08/10/2012
1
Automate or DieDeena Katz CFP
Evensky & Katz and Texas Tech UniversityEvensky & Katz and Texas Tech University
Automate or Die!Deena Katz, CFPTexas Tech UniversityEvensky & Katz Wealth Management
IFP Annual Conference and Exhibition1 – 3 October 2012Celtic Manor Resort
08/10/2012
2
Regulation Changes Everything
1. Systematically Identifying Risk (Suitability)
2 Retool Business Model2. Retool Business Model
3. Targeting Appropriate Client Relationships
4. Managing Operations
RDR - 4 Areas to Refine to Stay in Business and Be Profitable in this Regulatory Climate
08/10/2012
3
Suitability: KPMG* findings:
Advisors Only Adequate in:
• Risk Profiling• Risk Profiling
• Processes and Tools
• Data and Recordkeeping
• People and Reward
• Governance and Management Information
1. Risk Measurement
• Governance and Management Information
*UK Management at Tipping Point, 2012
• Risk Tolerance
• Risk Capacity
U d t d Ri k St d di
• Risk Capacity
• Risk Requirement
Understand Risk , Standardize your Assessment Approach and be Consistent with your Message
08/10/2012
4
Projected Hypothetical Risk Exposure
Overall Risk Level
Total Return (Inflation= 3%)
“Worst Case”(12 Months)
Bear Market*(10/07-2/09)
Several portfolio performance projections are listed below. Also provided are hypothetical potential losses for these portfolios. Check the portfolio that most nearly reflects your goal for your portfolio.
Low/Low 6.0% -4.0% -10.6%
Low/Low 6.8% -7.0% -14.5%
Mod/Low 7.2% -9.0% -16.2%
Mod/Low 7.4% -10.0% -20.1%
Mod/Low 7.6% -11.0% -22.9%
Mod/Mod 7.8% -13.0% -25.7%
High/Mod 8 0% 14 0% 29 1%High/Mod 8.0% -14.0% -29.1%
High/Mod 8.3% -16.0% -32.4%
High/High 8.6% -20.0% -35.3%
High/High 8.8% -22.0% -40.8%
High/High 9.0% -24.0% -45.9%
High/High 9.4% -27.0% -50.9%
*90% probability
Most Least
For each of the following attributes, circle the number that most correctly reflects your level of concern. The more important, the higher the number. You may use each number more than once.
Capital Preservation 6 5 4 3 2 1
Growth 6 5 4 3 2 1
Low Principal Volatility* 6 5 4 3 2 1
Inflation Protection 6 5 4 3 2 1
Current Cash Flow 6 5 4 3 2 1
Aggressive Growth 6 5 4 3 2 1
*6-1+yr; 5-2+yr; 4-3+yr; 2-5+yrs; 1->5yrs
08/10/2012
5
THE ‘ADAPT’ SUITABILITY PROCESS from FINAMETRICA
• Awareness: client to understand their risk tolerance compared to the population including differencescompared to the population, including differences.
• Discuss report with client[s] particularly differences from the risk group and any partner. Agree risk score.
• Asset allocation link from agreed risk score
• Project asset allocation forward using cash flow modeller to confirm moneys will be available to meet clients goals as they fall due and test for risk capacity
• Test client understands the risks, particularly frame performance and volatility expectations.
QuickStart Guide introduces FinaMetrica's risk tolerance questionnaire and report, and explains a methodology for integrating risk tolerance into planning process.
Linking Spreadsheet User Guide allows a client's risk tolerance to be linked to the parameters of portfolio construction.
Risk and Return Guide and Charts (United Kingdom) covers how to use FinaMetrica to educate clients about risk and return and to manage their risk and return expectations for each of FinaMetrica's seven risk groups.
Client Resource designed to help clients understand why they are taking the questionnaire and promote credibility.
FINAMETRICA’s Answer
FinaMetrica FAQs summary of most requested information
08/10/2012
6
“ We used to sell transactions and i d i give away advice.
Now we do just the opposite.”
David Shaw, First Union Securities
2. Retool Business Model
WHAT DOWHAT DO CLIENT’S VALUE?
Client Value Disconnect
08/10/2012
7
YOUR VALUE TO CLIENTS• ADVICE VS. SALES (PROCESS NOT PRODUCT)• DISTRIBUTION FOCUSED- Decumulation Strategies• REAL RETURN FOCUSED (NET EXPENSES/FEES,
TAXES INFLATION)TAXES, INFLATION)• RISK MANAGEMENT Meeting the Changing Needs of
the complex family• FAMILY SUPPORT SYSTEM- Resources for Help with
Adult Children• ESTATE PLANNING EMPHASIS INCLUDING “Living
Estate Planning”CA A SO i k h i• CAREER ADVISOR- Part time work, changing careers, small business counseling
• VALIDATOR – Life “check up”• MENTOR Sounding board, support and chief strategist for
planning and life issues
The Creak and the Carpenter
08/10/2012
8
A Fundamental Shift of PowerFROM TO
Business Institutions
ConsumersIndividuals
THE END OF CONSUMER DEPENDENCE
• Protect Capital
• Secure Future
• Risk Averse vs. Loss Averse
Clients Won’t “Pay” for Investment “Stories” Anymore…They will “Pay” to Sleep Well
• Risk of Loss Outweighs Opportunity
08/10/2012
9
CORECORE
INSURANCEINSURANCE
INVESTMENTSINVESTMENTSCASH MANAGEMENT
CASH MANAGEMENT
CORE SERVICES
HOLISTIC PLANNING
CORE SERVICES
HOLISTIC PLANNING
RETIREMENTRETIREMENTESTATE PLANNING
ESTATE PLANNING
DO YOU SELL INVESTMENTS OR DO YOU PROVIDE INVESTMENTS THROUGH YOUR PLANNING ADVICE?
• CLIENT MUST BE PROFITABLE• 5 Times More EXPENSIVE to
acquire than retain• Happy Clients Make Referrals
U h Cli t H BIG• Unhappy Clients Have BIG MOUTHS
• Clients whose Expectations are Managed are LOYAL even in Uncertain Markets
• Manage Expectations MUST BE MANAGED from the FIRST
Target Appropriate Clients
MANAGED from the FIRST Meeting and FOREVER…
08/10/2012
10
Profitability
Client Viability
Pre-Screening Client Qualification
Ideal Client ProfileIdeal Client Profile
Client-Fit Ratio
Pre-Data Guide
Segmentation
Client Service Mix
Pricing and Fees
Tools for Getting the Right Clients
08/10/2012
11
• How much time will you spent with each client (example only):• Total
• 23 hours in the first year x $330 = $7,590 • 11 hours ongoing x $330 = $3,630
• Amortize the upfront investment over 5 year relationship• Fi t t $7 590 / 5 = $1 518 • First year cost $7,590 / 5 years = $1,518 per year
• Minimum client revenue necessary to meet goals = $3,630 + $1,518 ~ $5,200 / year
TOO EXPENSIVE? What are we going to change? Work more hours in a year? (we assumed 2,500)
Spent more time on clients? (60%)
Assess Client Viability
Lower your revenue goal ($500,000)
Spent less time with the client?
• Available Resources 20 points
• Desire and Ability to Delegate 40 points
• Reasonable Expectations 20 points
• Personality/Chemistry 20 points
• Scoring:
• 93-100 Excellent Fit
• 85-92 Good
• 77-84 Average
• 70-77 Below Average70-77 Below Average
• Below 70 Unacceptable
Client-Fit Ratio
08/10/2012
12
• $1-10 Million in Investable Assets• Long-Term Investment Horizon
“Ideal” Client
Long Term Investment Horizon• No Cash Flow Needs from Portfolio• Sheltered Assets• Delegator• Perceived Self as Conservative Investor• Recognize They Have Limited Investment Experience/Knowledge• Individuals or Institutions• Nice People• Clients Who Value What We Do
Develop Your Ideal Client Profile
• Revenue
• Profitability
• Demographics
• Psychological Characteristics
• Value Cluster
• Unique Client Needs
Segment Current Clients
08/10/2012
13
SovereignAll of our clients receive our best attention and service. Our Sovereign Service provides our sound financial management along with personal mentoring and coaching. Various services available to you include:
Comprehensive Financial Planning Investment Management Cash Flow Management Tax Planning Multigenerational Planning Estate Planning Philanthropic Planning Mortgage Restructuring Bill Paying
Service Mix:
Create L l f
y g College Funding Strategies Retirement Planning Planning for Incapacity Property/Casualty Analysis Home Technology Support Quarterly Reports and Reports-On-Demand
Levels of Service
Percentage of Clients Sovereign 9 4.5%
Imperial 38 19%35.5
Monarch 24 12%
Regal 81 40.5%
Charter 48 24%64.5
Who Falls Below Client Minimums?
08/10/2012
14
Percentage of Clients Sovereign 15%
Imperial 18%83%
Monarch 23%
Regal 30%
Charter 17%17%
Don’t Believe the Pareto Rule
• Profitability• Sustainability
4. Manage Operations
08/10/2012
15
Advocacy
Reinforcement
Transactions
Comparison
Awareness
• Understanding Relationship Marketing
• Automate for Efficiency• Automate Prior Human Tasks – Mitigation of Errors
F ili P• Facilitate Processes
• Standardization for Profitability• Renewed Competitive Environment
• Increased Compliance Regulations • More Complex Rules and Procedures
Automate or Die
• More Complex Rules and Procedures
08/10/2012
16
Systematize It!Then Automate It!
• If you do it more than once• You do it frequently• You do it infrequently
• If more than one person works on it
Hand
Cost Effective
AutomatedCrafted Service
Expensive
Automated Service
More Cost Effective Service Drives Performance
08/10/2012
17
Need the “Killer App?”
Investor Objectives and Constraints
Portfolio
Monitoring Investment Objectives
Asset Simulation Model
Capital
Portfolio Construction and Revision
Money Manager Selection, Implementation and Execution
INVESTMENT POLICY STATEMENT
Attainment of Investor Objectives Performance Measurement
Monitoring Money ManagersCap ta
Markets Expectations
Managers
Design the “Killer Process”
08/10/2012
18
• Develop Standards
• Job Descriptions
• Clear Follow Up Procedures
• Empower with “Nordstrom Authority”
• Reward Performance and Talent
• Fix the Problem, Not the Blame
35
Accountability
• What do I do best?• What needs to be done that does not NEED to be
done by me?• What can I train someone to do that will give meWhat can I train someone to do that will give me
more time to do what I do best?
Remember, clients like EXPERTS, but they value DEPTH of support, because the MOST VALUED support is SERVICE.
H A B U !
08/10/2012
19
Finally- Market Your New Self!
Focus on the Few
““II’’LL TAKE THAT LL TAKE THAT PROSPECT AS A PROSPECT AS A PROSPECT AS A PROSPECT AS A
CLIENT IF HE CAN FOG CLIENT IF HE CAN FOG A MIRROR.A MIRROR.””
08/10/2012
20
• Viral Marketing• F d W b it
STEALTH MARKETING
• Focused Website• Twitter• Linked-In• Blogs• E Newsletters• Search Engine Optimizationg p
Use Social Media and Turn a Whisper into a Roar!
Retirement Retirement Planning Small Planning Small
Business OwnerBusiness Owner
Retirement Retirement Planning for Planning for AttorneysAttorneys
Retirement Retirement Planning forPlanning for Focused andPlanning for Planning for PhysiciansPhysicians
Focused and Specialized
VERTICAL MARKETING
08/10/2012
21
Pre-Client Loyalty Marketing
“Running down the R g do t e wrong road faster will not get you to your destination any sooner.”y