3 Ways You’re Hurting Your Advisory Business By Winning Clients

Jul 21, 2016


A young advisor recently asked me to describe the traits of a successful advisor. I think he was expecting me to say something about an analytical mind or a salesman’s temperament. I think he wanted me to confirm for him that it had to do with the right education or the right training in school. Don’t get me wrong; they are all important, but I told him that one of the most important traits is a competitive spirit.

When I think of successful advisors, I think of how they compete, have benchmarks for comparisons and set success goals. Their firms are always trying to do better and are not happy resting on past success. They compete daily to grow. But is there such a thing as being competitive to your detriment?

Been there, done that

Like most you, I am very competitive. Case in point:

  • I check my Fitbit friends list daily to make sure I am in or near the top of the list in steps taken
  • I maintain a spreadsheet with personal-best times in half marathons, 10ks and the great (10 mile) Broad Street Run, so I know what I have to beat next time
  • I can still tell you where I ranked versus my peers (year for year) in my last two sales jobs (and that was over 16 years ago)

When I think of my sales career, I always come back to one of the biggest mistakes that I ever made – pursuing a prospect that didn’t fit in my target profile and typical process. I let my competitive nature take over, even when I knew deep down that it wasn’t a fit. And when the relationship ended (which I knew it would), I realized that all the time, effort and stress it took to make it work was all for nothing. Sadly, I see those same traits in many businesses today.

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Examples, we’ve got examples

Let’s look at 3 ways your competitive spirit may be hurting your business:

1. The “test drive.”
A few years ago, an advisor in the Midwest was asked to take on a $1MM investment portfolio on behalf of a “do-it-yourself” investor who wanted to manage another $1MM portfolio on his own. The investor wanted to “test drive” the advisor’s services, but also wanted to compare the advisor’s performance with his own. The advisor agreed because he wanted to “win” the case.

After a year of monthly calls, meetings and ongoing emails, the client pulled the account because he just couldn’t let go. (The advisor had better performance than the client, by the way).

2. The thrill of winning; the agony of high maintenance.
I recently talked with the COO of an advisory business who manages over $350MM in AUM. He complained bitterly that the lead advisor in their firm continues to take on clients with assets of under $100K. “It seems that the smaller the account, the more work we have to do. The smaller accounts call more,” said the COO, “and the incremental revenue doesn’t justify the additional work!”

The lead advisor gets the thrill of winning the accounts, no matter the size.

3. The (wrong) number crunching.
Over the years, I have found that advisors are quick to know and share their new asset growth numbers with me. The huge numbers are impressive, until I ask whether the numbers are gross or net. In other words, they can express what came in but not went out (through RMDs, etc.).

Large new asset growth numbers have become a way of comparing successful businesses.

It’s a marathon, not a sprint

Being competitive and wanting to “win” is great, but I think it makes sense to consider what that win does for your business. Sometimes saying no is a bigger win. To me, a long-term win (better business) is much better than a quick win that will negatively affect the business down the road. And focusing on the right competitive benchmarks is better for you and your business, too.

Ask yourself the following:

  • Just because I can win an account, should I? Is this the client that I want to work with? Are they my target profile, do they value my advice or fit into my service model? If not, just say no. Can I see this prospect as a long-term client? If not, just say no.
  • Do I know what it costs to service this client? Is the incremental revenue worth the time that I could be spending prospecting a bigger client or servicing one of my best clients? What is the true opportunity cost? Is it a distraction or is the sale worth it?
  • What’s my real revenue opportunity? AUM revenue is paid on net, not gross. In fact, most benchmarks we see for advisory businesses are lagging indicators of success. Benchmarks such as asset growth, revenue growth or new clients happen after the work is done. How about competing on client satisfaction (which leads to referrals) or productivity (which can lead to profitability)?

After my experience taking on a client that I knew wasn’t a fit, I can reflect on the lessons I learned and what I could have done better. The next time it happened, I won by just saying no.

When is the last time you said no and how good did it feel? And if you didn’t say no, did you learn a valuable lesson?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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