A few months ago, I resolved to spend 2012 exploring the Big Issues in the profession. My strategy is to tap into the wisdom of the crowd via this column and my interactive relationship with the audience who reads my work at Inside Information.
For example? I'm collecting feedback on a question that the profession has left unaddressed for far too long. No doubt you constantly read, in the pages of this magazine and elsewhere, great advice on how to take an advisory business from good to great. But I would estimate that 80% of all advisors are still struggling to reach the good level. By that I mean they aren't making a substantial living as financial planners or investment advisors, and they don't see a clear path on how to get over the hump.
FROM SURVIVAL TO SUCCESS
I'm still collecting answers on this question - how to get from the struggling stage to the success phase of your career - and would welcome your feedback. But I do have some preliminary thoughts that I haven't seen elsewhere. There seem to me to be three ingredients necessary to get over this crucial hurdle: Courage, confidence and commitment. (I promise it's only a coincidence that all three words begin with the same letter, but it does make them easier to remember.)
When I talk about courage, I mean exactly what the word implies: being willing to take risks that make you feel uncomfortable because the outcome is uncertain and potentially dangerous. The best and most relevant example is fees. Years ago, I hosted a coaching program for advisors, and the first thing I asked everybody was how much they were charging for their services. Then I invited them to try something: The next time you work with a client, I said, double the project-based financial planning fees before starting the asset management activities.
Of course, many advisors were giving away their planning work - which I believe is the most valuable part of their service. (Nobody in the room disagreed with me.) In that case, doubling didn't make sense, so we took the highest overall fee in the room, doubled that, and decided that was the fee they would each quote the next client who walked into their offices.
Almost before I had stopped talking, the push-back seemed on the verge of a riot. So I asked everybody to tell me how many clients ever objected to the magnitude of their fees. The unanimous answer, given proudly, was that nobody had ever objected.
So then, I asked, how do you know what the market will bear? In a rational, capitalist society, the price of a service seeks an optimal balance between cost and value, which is determined by trial and error in the marketplace. But nobody in my coaching audience had made any effort to do this trial and error test, and in my travels around the profession I've discovered this is common. Financial planners seem to be the only professionals in the world who negotiate down their own fees voluntarily in order to never experience client rejection.
Later, I discovered that management consultants have a rule of thumb about how this trial- and-error process should work. At least 20% of the people who are presented with your fees should object or squirm; ideally the percentage should be even higher. Otherwise, you aren't charging enough, and the planning profession as a whole is being cheapened because you're either giving away a service that others are trying to sell, or undervaluing it. If you can't bring yourself to be selfish enough to charge what you're worth, I told the coaching audience, then think about the long-term health of your profession.
Courage also means being willing to leverage yourself before you have the revenues to justify a new staff hire. Talk to anybody with a successful practice, and they'll remember the angst they felt when they brought on their first employee. In many cases, that person made more than they, the owner of the firm, did for at least the first year. But these successful advisors will also say their faith was rewarded many times over. When they finally were able to focus on bringing in new clients and delivering great service, the money started rolling in.
WAITING FOR A TOMORROW THAT NEVER COMES
We hear these stories and know them. But how many advisors are still waiting for the cart to move before the horse is hitched up? They continue to struggle and do the menial work themselves, waiting for the day when they have enough revenues to comfortably hire somebody to take that load off their desks - and that day never comes, because they don't have the free capacity to do what's necessary to get to that point.
Which brings me to the next C, confidence. I talk to advisors who, after we've had a few drinks, will blurt out that anybody could do what they do, and they wonder why anybody would pay them. Years ago, I thought this was a rare (and bizarre) malady, but over the years I've heard it so often I know now there must be a broad substrate of insecurity below the surface of our profession. This lack of confidence is everywhere.
Behavioral economists call this the familiarity bias. Because we know how to do something, and do it every day, our neural circuitry concludes that it must be common, easy and of little value. Those adjectives may have described perfectly dwarf yams sprouting up around Cro-Magnon caves, but make no sense when applied to somebody who has mastered the CFP curriculum, knows the investment world inside and out, and knows how to stay invested when the markets are gyrating like a yo-yo.
There is one sure cure for this lack of confidence: Time. I remember an advisor who was looking over his 30-year clients at an appreciation dinner and saw people who had been in debt when they came to him, spending more than they earned, and didn't know a mutual fund from a zero-coupon bond. Now they were millionaires. "I wish I had known years ago how much value I was adding to the lives of my clients," he told me. "When I look at where they were, where they were going before we met and where they ended up just by following my simple advice for a decade or two, I can see a difference that dwarfs any fees I might have charged along the way."
Do you really need 30 years before you can realize and accept the value of your advice? Can you rewire your circuitry and provide your services with more confidence and conviction, envisioning the outcomes you're helping to create? If you can, you may have taken the crucial step to having a successful practice because people are attracted to confidence - and respond to it.
Finally, think about commitment. When I talk with successful advisors, they seem to the outside observer to be a bit obsessive. They seldom spend time watching reality TV in the evenings; instead, they're fiddling with their next letter to clients about portfolio issues, looking at software demos, tinkering with job descriptions or updating their goals for the year. Not that they don't spend time with family and friends; in fact, they tend to spend more because they've made a commitment to eliminate the mindless clutter that takes up so much of the average person's time.
FOCUSING YOUR TIME AND ENERGY
Commitment is about where you choose to spend your time and energy. The most dysfunctional part of our culture and economy is the endless ways it has created to occupy your time without providing any meaningful return - distractions like reading the sports page, watching mindless TV, playing video games and solitaire, participating routinely in the bar scene, and of course the social media programs that seem to have an addictive quality for some people.
If you decide to focus your energy on productive activities that really matter - and that can certainly include reading great books outside of the profession, spending time with family and friends, and travel, as well as making incremental improvements in your business and client service - then suddenly you're several steps ahead of your peers. This is a very preliminary answer to what I think is a very important question. But I think if you can master the three C's, then much of what else I learn about moving from struggle to success will seem easy in comparison.
Bob Veres,a Financial Planning columnist,edits and publishes the Inside Informationservice for advisors at bobveres.com.