Volatility requires a makeover

Suffice to say, for the hundred-thousandth time, 2008 was a tough year.

Suffice to say, for the hundred-thousandth time, 2008 was a tough year. For many advisers, the revenue picture has dimmed, and while we wait for “upbeat” news, asset values of most securities are treading water.
Tensions remain high, and optimism seems almost nonexistent, leaving advisers to seek bright spots.
The rocky market has meant changes to business practices. The truth is, a rising market hides many problems within a firm. Advisers are doing six things to improve their effectiveness:
• Stepping up client communication: Loyal, content clients don’t ask for much from their advisers. They get their quarterly statement, have their annual meetings and know they can call with a question, when their assets rise.
But portfolio performance is only a small piece of the story. Reselling clients on the value of doing business with the firm is key. Communicating to clients — in plain language — about what is happening in the market helps to educate them and allay their fears.
One approach is to hold non-traditional client events — not just an annual appreciation dinner but workshops and forums.
To stand out from competitors in this environment, advisers should call their clients to discuss portfolio changes they should consider making. Also, they could discuss with clients such financial planning needs as writing a will, investigating long term care insurance or the importance of speaking to their children about their inheritance.
• Honing marketing messaging and practices: Long an undervalued and underinvested area for many advisory firms, marketing is a growing percentage of the budget. Many advisers are revisiting their story and fine-tuning the way they talk about what they do.
Firms are looking for more ways to spread the word — sponsorships, speaking at local clubs and events or supporting accountants and attorneys by offering information to their clients and others.
• Reviewing structural changes to the firm: The model of multiple people acting as a team to serve a client made lots of sense when revenue was strong enough to support it. But firms are asking if they have received enough value to justify the expense; as a result, client support is under review, and it will change at many firms.
Firms are looking at creative ways to serve clients with fewer employees. In addition, clients are being segmented more aggressively. Not all clients warrant the same level of attention.
• Investing in new technology: Along with marketing, forward-thinking advisers are making technological investments that help identify clients more easily than in the past. For instance, a new customer relationship management system might be required to reflect work flow or communication needs.
If more marketing is done, a system that will transfer the sales information to client servicing is vital. Adding efficiencies in the back office has become much more popular in these troubled times.
• Revisiting compensation and incentive plans: Firms have always rewarded client acquisitions, but now compensating advisers for retaining clients has become more popular. And compensation that rewards a group effort or team approach across the firm forces a wider group of people to stay focused on clients. Managers are reducing their take-home pay so they can compensate employees more adequately and keep them motivated and focused.
• Rethinking investment strategies: Many firms didn’t share much about their investment strategies while they were wooing prospects, and they haven’t revealed much about their approach since gaining those prospects as clients.
For their part, clients simply assumed that advisers knew what they were doing. Now many advisers are looking at how they are investing — and how much they are sharing — and considering whether their approach is serving their clients as well as it should.
Firms doing their own investing are considering third-party investment models. At the same time, firms that rely upon models are weighing whether they have the best one for their clients. Moreover, firms that invested solely in stocks are finding other investment allocations more appealing. And most importantly, advisers are talking about what they are doing — and why they are doing it — with their clients.
In short, the market turmoil has created the need for firms to make sure the decisions they are making are profitable ones.