Shifting assets, your business

Aging clients and shifting assets are creating a volatile mix of challenges to the revenue stream for financial advisors. As asset gathering moves to an income generating focus, advisors are faced with serving their clients needs and protecting their own business at the same time. Add to the challenge, the severe market downfall in 2008 that prompted many investors, across all ages, to move into safer havens.

We spoke to two experienced advisors about the impact of shifting assets. One is a veteran in the industry, now in the succession-planning stage. The other is a younger advisor with an entrepreneurial viewpoint.

The topic at hand is timely for John Jelliman, president of KGF Financial Services in Toronto, with four decades of experience. “There’s definitely a drop in assets as the advisor ages,” he says, reflecting on his high concentration of about 65% in registered accounts. “As the yield or growth of the investor’s assets is moderating as clients move away from equity performance to bonds, the same is said for the advisor. There’s a straight line parallel as his or her trailer fee is going to come down as clients move to less risky investments.”

“Obviously, I’m going to face that mechanical reduction in assets as the client has to take income out under legislation,” adds Jelliman, “so I think there is that reduction in value in the advisor’s book if they don’t go out and replace it with new funds.”

Granted, established advisors with a sufficient block of business may have some “organic growth” in their assets from referrals and from the children of aging clients.

Another aspect of aging clients, when a block of business turns into payout income, is in the area of servicing the account. From Jelliman’s experience, there’s a big obligation on the advisor’s part now to do a lot of custom portfolio design with clients.

“I become a financial planner to the core,” he says, “looking at their T1s, helping them find out how long their existing assets will last.” That obligation can represent a huge amount of work for the advisor, and it stretches out over years, from the ramp-up to retirement to the client reaching age 71, when they must convert their RRSP.

It’s a huge commitment, says Jelliman, that also affects his own succession planning and the marketing of the business. It means educating your successor, introducing them to your clients, if you want to sell the book of business.

“You may have 50 to 100 complex files of high-net worth clients, and understanding how they think is essential to the business,” he says. “You might say, well, I’ve got $50 million here, so break a leg, write me a cheque for ‘x’ amount of dollars. But it’s not that simple.”

Todd Gotlieb, 44, director of wealth management at GBK Strategic Financial Partners, takes a different approach to managing assets. “If you’re an asset-based advisor, a wealth management type of person,” says Gotlieb, “you’re limiting what you can do best for your clients.”

Leveraging your services is considered key. About five years ago, the Concord, Ontario-based advisor formed a partnership with two other like-minded financial professionals. Along with wealth management, their combined services include multiple options in insurance, ranging from life to long-term care and disability to travel, as well as estate and retirement planning.

Very quickly, the trio realized that cross-selling financial products could create powerful potential for revenue streams and, most importantly, foster client loyalty.

“My partner, Michael Bronstine always says there are two types of advisors in this world: there are salesmen and there are businessmen,” says Gotlieb. A salesman worries about today’s sales and they’ll keep on selling to generate income, but a businessman, builds a business that at some point is a sellable asset and creates renewable income,” he adds.

When it comes to revenue flow, Gotlieb doesn’t do a lot of cold calling. At this point, he has established himself and receives a lot of referral business. “I go back to cross-selling,” he says, “every time one of my partners is out selling group insurance, or property or life, they’re asking the person, who handles your money? So I have partners out there in a sense, prospecting for me, as well as myself.”

The belief is if you are only doing business with your clients in your area of expertise, you are missing out on the opportunity of leveraging your client relationships and converting sales opportunities.

Compensation for new business is kept simple among the group. At GBK, they’re all equal partners in a pool and twice a month they take out what they earned. The focus is on building a client relationship that will create long-term revenue, rather than what a client is going to earn them that day.

“Times change and I believe that if you are not a full service advisor,” says Gotlieb, “or creating a relationship with someone where you can farm out some business, you’re giving up income. To me, building a fence around a client, so that no one else can get them, is one of the critical elements of an advisor’s success in the future.”

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Diana Cawfield is an award-winning freelance writer, specializing in finance.

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