Industry Survey Reveals Truth of How Today’s Financial Storm is Affecting Usa’s Financial Planners

Over the past three years, my firm has done considerable research on the opinions held, and the strategies employed, by financial advisors. Our research covers a full range of RIAs and CFP® professionals. Most recently, to understand the effects of this watershed recession on financial advisors, I had my staff conduct a comprehensive survey during and following the NAPFA Practice Management and Technology Management Conference in Las Vegas in late October, 2008.

Survey Backdrop

Just as I was preparing to walk onstage at the St. Regis in Aspen, CO on Sept. 15, 2008 to present the practice management keynote address for CapWest Securities’ annual Sales and Compliance Conference, the attendees were rocked by giants falling. Every newspaper provided to the attendees by the luxurious resort boldly announced that Lehman, Merrill Lynch, and AIG, three of the biggest names in the financial world, were crashing.

While I had been expecting such events for over a year, the stunned looks on the faces and the befuddled comments whispered among the crowd were reminiscent of the Day of Infamy, December 7, 1941, when the Japanese bombed Pearl Harbor. Disaster had befallen us, and the offices of America’s financial planners were right on battleship row at the center of the action.

It matters little whether this is the result of markets innocently gone wrong, massive political, corporate and bureaucratic bungling, or a nefarious conspiracy by financial titans to centralize the entire world’s banking power in their hands. Financial bombshells are continuing to fall, doing injury to our clients, our peers, and even to some of us personally.

Against this backdrop, I wanted to discover what effect our current crisis is having on financial advisors. What are they doing in the face of battle? How does this compare to the classic strategies they should be employing? Have the current tumultuous market conditions confirmed the validity of classic strategies, or have they turned conventional wisdom on its head?

Importantly, how many planners are using today’s highly visible investor dissatisfaction as their marketing opportunity of the decade? How are their clients reacting to current market gyrations? What would have happened if more investors had searched out skilled financial advisors? This was a completely anonymous survey done so that there would be no way to trace any answers to any particular industry professional to make sure that the answers were as candid as possible.

Summary survey results are provided and analyzed below.

Q1. What effects have the recent tumultuous market conditions had on you?
Analysis: A full 71 percent of the advisors surveyed say they are working twice as hard as they used to do because of the current market scene, and of those, at least half are feeling strained by it. These advisors are reaching out to their clientele because they want to stabilize them and to keep them from doing anything rash. Some of those surveyed were personally very affected by the emotional turmoil expressed by their clients and the pressures accompanying investment losses. A much smaller percentage had their attention on their own reduced revenue. A minority claimed that the situation had no effect.

Q2. How have your clients reacted to recent market gyrations?
Analysis: Advisors reported nearly a 50/50 split of clients panicking vs. those who aren’t. It is questionable if this is due to differences in how different advisors are handling their clients, but it appears that many advisors have bolstered their image with clients as a result of how they have handled the crisis. In almost every case, it is clear that advisors realize that it is important to be visible and to show they are there to help. Most advisors said they carried out a rigorous client-services campaign as the market was falling, but many advisors admitted that they were less than skilled in dealing with it.

Q3. How have these adverse market conditions affected your firm?
Analysis: The strain of the chaos is showing up as inefficiencies in the day-to-day activities of some firms. Generally, advisors saw this as a time to put the brakes on expansion. A small number of advisors gravitated toward increased marketing to dig themselves out and continue to expand their firms.

Q4. What decisions have you made about your financial planning practice as a result of recent events?
Analysis: Of all the questions, this got the most varied answers, with different financial planners focusing on very different areas, or no area at all. As evidence of their overall conservative tone, more than half see no cause for decisions of any kind and are not noticeably shaken—but they are watchful and cautious. Smaller numbers (fairly evenly divided) have reaffirmed their purpose, resolved to increase service and efficiency, are embarking on marketing plans, or are pulling back to ride out the rough times ahead. There is no consensus on the best way to proceed.

Q5. Do you see any opportunities for yourself from the current problems in the markets and their effects on financial planners?
a. If so, what?
b. If not, why not?
Analysis: To a high degree, NAPFA members reported that they feel like this is their time, and they need to get the word out that they are the “go to” guys and gals. However, their actions were passive—except for a couple of firms that are looking at what has occurred as a really big opportunity. For some advisors, additional business is simply showing up, apparently without much effort on anyone’s part. It looks like some firms would like to be more aggressive, but they are too conservative to venture out. A small percentage of respondents saw no opportunities.

Q6. What do you feel could be done to improve your income now?
Analysis: More than half of those surveyed agree that marketing actions are needed to bolster their income, even those firms that feel they are too encumbered to take steps in that direction. Some have the viewpoint that nothing could or should be done, and it is just a matter of time until things sort out. A smaller number feel their best option is to bolster profits by improving internal operations or expanding services to existing clientele.

Q7. If more investors had consulted CFP® professionals, would it have affected what happened in the markets?
a. If so, how?
b. If not, why not?
Analysis: About a third of the advisors interviewed felt that getting more people into the hands of professionals with proper training (for the sake of our question, we used the phrase CFP® professionals as the example) would have had an effect on what happened in the markets. Two-thirds did not. Of the two-thirds who did not, more than half named poor regulation or institutional investors as the responsible parties. A smaller percentage of advisors felt it was just the way the market is. A very small group said that the key is having the right people working with individual investors.

Summary Analysis.

The majority of respondents to the survey view themselves as proactive. But, from an exterior perspective, they are just reacting to what happens in the market and with their clients, rather than exerting control where they could. The advisors who are the most in control of their practices—both in operations and especially in communications and marketing—are doing the best. More and more advisors see the need right now to strengthen their practices in order to stay competitive.

Unfortunately for the majority of firms, their marketing is woefully inadequate to take advantage of the opportunities presented by our current crisis. These firms have the technical foundation, but they are not taking the actions needed to move themselves onto center stage. This does not match the passion they obviously feel about their profession, nor does it create the additional demand from investors that these firms are seeking.

In a period of stress, clients are increasingly likely to change investment advisors. About 50 percent of the time, clients leave because they are upset with the planner’s handling of them, and about 50 percent of the time they leave due to what they consider is unacceptable investment performance. While very few markets have been kind to investors, we hope it is helpful to know what your peers are experiencing. It is likely to also be helpful to get some expert advice on how to weather the storm.

Practice management and marketing strategies are “sciences” -specific actions will produce specific results. When approached this way Marketing, Productivity and Time Management, Long-term Strategies with Real Time Planning and Efficient Utilization of Personnel—all can be directed to the benefit of advisors who are willing to take advantage of the current economy and move their firms toward more “Face Time,” more qualified prospects and growth despite everything.

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David Sanders