Minding the business: Administration

Administration is all about the proper movement and maintenance of resources and records. Responsibilities include planning, delegating, scheduling, resource allocation, oversight, and pushing a lot of paperwork, whether the documents are paper or digital. These are the responsibilities of the minder — in larger businesses, the chief operating officer (COO), in smaller businesses, a capable executive assistant or office manager.

The right person for this position is well-organized, detail-oriented, patient, and cordial.

Ideally, your minder will be skilled in implementing a client relationship management (CRM) system for your business to improve customer service efficiency and effectiveness. See the later section “Harnessing the power of client relationship management (CRM) software,” for details.

Tie your administrator’s compensation (salary and bonuses) to operational efficiency and overall growth to incentivize the minder to implement technologies and innovate systems that improve the firm’s internal operations and client service. With CRM, you can access reports to gain visibility into the firm’s performance metrics. Tie compensation to these metrics.

Finding clients: Business development

Business development involves finding clients (who receive services) and customers (who buy products). Finders are often deemed to be the most important people in the organization and are typically rewarded accordingly. However, finding clients is only one of the three key components to a successful financial advisory firm. Someone must run the firm, and others must provide exceptional client service.

Have your finders focus more on developing clients than on selling products to customers. Many financial advisors give this role a bad name by pushing products to maximize their commissions instead of engaging in the more intimate and impactful delivery of insightful and unbiased financial advice.

The finder’s responsibilities include the following:

• Identifying opportunities where the firm can add value to a client’s financial outcomes.
• Studying market segments where the firm’s specific value proposition is likely to find the most fertile ground.
• Interviewing market constituents to develop insight into what clients value in order to adjust the firm’s value proposition, if necessary.
• Challenging the finder’s own comfort zone routinely, especially in relation to contacting prospects — phone calls, referrals, meetings, professional introductions, and so on.

Train your finders on your client due diligence process, as I discuss in Chapter 13. Only with a clear and consistent due diligence process does your business development activity engage new clients in positive and productive ways.

When training finders, reinforce the importance of not being too invasive or intrusive and not using emotional coercion to gain clients or sell products or solutions. Developing good client opportunities means taking time to identify where and how you can have the most beneficial impact on the client’s financial outcomes. (See Chapter 18 to find out more about earning clients.)

Tie each finder’s compensation to a salary plus a performance bonus. The base salary should be commensurate with industry experience, and the bonus should be tied to a specific threshold of new business acquisition — for example, a base salary of $36,000, plus a bonus of $5,000 for every five new platinum-level clients. Provide clear guidelines on how rewards will be granted upon meeting expectations.

Don’t pay commissions to a team member who’s not properly licensed approved by your broker/dealer.

Grinding out the work: Client service

After prospects become clients, the grinders step in to deliver client service that exceeds client expectations. The goal of a grinder is to establish a lifelong relationship with a client, which requires a flexible approach. Clients’ needs and desires change over the course of their lives in response to changing conditions and mindset. They can become more aggressive or conservative depending on life events and experiences and what they learn over time. The grinder must be able to adapt client service accordingly.

To deliver the most effective client service, get to know your clients. Check in with them regularly, which varies according to each client’s service level tier, as I explain in Chapter 16; generally, this means once or twice a year for less engaged clients and quarterly (or more frequently) for your more active clients and those who are good sources of referrals.

Although grinders focus client service on the needs of existing clients, grinders often become finders, contributing to business development. For example, when client service involves portfolio management or financial planning reviews (for example, making sure retirement savings is on target or checking to make sure the client has sufficient insurance), the grinder has an opportunity to find out more about the client and the client’s needs, their friends and family, and their needs. The insight gained from these interactions can reveal areas for additional value to be generated for both the firm and its clients.

Tie grinder compensation to a salary plus a bonus associated with a client retention ratio. Start with a base salary commensurate with industry experience, as you did with the finders, and add a flat bonus payable when the business achieves a 95 percent client retention rate annually. For example, you may pay your grinders $36,000 annually with a $10,000 bonus for achieving the targeted annual client retention rate.

To encourage synergy between business development and client service (finders and grinders), tie the bonuses of both to new client acquisitions and client retention. These positions should be closely coordinated to maximize the complementary nature of getting to know clients better and revealing opportunities for growth.

Getting your firm’s foot in the door with 401K plans

In recent years, the revenues associated with taking over an existing, well-funded 401K company-sponsored retirement plan have declined dramatically. Commissions for moving these plans have dried up, and trail-based income has dropped to 0.25 percent range. So, why am I bringing them up? Because, in my mind, the fact that these plans have dropped their revenue-generating potential, makes them even more attractive. As other financial advisors abandon these opportunities, they open the door for others who have a more value-added focus. Acquiring a corporate retirement plan provides you with a fresh pool of potential clients in the form of plan participants.

Don’t assume that you’ll be able to deliver a couple product sales pitches at a breakroom lunch-and-learn event and convert all those plan participants into clients who are eager to sign up for the other services your firm offers. You must approach the plan participants with the same due diligence as you would any other prospect. Taking on the 401K plan simply provides you with a list of leads.

For best results, hire salaried personnel (not commissioned salespeople) to provide ongoing contact and education regarding the participants’ plan contributions and investments and how those tie into their larger personal finance picture. Using this approach, you can introduce other personal finance topics, such as the importance of having health, disability, and life insurance; estate planning; and more. Remember to keep the focus on education and provide valuable information to reflect the value that your firm offers to its clients.

Take a gradual approach over time and make sure your team is capturing all the information collected regarding plan participants through the use of your CRM software. Turnover is natural in the junior financial advisor positions responsible for maintaining contact with plan participants, so you need to capture the information about plan participants and their interactions with your firm to provide continuity of service in the event of turnover. Paying a salary lowers your advisor turnover rate but doesn’t eliminate it. The better your business is able to capture the communications and interactions with plan participants and share that information with others in the firm, the better the long-term results. Frankly, this advice applies to all clients, but it’s more imperative with a corporate client, which has many more points of contact with the firm.

Expanding opportunities through corporate benefit programs

Just as with 401K plan takeovers and consulting, you can easily diversify your revenues and add value to the same client through other corporate employee benefits programs, including group insurance plans such as life, health, and disability.

If you happen to come in contact with a company’s financial manager or HR personnel, ask about their corporate benefit programs, whether they’re satisfied with their existing programs, and how their employees have responded to them. If you’re already taking over the company’s 401K plan, you’re in contact with the decision-makers who choose the plan providers.

Because major players, such as ADP, are already operating in the corporate benefits space, a more customized design and service solution will grab attention. Don’t assume that the larger companies have an advantage over your smaller firm.

Networking through trusts and estates

Estate planning (see Chapter 10) often involves numerous people, including the owner of the estate, individual trustees, corporate trustees, trust protectors, attorneys, accountants, and named beneficiaries. All of these individuals provide business-building opportunities:

• You can showcase your knowledge, skills, and professionalism to fellow professionals, including attorneys and accountants. Trusts and estates often demand greater sophistication and coordination of asset and liability management solutions, which brings together the client’s attorney, accountant, and financial advisor.
• You can coordinate beneficial financial outcomes for all stakeholders, including beneficiaries, the trustee or corporate trustee, and trust protectors.

Rarely does a trustee fully understand the scope of his duties under a family trust document, which can place the person at risk of a significant liability. For example, the trustee could easily and unintentionally violate the laws governing the management of the trust, subsequently exposing the trustee to a lawsuit from beneficiaries. Your services would provide tremendous value to several parties involved; it’s just a matter of educating participants to the risks. Whether they ultimately do anything about those risks is their concern, but at least you’ve provided the appropriate guidance, and you may be remembered and rewarded for your efforts with future business.

Easing the burden of household’s financial manager

The wealthiest households often have their own family offices complete with an administrator who oversees the activities of the household staff (cooks, maids, butlers, household financial manager, and so on). The household financial manager is often overburdened with other nonfinancial work, which increases their challenge to achieve the financial outcomes the family desires.

If you’re able to support the household’s financial manager, without displacing him, you can secure another source of business. More importantly, the administrator and staff typically are well-connected to organizations with whom they network to discuss all things family office. One such organization, Family Office Exchange (www.familyoffice.com) is “the world’s largest peer-to-peer network for ultra-wealthy families and their family offices and the leading authority on matters related to legacy wealth management.” Early in my career, I had the pleasure of learning from this organization’s founder, Sara Hamilton, and it has informed my perspective in this area ever since.

Managing the office

In terms of office management, your assistant has the following responsibilities:

• Updating your calendar
• Scheduling all routine client retention work and due diligence meetings for new clients
• Answering inbound calls
• Running reports
• Ordering office supplies, including stationery and business cards

Always defer to your assistant for scheduling purposes. I’ve been reminded of this often, when I’ve short-circuited the system and booked an appointment myself. It throws the whole calendar into disarray and creates more work and frustration for all involved. I have to remind myself that I’m not aware of outstanding dates and times that my assistant has offered to several people, so I really shouldn’t be scheduling anything.

Harnessing the power of client relationship management (CRM) software

CRM is a system for tracking prospect and customer interactions with a business for the purpose of staying connected with customers and improving customer service and profitability. I use “CRM” to mean “client relationship management,” because financial advisors should be advising clients and not selling products to customers.

A CRM system typically provides the following functionality:

• Qualifies leads, so finders can focus their efforts on pursuing the most promising prospects and not waste time on prospects who are less likely to be receptive to the firm’s services.
• Collects data on prospect and client interactions with the firm and provides quick and easy access to every client’s details, including contact information, transaction history, interactions with the firm, notes about the client, and much more.
• Forecasts sales for improved resource planning and scheduling.
• Facilitates analysis to gain clearer business insights by identifying patterns and trends that may impact the business. CRM systems enable data-driven decisions, instead of having to base decisions solely on intuition.
• Coordinates sales and marketing efforts to optimize the sales cycle.
• Monitors the firm’s social media properties to improve responsiveness to posts and highlight areas for improvement.
• Automates the process of maintaining contact with prospects and clients in a way that leads them from initial engagement to adoption, as I explain in the next section.

Even though every team member should be using your firm’s CRM software to record customer information and interactions routinely and to consult the system to inform their interactions with customers, your administrative assistant should own the system. What I mean by owning the system is that your administrative assistant becomes an expert in using the system, training others on how to use it, and ensuring that everyone in contact with clients is using the system to its full potential. In addition, your administrative assistant uses the CRM software to generate reports that provide insight into how your business is functioning (for example, too much time in between client due diligence steps) and what everyone is doing in the business to contribute to the stated goals and objectives.

Early on, you’ll use your CRM software to capture data. Later, after you’ve collected data, you can run reports that provide insight into clients and into your firm’s operations and performance. You may be collecting data for weeks, months, or even years before you can start asking the software questions that only historical data can answer.

Your assistant isn’t responsible for entering into client conversations, calls, or meetings into the system. Those tasks are the responsibility of the person who’s interacting directly with the client — usually, the finder, the grinder, or a client service associate.

Coordinating the workflow for new clients

Every new client experience should be the same pleasant, consistent process. The steps should mirror those of your client due diligence process, which then flows into an established client onboarding protocol. (See Chapter 13 for more about the due diligence process and onboarding new clients.)

The workflow for new clients involves collecting a considerable amount of documentation from a client, including a copy of a client’s government-issued ID, an emergency contact list, and financial records, just to create a complete file. You may be waiting for certain documents for several days or even weeks. As new clients pop into the queue, older client onboarding often takes a back seat or falls between the cracks leading to bottlenecks later.

Use your CRM software along with checklists to keep workflow for new clients running smoothly. Dedicate a weekly meeting to tracking all clients in your queue. Using a CRM generated report would help, but I must admit that in my practice we still use a separate tracking report. It’s not ideal, but as we develop mastery of our CRM, we’re hoping to use it to automate and streamline client onboarding.

Outsourcing accounting and legal

Every business can benefit from professional accounting and legal services. As your business starts to grow from you and your executive assistant to additional partners and employees, you’ll need professional accounting and legal services even more. Accounting services can help you evaluate your business’s financial success and progress. Legal services can ensure that ownership and compensation terms are understood across all your team members (though specific details are best kept private between you and the specific team member).

Unless you’re a larger business (more than 15 employees and revenues greater than $5,000,000 per year), you’ll probably outsource all your accounting and legal needs. Only very large firms have in-house corporate counsel and accounting.

Outsourcing accounting and legal to professionals increases your expenses, but the benefits more than make up for the costs:

• Your CPA can answer questions and provide guidance that increase profits and reduce costs. He can answer questions such as: How much have my business revenues grown relative to expenses? Is profit margin increasing? What’s my year-over-year growth rate? Your CPA can also recommend a business structure that provides more favorable tax treatment on your profits.
• Your attorney can help with compensation agreements, nondisclosure agreements, ownership agreements and exchanges, cross-purchase buy-sell agreements, and so on. You can use an online resource such as Legalzoom.com or RocketLawyer.com for many of these basic agreements, but you may not get the personalized service that a local attorney provides. The more people you negotiate with the greater the likelihood of agreeing to terms that aren’t in your favor. Seeking the counsel of a competent business/corporate attorney saves you time and money in the long run. Most financial advisors forego legal counsel to avoid the expense. Just realize that by skimping on this expense, you increase the chance for future unintended and possibly break-the-bank consequences.