a lot about strategic prospecting. Here are three tips
to help advisers center their efforts on the most rewarding rung of the
prospect ladder.
1. Differentiate to dominate.
The
population of advisers is steadily growing, each year commoditizing the service
and minimizing its value. The equation is as simple as the most basic of
economic tenets: supply and demand. With so many people offering similar
services, it should be clear why the fee you charge is constantly under
pressure.
Finding a
point of differentiation among the masses is not an easy feat. The struggle
tends to lead many newly-minted advisers straight into a sea of sameness filled
with canned value propositions and two-dimensional pie charts.
A few years
of trying to grow your practice with this conventional and tired approach is
sure to frustrate even the most astute of advisers. To truly differentiate
yourself in a congested marketplace, play to your strengths and borrow a page
or two from your all-star client's playbook. You know the public markets and
your successful wealthy clients know the private market, where they made their
money in the first place. Combining opportunities in the public and private
markets creates a winning combination, and the ability for adviser and client
to connect on a very tangible level, one an adviser offering a traditional
60/40 portfolio will never understand.
2. Change the conversation.
To attract
and retain HNW individuals of the entrepreneurial mind you have to speak their
language, understand what they expect from your relationship and then
articulate and implement a philosophy that explains a formula for wealth
creation.
HNW
individuals want an entrepreneurial solution that they are not currently
getting from the wealth management industry. The problem is financial advisers
have largely constrained the asset allocation discussion to publicly traded
stocks and bonds, and often times sprinkle in complex products that no one at
the table understands, not even the adviser.
Advisers
need to reconfigure how they look at their portfolios for HNW individuals. They
need to think more like their entrepreneurial clients and less like an adviser
– think more in terms of stocks, bonds and entrepreneurs – and include an
allocation to Main Street, not just Wall Street.
3. Let nature take its course.
One of the
biggest concerns facing advisers at present is the advent of the robo-advisers
— online platforms that promise equal or better performance than human advisers
at a fraction of the cost (0.15-0.35% in fees versus the industry standard 1%)
Rather than
trying to compete with the robo-advisers, allow evolution to take its course.
Embrace your new competitor for what it is and what it will do for the
industry. The clients that robo-advisers will take over are lower margin
accounts that typically require a disproportionate amount of work and attention
compared to HNW clients. But, if they see your service as a commodity, you are
better off letting those clients go anyway. Consider it an opportunity to
reinvest that time towards prospecting and articulating your philosophy to
high-margin clients that get it.
Entrepreneurial-minded
HNW clients value an adviser who offers access to off-market deals that are
tangible and relatable to how the client grew their wealth in the first place.
As your business evolves, these are the deals you need to deliver to the
investors you need to focus on.
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