No practice is immune to the variety of challenges that can stall profitable growth. Obstacles are set in your path from several angles testing your ability to address client expectations, your unique value, operations and personnel decisions, and your strategic focus.
In order to advance toward your ideal business vision, it is vital that you advance beyond your experience and intuition in rigorous pursuit of insight to improve your choices and decisions.
In working with hundreds of advisers, a key attribute that separates the top performers from the pack is a willingness to consistently question every aspect of their business.
Consider this example, often used to demonstrate the benefits derived from repeatedly questioning experience and intuition.
The Jefferson Memorial Parable
The Jefferson Memorial in Washington, D.C. was experiencing exceptional erosion and deterioration of cement. Intuition labeled the problem as seemingly unpreventable acid rain. Questioning that conclusion didn’t stop though. Further investigation indicated that the erosion was more likely due to frequent cleaning with a combination of water and detergent which had an adverse effect on the cement’s longevity.
Why did the Memorial need to be cleaned so frequently? Because it attracted an uncommonly concentrated amount of bird droppings.
Why was the Memorial such a target? It didn’t take much monitoring to determine that an unusually large number of sparrows were attracted to the Memorial.
Why so many sparrows? Because an abundant delicacy of spiders made for easy meals.
Why so many spiders? Because the food chain led them to a feast on insects called midges that splattered themselves on the Memorial. The midges reached an excited state at dusk, which was mating time. Their condition, combined with the attraction of lights that were turned on at the Memorial at dusk, caused the midges to fly out of control into the walls of the Memorial.
After challenging experience and intuition with progressive questioning, the solution was simple. Waiting one hour after sunset to turn on the lights caused the whole chain of events to cease and the Memorial didn’t need a daily power washing.
Many advisers fail to proceed to this level of questioning about their business. Instead of addressing core issues, they just keep washing the sparrows’ gifts off the Memorial.
You can take aim at your experience and intuition with more, and better, questions to gain the insight necessary to make actionable decisions about your business. If you stop digging, you may be susceptible to faulty assumptions. It’s when you think you have the answers that the most important learning actually begins.
How do you compete?
Do you understand the strengths and weaknesses of competing advisers as much as you do your own? If you understand your market, you’ll be better able to develop a value proposition that resonates.
What impact does the makeup of your client base have?
Does the lowest half of your book of business create a drag on your service to your best clients? We regularly find that advisers generate less than 10% of total revenue from the bottom 50% of their client base. If you have low-revenue, high-effort clients, the fact is that your service to them may be subsidized by your higher-revenue clients. If you can effectively segment your service strategy, you may be able to dedicate more attention to your best clients, who are more likely to generate referrals to similarly good clients.
What do your clients and your target market need?
Have you verified that the services you offer are actually what the client desires? If you haven’t validated the desire for, or necessity of, your deliverables, you may be wasting time on endeavors that the client doesn’t appreciate.
A lack of needs-based understanding is what often leads to clients who require more effort than your service model allows you to effectively, and profitably, deliver.
How might external factors impact your business?
An honest assessment of threats and opportunities will help you prudently respond to issues that you can’t directly control.
How are technology and regulation impacting your business? Is the financial environment changing? Do new products or services demand your attention?
Do you have the right internal competencies and structure?
In many practices, people are in place and getting work done but they aren’t significantly aligned with the right objectives and empowered to vigorously pursue them.
Your ability to adapt internally to meet external challenges in the dynamic world of financial advice is critical to your long-term success.
Former General Electric CEO Jack Welch sums this up well. “When the rate of change on the outside exceeds the rate of change on the inside, the end is in sight,” Welch said.
I hope these thoughts spur questioning that leads you where you want to go. Next month, we’ll extend this conversation by examining the ineffective habit of complacency with your current situation.
Matt Smith is managing director of retirement services with Russell Investment Group. He is responsible for DC research and strategic development of Russell’s defined contribution investment management business in the United States. Smith joined Russell in 2001. Over his 20+ year career, Matt’s experience spans the spectrum of the qualified plan business. Prior to joining Russell, Matt held the position of vice president and general manager of ADP’s west coast retirement services operations.