Did you know that business risk can present itself in many ways? Risk can threaten the success of your practice, but with some preparation, you can prevent risks from derailing what you’ve worked so hard for. Are you ready to protect your clients, your firm, and yourself? Follow these eight strategic moves to address potential pitfalls and thwart business risk.
Know your competition. The financial planning and advice industry is constantly evolving — and so is the competition. Ameriprise Financial, Raymond James Financial, and Graystone Consulting hold the lion’s share of the market, according to IBISWorld, a market research firm.
Robo-advisors (companies such as Wealthfront, Betterment, and Acorns) are amping up the competition as well, providing state-of-the-art mobile applications and innovative investing methodologies. And, from 2016 to 2021, revenue across the U.S. financial planning and advice industry increased by 3.6 percent.
Add in the changing client demographics that are calling for high-tech, high-touch services for the emerging affluent market and you’ll want to start exploring ways to reach out to new, ideal clients. And be prepared to clarify the competitive value you provide in areas such as service, trustworthiness, and quality relationships.
Aim for smart growth. Strategic progress will allow you to reinvest in more client services — a plus in this competitive market. And finding new ways to grow is critical, given fee compression and increased competition for client dollars. Some options for driving your firm’s evolution include:
- Merging with or acquiring other firms
- Building infrastructure
- Segmenting services for clients
Keep in mind that growing inefficiently can add stress to your practice and lessen the high level of service and value you bring to clients.
Find your niche. Specializing your services can help you attract your ideal clients. To do that, consider choosing an area you are interested in, have experience in, or have a passion for. In fact, data collected by CEG Worldwide shows that 70 percent of advisors who earn more than $1 million annually focus on niche clients.
Be tech savvy. The times, they are a-changing — and younger clients are favoring financial advice supported by technology. In a 2021 survey, Roubini ThoughtLab found that 59 percent of millennial consumers used social media to interact with advisors, and 39 percent used web collaboration tools.
The Covid-19 pandemic has shown that technology enables us to continue working seamlessly from anywhere. That can bring a certain risk, however — your clients may feel that virtual meetings are now the norm, and they may not have a strong desire to meet in person or to have an advisor with a local presence.
So, consider jumping on the bandwagon and meeting virtually with younger clients. Or use Twitter or LinkedIn to reach out to this group — they’re already using social media to learn more about you. And be sure you clearly articulate the value you bring to your clients.
Want to make sure you’re staying competitive? These actions will help:
- Google yourself. See what the search returns and then use the results to enhance your web presence.
- Invest in new technology. Modern technology can help create efficiencies, drive profitability, and enable you to continue to thrive.
Create a human experience. Even with the rise of robo-advisors, your—and your team’s—knowledge, skills, and human touch will give you an edge. Working with a human resources professional can help ensure that you have the best of the best on staff to work with your clients and help you steer clear of human capital risks such as:
- Failure to attract employees
- Hiring of the wrong person
- Unsatisfactory performance
- Excessive turnover
- Legal/compliance issues
Any of those risks could interrupt your business, and two or three at the same time could seriously disrupt it.
Understand the current environment. Although the SEC regulates financial firms, fiascos like the Enron and Wells Fargo scandals, Bernie Madoff’s criminal scheme, and the 2008 financial crisis happened on its watch, and more will likely occur.
In the current environment, increased regulations require careful planning and allocation of resources to ensure that compliance does not derail the profitability of your firm. And, it should go without saying, always keep up to date with industry changes.
Leverage help when needed. At Commonwealth, our Practice Management team has observed that advisors tend to experience “pain points” at predictable intervals as production rises to various levels:
- At $250K
- Additional administrative staff
- At $450K
- Tech support in paraplanning or research
- At $750K
- Service model segmentation to hone growth plan
You can address inflection points like these by creating repeatable office procedures and by understanding revenue distribution among clients, profitability by client, and optimal service models. Involve your staff, too, and implement any of their improvement suggestions.
Protect yourself. Consider this: You have a money machine that churns out $600,000 a year. Do you insure it? Of course you do. Now consider that you are the money machine. It’s crucial to protect yourself against any losses that could derail your business, such as advisor death or disability, key person loss, an unexpected disaster (natural or otherwise), lawsuits, and failure to plan for business succession. Be sure to perform annual reviews to update your continuity plans as needed.
Preparing for Success
We’ve looked at strategies to thwart business risk. Now let’s consider risk likelihood:
1. Draw a risk matrix with four quadrants.
2. Label the row headers with the consequences of risk and the column headers with risk likelihood.
3. Brainstorm the risks you perceive in your firm and categorize them.
Inspect your quadrant matrix and implement these tactics to address the risks shown.
1. Create your vision. Where do you want to be in three years? What would you like to have accomplished by then?
2. Conduct a SWOT analysis. Review your strengths, weaknesses, opportunities, and threats to better understand your business.
3. Develop a strategic plan. What actions can you take to achieve your firm’s vision while keeping risk reduction in mind?
4. Define SMART goals. Create annual goals that are strategic, measurable, achievable, realistic, and time-bound.
5. Get started. List tasks and timelines to achieve your goals—and start checking them off your list.
6. Review regularly. Build in time to track goals so you’ll be able to adjust your plan and stay nimble.
Finding a Strategic Partner
Although you can identify and mitigate some risks on your own, having a partner by you side can make the process much easier and more effective. Commonwealth’s deep stable of compliance and practice management professionals will help you to thwart business risk—and grow your business into what you’ve always envisioned. Interested? Let’s connect.