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Advisors: Set a Completely Unreasonable Business Goal
Wednesday, March 13, 2013
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If you work in financial services, you’re familiar with the Pareto Principle: 80% (or more) of your revenue comes from 20% (or less) of your clients. This pattern is fractal in the sense that it applies very specifically to your day-to-day activities (20% of your actions create 80% of your results) and very generally to the industry in which you work (20% of advisors generate 80% of the revenue for their firm).

In every organization, there are a few top performers who set the pace for everyone else. The Pareto Principle as a description has been so influential because we can see the evidence of it everywhere we go. In this article, we’ll explore what the top 20% of your colleagues do differently and what you can do to join them in the top tier.

I’ve been fascinated by the natural lifecycle of the successful Financial Advisor since I started working with FAs in the early 1990s. For the most part, advisors are self-taught—until recently, there was no degree program that prepared a student to build and manage an advisory practice. Because of this, the financial services industry attracts a wide range of highly motivated, creative and intelligent people who are willing to push themselves through a series of learning curves across a wide variety of skill sets. Over time, usually no more than a year or two, the many challenges involved in building a successful and sustainable practice push out all but the most driven and flexible personalities—those who are able to transform themselves into an effective advisor.

These two characteristics—drive and flexibility—and the concept of “self-invention” are so key to the future success of any advisor that they deserve a closer look. These are great personality attributes, but they are extremely fragile and difficult to sustain. Even before he begins his first job in the industry, the new advisor has been told that success requires constant activity: “It’s a numbers game.”

Interestingly, and in spite of the tons of advice they will receive along the way, most advisors learn that no one can accurately tell (1) which activities are going to lead to results, (2) how soon those results are going to accrue, (3) how to sort out the good activities from the better activities and (4) how to avoid the dead-end attempts. The first few years of every advisor’s career represent a grand experiment of trial and error followed by trial and success and the constant challenge of self-sustained activity.

What’s Enough?

Eventually a few advisors discover or invent effective methods, acquire some clients, and generate revenue. These are the advisors who maintain a high enough activity level for long enough to run into enough opportunities to establish their business. Dynamically, I have observed that these are the people who are driven enough to keep experimenting in spite of few immediate rewards, and who are flexible enough to back up and try again differently over and over and over.

In most organizations, no more than 20% to 30% are able to do this well enough to build an adequate income. Here’s the Pareto Principle again: 20% of trainees will be driven enough and flexible enough to succeed! The rest fall away, exhausted by a negative ratio between trial and error and unwilling or unable to maintain their investment. For me, it’s what successful advisors do about this negative ratio—and what you can do about it in your own business—that gets really interesting.

This is because the Pareto Principle isn’t finished: the next stage of the advisor’s lifecycle finds the surviving advisors sorting themselves out again. Observations over the past 20 years and across North America reveal that the majority of FAs “plateau” at a comfortable level of revenue and grow slowly, if at all, after achieving their first, moderate level of success. For most advisors in the “successful 80% group” who plateau, this occurs when personal income is high enough that the pain of continuing the trial-and-error and trial-and-success processes no longer feels worth the additional revenue those activities will generate. For many advisors this is a powerful, emotional experience of being caught between two extremes: the call of comfort versus the inspiration of future success. They can’t sustain activity in the face of the negative ratio between trial and error.

(2) Comments
Great article........but it left me hanging. I was waiting for more details on the habits of the top 20%, and the article just kind of "stopped"! We all know the top 20% behave differently, otherwise there'd BE no top 20%. Maybe interviewing a few of those producers and gleaning some suggestions would add a bit more substance. Interesting read, though!
Posted by Steve R | Saturday, March 16 2013 at 1:35PM ET
As a retired advisor, and now an author and business coach, I ask my clients to name their most important business activities.The answers are always the same: marketing and selling. It is possible to make huge leaps in your selling success -if you carefully scrutinize all aspects of your sales process, and change where necessary. I don't see this happening very often.

Or, you could make some big changes in your marketing activity. It is here that I think you'll have much better luck. Some simple(but not necessarily easy changes) you could make:

Commit to working with ideal clients 100% of the time, within a fixed number of years - say 2. Commit to having a certain number of appointments every week - come rain or shine. Commit to obtaining a certain number of referrals each week, to ideal clients. Undertake a thorough analysis of all your clients and discover the profile of your best clients. Look for these types of referrals - incessantly. Commit to identifying and working in your niche by a date certain.(which of course means you'll have to give up all those sales activities that are not in your niche). What I've seen is that adopting any one of these goals in doable- but it takes more than a casual amount of courage. After all, we've all heard of some or all of these suggestions, yet they are usually not followed.

If you want to make any change- big or small- follow these three steps: Identify a specific objective - and put a deadline on it.What by when. Determine the strategies you'll use to achieve this objective.List two or three methods you will use.How. Set up an action plan: implement your methods(strategies) by calendaring those things you have to do.Meet your deadlines. The key is accountability- become obsessively deadline driven- excuses not needed or helpful.

Easy to understand - yes.Easy to implement: it depends . . .

Posted by Nick R | Sunday, March 17 2013 at 12:48AM ET
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