Why Successful Advisors are Exiting the Business

As many of you know, Dan Richards was one of my inspirations for starting this blog. Dan’s articles filled with practical advice helped me and many advisors during the 2008-2009 financial crisis.  We have been fortunate to have him appear in Practically Speaking many times since then  – even when we disagree. In today’s guest post by Dan we don’t disagree at all. What got many advisors to their current level of success won’t assure them continued success. The business is changing and we must evolve with it – by who you target, how you communicate and what you offer. 

advisorsThis post is a tad longer than our usual Practically Speaking post but I thought it was so right on that I wanted to print it in its entirety.  Please enjoy Dan Richard’s post below.

Today, there is a group of advisors at the top of their game, scaling up practices, attracting clients and expanding their teams.

And then there is everyone else.

Over the past 30 years, I’ve spent time with financial advisors at every level. I thought I’d seen and heard it all, but recently I’ve encountered something new. Some top producing advisors have told me that for the first time in their careers they find themselves struggling to maintain revenue, as older clients who are drawing down accounts and who pass away aren’t being replaced. As one advisor put it : “I’m working as hard as ever and doing the things that have worked in the past, but am just not seeing the same results.”

In other cases successful advisors are exiting the business entirely, selling their books well before they’d planned to. Here’s what one advisor said: “I’m in the fortunate position where I don’t have to work if I don’t want to … and I never thought I’d say this, but I no longer want to. I still enjoy helping clients but regulatory scrutiny, the level of competition and the overall business environment has made this business such a grind, it’s just not fun any more.”

Today, veteran advisors fall into two categories. The first category is advisors with momentum, who are seeing growth in their client bases and are moving forward. The second category is advisors whose business is flat or shrinking. There is not much between those two categories – more and more you are either moving forward or falling behind.

When I talk to advisors whose businesses are growing, I am struck by the extent to which they’ve changed and adapted the way they work. It’s not just that the things that made you successful in the past won’t lead to success in future. More alarming for many advisors, continuing to do the things that you’ve done to this point is a guaranteed prescription for failure.

Shifting Landscape

To understand why some advisors are struggling, you need to take a step back. When I speak at conferences, I sometimes start by asking advisors in the audience to identify once dominant companies that are struggling or have vanished entirely. No one has difficulty answering that question.

There’s a long list of industry pioneers and one time market leaders like Kodak and Polaroid, Xerox and Yahoo, TWA and Pan Am.

The U.S. big three auto makers would be in this category. While these firms have bounced back from their near death experiences in 2009, their share of market today is a shadow of the past. GM’s share of the US auto market has been cut in half from 45% in 1980 to less than 20% today. Globally, the top three auto manufacturers today are Toyota, Renault-Nissan and Volkswagon.

And then there’s the long list of storied names from retailing – firms like A & P, Blockbusters, Bonwit Teller, FAO Schwartz, Kresge, Marshall Fields,  Montomery Ward, Radio Shack, Toys R Us and Woolworths … not to mention the Shakespearean tragedy that is Sears

The reason for these dramatic shifts comes down to two words: Accelerated Change.

Throughout history, change has been a constant, but the pace of change has not. There have been very long periods of slow, almost imperceptible change  …. as one  example, in 1800 Napoleon’s troops travelled using the same technology and at roughly the same speed as Julius Caesar’s armies in 50 BC. Then fifty years later, the arrival of railroads transformed how armies travel forever.

That’s what’s happening today. We’re going through that period of intensive, compressed change where all the rules shift.  In this environment, clinging to the status quo and looking for incremental change is a prescription for disaster. And in a period of accelerated change, complacency is the most dangerous management sin.

Banks are a good example of the right response to compressed change. Not that long ago, banks operated in a predictable pattern – they expanded and hired staff in good times as the economy expanded and when we hit a downturn, they would cut back and lay off staff. The last few years, though, something has changed.

In the last few years, banks have had reasonably solid financial performance. Despite that almost every major bank has seen significant reductions in staff in their traditional business lines. At the same time all the leading banks – Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, Wells Fargo – have made investments in startup technology firms, who were founded with the goal of disrupting the financial industry. The dollar investments aren’t huge  – but what the banks have committed is corporate resources, priority and energy.

One reason lies in the threat from the new breed of disruptors known as fintechs. In 2015 the consulting firm McKinsey issued a report predicting that as much as 40% of banks’ retail profits could be in jeopardy from disruptive startups. In response bank CEOs around the world have reconfigured their organizations to get ready for these new high tech competitors. Some might argue that McKinsey exaggerated the risks to attract clients to its consulting practice.  Ultimately what’s important is not whether you agree with McKinsey’s assessment of the threat from fintechs, but that banks are not standing still. They are investing and organizing themselves to get ready for compressed change.

“What Me Worry?”

Contrast the response from bank CEOs with conversations I’ve had with some successful financial advisors. Often, what I hear reminds me of the “What Me Worry?” sentiment from Mad Magazine’s Alfred E. Neumann. Here’s what one successful advisor I talked to recently had to say:

“I’m really glad I entered the business when I did, I would hate to be coming into the business today. But because I came into the industry 30 years ago, I’ve been able to build up a loyal client base with whom I have deep relationships. As long as I do a good job of communicating with my clients and maintain strong relationships, I can’t see most of them going anywhere.”

As I listened to this advisor, I couldn’t help thinking back to a conversation in 1985 with a friend whose family had run a small chain of upscale toy stores since the 1950s in my home city of Toronto.

Here’s what my friend said:

“I get that Toys R Us and Walmart will be entering our market at some point and I would hate to be trying to start a toy store today. But given the reputation for quality and service we’ve built I think we’ll be able to withstand new entrants who come in competing just on price. In fact today we see customers bringing their kids whose parents brought them to our stores when they were children,”

You can predict what happened. Despite a loyal customer base built over decades, five years after Toys R Us and Walmart entered the market, this family business shut its doors.

What got you there might not keep you there, evolve your practice Click To Tweet

New Dynamics at Work

That’s an example of the new rules that apply – where something is business as usual until suddenly it’s not. When I look at how business is done today compared to thirty years ago, in most categories it looks entirely different. There are only a few instances where things haven’t changed dramatically. One is how healthcare is delivered. A second is how students are taught. And a third is how many financial advisors deliver advice.

In fact, a case can be made that to this point the financial industry has been largely sheltered from the tectonic shifts that altered the landscape for media companies, retailers and manufacturers. Yes, there have been changes, but not nearly on the magnitude of those other industries.

Going forward to be successful you’ll need to operate by new rules to guide your business … rules that will define how you work in six areas:

  • The clients you focus on
  • The advice that you provide those clients
  • How you communicate
  • How you build relationships
  • The way that you attract new clients
  • The team that you build around you

Here are three examples of the looming changes ahead of you and the new rules that it will take to succeed.

Where you focus

One change will be your area of focus. Under the old rules, advisors were generalists. You’d meet with a retiree in the morning, a business owner over lunch and a couple planning for retirement in the afternoon. That worked fine as long as you were only competing with other generalists.

In the new rules, you’ll need to be a focused specialist to excel. In profession after profession, we see generalists struggling – think doctors, lawyers and accountants – and advisors will be no different.

As one example, a Canadian advisor first narrowed his focus to retirees and then narrowed it further to snowbirds, retirees who spend the winter in Florida. He has developed expertise in estate and tax planning issues for foreigners with U.S. property. He talks to clients about hedging against a drop in the Canadian dollar. Each fall he hosts morning seminars on hot buttons for snowbirds, including a presentation by someone from the police on how to secure your home during long absences.  And he makes three trips to Florida each winter to meet with clients.

Put all of that together and he delivers unrivalled value to his snowbird clients that generalist advisors can’t match. When I talk to the most successful advisors, I increasingly run into specialists, whether it be an advisor in Los Angeles whose focus is on women coming out of long marriages or an advisor in New England whose target is owners of businesses in their 60s and 70s.

How you communicate

A second change is how you’ll communicate with clients. When it came to client communications, the old rules were all about face to face meetings, with the odd phone update between those meetings.

In the new rules, face to face meetings will still be important, but a new hybrid model of skype and digital communication will play a growing role. There’s been a lot of attention to the potential for robo advisors to displace advisors. Today robo advisor market leaders Betterment and Wealthfront have about $15 billion of assets between them.

Contrast that with Vanguard. In the spring of 2015, Vanguard launched personal telephone advice, at a cost of 30 basis points. By last March Vanguard’s advice offering had assets of $65 billion and was attracting $5 billion per month in new assets.  Many older clients in big cities hate driving downtown. Meanwhile they use skype to communicate with grandchildren. If you aren’t able to offer a combined digital / skype offering as an option to face to face meetings, you’ll be at a huge disadvantage.

The Advice You Provide

Roll back the clock 20 years and successful advisors generally focused on investment advice. While that’s still true in a few instances, today most successful advisors take a broader wealth management approach rooted in the client’s financial plan. And today most conversations revolve entirely around financial advice.

The difficulty with that approach is that for many wealthy clients, their finances aren’t their principle concern. Talk to many affluent investors in their sixties about what worries them most and more often than not you’ll hear three big topics – their kids, their parents and their health and the health of their spouse.

The rule 20 years ago was that advisors operated as trusted investment advisors. Today successful advisors operate as trusted financial advisors. And a strong case can be made that tomorrow successful advisors will operate as trusted advisors, talking to clients about the hot buttons that matter to them the most, whether or not they relate to their finances.

That doesn’t mean that you’ll be an expert on Alzheimers, but it does mean that you’ll be knowledgeable about new research on this disease and able to share resources with clients who have a parent or spouse who’s been diagnosed with Alzheimers. And perhaps for your next client event you’ll bring in a researcher from a local university to talk about what’s happening in this area.

Nor does taking a broader approach to the advice you offer mean that you’ll be an authority on how to deal with unmotivated kids in their 20s and 30s living in the basement. You will however be able to talk knowledgeably about this phenomenon and be able to share a video with a psychologist talking about what to do in this situation. And perhaps you’ll be able to refer clients who are grappling with children drifting through life to a counsellor in your community who can help them work through their response to this problem.

Here are two examples of how you can be a resource to clients on issues related to their kids.

You could share the ideas in this article on Parenting Lessons for Privileged Kids, outlining advice from a psychologist who worked for the Beverly Hills School Board on dealing with the twin diseases of “affluenza” and “entitle-itis” that afflict all too many children of wealthy families

And for younger children and grandchildren,  in this TED Talk video, Stanford’s Carol Dweck discusses the importance of helping children develop a “growth mindset” in which they are taught that they can overcome setbacks – and shares some strategies on how to help foster that mindset. Microsoft’s CEO Satya Nadella has described Dweck’s work as pivotal to helping turn around Microsoft – you can read more about Nadella’s comments  here.

In the period ahead we can expect every aspect of how successful advisors run their businesses to look fundamentally different. The good news is that still have time to change. If you act now to make the fundamental changes to stay relevant, you can still ensure that you’re one of those advisors who moves forward rather than being part of that regrettably large group that’s left behind.

The opinions and views expressed herein are those of Dan Richards. SEI bears no responsibility for their accuracy. Dan Richards is not affiliated with SEI or its subsidiaries.

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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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