Global Risks

Your Understanding Of Risk Is Misguided

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Understanding Of Risk

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Before you criticize me on APViewpoint, I’m not talking about advice you give clients concerning risk and their investments. I’ve never met a group more competent on all aspects of investing.

It’s your approach to risk in running your advisory business that is at odds with reality.

Denial of risk

The most glaring example is risk from huge competitors, with far greater resources, who charge much lower advisory fees. Vanguard is your biggest threat. Its hybrid services charges only 0.30% of AUM.

But here’s the scary part.

In June 2016, then Chief Executive Bill McNabb observed, “the next frontier of savings for investors will come from lower advisory fees.”

Investors using Vanguard’s Personal Advisor Services get a customized financial plan, portfolio management, investment coaching and access to customized technology. Clients with over $500,000 get their own dedicated financial advisor.

Assume you wake up tomorrow to this headline: “Vanguard slashes its advisory fee to 0.15%.” What’s your response when your clients ask why they should pay you 30-times more for your services?

Denial is not a strategy.

You don’t take enough risk

If there’s one overriding observation I can make from dealing with the firms using our digital marketing company it’s this: You don’t take enough risk.

The risk avoidance mentality when making decisions about your advisory business is anomalous. I suspect you work hard to ensure your clients take sufficient risk with their portfolios to keep pace with inflation and minimize the risk of running out of money in retirement.

Yet, you often make decisions that avoid risk, impair your ability to grow your business and even lessen your chances of surviving in a changing environment.

You spend too little on marketing and training. Most advisors tell me they spend only a little over 1% of revenues on those activities. The average marketing budget (as a percent of company revenues) in the banking, finance and insurance industries is almost 4%.

Not only do you not allocate enough resources to marketing, you don’t have a marketing plan and often have no idea how you would spend additional funds. I ask every new client to show me their marketing plan. I’ve never received one.

Read the full article here by Dan Solin, Advisor Perspectives


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