One of the best ways to learn what it takes to succeed in our business is to look at the best practices of elite financial advisors who are enjoying tremendous success in the marketplace. That's what my firm, CEG Worldwide, did late last year when we surveyed more than 200 advisors. In coaching thousands of advisors over the years, I have found that the efforts made by the top tier typically reveal what works and what doesn't to build and grow great advisory practices.
Our survey included advisors nationwide representing each of the three major industry channels: registered investment advisors, employees at wirehouses and independent broker-dealer representatives. All have been in the industry for at least five years and manage at least $50 million in assets.
The pie chart below shows how we divided the study group using what we consider to be the single best metric for identifying an advisor's level of success: net income. The majority - nearly two-thirds of those surveyed - earn between $150,000 and $500,000 annually. About one in six earn less than $150,000, and about one in eight earn between $500,000 and $1 million. A select few - less than 5% - earn $1 million or more.
Those who earn at least $1 million had year-over-year income growth in 2010 of 27.5% on average. In stark contrast, the other three groups generated growth from 11.8% to 18.7% on average. Clearly, the top advisors are doing a superior job capitalizing on their already strong positions. What's more, the $1 million-plus group, not surprisingly, manage significantly more assets than their peers: $556.5 million on average, versus $291 million for advisors earning $500,000 to $999,999; $145.6 million for those earning $150,000 to $499,999; and just $76.4 million for those earning less than $150,000.
A CLIENT-CENTRIC APPROACH
What accounts for these key differences in income and assets among these advisors? A key determinant is the extent to which the advisors take a client-centric approach. Consider the following differences in various client-related metrics between the small group of elite advisors and the rest of the pack.
* Number of clients. Client rosters grow steadily along with income, but up to a point. (See the Client Base chart below.) At the $1 million mark, there is a sharp drop-off, with top-level advisors serving about 25% fewer clients than those earning between $500,000 and $1 million. In fact, they serve only slightly more than those earning less than $150,000.
The $1 million-plus advisors recognize that, to earn higher incomes, they must serve fewer clients, not more. This makes perfect sense if you think about it. Having fewer clients enables these advisors to spend more time building client relationships and ensuring client satisfaction, which in turn generates greater client loyalty and a greater likelihood that clients will provide introductions to qualified prospects as well as additional assets to manage.
* Affluence of clients. To earn more income from fewer clients, you need to serve wealthier investors and families. Indeed, the highest income advisors we surveyed work with an average of 83 clients, each of whom has at least $1 million in assets with the advisors. That's compared with nearly 73 clients for each of the advisors earning between $500,000 and $1 million. The advisors in the lowest income group have the fewest affluent clients - an average of 23 each.
* Minimums. Four out of five advisors earning $1 million or more impose a minimum asset requirement on new clients, compared with just three out of 10 advisors earning less than $150,000. Minimum fee requirements are much less common, but the $1 million-plus group uses them most: 40% versus less than 30% for the other three groups. Such strategies help ensure a wealthy client base.
* Client specialization. Nearly three-quarters of the $1 million-plus group specialize in one particular type of client or niche. By contrast, approximately 35% of the lower-income groups focus on a target market. Specialization is a key driver of success. When advisors work with a select community of investors, they become known for serving that community. Advisors who do this get more business through word-of-mouth marketing. Their clients benefit from an expertise in solving unique challenges.
* Client communication. The majority of advisors in all income groups say they are either "very concerned" or "extremely concerned" with communicating effectively with clients. Actions speak louder than words. The $1 million-plus group of advisors are much more likely to engage in active communication with their clients. In the 12 months before the survey, the elite advisors contacted each of their top 20 clients an average of 28 times. The other groups didn't come close to this frequency. For example, the advisors who made up the bulk of our survey group (those earning $150,000 to $499,000) contacted their clients just 16 times. The other two income groups fared even worse.
* Client referrals. More than 90% of advisors in all of the four income groups told us that client referrals are extremely important sources of new clients. Indeed, such referrals are the most popular avenue for finding new prospects - more so than referrals from other professionals, seminars and public relations efforts.
Despite this, many non-elite advisors aren't fully leveraging this source. Among advisors earning less than $1 million, fewer than six out of 10 ask their clients for referrals on a regular basis. By contrast, the figure among the top income earners is 90%. These top earners received nearly six referrals from each of their top clients during the past year, while lower-earning advisors received just two referrals on average. Clearly, top earners are leveraging their many interactions with clients to ask for referrals - and having great success getting business.
STEPS FOR SUCCESS
From our study and our experience coaching elite advisors, a few clear best practices can substantially enhance business results. If you are a advisor looking to move to a higher level of success, we recommend starting with these steps:
1. Specialize in one or two types of profitable clients whom you can serve very well. Client specialization allows you to tightly focus your marketing message to effectively reach a defined narrow group. Once you are established within a distinct community, acquiring new, qualified clients through referrals becomes relatively easy. And your clients benefit from the expertise you will develop in addressing the concerns of individuals like them.
2. Make client communication a priority. Frequent contact about what matters most to your clients will build lasting loyalty and, along with it, referrals and additional assets to manage.
3. Request referrals from clients on a systematic basis. Do not assume that satisfied clients will automatically provide referrals. To get introductions to qualified prospects, you must tell your clients exactly whom you want to serve and ask for introductions to people who fit this description.
It takes commitment - of time and effort - to reach elite advisor status. It's not an easy road for any advisor. But the benefits of being among the elite are huge. Your clients, your alliance partners and your team all count on you to make it happen.
John J. Bowen Jr., a Financial Planning columnist, is founder and CEO of CEG Worldwide of San Martin, Calif., a global training, research and consulting firm for advisors.