Financial advisor firms need to position themselves to grab a bigger share of growth in the wealth management marketplace?

By John Easton | 10 July 2015

Times are good for financial advisors, with older baby boomers closing on retirement, 50-something boomers hitting their final big earning years and younger investors grappling with a slow-growth economy. For most wealth management practices, the big challenge is to stay ahead of competitors and capture a bigger share of the growth by employing the practices of top advisors.

For small or independent advisors, the increasing need for professional financial guidance presents a great opportunity to build their firms into medium-sized players. An independent survey that Maximizer Services commissioned last year showed 92% of the 900-plus North American financial advisors surveyed grew their assets under management (AUM) in 2013 and 96% projected positive growth in 2014. The research also revealed 62% of firms saw double-digit AUM growth in 2013, with a similar proportion estimating the same level of growth last year.

The trouble for many small, independent financial advisor practices is they are not yet positioned for rapid and significant growth. Not only do they have to be able to win new business, but they then have to be able to absorb it. To do that, they need a structure and approach in place that enables them to scale up and expand their operations when they bring on more clients and AUM.

To be able to handle more assets by expanding staff numbers, attracting partners with new expertise and deploying the right technological infrastructure – all while still doing all the little personal things that give a small, independent practice an advantage over the more impersonal financial service giants – a wealth management firm needs an extraordinary degree of organisation.

Indeed, imbedding manageable processes and standardisation is essential to developing a financial advisor business that is ready to grow into a larger scale venture that outstrips similar and bigger firms. The question is: How do you achieve that? The key is systematising client interactions and knowledge, tracking all activity and automating processes. This level of organisation enables a firm to improve efficiencies, be more proactive, better understand clients, easily integrate new staff and assimilate new areas of business to support expansion – such as adding insurance, pension planning and mortgage advice to an investment-driven practice.

There are, however, too many wealth management firms lacking the systemisation necessary to take on the client load necessary to really change the scale of their business. The research, summarised in a recent whitepaper, The Next Level in Wealth Management: Positioning Your Business to Grow, revealed that 31% of financial advisors identified “paper notes/Rolodex/sticky notes” as one of their three leading tools for managing customer relationships – and, shockingly, 12% listed “I keep it all in my head” as a primary means of doing so. This level of organisation is simply not good enough for a company aiming to notch up its operation and outperform competitors.

There is too much to track and a firm aiming to raise its game and impress prospects, as well as existing clients, needs a technology platform that underpins all its processes. Customer Relationship Management (CRM) is absolutely critical to achieving the close client bonds that are necessary for smaller firms to level the playing field between themselves and much bigger operators. CRM provides an organisational anchor for small firms, while allowing employees waste less time on admin and, consequently, work more effectively with a wider number of clients.

The goal is to use CRM to create common, repeatable, automated procedures. These standardised processes not only improve the ability of advisors and support staff to tap into detailed information on each client interaction – so that they are always completely on top of the situation – but they mitigate risk of client disappointment and, more catastrophically, compliance failure. For instance, systematising client on-boarding and the capture of information can reduce risk of inaccuracy and ensure that customers do not become frustrated by repeated requests for the same details. Then each successive action is logged, so that the information can be reviewed or audited at any stage. It ensures that all the steps necessary to meet regulatory requirements are taken in every case. 

Ramping up the level of systemisation puts a small, independent firm in the same league as a top financial advisor. According to the research, top advisors – defined in the study by client and revenue growth as well as advanced use of technology – make up roughly 20% of the total and outperformed their competitors in AUM growth. One of the ways top advisors ensure ongoing growth is they hold onto their clients: their customer attrition rate is just 1%, compared to 12% for all advisors. In other words, with each new business signing they are adding to their AUM and revenues rather than simply making up for departing clients.

So how do they do that? They set themselves up to be organised and effective by deploying the right technical infrastructure. This is a crucial point. The research showed that 56% of top advisors boosted their technology budgets in 2014 compared to just 22% of those not in the top tier. Investment in meaningful technology, particularly CRM software, clearly plays an essential role in the success of these firms. It enables a smaller firm to adopt the structure and methodology of top financial advisors.

The research revealed that more than half of all firms are run by solo-advisors and that close to 90% are made up of five or fewer advisors with similarly small support staffs. It is these companies that are facing the biggest challenges when it comes to positioning themselves for growth, and there is no reason why these firms cannot compete with their much larger competitors.

Many, however, are unwilling to make even the most basic investment in technology, putting them way behind top advisors. The research also showed that 20% of companies have no access at all to CRM – and all those that did not were firms with 20 employees or less.  Even those that do have some sort of CRM in place showed a high degree of complacency, with only 40% having plans to upgrade – leaving many with old and inadequate functionality. These findings highlight how outgunned many small firms are by competitors.

In today’s wealth management marketplace, tailored functionality is increasingly crucial for financial advisors when it comes to CRM software. For small firms with limited IT support, customising a solution to meet industry-specific needs is out of the question, so an out-of-the-box wealth management solution is far more cost-effective.

Most wealth management CRM solutions provide features and functions that a general solution won’t have, such as industry-specific labels, fields, workflows, communication templates, client views and searches. These pre-configured elements ensure that each advisor can easily track when key dates for client reviews are approaching, as well as tax, retirement and investment deadlines, ID expirations, and other life events that the practice needs to stay on top of to impress the client.

In summary, for those small and independent firms aspiring to become top advisors with a growing book of business, having an advanced CRM solution configured specifically for wealth management is central to achieving the standard of organisation necessary. Most of these firms require a secure CRM solution they can scale up quickly as their client base grows, while still being able to leverage the major advantage they have over the big banks and other less nimble competitors: a more personalised and tailored approach.

By John Easton, Director of wealth management vertical, Maximizer Services Inc.

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