Why Practice Development and Business Planning are essential for success as a Financial Advisor

Let’s examine why practice development and business planning have become so important for success in today’s environment.

Over the last 30 years there have been three paradigms that have dominated in financial services: sales, marketing and business. A paradigm does two things: 1. It establishes the boundaries within which we operate; and 2. It defines the rules for success. Understanding each of these paradigms is integral to your success.

In the ‘70s and early ‘80s we operated within the sales paradigm. To be successful then, you had to master the art of selling. In the late ‘80s and most of the ‘90s, financial services was dominated by a marketing paradigm. To be successful then, you had to master the art of marketing. Today, we’re operating within the business paradigm. And to be successful today, you have to master the art of business.

As each paradigm changes, it puts the prior paradigms in a new context. Let’s see how understanding and being able to adapt to and work within the changing paradigms can help financial advisors become successful by looking at each paradigm in more detail.

Sales Paradigm Thirty years ago, our industry was in the sales paradigm. Basing their business success on sales strategies, advisors faced issues such as figuring out how to sell complex products like life insurance or equities and fixed income investments.

Success as a financial advisor meant becoming an expert at tracking activity ratios and using common tools such as the Granum System or one-card system, and Counsellor Selling. Successful insurance advisors in the ‘70s were great prospectors who excelled at face-to-face selling and closing. Investment advisors built their clientele through social prospecting and effective telephone solicitation.

Marketing Paradigm In the late ‘80s the paradigm changed from sales to marketing. The barriers that separated all the financial services players—the trust companies, banks, securities firms and insurance companies— blurred. The key challenge advisors faced was no longer, “How do I sell?” but, “What do I sell and where do I make my next sale?”

In the marketing paradigm the focus moved from being able to sell a product, to being able to market a service, for example, the “planning” service, whether that was financial planning, retirement planning, estate planning, or investment planning.

Achieving success in this paradigm meant developing marketing plans and implementing six to eight robust marketing activities that created separation in the marketplace and established your brand.

It was the marketing paradigm that led some of the leading insurance companies to redefine themselves as wealth management companies, not risk management companies. Banks became dominant in the trust and securities sectors. For financial advisors, the key to success wasn’t a “close”, but a long-term relationship. And the archetypal system for this paradigm was relationship selling. This program taught advisors how to build a “relationship for life” and cross- sell a myriad of products.

Business Paradigm In the late ‘90s the marketing paradigm gave way to a new order: the business paradigm. In the business paradigm, the key challenge isn’t establishing brand, it’s about building a sustainable practice with growing revenues and increasing profitability. The business paradigm focuses on utilizing systems capability to maximize profit.

Each Paradigm puts the Prior Paradigm[s] in a New Context. It’s important to understand that when a new paradigm evolves, it puts the older paradigm in a new context. Today, a financial advisor could be the best face- to-face salesperson and still be making only a fraction of his/her potential. Similarly, an advisor could be an expert marketer, and not have a profitable business.

For example, the marketing paradigm changed the sales meeting from one where the advisor focused on selling a product (making a transaction) to one where the advisor focused on making a sale in a way that makes the next sale easier, either by building repeat business or by benefiting from introductions, recommendations and referrals. The business paradigm changed the focus of marketing from making the sale easier to establishing brand in the marketplace that helps build the business’s profitability. This has implications for the level of capability required in the advisor. Specialists in organization design use “stratum” to indicate the level of complexity of work in a role and, correspondingly, the level of capability of an individual to handle complexity.

Someone capable at Stratum I can follow a method and can work on tasks intended to take no more than three months to complete. Stratum I roles typically include receptionists, bank tellers, machinists, etc.

Someone capable at Stratum II can make a judgment based on several factors judged together and can work on projects up to a year in length. A solid, entry- level insurance salesperson capable at Stratum II will consider a client’s investments, income, expenses, liabilities and life goals to determine the best policy for them and may take six months to turn them from a name on a list into a client.

It takes at least Stratum III capability, with a time frame up to two years out, to succeed in the marketing paradigm. This approach to financial services requires the advisor to work actively on where their business will be a year or more into the future. It also requires them to do “serial processing” which is planning one’s work in at least three steps so that an action taken (A) will lead to a result (B) which will then lead to the goal. As an example, the advisor may make a sale to several prospects in a chosen segment (A) so that they can act as referrals (B) to make a future sale easier (C).

To effectively build a business or practice that is sellable requires at least Stratum IV capability where one can work on tasks up to five years in length using “parallel processing” in which one integrates a number of series. Here’s how the Stratum IV advisor might talk about business building.
“I want our agency positioned as the financial services agency in the area for professionals. I’ve got Chris, Sandy and Leslie each following step-by step plans to target the physicians’, lawyers’ and dentists’ markets. I am working with them so their efforts build off of each others’. At the same time, I am building up the support staff so it will be prepared for the first wave of new business in a year-and-a-half and the next wave in about 3-years. I’m also developing, testing, refining and implementing a prototype system to analyze where our business comes from and the costs associated with each source to help refine my business strategy.”

In order to build a sellable business you have to co-ordinate marketing, selling, client service, administration, financial and business management, planning etc. This requires parallel processing.

Today, the competencies required to be a successful financial advisor are more complex and wide-ranging. Financial advisors require not only marketing and sales competencies, but also business management, financial management and resource management capabilities. One of the reasons why so many advisors are frustrated and not achieving their potential is that they are playing the game by the old rules. They are still operating as if a sales or marketing paradigm defined what is required to be successful.

Today, the boundaries have changed and the rules for success are different. Our Practice Development System equips financial advisors to “win” in a business paradigm.

Herb is the coauthor, with Norm Trainor, of Best Practices: Training and Development, Carswell Thomson's international bible on Training and Development, a speaker and trainer specializing in management and organizational effectiveness.

For further information on Norm and Herb and The Covenant Group, visit www.covenantgroup.com.