Your Understanding of Risk is Misguided

You don’t take enough risk

If there’s one overriding observation I can make from dealing with the firms using our digital marketing company it’s this: You don’t take enough risk.

The risk avoidance mentality when making decisions about your advisory business is anomalous. I suspect you work hard to ensure your clients take sufficient risk with their portfolios to keep pace with inflation and minimize the risk of running out of money in retirement.

Yet, you often make decisions that avoid risk, impair your ability to grow your business and even lessen your chances of surviving in a changing environment.

You spend too little on marketing and training. Most advisors tell me they spend only a little over 1% of revenues on those activities. The average marketing budget (as a percent of company revenues) in the banking, finance and insurance industries is almost 4%.

Not only do you not allocate enough resources to marketing, you don’t have a marketing plan and often have no idea how you would spend additional funds. I ask every new client to show me their marketing plan. I’ve never received one.

You lack innovation

Being innovative is a form of risk taking. Yet I rarely see it.

Your webpages are a clone of everyone else’s. Often they are drab, boring, filled with technical jargon and try much too hard to project your expertise. Rarely, do you strip off the veneer of your professional persona, and show the viewer who you really are.

Where are the images of you meditating, rock climbing, coaching, or volunteering? Why not show your vulnerable, sensitive, caring side?

Doing so involves taking risk.

You resist niche marketing because of – you guessed it – the risk you might lose assets from investors outside your demographic. You don’t consider the flip side: When you specialize, you’re likely to attract more assets from those within your niche.

Here’s the big kahuna. You cling to an AUM=based bundled fee. You can rationalize it, but the real reason you do is it’s the most profitable fee model. Every week, I’m contacted by advisors who are abandoning this approach to fees because they don’t believe it’s sustainable. One advisor recently told me he also doesn’t believe it’s ethical or consistent with his fiduciary obligation to his clients. He has a point.

Here’s what I’m suggesting:

Change your approach to risk when making decisions about your advisory business so it’s consistent with the excellent advice you give your clients.

It’s the least you can do for yourself.

Dan Solin is a New York Times best-selling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read. His sales coaching practice includes helping advisors convert prospects into clients and generating leads through videos and other elements of marketing. Dan is not affiliated with any advisory firm.

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