Advisors often face a conundrum, “are you in it for the money” or “are you out to do good for the masses”.

Whether you agree with this or not, 100% of Advisors start their career as Salespeople,

• about 5% find success and earn the respect as true professionals, 🤗

• 90% somehow remain in that category for their entire career, 😔

• the other 5% - well they’re the bad actors, they turn to crime. 💩

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To some, it may be obvious why the numbers shew this way, the industry attracts a large number of big egos, attracted by “the allure of over the top success, charisma, the magic & glamour of the successful top producing Advisors”,  but the daily grind and the internal realities of the Advisor business is another story, it far from this allure. Or perhaps it’s the semblance of wealth or a façade of greed, that the industry is built on, that attracts people with an entrepreneurial spirit hoping to be huge producers.

In the 1987 movie "Wall Street," Michael Douglas as Gordon Gekko gave an insightful speech where he said, "Greed, for lack of a better word, is good." He went on to make the point that greed is a clean drive that "captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind."

Source - Greed Is Good or Is It?, ThoughtCo

This culture of greed act as the fuel to motivate many to become successful, to be innovative, to chart new paths to wealth in the industry. But sometimes greed can lead to a hard grind as well.

From the outside looking in, this business is sexy because of the attachment to money, but internally the scene looks very different. There’s a mismatch of sort, a very small number succeed, while a large majority reach a plateau early, and find it increasingly difficult to differentiate or grow.

This may be cultural, but you, the insiders know better, it is structural, the industry is built on incentives that foster poor decisions in the early years. Which leads to this reality - 90% Salespeople, 5% Scammers & 5% Good Advisors.

90% Salespeople

The “Brokers” of the 90’s positioned themselves at facilitators of transactions, in the true sense they brokered a transaction in which an investor acquired an assets i.e. shares of a public company or debt- bonds, debentures etc. Some brokered the acquisition of shares in baskets of companies, i.e. mutual funds, hedge funds, private equity, tax deferrals investments. They were paid commissions as a broker, as the industry evolved, some transitioned to being “Advisors” i.e. in addition to brokering transactions, they also offered some form of intelligence to aid the investors to make better investment decisions.

The Wealth Advisors of today offer substantially greater value by looking at the Investor’s / Client’s overall financial and life situation, they customize solutions to ensure that their client’s investment portfolio’s are tailored to achieve outcomes that are specific to the client-family’s objectives.

On the other hand, there are still a large number of “Brokers” posing as Advisors, that is, they earn their revenues by facilitating transactions, whether commission for stock trades, mutual funds fees & trailers/hedge funds, insurance products, or passive portfolios of ETF that have a fee wrapper. They are not offering significant value added to their clients, what they offer can be easily replicated by the client via ROBO investment platforms or DIY platforms, these are the salespeople - the 90%.

5% Good Advisors

There is a clear distinction why only 5% of Advisors are Good Advisors. The other 95%, well I would say it comes down to misalignment. The 5% viewed as good Advisors, are also typically good business operators. This small group, are better aligned for success, because many get an early head start:-

• they have a process for identifying and attracting clients that are aligned with the type of service they offer.

• they offer tangible value to their clients,

• they recognize that they cannot serve all, they can’t be everything to every type of client, they can be great at offering a certain service offering, and they do it well.

• they recognize small but meaningful anomalies in the industry that can be exploited, i.e. growth levers like AUM acquisitions, targeting specific niches, selling AUM that is not aligned with their Advisory business, partnerships etc.

• they operate efficient Advisory practices and constantly seeking to remove inefficiencies that are identified, i.e. marketing activities that produce low probability of success or mismatch in clients and staff.

• they devise systems and standard operating processes that can be easily repeated across their entire practice.

• their clients view them as essential to their own financial success

• they are typically not brokering transactions, they are full service Advisors

• their efforts are intention and produce compounding results,

• clients tend to be very aligned, respectful, grateful, and huge advocates.

So “are you in it for the money” or “are you out to do good for the masses”.

The reality is that these two ideals require far different business models, but I think there should be a third category “become a Great Advisor”. In essence the great Advisor does not have to choose between doing good for the masses or making money. Instead, they choose to be the best for a small group, their work is tremendously high value to each clients. In pursuing this strategy, the Advisor can earn a substantial income, but also pursue a meaningful career.

The challenge is early alignment, consider the other two options for a moment.

1. In it for the Money - the 90% of Advisors that can be categorized as Salespeople, why? because the enter the industry with a blinders on, typically “in it for the money”. ☟

   Blinders, also known as peepers, are devices fitted to, or through, the beaks of poultry to block their forward vision and assist in the control of feather pecking, cannibalism and sometimes egg-eating. A patent for the devices was filed as early as 1935. They are used primarily for game birds, pheasant and quail, but also for turkeys and laying hens.

   Blinders are opaque and prevent forward vision, unlike similar devices called spectacles which have transparent lenses. Blinders work by reducing the accuracy of pecking at the feathers or body of another bird, rather than spectacles which have coloured lenses and allow the bird to see forwards but alter the perceived colour, particularly of blood. Blinders are held in position with a circlip arrangement or lugs into the nares of the bird, or a pin which pierces through the nasal septum. They can be made of metal (aluminium), neoprene or plastic, and are often brightly coloured making it easy to identify birds which have lost the device. Some versions have a hole in the centre of each of the blinders, thereby allowing restricted forward vision.

   Source - Wikipedia

   Today, these Advisors can be identified easily, they are often behind the curve, utilizing one of the following two models in their practice - Brokerage or Fee Based, they earn Revenues by exchanging time for money, their Revenues are earned by facilitating transaction for clients, but the clients receive low levels of perceived value, service is not a high priority, because the Advisor is constantly spinning the wheel looking for revenue.

   The challenge that this group faces is that it’s nearly impossible to benefit from economies of scale. That is, the advisor is stuck in a spinning wheel, they have to provide investors with ideas that would lead to transactions and they constantly have to pitch these ideas to each client individually. Bad ideas will result in the clients abandoning ship and the Advisor then has to find a new replacement, it’s an inefficient operation, and a revolving door, clients seldom stay for longer than a few years. They are constrained by regulations as well, do not have the ability to act on behalf of their clients without consent on every decision.

   Fee based Advisors switch to a flat annual fee to smooth the revenue uncertainty, but the service model remains the same. The brokerage and fee based models do not offer much scalability beyond 100 clients.

2. Out to do Good for the masses - there’s a group of Advisors, who see themselves as different and having a separate profession from the industry, they are Fee Only Financial Planners. Their sole objective is to provide the service Financial Planning for Investors, they invoice clients a fee for producing a Financial Plan, they do not offer or associate themselves with a service offering of Wealth Management, Portfolio Management, the sale of insurance products, mutual funds or stocks. A high friction business model, with low probability of recurring revenue.

   Essentially, to do good for the masses, you could go down this path of only providing financial plans to investors as a services as well, which might not scale.

   If you want to do good and scale, the other model is to provide no advice at all, instead offer DIY diversified ETF portfolios, with no Advise, but you’ll need technology, hence the ROBO Advisor, this model offers far greater scalability, the mass investors will likely fall into one of the handful of diversified Asset Mix portfolios and may not require much in the way of Advise. This model is highly scalable, while lower revenue per client, there is a large mass affluent market that is can likely use this service, the concept of ROBO-Advice can scale, but the margins are slim at best. The argument here however is that there’s really no need for an Advisor, there’s no Advise to give.

   Ultimately, if you’re an Advisor “Out to Do Good for the Masses”, while a noble intent, it is difficult to scale as a business.

The Problem with the Financial Advice Industry - From the Inside

Here’s a snippet from Reddit discussion shared by an Canadian Wealth Advisor.

The Some Advisors are Misguided

My sense is that a large number of Advisors, tend to be misguided in their roles, that is, they don’t have a full grasp of how they fit in to the puzzle. They haven’t defined their objectives as a professional, quantified the value they have to offer or identified and characterized the ideal group of clients that can truly benefit from their skillset and unique offering. So they fall victim to the directions of management of the firms with work with. They choose to work under the flywheel of the firm.

In Wealth Management, there are two flywheels you need to know well - How the firm makes money and how the Advisor makes money!

If you want to be a high performing Advisor you must re-invent the wheel - How the Elite Wealth Advisor makes money!

It should not be left to the Investor to decide whether your services are a good fit. Stop chasing after large groups of investors, this is inefficient, you simply don’t have enough time in your days to pitch investors over an over on why you are the ideal Advisor for them and leave it up to them to decide.

What Advisors must realize is this, you must grow your practice with clients who seek out your services, i.e. clients that realize and appreciate that their personal situation is unique, and a qualified financial advisor that is experienced in dealing with this particular area can be tremendously valuable to them. This investors is willing to pay a premium for your services, they will value your input and likely introduce you to others in their circle that have a similar situation.

What’s the best way to find these investors?

• Acquire the AUM assets of an Advisors that provides a high level of service, it is likely that these clients already fit this profile.

• The second best avenue is to acquire the AUM assets of an Advisor that has a clientele of high achieving professionals, but does not offer service levels that satisfy these clients, i.e. a group of investors who already see the value of having an Advisory relationship. Your task is to intimately learn about each of their individual circumstances and address their situations in a manner that makes you a trusted Advisors that cannot be easily replaced.

Having a qualified financial advisor is a luxury and that's how it should be viewed. It's for people who have a certain threshold of assets that don't care to it themselves or for anyone with a genuinely complex problem.

- CanAdvisor01, Reddit

5% Advisors do not compete with 95% of Advisors

The simple nuance here, is that the 5% who are Good Advisors are also successful Advisors, successful entrepreneurs, good business operators, but perhaps there’s compounding success here as well, they start off with the right approach and improve with intent over time. They likely achieve success because they have far greater alignment with their client groups, they seek out a particular type of client that fits well with their approach. They are not necessarily expending valuable time and resources to convince a large number of investors to work with them, instead they expend their limited resources to increase their service levels to the tight niche of interested clients. Then venture out to replicate their best clients, within the communities of those clients.

Takeaway

• Choose to be a “Good Advisor” forget about doing good for the masses, it is not a scalable proposition. Forget about the money, it is not scalable. Think about building an efficient system and standard operating processes, think about the ideal client and only focus on this group. This is a scalable practice.

• Stop Advertising your services to the masses, create a better service offering for a small group that will seek out this service and bring their circles as well.

• Want to grow, acquire Assets, buy the AUM of an Advisor that already offers very good service quality and improve on it

• Acquire AUM from an Advisor that has a large number of investors that needs an Advisor and better service. The type of investor willing to pay a premium for good services. Offer better service and they will bring their circle of friends to you.

• You have no place competing with 95% of Advisors, they are likely just Salespeople (and some scammers) offering something to client that is lower value proposition than the service fees they charge, clients leave because they don’t receive substantial value from these relationships.

Success as an Advisor is all about the 5%.

The Chairman’s Council |  Strategy Playbook

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