Copyright © 2011 by Steve Moore and Gary Brooks. All rights reserved.
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Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Moore, Steve, 1947–
Ineffective Habits of Financial Advisors (and the Disciplines to Break Them) /
Steve Moore, Gary Brooks.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-470-91032-0 (hardback)
1. Investments. 2. Business consultants. I. Brooks, Gary, 1971– II. Title.
III. Title: Ineffective habits of financial advisors (and the disciplines to
break them).
HG4515.M66 2010
332.6–dc22
2010027089
Introduction: Setting the Stage
On the morning I wrote this, I started with my daily routine. I soaked in the hot tub for 10 minutes, showered, shaved, put on my deodorant, and then got dressed. Including my belt, wallet, iPhone, ChapStick, and pen there are 12 items I deal with. Next, I cooked my oatmeal and added blueberries, walnuts, a scoop of protein powder, and half a cup of yogurt. I gulped my vitamins and a slew of other pills—I love getting older. Finally, I brushed my teeth before heading into my home office to write this section. I booted up my computer, went to Google, and reviewed permutations so that I could give you the number 479,001,600. That is the number of different ways I could have gotten dressed that morning. With the 12 items there are nearly half a billion different combinations. So what do I do? I make the routine a habit.
In this case the habit allowed me to go through my morning routine subconsciously, freeing my mind to think about an interesting approach to explaining the important role habits play in our lives. There are countless habits that we have developed that allow us to perform routines effortlessly. But not all habitual behavior is good. You may have developed a bad habit, one that can have a negative impact on you or those around you.
Business practices are developed and then entrenched in the same way as other habits. You see, the mechanism doesn't stop just because you came to work. You execute a business task (even a complex one), repeat it, and the brain recognizes the pattern. You repeat it again and again and before long you have developed a business habit, one that can be performed unconsciously, allowing your conscious mind to think about other issues or tasks.
Habits wouldn't pose a problem if they were truly optimal and your business never changed. But that is not the case. They operate even if they are suboptimal; or worse, irrelevant; or worse still, damaging to the business. I have found that advisors are prevented from implementing more effective business practices by seven ineffective business habits.
This book was written for experienced financial advisors who want more than the status quo, are open to a new approach, and have a strong belief in their ability to execute.
Over the past 15 years, I have worked with more than 750 financial advisors in High Speed Strategic Planning, a year-long consulting/coaching program. The strategies and disciplines delivered in this program generate impressive business results. A start-up in Seattle went from zero assets under management to over $1 billion in five years. Two advisors, one in San Francisco and one in Milwaukee, went from having over 1,300 clients to fewer than 100 and tripled their revenue. A Vancouver, B.C., team transformed its business in just two years, consistently ranking first or second in PriceMetrix's Business Excellence award. A Chicago team went from managing $17 million to over $170 million in seven years. A well-established registered investment advisor in Long Beach, California, grew from $240 million in assets under management to over $1.4 billion in 10 years.
How did these advisors achieve these results? The simple answer is they implemented more effective strategies than other advisors. But how?
First, they weren't satisfied with the way things were—they wanted more! These advisors wanted more financial security for their families, more work-life balance, more of a sense of doing worthwhile work, more pride in what they were building, and more opportunity for growth for themselves and their teams. You may have seen the classic video clip from Network (1976), where newsman Howard Beale rants, “I'm as mad as hell, and I'm not going to take this anymore!" Though this may be a bit overstated, it does convey that people don't change until they are truly dissatisfied with the way things are.
Ralph Waldo Emerson wrote: “There are always two parties—the party of the past and the party of the future, the establishment and the movement.'' These breakout advisors were fed up with the way it was. They wanted more!
Second, they were willing to consider and then embrace different strategies. In Competing for the Future, Gary Hamel and C. K. Prahalad write: “What prevents companies from creating the future is an installed base of thinking—the unquestioned conventions, the myopic view of opportunities and threats, and the unchallenged precedents that comprise the existing managerial frame.'' Though breakout advisors had success in the past, they were willing to challenge existing practices and consider new and different strategies. After analyzing this new approach for acquiring and servicing clients, these advisors developed a strong belief that this new approach would lead them to their desired business success.
Third, they had a strong belief that they could implement this new approach. The importance of this belief cannot be overstated. However hard they imagined it would be, it was harder. However long they thought it would take, it took longer. Worse still, the short-term results they were hoping for just weren't there. But because they believed that they would ultimately be successful and the reward would be worth the effort, they persisted. And because they persisted, the long-term results exceeded what they imagined. Once again, these advisors proved that the number one ingredient in any success is persistence.
This book will provide you with business practices and strategies to bring more into reality. You need to bring your dissatisfaction with the status quo, a willingness to consider new ways of doing business, and belief in your ability to execute.
This information is a new perspective on your profession, and here is why.
My wife, Carol, and I were married and had our son when we were in high school—I wasn't quite as rigorous of a planner then as I am now. We were two teenagers on our own, trying to make a life and raise a family. I think it was the extraordinary circumstances of how we started out that made family so very important to us.
With the help of an athletic scholarship, I worked my way through college and then coached football at high schools, colleges, and in the National Football League. When our kids began leaving home to begin their adult lives, I had been in the NFL for 11 years. At that time, I was the offensive coordinator for the Seattle Seahawks.
There is a lot of job security in the NFL—just not with a particular team. Coaching staffs keep getting recycled. At the end of the 1988 season, it was clear that the new Seahawks owner was going to bring in his own people. Because we had just won the division championship, he couldn't do it immediately, but his intentions were clear. Carol and I didn't want to move to Chicago, Kansas City, Tampa, or another NFL city and have our kids and grandkids still in Seattle, so I set out to begin my consulting career.
It was a painful process and I felt like a fish out of water. I had been going to work in T-shirts and sweatpants for 20 years and I only owned one tie. I had been near the top of my coaching profession, and now it felt like I was performing at the Pop Warner level in the Seattle business community.
In the business world, I knew absolutely nothing. The business language sounded foreign to me. I remember attending a presentation on the global economy. After the talk, the presenter and I were chatting and I asked him, $“$What would you tell the left tackle and left guard on 29 M if they caught a Buc-I-Change stunt?'' He said, “Steve, I don't know what you just said.'' I replied, “For the last hour and a half I haven't understood anything you said, either.'' It was the absolute truth, and what a wake-up call.
As a young coach I was a tireless student of the game. When I went to conferences, I sat in the front row taking copious notes. I was an avid reader. While coaching at the college level, our family vacations consisted of attending NFL preseason camps, developing relationships, and studying with the likes of Bill Walsh, Dick Vermeil, Tom Landry, John Ralston, and Chuck Knox.
I decided to study business management the same way I had football theory. I studied Edwards Deming's total quality management, Peter Drucker's worker productivity principles, Gary Hamel's strategic frameworks, Jack Welch's applied management practices, Jim Collins's insights on enduring great companies, Peter Senge's systems thinking, Jeffrey Pfeffer and Robert Sutton's evidence-based management, and many other great business thinkers.
I went back to school and earned my master's degree in education and studied optimal performance psychology from great researchers like Al Bandura, Gary Latham, and Marty Seligman. As I continued to study, it dawned on me that what I had been doing for all of those years—preparing a team to play the Raiders one week and the Broncos or Bears the next—was excellent planning and management. It was just a different language.
So I developed a proprietary business planning process that integrated the best research-based practices with the need for speed and execution that I had learned over my 20 years of coaching football. I had excellent opportunities to engage leadership teams at Microsoft, M&M Mars, NASA Suppliers, Defense Logistics, and Toyota. These consulting relationships provided the feedback necessary for the initial development of my High Speed Strategic Planning program for financial advisors.
In leading this program, I have had a tremendous opportunity to gain insight into issues faced by advisors from every segment of the profession—registered investment advisors (RIAs), brokers, insurance-based advisors, solo practices, ensemble teams, and so forth. I've continuously analyzed the challenges they face and field-tested solutions with them.
This diverse background, in combination with my viewpoint from outside the industry, allows me to work with advisors, unencumbered by emotion or preconceived thinking. An ineffective business habit that an advisor may have difficulty seeing can appear as an elephant in the room to me. While status-quo thinking may prevent an advisor from appreciating a new business discipline, the advantages can be glaringly obvious to me. It is my intent to present this information in such a way that you will benefit from what I have learned over the past 15 years of helping advisors build more profitable businesses.
Business Disciplines
The promise of getting more is realized only through rigorous execution of the disciplines designed to break these ineffective habits. I refer to these proven best practices and field-tested strategies as disciplines because they require rigorous implementation.
Though the disciplines are prescriptive, there is ample room for you to apply your creativity. In fact, I strongly encourage you to improve upon these disciplines. As Charles Darwin wrote, “Multiply, vary, let the strongest live, and the weakest die.'' Use your own creativity to enhance these disciplines as you make them your own. Every one of the disciplines has been enhanced by those who have come before you.
Over the past 15 years I have provided a well-marked path for advisors to take. Because advisors are creative and quite independent, their execution varies. As I continue to enhance my consulting/coaching program, I observe variants in the marketplace, embrace those that enhance the discipline, and let the others die. This book highlights the survivors, the core elements of an efficiently run, profitable advisory business.
Ineffective Habits of Financial Advisors and the Disciplines to Break Them
1. Stop living their dream and start living your dream.
As advisors begin careers, they tend to view themselves as a financial representative working for a platform, broker-dealer, bank, insurance company, or firm. It doesn't take long for them to develop the ineffective habit of living someone else's dream and playing the role envisioned for them. At a certain point, many feel trapped by the status quo and want more. They want more financial security for their families. They want more work-life balance. They want to feel more like they are doing worthwhile work. They want to have more pride in the businesses they are building. They want more, but they have been living someone else's dream for so long that it is difficult to imagine doing anything other than the status quo. The discipline of creating your dream is a process of envisioning the advisory business you truly desire.
Creating a compelling vision provides you with the opportunity to design your future. By thinking deeply about what you want, you can determine the worthwhile work you do, the business model that supports your ambitions, the quality of clients you work with, the type of team you build, and the business results you drive. Creating your dream starts by deciding what you truly desire rather than accepting someone else's dream. You determine your future by the vision you create, the decisions you make, and the actions you take.
2. Stop focusing on quantity of clients and start focusing on quality of clients.
To survive, nearly every financial advisor starts their career focused on the quantity of clients they can acquire. They begin selling to family and friends and then branch out and sell to anyone who can fog a mirror. The low percentage of high-net-worth clients they do acquire is the result of the law of large numbers. Their focus on quantity creates a client base of many unprofitable or marginally profitable clients. Using this ineffective habit will only bring them one to three high-net-worth clients per year. Over time the large number of small clients becomes all-consuming and prevents them from creating a service model that would be attractive to high-net-worth clients.
The discipline of focusing on quality clients allows you to acquire 6 to 12 per year. Quality clients are those who have complex financial needs and an asset base to generate superior revenue results. By building a high-quality client base you will experience the financial and intrinsic rewards as your clients refer their friends and colleagues to you. The first step is to create a strategic focus targeting quality clients.
3. Stop hoarding unprofitable clients and start disengaging unprofitable clients.
The win-lose environment that characterizes this industry promotes scarcity thinking. Hoarding unprofitable clients is a symptom of this thinking. As a result, the bottom 50 percent of an advisor's client base often represents less than 5 percent of the firm's revenue. The bottom 20 percent of the business's client base often generates less than 1 percent of the revenue. The scarcest resource advisors have is their time. Once it is spent it can never be gotten back. The ineffective habit of hoarding unprofitable clients causes advisors to develop a client base that demands too much time and energy while providing little in return. By bending to the discipline of disengaging unprofitable clients, advisors can begin to spend their time where the payback is best—the top 20 percent of their client base.
4. Stop providing only investment advice and start providing wealth management advice.
The commoditization of investment products, the changing needs of baby boomers as they near retirement, the uncertainty in the capital markets, and other industry trends are screaming for advisors to provide more than just investment advice. Today, high-net-worth clients want more from their advisors. They want an advisor who will help them achieve their financial goals—those that require planning, money, time, and the ongoing coordination of their financial ecosystem. They want their advisor to provide wealth management advice.
5. Stop delivering investment reviews and start delivering WOW Wealth Management Reviews.
Many advisors believe their primary value-add is their investment knowledge. To their clients, reviews feel like they are taking a statistics course in a foreign language. Even though the advisor may be aware that clients leave a review confused and embarrassed by their lack of investment acumen, the advisor cannot break the habit of delivering investment reviews. The discipline of delivering WOW Wealth Management Reviews breaks this ineffective habit, allowing the advisor to deliver information within the context of the client's goals and financial ecosystem. The WOW Wealth Management Review also turns the intangible advisory business into a tangible business worthy of referrals.
6. Stop the rainmaker approach and start the team approach.
A high percentage of investment advisory firms are made up of groups organized to maximize a rainmaker's production. By being so dependent on one individual, the business cannot scale and it stops growing when the rainmaker's financial appetite is satisfied or the service capacity is exhausted. The focus on individual rather than team production and the disproportionate amount of the rewards that go to the rainmaker limits the overall quality of the group. The disparity between how the rainmaker is rewarded compared with others in the group can create resentment and passive-aggressive behavior.
This ineffective habit is changed by bending to the discipline of building a wealth management advisory team that scales the organization's service capacity. In The Wisdom of Teams, J. R. Katzenbach and Douglas Smith write: “Teams outperform individuals acting alone or in larger organizational groupings, especially when performance requires multiple skills, judgments, and experiences.'' The team approach is the discipline of organizing to deliver wealth management services as a team and working collaboratively to achieve greater levels of client satisfaction, team rewards, and business success. By developing service teams you can position resources to deliver outstanding, scalable service that will create competitive differentiation. Wealth management requires such a team approach.
7. Stop selling to prospects and start selling through clients.
For the typical advisor, traditional marketing methods acquire one to three affluent clients per year. Though direct marketing initiatives produce little more than chump change, advisors continue the ineffective habit of selling to prospects via seminars, advertising, or cold calls. The discipline of selling through existing clients breaks this habit and allows them to acquire 6 to 12 high-net-worth clients per year. Engaging clients and arming them with concise, compelling language empowers them to execute an incredibly valuable word-of-mouth viral marketing campaign.
The Framework of the Book
Each chapter is devoted to an ineffective habit and the discipline to break it. The first section of each chapter describes the ineffective habit by telling Jack's story. In Jack you will recognize his ineffective habits and the negative impact they have on his business. The scenarios found in Jack's story are examples derived from advisors I've coached over the years. They are real. These habits show up repeatedly. You will identify with them at some level. My intent is to make you dissatisfied enough to take action and break the habit by implementing the appropriate discipline.
The framework I use to explain the disciplines is called IDA, which is an acronym for insights, decisions, and actions. With better insight you make better strategic decisions, but unless you take action you won't experience the benefits.
Insights
You need to perform fact-based analysis to gain insight into your business. In The Adventures of Sherlock Homes, Sir Arthur Conan Doyle writes: “It is a capital mistake to theorize before one has data.'' To this end, I discuss relevant data and prescribe an analysis that you can perform to gather the facts.
There are two things to keep in mind while gaining insight. The first is that you shouldn't beat yourself up. I work with advisors all the time and know how stupid you can feel when you expose ineffective habits and allow them to continue. Consider yourself normal. Ninety percent of advisors have the same problems. The second important thing is to cut to the core of the issue. Solutions that only address symptoms have little long-term impact. Albert Einstein said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.'' There is an interesting story that supports this principle.
The Jefferson Memorial Parable
The Jefferson Memorial was crumbling. At first, the problem was believed to be acid rain. Further investigation revealed that the combination of detergent and water used for the daily washing was mixing with the cement and creating an acid that was eroding the Memorial. This raised the question, why was it being washed daily? It turned out there was an inordinate number of bird droppings on the Memorial and to keep it presentable it needed daily washings. But why so many bird droppings?
The decision was made to study the problem. After staggering costs and time it was discovered that sparrows found an easy food source and were coming to the Memorial to feast on a plentiful supply of spiders that had taken up residence there. But why were there so many spiders?
It turned out the spiders were eating small insects called midges. The midges were a plentiful and easy food source for the spiders because they were splattering themselves on the Memorial. But why would they splatter themselves on the Memorial?
It was finally discovered that dusk was mating time for midges and they were in an elevated state. This, in combination with the lights that turned on at dusk, put them in a super elevated state, causing them to fly out of control and splatter themselves on the Jefferson Memorial. They provided an easily accessible~banquet for the spiders. So the midges provided a food source for the spiders, the spiders for the birds; thus the bird droppings and the washing and eroding of the Memorial.
How did they fix the problem? They left the lights off until one hour after sunset and the problem went away. By asking “why'' over and over again, effective advisors are able to understand their competitive world more completely. Rather than treat symptoms, they go to work on curing core problems. You can do the same by shining a light on your habits and understanding your business at a deeper level.
Aristotle lived from 384 to 322 B.C. During this time, he determined that the world is round. That paradigm was not embraced until 1522 A.D. when the Portuguese sailor Juan Sebastián Elcano completed the round-the-world voyage started by Magellan. By understanding that the world was round, people were able to make better navigational choices. Likewise, by gaining insight into specific areas of your business, you will be able to make better decisions. One difference: You can't take hundreds of years to understand the shape of your competitive world.
There will not be complete facts to support every decision you make. Jack Welch provides guidance in his book Winning when he writes, “Effective people know when to stop assessing and make a tough call even without total information.''
Decisions
Jeff Bezos from Amazon.com states, “Ideas are important but they are relatively easy. What is hard is taking that list of hundreds of ideas, ranking them, and picking the three that you are actually going to do. That's intellectually one of the most challenging things that happens every day in a business that is growing this fast.'' When you gain insight into your business, you will be better prepared to make well-informed decisions—cornerstone decisions as to how to grow your business.
Each advisor has a unique set of circumstances. They work in different markets, operate on different platforms, have different business models, and serve different clients with varying levels of support from team members. Because of the differences, a specific implementation of a discipline that works for one might damage another. When you begin to evaluate each discipline you should ask yourself:
- Does this discipline address one of my ineffective business habits?
- Can my team execute the discipline?
- What is the downside to implementing the discipline?
It is important to think deeply about any decisions you make regarding the disciplines recommended in this book. They may not fit your practice perfectly. If they don't, they should at least inspire the kind of thinking that will lead to decisions that can transform your business.
Senior leaders who push for fewer changes and push for them harder are more likely to have success than leaders who introduce so many changes that people become confused about which matters most and least to the company and how to spread their time and money among the initiatives.
—Jeffrey Pfeffer and Robert Sutton, Hard Facts, Dangerous Half-Truths & Total Nonsense
Actions
Emerson wrote, “Good thoughts are no better than good dreams unless they be executed.'' When I am working with groups I often pull a $20 bill out of my wallet and hold it up. I then ask the group who would like it. Usually the group looks around at one another and finally someone sheepishly comes up and takes the $20. I then ask the group what that person had to do in order to get the $20. We all agree it only required that they get up off their ass and make it happen.
If you make a decision but don't take action nothing will change. This book provides you guidelines to take action. Results come from decisions that are converted into specific actions. An example comes from a story told me by one of the pioneer rock climbers in the United States, Royal Robbins. He was the first person to climb Half Dome in Yosemite back when serious climbers wore white tennis shoes rather than the rock-climbing gear that is used today.
Royal was solo climbing once and got stuck—he couldn't go up and he couldn't go down. He was tired and his legs were shaking from fatigue. He had to work and work to convince himself that he could climb up just five more feet. Once he made the first five-foot climb, he had to work again to convince himself that he could climb five more feet. He continued this way until he climbed out of this death trap.
I believe this is a useful metaphor for people who are trying to implement the disciplines outlined in this book. If you look at the entire mountain (your business) it can be overwhelming. But if you can break your climb into five-foot increments that you believe you can accomplish, you will persist. The action portion of each chapter is designed to help you make these five-foot climbs.
The regulatory environment, competitive landscape, technological advances, and capital markets are changing faster than at any other time in history. If this rate of change is faster than your ability to embrace new disciplines and acquire new competencies, your business is at risk. Peter Senge captured this point in his book The Fifth Discipline, when he wrote, “The only sustainable competitive advantage is the ability to be able to learn faster than your competition.''
So … let's get started.