By Todd Tyler, CFP®
Over the last year, we've witnessed the most tumultuous economic times in modern memory. It's as if a bomb went off in the economic system and we are still experiencing the fallout. Economic malaise, unprecedented market volatility, fraudulent investment schemes and significant loss of investor wealth are just some of the results. Your clients and prospects have been deeply affected by the financial events of the last 12 to 16 months. Investor confidence has been replaced by mistrust.
At the end of 2008, 46 percent of high net worth clients had lost trust in their primary financial adviser and 78 percent had lost confidence in our financial regulatory system, according to the Capgemini and Merrill Lynch Global Wealth Management 2009 World Wealth Report.
Today, many clients are asking themselves, "Can I trust my adviser? Does my adviser really know what he or she is doing? Are my investments safe?"
Clients and prospects are more fearful and cautious than ever. They're asking more questions and doing more research, trying their best to inoculate themselves from the Ponzi scheme pandemic. After the Madoff and Stanford financial scandals, investors want to know how their advisers run their businesses-in detail.
Address your clients' and prospects' fears and concerns head-on by building a transparent practice; a practice in which all processes are defined and documented in plain English. When you can briefly explain each process step-by-step to your clients, you have opportunities to:
- Communicate confidence and competence. There are few ways to demonstrate your confidence and competence more effectively than showing that you have well-established processes, which you are willing to share.
- Establish appropriate expectations. When clients know what to expect, surprises that disrupt relationships or create doubt become less common.
- Build trust based on reciprocation. Entrusting your clients with detailed information about your business establishes a reciprocity relationship. You are privy to private information about their finances, and they are knowledgeable about the policies and practices that make your business successful.
If you have the tools and ability to clearly communicate your processes, your business will be positioned to flourish in any economic environment.
Strengthen Your Practice
In addition to providing a valuable and effective client resource, process transparency can strengthen your practice. Transparent processes are communication, business-planning and management tools that describe workflow by identifying inputs, outputs, activity steps, decision points and functions. They provide a foundation for your practice, because a well-designed, transparent process allows anyone in your organization to understand how a specific task should be completed.
Transparent processes also provide a means of identifying opportunities for improvement-once workflow has been documented, it can be evaluated and improved, and used to measure operational and business performance, since process diagrams can help you assess employee efficiency and performance as well as measure your own performance.
Finally, use transparent processes to make your practice client-centric. As you define processes, it's important to remember that they should bring value to your clients.
Gain a Competitive Advantage
The regulatory climate for financial services in the United States is changing. Already, a financial services consumer protection agency has been proposed, the 401(k) Fair Disclosure and Pension Security Act of 2009 is in the works and a fiduciary standard for all advisers is being discussed. In the future, financial firms and financial professionals will be held to higher standards that will likely include making their businesses more transparent. Building a more transparent business will put your business ahead of the industry curve, allowing you to:
- Differentiate your practice. A practice that adheres to a fiduciary standard will attract investors who have lost confidence in the system.
- Build trust. When you provide the services described in your process documents, you build client confidence.
- Leverage relationships to grow your business. Appreciative clients are great sources for referrals. Don't forget to define, document and share your referral process with clients.
If you wait for regulations to be finalized before making changes to your practice, you lose a valuable opportunity to gain a competitive edge.
The Transparency Framework
Creating a transparent practice will take some work. It will require you to think carefully about and define the processes that bring value to your clients and help your practice run efficiently. These steps outline the process of creating transparency in your practice:
Document: Capture on paper your current process. Evaluate for opportunities to improve. Adjust and improve the process. (More on this later.)
Diagram: Create a process diagram outlining the process step-by-step, including connection points to other processes within your business.
Integrate: Make transparency part of your business culture. Include your team in the process and equip them to understand and communicate the reasons for the increased transparency. Also, be sure that your processes flow together as seamlessly as possible, creating a cohesive and efficient platform rather than a group of disparate functions or procedures.
Communicate: Determine your strategy for communicating your updated transparent business model to clients and prospects. Incorporate the concepts into your marketing plan and be sure to include it in your Web site, newsletters and new client welcome kits.
Evolve: Create protocols for updating your processes as the need arises and for periodic reviews to ensure ongoing accuracy and effectiveness.
Depending on the current state of your practice, becoming more transparent may require that you, a trusted employee or an experienced consultant commit a significant amount of time over the next few months to create step-by-step descriptions of all the processes essential to the functioning of your business and the success of your clients, including your firm's:
- Investment process
- Client acquisition process
- Client service process
- Financial planning process
- Retirement planning process
- Referral process
Once they've been created, your process documents will become extraordinary marketing tools that provide clients and prospects with a window into the heart of your business. By making your practice transparent in all aspects, you'll be able to rebuild lost trust, improve the efficiency of your business and position yourself to thrive, no matter what industry standards become the new normals.
How to Get Started
If you're shaking your head and wondering how you'll find the time to incorporate transparency into your practice, just focus on the fundamentals. First, you need to make a commitment to get started. Remember the old Chinese proverb, "The journey of a thousand miles begins with a single step." Begin with the basics and then build on them as you move forward.
Next, you need to document your existing processes. Documentation is the foundation of process management and transparency. It's also something that you can do right now to move your firm toward greater transparency. Documenting your processes can be accomplished by following these simple steps:
Capture the process. Write down what you are currently doing.
Evaluate the process. Look for opportunities to improve your process.
Adjust and improve the process. Implement changes to improve your process.
For example, here are some questions you might consider regarding investment process to demonstrate the procedure for documenting your processes: Do you employ an active, passive or hybrid investment philosophy? What experience or research has brought you to embrace that philosophy? What criteria do you use to screen and select investments? How often do you run screens? What tools or software do you use? Who is responsible for investment screening and selection? What is the goal of your due diligence? Is your investment selection based solely on objective criteria discovered in the screening and due diligence process, or are there also subjective considerations? What is your process to terminate or replace investment managers?
Be sure to capture anything that is relevant to your process. It doesn't matter if it is refined or well written as you're initially documenting it. The goal is to get it down on paper. You can always clean it up after you've captured it. Look for opportunities for improvement and make any changes necessary to improve the process. Don't forget to update your documentation to reflect any changes that you make. Just follow the steps-capture, evaluate, adjust and improve.
Transparency Is the Future
Building a transparent practice is an investment of time and resources, but one that will pay healthy dividends in business performance and growth if done properly.
Although some financial professionals think greater transparency is part of the fallout from the financial crisis, I do not. I believe that financial advisers who manage their practices well during this period of change will find themselves with stronger client relationships, improved business processes and healthy growing practices. In short, they'll be standing strong when the dust finally settles.
Todd Tyler, CFP®, is a principal at Assurgent Consulting LLC (www.AssurgentCG.com), a management consulting firm serving financial advisers, and the creator of the e3TM Methodology, a framework to improve operational capability. Contact him at Todd.Tyler@AssurgentCG.com.
Learn More
Do you need some help documenting your processes? Does the thought of outlining and capturing your current processes overwhelm you? Visit www.FPAPracticeManagement.org to access a client acquisition process checklist, or go to http://tinyurl.com/be-transparent to download additional transparency checklists with detailed questions to help you facilitate the capturing and documentation of your processes.
