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Top 5 Practice Management Mistakes Advisors Make

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Based on my past life as a financial advisor and my current role in which financial advisors are my clients, I have seen a lot of best practices by advisors — and witnessed their biggest mistakes. Here are five things that advisors do wrong, so you can get them right.

1. Underestimating the value of a team approach.

Three out of 10 financial advisors go it alone (according to Cerulli's 2012 Advisor Metrics report) and are often at a disadvantage compared with full-fledged advisory teams. For solo advisors, their time and expertise are limited.

Clients want specialists — a tax advisor, estate planner, asset allocator and portfolio manager; you get the idea. The notion of being a jack-of-all-trades is simply outdated. It takes a full-fledged team to assess clients’ unique situations, identify and handle their diverse financial needs, and help them reach their financial goals.

Full-fledged teams are not just simple arrangements between advisors who refer clients needing accounting or tax services. Full-fledged teams are those with several individuals right there as part of the practice with distinct expertise and roles in serving the client.

What do you think it looks like when a prospective high-net-worth client walks into a private bank and meets with a trust officer and an accountant, among others, and then walks into your office to meet with just you? That prospective client will think, “You can’t do all of that.” As a result, solo practitioners may be limited in their ability to work with higher-net-worth clients.

Bottom line: You have more opportunities to connect with more individuals when you are part of a team. Meanwhile the client benefits from a higher level of expertise and continuity of the overall relationship should one team member retire or leave the firm.

Watch:The Worst Mistake Advisors Make

2. Lacking a sophisticated client service model.

Advisors often create a client service model by segmenting their clients based on assets under management or revenue and then applying service levels. However, clients with the same assets but from different generations may view their service needs differently. A boomer might want more face time, while a Millennial is comfortable surfing the web for answers to some questions. In determining service levels, the advisor should consider assets and revenue but also include financial objectives, risk tolerance and service level, type and frequency.

Many other advisors simply react to clients’ needs and have not incorporated a structured proactive client service model made up of personalized service through in-person meetings or teleconferences, e-newsletters, telephone check-ins and appreciation events. What happens is advisors take care of clients who demand the most attention and forget about those who are not calling, emailing and texting all the time.

Your connection to clients you neglect will weaken over time and those clients might find an advisor who is more hands-on. Don’t give your clients the chance to ask themselves, “Why hasn’t my advisor called me?” and to conclude, “My advisor must not care about me.”

Be thoughtful and consistent about when you reach out to clients so that you don’t miss opportunities in their lives to be of value. Is your client buying a new home, changing jobs, expecting a child or grandchild or getting divorced? These are the times when you call or meet. This is when it makes sense to review a client’s portfolio, rethink asset allocation and more.

3. Failing to respond to a client in the client’s time frame.

In this era of 24/7 texting, clients want immediate access to information, and for questions they can’t Google, they want answers from real people as soon as humanly possible. Many advisors will say they return phone calls within 24 hours, and that’s just not good enough anymore.

Make sure you have an up-to-date, interactive website, perhaps with a “Frequently Asked

Questions” section and a way for clients and prospects to send an email and receive an automatic reply thanking them and letting them know how and when you or someone in your office will respond. Sometimes client requests can be handled by a member of the advisor’s team without the advisor being involved, speeding up service to the client. Advisors with clients across multiple time zones may need to employ different models for office hours and responsiveness.

If your firm permits it, consider allowing clients the ability to book meetings via your website. And give them different meeting options—in person at your office, in person at their home or office, by web chat or by phone.

4. Waiting too long to integrate a new advisor into the retiring advisor’s business.

This is important, as the average age of today’s investment advisor is 51. Many advisors who decide to retire and transition their business to another advisor underestimate the time it takes to integrate a new partner into their client relationships.

Before you retire, you must get clients comfortable with their new advisor. Clients want to work with someone they are comfortable sharing some of the most personal details of their lives with, and that kind of trust isn’t built overnight.

The further out you plan the better. Advisors should think about their succession plan at least 10 years from the date they want to exit the business and create a plan to introduce a new partner to their firm and clients. For advisors who are only 5 years away from retirement a simple strategy may look like this.

  • Five years out: Introduce the new partner while you still do all of the client meetings. The new advisor learns how the business is run, observers the senior advisor’s approach and comes to understand service level expectations. 
  • Four and three years out: Handle primary meetings, and let your partner take secondary meetings.
  • Two years out: Have your partner run most meetings, though you continue to check in.
  • One year out: Communicate your desires to retire, work on answering clients’ questions and concerns and make sure they are comfortable.

5. Forgetting to prospect existing clients.

Financial advisors often pour a ton of energy into wooing prospects and then fail to make subsequent meetings as engaging and relevant. As a result, their service becomes stale and their value diminishes. Clients can be more easily swayed by another advisor.

A good question every advisor should ask before walking into a client meeting is: “What unique value will I deliver in this interaction?” In other words, don’t just read clients their latest statements. Talk strategy and next steps. Remind them of their risk tolerance or five-year plan. Ask about major or upcoming life events. You want your clients to walk away thinking, “This was worth my time.” Not only will you keep those clients, but they will be more likely to refer you to new clients.

One way for advisors to check in with clients is quite simple: Ask them what else you could be doing to meet their needs. By doing this advisors will be in a position to continue adding value. Advisors need to remind themselves that if they are not prospecting their clients, their competition will.

Wayne Badorf, CFP, CFS, is head of Intermediary Sales for Wells Fargo Asset Management and president of Wells Fargo Funds Distributor.

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