There is a friction that commonly exists within many organizations, and it occurs between the sales department and the back-office operations department. Both feel underappreciated by the other. Operations thinks sales doesn’t realize that no product or service could be delivered to clients without their hard work; sales thinks no one would even have a job if it weren’t for the revenue being generated by their department. After all, “Nothing happens until a sale is made,” right?
In service industries, such as the registered investment advisor space, we don’t build widgets; our “product” is the client experience. A true high-touch client experience, one that makes each client (across an ever-growing client base) feel as if they’re the most important and valued to their advisor, is driven by efficient and repeatable processes. In essence, the sales team is selling these workflows and efficiencies that the ops team has implemented throughout the organization.
The sales team can say, “The ops team wouldn’t have a job without us,” but the operations group can quickly respond, “The sales team wouldn’t have anything to sell if it weren’t for us.” Much has been written about the fact that investment management (i.e., stock picking) has become commoditized. When I entered the wealth management industry in the late 1990s, most advisors used a sales presentation along the lines of, “I have a proprietary investment model that has performed extremely well over time ... you should hire me because I can make you money.” With the proliferation of robo advisors and ETFs, clients feel they can get investment performance for a fraction of the price they used to pay, so our industry has had to shift our value proposition.
Today, the wealth management sales presentation to prospective clients is something like, “We will act as the quarterback for your financial life. We touch all aspects of your finances—not just investment performance, but your spending habits, your goals and aspirations of how you want to live a fuller life and use your wealth to create memories and a long-lasting legacy. We can help with your bills, your taxes, retirement planning, education planning, charitable goals, etc.”
Despite all the talk of fee compression in our industry, AUM-based fees have stayed fairly consistent over the past decade, but advisors have been forced to offer more services for the same fee they used to charge for investment performance only. While these services make client relationships stickier and allow advisors to maintain their fee levels, it also puts pressure on profit margins. This in turn makes client retention that much more critical. After all, if your business is hovering between profitability and a loss, losing even just one or two clients could be detrimental to the business.
Not only does operational excellence drive scale in the organization, which bolsters profit margins and allows advisors to spend more time with clients, but it also makes clients more confident in their advisor and drives the client experience. Clients are much more inclined to leave an advisor due to an operational snafu than for investment performance. Alternatively, clients are much more likely to refer their advisor to their friends and family if they are confident in the client experience being offered by their advisor. At the recent 2020 TD National LINC conference, Andrew Town, vice president of institutional consulting for TD Ameritrade, pointed out, “Advisors believe if we do everything we can to be delightful in our experiences with people, then they’ll be more loyal and talk to more people about us.’” A survey of last year’s Financial Times Top 300 RIAs cited client referrals as the top driver of new growth, so you can see just how intertwined sales and ops really are.
In most cases, sales and ops get along, support one another, and across departments, everyone puts the needs of the client first. But every once in a while, when friction rears its ugly head, the sales team would be well served to remember that operational excellence not only retains clients in an ultra-competitive industry and allows for fees to remain constant in a fee-compression environment, but it also drives sales through the number one growth catalyst of all RIAs: client referrals.
Matt Sonnen is Founder & CEO of PFI Advisors, supporting RIA owners and operations professionals focused on profitability. Follow him on Twitter at @mattsonnen_pfi.