Quo Vadis? by John H. Melchinger Wither goest thou? is the classic translation of this Latin phrase once popularized by a movie. Where are you going? Don't slough it off as a rhetorical question needing no answer. If you can find your moment in these turbulent times, stop, reflect a little, observe a lot, think hard, and commit to a course of action. There's no time left to wait and see. In fact, that time expired a few years ago. If you don't make certain decisions and commitments this year to play in the game, next year you will be a spectator. Why? The playing field has changed. Think of it not as a game in which the rules have changed, but as rules for which the field of play has changed. In general, it's like going from target practice into live combat; same guns and ammunition, but new terrain and live life and death competition. In practice, it's like going from declaring yourself professional to having to prove it in court. The playing fields I refer to are the distribution systems we once knew...only moments ago. Citibank. When CitiGroup formed by merging Citibank and Travelers, one of the clear business objectives was to add efficiencies to the two existing distribution and product manufacturing giants. It was no surprise then, except to insurance devotees who continue to live as ostriches with their heads in quicksand, that Citibank announced in March that it is training 3,000 bank employees to be licensed and sell Travelers' insurance products in certain bank branches that will now open earlier and close later so that local customers can get insurance advice and services. Banks For banks, divergence and isolation--at the very highest levels of marketing--are just as important today as convergence. In Canada, where banks created their own financial planning credentials (allegedly because they would not > commit to the higher existing standards for CFP and CHFC, and could not achieve a majority voice in the association setting and keeping standards), there is a series of commission-bashing financial planning advertisements by banks. These well placed ads state that bank financial planning advisors are objective and unbiased because they are salaried advisors. Now, banks buy almost all their insurance products from insurers and don't say where the commissions go (to charity?). They are very clear that salaries means advice and not sales per se, and that the advice they offer comes from advisors secure in their jobs and unbiased in their professionalism. This implies that that commissions are bad, cause bias, and that everyone else (other than the salaried bank advisors) dispense tainted advise. All this seems a lot like the commission bashing of fee only planners when they began. They have since learned they had to change their approach and prove their worth positively, not by the negativity of smear campaigns. They've come a long way down this better road. And the anti-load campaigns by no- and low-load mutual funds and insurance carriers? Simple analysis shows that it is no more wise to buy a no-load product because it is no-load than it is not wise to buy a load product because it has a load. Don't want to do the math? Try this. Ask yourself, "If I heard about the no-load product in advertising or at a convention booth, and it has a sales force and marketers in addition to managers, who pays for that? The 'load' must be somewhere." Back to Citibank. Some pundits offer that Citibank has a lot to do to get its customers back into the bank now that it had succeeded in keeping them out by promoting and favoring electronic and ATM banking so much. This thinking shows real naivete about customers, who show now they really crave advice and some human contact with advisors at any level. You can see this in Canada, where electronic banking is far ahead of the United States. Branches are down sizing and being closed as much as the law will allow. Locally, the Bank of Montreal shortened branch hours 10:00 a.m. - 3:00 p.m. and cut staff and services, while the Toronto Dominion Bank keeps 9:00 a.m. - 5:00 p.m. hours (longer on Thursdays) and has personal bankers you have to make appointments to see because they are always busy. Both have very advanced electronic banking systems. Which do you think will prosper in this effort? Insurers Major North American insurers are taking their stands. Most are de-mutualizing or going the mutual holding company route. Manulife, like so many others, is going stock (the real meaning of de-mutualizing), and the president wants five years of government protection against being bought. The government now grants two years protection. Several other really big players are in the same situation: going stock and wanting protection. What's the point? MetLife dropped out of ACLI because it sees the present and future differently. On the other hand, New York Life and Northwestern Mutual have declared they are staying mutual. Good for them. They may be the only insurers that don't get gobbled up (and radically changed) by huge capital interests. What about the customer? Look up customer in the dictionary. I dare you. You will see that custom, customer, customary and customize all stem from the same roots and imply habit and patronage. So where's the customer fit in all this? How do we attract, satisfy and nurture customers who buy and come back for more...while we down size, converge, merge, reorganize and try to modernize economically? There just are not any convenient ways to get sound financial advice if you are a customer and go looking for it. If you do not already have a trusted personal advisor, where do you turn? To a professional association? Which one? Which special interests do you trust most? To your specialized investment advisor? Stockbrokers demonstrate their ignorance of insurance and non-stock investments by the very way they speak. To your accountant? S/he's probably already spoken against insurance, and knows dangerously little about weaving suitable financial strategies. Accountants are great defenders against taxes, but have yet to prove themselves as financial growth strategies planners. To your lawyer? Maybe, but trusting a word crafter with your money is (to me) like asking a dermatologist to do heart surgery. The skills don't match. This leaves Aunt Tilley and Uncle Ralph, or a friend or neighbor. There is just NOT a system or professional clearinghouse for recommending good sources. Turn to the Internet? Really smart! On the Internet you can get insurance and investments but not advice...and the insurance often comes with incomplete disclosure, so you are actually buying a pig in a poke (such as purchasing the cheapest term insurance but not knowing the premium can change dramatically in later years if the insurer wishes to change it). With Internet stock purchases (E-Comm, etc.) the consumer must know what s/he really wants and what to buy before purchasing this way. The SEC is so concerned about online stock deals that it is rigorously investigating, fining and sometimes now prosecuting online brokers not complying with the laws. Everything's a commodity now Merchandise and wares, stock in trade materials. These are commodities to be bought, sold and bartered. Stocks were always financial commodities for participating in equity--the net worth of a company, which is what they were meant to be and why they are traded. The insurance product is now a commodity. Anyone can sell it. Everyone will sell it. Insurance became a commodity when insurers and brokers started marketing and selling it as a replaceable good; using the I can get it for you cheaper approach; flaunting its tax advantages; hinging its cash build up on stock markets; replacing contracts easily enough; and making venture capital markets which bet on the arrival time of death benefits for the terminally ill and probably old enough to die soon insureds. I don't know if viatical venture capitalism is the last straw, but I do know this unregulated part of the business can't do the rest of the life insurance business much good until it is regulated. My conclusion: If you sell insurance and do not do it by creating a plan for the consumer that incorporates your advice, within a year or two you will be outside of the box with anyone from middle middle-class and up. They will be paying for the advice of acknowledged professionals, then buying the right products for them to implement or adjust their plans. When today's highly commissioned and expensive distribution systems are replaced (entirely) by less costly alternatives, the new product revolution will begin. Heaped commissions will evaporate. Level commissions will appear. Maybe commissions will disappear altogether and variable loads will replace them as something completely different. Far-fetched? Tear this out and stick it under your winter clothes you just put away. When you get them out next winter and find this, let me know how far-fetched you still think this is. What about us, then? Salespeople in insurance today will have to do much higher volumes of lower average-case-size business tomorrow to survive. Many who do not find another career may become salaried in larger institutions (or try to get those positions), but I doubt either the institutions or today's insurance salespeople will like each other enough to make this more than a rarity. Count on the federalization of insurance licensing, taxation and distribution regulations, first in the U.S., then in Canada. Convergence will demand it. Already, anyone who sells A financial product can sell ALL financial products. Traditional access to product through career agency distribution systems will disappear. The meteor has struck and the dinosaurs are dying. Only sharks, alligators and cockroaches will survive by traditional methods. They will not rule the world. The world will be populated by whole new species of critters who deliver financial products to customers. The customer is always right-except when s/he has no choices. Now, with more choices than ever and enough to create great confusion, the customer wants straight, unbiased advice. S/he will get it from the person-- the advisor--who appears credible, professional and with a very good local reputation for being approachable, understanding, even-handed and honest. Oh, yes, competent too. Frankly, I think captive agent distribution systems will have to serve the lower rungs of the consumer hierarchy and make their profits by processing large numbers of thin margin cases through very efficient systems. The customer at the high end of the marketplace (high net worth and/or high income, with problems that stem from having money versus not having money)demands something different than what salespeople understand. Marketers sometimes understand, and advisors can learn how to market. The finely honed hunting skills and intuition of salespeople cannot seem to tune in on this wavelength. What HNW investors want from their financial advisors surprises most people in retail financial services. Confidentiality--knowing (not just trusting) that the intimate information about their lives is absolutely secure with their advisors Reputation--knowing that the advisor is well respected in many ways by peers, clients and community Quality Presentations--being able to understand, and see that the presentation is truly professional in content, appearance and delivery The following are significantly less important in ranking than the first three. Range of Services Cost of Services Innovativeness Investment Performance Even less significant: Firm Size Where people with real money invest it also surprises financial services retailers. Liquid millionaires' investment holdings tend to fall into these rankings: Stocks Real Estate Cash Value Life Insurance Money Market Funds Muni Bonds Corporate Bonds The first three are most significant. What to do? So, your role in a distribution system if you are in one, or competing with some if you are completely independent, will change when the distribution systems of today are killed off. Quo vadis? Let's say you refuse to die with this systemic cleansing and also refuse to work for someone else (Financial Big Brother) and punch the clock in a money factory. You opt to go the boutique route and decide to become a professional advisor, in the most serious sense of the word. What do you do? Here are my suggestions of things you can do. Many of these you should do. Some you may not understand the value of doing. These are not academic. You are on a new playing field now. Think of your career to date as target practice. Now you are about to engage in do or die battle. Become a professional advisor competent enough to charge fees for your advice. You will not make this transition overnight, but you must make this transition to survive and prosper in the high-end markets. ï Focus on a few competencies as expertise. This does not mean to focus exclusively on these expertises. Just nurture and promote them as where your best knowledge and experience lie. Make sure you know where you have been most successful. Analyze your best clients--the ones you really want more of if you could clone them. Ask yourself these questions about each one: Where and how did I find this person? What is this client's trained occupation or area of expertise? What did they study? What is this client's actual occupation? What are they doing now? What is this person's hobby? What do they do for fun...that is not business? What does this person do in earnest...that is not business? What civic or other pursuits does s/he follow? Ask yourself those same five questions. See how you match your best clients in terms of skills, talents, training, interests, temperament, decision making and the like. With these pieces of information in mind, you should be able to see some hints how you and your best clients match. Maybe the avenue to a new direction opens up for you. Think. Think. Think. And play. Play with the possibilities. Think through what might be possible. Then... Specialize, professionalize, own and capitalize your own practice and focus it to certain well-defined markets to advise. Tell people your focus. They can feed what they know you do. They will not feed what they believe is not clear to them. Referrers will not say, "Come. Let me introduce you to my salesperson." They will say, "I've got a very good advisor. Would you like to meet him/her?" Use a business card to show you are in business. It does little more than that Use a brochure to say who you are: mission, targets, expertise, issues you help people resolve, the advisory process you use, how you charge (not"how you get paid), your resume (credentials and credibility). Keep it brief, use plenty of white space, avoid tri-folds, use clear and readable fonts, employ colors and rules to balance and highlight things. If you are not experienced at layouts, pay someone who is to lay out your brochure and business card, even if you print it yourself on your own color printer. Author something yourself at least four times a year. You don't have to be brilliant, just clearly informative. Bulletins works great. Newsletters are more trouble. The ones you can buy are getting better, but everybody still knows you did not write them. I am talking here about authoring your own thoughts. Hint: if you send clippings, at least author your opinion in a cover letter. Let people know that you know something. Set yourself up to contact everyone (clients, prospects, centers) at least seven times each year. Know when and why your are making each contact, even if this one's only to say "Hi. How are you." Become an advocate. Advocates speak or write in support of people and ideas. Tell people you were thinking of them because you found an idea that helps solve problems in situations similar to theirs. Employ the vocabulary of advocacy. Words and phrases like support, suitability, alternatives, your particular/personal situation, etc. Survey your clients, prospects and centers. You need to know how they think and feel about what you do for them...and who feels strongly enough about that or your relationship to tell you! Read a book on consulting, especially the parts about developing client (( professional relationships, and a book for lawyers or accountants on professional standards. It might surprise you how different the advisory process really is from selling as you know it. Form and actively use strategic alliances with other professionals. No one will believe you can do much by yourself. Without associating with other professionals in a hand-picked brain trust or consortium, you will seem to be saying you are a know it all or that you simply want to isolate yourself in some particular areas of expertise. Computerize. There is terrible inefficiency without this. If you work alone, you may survive with a Franklin Planner or some such system for scheduling appointments and contacting people, but if you share information of any kind with others, and want the profits that come from efficiencies, computing (email, bookkeeping, word processing, building presentations, developing marketing materials, compliance record keeping, etc.) is the way. Employ a client and other advisors mini-advisory board to help guide you. Report to them formally at least twice a year. Get their observations and advice, however harsh it sounds to your ears. You need truth, not strokes. Don't follow the leader. There is none. The only way is you. The only way out is through. Competence does not guarantee success...but lack of it guarantees failure. That's a given. The rest is marketing...and by marketing, staying ahead of the curves. Happy Marketing! John H. Melchinger coaches personal financial services advisors how to market their professional practice to high income and high net worth affluents. Effective market identification, segmentation, selection, penetration and development, with compelling packaging and promotion, make his clients among the best planners in the business. His marketing techniques, how-to books, articles and presentations have become classics in private practice marketing. John donates one day per month to non-profit organizations that request his support for workshops, seminars and fund-raisers. www.melchinger.com john@melchinger.com