When it comes to managing their practices, the most successful advisors act deliberately. Elite financial advisors, who greatly outpace their peers in terms of net income, recognize that true success does not happen accidently or haphazardly. It takes a vision and a plan. Accordingly, we see them move deliberately as they create and act on their plans, focusing only on the activities that bring them closer to their goals, collaborating with others who can help them reach their goals and acting with consistency to provide a top-quality experience.
All of these actions result in what I call "success on purpose" - and it's an approach that any advisor who wants to enhance his or her success should be adopting right now.
My firm's new survey of 219 advisors included each of the three major industry channels: RIAs, wirehouse employees and independent broker-dealer representatives. All of the advisors surveyed have been in the industry for at least five years and manage at least $50 million.
As we examined the results, we segmented the advisors by net income - the one metric that best indicates the level of success. After all, a firm can have a great many positive things going for it, but ultimately none of those factors matter if it isn't profitable. Here's what we learned:
* The vast majority of advisors (66.2%) earn $150,000 to $499,999 in average annual net income.
* The next largest group (16.9%) is the least successful, earning less than $150,000.
* About one in eight (12.3%) earn $500,000 to $999,999.
* A very select group (just 4.6%) generate the best results: net incomes of $1 million or more.
The group of top-earning advisors caught our attention - especially when we saw that their incomes in 2010, compared with 2009, rose by an impressive 27.5% on average. The other three groups' year-over-year income growth was nowhere near as good, ranging from 11.8% to 18.7% on average.
BEST MANAGEMENT PRACTICES
What accounts for the fact that a small group of advisors greatly outpaces their peers in terms of both net income and income growth? I've said that it's partly due to a highly client-centric approach relative to other advisors. But there's more to it than that.
Our research and experience, both in the new study and earlier survey, tell us that time and time again the most successful advisors are those who deliberately focus their efforts on clear goals. They position themselves to attract affluent clients and then leverage their teams and systematic processes to serve those clients very well while earning a high profit. They succeed on purpose.
HOW THE SUCCESSFUL SUCCEED
We found that the top advisors earning at least $1 million stand apart in a number of key business management practices, revealing and reaffirming important clues to their success. For example:
They position themselves to attract the affluent. Financial services professionals identify themselves with a broad range of titles, including financial advisor, wealth manager, investment advisor, financial planner, investment consultant, wealth advisor, investment manager, personal CFO, investment expert and more. Knowing what advisors call themselves is instructive in not just how they promote themselves to prospective clients, but also how they think of themselves and their businesses.
In our survey, advisors in the higher-income groups are much more likely to position themselves as wealth managers than are those in the lower-income groups. Among the top-income group, fully half call themselves wealth managers. In contrast, financial advisor is used most often by those in the two lower-income groups. While certainly an accurate term, it is less likely than wealth manager to position a financial advisor as someone who is well qualified to address the financial concerns of the affluent.
They engage in formal business and marketing planning. Elite financial advisors' actions are part of a deliberate, formalized approach to growing the business. As seen in the charts, 70% of the top-earning advisors have formal business and marketing plans. This number exceeds all other groups in both types of planning and is markedly higher for marketing planning. These figures aren't dramatic enough to suggest that formal planning alone is generating their big success. However, such planning does provide important clarity and discipline for deliberate action.
They focus on their teams. Great success is rarely achieved alone. Advisors need competent staff members who can free them up to focus on their highest-value activities - typically, those that are client-facing and business-building. We found that 70% of top-earning advisors say they are very or extremely concerned about finding qualified staff - and that 90% of this group is very or extremely concerned about retaining their high-performing staff members. The other income groups were also concerned about these issues, but not nearly to the extent the top group was.
They stay hungry. Not surprisingly, all advisors earning less than $150,000 said their practices could be more profitable. And more than 80% of the next two groups agreed. What was striking, however, was that, even among the top-earning group, 80% believe their practices could be more profitable. The upshot: Despite their significant success, these advisors continue to look for and identify ways to improve.
This was further reinforced when we asked about advisors' satisfaction with their businesses. About 60% earning less than $1 million reported being very satisfied. But the number drops to 40% when income was more than $1 million. Obviously, satisfaction and income do not go hand in hand.
Why is this? In my experience coaching some of the industry's most elite advisors, I have found the most successful among us are often the most restless, most driven and most demanding.
Having reached the higher echelons of success, it becomes easier to envision even greater success - and it becomes more likely that it will bristle in the face of any limitations they see from partners, institutions or economic and market conditions.
One side note: We identified two factors not responsible for top advisors' success: age and the amount of industry experience. It's common for advisors to believe that, if they simply stay in business doing what they've always done, they will become more successful.
However, we found that advisors earning $1 million or more in annual net income actually have less experience in financial services than most other advisors. Additionally, the average ages of those surveyed decrease as their incomes increase. Those in the top income group are, on average, nearly four years younger than those in the bottom income group. Simply continuing with business as usual is not the key to significant success.
Despite the uncertainty in the economy and the financial services industry over the last several years, advisors can still rely on thoughtful, purposeful action and inspired leadership to generate much of their success. For advisors looking to raise their game, our research identified these ideas:
Position your practices to serve the affluent. Design your business to meet their specific needs, starting with what you call yourself. For many of the most successful advisors, this term is wealth manager. Of course, you'll need to walk the walk by implementing true, consultative wealth management processes.
Engage in formal planning. Ensure you are disciplined and deliberate in your actions by articulating a clear vision for where you want to go and delineate the short-, medium- and long-term goals you must achieve to fulfill that vision.
Rely on your team. Focus solely on your highest-value activities - client relationship management and business development - by building a team that can take care of everything else.
Don't be quick to say "good enough." Don't rest on your laurels once you reach certain goals. Instead, keep striving to achieve more and continually improve. Your efforts will result in greater success for both your clients and your practice.
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.