WealthManagement Magazine

The School of Hard Knocks

Positive thinking is important, but it will only get you so far. In the brokerage industry, the real money lies in the negative realm in making mistakes and then learning how to avoid repeating them. In fact, according to successful reps, stumbling a little here and there is probably the best thing you can do for your practice. One of the keys to success is not to be afraid to fail, says Ron Carson,

Positive thinking is important, but it will only get you so far. In the brokerage industry, the real money lies in the negative realm — in making mistakes and then learning how to avoid repeating them.

In fact, according to successful reps, stumbling a little here and there is probably the best thing you can do for your practice. “One of the keys to success is not to be afraid to fail,” says Ron Carson, with Carson Wealth Management Group in Omaha, Neb., and author of Tested in the Trenches (Dearborn Trade, 2005).

Still, no one should turn down the opportunity to learn a little from the mistakes of others.

Here's a look at five advisors with at least $75 million in assets under management, the notable mistakes they once made and what they ultimately learned.

Lesson #1: It's the Minimum, Stupid

When he was starting out in the early 80's, Carson did what any self-respecting novice rep would do: He accepted accounts with tiny sums of money to invest and devoted enormous amounts of unproductive time courting them. In fact, he would regularly go out of his way to visit prospective clients at their homes, since he was working out of a 150-square foot office. Once, for example, he drove seven hours to meet a prospective client, then turned around and came back, all in one day — for a $10,000 mutual fund investment.

“I couldn't afford to stay overnight,” he says.

After about five years, however, Carson realized his approach wasn't working. So, he took a step back and developed a mission statement for his practice, succinctly summarizing the type of business he wanted to run. (“To inspire our clients in making informed decisions through education, communication and a service which exceeds their expectations.”)

When he looked that over, Carson quickly saw he couldn't meet his goals — exceeding expectations, for example — if he continued operating as he had. So, he decided to bite the bullet, move into bigger digs — where he could meet with clients — and set a specific account minimum of $100,000. “It was scary at first, but I kept to it,” he says. Today the minimum is still that amount for the firm, but Carson's is considerably higher at $5 million. He has assets under management of more than $1 billion.

Lesson #2: Do Your Homework

Peter Mooney, who runs Source Financial Group in Cleveland, made two big career moves — and both times, he jumped in with eyes firmly shut. Thirteen years ago, a friend who worked as an agency manager for an insurance company got Mooney a job as an agent. But, while he eventually became a district manager, Mooney never liked what he was doing. For one thing, he didn't enjoy the commission-based environment, “Eat what you kill,” as he puts it. After being passed over for a promotion, he left that job in a huff. Mooney had been toying around with the idea of developing higher-net-worth clients and doing such things as estate and business succession planning. So, he decided to become an independent advisor.

The change seemed to make sense. But, once again, he had made a move without doing much due diligence. “I did my research after the fact,” he says. As a result, Mooney was unpleasantly surprised at the cost of setting up his practice — as much as $350,000, he figures. He also signed on with a broker/dealer who couldn't provide the level of support he expected. After a year, Mooney switched b/ds. Eighteen months after that, he slashed his staff from 20 to eight. Since then, revenue has grown “significantly.” “We do more work with fewer people,” he says. Assets under management are “$75 million plus.”

Lesson #3: Less is More

Ten years ago, when Elizabeth Ruch, an advisor with Waddell & Reed in San Diego, introduced a new computer system to her practice, she discovered how easy it was to produce all manner of materials for clients. So, she started churning out more and more stuff. Brochures, charts, spreadsheets — whatever she could create, she would crank out, loading her clients up with material at every meeting. “I thought the more information I could give them, the more they'd like my work,” she says. Plus, by producing all that stuff, she figured she'd seem really smart. She also punctuated the written material with lots of statistics, facts and figures. “I was running myself ragged, trying to get these things out,” she says.

But about three years ago, Ruch got a rude awakening during a meeting with a long-term client. He didn't want all those documents; he simply needed to be told what to do. Ruch, of course, was stunned. She promptly started polling other clients, who all said the same thing: They weren't looking for a lot of analysis or fancy numbers. They just wanted an advisor to guide their investments. What's more, they usually threw Ruch's beloved material out without even looking at it. Ruch, who focuses on middle-income households with about $160,000 in earnings — clients with some, but not a lot, of financial sophistication — realized she'd been barking up the wrong tree.

Ruch pulled the plug on her document production and launched a simpler approach. While she produces a 100-page plan for all clients, she summarizes the key points in the first 10 pages and focuses on that in their meetings. “I concentrate on taking away the confusion,” she says. “That's what they need.” Assets under management are now more than $75 million.

Lesson #4: Managed Expectations

For many years, Judith McGee seemed to be a magnet for needy souls. As a frequent expert witness in divorce cases, she attracted a great many divorcees, as well as the occasional lottery winner, sudden inheritor of wealth or recipient of large personal injury claims. And, looking back, McGee, who runs McGee Financial Strategies in Portland, Ore., wishes she'd figured out a different way of handling all those folks.

According to McGee, the problems depended on the type of client. Those who had come into sudden money often had little experience handling investments or financial issues and were so overwhelmed by their good fortune that they simply went on spending sprees. That made McGee's job virtually impossible. “They hadn't earned the money themselves, and they often were just looking for the next person to hand them something,” she says.

The divorcees were another matter. Many, McGee felt, looked on her as someone who could rescue them. What's more, in situations where there had been a power imbalance in the marriage, they eventually came to resent her as much as their exes. In those cases, clients became not only difficult and hostile, but litigious as well. In one typical case, a recently divorced client sued McGee on grounds of improper suitability of investment advice, even though, according to McGee, the client had conducted her own day trading, ignoring McGee's advice.

About 10 years ago, when McGee decided she'd had enough, she put in place a new system for communicating just what she could do for clients. That meant spending more time laying out her role in their first meetings and, when necessary, doing some basic finance 101. She also tried always having another advisor in the room and made a habit of taking copious notes, which she summarized and sent to clients after every meeting, with the directive to contact her immediately if there was any discrepancy.

Those moves have helped to reduce the number of problems substantially. She now has $300 million in assets under management.

Lesson #5: Don't Hate Your Clients

Randy Carver also spent years with the wrong clients, especially ones with whom he simply didn't click.

“I spent too much time and energy on people who didn't buy my philosophy,” says Carver, head of 14-year-old Carver Financial Services in Mentor, Ohio. That meant working with aggressive investors who didn't espouse Carter's conservative long-term approach. But Carver found it hard to say no — or goodbye. The result was a series of clients who refused to follow his advice, but also refused to leave.

One couple, for example, insisted on following a market-timing approach — even though Carver repeatedly urged them to develop a diversified portfolio — and then often complained about their investment results. Ultimately, Carver got fed up and refused to take any more orders from them — but that was five long years after first taking them on as clients.

It all changed about three years ago, when he hired a few staffers — an advisor and an operations person — who urged him to be more selective when accepting clients.

Now, Carver follows a different tack, relying on his gut and looking for telltale signs — people who aren't willing to be completely forthcoming with information, for example, or indicate a lack of interest in long-term planning. He turns away about one-third of the prospective clients who come to see him. “It's like when you go out on a first date. You know whether they're going to drive you crazy or not,” he says. Since then, production has skyrocketed. Production is up over 30 percent and assets under management are about $500 million.

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