Nobody likes to get burned by a decision.
But if you’re reading this, you want to grow your business. As we transition to a new generation of financial planners, one increasingly popular way to find growth is through mergers and acquisitions.
Buying a book of business is certainly an option when you are looking to grow exponentially. But just as it’s important to select the right clients to work with, you need to select the right business to purchase.
When looking to acquire another business, there are three main points to consider.
Recently, I was reviewing some financial planning firms that were sale and some valuations were extremely high.
If you’re the seller, you want your business valuation to be as high as possible. But as the buyer, you are looking for a valuation that reflects not just current conditions, but what to realistically expect in the future. Although it sounds counter-productive, a good way to do that is to look at past valuations.
Start by asking yourself what the current valuation is based on. Is it strictly market performance, an effective money manager, or outstanding customer service? And then compare that valuation to one from the past. The year 2010, for example.
Following the financial crisis, we have seen a sustained bull market like none other in recent memory. If the valuation is based on is market performance, the value of the practice is questionable, as anyone could grow the business in the backdrop of the bull market post-financial crisis. What did the valuation look like in 2010, before the sustained bull market?
In some cases, the money manager might have outpaced the market and is driving the valuation. In this scenario, you need to determine the longevity of that manager. How much it will take to keep that person incentivized in the future, especially if that person is in the office?
Finally, you want to understand the service models and if they are aligned with your current thinking.
Growing the business organically, without respect to market performance, is an ideal situation.
It’s important to look beyond surface metrics when considering buying a business. That is, don’t base your decision on the obvious factors:
Although those factors need to be considered, it’s important to look past them. Many times, the increase in value to the purchasing firm is to trim costs through economies of scale which typically leads to loss of jobs and morale issues.
Instead, you should be looking at the metrics of the client base and the opportunities that might exist.
In a recent advertisement for several financial firms being sold, the average age was 59. That block of business might complement your existing business, but it might also create new opportunities for guaranteed income, estate planning, beneficiary reviews and next-generation planning. Are you willing to expand your practice to include services those clients will need in the near future? If yes, great. If not, you will be doing your clients a disservice and potentially hurting your existing reputation. Think about the changes you need to implement to grow the business exponentially.
Many financial planners are looking at succession planning for their clients. Those clients are in their mid to late 50s. Our research has shown time and again that traditional systematic withdrawal provides a level of risk in income planning. A less risky option is the Income Alpha strategy. It allows clients to set aside a certain amount of assets for pure growth which will enhance the assets under management growth in the long term. Without similar income strategies, the assets in the book of business are likely to deteriorate over the next several years.
The income strategy should be considered in the purchase price. With current valuations nearing three times the gross revenue, the wrong income strategy is a recipe for disaster for the purchaser. Having a strong income strategy for older clients makes sense for the clients and the value of the business. With the appropriate strategy in place, there should be a multiplier effect on the value of a business as assets grow. Additionally, passing those additional assets to the next generation will help grow and retain the beneficiaries’ assets in the future.
Educate Yourself Before You Buy
We all want to grow our business exponentially. Buying and merging with businesses is sometimes viewed as the easiest way to do it. And, with the current age of many planners, there will be ample opportunity to buy books of business. But, just like any other big business decision, acquiring a business requires you to do your homework.
Make sure you understand the direction of the firm when considering a book of business with clients nearing retirement age. The negative flow of assets may represent a unique look at the value of the seller’s book of business.
Transformational Tactic: Don’t get burned by high valuations. Think before you buy. Seek to understand what is behind the numbers. Don’t buy a business that doesn’t fit your goals for growth.
Transforming your business requires a marketing strategy that works. Over the past few months, I’ve talked about the importance of clear and concise messaging, the advantages of automating where you can, and how to earn free marketing reach from news sources.
I believe in the value of marketing. It’s a great way to open the door and start building a strong, lasting relationship. If you’ve started implementing some of these suggestions, but haven’t noticed a change yet, it’s important to examine why.
When I talk to advisors about their marketing and client acquisition plans for 2020, I hear more discouragement and frustration than anything else. Do any of these answers sound familiar?
Marketing and prospecting have always been a challenge in our industry. For everyone. But instead of letting it discourage you, let’s step back and examine pieces that might make a difference. It’s not necessarily new information, but it is extremely relevant to your plans for 2020.
People are distracted. This isn’t the first time you’ve heard that, and it surely won’t be the last. To be heard above the noise, you must make your message extremely clear. Most likely, you are catering to prospects, not to clients. Your message needs to be so simple, so thematic and so compelling that the prospect wants to engage with your personal brand.
Think about how you use the internet. Today’s audience likes to scan, not read. Your business has seconds to get a point across – not minutes. As consumers, we stay on a webpage for fewer and fewer seconds every year, less with every added distraction.
Your brand must speak to the emotional transformation that your prospect wants to create in their financial life.
You know what they are looking for. Confidence. Knowledge. Security. Organization. Peace of mind. You need to be writing the story with your prospect as the main character — the hero. Too often, we make ourselves the hero and lose the prospect during the initial interactions.
So, how do you do that? How do you make your client the hero and guide them to their goals? Most clients are looking for someone to guide them through the complexities of their financial decisions with a simple and clear path.
Think about avoiding analysis paralysis. If the information is too much, the person will simply not do anything and save embarrassment, fees and time. And they won’t find out how bad their situation might be. That’s extremely frustrating for everyone when a professional (YOU!) can help rectify the problem.
Clients are seeking advice. Specifically, they want to engage with a professional in a low-risk manner. One of the best ways to do this is to get a feel for the advisor before agreeing to meet. Many would prefer to see their prospective planner in action during a seminar. For them to do this, your website needs to clearly show them how to register, call or reserve a seat. They need a simple call to action to focus on, without a lot of other distractions. We’re scanners, after all. No one’s going to hunt and peck.
Simplifying and clarifying your message can keep prospects on the path, speed up your sales process, and save you thousands of dollars.
Unless you live and breathe data and consider yourself to be one of the tech-savvy, the mention of algorithms probably takes you outside of your comfort zone. But stay with me for a minute. You can have the best site in the world — one that speaks to the heart of the problems your target market — and still not get results. Why? The rules of the internet search game change frequently.
In October 2019, Google changed its algorithm for searches. Their BERT algorithm is an expansion of their 2011 PANDA algorithm that scores clarity and quality higher than quantity.
This matters because it’s now more important than ever to be crystal clear. Understanding how searches value a site is critical to marketing. 93% of online relationships begin with an online search and Google controls 65%-70% of the searches.
Chances are, your site is not getting the exposure it deserves in a world of noise.
You must understand the rules of the game to succeed. It means staying on top of changes and making sure you have the right messaging to drive prospects to your site. Although it requires some hard work and diligence, it could be exactly what you need to distinguish yourself and attract clients.
Transformational Tactic: Take time to create a simple, clear brand message that resonates with your target audience and maximizes current algorithm searches.
We’ve all been warned against the dangers of succumbing to “herd mentality” and blindly doing something just because everyone else is. There’s a reason that clichés survive, usually based on a grain of truth. As humans, we feel validated when we know that others are doing the same thing or following the same thinking.
Take asset allocation, for example. Not long ago, ThinkAdvisor.com published an article warning large brokerage firms against using a 60/40 allocation strategy. On the plus side, the article noted that larger firms are recognizing how global markets affect investing. The point of the article, however, is that bonds may not produce the same return as in previous years. Treasury yields are low and global events have put foreign bonds in negative yields. Those are all real possibilities that need to be considered when advising our clients about investments.
But despite these warnings, financial advisors continue to present solutions that are eerily like previous recommendations. The recommended allocation presented different asset classes with more and less risk than bonds. Arguments were made that the discussed asset classes performed better than bonds. But they didn’t ask some important questions:
And here’s where herd mentality rears its ugly head. We continue to do the same thing we’ve always done. The same thing everyone else is doing. We chase yield and returns.
And that leads to an opportunity for you.
Move Away from the Herd
Here’s your chance to gain market share, grow your business and attract clients with innovative new ideas. While everyone else is repeating the same old lines and offering the same tired recommendations, you can provide a new strategy to your clients — one that is impactful beyond preservation of capital and a few basis points in yield. Thinking differently makes you stand out in your community and with your clients. And it attracts prospects.
Providing a solution that meets the demands of changing demographics and reaches the most needed segment of the population – near and current retirees – positions you as the thought leader in your market.
Anyone can move money with a click of a button to chase yield. Honestly, that is the least valuable service we provide. But as a thought leader, you’ll have clients coming to you for ideas that work.
What Makes You Different?
You still may hold yourself out as a money manager with a focus on asset allocation. And you’re right —asset allocation is important. But in the new world of relevance, you must also provide income. The more stable and dependable your retirement income strategy is, the better positioned you are to take advantage of the greatest shift from the workforce to retirement we have ever seen.
By providing income strategies, you separate yourself from the herd of other asset gatherers and managers. That separation wins clients and prospects. They don’t want to pay for something they can get from anyone else or even do themselves with today’s technology.
They want answers to their most difficult problem – retirement income.
It’s Time to Stand Out
You won’t separate yourself as a thought leader by following the herd. Clients don’t win in investing when they invest based on herd mentality, and neither should you. If you do the same thing as others or stick to the outdated strategies used in the past, you will get the same results. It’s time to transform your business and step out in front.
Separate yourself from the herd. Recognize the opportunity to transform your business by taking our free course.
It’s a new year with new challenges and new opportunities. But even as we set resolutions and think about how we want to change, as financial advisors, the need to maintain balance stays the same. The question remains: How do you find the right mix of advisory and commission-based products in relation to what is best for the client?
Before I answer that, let’s look at what we’re dealing with — specifically, dramatic shifts in our country that continue to affect retirement income planning. You’re probably aware of these shifts, but it’s worth identifying them.
Together, these shifts paint, if not a bleak picture, certainly a more challenging one.
Advisors will have to create more income, for longer periods of time, with fewer assets, than ever before.
What it really means is that you, like other advisors, are left trying to figure out how to drive value in your business by increasing recurring revenue. And, at the same time, you’re responsible for addressing your clients’ retirement outcome with non-advisory products. Piece of cake, right?
Fortunately, the answer can be found in a single strategy. And it’s one I’ve talked about before.
Our industry needs to behave, act and think differently than ever before if we’re going to help Americans secure their financial future. It’s time to execute on Income Alpha strategies that both increase the outcomes for many Americans while creating a long-term increase in revenues and assets under management.
Get straight to the numbers! Download the visual case study on how to win the retirement game.
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How it works
It can be summarized in three simple steps. The strategy employs:
The benefits can also be easily pinpointed. The strategy results in:
Start 2020 off with a win-win-win strategy and get that much closer to transforming your business. Find out more.
Deploy strategies that let you generate more income, with fewer assets, while maintaining the value of your business.
Client perception is our reality.
As financial planners, we solve problems. But, you can only provide meaningful advice if your clients understand the correct problem.
I’ve talked in the past about how we have so much information available, we get paralyzed by indecision. And with so much information available, it can’t all be accurate. Just turn on cable news and you’ll see more speculation than factual reporting. People believe what they expose themselves to – and that messaging is constant. Our clients focus on the media at least as much as they focus on what we say. More, if we aren’t providing them with the information they need.
A client’s sentiment, right or wrong, affects their behavior. It’s also constantly changing – especially if you are only meeting with clients annually. So, it’s no wonder that it can seem almost impossible to keep up.
That’s where our alignment needs to change. We’re in a place of communication failure. Not about portfolio performance or basic information … we’re missing how a client’s changing emotional mindset can impact a far-reaching financial plan.
According to a recent survey, 65% of Americans believe there will likely be a recession in the next year, while most economists indicated that during the summer, those winds have subsided. The survey was conducted in early fall after economists changed their predictions. Yet our clients’ beliefs didn’t change. That tells me either we are not communicating properly, or clients have fallen behind in obtaining important economic data.
Either way, the burden falls on us to communicate clearly.
Preparing … Partially
The survey asked what Americans are doing if they believed a recession is imminent. Smartly, most respondents indicated they have begun building an emergency fund or paying down debt.
Unfortunately, only 13% of the survey participants have taken the time to reallocate their investments. This is in the backdrop of one of the largest increases in market value since the financial crisis.
Few are taking risk off the table. Probably because we are not advising them to do so.
Clients move. The market experiences poor performance. A friend enters the industry and your client transfers business to them.
Planning vs Reality
Most Americans are saving less money than our parents, but we are saving money for retirement. But our clients save based on the expectations (that we help set) they will reach their ideal retirement age before leaving the workforce. What’s on your clients’ plan? 65? 67? 70? For more than 40% of Americans, that won’t be the case. 4 in 10 will have to retire early due to health concerns or being forced to leave the workforce.
Will your client still be set up for success if they retire earlier than projected? Have you talked about it?
Overcoming Communication Failure
In a worse-case scenario, failing to help clients change their perception and understand the financial market can cost them security and wealth. Selfishly, it can also cost us the ability to gain new clients.
If we don’t prepare our clients for contingencies, they will fail to enjoy the lifestyle they have been envisioning. If that happens, we risk not only the client relationship but future relationships of generations to come.
We must be better at communicating the risks and solutions associated with retirement income planning. And, we need to do that in a way that is so simple, thematic and compelling that our clients tune out the noise of friends, family and media to use us as the trusted source.
As a StoryBrand Guide, we tell our advisors, “If you confuse, you’ll lose.” Getting your message clear is difficult, but leads to exponential gains in your business. When you correct how you communicate, you will impact your clients’ lives because you have a better chance at being aligned.
This is where High Performing Practice can help. In past blogs we’ve talked about some of the techniques: finding the right clients, building deeper relationships, automating your message, and most importantly keeping your message clear.
But it really comes down to you and your clients. Are you understanding their reality? And what are you doing to meet them where they are, then guide them to a place of security?
If you’re ready to have that conversation, we can help.
Improve your communication – and effectiveness — through simple and consistent messaging that connects with your clients.
© 2018 Ash Brokerage LLC.