Practicing Scarcity While Embracing Abundance

By: John Steuernol

When we embrace the concept of abundance we never worry about running out of opportunities to find new clients; and, as you practice scarcity you ensure you only add to the business those who truly deserve your brand of financial advice giving.

Trying to be all things to everyone may be a recipe for disaster, while becoming all things to the few lends itself well to a finely tuned, highly efficient practice. You need to believe there are enough perfect clients for you that will allow your business to grow to whatever level of achievement and success you desire.

The business of financial advice giving is for many a wonderful career and yet for others a troublesome affair. A business with somewhere between 75 to 275 of the right clients acquired over 7 to 10 years can be a great business. Unfortunately I see far too many struggle with the triple threat of our business being too few clients, far too many, and far too many of the wrong type.

Those who have too few clients simply gave up on doing the one thing that if continued each and every year would have assured their success, the business of prospecting for new clients. Those with too many clients typically worked very hard but in a less than disciplined or focused manner, taking clients wherever they found them, fearful that if they did not take whoever came along, they too might find themselves a casualty.

Great businesses come in various shapes and sizes and there is no single recipe for success. One of my friends in western Canada found 47 clients in his first four years with total assets of $120 million. Another has 87 client relationships and almost $800 million in assets acquired over ten years. A more traditional business might have 200 relationships with $100 million in assets.

I have also seen $50 million businesses with 250 relationships and $120 million with 600. The $50 million business is too small to be profitable and more susceptible to market pullbacks. The $120 million business, although seemingly large enough has too many clients.

Smaller businesses have a greater challenge weathering a downturn in the equity markets. I’ve seen some never recover from a 30-40% pullback. Most of the large bank owned firms today severely penalize those advisors who generate less than $375,000 of annual commissions. Unlimited personal liability combined with a restricted commission payout is a financial equation that does not make any economic sense.

There is an economic reality of our business you simply cannot forget. Your business must remain profitable to be sustainable and needs a certain scale and size to do this.

I normally recommend that advisors keep a heavy foot on the gas pedal of business development until they have at least $80 million under management, and then a lighter foot thereafter to replace whatever it is they may have lost through attrition. Not only do you need enough assets but ideally it should be with the right kind of client and it needs to generate an appropriate amount of revenue. An asset acquisition plan that’s missing a revenue plan is a hollow victory. I also encourage advisors to structure their business so that the turn ratio is at least 80 basis points. Anything much less than that can become problematic.

A business with too many clients can easily get bogged down in all the compliance and administration requirements of our modern business. Most clients have more than one account and four or more is not uncommon. This requires a lot of work and usually more staff and with more staff there can be HR issues. Unfortunately many investment advisors are simply not interested or capable of dealing with these things well.

Most advisors get into this business for three reasons: 1) so they can help clients solve financial problems; 2) because they love the excitement and intrigue of the financial markets; and 3) so they can make a bunch of money and enjoy a great lifestyle. If you are being held captive to your business by the curse of too many clients and too much administration then you’re not going to accomplish goal #3. I know advisors who have not had a vacation in over a year and are close to burnout.

So what do you do?

1. Keep prospecting until you have at least of $80 million in assets under management. For those starting from scratch this should take no more than 10 years. I have seen advisors do this in 3-4 years.
2. Become comfortable with equity investments because if you business is too conservative and consists mostly of GIC and fixed income investments you may need almost $300 million to have a viable, economically sound business.
3. Clearly define your minimum standard for taking on new clients. Anything much less than $200,000 - $250,000 in assets and $2,000 - $3,000 per year in revenue will lead to too many smaller clients. I know many advisors who raise their minimum to $500,000 within 3-5 years in the business. They usually have the most progressive businesses.
4. Be clear about how you will run your business. Clearly define your ideal client, your investment and service models; and then stick with the plan.
5. Don’t give discounts. Start at the mid band of the pricing schedule of your firm, ask for more when clients want more, and resist the urge to be the lowest cost provider. You have worked long and hard to get to where you are and should only accept clients who are willing to pay a fair and reasonable fee.
6. Establish have a few basic ground rules for taking on new clients:
   • a) They need to be a ‘fit’ with your investment and service model;
   • b) They need to be willing to pay a fair and reasonable fee;
   • c) They need to demonstrate a willingness to take your advice; and,
   • d) They need to demonstrate respect for you, and your staff by acting in a reasonable manner.
   Is this too much to ask? I don’t think so.
7. Fire clients who have become toxic or unprofitable and replace them with better fitting clients.
8. Make business development an integral part of what you do each and every week until you have the right number of clients and assets. Block off at least 2 days per week for business development. Anything less may see you falling short of the mark.
9. Remember there is an abundance of wealth and opportunity out there and never forget this. I know many advisors bringing in $1,000,000 of new assets each and every month like clockwork. As Henry Ford said: “If you think you can, you can; and if you think you can’t, you can’t; and you’re right each and every time.”
10. Ensure you take time off to recharge your battery and allow your staff to do likewise.

So that’s it – scarcity and abundance in a nutshell. Start with the premise that there is more than enough opportunity for anyone who is serious and committed to building a great advisory practice. Be selective about who you will accept as a client and cheerfully go about the business of looking for these ideal clients until you have reached the number right for you. Once achieved you can rest for awhile and enjoy the fruits of your labors.

John Steuernol
Your ‘At The Moment Coach’