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Get the most out of your advisor

Get the most out of your advisor

July 31, 2014

Sometimes the logic of how an investment advisor runs their business backfires. It starts with good intentions that are poorly executed resulting in an unsatisfactory outcome.

The cause of the problem begins with client segmentation. This is not unique to the investment business. It applies across many other industries as well.

Segmenting your clients into groups such as A, B or C is done so a business may spend more time, money and effort on the clients that are the most profitable. An “A” client likely is a more important client to the business because they produce the most revenue.

There is a commonly referred to rule in business called the 80/20 rule. Eighty percent of your revenue comes from 20 percent of your clients. Think of the good or the not so good of your own life.

You can see how most aspects can often be categorized under the 80/20 rule. A school teacher, for example, will likely have 80 percent of the discipline problems from 20 percent of the class.

On the positive side, an investment advisor needs to run and operate that business as best as they can. Profits are necessary, otherwise there will be no business.

Clients need their advisor to make a fair income from their business, so clients will have the ongoing necessary investment advice.

The problem arises when the enthusiasm for providing excellent service to clients with larger portfolios leaves clients with smaller portfolios receiving little or inadequate service. The advisor’s spare time is used prospecting for more “A” clients.

As a result, 80 percent of an advisor’s clients may be displeased with the level of service. People tend to talk more about bad service than excellent service, so the advisor’s brand and respect suffer.

Building and maintaining an investment business is challenging in this current, very crowded and competitive environment. Having a poor reputation makes that challenge all the more difficult.

If you feel that you are not an important client and would like better service, there are several steps you may take. The two options are to fix the problem or leave.

Leaving is easy but you may have changed advisors before and found that after the initial honeymoon stage, the service level declined to the low level that had caused you to change advisors in the first place.

Our recommendation is that you ensure you will have an acceptable minimum standard of care from your advisor. If you are displeased, arrange a meeting with your advisor to provide that feedback. Discuss what other services will be offered and request a specific number of meetings per year.

Will you be able to receive financial planning guidance to help you navigate through all of your financial issues?

Will you receive cash flow projections that show whether or not you are on target to achieving your various financial objectives? This exercise should in most cases be done annually.

You might not be the largest and most financially attractive client an advisor serves but when your advisor has 100 percent of your investable assets, that is a big and important number to you.

For most people requesting a meeting with their advisor to discuss their displeasure with the service will be awkward. Sometimes the more important things to be discussed are awkward.

The reward is worth it. Your advisor will be encouraged to make changes that will help their advisory business by providing a minimum standard of care to all clients.

By taking the time to talk to your advisor about what is important to you, the level of service that you will receive will likely improve.