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Bull market malaria and other advisory firm ailments

The stock market's extended rally may be masking advisory firm problems caused by industry changes

Jul 17, 2019 @ 11:33 am

By Steve Gresham

The stock market's historic bull run is masking the impact of industry disruptions. Take a moment to check whether your organization is vulnerable to any of the following conditions.

Bull market malaria. Markets seldom fall for no reason, and protracted declines like the 2000-01 tech wreck and the 2008-09 financial crisis were presaged by structural valuation problems that had been building for years. Being "surprised" by a bear market always seems pretty lame in hindsight. The lag between the recognition of declining fundamentals and the stampede of selling is much like a mosquito bite and the subsequent disease.

In a bear market, you've already been bitten but you don't yet realize that you're sick. Do you know the impact a decline of 10% or more would have on client portfolios? Do your clients know? Prepare by taking precautions and vaccinating your portfolio if you're going to stay long in the investing jungle.

Gray anxiety disorder: The fear of older clients. Very common among advisers of all ages, this insidious affliction typically results from a combination of false beliefs — that the clients are too complicated, emotional or needy. The reality is that the boomer cohort represents 80% of advice industry profits for the next 20 years. If you know anyone who has this one disorder, tell them to get help fast — or find a new income source. And don't say "millennials" — the best path to winning them as clients is to help their parents.

(More: Your client has a car, a gun — and Alzheimer's)

Heir balls: Often accompanied by gray anxiety disorder, heir balls get stuck in your practice when you fail to connect well with your clients' children and other family members. They block the intergenerational flow of assets, leading to significant outflows. This is another one of the easily preventable diseases. Your first step should be meaningful conversations with every client about how they will eventually transition their assets. But as with all cures, you have to be serious about getting better and take the steps soon while you still have time.

Practice management hip displaysia: The pelvic strain that results from making a partial commitment to real practice management processes while trying to hold onto all the bad habits you had before. With one foot in the "boat" of the future but another planted squarely on the "dock" of the past, you're imitating a strategic Gumby without the elasticity. Ouch.

Book bloat: Having more client accounts than you can service effectively. Typically caused by pigging out at the prospecting table with an undisciplined approach and accepting new clients — any clients — anytime from anyone in the hopes a fee or commission will result. Most sufferers don't mean to be greedy, they just have an irrepressible sweet tooth.

Topical relationship engagement: A particularly annoying rash that results from working only with the most obvious issues of current clients. Results from a tendency to scratch only the immediate itch and a general failure to go more than "skin deep" with clients.

Tech elbow: A repetitive stress injury caused by relying on the same system you've sort of used (for anything) but won't replace with something better. Common among very large companies that seem especially vulnerable to a combination of tech challenges — not sure what to buy, what it should do, what metrics of success to use, how to drive adoption (the latter is an ailment all unto itself) or decide when and how to replace what they own.

Fintech organ rejection: The general inability to fully adopt, deploy or otherwise integrate the fintech solution you've acquired. Adoption is the new innovation — invest in the use, not just the buy. Spending money on a new solution but failing to utilize same is like buying a new electric car and not plugging it in to charge. And why are you holding all those old system gas cans? Move on.

Competitive camouflage: Results from the inability to differentiate yourself or your firm from other players. "CC" often grows undetected for years, and many sufferers don't even know they have the disease until it's too late. One way to diagnose is to ask trusted clients exactly what they value most about your services and what one improvement they suggest. The cure can be painful — developing a unique value proposition is not easy. But once you recover from this malady, your best years are in front of you.

Tax impact cataracts: The simplest version is not being able to see the tax implications of your client solutions. The most common form is when you can't accurately explain tax impacts to clients because you don't have the systems to support an accurate view. There are helpful tools out there to make you more effective in this area. After all, taxes are only the biggest lifetime expense paid by your clients.

Health care spitball: Results from not having a reasonable basis for the costs of medical care in retirement. You plug in a number from a national survey that may have no relevance to your client's condition or history. This is the rough equivalent of driving too long on one of those spindly spare tires. Do better — real accidents are bound to happen that have real ramifications for your clients. They expect a more careful approach.

(More: The world is flat — and some people like it that way)

Steve Gresham is a wealth management industry consultant and investor. He is the former head of the Private Client Group at Fidelity Investments and author of "The New Advisor for Life." See more at thegreshamco.com.

Stay tuned for more action as we continue to develop The Future of Financial Advice, a new initiative at InvestmentNews. And sign up for the Future of Financial Advice Conference on Nov. 20 in New York City!

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