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Sometimes It Takes a Crisis—Is It Time to Tweak Your Business Model? Part 2

The second in a two-part series looking at how financial advisors can improve their business during the current coronavirus crisis.

There’s nothing like a global pandemic to shock you out of your comfort zone and get you to rethink some of the fundamentals of how you run your business. 

Recently, I wrote about how current events might trigger advisors to consider using flat fees in their practices. Here are two more topics for consideration.

Going Virtual

Many of us have been working remotely since the onset of the novel coronavirus. Working remotely can cause major changes in how we interact with our clients and our colleagues. But for some firms, interacting remotely is easier than for others.

Our firm is not a traditional advisory firm. We are a TAMP that provides outsourced portfolio management services to advisors and their clients. When we founded our firm almost five years ago, we intentionally built it on a technology platform that would allow us to rapidly scale our business and interact efficiently and cost-effectively with our clients.     

We certainly did not have a global pandemic in mind when we laid the foundations for our technology infrastructure. But we did believe that the world was changing in terms of how people work, communicate and interact.

First, we wanted to build flexibility into our infrastructure. Some of our team members work remotely. We’re based in Denver, where snowstorms can shut down the city. We couldn’t be tied to a single physical location. We needed to be able to work from anywhere.     

Second, we thought the old wholesaler-on-an-airplane distribution model was archaic and did not respect the needs or preferences of our target audience. Setting up a series of one-on-one, face-to-face meetings weeks in advance seemed like a carryover from ancient times. 

We wanted to shorten the communication cycle, allow for changes in people’s schedules, and give clients and prospects access to the entire team. If one member of our team can’t answer a question, let’s bring in someone who can—now. It’s easy when you communicate virtually.

We set up our website so prospects could learn most of what they would learn in an initial face-to-face visit. We used simple language, graphics and a series of short videos to tell our story and answer the basic questions advisors would have about our firm. A visitor to our site can meet every one of our team members and come away feeling that they know us.

Third, we didn’t want either our availability or our systems to slow down the advisors we work with. We developed technology to allow them to open accounts and generate proposals online. They enter information once in a streamlined interface, garner electronic signatures from their clients and open accounts in minutes without any involvement by us.  

This range of capabilities has served us well during the current crisis. It has allowed us to maintain essentially a business-as-usual experience for our clients. Reliance on virtual communications will probably be even more important in an era of increased social distancing.

Our experience will not translate perfectly into the operations of an advisory practice, but the general concept will. Use technology to improve communication and streamline interactions with clients and prospects. The current crisis will only heighten your clients’ appetite for, and comfort with, online interaction.

Turning Fixed Costs Into Variable Costs

Because we were introducing a new flat-fee pricing model into the TAMP world, we wanted to keep our overhead low while maintaining the ability to scale our business quickly. We did this, in part, by reducing our fixed costs and translating them, wherever possible, into variable costs.

The best example was our decision to use Orion as the core of our back office. Like many advisory firms, TAMPs have traditionally staffed and maintained in-house back-office operations, including portfolio accounting, billing, performance reporting and trading systems. 

By using Orion, we achieved a number of advantages. First, we put the maintenance of these systems in the hands of experienced specialists, who continue to refine their capabilities. We, in turn, were free to specialize in the areas where we could truly add value. 

Second, we eliminated the distraction of having to think about and manage these areas. Running a back office requires keeping up with new technology, fixing things that break and managing people. We avoided much of that so we could focus on areas of strength.

Most importantly, we turned a large fixed cost into a small variable cost. Rather than paying to build, staff and maintain back-office systems ourselves, whether we used them or not, we pay a dollar-based fee only when we open an account. We do pay a minimum annual fee, but it is a fraction of the cost we would incur if we staffed and maintained our own back office.

Again, the specifics that applied to our TAMP will be different for an advisory practice, but the concepts are the same. Retain responsibility only for activities where you can truly specialize and add value. Strip out areas of your business that distract from what is truly important. And turn large fixed costs into small variable costs whenever possible.

Building for Future Success

The key to staying successful in the years to come is to question every aspect of your business. Just because “we’ve always done it that way” doesn’t mean it’s optimal going forward. 

The current pandemic-induced stress test may expose aspects of your business that need an update. Don’t be afraid to make the changes that will help you thrive in the years to come.

Scott MacKillop is CEO of First Ascent Asset Management, a Denver-based TAMP that provides investment management services to financial advisors and their clients. He is an ambassador for the Institute for the Fiduciary Standard and a 40-plus-year veteran of the financial services industry. He can be reached at [email protected]

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