Deena Katz's Complete Guide to Practice Management

Tips, Tools, and Templates for the Financial Adviser

Deena B. Katz

• Publisher: Bloomberg Press
• Year: 2010
• Print ISBN: 9781576603086
• eBook ISBN: 9780470885321
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Inversiones y valores

Deena B. Katz, CFP, a preeminent authority on practice management and an internationally recognized financial adviser, presents a comprehensive guide to running a professional financial planning practice. To create this book, Katz updated, revised, and combined her two acclaimed books Deena Katz on Practice Management (1999) and Deena Katz's Tools and Templates for Your Practice (2001). In this newly expanded volume, she presents the essentials on how to help a practice thrive side by side with the tools and templates needed for the everyday operation of your firm. This new volume offers guidance on practice-management issues:

• setting up an office
• systems and technology
• administration and staffing
• marketing
• growing as the market changes
• hanging on to clients for the long term
• succession planning when the time comes

This comprehensive resource provides sample forms, worksheets, templates, letters, brochures, and collateral materials developed and refined by top wealth managers and planners. From keeping the business running well by designing dynamic collateral material, to considering plans for retirement, Deena B. Katz guidesadvisers through every challenge a financial planning business will face.

PART ONE

THE BUSINESS

Successful entrepreneurs constantly reevaluate and refine current practices. Moving water never stagnates. This section is concerned with firming up the foundation of your practice by reexamining your core values, mission, and vision. It will discuss the importance of selecting your business model and will provide recommendations related to managing business crises and planning for succession.

1

Determining Your Core Values, Mission, and Vision

To be a good leader, you have to have a clear set of values you implant in the company.

—Herb Kelleher, chairman of Southwest Airlines

Psychological studies indicate that people develop their attitudes toward money at a relatively early age. This process is rarely scientific and almost never rational.

Isadore Katz, a business genius and financial success, who was also my mentor and father-in-law, inadvertently taught me an important lesson about determining value. Isadore loved the stock market. Well into his eighties he would sit by the pool with the Wall Street Journal in one hand and a small radio dispensing market reports in the other.

When he reached his midseventies, Isadore’s driving skills had begun to fade and his sons persuaded him to buy a limousine. Daily, his driver would take him downtown to his club to play cards with his pals, and then drive him home again in the evening. One day, his driver was sick. Isadore’s youngest son called to tell his dad to take a taxi to the club since his chauffeur would not be available. “I’ll take the bus,” Isadore told his son, “I’m not going to pay that kind of money for a cab just to go downtown.”

In a time-pressured world, people will pay for all sorts of services including personal chefs, exercise trainers, dog walkers, and house sitters. There is even a scooper service in my town, called Tech Poop. You can guess what they are picking up.

There is no practical way to determine, much less control, how people assign value to various services. What matters is that you value what you do, because if you don’t believe that your advice or service is desirable, prospects won’t either. How you feel about your work is transmitted immediately to people.

One of my first clients was a United Airlines captain. At the time, United pilots were entertaining the possibility of a strike, since negotiations for their new contract were not going well. At one of our appointments I remarked that considering the responsibility pilots have in the air, I’d give pilots any salary increase they wanted and not bat an eye. Surprisingly, my client didn’t agree. “The money I make is already obscene,” he remarked. “I’m just a glorified bus driver.”

In one statement, my view of him as a professional was altered by his own perception of himself. My client went on to explain that when he started flying commercially, he was working in a 727 cockpit with a copilot and an engineer, all three of them busy virtually every minute of a flight. He had recently been promoted to captain of a 737. This cockpit was more automated and required only two people. With fewer activities, he often felt like a glorified bus driver.

Consider how technology affects how you see yourself and your value to your clients. In my earlier days of practice, there wasn’t much financial planning software, no performance database, and no optimizers. We had to scramble for information on mutual funds, fund managers, and fund performance. We relied heavily on marketing material and anything we could glean from a prospectus. When I prepared a review, I literally sat with copies of my client’s nine mutual fund statements and typed relevant information onto a single sheet so I could provide a consolidated report. We couldn’t handle many clients because the data gathering and report preparation took forever. We were in the publishing business, not the planning business. Compared to those days, my practice activities today are a breeze. There is no doubt that the personal computer and companies like Charles Schwab and Morningstar have put advisers like me in business. But, by themselves, they won’t keep me in business.

I asked financial adviser Eleanor Blayney, formerly of Sullivan, Bruyette, Speros & Blayney (SBSB), now Harris SBSB, for her perception of her value to clients. “I know I add a great deal to their lives, but in the back of my mind I keep thinking, what am I missing? Why should I be paid so well for this? It’s fun and it’s easy.” The ease of preparing physical reports leads us to forget how hard we worked (and continue to work) to acquire our specialized knowledge and skills. Our value to clients is not derived from the easily prepared reports. Our value is reflected in our clients’ success in meeting their goals, assisted by our knowledge and skills. Vladimir Horowitz made playing the piano look effortless. What his audience actually heard, and paid for, was his expertise, training, and talent sharpened by the endless hours he spent practicing.

We Need to Express Our Value to Clients in Benefits, Not Features

More than one adviser I know describes his value in the statement, “My clients sleep well at night.” Telling our clients we design well-balanced (deadly dull and boring) portfolios is less effective than telling them that if they follow our advice they will sleep soundly.

That’s why you shouldn’t give clients the impression that performance is the value you add to their lives. In fact, if you believe in asset allocation and diversification, you guarantee that your clients’ returns underperform the hot market of the moment. Diversification requires including asset classes that are poorly correlated. The possibility of making a killing is what your client gives up to sleep well at night. On the other hand—here comes the benefit—when a single market is depressed, diversification will buoy returns. Stated as a value to clients, you help them avoid getting battered in the market. We tell prospects, “We can’t make you rich, but we won’t make you poor. Our job is to help you enjoy life and sleep well at night.” In our firm, we demonstrate our value by keeping our clients from chasing returns in bull markets and from bailing out in bear markets. All of our interaction and communication with clients revolves around managing their expectations. I think this is such an important issue that I have devoted Chapter 14 to it.

John Guy of Wealth Planning & Management in Indianapolis, Indiana, has an interesting perspective on the value of an adviser. “My guess is that over the course of a long-term relationship, a financial adviser is likely to render at least one piece of immensely valuable advice. The advice usually arises from coincidence, even when the adviser understands investment markets and the client’s personal situation. Usually, the value of advice is not recognized at the time it is delivered. Instead, it is recognized months or years later.”¹

Until the recent ugly downturn, wild market volatility has been prevalent. The Dow is down 500 points one day, up 300 the next. The first time this happened, in 1997-98, we called our clients and then followed up with a soothing letter. After several incidents of this, many of our clients suggested we save the postage. “I know you’re doing your best work, now,” one of my clients told me, “but why don’t you concentrate on some of your newer clients? I’ve already been on this roller-coaster ride and it doesn’t make me sick to my stomach anymore.”

Since the beginning of the millennium, market volatility has not changed much, but I believe that investors have. Some have become immune to the daily pendulum swings, but most recognize that they need professional help in responding to market movements. Certainly, as American investors gray, they’re more willing to accept professional advice to preserve their future lifestyles. This can only be good for the financial advisory profession. Later in this book I will discuss communication techniques you can use with clients who are still jumpy about market volatility.

Not every prospect will find value in your services. Like Isadore, they may be unwilling to pay for services that they believe they can get elsewhere “for free.” “Why should I pay you,” they ask, “when I can get all this information on the Internet and do it myself at a discount broker?” When you encounter these people, and it appears that you are not speaking the same language, move on. I’m fascinated to hear advisers tell me about their “conversion ratio.” Conversion should not be a part of your job description. If you are presenting yourself and your business effectively, prospects either understand your philosophy and appreciate your value or they do not. To me, conversion presupposes resistance. Clients I’ve successfully “converted” were never satisfactory relationships for me.

Most Advisers Spend Little Time Defining Themselves and Building Their Practices

The clearer the adviser is about what he does, the better he is able to explain it to a prospect. It helped me to sit down, enumerate my ideal client in detail, and describe what I could do for that client. This thinking process became the basis for developing my core values, mission and vision statements, and ultimately, our company philosophy.

In speaking with other advisers, I discovered that we have no consistent way of developing these essential components of our business. In fact, many used different names for the same idea. For example: core belief, core value, and core purpose all seemed to describe the same fundamental concept. Because I often refer to “building a practice,” I thought a building analogy would be useful in clarifying how successful practices are developed. Therefore, the following are, in order of priority, descriptions of the four statements that I believe must be in place in order to “construct” successful practices.

1. One thing. There is a huge range of services and products one might offer in a financial planning business. In order to be successful, you must determine at the outset the unique service you propose to provide. What will set you apart from everyone else? For what will you be known? I refer to this as your one thing. In building a practice, this is your preliminary survey, the staking out with words the idea that describes your one thing.

2. Core values. What fundamental beliefs underlie the philosophy and policies of your company? Your firm’s core values are analogous to the foundation of your practice, a largely unseen but essential underpinning.

3. Mission statement. Once you have determined your one thing and your core values, you must describe how you wish your practice to look. Analogous to the plans for a building, a mission statement provides the basis for the design of your company.

4. Vision statement. If a mission statement is analogous to a building’s blueprints, a vision statement is the equivalent of an architectural rendering of the completed practice. The vision statement describes what the practice will look like once the practice is successfully established.

One Thing

My partners, Harold Evensky and Peter Brown, began their partnership in 1985, five years before I joined them. When I arrived, there were eight advisers with the planning practice and ...

Table of contents

• Praise
• Also available from Bloomberg Press
• ATTENTION CORPORATIONS
• Title Page
• Copyright Page
• Dedication
• Acknowledgements
• Introduction
• PART ONE - THE BUSINESS
• PART TWO - THE STAFF
• PART THREE - THE CLIENT
• PART FOUR - THE PROCESS
• NOTES
• Trademarks
• INDEX
• ABOUT BLOOMBERG
• ABOUT THE AUTHOR