Reduce your vulnerability to a market downturn

Is the next market downturn your biggest vulnerability? It shouldn’t be. Many advisors lose clients when the market declines.  The most successful add clients.  Is the next bear a threat to your practice? If it is, how will you eliminate it?

Jack Stack is recognized as an outstanding business strategist.  I have great respect for his work, and, not to take anything away from his accomplishments or The Great Game of Business, his secret is not as simple as having a great vision.  It may be that he does not even excel at the “vision thing.” He managed to steer his company through a very challenging period, and subsequently spin off 63 other successful companies, by focusing on its biggest vulnerability. As the firm gradually reduced the threat, he turned his attention to the next biggest.  Systematically mitigating or eliminating the biggest threat to the business made him one of the most successful leaders in business.

Successful advisors provide clients valuable guidance and services beyond investment returns. If the advice you offer does not go much beyond portfolio performance, it needs to now. You cannot control the direction of the market, and it would be foolish to leave the future of your practice to the fickle direction of stocks. Besides, if your primary value is investment returns, how will you distinguish yourself from the thousands of advisors who do exactly the same thing?

When we ask clients “What is the most valuable thing your advisor brings to the relationship?” we practically never hear “earns a good return on investment.” Like good customer service and trust, it is assumed you will manage their portfolio competently. What they value, remember you for, and ultimately refer you for, is something more. Find out what that is, and build your strategic plan around it.

Refine your value proposition and build on what keeps your best clients with you. Learn new skills that enhance what differentiates you from other advisors and strengthens your real value to clients. And do it before another market downturn jeopardizes your relationships!



  1. DMHAugust 20, 2011

    The question you ask, "What is the most valuable thing your advisor brings to the relationship" doesn't address the concept of return which is why it "practically never" arises as an answer. The reason lawsuits and client complaint arise is almost ALWAYS performance related.

    I have worked in this industry for 30 years. The reason performance isn't a criteria for most is (a) most advisors are told that the "relationship" is more important than performance becuase of (EMH and all that crap), better-than-market-returns are unnatainable, (b) 95% (my guess) have NO system for creating any alpha for their clients in the first place. At best "buy and hold" allows them to rationalize their pathetic relative performance to some benchmark. And (c) most firms don't care about an advisors' performance because as long as they collect assets and shove clients into an in-house managed product, the "advisor" can be fired, and the firm simply retains the client's asset upon which they continue to levy a fee – regardless of performance.

    The industry has morphed into a bunch of salemen who would know a stock from a bond. We're in a business that requires market analysis. The focus has been on "relationships". It's misdirected. If you want to be a good golfer, you don't focus on wearing the right golf outfit. At some point, you've got to learn to shoot birdies.

  2. Stephen WershingAugust 21, 2011

    Thanks for your comment! I don't know if it was clear, but when I said "when we ask.." we are asking clients in the context of a client advisory board. I just did an advisory board meeting the other day when the market was down 419 points. We brought up the crazy swings of the markets, and the clients were not that concerned because they trusted the advisor would do as they had before – delivered competitive returns. I have worked with hundreds of advisors and third party asset managers, and I have not seen one that can outperform everyone else consistently. I really believe the market is relatively efficient, and to separate yourself you must deliver something more and different.


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