Help is on the Way

Help is on The WayPhebe the Rescue Dog 2468530 640

Carl Richards wrote in the August-September issue of Morningstar Magazine that financial professionals are struggling to handle the emotional stress of their jobs.  Advising clients on money issues is a high stakes endeavor, especially when you must deliver messages that could adversely affect their life style or guiding them through tough situations. The boost that comes from delivering good news never seems to fully compensate for the drain associated with difficulty.

It is no wonder, especially for the small firm advisors who must handle it all. So do other professionals such as physicians. Like physicians, advisors are helping people with crucial life processes and events.

Moreover, the field of behavioral finance demonstrates that people are prone to making poor decisions, especially in high stress situations. The advisor must often keep their clients from becoming their own worst enemy. Indeed, the 2017 Nobel Prize in economics was awarded to Richard Thaler  for his decade’s long research on the effect of behavior on economic and financial decision making.

Even experts in the field are subject to a very long list of “cognitive biases”, the technical term for ways we make mistakes.

Thaler’s research sheds new light on the critical role advisors play.

  • Keeping clients informed,
  • Staying current with life events,
  • Updating plans,
  • Conversations about wants and wishes,
  • Crucial Conversations about lifestyle and spending.

The list goes on, but the imperative to spend more time with clients grows. We have been enjoying pretty good times in the markets recently and as one institutional expert remarked, we are having the “perfect party”. But the time will come when anxiety levels will go up. The phone will ring and answers will be expected. Quality time spent now to explain market dynamics will pay off, by helping clients understand that high velocity situations demand the most of one’s patience, perseverance and above all persistence.

It is also important for the advisor to take care of oneself. With so much on your plate, the temptation to skip the important mental health days and other measures can be pretty powerful. Time management strategies can be very helpful to ensure that time with the family and time with friends receives the same priority as continuing education.

There are other strategies to ensure that critically important activities receive proper attention. Business processes can play a vital role in covering the bases while not getting covered up in minutiae. Most large firms have invested heavily in software and systems to streamline work flows. This is absolutely vital when many hands must touch a client relationship. Ensuring the business does not look like an ongoing fire-drill is mission critical, especially for large firms.

For smaller firms, critically examining how you get things done is at the heart of business processes. Have you taken a few minutes to do a business process map? It is a very simple flow charting exercise that makes explicit what you may do implicitly every day. Seeing the actual steps is the first step in finding time savings. I recall advertising in the long ago way back where a fortune 500 oil company compared the real with the ideal. This is the same concept. Map out how it is done now and how it could be done with fewer steps.

Jennifer Goldman, Founder of My Virtual COO helps advisors find those savings. She made a startling observation that finding 12 minutes a day was the equivalent of a 2 week paid vacation. That vacation could actually result in a raise, since some expenses may be wrung out as a bonus.

Technology is a great equalizer and could be a powerful source of competitive advantage for a small firm advisor. The array of options is bewildering. This is another place finding help could pay big dividends. You could do the research yourself or make use of the extensive expertise of firms that know the technology and how it integrates with other options. Relying on just the providers can be a big mistake. Naturally they are motivated to sell their product, just like commission based broker/dealers. Just like a fee only advisor, an expert that takes the time to know your business is more likely to result in a solution that fits the way you like to operate.

 One of the major timesavers is outsourcing some or all of the investment management. This is likely the main source of your income and could be a major use of your time. There are many options, such as:

  • Turnkey Asset Management Programs,
  • Family of funds (ETF or Mutual Funds),
  • Target Date/Target Risk Funds; and,
  • Customized portfolios and models that leave you in control without the heavy lifting.

There are pros and cons to every choice and no one is right for all advisors. While providing competent plan execution is the minimal standard, achieving the highest performance for the advisor’s investment should be the goal. The ROI needs to take into account the advisor’s time in the process, whether spent doing asset allocation or monitoring a provider’s performance. The advisor’s time is likely the largest single cost and should be valued relative to alternative uses, such as high value client interactions.

The next largest cost is the headwind of third party fees. An investment management solution that drains a substantial portion of the AUM fees you earn may not fairly compensate you for the risk and time you invest. Investors are ever more aware of low cost alternatives and high cost management fees are on the wane as a result. It would be unwise to get caught in that trap.

Finally, there is the consideration of performance. Is it wise to wait to the end of the year to see the results? A good friend told me recently that “you don’t get what you expect, you get what you inspect”. That means if you want the best performance, it would be a good idea to look under the hood and really understand how your outsourcing provider is investing your clients’ funds.

Whichever way you choose to go, there are several questions to consider:

  1. What parts of your practice do you most enjoy?
  2. Where do you get the least amount of satisfaction?
  3. Where do you feel you need the most help?
  4. How deeply involved in investment management do you wish to be?
  5. How much control over the process do you want?
  6. Take a blank document and list the characteristics of your ideal practice.
  7. On a second page list the characteristics you wish to avoid.

With this exercise you should have a pretty good feel for the kind of support needed to make you most productive and generate the greatest satisfaction from your practice. With this knowledge you can begin discussing with providers how their services might mesh with your operating style. The best advisors focus their time and attention on the activities they like the most. That is where their talents lie and where they tend to be the most productive. Just because you have chosen a holistic approach to your advisory business does not mean you need to do it all. Delegation is an art that frequently differentiates successful business people from the rest.