The whole back office thing has really been in my sights recently. It is always an issue when we go into new consulting jobs. I can barely think of one firm that had this super slick when we started work with them and it creates loads of issues.

It usually shows up as one or more of the following symptoms:

1. Profit margins less than 20% and I mean real profits, after owners and sales people get paid proper market remuneration
2. High head count – that is, just too many bodies in the business for its current level of turnover. This can be due to unplanned growth, with the business structure getting out of kilter over time as more people are added without the occasional re-structuring to re-align roles and responsibilities
3. Poor adviser productivity. To put that in context acceptable productivity sees each adviser in a firm managing about £200k pa in revenue. Good productivity is more like £300k – £400k and excellent is in the £500k – £600k range
4. Lack of role clarity, often with the skill sets of the back office team not matching the requirements of the business (which requires either re-training, personal development, or wholesale change)
5. Everyone is really busy with almost no breathing space.

What to do?

There are two areas to consider and they need to be considered in this order:

1. What are clients really expecting from you?

The answer to this question often requires an external set of eyes because you can be too close to the issue. If you have been delivering a level of service via your ongoing review programme for a while you don’t see the ‘over-engineering’ contained in it.

When you really strip it all back to tin tacks you don’t need to do much at annual review time to really address the two key issues for clients:

• Is everything going to be alright?
• What have you done for me lately?

Strip out everything that doesn’t help you address these two key issues. I’ve seen firms doing quarterly reporting for clients’ and sometimes even monthly. This is lunacy.

By dealing with the issues of ‘what’ you need to do for clients you run the great risk of stripping out a bunch of work that has evolved over time as your service developed. The main aim in this stage of reviewing your processes is ensuring you are only doing the things that ‘must’ be done to satisfy your clients two key issues. Stop doing everything else and get it out of your process.

If you don’t find a few bits and pieces you can cut out of your ongoing service you are not trying – everyone has things in there they should not be doing. As I said, if you can’t see them yourself get someone in to review them for you.

2. How can we do what is left most efficiently?

Now that you have stripped out the unnecessary it is time to work on doing what remains most efficiently.

In most businesses they have tried to do the opposite (often without being conscious of the fact). That is, they have worked on efficiency issues first not realising that doing a useless task very efficiently is still a waste of time and a huge cost to the business.

As you know I really love good marketing and I saw something recently which I am sure you will find fits that description. Take a look at the video on the home page of Dollar Shave Club (DSC) at dollarshaveclub.com.

This is another great example of a product being turned into a service, paid for by subscription each month and creating more value than before for at least some consumers.

Love it !

Read how top financial planners are preparing their RDR strategies, and then see what Brett has to say:

May 11, 2012

Nicola Watts, Jane Smith Financial Planning

April 30, 2012

Rebecca Taylor, Dunham Financial Services

April 20, 2012

Douglas McIntyre, Loch Fine Financial

April 12, 2012

Louise Oliver, Taylor Oliver

I’ve read some great stuff lately and wanted to share it with you.

One is a book called “Beyond The Obvious: Killer Questions That Spark Game Changing Innovation”, by Phil McKinney. McKinney used to be the innovation manager at Hewlett Packard and has some great questions for looking at your industry differently – something that I believe all of us will need to be doing over the next couple of years if we want to stay ahead of the curve.

Here are McKinney’s top 10 quotes from the founders of HP. I love them

1. The greatest success goes to the person who is not afraid to fail in front of even the largest audience.
2. Set out to build a company and make a contribution, not an empire and a fortune.
3. The best possible company management is one that combines a sense of corporate greatness and destiny, with empathy for, and fidelity to, the average employee.
4. The biggest competitive advantage is to do the right thing at the worst time.
5. A company that focuses solely on profits ultimately betrays both itself and society.
6. Corporate reorganisations should be made for cultural reasons more than financial ones.
7. A frustrated employee is a greater threat than a merely unhappy one.
8. The job of a manager is to support his or her staff, not vice versa and that begins by being among them.
9. The best business decisions are the most humane decisions. And, all other talents being even, the greatest managers are also the most human managers.
10. Investing in new product development and expanding the product catalogue are the most difficult things to do in hard times, and also among the most important.

Check it out on Amazon …

My marketing director Carrie Bendall recommended this book to me last week and it has just blown my mind.

It’s called “The Dream Manager”, by Matthew Kelly and if you haven’t read it I strongly recommend that you do so.

The story

The book is an easy to read story about a cleaning company that wants to address staff turnover, which is too high. Cleaning jobs are often taken by people as second jobs or because they have no other choice for work. Not really compelling reasons to stay if something better comes along.

So the company starts to dig a little deeper to find out why turnover is so high. After a couple of attempts (which yield great results) they finally discover that their employees (even in a cleaning company) have dreams and that if they could help their staff attain their dreams then they are likely to be happier and more committed to the business.

But let me be clear, this wasn’t some lip service exercise; they employed a new senior person in the business called the dream manager whose sole function was to work with people to identify their dreams and to help them take steps to achieve them.

Sound familiar?

Isn’t this what great financial planners do for their clients? You bet it is.

So read the book. You can do so in less than a few hours and Kelly tells his story way better than I do, but it got me thinking.

Some ideas for us all

There are some very practical exercises at the end of the book that might be useful to use with your clients (after you do the exercises with yourself and your own family of course). Anything that can add to your store of skills for getting under the skin of your clients has got to be worth a look.

But also, as is the message of the book, there is the opportunity to practice the skills many of you already have in this area with your staff. Do you provide one of the greatest financial planning experiences for your clients yet never sit and have a quality discussion with your team about their personal goals and dreams?

As their boss it may not be possible for you to conduct that discussion. But an external person could come in and have that chat and who knows what might come out of it?

The war for talent

In all the US publications I follow ‘The War For Talent’ is one of the major themes. Mark Tibergien from Pershing has spoken and written about this issue many times as one of the major impediments to growth.

In small firms (which most advisers are) you will never be able to compete with the salary packages and benefits offered by larger employers. But the area you can compete on and win, is around the meaning in the work.

When financial planning is delivered correctly, in a highly skilled way, clients’ lives are changed dramatically and powerfully. Once existing staff or potential recruits understand that they want to work for you. However, to really make your business the employer of choice for the profession’s best talent you have to help them address their own dreams and ambitions.

For some these will be family based goals, which may be relatively easy for you to assist with. For others it may mean that eventually their goals see them leave your business with a whole bunch of skills that you helped them develop over many years. This can often be much harder for business owners to embrace. But embrace it they must in my view. Attracting and retaining the best people is essential for businesses that really want to succeed. To do that successfully it might be time to start thinking differently about this area of your business and to build some new muscles (skills) that can really set you apart.

Check it out on Amazon …

What financial planners think differentiates them now, won’t in three year’s time … firms really need to think what next …

Brett Davidson at the first Accredited Financial Planning Firms’ Annual Conference, March 2012

I recently listened to a webinar on precisely this subject by Ken Gibson of The Visionlink Advisory Group, a specialist in remuneration and incentive planning.

In our profession we like to think we understand incentive plans as most advisers have worked in the commission only sales world and often this is how they still pay themselves and other advisers within their business. A package with a base salary and a performance component would also fit into our current definition of an incentive plan.

What do you do?

When you think of your own pay and performance issues in your business does your incentive plan:

• Motivate the recipients?
• Reward the right behaviours?
• Create a partnership mentality across the whole business? (with both front office and back office staff)
• Lead to dramatic increases in business performance and overall value creation? (i.e. increased profits and business sale value)

Motivation

There seems to be perception that offering people bonuses or larger percentage splits of revenue will guarantee motivation. If this were true, all staff on such an incentive package would be your top producers and this is rarely the case.

In fact some ‘so called’ incentive plans see advisers in some firms doing well enough so that there is little incentive to work harder or do more. They behave like ‘takers’ rather than ‘contributors’ to your business success. This seems counter productive.

Right behaviours

How often do you hear business owners moaning about the behaviour of various members of their team? Sales people writing unprofitable business because for them there is no ‘cost’ of doing so – acting in their own best interests, not those of the business. Back office staff unable to prioritise what’s important because they get paid for turning up, not for prioritising or improving back office systems and processes.

Yet all of these people usually receive a Christmas bonus, even if the business is just doing ok. This seems a bit mad.

Partnership mentality

It is only the very best firms where I see a true partnership mentality between the owners of the business and their team and I could probably count those on one hand.

In most firms there is a clear distinction between owners and employees in the way they think and behave. This can also be the case between front office and back office staff and in some firms I would even go so far as to say the relationship is antagonistic; hardly a partnership.

Increased performance and value creation

One look at the data from the FP Advance Business Fitness Report tells you that there isn’t a load of high performance and value creation occurring.

• 21% of firms report profitability of less than 0% – that is, the owners of these firms can’t afford to draw £60,000 pa.
• 26% of firms have profitability in the 0% – 20% range
• 21% of firms have profitability in the 20% – 30% range

Source: FP Advance Business Fitness Report

In this data we assume that all working owners in the business draw £60,000 of income each year. That figure is probably too low but that’s what we use. If we assumed £100,000 of earnings for working owners the numbers would be even worse.

So what’s the solution?

Ken Gibson believes that the traditional thinking around incentive plans doesn’t work:

• Carrot and stick
• Change behaviour
• Get people to do things they don’t want to do
• Motivate people to “do the right thing”

… are wrong.

Introducing a new compensation plan should be about communicating what’s important so that execution will align with your business model:

• Expanding the company’s market reach and audience
• Staying ahead of trends and being responsive to the marketplace
• Codifying expectations and accountability for staff
• Managing change and encouraging innovation
• Becoming a magnet for the best talent

The philosophy

The following summary is taken from an e-book called “Breakthrough” by Tom Miller of Visionlink. You can download it at www.vladvisors.com.

There are four areas that need to be addressed for all staff members:

If these are all addressed in a way that staff can see and understand then you create an environment that can lead to superior performance.

There are 5 principles underpinning the philosophy:

Principle 1 – Partnership

Everyone must feel like a partner in the firm. Anything less and you will only get average performance from some of your team.

Principle 2 – Clarity

Four questions you can ask each member of your team:

1. What does the future of our company look like to you?
2. What do you think are the most important things that have to happen for us to grow and succeed?
3. What contributions are you most excited about making to our growth?
4. Why is the creation of our future company important to you?

Don’t expect world-beating answers to these questions. Typically people are not really in a position to answer them in a meaningful way. However, it starts the change process and their responses will help inform you as to what future communication and education you need to engage them in.

Create an internal communications ‘campaign’ that helps every team member get perfectly clear on how you as leader of the business look at these four questions.

As leader of the business you must clarify:

• Business goals
• Business strategy
• Descriptions of the kinds of people you will need on the journey
• The roles that will need to be fulfilled

All partners (the team) must understand:

• Where you are headed
• How you are expecting to get there
• How they can contribute
• What it could mean to them

Principle 3 – Engagement

Create a ‘we’ mentality. All partners (the team) must:

• Have something to strive for that has meaning and purpose
• Have responsibility and the freedom to execute on the plan
• Know they will participate in the results

Principle 4 – Practices

‘How’ you pay people is different to ‘how much’ you pay people. It is imperative to get the ‘how’ right.

Question: How should you pay your team to give you the best chance of fulfilling your business purpose?

The ‘partnership’ philosophy underpins this – Shareholders are entitled to a fair return on capital. You can pay above market returns for above market performance. But if you don’t reach your performance standards you don’t expect to pay above market rates.

Make it clear that you expect people to:

1. Respect the shareholder investment
2. Earn what they get

In return you can then ensure your team’s three needs (Lifestyle, Security, Long-Term Accumulation) can be met.

Principle 5 – Productivity

Incentives are paid if you do just hit the numbers, BUT the really big rewards are paid if you do that AND achieve measurable improvements in productivity. Otherwise you can create an entitlement mentality & complacency.

This focus on productivity is very important as it drives the innovation that keeps your company ahead of its competitors. It challenges and stretches people.

Conclusion

Compensation philosophy is a real weakness in most financial planning firms. Spending some time working on this area should be a real priority for firms looking to become great as it lays a solid foundation on which your greatness can be built.

I subscribe to Bob Veres’s excellent newsletter, Inside Information, which provides market intelligence on what is happening at conferences and events in the US (among other things). A recent edition quotes Stephanie Bogan of Quantuvis, a practice management guru who provides research data on what the top 25% of advice firms do differently to or better than the rest.

Her conclusions? The most profitable best managed firms are not doing anything different from their peers. But they are doing a lot of things incrementally better and these small differences add up to dramatic results. For example:

• Top firms are 20% more likely to use training programmes, job descriptions and compensation plans and organised models for how the firm is run.
• Top firms get 20% more referrals than the average firm.
• 68% of the top firms clients meet their target client profile. For the average firms only 50% of them do so.

Don’t ignore the small stuff

These are not dramatic differences but the cumulative effect of these small improvements can greatly increase growth, productivity and profitability.

The good news is that you don’t have to worry about becoming a marketing guru if this is not your natural skillset. Nor do you have to write rude letters to all of your long tail of legacy clients to get to elite financial performance. But doing a little more in the marketing area consistently, or writing a few more resignation letters may yield some great results.

What would your revenue be if you replaced the least profitable 18% of your clients with new ones that met your target client profile? Would the gain to your revenue be a little or a lot? Work it out and put a real number on it.

What if every year for the last 10 years you had gotten just 20% more client referrals? Not much incremental effort or cost but exponential growth for your business.

Some more surprises

• Most firms spend 60% of their time on their most unprofitable clients, although many advisers tend to deny this statistic until they do the analysis.
• What about your hourly rate? What is a fair hourly rate if you want to cost your time?

Imagine you work 2000 hours per year. What percentage of those hours are spent with clients? Let’s say 50% and that is too optimistic for most firms (research indicates the real number may be closer to 30%). If we use say £200 per hour because you decide you are worth at least as much as the accountants and lawyers in your area who charge that, and multiply that by 1000 hours you have a revenue stream for yourself of £200,000. But I know that many of you manage well in excess of that as an annual income stream from your personal client bank. (The best advisers are managing more like £500,000 – £600,000 and some as high as £1M pa). If you produce more than the £200,000 outlined above it is clear that your time should be billed out at a much higher hourly rate, possibly £500, £600 or £1,000 per hour for the higher producers. Now that’s an eye opener I’m sure.

It is the process of making small improvements that sees you look like an overnight success

An old boss at GE once said “If we had taken the long term view four years ago we’d be there by now”. Don’t fall into the trap of chasing short-term results. Focus on the long term by simply making small, incremental improvements and watch the results multiply.

Non-mainstream lenders plug a gap

It is an oft-repeated misconception that private banking is the sole preserve of the ultra-rich; the Richard Branson’s and Phillip Green’s of this world. The reality is that non-mainstream lenders have plugged a gap created by a reluctance on the part of high-street banks to cater effectively for high net worth borrowers and fully understand their needs. As a brokerage, we still use the big banks for some deals, but when it comes to customers earning in excess of £250,000 or looking to borrow more than £500,000, going private is increasingly the way to go.

A better distribution of wealth

The recent Mortgage Market Review (MMR) proposals suggested that high net worth individuals may be exempt from some of the hoop-jumping criteria that other borrowers face and this prompted cries of unfairness from some quarters. But what the MMR acknowledged – and what many high-street banks fail to understand – is that it makes little sense for affluent individuals to tie up vast sums of their wealth in property when their money can be working harder for them elsewhere.

High net worth borrowers often have complex incomes that can include bonus payments, profit-sharing agreements and living allowances or may be self-employed and therefore looking to run their businesses as tax efficiently as possible. These circumstances all mean their income may fail to tick the boxes required by the high-street banks, even though they can comfortably afford the repayments.

More flexible tailored solutions

Private banks are a lot more willing to take all these factors into consideration and make a lending decision based on the wider picture. They can often offer flexible, tailored solutions as opposed to adopting a one-size-fits-all approach, which is woefully inadequate for a market segment with complex needs.

Some advisers have been reticent to deal with private banks for mortgages in the past for fear they will want to take a client’s other investments under management, but this is a fallacy as they will often work in close conjunction with advisers to ensure they don’t disrupt existing arrangements.

A viable alternative

In a market where high-street lenders are not showing much of an appetite to lend, and often struggle to acquire the funding to do so, private banks have become a viable alternative for mortgage brokers looking for flexible underwriting and tailored solutions. Banish any pre-conceived notions of old school ties and Russian oligarchs and start embracing private banks today.

Let’s assume you are RDR ready. That you are running a good business with the clients you have chosen. All you need now is a slow, steady trickle of the right kind of new clients.

Time to reflect

Get yourself in a winning mindset. Start by looking at your business through a potential client’s eyes.

Transport yourself out of your office and then walk back in looking at everything as if you were a very wealthy potential new client.

Create your own ‘good enough’/ ‘great’/ ‘wow, love it!’ index and see how you score.

• Start with your name on the door
• Your logo
• The quality of your offices and ‘wash rooms’
• Your meeting facilities
• Use of technology
• Your stationery, how does your business card feel as you touch it again for the first time?
• The tools you use in your first meeting
• Work your way through the whole client engagement process
• And then, review all the client touch points you have through out the year.

Is it wow! or is it just mediocre?

Plan what needs to change and how you are going to change it.

Now, look at your website

But, before you do, surf a little. Look at some other sites first. Imagine where your wealthiest client will be looking. Timberland. Goldman Sachs. Waitrose. Apple. BBC.

How do you match up?

Is your call to action clear?

Next step. Ask your clients what they think about you

Not just from a ‘treating your clients fairly’ point of view but from a business development, forward thinking point of view.

Set up meetings with your top 10

The spoken purpose of the meeting is to ask for help in evolving your business.Your client is a paid up member and their opinions count.

Your inner purpose is to

• Gain a deeper insight about how your key clients feel about what they are getting
• Understand how much they value your service and, how they may describe it
• Learn how you may be able to expand and evolve your service to meet their changing needs in the next 2 – 3 years
• Explore how they think you should be marketing or engaging with people just like them
• Strengthen your relationship. Make it peer to peer rather than adviser to client
• Really understand what you do well, what you do not do so well.

Such a conversation can lead to unexpected rewards.

Adviser Jim

There is a lovely example of such rewards cited by Steve Moeller in his book ‘Effort-less Marketing for Financial Advisors’

… Adviser Jim was interviewing a client he had worked with for eight years. He had gone to college with the client’s son and was almost part of the family. He had asked for referrals, but the client had always been reluctant.

During the business development client interview, Adviser Jim asked the client about his motivations, challenges and concerns, and any areas in which he thought an adviser could help.

In time,  Jim felt able to ask a killer question:

“Knowing what you know, if you were me, how would you market to people like you?”

Much to Adviser Jim’s surprise, his client said:

“I would ask your best clients for referrals”

So Adviser Jim did, to which the further response came:

“I belong to one of the finest country clubs in this city. I know many members personally. What if I went through the list and told you who could benefit most from your service?”

Three months later, Adviser Jim had the best month of his life, Adviser Jim made $100,000 from the referrals of a single interview.

So why did Adviser Jim’s old family friend client suddenly decide to open his address book to Jim?

The interview process changed his client’s perception of him. The client now saw Jim as a competent, compassionate advisor who understood his clients and had empathy for their problems. Jim proved himself to be client-centred by listening to and involving the client in what he was trying to do, the client responded by helping Jim to build his business.

It really does start with your clients.

And, you really are your own best marketing / ‘client engagement’ resource.