A selection of responses we received from folks in the RIA business

October 5, 2011 — 5:41 AM UTC by Readers of RIABiz

40 Comments

Brooke’s Note: Surveys have shown that most investors really don’t know the difference between a stockbroker and an RIA. This is alarming but perhaps not surprising. After all, who has really spent any time cogently explaining the difference to consumers? I’m not talking about sales-literature mumbo jumbo – I’m talking about an explanation that hits the mark intellectually without eliciting the dreaded MEGO response: “My eyes glaze over.” In other words, it needs to improve upon and condense the job description I offered in yesterday’s article: See: What exactly is an RIA?. The truth is that it’s an exceedingly difficult task – kind of like coming up with a new advertising slogan for a fire alarm company. Maybe harder, because advertising agencies use the collaborative approach to come up with polished and illustrative phrases. I believe that this can be a helpful approach for coming up with RIA elevator speeches. Here are seven attempts, including the first one by Jeff McClure that is delivered to us with the wisdom and humor befitting this challenging undertaking. Try one out the next time you’re distinguishing yourself from your biggest competitors – brokers at Wall Street wirehouses.

From the personal wealth coach:

When I have a few seconds to describe what I do, I simply say, “We are a fiduciary organization. That means that we do not sell investment products in order to get paid by a company. Instead we work only for our clients and only in their best interests.”

If I have a little longer, I go on to say, “We are not financial advisors. That is what financial salespeople call themselves to get around the issue of taking full responsibility for what they recommend. Instead we bear full responsibility. We will never tell you to read the prospectus carefully before you invest, that is our job. We take responsibility for what we recommend.”

Often, I’ll get the [response], “I think that is what I have.” I then suggest that they ask whoever they are working with to put in writing that the person will serve as a fiduciary and act solely in your best interests. I tell them to then note whether or not the representative dodges the question.

My wife has said the term “fee based.” is the one that seems to ring true with her friends. When she says that I am “fee based” then they get it. I recognize that is not a completely pure answer, but it does seem to work. So, my other approach, which I use when time is really short is, “I am a fee-based portfolio manager for individuals, families, small businesses, and trusts.”

Oddly enough, she has commented that “fee only “ seems to frighten people. Since she is a hospital chaplain I trust her insights on what people feel far more than my estimations.

Jeff McClure
The Personal Wealth Coach
Salado, Texas

From one who answers to a higher boss

[An] RIA is an advisor whose only boss, only concern is to benefit the investor.

Roger Willroth
Marrs Wealth Management
Ames, Iowa

Getting your point across by the 28th floor means no wasted words.
Getting your point across by the
28th floor means no wasted words.

From the navigator

The following is my elevator talk: “As an RIA I ask three questions: Where have you been? Where are you now? Where do you want to be in the future? My firm then provides you with a road map of how to get where you want to be.”

Rob Price
Price Financial Group, Inc.
Waldorf, Md.

From the wealth tracker:

A good RIA should provide counsel and education on a client’s financial assets. Like a CPA, but with an investment twist (not the Fed’s twist). We provide a way for the client to stay disciplined and on track giving them time to concentrate on how they really make money… by doing their job.

Michael R. Vogel
Managing Director
Quantum Capital Management
Corte Madera, Calif.

From the strategic consultant:

My elevator speech for what an RIA is: “A small business focused on providing objective, independent advice to investors for a fee.”

Timothy Welsh
Nexus Strategy
Larkspur, Calif.

From the trusted CFO:

I tell folks that RIAs are specialists trained to work side-by-side with them to assist in making sure that the money they have is invested so as to work the best way possible in order for them to achieve their dreams and goals. An RIA is a trusted partner who should always be there to lend her/his education to the investor who already knows where they want to end up. The investor is the CEO; the RIA is the trusted CFO.

Philip M. Cioppa
Arbol Financial Strategies, LLC
Managing Principal and Chief Investment Officer
Norwalk, Conn.

From the well-aligned:

Registered investment advisors serve clients in a fiduciary capacity, much like an attorney or an accountant serves their clients. We’re held to a higher standard of prudence than traditional brokers or insurance agents and we’re required to always place our client’s best interests ahead of our own. There’s a novel idea! So, when you’re working with an RIA, whether you’re discussing insurance, retirement, estate planning or ideas about shelter taxes, you know that the recommendations being made are in the client’s best interest, and not those that’ll send the broker on a trip to Hawaii!

Charles F. Fellows
Sequoia Wealth Counsel
Cincinnati, Ohio


Mentioned in this article:

Quantum Capital Management
Asset Manager for RIAs, RIA Serving Endowments/Foundations, Separate Account Manager
Top Executive: Howard Aschwald, CFA



Share your thoughts and opinions with the author or other readers.

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Jeff McClure said:

February 15, 2013 — 2:51 PM UTC

First, Brook, thanks for the question and the opportunity for a series of professionals to discuss it.

WARNING! THIS IS A LONG POST!

I have been pondering this issue for over three decades and while I do not have an answer that completely satisfies me yet (I am a bit slow), I have reached some conclusions.

1. When a person is asked “What do you do?” they generally will respond in one of two ways. One is preceded by “I am” and the other is generally preceded by “I work in…” or just “I” followed by what the person “does” but not by what they are. Professionals state, “I am.” People who are not professionals describe what they do. In the first case the person is literally describing their identity and in the second a job they do for profit.

2. When a person responds to that question with a manipulative or irrational answer, the answerer is either dishonest, both with him or her self and/or the person asking.

3. The CFP Board of Standards (Please forgive me Board, but this blog does not have the copyright symbol embedded) made a profound error by electing to not allow their licensee’s to say “I am a CFP.” I wrote a carefully reasoned and cited paper as part of my Masters of Science in Personal Financial Planning that concluded financial planning is not a profession. A profession, by definition, when claimed by a practitioner, is “professed” by stating “I am a …” Can you imagine a CPA stating “I am a Certified Public Accountant Certificant”? (The CFP Board appears to have created that word out of whole cloth.) Or, “I am a practicing medical doctor designee.”?

I discovered in researching the paper that there has never been a careful, disciplined, rigorous study that even suggests people who have used a financial planner have any form of consistently better outcomes than investors who did not. Note that I wrote, “never has been.” There has also never been a published study to the contrary. Several studies recently have found serious investors who used a commissioned broker to purchase mutual funds fared worse than equally serious investors who purchased non-commissioned funds.

Why has there not been a conclusive study? I suspect because the financial planning community, including the Board and the FPA are reasonably convinced the study would be damning. Why? Because so many CFP practitioners are commission based and, despite their protestations, very rationally put their income and career progression ahead of that of their customers.

The quote at the beginning of this thread about “I always and only” consider my clients’ needs is irrational and fundamentally untrue, but we accept it. Why? Can you imagine a physician with an elevator pitch? How about an attorney? Actually, I have heard elevator pitches from attorneys, and I immediately wanted to run, not walk, in the other direction. Members of Congress used to be professionals who responded what what they were e.g. “I am a Member of Congress.” or “I am a Senator.” Recently I noted that they have descended from Profession to “occupation.” They commonly reply “I represent the good people of the xxth District of [State]” or something similar.

My study of professions and professionals revealed that there are three levels of involvement and those three levels equate to both what the person thinks of him or her self and the esteem given by the society in which they live.

The highest is “calling.” A calling is a life-long dedication to some form of service that the person believes betters humanity or at least certain critical people. Examples may be found in some clergy, medical practitioners, scientists, artists, researchers, educators, and even journalists! Interestingly enough, almost any occupation can become a calling. There are masons (not the secret society) who live to lay stone. I have met welders, plumbers, electricians, and certainly wood workers, who live for their calling. Amazingly enough there are even a few member of Congress who qualify. We even have a separate title for them, “statesman.” Yes, people may have other callings, like being a father or mother, and even have jobs to support themselves and their calling, but in their calling, they do what they do and only incidentally receive monetary remuneration. A person with a calling will probably continue in that calling until they die.

The second level is “profession.” Again, these are people who, when asked what they do, tell the asker who they are. Professionals “become” what they do and have their personal honor and integrity wrapped up in their daily practice. I have met many a professional salesman who was an honor to know and whose visits I looked forward to experiencing. Most though were and are embarrassed by what they do, and hide their occupation behind a mask of pseudo-professionalism. “I help people achieve their financial goals.” is an example of that behavior. The real answer in that elevator would be “I am an investment salesman.” and it could be followed by, “And, I believe I do an exceptional job of providing excellent investment products to my customers that they find to be better than they could find on their own.” Of course, most of the investment and insurance salespersons with whom I have been able to have an in-depth conversation, suffer from a nagging, deep down, knowledge that what they sell is not the best that exists. If they would simply acknowledge that they are salespersons, they would not have to so suffer. Instead they could focus on being effective and professional representatives of the broker/dealer and/or insurance company that pays, and thereby employs them. Professionals retain their professional identity as long as they live. Professionals have a standard of professional practice and have their professional behavior shaped by professional guidelines issued by a professional organization to which they belong. They may be, and generally are, regulated by some form of law and governmental or quasi-governmental regulatory agency, but hold to a far higher standard of conduct than that required by the regulatory agency.

I have met and held discussions with, for example, persons who daily drive or work on those trucks that come around each week to empty garbage cans. Some were pseudo-professionals and said something like, “I am a sanitary engineer” which was a falsehood, others have said, I have a job picking up garbage, but others told me “I am a garbageman!” with pride. Those last were professionals. Anyone can be a professional. It is an attitude, not something given by some organization.

The third level is “occupation.” The person who “has” an occupation (note it is what they have and not what they are) will typically reply, “I work in [industry]” I was standing in an amazingly long queue waiting to enter a FUN concert the other night and was next to a chatty man who, when I asked, “What do you do?” replied, “I work in banking.” He, by the way could have replied “I am in banking.” and it would have meant very nearly the same thing, but it would have indicated that he believed he was on the way to being able to answer, “I am a banker.” Occupations are what we do for a very long term to secure ourselves and our families against poverty. We are not particularly proud of what we do there, but we do “have” an occupation. Generally speaking, a person with an occupation is a “wage slave” and dreams of the day when circumstances and finances will enable them to buy their freedom. People with occupations are restricted by rules, regulations, and directives and generally are under the indirect control of a restrictive regulatory regime against which they struggle and attempt to circumvent on a common basis. This is the level where people have “elevator talks” although they are generally informal. The purpose of that talk is to disguise what they actually are and attempt to manipulate the person to whom they are speaking to think and/or act in a manner that benefits the person with the occupation.

The lowest level is “job” as in, “I have a job…” followed by “doing”, “fixing”, “installing”, “selling” or something similar. A job is a temporary form of occupation and is transitory by nature. Jobs are generally stated with a certain level of resignation, with the meta-message of “I am a bit ashamed about this, but it puts bread on the table.” Many an artist, or even farmers, have “side jobs” to enable them to pursue their calling. The person who worked in banking, as I continued to question him, stated “I have a job selling mutual funds and bonds to people who come into the bank.” He had a distinctly uncomfortable tone and look as he said that. I asked him about that perception, and he told me that the people to whom he sold those securities didn’t have a clue about the risks they were accepting. They were just unhappy with the low interest payments on their CDs and needed more income. He had been at it long enough to have had to deal with angry customers or their heirs and was forced to fall back on the signed, written disclosures of investment risk that the person, according to him, never read and certainly did not understand.

As an aside, I am an investment manager. That is as close as I have gotten. In some circumstances, I may answer, “I am the president of an investment management firm.” The first is a profession, the second is an occupation. “I manage investments.” would be a job.

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Brooke Southall said:

February 15, 2013 — 5:02 AM UTC

I have not given up on an elevator speech, yet, if for no other reason than to convince my family that I am sane. Steve Winks, I agree with you about brokerage formats as a fiduciary matter but as a way to sell what ethical advisors do to 98% of the population, it’s too technical. Stephen Wershing says it well: we can’t say: we serve your best interests better rthan they serve your best interests.

Maybe Maria is right that we’re just barking up the wrong elevator.

Brooke

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Maria Marsala said:

February 15, 2013 — 2:31 AM UTC

Brooke,

I started a thread on a LinkedIn group — actually a few of them, including my own. I asked them what they say when someone asks “so what do you do”. I then provided a simple format that people could use that I’d critique. In my own group, no one posted an answer. In the other groups nearly 250 people have posted their Business Snapshot. About 5 have been FAs. Less than 10% filled in the blanks with their benefits or results. It’s been about features, features.
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Maria Marsala said:

February 15, 2013 — 2:25 AM UTC

Throw the “elevator pitch or elevator speech” out the window. I like to call it a Business Snapshot and often it’s really a mission and tag line — in disguise.

Tell me about your business and connect with me on how it helps me in 7-10 words. Tell me how you can help ME and who the ME is that your firm makes special.

Here is why “I” think the original concept eludes FAs and in my opinion all business owners, using my experience as a sample. When I worked on Wall Street, I hung out around others who did what I did, or I hung out with the retail sales force or others in the firm who knew what titles meant, etc. So what mattered when I met people was – who did I work for, what my title was, and sometimes who was my boss. And as a business owner, that format works – but only when I’m with other coaches.

However, most times, I can’t answer like that. ... not if I’m seeking to grow my own company! Not if I’m taking to a client and asking for a referral. Not if I want people to visit my website and sign up for my newsletter, not if I’m looking for partners who share my ideal client.

Instead what matters the most in just a few words is:
a) Who does my firm work with – i.e. who is my ideal client?
b) How does my ideal client benefit from working with my firm?

Additionally, with more time…
c) How do I help them?
d) How am I different from my competitors?
e) How does someone know they’re a good client for my firm?
f) How does someone know if they come across a good client for my firm?
g) And other questions as listed here:

http://www.riabiz.com/a/12377001/10-indispensable-questions-for-advisors-to-ask——and-10-to-answer——at-networking-events

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Stephen Winks said:

February 15, 2013 — 1:51 AM UTC

Steve Wershing,

Your point that addressing each clients unique needs is differentiation, is nothing new and can be claimed by anyone without any assessment of skill or an objective measure of efficacy of the solution. This is the challenge of life planning. The advisor has to be effective at literally an unlimited numer of client considerations-to include marital advice. It is not implementable and assertions of such an effect are not realistic. Ask Bruce Wright who invesnted Life Planning.

If this discussion is pertaining to the financial counsel and well being of each individual client, is is gocerned by a more finite body of knowledge with statutory requirements as to the duties of the advisor. In that context, differentiation is a very simple equation—do you add value or not, will your broker/dealer even acknowledge you render advice, are you accountable and responsible for recommendations?

The truth is very few advisors can affirmatively answer any of those querstions.

SCW

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Stephen Winks said:

February 15, 2013 — 1:29 AM UTC

Brooke,

I recently had a discussion with a top Merrill broker, $3 million in gross, who is very interested in regulatory reform. His observation was that no one he knew can compete on the basis of their accumen in portfolio construction. This is the Achilles Heel of the brokerage format as structurally they focus on products with no accountability or responsibility for recommendations. Their performance is terrible if anyone simply did an asset/liability study assessing each client portfolio.

Perhaps it is not cogent to mention the limitations of a brokerage format with retail investors, but I can assure you consumers, even older ladies, understand the difference between the numbers 10 and 4. Further, when you quantify the risk taken in reference to the risk of the market in general, it is very easy to establish that the average retail investor is taking materially more risk than the returns they have achieved.

Interesting topic, it simply boils down to dealing with the reality of each client’s portfolio. Shoot the lights out returns promised by brokers are never achieved and certainly not sustainable.

This is why the asset/liability study quiets any brokerage arguement—the brokerage format is simply not structured for investment advice nor accountability or responsibility for recommendations. This is especially true for the institutional markets..

Jeff McClure,

Everyone should be sympathetic with Jeff McClure—there isn’t large scale institutional support for fiduciary counsel that would make advcice safe, scalable, easy to execute and manage as a high margin business. This is in large part because how we approach portfolio construction which is very expensive and unacceptable in the institutional markets. The solution is flipping the margins enjoyed by asset management firms with advisors, as is the case in the institutional world.

SCW

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Brooke Southall said:

February 14, 2013 — 9:39 PM UTC

Stephen Wershing. Thank you for articulating better what i was trying to say. Steve Winks, I hope you see these thoughts you sparked (thank you) as a commiseration more than online bloviation on my part.

Brooke

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Stephen Wershing said:

February 14, 2013 — 8:46 PM UTC

Stephen Winks, Brooke is exactly right – our harping on the compensation/fiduciary issue just comes across as weird to most clients and the technical distinctions are lost on them. It is assumed that anyone in financial services will do things that are good for clients, and hammering on the technical differences between suitability and fiduciary misses the boat. “I will do things MORE in your best interest than he will…”

If we want to differentiate ourselves, we need to talk to a specialty or expertise that the client needs so they can understand what unique way we can help them distinct from other advisors (or reps). “Single mothers with executive positions come to me to help them make the financial decisions that accompany career and family.” “Musicians come to me to help them with the financial issues arising from a freelance career that requires incredibly expensive instruments.” “Owners of small businesses come to me to find out how to translate their business success into their personal balance sheet.”

The important thing is what you can DO to address their special challenges and not how you get paid or if you are held to a higher standard than another practitioner. Maybe you bring in those more technical points once you are in a process with them and they are preparing to choose between a couple finalists. But to use them in an elevator speech is a dead end. http://bit.ly/X8tGJg

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Jeff McClure said:

February 14, 2013 — 8:23 PM UTC

I continue to find it fascinating, if a little irritating, that licensed securities salespersons refer to themselves as “financial advisors.” If a person wants to render investment advice, then become a fiduciary and take full responsibility for what you do. Consultants do it all the time. If you are a securities and insurance salesperson, holding yourself forth as an “advisor” is, frankly, a lie. I was a registered rep and registered principal for broker-dealers for three decades. In all of that time I never called myself a “financial advisor.” Somehow while being completely honest with my customers I managed to get into the awkward position of having a GDC of about $1.2 million.

In 2007 my son and employees joined forces and opened an independent RIA. For the next couple of years we effectively made no profit. Now, six years later, I have taxable earnings equal to half of what I made as a broker/dealer representative. I actually don’t get to take that home, because I am paying back the loans I incurred in creating that RIA, so I am effectively taking home about 30% of what I made and took home as a successful salesman.

Since the investing cashflow today is about equal to what was coming in when I was at the top of the B/D list, who is it that is better off financially? It is not the vendors or the institutions we use to hold client investments, and it sure isn’t me! It is our clients, and to a lesser extent, our employees (we have more and they are better paid).

I have had some interesting discussions with broker/dealer reps who have vehemently insisted that their employment and relatively high compensation, along with the relatively high profit margins of their employers, is not in any way detrimental to their “clients.” The math sort of speaks for itself. Another interesting point in that argument is that I recently had appointments with several of my old B/D customers who elected to not hire us to manage their investments. The market difference in performance over the past six years was nothing less than astonishing. I would venture to guess that any sane person reading this would instantly know what set of investors did better. The mere fact that we, in in the financial services industry instantly know the the fiduciary-served investment advisory clients did better says more about the term “financial advisor” than anything I could write.

By the way, our fees generally are under 1%. Our average client not only has the advantage of what we believe is a much better process, strategy, and choice, but has a total set of expenses (including our fees) less than they had as retail broker/dealer customers. In order to accomplish that minor miracle, my wife went to work as a professional in health care and we sold our $1 million house. We now live in a house appraised at just over $300,000, I drive a 2007 car, but still make enough to be subject to the new Medicare tax on investment income (although not by much). What have we gained? A great sense of peace and a very comforting assurance that we are doing the very best possible job for our clients.

As another interesting point, our marketing budget has shrunk to relative peanuts. It is as if our clients sense the removal of that largely subconscious tension that came from knowing that there were ways to invest that were less expensive and potentially better, but that as a broker/dealer rep there was no way I could use them and survive.

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Brooke Southall said:

February 14, 2013 — 7:31 PM UTC

The people I know who are rich enough to have an RIA (mostly older ladies) would blanch if “brokerage format” got brought into the conversation.

“We actually act in you interest…” sounds a bit like “We actually doth protest too much…”

The elevator speech clearly eludes this industry!

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Stephen Winks said:

February 14, 2013 — 7:26 PM UTC

Rather than fees vs commissions, isn’t the best most direct tact, “we actually act in the client’s best interest in ways not possible in s brokerage format.” thne list ten indisputable ways the brokerage format violates the trust and confidence of the investing public.

Or alternatively, cite the benefits of an expert advisory relationship, same content but in a positive light.

SCW

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Brooke Southall said:

February 14, 2013 — 6:02 PM UTC

Ryan,

Ha. There is a stand-up routine in there somewhere. Indeed, I don’t think I’d win fans by saying I was a fee-based dentist or a fee-based journalist.

Brooke

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Ryan said:

February 14, 2013 — 5:29 PM UTC

It’s always interesting to me how many advisors put their fee structure into their elevator pitch. People don’t like fees, never will. Fee only, fee based, for a fee… The only thing that a person hears is that you are charging them fees fees fees. The elevator pitch is a time to differentiate yourself, charging fees does not make you different.

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Brooke Southall said:

October 19, 2011 — 6:55 PM UTC

When I set out to write this article — and solicit contributions, I had a very narrow mission. I wanted to describe what an RIA is.

Like a game of whisper-down-the-lane I see that it has morphed into a broader discussion that includes the sales pitches RIAs use and the value proposition of RIAs.

That’s fine.

But I still see them as three distinct subjects: how to define what an RIA is in plain English, how to explain what value RIAs bring to the table and how you pitch it succinctly to a client.

I have decided to tackle #2 on the list — what the value proposition of an RIA is in a new article. I am hoping some of the people on this discussion chain will contribute their thoughts and I’m working on mine and send them to me in an email: Brooke@RIABiz.com

I won’t ask people to be hyper-concise, but not verbose either. I’m looking for quality thoughts that don’t sound like marketing drivel.

And I’m hoping we can do better than Wikipedia that describes the purpose of a financial advisor thusly:

The main purpose of a financial adviser is to assist clients in the planning and arrangement of their financial affairs, such as savings, retirement provisions, tax treatment and wills. To ensure ethical practices, financial advisers must understand a client’s financial situation as well as their need for financial stability. Finance can be complicated and any adviser has responsibilities ethically to see that a client’s risk is minimized, and monetarily, that money is maximized within the established risk boundaries.

thank you!

Brooke

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Maria Marsala said:

October 19, 2011 — 6:07 PM UTC

Alan,

Great use of an elevator speech. It’s main reason is to catch the interest of those who are interested and repel those who aren’t!

Jeff,

There is a small population of practitioners/business owners who don’t have a niche or ideal client and they do well.

However, one of the easiest ways to help a client grow their business (I’m a business strategist) is to help them create a niche and ideal client profile. When they do so, they pick an area they’ll specialize which hopefuly will also help them build crediability in that area and be remembered for.

Simplified….

So one of my clients works with “married couples who are nearing or just became empty nesters”. Another works with “women who have gone through a divorce in the past year”. I’ve met professionals who work within the Defence Industry, Natural Health practitioners, Lawyers, etc.

Once they choose a niche, the way they market is to strategically put themselves in places that their niche hangs out. When they write articles, they write articles that would relate to their niche. When they look for strategic alliance partners, they look for those who work in their niche, etc.

Sure they can take clients out side that niche. It becames their choice, and the prospects choice, of course.

It’s just a different, more focused way to market, get referrals and be remembered.

In fact, when I did research on the topic of ideal client profiles many years ago, looking for the history of it, I found mention in an article that the first mention of ideal clients came from the financial industry.

I can remember a time where the firm I worked for, whose niche were institutions. We did have a retail department, but we were very small and our clients were usually high-end retail. When we merged with a company whose clients were all retail, well, all I will say, is that six months later, found a new job at a first working with institutions again :)

Maria

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Stephen Wershing said:

October 19, 2011 — 2:49 PM UTC

Jeff,

It is the advisor who should occupy a niche, not a client.

When I work with advisors who want to get more referrals, one thing that’s called for is some kind of specialty they can be known for. There are some general practitioners who manage to get a good referral stream, but they are in the minority. For most advisors, the way to referrals is to be recognized for something fairly specific. When a client’s friend or acquaintance mentions a financial challenge or the desire for a certain experience, and the client can connect that need or desire with what their advisor offers, they will remember to make the referral.

If you can successfully communicate the benefit delivered within your niche, two things can happen in a brief encounter: if the prospect is within your niche market, you may pique their interest, leading to more conversation. If the prospect is not in your target market, the statement will trigger no interest, and the encounter will be over, which is good for both parties.

If the advisor tries to have more than one niche, they will contaminate their brand, and the marketing plan will fall on its face.

And if you do not legitimately deliver something special to a well defined group, I would hope that your pitch would trigger BS detectors and be ineffective – this business already has enough charlatans.

Most of the people I work with are professionals and conscientious practitioners, not great salespeople, which is why they need my help. The “natural” salespeople don’t need this kind of coaching – they have all the skills they need in this area. What they lack is a substantial deliverable to benefit their clients, which is why they do not survive, as has been your experience observing the people you started with.

Thanks for your thoughtful comments!

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Jeff McClure said:

October 19, 2011 — 2:02 PM UTC

I don’t know why I got Alan’s comment five times in my email, but it was irritating. I know that if Alan hit me with that pitch in an elevator I would tend to get off on the next floor even if that were not where I was going.

- I am curious as to just how many new clients with large enough accounts to make it a valuable relationship have been generated by an elevator sales pitch. At least in my several decades of doing this, my experience is that a simple statement is as far as one should go. Alan’s sales pitch, again in my experience, would be offensive to the higher net worth people I work with. Again and again I have learned that any attempt to “sell” to people who are used to being high in the authority and wealth strata is repugnant. They face people trying to sell something to them multiple times each day. They also are used to dealing with successful professionals who don’t attempt to sell because they have something so valuable that they must be asked to provide it for a price.

Mr. Wershing: How is one supposed to know what “niche” a person is supposedly in when the scenario is a chance encounter on an elevator? More, I don’t have something unique for each “niche.” I have instead a professional service I offer to anyone who has at least a minimum amount of invested or potentially invested money and a set of long term goals. Stating that I have a unique plan for a given target market niche would be misleading and potentially untruthful statement. Again, based on my experience, the very people I want to serve have a “BS Detector” built into their psyche else they wouldn’t have the level of wealth I would like to manage. I know that my BS Detector works pretty well and I get that pitch about my niche at least daily. Anyone who makes that pitch gets a reasonably polite “adios” from me. Sadly, the people who make that pitch are the ones who commonly don’t take “no” for an answer, so I have to very pointedly tell them to take me off of their calling list and sometimes need to hang up on them.

Anyone who tells me that they have a 5 step plan into which they are going to fit me already has told me that I must fit their plan rather than that they are intent on adapting to my position. Again, this is just my perspective, but I am still here after 30 years and the great salespeople I started with are now doing something else for a living.

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Jeff McClure said:

October 19, 2011 — 2:02 PM UTC

I don’t know why I got Alan’s comment five times in my email, but it was irritating. I know that if Alan hit me with that pitch in an elevator I would tend to get off on the next floor even if that were not where I was going.

- I am curious as to just how many new clients with large enough accounts to make it a valuable relationship have been generated by an elevator sales pitch. At least in my several decades of doing this, my experience is that a simple statement is as far as one should go. Alan’s sales pitch, again in my experience, would be offensive to the higher net worth people I work with. Again and again I have learned that any attempt to “sell” to people who are used to being high in the authority and wealth strata is repugnant. They face people trying to sell something to them multiple times each day. They also are used to dealing with successful professionals who don’t attempt to sell because they have something so valuable that they must be asked to provide it for a price.

Mr. Wershing: How is one supposed to know what “niche” a person is supposedly in when the scenario is a chance encounter on an elevator? More, I don’t have something unique for each “niche.” I have instead a professional service I offer to anyone who has at least a minimum amount of invested or potentially invested money and a set of long term goals. Stating that I have a unique plan for a given target market niche would be misleading and potentially untruthful statement. Again, based on my experience, the very people I want to serve have a “BS Detector” built into their psyche else they wouldn’t have the level of wealth I would like to manage. I know that my BS Detector works pretty well and I get that pitch about my niche at least daily. Anyone who makes that pitch gets a reasonably polite “adios” from me. Sadly, the people who make that pitch are the ones who commonly don’t take “no” for an answer, so I have to very pointedly tell them to take me off of their calling list and sometimes need to hang up on them.

Anyone who tells me that they have a 5 step plan into which they are going to fit me already has told me that I must fit their plan rather than that they are intent on adapting to my position. Again, this is just my perspective, but I am still here after 30 years and the great salespeople I started with are now doing something else for a living.

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Stephen Wershing said:

October 19, 2011 — 10:15 AM UTC

See, now Alan gets it! If you can add to that some particular knowledge or skill about the niche industry, you have a great value proposition! The benefit is clear, you describe a knowledge or skill that others don’t have, and you narrow it to a specific market. Nice!

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Alan S said:

October 19, 2011 — 4:57 AM UTC

simple and succinct -” I help senior executives in the (insert your niche) industry make working optional”
They say, ' sounds interesting, how do you do that?’....
Well, we have a 5 step process that works out where they are today, where they want to get to and we build a plan to get them there… We start with a Discovery Meeting, would you like to schedule one…. (!)

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Stephen Wershing said:

October 11, 2011 — 1:12 PM UTC

I think most of the people interviewed for this article miss an important point – when responding to a question like “What do you do?” you must communicate a particular value to them if you want to attract them as a client. Not just generally “I look out for your best interests” which would make you indistinguishable from a police officer or a lawyer, or even “I advise people on their finances.” But something that says “I have something for you (if you’re in my target market).” You need to communicate a solution, and answer the question “Why you and none of the other advisors in town?” I just blogged about this last week – you can see the post here: http://bit.ly/mPKluf

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Maria Marsala said:

October 6, 2011 — 8:31 PM UTC

People walk into networking events ready to tell others all about them. (elevator speech which I call a business snapshot) But the best networking is conducted when you connect with others. I just got off a webinar I taught on the subjet of networking. I mentioned that when you’re at a networking event, the #1 question should be “so tell me about you” — then shut up and listen attentively. Listen for the commonalities between you two, their interests, etc. Then use that information to ask them more questions about what you’ve heard.

Let them want to ask you for your business card. In fact, an networking exercise I give out for “happy homework” is attending a networking event, doing what I said above and you’re not allowed to give someone your business card unless they ask for it. (Isn’t getting their card more important anyway?)

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Jeff McClure said:

October 6, 2011 — 6:28 PM UTC

Sean,

The transition from a high-producing rep of a brokerage firm, no matter how “independent,” is a rough one. It is critical to understand that if a rep is working “through” an indie b/d and is a representative of that firm, each and every account officially belongs to the company, and not to the rep. Those accounts are a form of property and there is no question in the law or in the rules about who owns that relationship. It is the b/d firm that is the owner.

You must have permission from your b/d, in writing, to register as an independent RIA or to have an ownership interest in an independent RIA firm. I recommend that you be completely out in the open on what you are trying to do and why. If the firm objects or wants to entangle you in a set of agreements and directives that give them control, you then have to make some decisions about what you want to do and where.

With regard to what you do as an independent fiduciary, there are only a couple of rules. The first is that you must operate in your clients best interests. That is easy to say, but for a long time brokerage firm rep, it is a hard thing to practice. The second rule is to disclose all potential conflicts of interest, not just in lawyerese buried in a hundred page document, but prominently and in such a way that your clients both understand and clearly acknowledge those conflicts.

There are some big, really big, potential conflicts of interest in our relationship with NEXT as there would be with any such broker/dealer. NEXT has placed some restrictions on what we do, but the restrictions are in areas where we would never go (use of third party money managers). Still the relationship is tenuous. The key to it from our point of view is that it is clearly in our clients’ best interests, but we do need to reveal in great detail the potential for conflict. It is also considerably less expensive than going it alone.

All that may change in the future, if so we have a back-up plan. As I mentioned we have a person in our office who is a part owner in the RIA but does not provide advice. She previously was an administrative registered representative. We have moved all the non-RIA accounts to her. She receives from those accounts enough 12b1 and trail income to do well and pay rent and for admin support from the firm’s staff. All she would need if I were no longer an OSJ is to find one that would supervise her, and given the low risk profile of a non-selling rep, that would not be hard.

The administrative/legal details of making that relationship work across FINRA and SEC rules is a bit complex, but we have found a legal and proper way to do it. Above all the concept is quite simple. Do whatever we do in the clients’ best interest and with full and understandable disclosure. I have been pleasantly surprised at how cooperative regulators can be once they conclude that is the intent.

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Chris Connelly said:

October 6, 2011 — 1:36 PM UTC

This discussion was actually happening in our office about two minutes before one of our RIAs emailed me a copy of the blog post above. I live for serendipity!

Maria – simple is definitely better, agreed.

All – The key is to distinguish yourself, in a huge field, in simple language – while being completely genuine. Consumers are way smarter than we ever give them credit for, and their BS detectors are better tuned than we admit. They get that most advisors are really product salespeople, and they are aware of the potential conflict inherent in that model. If they are not tuned into that basic conflict, it does not take much more than a few seconds to point out the obvious and let them have their “aha” moment.

All that said, in the process of not being a salesperson, don’t throw out baisc sales theory in the process – Rule 1 of sales: tell them why they should care about what are about to say first (engage before the pitch or they won’t be there to catch it)

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Chris Connelly said:

October 6, 2011 — 1:36 PM UTC

This discussion was actually happening in our office about two minutes before one of our RIAs emailed me a copy of the blog post above. I live for serendipity!

Maria – simple is definitely better, agreed.

All – The key is to distinguish yourself, in a huge field, in simple language – while being completely genuine. Consumers are way smarter than we ever give them credit for, and their BS detectors are better tuned than we admit. They get that most advisors are really product salespeople, and they are aware of the potential conflict inherent in that model. If they are not tuned into that basic conflict, it does not take much more than a few seconds to point out the obvious and let them have their “aha” moment.

All that said, in the process of not being a salesperson, don’t throw out baisc sales theory in the process – Rule 1 of sales: tell them why they should care about what are about to say first (engage before the pitch or they won’t be there to catch it)

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Maria Marsala said:

October 6, 2011 — 9:47 AM UTC

If you want to be heard, about what you do, then your “business snapshot” has to be simple, and be all about the benefits of working with you. As a “starter” I recommend “We help _____ to do ____ by providing____.

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Sean Kernan said:

October 6, 2011 — 3:43 AM UTC

Jeff—very useful and interesting to understand how that plays out. If you are able to maintain existing brokerage accounts as long as you don’t do any new business, that removes much of the potential roadblock (in my mind at least) in making the move from IBD to RIA. It is far easier to envision not doing any more commission based business vs. moving every last dollar out of those accounts OR choosing to give up all revenue associated with them. Sounds like it is not something every firm would facilitate, but it is good to know that can be and is being done.

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Stephen Winks said:

October 6, 2011 — 12:06 AM UTC

Jeff absolutely correct.

How about, I provide patented and proven institutional services and am accountable for expert personalized advice rendered in the consumer’s best interest, not presently possible within a commission brokerage format.

SCW

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Jeff McClure said:

October 5, 2011 — 11:08 PM UTC

At the risk of too many words, those who are IARs and state that there are no conflicts of interest are likely a bit out of line. If your form ADV lists a series of conflicts of interest and you verbally tell a potential client you have none, you are likely opening yourself up to some potentially serious charges.

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Jeff McClure said:

October 5, 2011 — 11:01 PM UTC

Sean, I hold a Series 24 and am technically a branch office manager and an OSJ. Yes, I would be subject to FINRA if I sold anything. Since I sell nothing there is very little I have that is subject to FINRA restrictions. Yes we maintain FINRA accounts, but there is a person in our office who is the representative of record on those accounts. She also does not sell anything and we maintain the accounts so as to be able to offset our fees with the 12b1 and trail commissions on accounts where it would be not in the client’s best interest to move the money. Examples include old variable annuities where the annuitant/owner has a guaranteed death benefit that is substantially higher than the cash value or a variable universal life insurance policy. In those cases, particularly where the insured is in poor health, it is clearly in the client’s best interest to retain the policy. Since the policy is paying out a fee each year to some broker/dealer, being able to use that to offset the fees we would otherwise charge to manage their accounts is, again, in the client’s best interest.

We make a serious effort to keep the FINRA side of what we do entirely separated from the RIA side. As I wrote, there are absolutely no product sales allowed, so it is strictly a maintenance issue. We, as required by both entities, keep our books and records for the RIA separate from the FINRA related books and records as well. We pay NEXT a fairly substantial fee each quarter to utilize their services and that works both for them and for us. They, in turn, allow access to the enterprise level IT and other services that we could not get on a cost effective basis and provide us with an audit each year both on the FINRA and the RIA side. They also monitor our trades and retain records for us.

Neither I nor anyone in the office is an IAR of NEXT. First that would be a regulatory violation in some states, but more importantly it would be, in my opinion, a very serious conflict of interest. We do most of our custodial work at Pershing Advisers Solution (PAS) from which we receive no commissions or 12b1 fees. We do have a couple of other custodians, but again are not compensated by the custodians. If you read our on-line form ADV part II, you will see that we currently have a branch in Connecticut where there is a person who is dually registered. That relationship is being terminated for that reason.

Our arrangement with NEXT is certainly unusual, but we have discussed it with SEC representatives and they have uniformly been very pleased with it. Initially they did not understand why I did not just sever the relationship, but when I explained that we were able to offset fees as well as provide agent services for our clients the light came on. NEXT has been very supportive of our relationship, which is likely in no small part due to the checks we write to them each quarter! We do, of course, fully disclose the relationship and it has seemed to-date to be one that is cost saving to all concerned. NEXT, in essence, serves as a service provider to us in exchange for fees we pay them. Because we so carefully separate our FINRA and SEC areas of responsibility, we are able to operate as a pure RIA on that side of our business.

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Brooke Southall said:

October 5, 2011 — 9:43 PM UTC

Sean,

I’m making a mental list of topics worthy of raising.

I thought it made sense to start with the most basic questions — like what advisors are about and how they impart their mission to those who want or need to know.

Brooke

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Sean Kernan said:

October 5, 2011 — 9:38 PM UTC

Brooke—I was just thinking along similar lines; if you could maintain order, you may be able to raise a “question of the week” or some such and add the “wisdom of crowds” to your already solid operation by stimulating discussions.
Sean

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Sean Kernan said:

October 5, 2011 — 9:36 PM UTC

Jeff—I’m confused. You’re not subject to FINRA’s rules but get to hold a Series 7 license through NEXT?

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Brooke Southall said:

October 5, 2011 — 9:34 PM UTC

Jeff and Sean,

These are both great comments in their tone, depth and intellectual honesty. I am more than pleased to have them here at RIABiz and I hope it encourages other commenters to open up. I’m tempted to run them as a point-counterpoint column.

thanks,

Brooke

P.S. Thank you also Joe and Kevin for adding your crisp RIA elevator speeches and to you Doug for kicking things off.

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Joe Anthony said:

October 5, 2011 — 9:31 PM UTC

Brooke: from the perspective of someone who has helped RIAs with PR for 10 years, I see it very simply: “RIAs are paid by their client for the advice they give the client.” Compensation by any other means identifies one as a broker, agent, salesman or intermediary.

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Sean Kernan said:

October 5, 2011 — 9:20 PM UTC

Jeff—great points. I admit that I probably “don’t know what I don’t know” about the inner workings of a large indy b/d. I may well be in the middle of my personal evolution to a RIA-only business someday. I spent time at two of the largest employee firms and the first did not offer ANY fee-based platforms while I was there. Within the first 2-3 years I came to understand that the “preferred” funds were preferred for some of the reasons you point to (namely, revenue sharing that wasn’t full explained to me, the newbie). I wholeheartedly agree that advisory relationships are far and away the best client solution in most cases. I moved to a major wirehouse (before ending up at an IBD) which had more offerings but obviously has its own warts.

Maybe I am an exception, but I hope I am not a rare one at IBDs (but maybe I am)...sounds like I saw what you saw but fairly early in my career. In my advisory accounts—-as an IAR—-I use ETFs for just about everything, unless I can’t find an ETF that fulfills the same objective (I have just one mutual fund in my core allocation, for 10% of a portfolio). ETFs appeal to me as the cleanest, most efficient, lowest cost to get exposure to various asset classes and make tactical and strategic changes as necessary.

Anyway, I didn’t mean to interject that discussion as much to the topic at hand: my main observation is that I could use most of the original comments that describe an “RIA” when talking about my practice—even though I also have some brokerage business. Perhaps I still naively assume that doing the right thing for the client is (or should be) inherent in doing business, no matter what the legal and regulatory framework. Madoff, as we know, was a “fiduciary” too.

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Kevin Dinino said:

October 5, 2011 — 8:16 PM UTC

Great stuff Brooke and I’ll share with our clients. We’ve wrestled this topic for years and I’ve always preached simpler is better. You could add from the PR rep “An RIA is a financial advisor providing their clients with independent advice, free from any conflict of interest, for a fee.”

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Jeff McClure said:

October 5, 2011 — 5:19 PM UTC

I was a representative of independent broker dealers (Mr. Kernan’s “IBD) for over 25 years. I too was convinced that what I was doing was at least as good or even better than those folks that insisted their “fiduciary” position was better (RIAs). Then I was sued along with my b-d. In the process I found far more about the independent broker-dealer community than I had wanted to know. I discovered the “under-the-table” (but legal) payments that enabled a product sponsor to become an “approved” provider. I also discovered that if I had truly looked hard at the investments available on the open market and built a portfolio from them my brokerage customers would have done far better over the past couple of decades than they did by utilizing my commission-producing “best of class” products from my broker-dealer.

I have gone head to head with more than a few traditional “financial-planners” and “financial advisers” who have insisted that their commissioned products were the best that could be done. When we have put it to the test using Morningstar’s Hypothetical Illustration program (which takes actual monthly data on the investments involved) the advisory model wins.

Indeed I took a 75% pay cut to become a principal at an RIA and even after building it up to the level of invested assets I had as a broker-representative, I still only have half the net income I had as a broker-rep, but it is a very reliable and consistent income. More importantly, I am extremely confident that I can access the very best available investments for my clients now rather than having to pass up the no-loads and institutional funds.

By the way, I was exonerated in the law-suit, but the process of being briefed on what the litigator (a close relative of alligator) might raise and the nine hours I spent on the stand as he attempted to assail my character and practice was a real eye-opener. My attorneys argued successfully that as a broker-dealer representative I was not required to find the best price, best execution, or even best product. All I was required to do was offer only “suitable” investments and deliver a prospectus. Had the litigator been able to show that in any way I was in a fiduciary position, I would have been toast. He did demonstrate that there were less expensive ways I could have provided the products and that had I been in an investment advisory position and a fiduciary, the customer would have done better; actually much better.

I had taken the courses and attended the b-d education sessions. I had heard the wholesalers pitches. I knew how to sell product that was good for me, good for the broker-dealer, and highly suitable for the customer. With 20:20 hindsight I now know I could have done a lot better for the customer (whom I called a “client” before I learned the difference). Yes, it would have involved making a lot less money for myself and for my broker-dealer. It would have meant that I would not have been provided those annual all expense paid “educational conferences” with my wife at five-star resorts where again I was “educated” on how to offer the “right” product.

I now live in a house that is about half the value of the house I owned as a very successful b-d rep. I drive a six year old “pre-owned” car. I also have eight full-time employees whereas before I had three. Yes, the regulatory burden is a pain, but I vastly prefer it to the FINRA rules I had before. I don’t have to worry about commissions slanting my views.

By the way, you may be an exception, but I have looked a quite a few portfolios put together by IBD IARs and the percentage of the portfolio invested in funds paying a 12b1 fee is both high and consistent. Factually there is no correlation between paying out a 12b1 and higher performance. That extra expense in the vast, vast majority of funds I have seen in those accounts is an interesting phenomenon. In more than a few cases I have noted that the rep gets credit toward an “annual conference” for choosing funds or private managers who pay the b/d to fund conferences for those who sell their wares. Perhaps the most interesting thing I have noticed about the b-d affiliated IARs is the number of investment products on which they received a full commission and then moved into the RIA account and began to draw fees. It is a heck of a revenue enhancer, but I question that it is in the best interest of the client.

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Sean Kernan said:

October 5, 2011 — 3:49 PM UTC

All are good, but not great—at least in distinguishing the RIA from an IAR at an IBD (eg, me). It makes my head hurt thinking about an elevator speech that acknoweldges the legal differences inherent when opening an advisory account vs. a brokerage account (which I often . One solution is to just do what’s right for the client all the time. I submit that ONE reason many investors don’t know the difference is because it is actually possible to do the right thing by people with your brokerage/suitability “hat” on (gasp!). Philosophically and very hypothetically, is there any difference between someone who puts their clients interest first because they are legally bound to and someone who does it because it is right (and not to mention, good business in the long run). I DO agree that when you work for yourself, your ability to work best for the client is vastly improved—but I think this is true at an IBD almost as much as a pure RIA.

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Doug Lawson said:

October 5, 2011 — 3:32 PM UTC

All good answers to what is and RIA? Keep it simple, you act in the customers best interest, charge them resonably, and only make more money if their portfolio grows. RIA’s have the greatest flexibility to serve the client in a variety of ways. Investing is not long buy and hope, it is diversify and grow.


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