PFGC has always maintained that we have to have a "definable" investment process. This simple means that we must be able to tell a prospect/client on why/how we invest their money to meet their needs and goals. FAs are encourage to first develop an investment philosophy. Yes a philosophy before we build a portfolio. Two reasons. First how can we tell a prospect how we are going to invest their money to assist them in meeting their needs and goals before we have done a Discovery? A process designed about how you, the FA, invests is the old way. Today relationship selling is driven to "why" we invest the way we do. Fully 50%, the first 50%, of your approach to investing should be designed to tell the prospect/client "why" . Second, your Investment Philosophy has to take into account that prospects/clients are different, with different tolerances, tax needs and time horizons. This is explored in depth in PFGC's Retention/Attrition Webinar and the link is immediately below.
Repeatable is simply that your Investment Philosophy is applicable to a wide spectrum of your clientele. If an FA wants to "bet" on the market by over weighting an Index, Sector or Stock to such a degree that it disregards prudent Portfolio Management then the FA has not developed a "repeatable" process. Portfolio Management is a skill set and any skill set can be honed. FAs should consider getting the CPM designation, Certified Portfolio Management, to learn the basic fundamentals of portfolio construction and maintenance.
Scalable is simple, FAs must be on a discretionary platform. How can you scale your business and effectively and efficiently manage our client's assets if two (2) conditions are not met. First you have a standardized investment model and second the model is on a discretionary platform. It takes three (3) months to move a book with over $100 million in assets if the FA has a "customized" investment process. This "customized" process is not indicative of us being a prudent steward of our client's money when the world trades in a 24/7 cycle in millionths of a picosecond. We must be better.
I have asked many FAs what is their value proposition versus a robo-advisor? Amazingly to me the overwhelming response is I hold in my clients on the way down, hand holding! I could not disagree more.
If a FA has a standardized investment process built on prudent and accepted portfolio construction rules that resides on a discretionary platform then the FA can mitigate some of the downward market moves. I know, I have heard I am not a market timer and if the client holds through the market will come back. These are true statements but also simplistic when a client can have a robo-advisor and quickly and easily move money to the sideline on their own. Where are we in this scenario? Does a thirty (30) year old hold through market corrections? Possibly as the thirty (30) year old has time to recover but what about a sixty (60) old? Hold through?
We must change. Products are dead and strategies are now driving our value propositions. Ask your Asset Management's wholesalers. Asset Managers now know that they have to be part of strategy and no longer a stand alone investment choice. Look at State Street. They just announced lower costs on fifteen (15) ETFs. The fifteen lower (15) ETFs are not news but that the fifteen (15) can be used to build a portfolio is news. State Street is offering a strategy not just a product.
When I started as a baby broker 43 years ago the largest Merrill Lynch FA in Florida, Customer Man in those days, had $10 million in assets. Today FAs are literally managing billions today. To put in perspective if you have over $250 million in assets your book is larger than 90% of mutual funds and Hedge Funds. You are a business. Act like it. We must train ourselves to portfolio management, CPM, get on your firm's discretionary platform and develop investment strategies that allow us to positively affect maintenance our client's capital.
We have been in the biggest and longest bull market in history. Could it continue, sure. But the deciding factors in our success will be driven by our ability to adapt to a low cost, standardized investment solution on a discretionary platform that allows us to meet our client's goals in an effective and efficient manner. Because where the market going up is always good, our revenues go up with the market, the main driver of our business is the gathering of net new assets and a "customized" business model is just not scalable.
Danny
"One left-footed step per day"
Process for Growth Consulting
Daniel G Gallagher - CEO
Business: 866.515.9995
Twitter: @PFGC1
