1. Clean Out the Closet
Have you had an experience like I have, going into a closet or a desk drawer and finding it so cluttered with “stuff” that you couldn’t find what you were looking for? Everything you put in that closet or drawer had a purpose at the time, but it turned out you never used it, and it most likely could have been thrown away in the first place. But, like me, you held on to it thinking someday it would be useful.
Our book of clients can sometimes get like that proverbial closet or drawer. All of us have what we would term “marginal” clients - those who probably don’t consider you their primary financial advisor, don’t totally value your advice, and maybe don’t even completely trust you. Yet, they can take up a sizeable amount of your time with little profitability to show for it.
Maybe it’s time to clean out your book in order to make room for profitable clients. Consider referring them to another advisor. Or, if you have a large number of them, consider segmenting that block of business and selling it to another advisor - perhaps a younger advisor just getting started in the business, for whom those clients would be valuable.
This is a hard thing to do for many advisors, but, in the end, both you and those clients will benefit. You will benefit in that you will be able to structure your book with more profitable clients. The clients will benefit by being referred to an advisor who can and will spend more time with them to help them with their problems.
2. Build a Financial Planning Practice, Not an Asset Management Practice
In my experience, when I helped my clients with their financial goals (education planning, insurance planning, estate planning, etc.) the portfolio management part of the process was not a major focus, yet, I continued to gather more and more assets under management. Many experts will tell you that if you fail to help your clients address the important financial planning issues, you will eventually lose the client, no matter how good a portfolio manager you are.
3. Concentrate Your Efforts on Things Most Valuable to You and Your Clients
The best way for most of our clients to increase their net worth over a long period of time is to have a well-defined financial plan and to implement it. Having a purpose for every financial decision will help our clients remain focused on their goals and how to get there. I heard an interesting statement recently. The speaker said that, in building a comfortable retirement nest egg, the just the decision to contribute to a 401(k) was more important than how those investments are allocated. It sounds pretty simple, but how many individuals go for years without even contributing to their 401(k)? Educate your clients on the need to start investing for retirement (and other goals) as early as possible, and as much as possible. Statistics will show that this is a much more important decision than what to invest in.
Once they begin investing and understand why they are investing, then the investment and asset allocation decisions will follow. And, while asset allocation decisions are critical to the success of the investment process, an understanding of why they are investing is critical to their steadfastness with the process during both good and bad times. Dalbar’s Qualitative Analysis of Investor Behavior, which has measured the buy and sell behavior of individual investors since 1994, shows that the average individual investor almost always trails the S&P 400 index, according to Steven M. Sears, author of The Indomitable Investor. The primary reason, Sears said, is they don’t hold stocks long enough. This is a result of the erratic way individuals invest when they don’t have a defined plan or strategy.
4. Spend Less Time on Selection and Timing
My experience is that most advisors cannot consistently “outperform” the markets by researching individual stocks or funds, following trends or economic statistics, or using one of many techniques. Most of us cannot add a tremendous amount of value over that of professional money managers or a properly