The New Year traditionally brings resolutions, some of which actually will be kept. Financial advisors should go beyond promising to lose weight and work out more to think about ways to build their business. Here are some suggestions:
If you work only on assets under management, your income could drop 10%, 20%, or even 40% if (when) this booming stock market corrects. One alternative approach is to practice what you preach to your clients: diversify.
Look for ways to get paid, other than by a percentage of AUM. This can mean seeking clients who have relatively few portfolio assets to manage, and thus might not be very attractive to other advisors.
Such potential clients may have substantial net worth, a great need for financial advice, and the ability to pay substantial fees. Business owners could fit into this category, if they have continually put profits back into their company rather than into financial markets.
A similar situation may apply to real estate investors. If they’re successful, they probably need advice on taxes, asset protection, estate planning, and so on. Yet charging an AUM fee on privately-owned properties is challenging.
For such clients, and probably others, you can charge a retainer fee. Base that fee on the amount of work expected, and alter the fee periodically if the estimated planning time will be going up or down. Business owners and real estate pros and others often are used to paying consulting fees for valuable advice.
Retainer fees also may be applicable to clients with ample portfolio assets under your management. If you are providing worthwhile financial planning advice, charge for it. Reduce your AUM percentage, so your total compensation won’t balloon. Reducing reliance on AUM will hedge your personal income against the possibility of a third bear market in this century.
In 2017, we learned that no place in the U.S. is 100% safe from hurricanes, wildfires, tornadoes, blizzards, earthquakes, river flooding, etc. Therefore, it’s vital to take steps today to keep your practice going, in case of an unthinkable tomorrow.
Your first step might be to get in touch with the agent who handles your property and casualty insurance. See if you need specialty coverage you don’t have now, such as flood or earthquake insurance.
Business interruption insurance also might be worth acquiring. See if available policies cover problems with information technology, which can bring down your company’s operations. With or without this type of coverage, your business should have a plan to backup all data off-site, and you should make sure your employees follow this backup plan regularly.
Continuous computer availability is important, but ongoing electrical might be a higher priority. See if it’s practical to install a generator for your place of business. Even if a generator provides only limited but critical power, it can help your business stay viable during a blackout and speed full recovery once the lights go back on.
Just as you devote considerable time to retirement planning for clients, focus on planning for your own retirement. Do you have a company plan that works well for you and your employees?
Today, a 401(k) plan might be considered the normal employer-sponsored retirement plan. Offering one can help you attract and retain qualified workers—and those workers might, in turn help your business grow. The best retirement plan you have may be strong growth, making your firm more attractive to potential buyers.
That said, there are alternatives available. An age-weighted profit sharing might be able to skew tax deductible contributions into your own account. A defined benefit plan could allow even larger deductions, which would largely go towards your retirement fund.
Yet another approach might be to sell your business to your staffers, via an Employee Stock Ownership Plan (ESOP). Beyond motivating employees, an ESOP might provide favorable tax treatment for the money you receive in a buyout.
The bottom line is that there are many retirement plans to choose among. Some can be combined with others. You may go over such plans with clients who are business owners, so you should evaluate those options for your own firm.
Today, clients want investment and tax help, of course. But their needs often go way beyond those issues.
Retirement planning, of course, is a key concern. That means making the right choices about Social Security and Medicare—complicated subjects to be sure. Clients in and near retirement might want help with senior housing decisions as well. Clients with young children likely will want help in dealing with the soaring costs of college. Those with aging parents may want answers about long-term care, even Medicaid planning.
You can’t be knowledgeable about all those areas. No one can. Therefore, you’ll need access to expert assistance. Perhaps people at your firm can specialize in one of these areas. Or you can build a list of outsiders to bring in.
Either way, you’ll have a competitive advantage when it comes to comprehensive planning. If you try to do everything yourself, you stand to lose clients to advisors who truly can offer broad expertise.
We've talked before about defining your audience. And we've told you what to do before your first meeting with a new client. We've given you advice on how to conduct a successful seminar. We've even given you resources to write a strategic marketing plan. Maybe you are targeting clients in their 40s, 50s, and 60s who probably have children starting careers or elderly parents, or both. If it makes sense in your practice, invite these relatives to meetings to find out what they need, and how you can help. Planting the seed now gives you the opportunity to create a pipeline for prospective clients down the road.
Such efforts on your part not only will build ties with existing clients, you likely will get additional clients, now and in the future.
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