This article originally appeared in FA Mag.
The financial services industry is undergoing some major shifts in customer preferences, regulatory oversight, and competitive pressures from high-tech online firms. These changes are gradually driving up the cost of maintaining a successful advisory practice. Advisors who want to stay profitable over the long term need to keep an eye on these trends and figure out how to adapt.
Here are seven strategies that can help you improve your bottom line in an era of shrinking compensation:
1. Brand to Charge A Premium
The research is clear: firms with strong branding last longer, outperform the market, and have stronger relationships with clients. Some estimates suggest that brand equity is worth about one-third of a company’s value. This kind of research hasn’t been done for the financial services market, but the lessons still hold true.
Financial advisors who create a strong brand around their unique services, specialty, and personality connect better with clients and can charge a premium for their services.
2. Invest in Tech
Upgrading your technology can help you automate many of the tasks involved with portfolio construction, asset allocation, client contact, and planning. By reducing your costs on the portion of your business that doesn’t include directly engaging with clients, you can boost your margins while focusing on the client experience.
3. Delegate and Outsource
Many advisors fall into the trap of writing communications, bookkeeping, processing payroll, running social media, updating their website, and many similar tasks that should be delegated or outsourced. Top performing advisors let go of all such administrative responsibilities in favor of focusing their energies on activities that actually generate revenue – meeting with clients and prospects.
4. Consider a Hybrid Fee Model
There is good reason why so many advisors are embracing the RIA model to pursue fee-based business while still retaining their commission business. Industry watchers Cerulli Associates found that dually registered RIAs experienced the highest level of asset growth among wirehouses, RIAs, and independent broker-dealers, surpassing $1 trillion in assets under management in 2012.
The primary benefit of the hybrid model is that advisors are able to offer fee-based advice while still providing commission-based investments options. Working under the hybrid model also allows advisors to diversify their client base and attract investors with tailored services that aren’t limited by compensation mode.
5. Monitor Profitability
Management guru Peter Drucker said it best: “What gets measured, gets managed.” If you’re not regularly monitoring your firm’s profitability and costs, you may be missing out on opportunities to improve your margins. If you’re the sole owner of your practice, consider putting yourself on a fixed salary to separate your compensation as an advisor from your firm profits.
6. Segment Your Clients Into Service Levels
Client segmentation is an incredibly useful exercise for boosting profitability, particularly when your margins are being squeezed. Offering tiered service levels can help you identify clients who are costly to serve because of complex financial affairs or time-sucking personalities and charge them appropriately.
Lower-tier clients can be offered a more hands-off experience, freeing up your team’s time for bigger clients. If you’ve made an investment in technology, you can more easily scale your low-end clients by offering online account services and portfolio management.
7. Explore New Niches
Many advisors are pursuing niche specialties or moving to a high-end boutique model of service. By doing so, they hope to be able to focus on providing specialized services to a smaller fraction of investors and capture more of their advisory needs in-house. There is also generally less competition for specialists because so many financial advisors fail to focus their services. Offering a more integrated suite of advisory services can also bring higher margins from clients willing to pay more for a seamless experience.