Taking Action

The retirement industry is ever-evolving and advisory practices specializing in this space have to work to stay current. Many advisers will ask themselves, as time progresses: Is my practice where it should be? Is it running as it should be? How much can I grow, how much do I want to grow, and at what cost will that expansion come?

Advisers have to “really take a hard look at what’s getting in the way, and move it,” says Rick Shoff, Managing Director of the Advisor Support Group at CAPTRUST Financial Advisors. The end of the year is a perfect opportunity to take some time, reevaluate a retirement plan practice, and ensure everything is in alignment for how you expect your practice to run next year.

“All the regulatory and legislative changes, the movement for many advisers from commission to fee structures, and potential changes to taking on fiduciary status, I think require you to look at your current structure,” says Philip Steele, CEO of Pension Architects.

Here are 10 things advisers should be thinking about now to evaluate their practices and best prepare for a strong 2012.

1. Do a self-assessment: Confront the brutal facts of your business. Performing a self-assessment is a good, but difficult, first step in measuring an advisory practice. Looking inward for a self-assessment puts an adviser in a very difficult position—it is not easy to assess one’s self honestly, notes Steff Chalk, CEO of the Fiduciary Consulting Group. “This whole concept of self-assessment is critical, no matter how long you’ve been in business,” agrees Philip Steele, CEO of Pension Architects.

Something Rick Shoff, Managing Director of the Advisor Support Group at CAPTRUST Financial Advisors often finds in an assessment of advisory practices is a collective loss of focus. For many advisers, the best use of their time is finding and keeping relationships, but there are many things that go on within individual practices that can cause advisers to lose focus on the client relationships, he explains. To refocus on that, Shoff recommends advisers remind themselves “that sometimes choosing what not to do is more important than choosing what to do. In other words, take all those things that you think nobody else can do, and give it to somebody else. If you can, over time you’ll free yourself up.”

A self-assessment also might reveal some areas where an adviser was seduced into doing something that might have seemed like a good idea at the time, but didn’t work out as imagined, “It might sound good to have a client that’s 1,000 miles or 3,000 miles away because it’s a big enough client but, in reality, maybe you can’t make money at it,” Steele says. “It’s a brutal fact that there are only certain clients and certain relationships that are going to be profitable and make sense, so you can’t let yourself get pulled into that situation,” he continues.

2. Outline your strengths and weaknesses and determine how to supplement the weaknesses. Determining your strengths and weaknesses requires you to look both internally and externally. “We do a lot of internal focus groups with our different teams of employees to try to figure out: ‘What are we doing well? What are we doing not so well? How much of that will change just by simply developing new protocols or processes within our office? How much of it do we need to supplement by going outside to third-party expertise or something of that nature?’” explains Steele.

In addition to evaluating how the practice works internally, Steele says he spends time trying to get input from his clients to figure out what they see as the value provided by Pension Architects. “Often, it’s very different from what perhaps we thought were our strengths,” he says. “Sometimes we underestimate which are the things that we do that mean the most to the clients and to the end result for those clients.”

Advisers want to ensure there is alignment between the strengths they identify and their skill set. Ideally, the strengths identified, whether external or internal, are things you’ve been successful doing or historically been good at accomplishing, notes Chalk.

Once you’ve determined what your practice or firm is really good at, Shoff says that’s the logical place to build your marketing campaign, because it highlights your strengths and separates you from your competitors.

3. Understand what regulations affect you and know how you will address them. “As long as I’ve been around, there always have been legislation and regulations, and there probably always will be going forward,” Shoff says.

Chalk says he looks at regulations in the following way: what affects him, what is required to be in compliance, and what will affect his clients.

Once those pieces are known, it is important to get beyond what the regulation is to why it matters, explains Shoff. Therefore, the role of an adviser is to help clients understand what the regulation will mean for them day to day and what might be coming next.

Every adviser can hand a client a section of the code or a copy of a proposed regulation, agrees Chalk, but the value-add of an adviser is in interpreting that code and bringing it to a client’s level so that the client doesn’t have to get immersed in the technical language. “Your prospects and your plan sponsors want to know, ‘How are you as the adviser going to help me navigate that code?’”

4. Know what pending regulation/legislation is, and make an effort to fight that which doesn’t make sense. Advisers that specialize in the retirement plan business should understand pending legislation and regulation, pick the issues to get behind in a positive way, and pick the issues to fight. “If it’s something that’s really not going to be good for the plan participant or the plan sponsor, we are the best group to take that message ultimately to the Hill,” Chalk comments.

It can seem like a big undertaking, but it doesn’t have to be. Advisers can, but don’t have to, get involved formally in a lobbying group to make their voices heard. Or, it can be as simple as talking to an attorney or someone who is going to be testifying, or submitting a comment through the Department of Labor or other regulatory agencies’ Web site. “I would just say get involved. We’re the people who are going to be able to make an impact. We’re the ones that are closest to the clients, and it does matter,” Chalk notes. 

5. Catalogue your most common objections and proactively allow them to be revealed through normal dialogue with prospects and clients. “Whether it’s a first meeting with a potential client, or an existing client that has a service issue, the speed at which a deal can be completed matters. Part of that is knowing the objections you are likely to get before you make it to the meeting,” says Shoff. “Some are quite common,” he says, “for example, ‘Your fee is too high; my provider does that; I would do it but the other people on my committee are not buying in.’ Not only do you have to know the objection, you have to be prepared to respond to it.”

“It’s natural to get defensive when somebody raises an objection such as, ‘I really like you, but your price is too high,” Shoff says. So advisers should try to condition themselves to say objections are actually good things—nobody buys something without asking for the price.

In case the firm is dealing with a crisis of some kind, if it has been in the newspaper in an adverse way, for instance, Chalk says an adviser may want to lead with that in order to take that objection off the table and play offense instead of defense. “Get it behind you right away, so people can concentrate on what you want them to hear,” he says.

Fees are the easiest objection, and advisers can deal with that in many ways. Steele suggests putting the fees section up front in the proposal because, otherwise, the CFO or other finance executive is going to flip through the presentation trying to find that anyway. Chalk takes a different view, and suggests the presentation hand-out include everything but the fees, forcing the committee to listen to your proposal and understand what they are receiving when you tell them how much they can expect to pay for it.

6.  Ask new clients why they hired you—and, if you can, go back to clients you didn’t win and ask why you weren’t chosen. This past year, Pension Architects hired a third-party organization and gave it a large part of its client list to contact. Clients were asked what they like about Pension Architects, what the firm does well, what they think it should improve, and why the company chose Pension Architects.

“The things that we thought separated us from everybody and thought we were doing so well, weren’t the top things, in a lot of cases, of what the client said. What the client said was much less technical-skill-oriented, and more basic—‘They’re always there when I need them. They’re reachable. They’re proactive. I can rely on them.’ Not, ‘Well, they have great analytics, and boy, they have investment acumen’,” Steele notes.

Shoff agrees that, if advisers ask clients what they value most, they might not get the answers they expect. When CAPTRUST did this exercise, “what we heard most from our clients is that our best advisers take the complex and make it simple. It wasn’t how fancy the reports were, how many analysts we had, or being the smartest person in the room,” he says.

It’s easy to receive accolades and have clients tell you how great you are; it is difficult to go back to people that you didn’t win a deal with and get them to say, “We felt these guys were more equipped to do this, or that,” or “We liked the brand name,” or whatever the reason. Although that conversation might be less comfortable, it is productive, says Steele.

However, plan sponsors might go for the easy answer, notes Shoff. So, if somebody says, “Well, your price was too high,” a simple question response is, “Well, how high was it?” he says. That provides you good information about your competition as well.

Advisers want to wait a reasonable amount of time before going back to ask the plan sponsor what happened, but not so long that too much time sets in and they don’t have a good recollection of why they didn’t hire you, says Chalk.

“If you’re really legitimately concerned about improving what your business model is, you’ve got to ask those tough questions and be willing to learn from them,” Steele says.

7.  Move to an outcome-based plan benchmark­ system and put a plan in place to track outcomes at each client firm. The industry as a whole is moving away from the traditional measurement of participation as the sole benchmark for retirement plan success. In the past, each quarterly review would talk about each metric being tracked at that time, but now the focus is to evaluate each metric as it relates to its measurement the previous quarter or where it was three years ago or where the plan sponsor would like it to be two years out, Shoff explains.

For many outcome-based systems, you need to do something with the information that you collect. To do that, an adviser should ensure there is a baseline to make any accurate representation of what you’ve actually delivered from an outcomes-based standpoint. This also helps the plan sponsor put goals in place and an action plan to track those metrics and use them to make changes to the plan with the goal of revising the behavior in some way, shape, or fashion within the plan or within the plan sponsor’s attitude or within the plan participant’s action. These have to be communicated to the plan sponsor or plan committee regularly, Steele says.

8. Get your price right. “Getting the price right for us means that it’s able to make a profit at delivering what this client says they need, and what we agree that they need—that it’s a worthwhile venture for us in the long term,” Steele says.

Steele explains that he approaches fees by first working with the plan committee to understand what it is seeking in an adviser. “We try to make it so that by the time they actually get to that fee page that we hadn’t shown them yet, committee members say, ‘It seems like it’s a lot for not a lot of money,’ even though it might be more than the guy who called on them last week.”

One mistake advisers may make in setting their fees is that they set fees individually. Chalk says his firm has a minimum fee, which has forced the company to stick to its pricing and keeps its average fee strong. He also says he views his pricing holistically. “We don’t think about the particular client that’s about to hire us at a given fee. We think about whether we could sustain 100 more at that same fee,” he says. At any moment in time, when trying to get a client, you can justify cutting your fee, but that might not be worthwhile long-term, he explains. “I think you have to plan for success. So, think about winning a lot more deals, not just that one you’re looking at.”

With the move toward fixed-fee arrangements, Chalk suggests advisers try to get a cost-of-living agreement from the client upon hiring because it’s hard to go back two or three years later and say it’s time to raise fees but, without a CPI or adjustment to the fixed fee over time, advisers are essentially losing money every day.

For advisers who believe the services they provide garner the premium they are asking for, Shoff says they should stick to that pricing schedule. “Don’t let competition and fee haggling and compression of fees drive you down to a point where you’re not getting what you’re worth or what it costs you to deliver your services,” he comments. “If you can’t, go to the next deal; there’s more business out there. Don’t feel like every deal is one you’ve got to get.”

However, Shoff notes, another approach if pressed on pricing may be to look at your fee and ask “what else can I deliver for that” instead of “should I lower my fee,” because there may be something else in your model that you can or should be doing to justify that cost.

9. Ensure your succession plan is current (and if you don’t have one, get one). Many advisers avoid putting off the thought of what will happen next, but the ostrich “head in the sand” approach is not always a wise strategy. When thinking about the next stage, Steele says advisers should ask three questions: How do I take care of myself and my family? How does my succession plan affect my employees? How is the succession plan going to take care of my clients?           

“Sometimes advisers think that they have to have a transaction to have a succession plan, and that’s just not been my experience,” says Shoff. Many advisers are interested in what Shoff calls the “lifestyle succession plan,” continuing to work while reducing hours. “If you’re just simply trying to do some other things, there are a lot of ways that you can structure your practice so that you could essentially just take a little bit of time off,” without having to sell the practice, he continues.

However, for those who are looking at a transaction opportunity, timing is everything because a practice can lose value as the principal ages. For example, Shoff says a practice becomes less valuable the older an adviser gets because CAPTRUST is not interested in buying the revenue or the assets, but the person. “If that person happens to be at the point where they’re looking to scale it back, then that becomes less valuable,” he explains. Therefore, Shoff says advisers should really be thinking about their succession plans at least 10 or 15 years from when they want to retire.

10. Ask yourself, “Can I grow in my current structure?” Evaluate potential growth opportunities. The first consideration for any adviser looking to grow his business should be, “Is that going to make me better or worse when I grow this business?” Steele says.

When an adviser tells Chalk he wants to grow, Chalk says he asks three questions: “What’s the reason you want to grow?” “What’s the strategy you’re going to use to grow?” “How are you going to measure if it’s successful or not?”

Growing for growth’s sake might lead you astray of what you want to be doing, Chalk says. Many advisers get larger and go from being an adviser to a manager of people, which might not be what they had in mind. To grow, you have to be focused on what you do best and what clients value most. If you structure your practice in a way that you spend even 10 more days a year doing that, you will grow, Shoff agrees.

Strategies for growth are vast, but limited: Advisers can grow by working twice as many hours or adding products, market or geography. “There are a lot of different strategies and methodologies you can use to grow but, in most cases, they’re going to cost you additional human capital or technology,” Chalk explains.

Steele suggests advisers return to their self-assessment and confront advisers have to ask whether their current situation­ is designed for growth, within the current nucleus of employees and resources. If not, whether it is worth considering going out and partnering with somebody or involving a third party on things that an adviser is not equipped to do or not willing to spend money on building.

—Alison Cooke Mintzer