For this week’s column, I spoke with one of the industry’s most renowned coaches, Dan Sullivan, of Strategic Coach fame.
Throughout our lengthy and insightful conversation, Sullivan delved into many of the hardships facing financial advisors today—a blurring of industry boundaries, the de-commoditization of financial advice, all those regulatory hoops to jump through. This is nothing new. But what really got me thinking was his answer to these problems: Multipliers.
What does he mean by this? According to Sullivan, everyone has multipliers, each of which are related to five main topics: Time, people, money, technology and purpose in life. Once he explained this to me I was hooked—how can an advisor multiply his time? Would he also want to multiply his people? But I was missing the point. Applying multipliers wasn’t about getting more of something; it was about getting more from doing things differently. For the sake of my readers, I started with the most intriguing of these topics—Money.
Q: When did the industry begin to deemphasize skill?
A: When the investment advisory industry went on an AUM-based compensation structure, a lot of them started getting sleepy and just really dozey, especially from 2002 up to early 2008. You had six years where the stock market was really good and, for a lot of advisors, the fish were jumping in the boat and they thought they were fishing. In reality, they were just growing basically because of what was happening in the world not because they were skillful.
Q: So how can advisors grow their firms in the current environment?
A: You’ve got to get back to getting new money. There are two main kinds of money that a financial advisor has: new money and recurring money. Recurring money is AUM; you get it in there, next year it’s going to be there and it’s going to grow. So on Jan. 1, you know you’ve already got a lot of money coming in. Then there’s new recurring money, where you’re going out and getting a new check that will repeat itself next year. And lastly, there’s new one-time money.
Q: Can you explain new one-time money?
A: For example, the people in the insurance industry oftentimes get a big upfront pay but not much backend pay, and the checks can be big. Depending on where a life insurance agent is they might get a commission check for a single case that they could put in for half million dollars, but even if it’s $10,000-$12,000, that’s a lot of money.
Q: So what are the biggest pitfalls for advisors when the money is coming in so easily?
A: The biggest trouble financial advisors get into is where they get lulled to sleep by the fact that they have too much recurring money coming in. During the recession, the recurring money they had coming in suddenly dropped by 40%, and they had gotten so used to that recurring money that they got out of fighting shape. So when it got to late 2008 and 2009, they hadn’t been out in the marketplace trying to find new clients and creating new money for so long that they had gone to sleep at the controls.
Q: What do you suggest to wake them up?
A: You need to have a goal every quarter for new money that’s going to be coming in. In my workshops, a quarter of a million in new money is a good number to work with. Then you set aside a certain number of days during the next quarter when you’re only going to focus on new money. If it is $250,000, take 25 days, which is $10,000 per day. Get a list out and write the 10 biggest opportunities for getting that new money, which becomes the focus of your quarter. Confidence will grow from that; there’s nothing else that makes financial advisors more confident than getting new money.
Q: What if, during one of the 25 days you set aside to focus on new money, the stock market drops 200 points and you have existing clients who need attention?
A: This is why you want to use your money to build a team around you. Never sell yourself in the market as an individual; always sell yourself in the market as a team. You want to custom your clients to the fact that there’s a team and it doesn’t matter who they call at your office, they’re confident they’re getting treated well. That’s another multiplier.
Q: When should the firm stop adding new money?
A: When the advisor dies, or he sells the business.
Q: So basically, never?
A: Exactly. You always want to get new money. What you do want to do over time, though, is upgrade your clientele. A lot of financial advisors get trapped into a set of relationships that were appropriate for them 10 years ago and no longer are. These were important opportunities for the advisor on his way up, but he has to start building a team around these clients to take care of them, because it’s not appropriate to be working with these people anymore.
Q: Let’s go back to that list of opportunities you referred to. What should be on that list?
A: Most people have a list in mind. They’ve got them on post-its somewhere, but they never get around to writing anything concrete down. For this list, you should write down anyone you believe could produce new money in the next 90 days, the goal amount and a strategy for approaching them. From there, you can strategize what you can get from this relationship over the next 12 months, but you’re always first building for the next 90 days.
Q: So what if you had a client who you believe would be a great referral source. Would her name be on the list?
A: Her name wouldn’t be on the list, because she won’t get you new money in the next 90 days. Other days, called referral days, you can dedicate to relationships. On these days, you can go out and meet new people and work on referrals. They might very well develop money later on that’s significant, but in terms of your short-term vision, you’re focusing on people who can give you a check to cash in the next 90 days.
I have three rules: be in motion, be interested and be useful. Be in motion means you’re always out in the marketplace trying to get checks and that just creates a lot of other activity. You tend to be excited when you go out there, you’re on top of your game and so you get back in touch with your energy.
Q: Is there anything else you’d like to add?
A: I don’t want to say there’s anything wrong with recurring money, it’s the greatest thing in the world, but it can’t be the only thing. You have to have a certain portion of your time when you’re a new salesman. You need to feel like a new salesman and feel scared about it—that keeps your energy going. Your staff picks up on that energy, because if the advisor is bored then his staff is too.