In February 2013, I published an article entitled “Twelve Steps to Make Your Business Fun Again”. It was posted on www.advisoranalyst.com and they reported to me that it was one of the most read articles ever posted on their website.
The overall message resonated with financial advisors. The financial services industry is still relatively immature and changes have been and will continue to be constant.
Wealth management has provided thousands of individuals the opportunity to build personal wealth through helping clients to achieve their financial goals and dreams. It has been a huge, personally fulfilling, entrepreneurial opportunity to develop a vision, identify a finite group of clients who share that vision and work collaboratively to convert dreams into reality.
In the mid-1980s, the firm for which I was one of the top AUM and revenue advisors (Nesbitt Thomson) was acquired by Bank of Montreal. This marked a major change in the direction of the industry. Banks provide many benefits to advisors and their clients, such as safety and stability but the added bureaucracy and controls make it difficult for entrepreneurial advisors to pursue their visions and build their businesses on their terms.
Additionally, new programs such as CRM2 and increased risk of litigation have increased advisor stress levels.
Since writing “Twelve Steps to Make Your Business Fun Again” in 2013, there have been a lot of changes but many of the factors I discussed in that article remain intact. Regardless, it is a good time to update the list.
Over the next few weeks, I will focus on a number of ways that you can “Make Your Financial Advisor Practice More Fun Again.”
Make Your Business Fun Again – Tip # 1 – Only Work with Clients You Enjoy
Often, we get caught up with account size. Sure, you make more money working with big clients but you have to weigh the money you make from some larger accounts with the pain you must endure in servicing those clients. The most successful advisors only accept clients who pass the “Three Ps Test” (profitable, pleasant to work with and those who can be promoters for their businesses).
Client segmentation can do a good job of reducing the number of unprofitable clients but it is also a good idea to make a list of your top 100 clients and rank them into three categories (Pleasant, Acceptable and Unpleasant). Analyze your list of Unpleasant Clients and if you aren’t 100% convinced that these clients are worth the pain for the profit, disengage immediately.
You may find that less than 3% of your clients cause 95% of grief. Life is simply too short to work with these people. Get happy by eliminating them from your practice and your growth rate will sky rocket because happiness is a contributing factor to success.
Bob Simpson is President of Synchronicity Performance Consultants and Sr. Advisor Business Development for Canaccord Genuity Wealth Management
I recently had the opportunity to work with Candyce Edelen, of PropelGrowth. Candyce interviewed me about my experience working with YCharts. Below is the article she wrote:
How can advisors serve their clients better? Differentiated service is the competitive edge that all financial advisors want, and increasingly need.
“People are starting to worry this is another 2008, so they want to know what steps their advisors are taking to protect them,” says Bob Simpson, founder of advisor coaching service Synchronicity. “That’s what advisors should be focusing on. But they need a tool that enables them to identify and develop investment strategies that will work for their clients.”
Synchronicity, using the powerful web-based research platform YCharts, is helping to transform the services advisors provide.
“YCharts makes advisors smarter,” says Simpson. “It combines fundamental and technical information to simplify investment management, making it easier for advisors to build and maintain profitable strategies.”
Dedicated to Advisor Success
Synchronicity was established in 1998 to help advisors across North America provide better services, improve their processes, and operate more effectively.
“Advisors tend to achieve a level of success, and then their growth starts to plateau. That can cost them millions of dollars over the years,” says Simpson. “Our typical client has $50 million to $500 million in assets under management. Our goal is to help them achieve a minimum 20% compounded growth rate, and make it sustainable.”
To attain and maintain this growth, Synchronicity works with advisors to differentiate their services and identify whom they can best serve, focusing on what Simpson calls the “four core stabilizers of a great business.”
This entails building a winning client experience through effective relationship management; leveraging a robust investment management process to select securities and build portfolios; offering high-quality wealth management services, such as estate and retirement planning; and driving business development by spreading the message about the advisor’s unique proposition.
Growing Emphasis on Investment Management
When Simpson first started Synchronicity, he would touch on investment management, but most of his efforts were directed at helping advisors build strong practices. However, over the last three to four years, with the growing transition in the advisory business from non-discretionary to discretionary services, the investment management part of his service has become increasingly important.
Simpson comes from a successful investment background. Over an eight-year career with Nesbitt Thomson Inc., he built a $120M book and was one of the top dozen advisors (ranked by production) in Canada. (To put that in perspective, at the time the average advisor in Canada managed less than $5M in client assets.) With his experience, he knew he could add real value to advisors’ investment management capabilities.
Initially, he worked with a single-factor technical analysis research tool to develop his investment strategies, but that had a limited, one-dimensional approach.
“I looked for a more functionality-rich program for more than a year,” he recalls. “After an exhaustive search over the Internet, I found YCharts. I signed up for a trial, did a demo, instantly recognized its huge capabilities, and became a subscriber.”
YCharts is now the engine powering Simpson’s business. “It allowed me to transition to a multi-factor fundamental and technical approach, which provides far superior results for advisors from both a performance and business development standpoint.”
Improved Results with Multi-Factor Research
For Simpson, successful investment management is more about elimination than selection. For example, an investor who bought the S&P 500 in 2000 would have been under water until two years ago, and suffered a rollercoaster of 54% losses in one period and 45% in another. Instead, he contends that investors want a smoother ride, one that provides a decent return with a reasonable level of risk.
“By eliminating mistakes, your overall performance will be more sustainable and predictable. With YCharts you can conduct fundamental analysis to avoid those stocks with problematic fundamentals, and then apply technical indicators to filter out stocks based on price movement. The result is a rules-based program that manages risk first, to minimize those drawdowns in the bad years, and generate positive returns in the good years to potentially outperform the indices.”
At Synchronicity, Simpson uses YCharts’ powerful screening tools – sophisticated filters driven by thousands of metrics – to develop a “fundamental sandbox” that identifies stocks with strong and predictable earnings growth, a decent return on equity, that are not overexposed to debt, and so on. He then applies a trend analysis to see if the trend is positive, followed by a momentum analysis to identify the strongest and weakest stocks in the short term. He eliminates stocks that are trending lower, those with too much risk, and those that are more or less flat.
“At the end, we’ve narrowed down to a small number of securities that have a high probability of doubling over the next five years. By only owning those stocks, we create far stronger portfolios than by playing a game of selection.”
Not all advisors have the time, desire, or analytical skills to spend on these tasks. Some of Simpson’s clients choose to concentrate on relationship management and business development, while outsourcing the research and investment strategy activities to Synchronicity.
“I’ve spent some 3,000 hours over the last three or four years working on strategy,” says Simpson. “So we liaise with advisors on a weekly basis. They make the final decisions, but it’s very influenced by the strategies we develop using YCharts. In this way, together we can create an exceptional service for their end clients.”
Meanwhile, other advisors prefer to leverage Simpson’s investment expertise and YCharts knowledge only initially. They can then develop their own investment management strategies using the research tool.
For these advisors, YCharts can help in two crucial areas, says Simpson: “Often clients will ask ‘What about this stock?’ With YCharts, the advisor can give an informed opinion quickly, because it gives them fingertip-access to intelligence they never had before.”
Then there is portfolio development: Synchronicity teaches advisors how to best use YCharts’ screening tools. Armed with this powerful system, the advisors can rapidly conduct their due diligence on securities to build strong portfolios, states Simpson. “Say a client or prospect has $5 million, and asks ‘What would you do with this today?’ Using YCharts, the advisor can develop a proper risk- and performance-balanced portfolio designed for their needs and circumstances.”
This capability, he argues, puts YCharts users way ahead of other advisors, who may be trying to sell a company program that blows with the market’s winds.
“Advisors can make a tremendous leap forward by looking at markets in a more effective manner. YCharts allows people to see things they’ve never seen before, and to change the way they think. And when they change the way they think, they will make better decisions and be more successful.”
Special Investment Management Article For Licensed Investment Professionals Only
(Educational Purposes Only)
This is the first in a series of articles discussing how to beat the benchmarks. In this article, we will discuss the importance of setting appropriate benchmarks and providing the proper focus.
Before we begin a discussion about how to choose the right benchmarks, it is important to keep things simple. If you are going to invest in different asset classes, use a variety of benchmarks rather than a single benchmark.
Most investors have a default benchmark. If you are an American investor, you will likely be targeting the S&P 100 or S&P 500 indices as your benchmark. If you are a Canadian investor, the TSX 60 index is likely your default benchmark.
Others focus on a blended benchmark. For example, let’s consider an investor with a diversified portfolio that contains US equities, Canadian equities and bonds. Most advisors simply choose their default benchmark, so a Canadian advisor uses the TSX 60 as the benchmark. More sophisticated advisors would create a custom benchmark that blends the three asset classes (40% S&P 500, 40% TSX 60, 20% Bonds).
Choosing the correct benchmark is an important first step in the Beat The Benchmark process. Blending benchmarks may sound simple at first and will work well if you are taking a static asset allocation approach but what if you decide to over weight US equities and shift your asset allocation to 50% US equities, 30% Canadian equities and 20% Bonds? Do you then change your benchmark?
If you are going to have an asset class diversified portfolio, you are best to have specific benchmarks for each asset class. If your focus is to beat each of the three benchmarks listed above, the process will be much more focused and easy to track.
Indices, like the S&P 500 or the TSX 60, are simple to use but there are a few things to consider if you choose to use them. The first question is “Is this an appropriate benchmark?” If you are investing in a diversified portfolio that can include high percentages of cyclicals, like metals and mining and energy, the TSX 60 is a great benchmark.
If you are managing a low volatility portfolio, the TSX 60 (36% Financials, 21% Energy, 10% Materials) would be a poor benchmark. If we experience great performance in cyclical stocks, as we did in the early 2000’s, your low volatility strategy would have under performed the TSX 60 from 2000 to 2008. On the other hand, since 2008, your low volatility strategy would have out performed the TSX 60. If your goal is to beat the benchmark, you can set yourself up for failure by choosing the wrong one.
I like to build customized benchmarks for strategies for stock selection. In a future article, I will discuss building fundamental “sandboxes” as a first step in the BTB process. Let’s say that you build a low volatility sandbox of 50 companies. The equal weighted composite return of this sandbox would be a great sandbox. In some cases, you can find an ETF that will do the job. For example, ZLB.TO is made up of 50 stocks with the lowest volatility, selected from a basket of 100 of Canada’s largest companies. That would be a great benchmark for your strategy as well as a resource for identifying stocks for your sandbox.
ETFs make Great Benchmarks
I never use indices as benchmarks. In most cases, they do not include dividends, so although it is easier to beat the indices, we should make it more difficult rather than easier. If you have a stronger benchmark, only stronger stocks will be able to make it through your screen and this should enhance performance.
IVV or SPY, for US markets, and XIU, for Canada, do include dividends in their performance numbers. If you are managing a low volatility portfolio, choose a low volatility ETF, like ZLB or if you are managing a mid cap growth portfolio, look at something like CDZ (Canadian Dividend Aristocrats).
Focus Is An Important Factor In Beating The Benchmarks
Unless you give your project of beating a benchmark the necessary attention, your chances of winning are slim. I do find it funny that although approximately 50% of stocks in an index out perform an index, only 30% of investment managers are capable of achieving this goal.
In most cases, advisors do not give the project of beating the benchmarks sufficient attention. Intuitive investing has a poor track record of beating the benchmarks. Working with unstructured and unfocused portfolios or too many clients with different portfolios also have a poor track records.
It is similar to playing golf and not keeping score. If your goal is to break 80 or even 100, it takes focus. Fortunately in golf if you fail to break your target score, you can try again tomorrow without consequences. In portfolio management, you are playing with your clients’ financial futures, the value of your book and the revenue of your business. Failure to beat the benchmarks affects many things.
I can't get through the movie "Field of Dreams" without crying. There are messages in the move that just reach into my chest and grab my heart. The scene that hits me the hardest is when the catcher flips back his mask and Ray sees that it the ghost of his father. “You wanna have a catch?” Maybe it is that my dad died when I was six years old and although I have played baseball my whole life, I never had the chance to “have a catch” with my dad.
For almost 20 years, I have been helping financial advisors to build great businesses and the “If you build it they will come” theme has always stuck with me.
“Ray, people will come Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. Of course, we won't mind if you look around, you'll say. It's only $20 per person. They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds of us of all that once was good and it could be again. Oh... people will come Ray. People will most definitely come.”
Field of Dreams is a great story. I think my story is a great story. You can read the business version of my story by clicking here. You probably have a great story, too.
People love great stories. Stories help you to influence and motivate people but even more importantly, they help you to keep you motivated. Stories make you memorable. People may not always remember your face or name but they remember your stories.
The one great things about being an entrepreneur is that you can re-invent your business when necessary, to make things fresh again and rekindle your passion. You can write a great story and if you get tired of it or if market conditions demand a new story, you can rewrite your story.
Business isn’t about making money. It is about providing you an opportunity to change lives and actually get paid for it. Money is simply the reward for building a great business that inspires everybody who comes in touch with your business to promote your business to friends and colleagues. Your business is part of your life story and you can choose to live a normal existence or write a great story that your friends, families and clients will remember.
We are different from most business coaching firms. I have been doing this since 1998. I have worked with hundreds of advisors. I have been one of the top advisors in Canada, building a $120 million books when the average advisor book was less than $5 million. I have been a branch manager and a member of a national sales management team. (Don’t hold that against me, please.) I focus on your core – relationship management, investment management, wealth management and business development. I am a systems-focused guy.
My ideal client is a successful advisor who wants to build a great business. I’m looking for advisors who want to double their businesses every three years and are willing to work hard on their businesses. People who put their client interests first and are dedicated to deliver engaging and satisfying wealth management experiences to people who meet their ideal client profile. Advisors who want to be professional money managers, who screen out all discoverable risks and capture better than benchmark returns in good markets and protects client capital in bad markets.
I am looking for advisors who have an athletic background. These people understand and appreciate coaches, are able to deal with adversity and know the importance of a system but most importantly they want to make the most out of their abilities. I am looing for advisors who cry when they watch “Field of Dreams”.
I am looking to work with advisors who want to write a great story that they have 100% belief in and who want to build a great business by telling their story to everybody they come into touch with.
If you build it they will come. They will come for reasons they can't even fathom. They'll turn up at your offices with their chequebooks and statements in hand and they will tell you their life stories and about their families. They will share their dreams and fears. They will sit and listen to your stories about what they need to do to achieve their goals and they will work hand-in-hand with you to make those dreams reality. They will share your stories with friends and colleagues
If this sounds like you, please give me a call and share your story.