OPPORTUNITY 2009: STARTING AT THE TOP, BRING MORE TO THE BOTTOM

Use Your P & L to Create Efficiencies to Counter Today’s Tough Times

 

ENVESTNET PRACTICE MANAGEMENT SERIES

 

Advisors today are challenged on almost every front. Economic signals, the markets and clients themselves are telling us that the world is incredibly different from just a year ago. Not only that, but many economists are saying we will not see a traditional growth pattern again for fi ve years or more.

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Unlike in the past, the addition of one new client can easily be offset by the departure of a current
client. With that kind of headwind, are you asking yourself: what is in my control and what can I do to maintain and even improve my own income?

And second, how can I re-cast my business to align it better with the new economic reality?

One way to approach this problem is to look to your P & L statement as a structure for re-thinking
your current business practice. Use your income statement to look for ways to grow your top line
and squeeze out excess spending. You can create effi ciencies that are in sync with today’s chal-
lenging fi nancial times and that will improve your profi ts for years to come.

Grow the Top Line: The T in Top Line is Trust

Successful advisors focus on asset gathering and accumulation – adding more clients – because
that strategy leads directly to higher fee revenues and thus to a higher personal income for the
advisor.

It still makes sense. Increasing revenues is Job #1. There is money out there. It’s just harder to
fi nd and secure.

Perhaps most important, review and refi ne your core message, and even your investment philoso-
phy, so it is aligned with the life-changing fi nancial events of the past year. While each advisor
presents a slightly different perspective for clients, the constant theme for everyone is trust. With an economic system where trust has been shaken to its core, you can present yourself in a way that engenders trust as an individual and as an expert in your field.

Example: “It’s a Great Time for a Makeover” – an article in the New York Times1 notes that with stocks so low, tax consequences can be a minor issue. And that creates opportunities to reallocate portfolios. “This is your chance now to put your money where it really needs to go – for the long run,” an advisor says. Most investors still do not have an appropriate portion of their portfolios allocated overseas, and this is a chance to do so. Another option: it is a good time to shift into ETFs and lower-priced funds.

With trust as the central concept, consider more emphasis on asset protection and broader financial
planning. Most economists expect a stock market bounce in the near term, but almost no one expects the relatively consistent multi-year growth that has been the hallmark in the past.

It’s back to basics as you reach out for prospects and new clients: referrals, referrals, referrals and workshops, seminars and speaking. You can tailor both of these tried-and-true methods to your own personality and practice.

Referrals don’t have to be a blunt “do you know anyone who ...?” One soft-sell approach that fits in today’s market conditions is to offer a second opinion. “I would be happy to talk with your co-worker / cousin / neighbor and offer a second opinion or another perspective on his or her situation.”

One objection to hosting speaking opportunities through seminars and workshops is cost. Today’s “new frugality” gives you permission to not serve fancy meals or host at an exclusive club in town. Public libraries and Chamber of Commerce board rooms are very acceptable to attendees who really care about understanding the new financial realities.

Would a change in your fee structure actually improve the revenue number? Some advisors are lowering fees, especially for money market accounts. There are ways to adjust your minimums and still generate profits, if you set up portfolios that can be managed as a group. Not only can this help you add clients and relationships, it will extend your reach into the community.

Perhaps most important, “when the going gets tough, the tough get going”! A positive attitude and presentation of yourself have never been more important. Everyone is looking for guidance and confidence, and you can give them direction, even if you can’t foretell the future. In fact, if you believe we are hovering near a bottom in the stock market, there is nowhere to go but up.

It is extremely tough to capture new accounts right now, but a new client is even more valuable than before. Just get going!

Expense Management

Once you have looked at the components of your revenue steam, move down to the expense section of your P & L statement. Today, when every revenue dollar counts, it is more important than ever to bring every possible dollar to the bottom line. Make sure your business practice is operating at peak efficiency.

Staff responsibilities and size

Eliminating a staff member can be an emotional choice, and most advisors say that letting go of a trained, capable employee is one of the most difficult parts of their jobs. On the other hand, a team where the level of the work load is not in line with staff size can be maintained for only a limited amount of time.

Evaluate each team member’s area of responsibility. Even if there are no plans to reduce the size of your group, is there a close match between each person’s skills and strengths with the kind of work that he or she is doing?

One of the toughest, and almost always emotional, decisions is whether to keep on an unproductive employee – whether they are unproductive because of bad work habits or because of a diminished work flow. If you do make the decision to let someone go, be sure to consult with human resource and legal experts so that the procedure
is proper.

Examine work flow processes

Your work flow processes are tightly interwoven with your staff and the way they function. It is impossible to completely separate the two, but a carefully defined and documented process is critical if you want to make the most of every expense dollar. It is also one of the easiest parts of the business to say, “I’ll get to it next week.”

(As a note – if you are expecting to sell your practice at some point in the future and you can demonstrate that includes a self-sustaining system to a prospective buyer, you have created a value that will enhance the sale price.)

Other Expenses

What ongoing expenses can be curtailed or eliminated completely?

Start with the “most fixed,” leases where you have a multi-year commitment.
Office rent falls in that category. Would it make sense to move to space with less visibility, less prestige and potentially lower rent? Even if the lease is not up, in today’s buyer’s market it would not hurt to see what concessions you can get from your landlord. Equipment leases are another option to open up for negotiation.

Many variable expenses are closely tied to the size of your staff – telephone and other utilities – and they do not offer much opportunity to curtail costs without a change in employee levels.

Just plain fat! Seriously!

What about those smaller expenses that are so routine they go by almost unnoticed? That includes expenses related to eating and drinking – whether you are hosting a prospect or a staff meeting. Perhaps you joined some organization you thought would generate referrals, but it no longer offers any benefit whatsoever or no longer fits your target client base.

Not only can these $50 – $150-plus outlays add up quickly, take a good look at where those dollars go as another way to review your priorities. If you are consistently taking prospects out for meals and they never become clients, you could try holding onto that practice for six months and see if it makes a difference.

A Special Case: Technology

How would you manage your life if you had no cell phone or access to the Internet?

While trying to operate without these technology tools today is unthinkable, what about using more tech tools to do even better? How about ones that will give you economies of scale and power up your business? By freeing up more time and energy (and your staff’s), you can do a better
job of reaching out to clients and prospects. Smart investments in technology give you more opportunity to do what you do best, that is, to communicate with your clients.

If your current “system” is made of two or three separate programs – all calling for separate passwords
and software knowledge – consider how much more efficient you can be if one provider handles the full range of tasks.

Take a good look at a “one source” provider, a turnkey asset management program that handles the essential client management tools: proposals, investment management and reporting. (If you are using a turnkey asset management program, take advantage of every efficiency that it provides.)

The best of these provide the full range of practice management in one package. A turnkey asset management platform (“TAMP”) can help you create consistent proposals more efficiently, move clients into unified managed accounts (“UMAs”) with all their benefits and be more prepared for the inevitable more stringent compliance regulations.

Just as you consider yourself to be a relationship builder, so do TAMPs. Acting in a consulting capacity, TAMPs aim to offer far more than software services. They will take the lead in keeping you up-to-date with compliance management, offer a steady stream of portfolio and practice management
information and ideas, and give you access to “best practices” that are helping other advisors succeed.

Designed to support you in all market conditions and business environments, the focus is to help you operate most efficiently. One way to do that is to move clients into five models ranging from capital preservation to aggressive growth. The administrator handles allocation and rebalancing, with the advisor selecting the investments. Accounts are reconciled and updated daily. WIth a UMA requiring a $150,000 minimum, this type of account may serve as a noteworthy choice for clients who are not high net worth but still have a need to diversify.

Cost is typically the biggest barrier for adopting any new technology. But the additional level of control, time management and consistency in process helps create a freedom to spend more time with clients and develop plans and strategies that benefit everyone.

There is a Payoff

In the past year or so, the economy and markets have shifted dramatically – enough so, that most knowledgeable observers expect it will take five years to work our way through the current problems.
It is essential to recognize that you will need to adjust your business style to the reality of today, and that one way to think about what will work for you is to review how you have generated revenues and where your expense dollars have gone.

As a payoff for all of your hard work: once you have invested some time and effort to streamline your business and manage costs better, you would have freed up good quality time to pay more and better attention to the reason why you became an advisor in the first place – helping people build better lives with smart financial management.

 

1”It’s a Great Time for a Makeover,” February 1, 2009, New York Times

 

This presentation is provided for informational and educational purposes only. It is not intended as and should not be used to provide investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client’s specific financial needs and objectives, goals, time horizon and risk tolerance. The statements contained herein are based upon the opinions of Envestnet and third party sources. Information obtained from third party sources are believed to be reliable but not guaranteed. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Past performance is no guarantee of future results.

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