The Playbook to Win New Clients Coming Out of a Crisis

When it comes to crisis management, there are no second chances.

(Illustration by RIA Intel)

(Illustration by RIA Intel)

“This is my third black swan,” says Greg Friedman, founder and CEO of CA-based wealth management firm Private Ocean, who has honed his crisis management skills in market shocks, including Black Monday in 1987.

Subsequent market meltdowns have created fresh periods of severe emotional distress for clients. And in each instance, Friedman has deployed the same playbook. “It’s all hands on deck as every advisor spends more time with clients,” he says. Client phone calls (or video meetings) are an opportunity to proactively reach out and shed light on how financial plans have been impacted and updated, he adds.

Friedman’s 14 advisors rely on their paraplanners to do a lot of the number crunching and plan updating in advance to free up advisors to focus on direct client communications.

While Friedman concedes that the current environment creates extra stress for advisors, “this is their opportunity to really shine. This is where we really earn our fees.”

To transform a threat into opportunity, his firm has ramped up its communications efforts, which have “historically resulted in a lot of good will with clients that then become the source of new referrals.”

Such referrals don’t flow in right away, and instead start to pop up 6-12 months later according to Friedman. That’s because clients at other firms may start to become disenchanted with the support they are getting from existing advisor relationships. Friedman says that many advisors “under-communicate” during these stressful times.

Marina Shtyrkov, a senior analyst at Cerulli Associates, concurs. “To paraphrase the old real estate saying, these times are about communication, communication, communication.” She adds that advisors are being counted on to cut through all of the noise that’s out of there. “The client wants to know, ‘how will this all impact me personally?’”

The current environment provides an opportunity for advisors to improve their perceived value to clients. A December 2019 survey by YCharts found that “the majority of survey respondents, and nearly half of high-AUM respondents, say they hear from their advisor infrequently, and more than a quarter feel that their advisor contacts them ‘very infrequently.’”

Blasting an identical email to hundreds of clients doesn’t cut it. The YCharts survey found that “75% of clients indicated that they want their advisor to send updates that are personalized to them.”

By focusing on the client, and not just delivering broad messaging about market conditions, advisors can “help reassure clients and help them to avoid making knee-jerk fear-based reactions,” says Shtyrkov. All too often, we hear about clients that mistakenly sold in a panic when the market was in free-fall.

“Advisors need to explain why staying the course can help them meet their long-term financial plans,” says Shtyrkov. While she recommends against under-communication, Shtyrkov cautions that advisors should “avoid over-communicating and creating more dialogue than is needed.”

Advisors should “tailor the cadence of their communications to the specific needs of each client,” says Shtyrkov, noting that a client who can tolerate uncertain markets needs a lot less hand-holding than a more anxious client.

Tim Welsh, president of industry consultant Nexus Strategy, says an example of how advisors can demonstrate value and provide a pretext for further conversations is by helping clients optimize returns on their idle cash being harvested by custodians, steering them to the best online rates for savings accounts and Certificates of Deposit (CD). Welsh also suggests that this is an ideal time to address tax-loss harvesting strategies. “That helps you maintain risk levels but optimize the basis of various investments. Such moves also help demonstrate your tax savvy to clients.”

Like Friedman, Shtyrkov believes that advisors who perform extra work done now will be generously rewarded later. “Clients will remember this care and pay it forward down the road, becoming a source of referrals that leads to new client growth,” she notes. “There’s no question that dissatisfied clients will be looking for new advisor relationships once the dust settles.”

That sentiment evokes the oft-cited quip attributed to financial journalist Nick Murray that bear markets are “a period of time during which stocks are returned to their rightful owners.” Similarly, poorly serviced clients won’t stay long with unskilled advisors.

In addition to providing high-quality service to existing clients, firms can pursue growth by reaching out to people that have expressed an interest in the past. “This is a great time to tap into that pipeline (of past potential leads) to see if they are ready to move forward now,” says Carolyn Armitage, managing director of Echelon Partners. A change in their financial or employment picture may lead them to more clearly see the need for financial planning these days.

While the RIA industry saw a remarkable amount of M&A activity in recent years, deal-making should remain resilient even if the current climate leads to a modest drop in deal flow this year due to the pandemic and market conditions. Yet growth-through-acquisitions during downturns is a time-tested strategy for firms seeking to prey on vulnerable competitors.

Shtyrkov says that the current environment “may put operational pressure in smaller RIAs. Profitability levels may drop as fees on assets managed shrink, and that may force some firms to sell.”

Nexus Strategy’s Welsh suggests that “if you compare Q4 and Q1 billings, you’ll see that revenues have been impacted sharply. The drop could be the difference between profits and losses.” He adds that firm owners should be prepared to subsidize their firms until new clients are secured or managed assets rebound.

“That makes this a good time to focus on operational efficiency,” says Armitage. She concedes that firms don’t have a lot of variable expenses to trim and cautions against aggressive staff reductions. “If you cut team members now, it may be hard to get them back when business rebounds,” she says. Also, “such moves may signal to clients and competitors that you are in distress.”

Working from home, outside of their ordinary office-based daily rhythms may also give advisors the time and focus to take stock of their current approaches to assess what’s working. “This is a terrific time to re-think business strategies and implement any changes you had been pondering,” Armitage says, adding that “it’s a good time to pursue long-deferred projects.” Her firm’s consulting practice helps clients with their efficiency planning.

For advisors that had been thinking about retirement in coming years, the current downturn may lead them to move up those plans. “There are a lot of advisors that are aging and don’t have the liberty of postponing their transitions,” says Armitage. She stresses that such advisors be patient in developing dialogues with potential buyers of their practices. “It’s crucial to ensure that any new firm provides a good cultural fit for your clients,” she says.

Armitage adds that advisors thinking about selling their firms in 2021 should start conversations with potential buyers now, as such talks can take 9-12 months to reach fruition. Welsh says that firms with $200 million or more in managed assets will likely still be in the sights of potential buyers.

“Everyone wants your book of business,” Welsh says. But he sees deal-making for smaller firms falling off pretty sharply. “For these firms, there may be too many costs and risks for a deal to make sense right now.”

Should those smaller firms just sit tight and scotch any planned sales of their practices? A recent forecast of RIA M&A trends by DeVoe & Co. looked back at the impact of the 2008/2009 downturn and found that deal-making, and especially valuations, took quite a long time to return to prior peak levels of activity.

DeVoe’s outlook noted that “today, many firms don’t have the luxury of waiting for ‘normal’ to return. The average age of RIA owners back then was much younger than it is today. The demographics of today’s owners will naturally move a great number of principals toward making these critical decisions in the near term.”

Welsh thinks you may see a lot of firms led by aging solo advisors simply wind down operations. “Don’t be surprised to see a ton of smaller shops exit the business.”

David Sterman, CFP, is President of New Paltz, NY-based Huguenot Financial Planning

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