Finally, understanding proper Time Management

A key consideration for financial advisors is time management, especially as their books of business grow. Here are some key considerations in juggling the competing imperatives of client satisfaction and compensation maximization.

Client Penetration: Managing time effectively depends on knowing your clients, especially the total picture of their finances. In particular, a client who has significant financial assets held elsewhere represents untapped revenue, and thus compensation, potential. Such an underpenetrated client thus may be worthy of the time and attention afforded to your largest clients, in hopes of attracting those assets held away from you. At major financial firms, market research groups and specialists may be involved in systemic data mining and social network analysis aimed at identifying significantly underpenetrated clients. Note that financial advisors may be unaware of cases where client households have accounts with other FAs in the same firm, depending on the firm’s information systems and policies regarding notifying FAs of these cases.

Setting Boundaries: Effective time management also involves setting boundaries with clients, managing their expectations and applying the 80/20 rule. The 80/20 posits that 80% of revenue and compensation is likely to derive from only 20% of clients. The time devoted to your clients should be allocated accordingly. If you run into problems with small or unprofitable clients who make demands on your time out of proportion to your earnings from them, you may have to create formal, written client service agreements in order to manage their expectations. These client service agreements can include, where allowed by the firm employing you. pricing plans keyed to the level of contact and handholding expected by the client. Demanding clients unwilling to pay commensurate with the amount of service they demand can thus be priced out.

Leveraging Your Time: It may be worthwhile to invest time in basic client education, such that smaller clients, for example, can learn to read their statements and use online account access tools, minimizing you need to interpret these for them on an ongoing basis. Time management also benefits greatly from the ability to direct many routine inquiries to sales assistants and other service associates. Note that, in many firms, financial advisors must pay for the use of sales assistants and the like. Accordingly, it is necessary to conduct a cost/benefit analysis related to such utilization.

Another device for managing time is to have group lunches or discussions with smaller clients on broad topics of interest to them all, which may be less time-consuming than meeting with or calling them individually.

Financial Advisor Teams: Many leading firms encourage the formation of financial advisor teams. They can help in managing time if each member of the team has a different specialty, such as:

  • A client segment, such as high net worth, small business, or corporate executives
  • Particular investment products or investment strategies

Managed Money Products: Managed money products, in which investment decisions are delegated by the financial advisor to professional money managers are increasing in popularity as a time management device. By reducing their time spent on investment research, investment decision-making and related communication with clients, financial advisors can free up more time to prospect for new clients and to assist existing clients with service issues.

Time Management Caveats: Cultivating the next generation of clients is a critical concern for the long term. Accordingly, be careful about driving away younger or smaller clients who may some day grow into larger, more profitable ones.

Also, financial advisors should be aware that the largest or wealthiest clients are not necessarily the most profitable or remunerative, certainly as a percentage of the assets in custody. Large or wealthy clients tend to command discounted pricing, and to have accounts that are, on average, less active than smaller ones. Accordingly, drawing the same amount of client assets from many smaller clients can be more remunerative than from a few very large ones. See The Millionaire Next Door, which includes related insights. Additionally, diversifying your client base in this way reduces the risk that the departure of one or a few large clients may severely damage your practice.

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