Talking Clients Into Managed Accounts

Last month's column detailed why financial advisors need to at least consider adding managed accounts to their practices. It also gave some insight into investor types who would benefit most from managed accounts. Now we need to discuss how an advisor can actually begin the transition to managed accounts including how to convince clients to make the move. Positive Thinking, Positive Planning Advisors

Last month's column detailed why financial advisors need to at least consider adding managed accounts to their practices. It also gave some insight into investor types who would benefit most from managed accounts.

Now we need to discuss how an advisor can actually begin the transition to managed accounts — including how to convince clients to make the move.

Positive Thinking, Positive Planning

Advisors with strong individually managed account (IMA) practices began their transition to this fee-based business confident that the end result would be a win for them and for their clients. This confidence is created by knowing, for example, that nearly all investors can benefit from an important feature of IMAs: the discipline of the investment process.

Few cared much about “process” during the thrill of the bull market, but crashing account values have given the concept of an investment process heightened value, and investors have come to understand this.

Like institutional investors, the managed account client should spread his money out among an array of money managers with different styles, and he should create an asset allocation plan that strikes a balance between risk and return. It's not too hard to sell clients on the benefits of such a move.

Don't Fear the Fee

Gerry, a successful wirehouse advisor in Connecticut, has a way to counter clients' negative reactions to managed account fees: “Once clients understand that the total fees can be similar to those of mutual funds, they generally are sold,” he says. “If you take the performance and fees out of managed accounts and focus on the process, it becomes much easier for clients to understand the concept.” However, Gerry warns, stay away from the alphas and betas. “Our fee for a $1 million account is similar to an equity mutual fund,” he says, and that fact makes clients of all stripes more comfortable with the idea of paying fees.

It's important not to avoid talking about your fees. Affluent people are used to paying fees for services, and the clarity of your fees is an important factor in your credibility. Demonstrate your value, and the fee will be acceptable. The key is determining what a client considers valuable. Discuss the services you provide and solicit the client's thoughts about what he is paying you for.

One advisor recently told me that his managed account clients were unhappy about market performance but are comfortable with the plan in place for a rebound. That's a sign he's communicated well with them regarding fees.

Income for the Long Run

Don't fall victim to the fear of the short-term costs of the managed account transition. If you want to work long-term with affluent investors, you must tie your success to their success, and you must be prepared to show the same patience they do.

Ron, a broker from Buffalo, embraced a “cold turkey” approach to his managed-account migration. He contacted his clients in rapid succession and told them it was his clear conviction that managed accounts were the way to go — for him and for them. Ron says the transition was tough for about a year, but he eventually captured more assets from clients who saw the merits of the move.

Weed the Garden

The transition is an opportunity to dispense with clients who are distractions from serving the most important portions of your business.

George, a midwestern advisor, has firsthand experience with such a purge.

“In going through our book, my assistant and I realized that many individuals were not clients; they were buyers,” he says. “It soon became clear that we'd collected a lot of accounts, but relatively few had developed into relationships. This was troubling because we wanted to be true advisors, not brokers just peddling stocks to anyone who called.”

To remedy this situation, George narrowed his client focus to a small number of families. He was rewarded with 30 percent more assets and 25 percent more income within nine months.

Be a Champion of Process

Erik is committed to the value of managed accounts and he likes to educate his clients. “When migrating clients to managed accounts, we tell them this is how real money is managed,” he says. “We take them through the process, explaining the discipline and philosophy.”

Don't just tell the client about the institutional-style investing discipline involved with managed accounts. Show the process and contrast it to his own lack thereof.

When he encounters resistance, Erik asks, “What is your sell discipline?” The resulting silence goes a long way to convincing him that managed accounts can improve his results.

If Not Now, When?

Amid historic losses in their retirement accounts, one in eight affluent investors say they are looking for a new primary advisor. For those who are counting, that's about 750,000 prospects who typically say they want performance (of course) and strategies they can believe in. With many of your competitors still hiding under desks, there's no time like now to approach these prospects with a nearly irrefutable plan.

Let the transition begin!

Writer's BIO:
Steve Gresham
is executive vice president, chief sales and marketing officer for the private client group of Phoenix Investment Partners, Ltd. He is the author of The Managed Account Handbook: How to Build Your Financial Advisory Practice Using Separately Managed Accounts and Attract and Retain the Affluent Investor: Winning Tactics for Today's Financial Advisor. Contact him at [email protected]

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