The Team Edge

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Introduction: Not in Kansas Anymore

Spring 1992: It was a Friday afternoon, the last production day of the month. I’d been working hard, in the early stages of building my book of business, so I decided to take a walk and treat myself to a decent lunch. Upon returning, I encountered a typical Friday afternoon scene. Lou, the branch’s final commodities broker, was holding two phone handsets, one on each ear. When opportunity struck, Lou was always ready to pounce. James, whose clients viewed him as the all-American boy was racing back and forth from his office to the operations cage¹ with a fistful of order tickets². It was the final production day of the month, and James, who just bought a big house in a trendy neighborhood, had to hit his target. Sal and David, as was their tradition on the final production day of the month, were filling the office air with cigar smoke. Sal had just rolled³ his unit trusts, providing a six-figure production day, and David had added quite a bit to his Latin American utility stock position, in which he was able to hide a half point⁴. The bull market, which had started in 1982, was in full force. More recently, the market was up over 30% in 1991, and it was poised to generate a positive annual return for the tenth time over the past eleven years. The future looked bright, and I was in the game.

Spring 2016: A wealth advisory team with five members conducted their weekly meeting in one of the office’s conference rooms. As was their custom when a new opportunity arose, they were collaborating about their strategy and approach with a prospective new client. Jane was going to be the primary relationship manager, and she was sharing what she and Bryan had learned in the discovery meeting with the prospective client. Bryan, the team’s planner, with a Certified Financial Planner (CFP) designation, was chiming in on some potential strategies utilizing trusts to address the potential client’s family dynamics and to optimize tax and estate planning issues. Bob, who runs the team’s managed portfolio models, was discussing potential allocation options. Stewart, the team’s registered associate in charge of drafting client proposals, occasionally asked questions to learn more about potential next steps. Dawn, the team’s other registered associate in charge of concierge level service for Platinum clients, was listening intently, as this prospect would qualify as a top-tier client for the team. The team would craft a comprehensive financial plan for the prospect, focusing on the goals and dreams they had laid out to Jane and Bryan during the initial meeting. The team would consolidate all of the prospects’ assets, and allocate them among their portfolio models. Upon securing the relationship, they would enter the new client into their contact management system, assuring regular contact and interaction with all team members, reinforcing their team approach. Finally, they would discuss the new client’s hot buttons so that they could periodically surprise and delight the client in a personal manner, reinforcing their intimate understanding of the things that matter most to the client.

How has the financial services industry evolved so much in just over twenty years? From single stockbroker to wealth advisory team, from transactional to fee-based, from profiling to discovery, from building positions to developing relationships, the changes have literally transformed an industry. The challenge for many advisors is the fact that these evolutions have occurred in real time; practices have been forced to change on the fly. This book examines the industry’s evolution and provides insights and best practices to develop a world-class wealth advisory team to dominate your markets, create raving client advocacy, and get things done.

1

The Model for Today & Tomorrow

An Inside Look

This business has changed so much. I never thought I’d be sitting here running a team of six people. When I started in the business, in the early 90’s, I had very little exposure to the team model. I worked in a decent-sized branch office, just outside of the city limits, for one of the industry’s biggest firms. There were around thirty advisors in the office, and none of them were on teams. One of the advisors in the office had expertise in the still developing managed money ⁵ business, and he had a loose partnership, where another advisor would bring him in for select opportunities with small institutions. That was the closest thing to a team in our branch. As far as I knew, I was going to emulate the top-producers in my branch, and they were all sole practitioners.

After many years of working hard and growing, I’m sitting here a few decades later running a big team. And I’m not alone. About half of the people in my current branch are on a team⁶, and the vast majority of the top producers are now team leaders. It certainly wasn’t something we planned. We’ve tried to be opportunistic and take care of our clients; the team model has been a natural evolution of our growth and our desire to do the best job possible in serving our clients.

The Growth & Evolution of the Team Model

How and why has a model that virtually didn’t exist 25 years ago, evolved into the industry’s most dominant force? The initial wave of teams was primarily driven by two motivating factors: the increasing complexity of the wealth advisory business, and the capacity challenges this presented. Throughout the seventies and eighties, the industry was still slowly evolving from the landmark SEC deregulation mandate on May 1, 1975 – often referred to as May Day by industry insiders. Prior to May Day, all brokerages charged the same pre-determined rates for stock trades. The mandate marked the first time in 180 years that trading fees would be set by market competition, instead of a fixed price, and it led to the creation of the discount brokerage industry. For the first time, financial advice was de-coupled from security transactions. This, in turn, had significant implications on the value proposition of the full-service advisor. If I could now, for the first time, transact business at a significantly lower price, why would I pay more? The answer, of course, lies in the value of financial advice and counsel, and the associated client experience.

As the May Day changes played out over the next decade, the business became increasingly complex. New products and services were being created by the industry, and clients began demanding more from their full-service financial advisors. The Financial Planning process slowly but steadily started to become a much more prevalent aspect of the client relationship. To illustrate this growth, consider the fact that the Certified Financial Planner Board of Standards, which represents the standards, ethics, and education of those who earn the Certified Financial Planner (CFP) designation, was founded in 1985. As of July 2016, there were nearly 75,000 CFP’s in the U.S.⁷. Along with the increase in planning, the increasing complexity of the business started to test the capacity limits of financial advisors. An evolution, which is ongoing today, began (see Figures 1 & 2).

Figure 1:

Figure 2:

This confluence of increased complexity, higher client expectations, and the resulting strain on advisor capacity led to the first wave of financial advisor teams: the synergistic team. The rationale of the synergistic team lies in the notion that the whole can be greater than the sum of the parts when those parts work together. In financial advisor terms, this means the productivity of two (or more) properly teamed advisors exceeds the combined productivity that each would have while operating as a sole practitioner.

There are a number of ways that the productivity of two or more advisors can greatly exceed the combined productivity of each advisor on their own. The primary drivers of this outperformance are:

Improved human performance

Role delineation

Enhanced client experience

Power of collaboration

Mutual accountability

Expanded offerings

Enhanced operational efficiency

Client preference

Each of these key drivers of synergy will be explored in subsequent chapters of this book. It is highly recommended that you consider and evaluate the actual and potential synergy of your existing or prospective team. If you’re not producing a better experience for your clients, what is the point? While this may seem obvious, I’m continually amazed at the number of teams that exist without benefitting from the potential powers of synergy. In fact, I have experienced many cases where teams actually generate negative synergy – where one plus one equals less than two. There is ample opportunity to benefit from the synergistic impact of a team, and we will go in depth later in this book.

Figure 3: Phases of Team Outperformance

While synergy has been the Holy Grail for teams the past two decades, two powerful new forces have emerged, and they’ve lifted the outperformance of teams, relative to sole practitioners, to even higher levels (see Figure 3). The first has been the vast opportunities of scalability that technology and other industry innovations have provided. The two primary areas where this has manifested itself are in streamlined asset management and the development of more efficient team processes and systems.

The business of actually managing assets has seen enormous change for advisors over the past two decades, and the savviest teams are capitalizing to realize major productivity gains. Prior to the advent of managed money and subsequent technological advancements, including rep–as-portfolio-manager programs, the operational aspects of managing client assets took as much as 50% of an advisor’s time. This has been substantially reduced by teams that have embraced effective role delineation, technological enhancements, and client discretion, freeing them up to reinvest the time savings into other areas.

Consider the traditional non-discretionary transactional business model. Operating within this model, what if an advisor concludes that Apple has topped out, and that the assets would be more productive if re-allocated to Amazon? Assuming that the advisor has fifty clients with this profile, that means that fifty separate client calls are required to gain client approval for the transactions. Factor in the numerous callbacks and the operational input of each trade, and you can see how time-consuming this model can be. Additionally, the inevitable time lag between the inception of the rationale for the trade and the actual approval and input makes it even more cumbersome, with ample potential for missed opportunities as markets change. Contrast this with the push-of-a-button efficiency of a discretionary fee-based model. In a manner of minutes, an advisor can change allocations and implement ideas across numerous relationships at once. This has led to a key mantra of top teams that are embracing the scalability of discretionary fee-based models:

Operationally, it shouldn’t be harder to manage $500 million than it is to manage $25 million

The other key area that has led to the enhanced productivity is team systems and processes. By utilizing their different skill sets and the opportunities afforded by technological enhancements, top teams are developing highly efficient and profitable practices. Their key perspective is:

If its something we do over and over again, lets develop an efficient and consistent process for it.

This applies to all elements of their practices, from how they interact with clients to how they manage their assets. Each will be explored in-depth in subsequent chapters.

Is the Team Model Working?

We have touched on some of the key drivers that have seen the team model grow from virtually zero percent to over fifty percent of advisors over the past few decades. In fact, the trend has continued to gain momentum recently, with 25% more advisors operating within the team model than just 3 years ago. Another major factor in the growth of teams has been their outperformance of traditional models. Like most trends and patterns in the wealth advisory business, if something is working, others will adopt it. Compared to their sole