Other Voices

The other side of your practice

Many advisers spend a relatively small percentage of their time on investment training and analysis

Mar 3, 2013 @ 12:01 am

By Tom Brakke

The business of providing investment advice encompasses many different kinds of firms, from sole proprietorships to organizations with thousands of advisers.

No matter what your business looks like, there are plenty of practice management resources at your disposal. Surveys give you metrics against which to measure yourself, industry publications are full of tips on how to run your practice better, conferences offer speakers who provide motivation and techniques for improvement, and countless vendors have services that promise to help your firm thrive.

All are worthwhile. To be successful, you need to market your capabilities effectively, generate leads, gain new clients while providing service to current ones, manage operations (including ever-changing technology platforms), and train and reward employees. That's a lot.

By that description, though, you may as well be making widgets. Many advisers spend a relatively small percentage of their time on investment training and analysis, a good portion of which entails listening to the purveyors of products.

What is the state of your “investment practice management”?


Start with investment beliefs — yours, your firm's and those that are part of the personal and organizational brands that you've created and nurtured. Typically, gaps develop between those core principles and day-to-day investment decisions when the vision comes face to face with the realities of a complex investment world and client demands. Asset managers face a similar problem. As long as the numbers are going in the right direction, nobody seems to care, but when they start to weaken, the gaps become glaring, and relationships with clients can sour in a hurry.

Generally, advisers are less exposed to performance risk than most investment professionals because they have avoided the benchmarking that is common in other parts of the industry. There often is no penalty for lagging performance as long as the client otherwise is content.

In that light, it is perhaps not surprising that the investment side of the advisory equation isn't a prime focus. But will it stay that way? How will successful advisory practices address the investment side in the future? Answers vary by the type and size of firm, but there are some common themes.

Clients have an expectation of investment expertise when they walk through the door, yet advisers effectively outsource much of the work regarding investments, perhaps within the firm but often to outside providers. That can result in a backward-looking, plug-and-play approach when a reflective and anticipatory one is more conducive to excellence.

Outsourcing also requires due diligence. Trust and reputation are important, but they can be manufactured. An adviser relying on investment insights from someone else should understand that provider's philosophy, process, and strengths and weaknesses. Past successes may indicate skill — or blind luck. You need to dig deep to find out which it is.

Do you have the resources and analytical structure to deal effectively with the range of investment issues that will come your way? With equity returns substandard in recent years and bond yields low, many advisers are turning to alternatives. As is always the case in the investment business, there will be plenty of supply to meet demand. But where will you find the insight required to make decisions? Self-reporting by advisers shows many to be unprepared to add the value their clients expect.


Similarly, have you thought about the myriad ways in which the landscape will change when the 30-year bull market in bonds ends? Sure, you can compute the prospective returns on various classes of bonds using potential scenarios for Treasury yields, credit spreads and the like. But there will be broader effects. Are they on your radar screen?

Those issues in turn will pass and be replaced by new ones. Whatever they are, you need a plan of attack — a disciplined, assertive approach to dealing with challenges if you are going to differentiate yourself as an investment adviser.

Differentiation is important. The advisory business is competitive, but most firms haven't learned to compete on the basis of their investment capabilities. One firm looks like another — or at least seems to — and so it comes down to personality or some other intangible. Wouldn't it be nice to have a different story than every other adviser out there?


One simple exercise will help you think about your firm's positioning versus your competitors'. Start with that list of investment beliefs you identified earlier, and add to it the elements of your strategy and the steps in your process. (You can even take them from your marketing brochure.) Put each item in one of two columns: “same as,” for those where there isn't much difference from your competitors' approach, and “different than,” for those where you have something that's particular to you. Chances are that one column will be very long and one very short. You have a choice: leave things as they are or change them.

You might think that differentiating your firm on the investment front is unnecessary and could be counterproductive — and that's true. Standing out is always risky. You do it for the potential rewards.

The easiest way for advisory firms to expand is to add more people in well-defined roles — specifically, advisers and the people who support them. After an initial hiccup, the practice management metrics likely will move back into the ranges where you'd like them to be. That gets you a bigger organization, but does it get you a stronger or better one?

You might find a competitive advantage in the long run by focusing for a time on the other side of your practice and learning how to articulate the value proposition you offer. Building real investment expertise might help your business, even if the metrics suffer for a while.

Tom Brakke is a principal at tjb research, a consulting firm that advises investment firms and institutional investors.


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