On this episode of Advisor Skinny, Mike Walters shares some surprising statistics about investors and their actions after a death in a family. By understanding these forces, an advisor will be better prepared to retain clients’ assets.
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Category: Business Development
S2:E6 The Four Gaps
On this episode of Advisor Skinny, Mike Walters explains the four gaps: value gap, advisor gap, valuation gap, and gap value. We learn which can be the most costly to an advisor’s business and some methods to close or mitigate these gaps.
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S2:E5 Buying a Practice
On this episode of Advisor Skinny, Mike Walters discusses business valuation from the buyer’s perspective. He explains what it means to buy a business rather than a job and how that will ultimately lead to a more successful transition and future growth.
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S2:E4 Selling Your Practice
On this episode of Advisor Skinny, Mike Walters discusses business valuation from the point of view of the seller. He shares his thoughts on finding the right buyer, how to structure a practice so it’s more valuable to a buyer, and how to approach the sale with clients to allow for a smooth transition.
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S2:E2 Maximum Enterprise Value
Join us for this week’s episode of Advisor Skinny where Mike Walters discusses enterprise value. Not all business is weighted the same and Mike offers some ideas on how to think about maximizing enterprise value.
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S2:E1 Business Value and Alignment
On this episode of Advisor Skinny, Mike Walters starts the discussion around business valuation. He shares his thoughts about beginning the process, engaging professionals to help, and mistakes to avoid.
Join Mike for this engaging new season of the Advisor Skinny podcast!
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S2:E1 – Business Value and Alignment
Or
How Advisors Get Left Behind (hint: it’s only by choice)
Target Readers:
- Advisors seeking growth and direction.
- Advisors struggling to adapt and change as the industry evolves.
- Advisors looking to increase profits and/or the value of their practice.
Talking Points:
- How has your business changed over the last 10 years?
- Do you wish to retire or transition, but your practice valuation is stifled?
- Are you continuing to nurture your business successfully?
Here’s the Skinny,
We’ve all heard before the statement, “the only constant is change”…
Take a moment to reflect upon your business 5 years ago, even 10 years ago. Was it exactly as it is today? Or is it dramatically different?
Many in our industry started out as agents in the insurance/annuity business or as registered reps in the securities business. Yet today, a primary focus is more often directed toward assets under management. But even that segment has evolved.
Years ago, many advisors were managing their own portfolios for investors, Rep as PM (portfolio manager) is the common terminology today. Yet, now, the Rep as PM model is dwindling as advisors embrace the scalability of using third-party asset managers and TAMP programs like USA Financial Exchange. Indirectly, this new model has solved two crucial problems for advisors…
- Asset gathering (not asset managing) is the revenue lifeblood of a retail practice. The more time an advisor spends managing money, the less time they spend growing the practice and attracting new assets. Therefore, profits often go up in direct proportion to reduction in directly managing assets.
- Rep as PM and/or advisor managed portfolios, stifle the value of an advisor’s practice. They choke out scalability, which can crush the valuation of a practice (no buyer wants to buy “a job,” they want to buy “a business,” and it’s impossible to climb inside the head of the advisor managing the money), but the advisor focused on gathering assets can turnover their systems and processes along with the scalability of third-part asset management. Therefore increasing the valuation of the practice.
The point is, to use another true cliché, “if you aren’t growing you are dying.”
If you do not adapt and remain agile, eventually the marketplace may diminish your worth to the point of disaster. I am not a close follower of Sears, but it did not surprise me to see hundreds of stores closing. (Sears previously announced 166 stores to close this year. Now they’ve added 68 more to the list. There are less than half the Sears stores today as there were just 5 years ago.)
Strictly from my own consumer perspective, they do not appear to have kept pace with digital or online sales, their storefronts have fallen out of favor and seem out of touch with today’s shopper, and the few times I’ve wandered into a Sears store they struck me as being almost vacant on product and in a state of disrepair. At some point simple math will grind such a business to a halt.
Similarly, in our industry, think of the advisors who have not evolved. Conducting their business as if it’s from the 1980’s or 1990’s. Trying to live on commissionable products alone. It’s an uphill battle and we’ve all seen their decline. Business models need to adapt and evolve as the business changes… Or you end up feeling like Sears in an Amazon world.
So how do you stay ahead? Keeping your business on the cutting edge?
- You continually enhance your offerings and services, making yourself indispensable to the investor/client.
- You continually strengthen the relationship you maintain with the top 50% of your clients, targeting replication of the top 20% (not the bottom 80%).
- You automate and utilize technology to reduce the mundane and increase the culture, value, and experience of your staff.
- You monitor trends for the future valuation of your practice, which almost always will parallel the future appeal to new investors and clients.
- You run an “experience-based” business model that delivers an elite client experience. Not a discounted fee, or diminishing returns model.
- You affiliate with institutions that help you accomplish everything listed above.
Things are not the same… Thank God… Are you ready?
Everything can (and will) always get better and better with time, as long as you continue to nurture your business as if it is a loved family member. It’s a mindset. And the beautiful option is that you get to choose… Adapt and grow rather than decay and decline.
That’s the Skinny,
Are you an Entrepreneur (or are you Self-Employed)?
Target Readers:
- Those trying to determine how they want their business to grow.
- Those who are not sure if they are an “income earner” or a “business builder.”
- Those who have hired staff and/or need to hire staff.
Talking Points:
- Most do not understand the difference between self-employed and entrepreneur.
- Do you want to build a great career? Or a sustainable business? Or both?
- Consider the lifestyle you desire before building your business model.
Here’s the Skinny,
Most of the world does not understand the difference between being self-employed and being an entrepreneur.
The vast majority of small businesses are comprised of self-employed individuals as opposed to entrepreneurs. Yet, in error, many self-employed folks will refer to themselves as being entrepreneurs when they are not.
What’s the difference? Well, let’s start with the definitions from dictionary.com:
Self-Employed [self-em-ploid]
Earning one’s living directly from one’s own profession or business, as a freelance writer or artist, rather than as an employee earning salary or commission from another.
Entrepreneur [ahn-truh-pruh-nur]
A person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.
As you can see, there is a distinct difference.
This month, USA Financial celebrates its 30th year anniversary and I’m blessed to have shared in the growth over all 30 years (except for the first 2-3 months anyway). When I reflect back over those three decades, hindsight 20/20, for the first 2 years of USA Financial’s existence, we ran solo and were undoubtedly self-employed. For the next 8 years we were a more sophisticated version of self-employed, as we had support staff, but we were not much different than a business manager who has gained success and respect enough to be assigned subordinate staff and/or personal assistants by their employer/boss.
It wasn’t until ten years into the life cycle of USA Financial that I can confidently reflect back and realize we transitioned from being self-employed to being entrepreneurs. In fact, our turning point was a one-two punch beginning in 1998, when we…
- officially killed our business structure that emulated the financial services “external wholesaler” model and then;
- launched USA Financial Securities, our broker dealer.
Together, this combination of change required we reconstruct an entirely new business model (and strategy) that took two full years for us to completely re-tool, re-educate and re-deploy. By year 2000, USA Financial was unrecognizable from its former self.
That was our watershed moment in time. From 1998 to 2000 we transformed ourselves from being self-employed to being entrepreneurs… And we’ve been growing ever since.
Someone who is self-employed is simply their own boss, working “in” the business. Whereas an entrepreneur is building a sustainable business model that is not solely dependent upon them for the entity’s ongoing success – and therefore – they tend to spend more time working “on” the business (versus “in” the business).
In our case, the visual transition from self-employed to entrepreneur was dramatic. Notice the permanent and dramatic change in our revenue growth line in 2001 vs. previous years. Prior to 2001, we had minimal incremental increases as we worked hard and performed better at our jobs. But in 2001, we started running an entrepreneurial organization. And for us, that was the ticket.
Please understand, that being self-employed is a perfect choice and solution for many business owners. Not everyone desires to grow an organization and take on the entrepreneurial status. The key is knowing which you desire to be, considering exactly how you desire to intertwine your work life and personal lifestyle so that they successfully co-exist, then structuring your business model and staff accordingly.
That’s the Skinny,
Important Hiring Perspective(s) as You Grow
Target Readers:
- Those building their business via staff and hiring.
- Those struggling to find good candidates.
- Those with a poor track record in successful hiring.
Talking Points:
- How to weed out bad candidates quickly.
- Understanding what instincts are needed for a candidate.
- Finding candidates with the right mindset.
Secure and respected and engaged and risky
And some people want a job that’s secure, where they are respected by those around them.
It’s a choice, a choice made once a lifetime, or every year, or perhaps day by day…
It’s worth finding the right state of mind for the job that needs to be done.
Here’s the Skinny,
An interesting perspective below (from Seth Godin) to keep in mind when managing & hiring… Not anything we “don’t already know”, but it isn’t always the first thing that may jump-to-mind when dealing with your teams.
Nugget 1: At USA Financial we use a tool called Kolbe in our hiring practice. Kolbe helps identify a person’s “modus operandi” or creative instincts. In my experience, the high Quick Starts (strong with originality, risk-taking, and uncertainty) are usually in the “thrilling group” as described by Seth above, while high Follow Through (provides structure, order, focus, and continuity) tend to be in the “job security group” – high Fact Finder (enjoys complexity and providing the perspective of experience) and high Implementer (provides durability and a sense of the tangible) seem to be about 50/50 in either camp. I’ve found this tool to be very effective at helping us determine if a candidate is a good fit for a particular role.
Nugget 2: At my last Strategic Coach 10x meeting, my friend Dan Sullivan emphasized the importance of the following interview question (especially for weeding out the “wrong kind” of millennial attitude – although its equally important for any potential hire)… The question is:
“If you are hired by INSERT FIRM NAME HERE, what do you feel you will be entitled to?”
- Hint: The correct answer is NOTHING, or a derivative what they will bring to your organization. Such as, “an opportunity to contribute to the team”, or “the chance to apply my skill set”. Not any answer along the lines of benefits, tenure, vacation days, or any other unionized or entitlement type response. I know this is a question the USA Financial team has been using for a while now, but it was a great reminder for me to hear it again from a third-party source.
Nugget 3: God has hardwired each of us differently, and that is highly beneficial to you as an entrepreneur. The mistake many make is hiring “someone just like them,” where what they most likely need is someone entirely different than them… Someone who would absolutely love to do the work that you have no interest in doing… The key is to build your team/staff like a snugly fit puzzle. That is where the magic can be found.
That’s the Skinny,
The 4-Corners of the DOL Fiduciary Rule as things stand TODAY!
Target Readers:
- Those confused by the DOL Fiduciary Rule and current news.
- Those in denial and/or not adhering to the current rule status.
- Those who have received erroneous info from IMOs/FMOs.
Talking Points:
- Like it or not the DOL rule is already in effect.
- Advisors are at risk if they are not adhering to the rule.
- Annuity companies are auditing for PTE 84-24 as of January 2018.
- The ground has begun shifting again under the DOL rule.
Here’s the Skinny:
As promised, here is my high-level synopsis of what I have been calling “the 4-Corners of DOL status:”
1) JUNE 2017: DOL Fiduciary Rule Transitional Relief (currently in effect thru July 1, 2019):
- Advisors to retirement investors, on all qualified monies and related advice, will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” beginning on June 9, 2017. These fiduciary standards require advisors to adhere to a “best interest standard” when making investment recommendations, charge and/or receive no more than reasonable compensation for their services, refrain from making misleading statements and manage any conflicts.
- The Best Interest Contract Exemption (BICE) applies only to hierarchies involving a Financial Institution (FI), which the DOL recognizes as a BD, RIA, bank or insurance company. FI’s and their advisors must adhere to that stated above, however, all other remaining conditions are delayed until July 1, 2019, such as requirements to make specific written disclosures and representations of fiduciary compliance in communications with investors (meaning written disclosure and client signature is not required under BICE).
- The amendments to the Prohibited Transaction Exemption 84-24 (PTE 84-24), which applies only to agents/advisors (not including FIs), relating to insurance and annuities is delayed until July 1, 2019, other than that listed above which is applicable on June 9, 2017. Under the transitional PTE 84-24, the agents/advisors must disclose conflicts of interest plus the sales commission, expressed as a percentage of gross annual premium payments for the first year and for each of the succeeding renewal years, that will be paid to the agent in connection with the purchase of the product. Documentation must be provided to and signed by the client and retained by the agent/advisor for 6 years (meaning written disclosure and client signature is required). NOTE: Many insurance companies announced that they would begin random auditing for PTE 84-24 documentation starting in January 2018.
(for further info and complete footnotes visit https://advisorskinny.com/2017/08/29/did-you-get-abandoned-to-fend-for-yourself-on-dol-pte-84-24/)
Here is a DOL compliance flowchart schematic that may help you visualize the flow and structure that is mandated by the DOL Transitional Relief period under the DOL Fiduciary Rule.
2) FEBRUARY 2018: Massachusetts charges Scottrade with the first known enforcement action under the DOL Fiduciary Rule.
Essentially this was the result of their running two sales contests between June and September 2017.
DOL officials had previously stated they would not pursue claims against “fiduciaries working diligently and in good faith to comply.”
One would assume, among other allegations, that Massachusetts does not believe that Scottrade was “working diligently and in good faith to comply.”
Massachusetts Secretary of the Commonwealth, William Galvin, further stated, “If the Department of Labor will not enforce its own laws and rules, then the states must do what they can to protect retirees from firms who believe they can play with peoples’ life savings by conducting sophomoric (sales) contests.”[5]
Other States are expected to follow the Massachusetts lead.[6]
Many believe that any (and all) sales contests or sales incentives create a conflict of interest and negate a firm’s ability to comply with the best-interest standard. The Director of Investor Protection at the Consumer Federation of America said the case “perfectly illustrates the kind of practices that go on behind the scenes at firms that claim to be complying with a best-interest standard.”
(for further info and complete footnotes visit https://advisorskinny.com/2018/02/27/dol-fiduciary-rule-violation-charges-proof-the-dol-rule-is-live/)
3) MARCH 2018: The 10th District Court of Appeals upheld the DOL Fiduciary Rule.
Currently, Fixed indexed annuities “operate under the same exemption of federal retirement law as fixed annuities. But the DOL put them under the so-called BICE due to their complexity and the potential conflicts of interest associated with their sales.”
It was also argued that the “DOL violated rule-making procedures and didn’t do a proper economic impact analysis in promulgating the fiduciary rule.”
(for further info and complete footnotes visit https://advisorskinny.com/2018/03/15/dol-fiduciary-rule-upheld-for-fias/)
4) MARCH 2018: The Fifth Circuit Court of Appeals determined the DOL exceeded its statutory authority under ERISA.
The Fifth Circuit Court of Appeals “Held that the agency exceeded its statutory authority under retirement law – the Employee Retirement Income Security Act.
The judges criticized a key provision of the rule, the best-interest-contract exemption. The BICE allows brokers to receive variable compensation for investment products they recommend, creating a potential conflict, as long as they sign a legally binding agreement to act in a client’s best interests.
‘The BICE supplants former exemptions with a web of duties and legal vulnerabilities,” the majority opinion states. “Expanding the scope of DOL regulation in vast and novel ways is valid only if it is authorized by ERISA Titles I and II.’”
(for further info and complete footnotes visit https://advisorskinny.com/2018/03/15/dol-fiduciary-rule-upheld-for-fias/)
What do I think?
My opinion is that the DOL Fiduciary Rule was poorly written, riddled with confusing and fuzzy explanations, entirely underestimated the complexity and economics of the challenge, and shirked regulatory enforcement responsibilities by defaulting to a free-for-all litigious structure.
On the other hand, I believe the industry needs to create a level-playing filed across all licensure so that a customer/investor can understand and expect to experience a professional standard-of-care that does not allow for outlandish claims and sales practices from certain segments of the marketplace as determined by licensure or lack thereof.
Currently, given the existing landscape, I would surmise the odds are in favor of the DOL Fiduciary Rule ultimately being eliminated and/or replaced by a more appropriate ruling from the SEC. But then again, no one has a crystal ball.
And in the meantime, the DOL Fiduciary Rule Transitional Relief (as described in #1 above) is in force and continues to be the current standard . As I’ve warned before, advisors must adhere to the DOL rule accordingly (regardless of any ill-conceived advice they may have received elsewhere).
That’s the Skinny,