Where will new clients come from?

If you started at a wirehouse, you're probably familiar with the “bad old days”: You made 500 dials per day, actually spoke to 50 people and got five callback leads. You did that six days a week for $2,000 a month. If you were still doing that after a year, your salary went to zero. You were a stock pitcher. If the stock you pitched did well, you got to pitch a second stock. In time, you moved up to larger clients and eventually added a range of other services.

Of course, no one really liked cold calling, but it did have an upside. Specifically, it offered critical lessons about:

• The sales funnel and the importance of adding new prospects at the top of the funnel to foster growth.

• The pipeline and the fact that it always takes longer than expected to convert a prospect into a client.

• The closing ratio and how it varies from cold calls to referrals.

• Language, and the value of practice and repetition to find the right words. (“Sign here” holds people back. “Let's get the paperwork done so we can focus on implementation” propels people forward.)

• Coping with rejection. (Trophies were hard to come by — fewer than 5% made it to a second year.)

LONG GONE

Today, cold calling and the same old wirehouse training programs are long gone. The concept of sales is generally avoided, and many firms feel the only way to grow is by acquiring other businesses (rather than organically). But what does this mean for the young adviser?

Upon joining a firm, young advisers will see established advisers who earn attractive incomes and have the freedom to pursue the lifestyles they enjoy. What they won't see? How the advisers got there.

Lessons about sales and rejection are not part of the daily experience, so it's no surprise that many next gen advisers don't “get” business development. In fact, many of these young professionals will be hired exclusively as service advisers to address routine client issues and manage smaller clients — with no responsibility for developing new business.

INCREASING COMPETITION

This lack of business development skills may not be a concern for years to come. But with increasing competition (including robos), combined with the fact that retirees dominate books of business, at some point this issue will come to the fore. To help prepare, there are some realities that both tenured advisers and next gens should keep in mind.

Compensation transparency. Service advisers tend to be salaried and bear little risk. Business development advisers receive little or no salary and are compensated based on what they produce, and therefore bear significant risk. While there are many hybrid models, all parties should know that salaried advisers earn more in the short term. In the long term, however, competent advisers who can develop new business will earn substantially more.

Strategic need. Think strategically and cautiously about what kind of advisers you need in the short and long term. Salaried service advisers may be ideal for the pre-retiree lifestyle adviser. Business development advisers, on the other hand, are critical to growing firms. For those expected to develop business, a metric-based monitoring system can help them learn concepts such as the sales funnel, pipeline and closing ratio.

Service/development balance. When advisers are expected to focus on both service and business development, it's important to put a ceiling on the time expected to service clients because service is never done. Endless time can be spent exceeding client expectations. In some cases, it can even become an excuse for escaping accountability for business development — and the rejection involved.

Personal finances. Invite a conversation with your young adviser about his or her personal finances. Sometimes, they may be embarrassed to acknowledge their financial challenges. But if you want a junior to be your successor, that individual needs to be financially healthy.

I encourage you to share your story with these young advisers. Let them know how you got started, what you did to become successful and how long it took. Whether it was the dark days of cold calling or other experiences, it's important to show that the road to success is often paved with personal sacrifice.

Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network.

Related Topics: Practice Management