Happy Wednesday, everybody. So I am going to be shifting gears a little bit this week. Last week, I talked very specifically and tactically about what was going on in the market and how you should be speaking directly to your clients. But that conversation that we had, there was mostly me talking to you. But that conversation last week, I think informs a bigger conversation about the way in which advisors are viewing their businesses and the major changes that they’re looking to make to their businesses this year.
I speak to advisors, as you know, all day long and more and more. So as we adjust to this new normal and are also working from home advisors are pondering questions like,should I merge with another firm? Should I be doing something radically different as it relates to marketing? Should I be acquiring businesses? Should I be leaving my broker dealer? Should I be looking at other firms? So I think that I’m going to bridge the gap between what I talked about last week, which essentially was the realization that the client, the consumer, is changing more rapidly than the industry is changing, meaning the way they engage, consume information, make decisions, is moving faster and changing more than the actual structure of many of the organizations in which you live at are changing. And that’s problematic in some cases.
And so I think that these bigger questions, philosophical questions that advisors are asking themselves about, the next phase of the business lifecycle for them are really important to consider. And I want to and the purpose of this is, first of all, I’m speaking to advisors who are asking themselves those questions. If you were building a lifestyle practice, and are really comfortable with what you’ve built, you don’t feel any pain points or clients don’t feel pain points, and you’re likely exiting and have an exit plan within the next five years. Great. One of the pros of being within a firm a broker dealer, or wirehouse, is there’s a built in structure for folks who enjoy having a lifestyle practice and know they’re going to exit at a certain time and simply turn in the keys and move on. And so there’s nothing wrong with that, per se. That’s not who I’m speaking to with this discussion.
So if you are going to be in the business for the next 20 years, meaning your Gen Y Gen X. And or if you’re building something where you are really committed to ensuring that services like streak of light, if you’re making sure that what you build is going to continue on long after you’re gone, then you have to be pondering these things. Here’s the framework through which I want you to look at analyzing these questions for yourself.
The first thing is, you have to have an understanding of what do we believe we meaning consultants and people in the industry? What do we believe financial advisors are going to need to have in order to be running successful in an efficient businesses over the next 20 years? The answer to that question is multifold. Number one, you have to be able to evolve alongside the consumer meaning you have to be able to speak to the consumer and the client in the ways in which they want to be spoken to, you need to be able to react quickly, you need to be able to leverage multiple channels to put out a message you need to forget texting, you need to be able to record videos, you need to be able to use tech and user experience as a selling point and a differentiator when connecting to Next Gen. And I spoke about this a little bit on LinkedIn and somebody responded to me, well, there’s 10,000 retirees, you know, retiring every single day, you know, you should just focus on that. That is true. However, if you’re in that category of building a legacy business or being around for the next 20 to 30 years, protecting assets as they transfer generations is absolutely paramount to your success. So number one, you have to be able to speak to the consumer in ways that they want to be spoken to. That’s the first thing.
The second thing that you absolutely need is to be able to deliver advice and get paid for that advice in different ways that you may have been paid. In the past. I talk a lot about this about segmentation and margins on the advisory business most of the time, what I see is, and this is not a secret, the majority of business and revenue is generated by a small percentage of the households within your book of business. In order to really build something scalable, you need to either get rid of the entire lower tier of clients or generate more revenue off of a lower tier. So you can go through a million segmentation exercises. The reality is is if you cannot charge a subscription fee or fee to deliver advice to clients assuming that you’re actually servicing them, taking their calls, and doing stuff for them, the lower tiers, being able to charge and get paid and make up the margin that you’re losing, because maybe they’re a transactional client or broker, brokerage client, absolutely critical if you want to run a scalable business moving forward, I’m just looking, looking down down on my notes here.
The third thing, you have to be able to remain objective, the consumer is only going to demand more and more transparency from our industry, being able to say that you are objective in the way you deliver guidance and advice. Obviously, you know, one of the most important things, if not the most important thing, and then finally, and by the way, here’s what I mean by that remaining objective, meaning you’re not incentivized to position a specific product or service in a meeting with a client.
This is not compliance doesn’t watch these videos, the reality is, is many of us are in firms where there is some, there is a gray area around what’s you know, we’re incentivized to sell or not. And I think advisors have to really take a long, hard look around, you know, is that impacting the way in which I deliver advice to clients or not. And then the fourth thing is, advisors have to be able to monetize what they’ve built in a real way.
This is the cold, hard truth.
A lot of advisors in a broker dealer or wirehouse, talk to me about valuations and the value on their book and what they’re getting quoted, if you’re selling your book internally, in a closed system, obviously, the value of your book of business is not as robust or as high as if you’re selling your business externally there. That’s not news to anybody. And so being knowledgeable about what your business is actually worth, external to where you’re at. And then internal to work, where you’re at is really important as a practice owner, and this is not advocating one is right or wrong, but having real information and objective data around what those numbers look like internally and externally. Really, really important. There’s a lot of misinformation out there. Okay. So those are the things that advisor needs to be able to do if they’re going to be successful and continue to build over the next 20 years, speak to clients the way they want to be spoken to give advice and get paid for that advice in unique ways, remain objective, and, and monetize the business in a real way.
And so, as you’re asking yourself those questions about Should I merge? Should I apply? Or should I leave? Keeping in mind those things I just said, Here are the questions I want you to ask yourself. And it’s the answers to these questions that will inform the bigger decisions you make about strategic initiatives.
Number one, is there a more efficient way for me to do business? Really simple? And I’m not saying marginally more efficient, right? If you go from one firm to another firm, and the tech stack is essentially the same, and the resources are the same? Okay, you’re maybe marginal increase, but is there a way for me to significantly run my business more efficiently? So if you were to merge with another team, or, you know, acquire a business and acquire some super technical, you know, investment operations person or have access to some superior resources? And that you don’t have? The answer is yes. If you’re thinking about leaving versus staying, and we’re, you know, we’re talking about custodian versus custodian, that’s not really where you’re going to get, you know, greater efficient resources, you’re going to get greater efficiency in business by being able to use a more robust, open architecture tech stack. So that’s the first question.
The second question is, does this align with my long term vision for what I want to build? You know, I’m not a big fan of vision exercises. However, being able to say, Look, my long term vision is I love working with clients, I want to continue working with clients, I don’t want to spend my time on operations and building the team. If that has always been your underlying desire, then really, you need to ask yourself, why are you thinking about acquiring books of business and, you know, merging with other firms, if you’re really enjoying the niche practice that you’ve built, and you can continue to add, and we work and talk to teams that add 2030 40 million in assets, one of our teams add 70 million in assets a year. I mean, it’s unbelievable. If you’re growing comfortably. What is what is underpinning that desire to make a major move or change. So aligning long term vision, with the decision at hand really important.
The third thing is personal fulfillment.
Is your fulfillment factor personal, meaning what you enjoy doing every day, your relationships with your team members and your family? What impact will this decision have on that? I talked to a lot of people who are talking to me about valuations and technology and wanting to leave and compliance and whatever. And what’s really underpinning that is that they’re not as fulfilled doing what they’re doing anymore. And it’s starting to impact personal relationships that they have. If you’re somewhere where your fulfillment tank is full, and you’re happy, and your relationships with your clients, and yourself and and your family and key stakeholders is at an all time high, then it’s really worth looking at again, why are you looking to make that other? You know that that bigger decision or why are you even weighing those options? And so thinking about ease of doing business, optimizing efficiency, connection between the decision you’re making and long term vision and personal fulfillment?
Those are the things I would be looking at, and pondering while you’re asking yourself those bigger questions. Okay, I hope that was interesting and gave you some things to think about. Of course, this is a huge discussion, and I’m happy to have conversations with folks offline. I hope you have a good week. I will see you next week. same place, same time. Take care.