There used to be only two types of animals—bull and bear—that roamed the stock market jungle. Now there is a third—the bloodhound—and it is creating havoc in the market. But this must be a temporary phenomenon, because you are used to double-digit returns. Right?
First, let’s put the market into proper perspective. As the accompanying chart shows, the 1990s, with 25 percent to 40 percent returns, were not normal. And even if you take the 15-year period ending in 2000, you still notice that stocks had a gain of 16 percent a year, while bonds clocked in at 8.6 percent.
So why are these returns abnormal? Ibbotson Associates has divided the past 75 years into 61 rolling 15-calendar-year stretches, starting with the 15 years through year-end 1940. It found that out of these 61 rolling periods, there were just 13 occasions (one out of five) when stocks generated 16 percent a year or more (and none even approached the 30-percent mark). Most of these abnormal 15-year periods were in the late 1950s and early 1960s block, and they reappeared in the late 1990s.
Let’s create three “what if scenarios for purposes of long-term planning.
Suppose you create a portfolio of 80 percent stocks and 20 percent bonds, and invest
$5,000 a year for 15 years. If, during this period, the market delivers the returns of the past 15 years, you’d end up with a portfolio worth $262,000, according to T. Rowe Price.
Now, let’s say the returns matched those of the past 50 years, when stocks earned 12.8 percent annually and bonds gained 6.5 percent. In that case, you’d have only $200,000 in your portfolio.
Finally, let’s assume stocks generate only a conservative 9 percent a year, which is a safe bet, given the way the market is behaving these days. Then you’d have only $109,000 to $153,000.
or 41.6 percent less than you’d have if the market behaved as it did during the past 15 years.
So what does all this mean? It means that in making projections for retirement planning, it is wise not to use the abnormal returns of the past 15 years. In fact, it is better to be conservative in malting these projections.
But what if that torpedoes your retirement dreamboat? In that case, play it safe by planning to save more, save longer, or post- pone the day when you can begin playing at Pebble Beach (they do have a public golf course, you know).
(Ideas and suggestions for local investment adviser, educator and author Sid Mittra should be sent to Sid Mittra, c/o Business Editor, The Oakland Press, P.O. Box 436009, Pontiac Ml 48343.)
Source: Oakland Press, July 8, 2001.
Public Speaking. In public speaking, targeting the audience and developing a presentation that is of special interest to the group addressed are critical.
Practicing the speech beforehand is a necessity. It may include taping and lis- tening to the written speech, and rehearsing the material in front of office staff or family. Feeling comfortable in front of an audience leads to an effective pre- sentation. The first moments of the introduction are critical and should be smooth. If handout materials and visual aids are necessary, they should have a professional appearance.
If possible, handouts with information about the financial planning firm should be made available at the presentation. The planner should also remember that each attendee is a prospective client.
Broadcast Appearances. If a suitable radio or television forum exists in the geo- graphical marketplace, the planner should contact the program director to dis- cuss his or her qualifications for an appearance on a financial program. If the director is amenable to the idea, the topics that may be of interest to the audi- ence and that would fit the station’s format should be discussed in detail. Since financial issues and concerns are always of interest to some people and some- times interesting to everyone, a regular appearance might be possible. This device works to establish a visual image of the planner as an authority on finan- cial planning with a geographical area. It should be noted, however, that broad- cast appearances are very time intensive, and if poorly produced, the planner’s image could suffer.
Advertising. Advertising the practice should create a demand for the firm’s ser- vices and differentiate it and the planner from other firms. Unlike PR, advertising is time intensive and can be costly. So before beginning an advertising cam- paign and committing money, the planner must be knowledgeable about the media that will influence the target clients and prospects. What do they read?
What do they listen to? What sources of advice do they seek? To get the most out of one’s advertising dollars, these questions must be answered.
Radio and Television Ads. Radio can be effective if used selectively. The message should point out one or more consumer needs. It should suggest that the adver- tiser is the one who can meet those needs. Radio ads are generally wasteful if only used to create an awareness. When using radio the planner should take the following steps:
• Select a station that reaches the target audience
• Use repetition: ten 30-second ads work better than five 60-second ads
• Buy a “block of time” that will be heard before an interesting program
• Always use a professional voice
• Always use a professional script.
The use of television advertising for the majority of financial planners is ques- tionable due to production and air time costs. So it is rarely recommended. That is, unless the planner has deep pockets, is in a smaller marketplace, and can place the ads before or after a popular stock market or business program.
Publications. As with any advertising, knowing the target market is critical when selecting the proper print media. The planner’s and the firm’s image should be matched to the publication’s image and target market for magazines and newspapers.
The ad’s design, copy, size, and location, both on the page and in the publication, all contribute to the creation and development of the planner’s image. From a design standpoint, the ad should command attention, be pleasant and easy to read. It should generously use white space and margins. Copy should attract attention, help create a need in the reader’s mind, show how the planner can meet that need, and project the difference between the planner and other plan- ning professionals. A provocative headline can attract attention and interest.
The size of the ad will depend on the planner’s budget. The cost and the required budget allotment depend on the publication’s circulation, the day or days the ad will run, the cost of the design, and the section of the publication that will work best to fulfill the planner’s purpose. In a newspaper, the ad should be placed near the sports section, business section, or lifestyle pages to attract dif- ferent targeted audiences. Even the best designed and most costly ads will fail if improperly placed.
Yellow Pages. Another advertising option is to buy a yellow pages ad that pro- vides more information than the standard listing. What follows are some basic yellow page guidelines:
• Design a display ad that describes the planner’s credentials, and use “sell”
copy.
• Use a headline that shows some specialization, such as “Small Business Tax Adviser” or “Pre-retirement Specialist.”
• Place the display ad in the financial planning or adviser section.
Referrals. Referrals are a cost-effective means of identifying prospective clients.
Many people are willing to help planners by suggesting names if the referral
process is made easy, they are not embarrassed by what is done with the referral and are kept informed on how things are going. Referrals can come from numer- ous sources, including current clients and local allied professionals.
To use referrals effectively, the planner should create a story about the business.
This task should be easy, considering the amount of time that was spent and the information that was summarized in the formal business planning process. The planner should then tell the story to individual clients, small groups of clients, accountants, and attorneys. The planner should ask if they will endorse the planner either directly or indirectly in a presentation of their referral. They might be willing to write a letter or recommendation on their letterhead, or they might allow the planner to write it for them. They also might be willingto introduce the planner personally to the interested individual.
Most accountants and attorneys are concerned about client control. This con- cern should be addressed up front. The planner should indicate how he or she will attempt to make them the “hero” throughout the relationship. From a cost/
return standpoint, this referral device can be the best tool in finding new clients.
Direct Mail. As with other strategies, direct marketing will only be effective if meaningful targets have been chosen. General mailings with general informa- tion, only produce a negligible bottom-line profit. The purpose of client segment- ing is to attract the best potential clients while spending as little as possible.
Developing the mailing list is the first step. This list may be bought, rented, or created by the planner. In renting, the planner should be selective in demo- graphics, taking time to find the most appropriate list broker. The list can include as many or as few names as the planner chooses. Mailing activity can begin in only a few weeks’ time.
Creating a list is time-consuming but worth it. The list can be used repeatedly.
To build the list, the planner can refer to reverse telephone directories and member rosters of important clubs, civic groups, churches or synagogues, chambers of commerce, trade associations, or professional organizations.
Cost control is important. The budget must provide for the list purchase, post- age (first class or bulk rate), artwork (unless the mailing is a simple letter), type- setting and printing or copying, and the cost of folding the enclosures and stuffing the envelopes.
For best results, the mailing should not coincide with a holiday or prime vaca- tion times. To determine the effectiveness of the mailing, the results should be analyzed. Care should be taken to determine the project’s profitability.
Brochures. Although considered only a part of direct marketing activities, bro- chures are appropriate for the firm’s use in other ways. For example, brochures can be used in handouts at seminars, speaking engagements, and small group presentations as well as for clients, prospects, and allied professionals.
An attractive, well-written brochure can be a valuable marketing tool. It can be a waste of money, however, if it is developed without specific attention to the target audience, brochure content and copy, or the piece’s general purpose. The company brochure should include:
• An introduction to the benefits of a financial plan.
• The planner’s background, credentials, and philosophy.
• The planning process according to the planner.
• An explanation of how people can engage and pay for the planner’s services.
Professionals can be hired to complete the design, copy, and production phases.
The design should be simple, the copy direct and informative, and the paper stock heavy. The brochure’s size should allow for easy mailing and storage in a standard file folder.
Not every financial planning organization needs an expensive brochure. Any attractive and informative written piece that tells the story and presents the services in a fashion consistent with the desired image should achieve the plan- ner’s objective.
Seminars. Seminar presentations can be an excellent source of financial plan- ning engagements. A successful seminar benefits everyone—the planner, the attendees, and the clients. Seminars provide the planner with visibility, an opportunity to demonstrate expertise, and a vehicle with which to build rap- port while conveying professionalism to the audience. Seminars also present an opportunity for the planner to convey his or her message to a group in a non- threatening, low pressure, atmosphere.
The key to conducting a successful seminar is planning. The following is a typi- cal advance planning schedule for conducting a financial planning seminar.
Six Weeks Before the Seminar. Six weeks prior to the seminar the following deci- sions/actions should be completed:
1. Decide on the subject and speaker
2. Determine the seminar objective and attendee profile
3. Develop a theme for the presentation and marketing materials 4. Decide on program style
5. Contact the speaker
6. Line up those NASD-registered personnel who will staff the seminar 7. Determine the order of seminar presentation
8. Select and contract for a location 9. Determine the seating configuration 10. Select the marketing plan for the seminar
11. Prepare and clear through broker/dealer’s compliance department all advertising, invitations, and sales materials.
Two to Four Weeks Prior to Seminar. Two to four weeks prior to the seminar, the following actions/decisions should be completed:
1. Write the script and finalize it 2. Address invitations
3. Mail seminar invitations 4. Place advertisements 5. Make name badges
Day of the Seminar. If all of the preceding steps have been completed, the seminar will most likely be a success. The seminar speaker must remember that the main purpose of conducting a financial planning seminar is to convert a potential client into a long-term client. However, also remember that the speaker should educate the audience so the attendees receive value from attending the seminar.
Follow-up. Follow-up is important both with attendees and those who registered for the seminar but did not show up. Studies show that less than 25 percent of what is seen and heard is retained after 48 hours without reinforcement and reiteration.
So all seminar attendees should be contacted within two days to assure high recep- tivity. The no-shows should also be contacted because often they are as receptive as the attendees. The key to any successful seminar is preparation and follow-up.
In this chapter we provided a conceptual framework for establishing and managing a successful financial planning practice. Clearly, some of the informa- tion included in this chapter is either too advanced for small planning businesses or too basic for the large ones. Therefore, as a compromise, we presented our approach to developing a typical financial planning practice.
In the next chapter, we will present the key issues relating to the sale of a practice.
INTRODUCTION
Establishing a practice is a great moment in a financial planner’s life. After spending a lifetime making the practice blossom and mature, there comes a time when the planner might wish to sell and transfer the business to a buyer.
Clearly, the most difficult challenge the planner will ever face is to prepare for the sale of the company.
Any financial planner considering a sale should take the following key steps:
• Strategically position the practice for sale
• Ensure that the practice has the appropriate personnel to manage the business in the absence of the principal
• Develop the systems to ensure that the practice is operated efficiently
• Take the steps to enhance relationships with clients and strengthen prac- tice ties
• Organize records and financial data.
These are difficult chores. They can become nightmares if done improperly. This is because it is often difficult to assess exactly the intrinsic value of the practice.
The risks of a transaction are also always difficult to determine. Finally, since each practice is unique and the parties involved in a sale transaction come in all shapes and sizes, no standard transaction structure exists for use in all situations.
A comprehensive discussion of each of the topics identified is beyond the scope of the book. However, for practical reasons, some basic issues concerning the sale of a practice will be explored in the following pages.
Sale of Financial Planning Practice*
22
* This section is authored by Jack DiFranco, formerly Managing Director with Stout Risius Ross Advisors and formerly National Managing Principal for Grant Thornton Corporate Finance, LLC.