Amidst one of the worst public health crises and economic downturns in recent memory, financial advisor's have continued to help ensure the financial well-being of their clients. As the crisis continues, however, a growing number of advisor's are starting to turn attention to their own situation and the longer-term impact of Covid-19 on their business. They are beginning to ask the following questions:
What is my plan if I am no longer able to service my clients?
How might this crisis affect my own retirement?
I was planning to sell my business in the next 3-5 years. Does that timing still make sense?
How has this crisis affected the value of my business? What can I do to increase its value?
Do I have the motivation and desire to continue working as an advisor post Covid-19?
One of the most significant strategic challenges facing our industry prior to Covid-19 was the lack of advisor preparedness concerning Succession, Continuity and Exit Planning. We all know the stats. Only a small percentage (approx. 10%) of advisor's have a written plan for their succession, and the vast majority of advisor's were not even ‘thinking about’ the eventual transition of their business. In the era of Covid-19, however, this appears to be changing. A growing number of financial advisor's are realizing the importance of having a robust and well-documented Succession or Transition Plan in place.
This is a positive development. After all, the reality is that every advisor will one day transition out of their business and eventually exit the industry. The only question being on what terms and conditions. It seems obvious that not having a plan in place for an event that is certain to take place makes no sense whatsoever. A robust and well-documented plan is in the best interest of not only advisor's but also their clients, family members and staff.
What can we do to help financial advisor's take effective action and ensure their readiness?
In a series of articles over the next several months, we intend to explore the subject of Succession, Continuity and Exit Planning and the related trends and challenges facing advisor's in 2020 and beyond. Our objective is to offer insights and practical tips and suggestions on concepts and strategies, including case studies from The Personal Coach, to help advisor's take action and effectively shape the future of their firms.
Getting Started - Take a Different Approach to Transition Planning
One of the most frequently asked questions I get from advisor's who are keen to develop a Transition Plan is - ‘Where do I start?’
What I often suggest is that they start by adopting a different way of thinking about the concept of Transition Planning. And that starts with a clear understanding of the terms Succession Planning, Continuity Planning and Exit Planning and how these concepts ought to work together to create a robust Transition Plan. By doing so, advisor's will create for themselves a sense of direction, an understanding of the options available to them, and a clearer path forward.
Just about every advisor I know uses these terms interchangeably. In fact, they mean very different things.
Succession Planning – refers to the plan that ensures the seamless and gradual transfer of ownership, leadership and management of an advisor’s business internally to a new generation of advisor's.
The key point is that the founding advisor's business will endure beyond the life and career of the advisor….and no longer has to rely primarily upon that advisor.
Exit Planning – refers to the plan that ensures the transfer of ownership, leadership and management of an advisor's business to an external third party.This transfer is typically a 100% transfer of ownership and means that the founding advisor's business does not endure beyond his or her own career.
Contingency Planning – refers to the plan that ensures the seamless transfer of ownership, leadership or management of the advisor's business in the event of a random and unplanned event –death or disability being the most common, but pandemic as well.
One plan is neither better nor worse than the other. They are just different.
A Succession Plan at its core is about growing an advisor's business by including another generation of advisor's and leveraging their skills, talent and energy;
An Exit Plan, on the other hand, is about monetizing an advisor's business and bringing their practice to a close and career to an end;
A Contingency Plan is about insuring an advisor's business and preserving its value in the event of a major unplanned and negative event.
Conventional wisdom would suggest that an advisor must choose at some point in their career between an internal Succession Plan and an external sale to a third party. This kind of thinking is misguided. A smarter and more effective approach is for an advisor to develop a more comprehensive plan that incorporates all three of the plans described above. Ideally, it should always start with an internal Succession Plan and include a Contingency Plan. In this way, if the internal Succession Plan does not work to the advisor’s satisfaction, an external sale to a third party becomes their fallback strategy.
The term Transition Plan, therefore, refers to the advisor’s plan or strategy that incorporates their respective Succession, Contingency and Exit Plans and outlines the process of changing the advisor’s role as owner, leader and manager of his or her business over time to ‘something else’. That ‘something else’ can be whatever the advisor wants it to be aligned with their long-term goals, objective and vision for their life and business.
The Bottom Line - what are the key insights advisor's should take from this?
Every advisor will one day leave their business and exit the industry. Not having a plan in place makes no sense and is a breach of your duty to clients, family members and staff;
Start by adopting a different mindset and approach to Transition Planning. Understand the differences between Succession, Exit and Continuity Planning and how they work together;
Every advisor, irrespective of age and stage of career, needs to have a Continuity Plan;
It is never too early to begin Transition Planning. Every advisor between the ages of 35-50 ought to be developing a Succession Plan;
Every advisor over the age of 60 ought to be developing their Exit Plan.
Suggested Next Steps – what can advisor's do to get going and enhance their preparedness?
Get Educated – read up on this topic and talk to one of our coaches to learn more;
Get Started – email The Personal Coach to receive a preliminary Self-Assessment;
Get Help – connect with Afsar to schedule a Complimentary Consultation.
Afsar Shah, Business & Regulatory Coach at 3:30 PM
Since the great depression, dips, downturns and nosedives in the financial markets have set investors on edge. In the wake of Covid-19, the razor’s edge has never been thinner. As financial advisors well know, sleepless nights often transform into decisions that are more ill-conceived than prudent. Coaching investors through these uncertain times — before, during and after a crisis — is critical.
When the market drops, conversations with your clients become vital. The importance of those exchanges does not wane as a crisis abates or, in the case of the coronavirus, isolation becomes standard operating procedure. “Financial advisors need to connect with their clients to find out what concerns them,” says April-Lynn Levitt, a certified financial planner and business coach with The Personal Coach, which offers customized business coaching for advisors, in Oakville, Ont.
Dig deep, advises Chris Hornberger, a certified executive coach in Halifax. “You need to understand your clients’ specific concerns. Identify what they are worried about.”
Forward projections help you do that, Hornberger adds. Determine where clients want to be financially (and otherwise) in five years’ and 10 years’ time. Review their financial plans to see if, even in the midst or the wake of an economic upheaval, those goals still can be attained. If not, discuss how a plan could be revised to make them attainable.
Taking a step back in time with a client also can be beneficial, says Hornberger. “Ask them to recall a similar time previously when they were concerned. Ask them how they got through it. Ask them how their life — and their finances — were affected.”
Coaching clients is fundamentally about building trust. Will clients naturally turn to you after the storm has passed? “That is a measure of their trust in you when they reach out,” says Hornberger.
Hornberger adds that not receiving calls from clients is not necessarily a good thing before or after a crisis. “Do not assume if you are not hearing from clients [that] it is because they are not worried. If they do not hear from you, it can create distance.”
Looking at the issue from more than one angle and time frame can also help clients put any declines in financial markets in perspective. Covid-19 aside, market downturns are status quo. “Remind clients that we [recently were] in the 11th year of a bull market, which is historically much longer than normal, so downturns shouldn’t [have been] unexpected,” notes George Hartman, CEO of Market Logics Inc. in Toronto.
Coaching clients through uncertain times is about more than pointing to longer-term projections. “Play a leadership role when things are bad. Go beyond the investment information. See the big picture,” says Levitt. Coaching is ultimately about building a relationship that will stand the test of time and tumult. That relationship requires ongoing touchpoints as situations change, often at breakneck speed. “Communicate before, during and after,” says Levitt. “Define your market philosophy.”
Clients need to know you are there when they need you — and even when they don’t. But during downturns and their aftermath, visibility is paramount. “It’s about sharing. It’s about being proactive,” says Hornberger. “Reach out. Communicate early and often. Reassurance is central to this process.”
In situations such as market downturns, when you may be concerned that clients may blame you for poor performance, there’s a natural tendency to be guarded. “Our first instinct is often to defend,” says Levitt. “Our recommendation is to step back. Ask the client what concerns them; then you can offer solutions and advice.”
Stepping back can be hard, Levitt adds: “Clients can be confrontational. There is so much uncertainty, and it is not just financial.”
Clients aren’t the only ones who have anxious nights when the markets go in unwanted directions. You’re adversely affected in two significant ways. First, you’re worrying about your clients and their concerns. Second, you’re worried about your own business in both the short and long terms. Frightened clients can go elsewhere or exit the investment market altogether.
You also must focus on yourself when the going gets rough. “You need to take care of yourself. Meditate, exercise, get out in nature,” says Levitt. “You need to handle the stress and not get sick.”
You can feel better knowing you’ve laid a solid foundation for whatever crisis — natural disaster, market crash or pandemic — clients are in the midst of weathering. Indeed, your coaching role begins before there is anything to worry about, says Hartman: “The key to mitigating concern in market downturns is to prepare clients ahead of time for the inevitability that markets will likely be volatile during the time [clients] are invested.”
Hartman suggests you make a point of talking with your clients about the ups and downs of market performance during every annual review: “This should include historical performance illustrations, magnitude of decline [and] recovery periods.”
Managing clients’ expectations is essential, agrees Levitt: “Everyone will see a slowdown. Before anything happens, you should be talking to your clients about downturns.”
It is important to ensure you have a current market meltdown plan in place, Levitt notes: “This does not have to be complicated. If something happens, how can you be ready to reach out and to whom do you reach out personally? This is not a case of sending out just one email.”
Your meltdown plan will contain such information as which clients need to be on speed-dial for reassurance and which clients like to buy during a downturn. Your plan also will contain draft emails and templates that can be sent quickly to all or certain clients with little revision. Where appropriate, the information can reaffirm that there is insurance in place and/or a rainy-day fund.
“Emphasize [to] clients [that they] are working toward a goal — not reacting to market downturns,” stresses Levitt.
Post-crisis is an ideal time to update your plan: review what worked well, what worked as planned and what needs to be revised and rethought. As a crisis wanes, it also is an optimal time for you to identify gaps in your market meltdown plan and ensure those gaps are addressed for next time — because there will be a next time.
Your updated plan also must spell out how you will connect with clients, and continue to connect with them if you can no longer get to your office, if power service is more than sporadically interrupted or if concerned clients cannot meet with you face to face — perhaps because much of the community has been shuttered. Literally.
I was invited to speak at a dealer conference to discuss the importance of having the right people around you and how to create a great team. All of the attendees at the conference received a complimentary copy of The Personal Coach booklet, The Right Fit, which is a guide to help advisors make great hires.
At the end of the presentation, “George,” one of the attendees, approached me and asked if I could help him with a hiring project. We booked a conference call for the following week so I could learn more about why he felt that he needed to make a hire for his team, which already consisted of four support staff.
During our call, George shared with me that because of his large clientele and significant asset book, his current team could not handle all of the transactions and client requests. George had concluded that he needed to hire another team member.
I asked George one of my favourite questions, “Do you have too many clients or do you have too many non-ideal clients?” George had never heard this question before and asked what I meant. I shared with him that, as coaches, we see many advisors like him building a large clientele. However, as they evolve and mature as a financial advisor, many of the clients do not fit their ideal client profile. I suggested to George that before we move forward with a new hire, we complete an exercise called Best Case Scenario from Cotton Systems. This exercise examines the 10 best sales that an advisor has made over the last 6 to 12 months. George agreed to complete this exercise with the help of his team.
At our next meeting, I could tell that George, having completed the Best Case Scenario exercise, had experienced an epiphany. He was happy to have spent time reflecting and better understanding who his top clients are and more importantly, was excited to see how we could apply this information to his business model. We used the information from the exercise and completed an Ideal Client Profile (ICP), which we committed to paper. We referred to this for the next exercise by starting to use this ICP as part of our referral/introduction process.
I asked George, “Tell me about how you’ve built your contact management system and when it was last updated?” George said that he has a program called Act! and has been using the system for 8 years. I shared with George that a contact management system is not just a technology tool. It needs to be viewed as a business process encompassing 4 steps:
Building a relationship management strategy for each segment
Identifying a champion to manage the system
Using technology to manage the process – in this case,
it was Act!
George said, “This is all fine but I really need your help in making a hire.” I said to George that I understood this but before we made a hire, we needed to “right size” his practice. I shared with him a number of stories where we had completed this exercise with advisors with large clienteles and in many cases, the advisor decided to right size the practice and by doing so, decided that he/she did not need to make an additional hire. I asked George to go along with me on this one and work on his contact management system before we discuss hiring. George begrudgingly agreed to take this step. I then showed him some sample customized segmentation scorecards that we had created for other clients and I suggested that we build a customized segmentation scorecard for him. He agreed and we built this scorecard with a particular focus on the following items:
Size of assets
How clients value the services
The client history of providing referrals
One of our support team members at TPC created a scorecard with the above items and a rating system to grade each client from 1 to 5. We had 7 items with the maximum score on each item being 5, which meant that the best client score could be 35. We then created a rating system using the numbers so that we could create 5 different segments – platinum, gold, silver, bronze and lead. I left this exercise for George and his team to complete and within a month, George sent me an email outlining that he had the following clients in each segment:
With this exercise behind us, I arranged to book my next face-to-face coaching meeting with George and asked him to have his employee responsible for booking appointments to join the meeting. This employee, “Kathy,“ is very engaged in the business and was quite intrigued with what we were going to achieve during this meeting.
Next, we built a relationship management strategy with each segment. I showed Kathy and George some sample relationship management strategies. We spent the balance of the morning outlining a relationship management strategy that Kathy thought she could implement for each of the segments. Our most concentrated relationship management strategy would be focused on Platinum clients and minimal for Bronze and Lead clients. As part of this exercise, I asked for names of clients that fit in each of these categories so George and Kathy could think about these clients when delivering their strategy. Putting client names to the categories helped us immensely in creating strategies for each segment.
The third step in building the contact management system is identifying a champion. Kathy was up for the challenge and she was excited that she had clarity around managing clients going forward.
The next step after completing this project was to focus on helping with a new hire. George was no longer as eager to work on this project because he discovered what so many advisors discover after this exercise – he felt that a number of clients should be sold off because they did not fit the ideal client profile and decided he wanted to focus on “right sizing” his business.
After having a thorough review of the business, not surprisingly, George and Kathy determined they could sell off 25% of their clientele. This would only reduce their revenue by 10% and then they could focus on bringing in more Platinum and Gold clients. We helped identify advisors that would be interested in buying these clients.
At the next meeting, we shared with the full team what we had been doing. After announcing that we had right sized the business, the other team members were in total agreement with selling off 25% of the clientele. Guess what happened next? They decided that adding a new team member was no longer necessary if they pulled the trigger on the sale!
I suggested to George that we take a coaching break and give the team time to implement what we agreed upon. I followed up in six months and George shared with me that he had almost replaced the 10% of lost revenue because he was now focused on his best clients. Additionally, those best clients are providing him with introductions to people just like them. His team is now more energized, has less stress and everyone is feeling like they are running the business whereas previously, they felt like the business was running them.
Good advisors do an excellent job of building their clientele but quite often, they do not take the time to review their clientele and see if these clients are a good fit for their current practice. Also, some advisors have “FOMO” - a fear of missing out. In other words, they think that they will miss opportunities if they release some of their non-ideal clients when in fact they will find more opportunities when adding Platinum clients in their place.
Business & Personal Planning for 2019: LATEST NEWSLETTER
Thursday, November 22, 2018
Check out our Fall 2018 Newsletter including helpful tips for advisors. This edition is focused on personal planning, business planning as well as branding for 2019! Please connect if you have any questions or comments.
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