Managing
Start Your Strategic Planning Process- Begin With A Clear Vision
Monday, January 28, 2013 21:15

Tags: strategic planning

A new year always causes me to pause and reflect on what I have or have not accomplished during the prior year and look forward what I want to achieve in the upcoming year. There isn’t anything we can do about the past, but we can decide what our future will look like. Begin with a longer-term vision of where we want to be and then focus on shorter time periods, the next year, next month, and next week.

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Identifying and completing shorter-term tasks and projects ultimately leads to getting closer to reaching the vision you set for your firm. Once you have identified your vision, you can begin to implement a strategic planning process.

Decide that you are going to make a change and do it today! Identify what the long-term vision you have for your firm.

Once you have identified your vision, how do you begin the strategic planning process?

Realizing that we need to do some planning for whatever personal or professional goals we have is half the battle. In other words, just beginning the process is extremely important to your success. The second half of the battle (and probably more important) is actually sitting down and spending the time thinking about and mapping out where we want our business to be in the future and working towards making that happen in the next year. This is where the vision and strategic planning come together. You need to know where you want to get to before deciding where and how you want to get there.

If you combine WHY, WHO, WHEN, WHERE and HOW of the process all at the same time it can become overwhelming and paralyzing. It is sometimes easier to do nothing, particularly if your firm is already fairly successful. It is often not easy to know where to begin and what to focus on in the strategic planning process. Let’s break it down to make starting the process a little easier.

WHY? Hopefully this one is pretty obvious- to get your business to the next level of success.
WHO? You and your staff. Initially developing the vision for the firm will involve only you the owner or principal of the firm. The strategic planning process will involve your entire staff.
WHEN? Begin today.
WHERE (to find time)? Put time on the calendar to make time for strategic planning. If you feel that this is better done outside the office, find a location where you can focus on this.
HOW? By planning what needs to be done today and tomorrow in order to reach incremental goals.

Think of it this way. Would you allow one of your financial planning clients to "wing it" without a well thought out financial plan?  Your successful (high income, high asset) clients would probably make it to retirement without you doing much planning for them. However, even though they might make it to retirement successfully, the confidence in reaching their target retirement goals are increased dramatically by following the systematic process you have created for them (and they have followed!). If you wouldn't allow your clients to plan for their future in this manner, why would you put off planning for your own business? Your business is much more likely to be successful if you spend more time working ON your business instead of just working IN your business! Strategic planning is part of the working on your business.

Strategic Planning is, in simple terms, the process of figuring out where your business is going and how you are going to get there. As a business owner, it also should incorporate your personal goals. As the owner, you have the ability to build the business any way you want. This is especially true in the financial advisory business with its variety of business models. You can decide the size of the business you want to build, whether you want to hire staff or outsource many of the functions, how large you want to grow your business, how much vacation time you want to take, and so on.

Once you have the vision on where you want the business to be, it allows you to focus all your energy on performing the tasks needed to get where you want to be. When your staff is able to see where the firm is headed, they now become responsible for completing the tasks that need to be completed to reach each incremental goal.

Develop a vision for your firm and begin planning and working toward your vision each and every day.
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Personality Tests May Offer Clues About Team Member Fit But The Analysis Should Not Stop There
Wednesday, January 23, 2013 13:54

Tags: Advisor businesses | productivity | teams

How your team functions internally and how its members leverage off of each other’s abilities are critical elements in success.
 
But the impetus behind using the tests may be faulty. Here’s why.

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Many teams use personality tests to offer clues about how to best utilize team member talents.
 
Myers-Briggs, DISC, and Kolbe are three that still offer beneficial insights into how well potential team members might fit.
 
The reasons cited for using the tests make two assumptions. One, that teams must be harmonious for them to be successful and two, that harmony is created by constructing a team with complementary personality styles.
 
If these two assumptions were true, all leaders would have to do is assemble the right personality mix, sit back, and watch the money roll in.
 
This is the assessment of a coach to financial advisors and wholesalers. Conflict among team members usually arises from feelings of unfair treatment. When the rewards of success are not evenly or appropriately distributed, resentment builds into anger and conflict is the result.
 
His point is that conflict indicates something is structurally wrong with the team.
 
But conflict is not always a bad thing. The structurally wrong conclusion is likely to be an incomplete assessment.
 
Personality tests can be good tools but that's usually where the assessment ends.
 
Continual agreement with little or no challenge to the way things are done can lead to lethargy and cause a business to decline.
 
Some disharmony can be good, especially if it’s an effort to refresh the team’s approach to new client demographics or to illuminate a legitimate fault in the client service or advisory process.
 
Egos can get in the way of keeping a team at the forefront of industry trends and, therefore, stymie the team’s progress. This will cause a direct hit to the team’s bottom line.
 
So if your team is currently dysfunctional, it may be a positive sign that major growth is about to occur, if and only if you will let it. Determining how to manage this dysfunction productively is where you may need help.

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Dear Advisors4Advisors: Is It Okay To Charge A New Client While His Assets Are Being Transferred?
Thursday, January 03, 2013 16:55

Tags: client service | integrity | investment management | managing | practice management

 

A member of Advisors4Advisors yesterday wrote in with a question about whether there is an industry standard on whether to charge a new client while his assets are being transferred. While there may indeed be FINRA rules on the matter, there probably are no rules about this for RIAs. Nor do professional certifications deal directly with such cases.
 
To provide an authoritative answer, I reached out to several practitioners and below are there answers. Please feel free to post a comment if you have anything to add to their answers. And if you are an A4A with a question about such professional practices, please feel free to send it in.  

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The Question

I am an advisor with an AUM fee structure. I have a new client who currently has assets at several different wirehouses. It will take several weeks to a few months to transfer all the assets to my custodian. 

My question is, how should I charge for my services during this transition period? I have heard three different ideas so far:
 
1) Don't charge, i.e. only charge starting when assets show up at custodian.
 
2) Charge full AUM at the time when the contract is signed.
 
3) Bill an hourly rate during the transition and AUM billing after assets are transferred to new custodian.

 
Is there an industry standard practice around billing during transitions?

 
Thank you for any insight you can provide.
 

Answers From Advisors 
 
Clark M. Blackman II, MA, CFA, CFP, CPA/PFS, CIMA
Accredited Investment Fiduciary
While it may be standard in the B/D world to base everything off of assets received and "In-house,"  this makes little sense to a fee-only RIA that may or may not even require that a specific custodian be used. 
 
Clearly, much work must be done for a new client before assets are invested if an advisor is doing the upfront analysis and other work required to create an investment policy statement and allocation strategy that fits the client's risk return profile.  This should be done as quickly as possible to facilitate the investing of assets once received, so it is highly likely that much work can be done before any assets are transferred. 
As a result, it is entirely appropriate for an advisor to bill a client for work done, regardless of when assets actually get transferred to a custodian that the RIA requires or recommends.  Charging an hourly fee may be appropriate; however, such a method of billing should first be disclosed in the firm's Form ADV. Billing rates must be disclosed and consistent when applied.  Obviously, this fee must also be clearly explained in the advisory agreement signed by the client.
 
I find it preferable to charge the firm's standard AUM fee rate on the value of assets the advisor and the client agree on upfront. Alternatively, hold off on billing the client until all the assets have been transferred to the recommended custodian, and an asset-based fee calculated at the end of the normal billing period (quarterly or monthly) for the period beginning with the date the agreement was executed with the client. 
 
If the client is currently using an advisor that charges a fee, I may in that instance negotiate with the client to help abate a double charge that could occur. However, the other advisor's fee should terminate on the day the client notifies them they have been fired, not the day that assets "transfer" from their custodian.  The other advisors should not be charging a fee on assets that it  no longer has an advisory agreement on. I believe this to be, at the very least, unethical, and arguably a breach of fiduciary duty.  Regardless, the agreement with the previous advisor should make it clear what happens when the client terminates the agreement and how they will be charged on termination.
 
 
Kenny Landgraf
Option #1 (when assets show up at custodian) or #2 (when contract is signed) would be proper.
At our firm, even though we sign a contract, we only bill when the assets show up to where we are managing.  But certainly you can make a case that, when the contract is signed (#2), you are starting “management,” which includes the movement of funds to the right custodian. 
 
Not charging the client until the assets are transferred to your custodian gives little incentive to get the assets moved quicker so you can start managing the client’s money and create a bill. Plus, if assets are showing up from different places at different times, it makes the first quarter billing a little more difficult.
 
The option to charge hourly  is messy, in terms of tracking hours. Unless you have a system in place already how do you verify and validate it.  I would not choose option #3 and believe option #1 or #2 are best.
 
Of course, it depends on the client and what he will agree to. Also keep in mind that from a long-term perspective, there may not much at stake. But I do understand you are doing work and not getting paid until the assets show up. 
 
 
Rob O’Dell, CFP®
Yes, you should charge during the transition period.
 
I’m not sure if there’s an “industry standard” around billing during transitions. 
 
We believe a firm that charges exclusively based on assets under management might experience a conflict of interest, especially when they provide planning for their clients in addition to investment advisory services. 
 
We charge clients a discovery and planning fee that will range between $3,000 and $12,000 before we will agree to manage their assets. This allows us to be compensated for the work we do in building a mind map, an elaborate graphic representation of their current financial situation that is easy to understand and serves a good metaphor for working with the client. That initial planning fee also covers financial planning, income tax projections, and creating an Investment Policy Statement. 
 
Think about it for a second: how can an advisor adequately write an IPS for a client if they do not understand that client’s investment objectives. Mind-mapping, our discovery process that technically occurs before actually managing a client’s assets, builds client-advisor understanding necessary for making good investment decisions. So, yes, it is totally appropriate to charge a client in this transition and to begin your discovery process.  
 
 

 

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How To Make New Years' Resolutions Stick
Tuesday, January 01, 2013 00:00

Almost half of American adults make one or more New Year resolutions every year and fail. That’s probably why the other half of the population doesn’t even bother. Here why New Year resolutions fail and a strategy to make them stick.

The most common resolutions are about weight loss, exercise and smoking. I see this first hand in all of my speaking engagements. When I give the audience a chance to make commitments, they almost always are about their health.

I remember speaking at an elitefor for insurance "producers," Forum 400. They had an opportunity to share commitments for actions that they needed to take to reach their goals. So I called on one of them to sahe and was expecting to hear about putting on seminars, prospecting for strategic alliances, meeting for financial reviews with their high net worth clients, gift tax and trust opportunities or succession issues.

Instead what do I hear? “I’m committed to losing weight.”

Now I have an opportunity to coach a person in front of the entire room. So I say, “What does that mean?” This allows me to introduce a concept that will dramatically impact your final outcome: “be specific.”

I then talk about the concept of “precision probing.” One reason that commitments don’t turn into long-term habits and actions is because the commitment is not specific enough. The precision probing model will solve this. It’s simple, who, what, when, where and then add the word specifically.

So back to “I’m committed to losing weight?” I ask myself, what don’t I know about this statement and I ask that of the advisor I'm coaching in the format of blank specifically. “How much specifically?”

The advisor typcially might say “I want to lose forty pounds.” This is still a vague statement so I ask “by when specifically?” He gives me an answer, let’s say by the end of the year. This brings up another problem with New Years resolutions. “It’s the starting that stops most people.”

The end of the year is too far out. It’s got to be very short-term and a small step. So I ask, “What does this mean for this week?” The advisor typically replies that they would like to lose one pound. This seems reasonable so I ask “how are you going to do this?”

My coaching clients typcially respond with another vague response, “I’ll eat less and exercise more.”

What the heck does that mean? Any time you hear the words less or more, qualifiers, challenge them with the precision probing model of blank specifically.

So I focus on one thing, exercise. “What specifically will you do for exercise this week?” The client says, “I’ll work out five times this week.”

Now, as a coach I could go several directions on this one. What don’t I know? What does the client mean by work out? Again, not being specific. However, to save time I go a different route. I check for reality.

“How many times did you exercise last week?” The most common response I get back is 0.

“How about the week before that?” Again, another 0, and before that 0, etc.

This is a third major reason that New Year resolutions fall flat on their faces: unrealistic commitments.

I explain to the group that you can’t commit to workout five times when your history is 0 followed by 0 followed by 0!

I ask “would it be good if you worked out four times this week?” Most of the time the client says “Yes!”

Then, I ask if working out three times would be good and, again, I hear, "yes!" This client is making an unrealistic commitment and has just about a zero chance of succeeding. You can almost guarantee that there will be circumstances, obstacles, unscheduled priorities, interruptions, that all get in the way preventing this person from doing what they said they would do. Unless….

So, let’s say that the client agrees to a minimum level commitment of working out two days this week. They’d like to work out four times but are only committing to and being held accountable to two. They can go ahead and reset their baseline by working out four or five times and then commit higher next week, but they only have the behavioral credibility to commit to the lower level of two times.

This brings up another key component for successful New Years resolutions: take small, realistic steps.

However, this too is doomed for failure unless an intervention compensates for human nature.

We are all genetically coded to avoid the highest level of perceived pain and seek comfort. We are genetically coded to see threats, to be negative. We are not coded to look in a meadow and appreciate the beauty. We are coded instead to look in a meadow and see the lion that is barely visible. We are coded for survival. We are coded to be fat, not thin because of the scarcity of food for caveman we are coded to binge, to eat well beyond our nutritional needs and to store the excess as fat.

Human evolution does this by delaying the appestat area of the brain from signaling the fat cells that we have had enough caloric intake and therefore suppress hunger. This delay favors survival enabling caveman to eat more because he may not have a protein source like this captured deer for another week.

In fact, all of our evolutionary instincts are to recognize what can hurt us and to compel avoidance. This is not based on the truth. It’s simply based on this no-longer-appropriate human survival instinct.

For example, the flight or fight mechanism will save your life if you see a bear. Your breathing will increase, you will get a shot of adrenalin, cortisol, your blood circulation rises, blood leaves the extremities for the major muscle groups so if you’re clawed you won’t bleed to death. Digestion stops, endorphins are released so you won’t feel pain. You are instinctively put into a state where you can run as fast as possible or stay and fight as strong as possible.

This automatic response even occurs precognitive. In other words, before you are even aware that you are looking at a dangerous and hungry bear you are already running away. This instinct favors survival so you live to pass it on. However, the problem is that these protective instincts occur regardless of the truth and validity of the threat. For example, you are driving and someone cuts you off in traffic. You get the exact fight or flight response physiologically but it’s not a true threat. You are sitting in your car. Your life is not being threatened but you respond as if it was. The key is to recognize what the real competitor is to your reaching your goals, human nature. You are genetically coded to recognize the highest level of pain and avoid it for comfort. You are an avoidance machine!

Once you recognize this, you can work with it and stop fighting it. Here’s what this means for your commitment to exercise two times this week.

You make the commitment, exercise two times. (And you’re specific about what exercise means.) So this meeting the first issue, it is specific. You also meet the second consideration, it’s a short term commitment, the next seven days, and it is a small step with specific actions. You also pass the third test, it’s realistic.

So why won’t you do it consistently? Because this is only half of a commitment. You haven’t acknowledged the failure reason number four, recognizing the true competition, human nature and having an intervention. Human nature states that all human performance is the avoidance of pain or the seeking of comfort.

Your brain is designed to search like a computer to find any links of your commitment to pain, and it will find it. Here are a few:

1. Exercise hurts

2. You’re tired

3. You have aches and pains

4. You don’t have enough time

5. It’s inconvenient.

Your brain instantly links your commitment to exercise to life threatening pain. This triggers the survival mechanism and you are compelled to avoid. This then impacts your perceptions. You don’t see opportunities to exercise.  Instead you focus how you have been genetically coded to focus on the perceived threat and you avoid it.

The brain doesn’t say that you’re not really tired, it just holds it as if it is a life threatening event and compels you to avoid. When you avoid you will then justify the avoidance with rationalization and never think that you’re avoiding -- unless you implement an intervention.

One more example before the intervention. I was sitting in a real estate office many years ago and this is what I saw. A new lender walks into the office carrying her rate sheets. She was trained to go into real estate offices and meet with the realtors who can give her their buyers. She was trained on how to approach them, what to say, and what to point out on the rate sheets, etc. She was trained on everything except on how to handle what came next.

The owner of the company saw her walk into the office. He came storming out of his office grabbed her business card, tore it up and threw it at her shouting this is how much I want to see you in my office. Now get out! The poor woman left the office in tears.

Here is what happened mentally and physiologically for this lender. The activity of prospecting was linked to pain. The area of the brain that fires upon real physical pain, the anterior cingulate, also fires upon mental pain, in this case the tremendous rejection. Next the hypothalamus forms a memory and releases stress hormone between the outer cortex, the executive thinking part of the brain, the intentions area, and the amygdale, a part of the arousal, fear based limbic system buried deep in the brain.

A cortical limbic loop is created and strengthens with the stress hormones. Now the next time this woman even thinks about calling on a real estate office this memory will be triggered and it will lead to the same physiological state that the woman was in when this first happened. This is called learned helplessness.

This lender will not prospect again but will rationalize and justify why she is just too busy to call on this office --unless there is an intervention. It’s actually called behavioral contracting.

Behavioral contracting is making a specific declaration (exercise two times, or call on this real estate office) plus accountability. Accountability has two parts. The first part is the check in. Someone outside of yourself checks in with you and verifies that you did what you said you would do. The second part is the consequence for non performance. There must be a painful consequence if you don’t do what you said you would do. This consequence must be more painful than the pain of the activity. Now you are tapping into human natures’ genetic coding of avoiding the highest level of perceived pain for the comfort.

If the highest level of pain is the consequence then you will be compelled to avoid. How do you avoid, by doing the activity you said you would do.

Try it yourself. If this realtor would put $1000 as a fine if she didn’t go into that office this week, I promise you that the pain of losing the $1000 would far outweigh the perceived pain of the activity of going into the office.

The bottom line: she will still be an avoidance machine, but she will be avoiding the penalty by doing the action. Here is a summary of what stops new years resolutions from working. No, let me turn it around.

Here is a summary of what ensures New Years resolution are kept:

1. Goals are specific.

2. Short term focus with small steps and specific activities.

3. Commitments are realistic and based on previously established behavior.

4. You recognize the true competitor, human nature and you have an intervention.

5. You use behavioral contracting-specific declaration plus accountability.

Accountability equals the check in with an enforceable consequence (painful) for non performance. Try this with just one new years resolution for one week at a time and you will be very happy with the result.

Send me an email and I’ll hold you accountable, This e-mail address is being protected from spambots. You need JavaScript enabled to view it and ding you for $100 if you don’t perform.

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Getting Your RIA To The Next Level In 2013; Resolve To Follow These Six Steps And I'll Help You Follow Through
Friday, December 28, 2012 04:11

Tags: business planning | strategic planning

There is so much to know if you hope to run a successful financial advisory business. And with so much information available on the subject, sometimes it is hard to pull out the relevant information you need to grow your business.   

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The major challenge often facing principals in an RIA is starting and then following through on strategic projects important to reaching a higher level of success. Often, these projects involve writing and implementing efficient processes to scale a business.

With the calendar about to turn past 2012, we all have a chance to take a fresh look, make a new start. 

If you resolve now to stick with the six-step process I am about to articulate, I'll be here to remind and encourage you throughout 2013. 

I resolve to come back to this theme in my posts to help you stick with the plan.

It's free help. Purposeful and well-intentioned. Let's get started right now.

Here is a six-step process your firm can follow to achieve the next level of success.
 

Step One: Create a strategic plan and refer to it throughout the year to guide the firm. Include in your plan the mission and vision of the firm. Share it with your employees. Make sure they understand where the firm is headed, why and how their role is important in reaching the company’s goals, and how they will contribute to reaching these goals. Break the goals and tasks into 3 year, 1 year, 3 month, 1 month, and weekly. Work backwards from your longer-term goals to the shorter-term tasks. Figure out what needs to be completed in the short-term to reach your longer-term goals. Most importantly, follow through and keep moving toward your goals.
Have you created a strategic plan and shared it with your employees? Are you and your staff continuing to follow the strategic plan?

 
Step Two: Assign someone in your firm the role of “Implementer.” The role of the Implementer is threefold: 1) to make sure the correct staff is in place to reach your longer-term goals, 2) prioritize tasks and projects and ensure progress is being made toward longer-term goals, and 3) assign tasks and hold staff accountable for completion of the tasks. This role could be filled by the founder or one of the partners of the firm, particularly when the firm is small. However, as the firm grows, the principal’s time will become more consumed with client-facing activities- servicing current clients and gathering new ones. Consider hiring a COO or engaging a business coach to manage this role.
Who is the Implementer in (for) your firm?

 
Step Three: Make sure you have the right staff in place to execute your strategy. If you don’t have the correct staff in place to move your firm to the next level you can hire the correct person for the job, shift roles within the firm if the right people are there but are in the wrong roles, or hire an outside firm (consultant or outsourcer) to serve in the role on a short or long-term basis.
 Is your current staff in the correct seats to get your firm to the next level or do you need to explore options outside your firm?
Step Four: Focus on critical tasks and projects that move the firm toward longer-term goals. Identify the most important tasks to be completed and assign priorities. Clarify what needs to be accomplished daily and weekly in order to reach your quarterly and yearly goals. Repeat this step as prioritized tasks and projects are completed.
What tasks and projects are most important and what needs to get done today to move your firm forward?  

 
Step Five: Assign accountability for completing the shorter-term tasks and projects. Assign tasks or projects on a weekly/monthly/quarterly basis and make sure the correct person in your firm is handling each task or project. Hold each staff member accountable for completing the assigned tasks or project.
Are you holding your staff accountable for their assigned tasks and projects?

 
Step Six: Measure Your Progress. As you continue to make progress toward completing tasks and projects, monitor your progress and measure where you are at in terms of reaching your longer-term goals. Assess your progress and reallocate or add resources if needed. Progress and success builds momentum as you move forward. 
Are you measuring the progress of the staff toward creating a successful, efficient and effective firm?
Follow these steps and answer the questions in each step to put your firm on the right path toward reaching the next level of success you are seeking.
I will be here throughout 2013 periodically reminding you to stick with the plan and encouraging you to follow through with specific ideas every step of the way.
Best wishes for a new year full of happiness, success, and big dreams coming true!

 

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