Financial advisors track many things. They track their phone calls, appointments scheduled, cases closed, new insurance premiums, trails, AUM charges, and so on. They even hire coaches to keep them on track to ensure they are asking for enough referrals, prequalifying leads, dressing properly, networking correctly, and so on. They are trained to outsource as much as possible so they can be prospecting and meeting with people. All of this is one component of a successful business. Think of it as the sales department.
Most advisors spend the majority of their time in the sales process, moving from one closing or business-retention appointment to another. These activities, combined with any industry training that a financial advisor may have, is the majority of their experience. So who is running their business?
For an advisor to stay in business long term after the DOL Fiduciary Rule is implemented, one of two things must happen: 1) the advisor must shift a significant amount of time away from sales and over to becoming a student of business, or 2) the advisor must hire competent staff with defined roles to run the business with minimal interference from the advisor.
This is where an advisor has to set their ego aside. A well-run business has well-positioned, talented employees who are placed in positions which maximize their skill sets for the betterment of the organization and its clients. The financial services industry has a tendency to try to make the “do-it-all” yourself professional who can prospect, sell, create financial plans, analyze investments, run a business, manage people, keep up with compliance, become a specialist, etc. in reality, most people have certain personality traits, interests, and skill sets that make them well suited for one particular job and ill-suited for another.
Why is this so important? When the DOL comes knocking and an advisor has to justify their fees, they must know the cost of every hour of labor, their fixed overhead, their risk costs, their profit margins, etc. They will need to know how long it takes them to manage a particular client, to deliver a specific service, to administer an investment program, etc. As a fiduciary, an advisor is responsible to know these details and to manage them appropriately.
An advisor who mismanages their business, and thereby passes on expenses without equal value to their clients, may find themselves at the mercy of the U.S. Legal system via class action lawsuits.