Chapter 20
IN THIS CHAPTER
Considering the pros and cons of going solo
Drawing other professionals into your business circle
Expanding your opportunities with alliances and partnerships
One of the draws of having a career as a financial advisor is that you can operate as an independent contractor. You don’t have to report to a supervisor. You’re the master of your own destiny. Depending on your desired lifestyle and geography, you may be able to make a great living as a sole proprietor.
However, if you’re more ambitious and more of a social creature, you may want to follow the latest buzz about advisor teaming. After decades of being dominated by one-person financial advisory practices, the industry is rapidly evolving into team sport. More and more financial advisors are building teams of specialists and delegating their busywork to scale their businesses and reap the benefits of greater efficiency.
In this chapter, you explore the pros and cons of flying solo and take a look at your options. You also get direction on how to leverage the power of a team to grow your business through synergy — where 1 + 1 = 3.
Although this chapter is titled “Teaming Up to Build Synergies,” you do have a choice, and it’s the most important choice you have to make as a financial advisor — whether to operate your business independently or assemble a team of professionals. In this section, I call your attention to the benefits and drawbacks of choosing to fly solo.
Most people become financial advisors either as employees of large establishments or as the proverbial lone wolf. If you’re an employee, flying solo isn’t an option, but if you’re planning to set out on your own or start your own firm, you need to decide whether flying solo (perhaps with an assistant) is the right fit for you.
In this section, I describe the benefits of flying solo.
When you’re alone in your own practice, you feel the magic of a work-life balance that’s unencumbered by other people’s agendas and by office politics. You can set your own hours and decide which days of the week to work. You report to no one and have no one reporting to you. You’re the captain of the ship without a crew to mutiny against you. Your days are free of petty arguments, broken promises, and betrayals. You answer only to yourself and your clients.
That’s the ideal. Unfortunately, reality can fall short of that ideal. When you’re your own boss, you may discover that your boss is far more demanding than any other boss you’ve ever had, and you may have trouble drawing the line between work and life. In addition, you may miss the daily banter and shop talk with coworker. Being master of your own destiny can be a lonely position. Of course, you can overcome all of these challenges, but you should certainly consider them when making your choice.
Working alone gives you the power to be decisive. You don’t need to ask for permission, form a committee, sit through team meetings, rely on input from others, or explain your reasoning for taking a certain course of action. You decide and act, which makes your business responsive and agile.
As a lone wolf, you can move fast on opportunities, and you don’t have to share your hard-earned revenues. You can say yes when larger, slower-moving firms need to consult with the board and realign their resources. This level of responsiveness is the sort of agility that larger firms can only dream of.
In a solo practice, you, and only you, are accountable for your business’s success or failure. After all, who else is there to blame? Your ability to survive and thrive in this model is rooted in self-sufficiency and self-reliance, core values that have driven the success of many of the greatest financial advisors.
However, self-reliance isn’t for everyone, and it can hold you back. Although you have no one else to blame, you have no one else to support you when the going gets tough.
People who work as employees have a romantic notion of working as an independent contractor. All they think about is the convenience of having their own schedule and the misconception of being their own boss. (I say “misconception,” because when you’re an independent contractor, every client is your boss, and they’re often more demanding and more reluctant to give you a raise.)
In this section, I reveal the dark side of flying solo, so you can base your choice on reality instead of fantasy.
You’re one person, there are seven days in a week, 24 hours in a day, and you need about six to eight hours sleep every night to stay healthy. When you do the math, you quickly realize the limitations of operating as an independent contractor.
When you’re building your practice, a realistic time commitment is 60 hours a week. This includes meeting with clients and prospects, marketing, networking, staying current through reading and education, handling the paperwork, and keeping the books (or at least organizing financial information so someone else can keep the books).
Having to spend time doing anything other than delivering value to your clients limits you in three ways:
As I explain in the previous section, given the natural limitations of time and energy, you can effectively serve a limited number of clients. Before I added team members to support various aspects of my practice, I often had to queue clients many weeks in advance, which resulted in missed opportunities. In today’s fast-paced on-demand world, people don’t like to wait.
Focus on servicing clients and conducting your initial due diligence — the iron-clad pillars of your practice. You need to develop and master a sharp, crisp due diligence process that’s both effective and efficient (see Chapter 13), and this can take considerable time. The catch-22 is that to execute well in these two areas, you must limit the number of clients, which means you need higher revenue clients, but you don’t have the credibility at this point in your career to acquire and retain those clients consistently. The solution is to offer a limited number of products to a limited number of mid-revenue clients and start to work your way up gradually.
In the area of asset management, strongly consider using a turnkey asset management platform (or program) (TAMP). With a TAMP, you outsource asset management to a firm that specializes in this area, so you can focus more directly on your clients and spend less time managing their investments. This outsourcing technique is an excellent way to deal with your more limited resources, as a one-person band.
Every broker/dealer firm has at least one TAMP that charges an asset-based fee, so you need the FINRA Series 63 and Series 65 (or, the combined exam version, Series 66) licenses. Building this type of recurring revenue base into your practice affords you the opportunity to elevate your practice, by going after the bigger fish, as you gain more experience.
For insurance, several independent insurance brokerages specialize in wholesaling a variety of carriers to fulfill a client’s liability management needs. The best way to find one of these brokerages is to ask fellow financial advisors who they recommend. Referrals are the best way to find a competent and ethical insurance brokerage. At your local Financial Planning Association (FPA) or National Association of Insurance and Financial Advisors (NAIFA) networking meeting, feel free to ask about preferred insurance brokerages.
If you’re affiliated with an insurance-owned broker/dealer (as I am), then you’re surrounded by a sea of insurance-focused advisors eager to provide guidance. Just be aware that these advisors play favorites — they recommend products that provide them with the best compensation. The good news is the number of high quality carriers is limited, so using any of the recommended products rarely results in your having to apologize to clients later.
To achieve a level of success beyond self-sufficiency and start building business revenues through synergy, you can collaborate with and serve other financial advisors in a number of ways. In this section, I cover three common options:
A joint-work opportunity involves two advisors teaming up, usually temporarily, to meet a client’s needs. Either advisor can source the client. Here are a few ways financial advisors engage in joint-work opportunities:
Don’t limit yourself to thinking about product or solution-based skill sets; expand your scope. Other skills include business organization, technical expertise, managerial skills, and marketing savvy. Look for the skills you’re lacking and think about how you can articulate the unique value you bring to the partnership. When pitching a joint-work opportunity to an advisor you want to work with, you need to be able to explain exactly how you can add value in exchange for the value the other advisor brings to the table.
For commission-based financial advisors, estimating an hourly rate can be difficult, because the advisor may invest the same amount of time and effort making a $1,000 sale as he would to make a $10,000 sale. In a case like this, start with an average monthly income based on the past 12 months and then divide by the average number of hours per month that the person worked to earn that money. For example, if the person earned on average $15,000 per month working about 50 hours a week, the average hourly rate would be $15,000 ÷ 200 = $75/hour.
In the following sections, I provide some guidelines for handling joint-work opportunities through all four stages of the joint-work relationship: on approach, developing, operating, and terminating.
When you have a lead on a joint-work opportunity and someone in mind to team up with, approach the situation carefully, so you get started on the right foot. Here are a few suggestions:
After you’ve agreed that there’s potential for synergy, formalize the terms of your agreement and develop a strategy:
Draw up a joint-work agreement. This agreement should spell out the terms of the relationship, including who does what (and when do they do it), how revenue will be shared, who maintains ownership of the customer or client relationship should the agreement end, and under what conditions the agreement can (or will) be terminated. You also need to have a nondisclosure or confidentiality agreement that you both sign to prevent partners from stealing clients or disclosing trade secrets during the relationship or after it’s dissolved.
Head to RocketLawyer.com
for a boilerplate letter of agreement that you can customize to meet your needs (you may be charged a fee). Better yet, hire an attorney from your network to draft a letter of agreement. The latter option gives you the added bonus of a having a potential center-of-influence and referral source witnessing your growth and professionalism. Of course, adding an attorney adds to your costs, but that’s offset by the potential opportunities generated by your broader engagement with outside collaborators.
When you’re working with someone else toward a common goal, you need to be on the same page. Team performance trumps individual performance. To coordinate your efforts and complement one another, follow these two suggestions:
I always assume that every new partner will work out great. But that’s not always the case. Winding down a relationship or being clear that it’s best not to pursue further clients together is just a matter of time.
The tricky part to breaking up is determining who gets to keep the clients. If you signed an agreement letter, that letter should establish the rules for determining who gets to keep any given client. Without a clear agreement in place, determining client ownership is difficult. It’s even more challenging when an insurance-focused advisor partners with an investment advisor to manage a client’s investment portfolio. Often, the client views the investment advisor as the responsible party and the insurance advisor as the connector or referring party. Without a clear separation clause in your agreement, you’re bound to encounter confusion and discord.
If you’ve developed a unique technique or skill for handling a certain financial matter, as I explain in Chapter 19, you can use this skill as leverage to attract other financial advisors and offer them something of real value that can improve their practices. Training or coaching one or two advisors in addition to serving as a financial advisor to your other clients is a great way to add a revenue stream and build your reputation as a leader in the field.
No doubt, innovating skills and techniques and training your colleagues on how to apply them is difficult, but the bigger challenge brings bigger rewards and enables you to have a greater positive impact.
When you’re looking to collaborate with other financial advisors and build synergies, you can benefit by recognizing the three roles that financial advisors play in any firm:
Any thriving practice has a healthy balance of financial advisors to fill all three roles. If a business has too much focus on finding new clients and no ability to run the business and deal with the daily workload, it’ll be a short-lived business. The same is true if the business has an imbalance in other areas.
If you know what you’re best at, use that knowledge to find the right fit as you seek out other financial advisors to collaborate with. Maybe you’re a natural networker and never have any trouble filling your calendar with 15 prospective client appointments every week. You love connecting with people, anytime, anywhere. You’re quick to travel with friends and have a full social calendar. You’re not interested in being in an office all day, but you need to roam free. Or, maybe you’re more of an introvert who loves conducting research and analysis and running illustrations and portfolio proposals all day. You have a laser focus and hate the interruptions that your finder friend craves. Do a little self-analysis and find out which role suits you best. Then, seek out collaborations with financial advisors who have the skills and personalities that complement yours.
If you’re affiliated with a national broker/dealer, you can be sure that management’s focus is on increasing revenues. If you’ve had local success teaming up with colleagues or coworkers to increase revenues, consider taking that local success nationwide. Call the sales director of the broker/dealer or firm and present to him a slide-deck of what you’ve accomplished locally.
Ask him to help you identify other opportunities where you could add value. Using this strategy, I’ve developed joint-work partners in cities across the United States, and I’m not alone. Colleagues have developed extensive networks by making themselves available to deliver presentations at firm-sponsored and organized symposiums and conferences.