RIAs embrace the tough-love feedback of advisory boards

Letting clients help direct practice management decisions can have many upsides

Feb 28, 2017 @ 5:20 pm

By Jeff Benjamin

It takes a thick skin to invite outsiders to rigorously critique your financial planning business, but some financial advisers wouldn't have it any other way.

"I show them my business plan, and I usually get beat up pretty good, but it has helped me beyond my wildest dreams," said Patrick Dougherty, president of Dougherty Wealth Management.

Mr. Dougherty is part of a small percentage of financial advisers that solicits open and honest feedback from a formal advisory board, which is typically made up of a blend of clients, colleagues and business professionals.

"You have to be able to leave your ego at the door," Mr. Dougherty added, underscoring a common theme among those advisers who have come to embrace the advisory board concept.

Across the advice industry, at firms both large and small, financial advisers are borrowing a page from corporate boards of directors to help bring outside perspectives into what can be an isolated business environment.

"The number one thing you want to make sure of is that the people on the board are not yes men, because if they can't provide perspective and criticism, you don't need them on the board," said Marc Freedman, chief executive of Freedman Financial, which has had an advisory board in place since 1995.

"We know that the way we see our firm and the way our clients and the public sees our firm is different," added Mr. Freedman, whose 2008 book, "Oversold and Underserved: A Financial Planner's Guidebook to Serving the Mass Affluent," included a chapter on advisory boards.

The Freedman Financial board includes 12 clients along with their spouses, each serving three-year terms. The board-member terms are staggered so that four new members are added to the board every year.

The board meets twice a year over dinner, and complete candor is always encouraged.

"We talk about stuff going on the office, and how we're running the business, but we never talk about products or investment strategy or the markets," Mr. Freedman said. "In some of our meetings, we have asked clients why they stay with us."

Mr. Freedman said over the years he has used the board to test various marketing strategies, including a recent rebranding campaign that will be unveiled in coming months.

"We went out to the board with our plans for a rebranding campaign, and the message that came back was that they liked the fact that we care," he said. "From there, they came up with our new logo that is simply 'We Care. Deeply.' That's not something I would have ever thought to use."

While most advisory firm boards have come into being within the past decade, the basic structure and objective has not changed much from the model originally employed by Freedman Financial.

Stephen Wershing, president of the Client Driven Practice, a consulting firm that specializes in helping firms set up and maintain advisory boards, said keys to success include having a diverse representation of your client base, regularly rotating board members, creating agendas and being prepared to listen.

"The biggest risk is that you get feedback and don't do anything with it," he said. "Putting together and convening a board is not the main time commitment; the time commitment is following up. You don't have to do everything the board recommends, and you don't have to decide what to do in the board meeting, but you should take the information back to the office and consider it."

Mr. Wershing said advisory boards usually include between 10 and 14 members, meeting between two and four times a year, and the board members are rarely compensated beyond a meal during the meetings.

Once the board is up and running, he recommends limiting terms to two or three years that rotate, "because you want the culture of the board to remain intact, while bringing in new perspectives."

In some respects, the advisory boards operate like focus groups, which includes making the most of the time, according to Weston Burnett, president of OptiFour Integrated Wealth Management.

"The meeting is normally run so that we the owners are mostly silent, because the preference is to get the board members together and to get their feedback," he said. "They are warned in advance they will be asked for feedback and we want them to attend all the meetings during their term on the board."

The OptiFour advisory board, which was created four years ago, is made up of 12 clients serving three-year terms.

Like most boards, it includes a written mission statement and, also like most boards, it does not include a non-disclosure agreement.

"We run a tight schedule in our meetings, and try to cover things that clients can give us feedback on," Mr. Burnett said. "For example, when we shifted to new software for performance reporting, we wanted the board's feedback on that."

Mr. Wershing warned that bringing clients together to serve as board members could create awkward moments if some clients were receiving services or pricing structures that were unique from other client experiences.

But most advisers only see upside to giving clients a closer look at an advisory firm's operations and objectives.

"We've found that the board members will become great representatives of the firm," said Stephen Hart, director of financial planning at Talis Advisors, which has had an advisory board for more than five years, and meets three or four times a year.

"We throw all kinds of things at them, including asking what kinds of service and models they're looking for," he added. "We want general feedback, but we certainly want constructive feedback."

Gina Aldaz, wealth management adviser and marketing director at Talis Advisors, said the advisory board has been instrumental in helping the firm to better communicate with clients.

"Thanks to the feedback from the board, we have expanded our use of email campaigns, our use of social media and even texting," she said. "The board members are our brain trust."

David Canter, executive vice president for practice management and consulting at Fidelity Investments, not only supports and encourages the use of advisory boards, but he also leads three advisory boards related to various Fidelity businesses.

"It's a good way to help get outside perspectives and to gather advice on what's working and what's not," he said. "I've found that the firms that use them well get a lot of out of them."

Ways to use advisory boards incorrectly, Mr. Canter explained, include not having an agenda, structure or follow-through.

"The risk is generally low, but the last thing you want is for your board to create dissatisfied clients. That's why you want to go into it with all the disciplined rigor, and be clear about what you want to get out of it," he said. "We're big believers in advisory boards, because if you can really create an open and sharing environment where you can also get feedback, you can turn clients who are already raving fans into people who will help market your firm."

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