The Eight Key Attributes To Building An Insanely Successful Fee Based Financial Planning Practice | FEE018 – Transcript



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Alright, so the eight key attributes to building, what did I call it before, the, to building an insanely successful fee-based financial planning practice. You know, I’ve been working on these quite a bit and it’s amazing how when you focus on these eight attributes, these really are the eight attributes that, you know, a business, somebody looking to buy a business, these are the key eight attributes that they would look for. So when I came across these I thought I okay, these are pretty important. And then I basically dove into them and said, okay, how can I incorporate these into a fee based financial planning practice and so here’s basically my, the results of that.

So I want to talk about the eight attributes because, you know, the reality is at the end of the day you’re going to, there’s gotta be an exit strategy. And, you know, I know a lot of, a lot of the people listening to this are just getting into fee based financial planning and they’re just starting their business. And so a lot of this may be beyond them. But you know what, I wish I’d gone through this information when I started because this information, you know, would have allowed me to know what to focus my time on. Because there’s so many moving parts to a fee based financial planning practice and the question is what do you focus your time on. I mean, you’ve gotta get some cash flow coming in, you’ve gotta get some branding, some marketing, some servicing. There’s so much that goes into it, how do you know what to do and when. And so what I’ve done is, you know, with these eight attributes it just simply allows me to say okay, let’s go through the attributes, I’m gonna highlight the things that I feel are the most important or that I can work on the most and then—or that excite me the most—and then dive into those things.

So let’s go through the eight attributes, you know, this may be a bit of a longer episode but I think everybody’s gonna appreciate what we’re doing with this. So the first attribute we’re going to talk about is financial performance. So when it comes to financial performance you’re either gonna have a high, medium or low score when it comes to that. And really financial performance is all about how successfully are you able to bring in profits to your business, okay, because there’s a certain point where at the end of the day there’s nothing left over because you’re just doing what you can. But eventually you’re going to get to a point where suddenly there’s some profits that are being left over. So, you know, when a buyer potentially is looking at your business—and again, this isn’t just for buyers but, you know, if you look at your business and always ask the questions, well, anything that I do is this going to make my business worth more or less to somebody else. The reality is at the end of the day if you keep on focusing on for that that perspective at the end of the day you’re going to build a business that is so insanely profitable and so insanely fun that you’re not going to want to sell it to anybody because why would you. You’re having too much fun and making too much money doing it. But the reality is there may be a point, there may be a day when, you know, you are going to be looking at selling this. And so you’re gonna want to make sure you’re building your business on the foundation. Remember what I talked about in the what’s new with [00:16:28.1] section were, you know, Aaron Larkin brought me to the fundamentals of what I needed to do he says because I can’t help you build on crap, I need to get you to build on fundamentals. So let’s focus on some key fundamentals that you can really build upon and that’s exactly what we’re doing here.

Let’s now assume profitability is coming in, okay, so you do have some profits coming in. Whatever that number is, I mean, people who’ve been in business for a lot longer obviously you’re potentially going to have a higher profitability but in any event financial performance is a key attribute and you do want to pay attention to that. So you’re either going to have, you know, a lot of profits or a little profits but at the end of the day you’re going to have profits. You may, you know, let’s look at how an outside person would look at these profits. So we’ve all done this in the past, I mean, you may have decided in the past that you want to invest say $100 in a bond and that bond is offering a 5% interest rate. So in other words you paid $100 today for something that’s gonna be worth $105 in one year. Now here’s how the same math affects our business. Let’s say your business generates $100,000 in pre-tax profits. So if you were a buyer and you wanted to generate a 15% return on that money you would be willing to pay $86,957 today for the right to receive that $100,000 a year from now. So someone acquiring your business however, they’re not just gonna look at one year remember. Because, you know, and we all know this, I mean, every year if we can continue to keep on growing, keep on moving forward with our business that profitability should be coming in year in and year out. So somebody who’s looking to acquire a business they would say well you know what I’m not gonna look at just one year, I’m gonna look at the foreseeable future. So if you project out for the next ten years and assume that the business will generate $100,000 in pre-tax profits each year, you simply add up the discounted future values of each year’s pre-tax profits. And if you do this for ten years using a 15% discount rate or the rate that the investor wants to make on that money the present value of those ten years is worth about $500,000. So the price an investor’s willing to pay for an asset relates to how risky they perceive the future stream of profits to be. The higher the perceived risk, the higher the discount rate. So just to give you an example here when you look at somebody who’s saying listen your, the risk on your business of that profitability continuing is really, really low. So therefore they wouldn’t necessarily need to command as much of a return. But if the risk is really, really high then maybe they’re gonna say listen, I want a 50% rate of return on my money because I feel that those, the asset that I’m looking at buying is fairly risky.

Well, if you take a 50% discount rate then you’ve basically turned that $500,000 number into just under $200,000. So it’s a pretty significant drop in the value. So when you’re building your business you want to look at the different types of revenue that’s coming in and, you know, ask yourself can, is that a high risk, medium risk or low risk type of revenue. Well, here’s how I consider the risk level of the various revenue streams we as fee-based financial planners can generate. So the first one is annual financial planning and financial plan maintenance fees. Now I see this as a very low risk type of revenue because once you’ve basically got a client who has engaged in your services, signed the letter of engagement and basically say listen I want to keep moving forward and I want to be part of this program, that renewal fee and those financial planning fees are pretty consistent. They’re gonna come in year after year after year. So that revenue stream is really, really low risk. All you really need to do is service the client and make sure that they’re getting value for the maintenance and the oversight that they’re receiving.

Now on top of that we have annual investment oversight and integration fees. Now those fees again are a percentage of assets that we charge and so we participate in the management fee of those assets. And again, once the assets are set and as long as everything keeps going and we’ve worked with good investment managers and whatnot, then those revenues are going to continue. So the revenues there are pretty low risk.

Now insurance revenues, this is the, you know, on the other integration or implementation side of things—insurance revenues to me are a bit of a higher risk. And I would say they’re medium if not high risk. And the reason for that is simply that those revenues are dependent on, you know, me showing up and actually writing insurance business. And so as a result I can’t say that anybody else would be able to do it at the same level that I would be able to do it. So the risk on that is perceived as much higher.

So, you know, look at your revenue stream and ask yourself really what are the different, are there ways of changing the revenue stream risk and turning it from a higher revenue stream risk to a lower revenue stream risk. So again when you look at the, you know, the investment side of things traditional financial advisors work off of commission model where they get paid on transactions. And so if they’re not getting paid if they don’t show up. Well, that’s a very high risk so by following a fee based approach you’re simply able to lower the risk of that revenue stream and make that a much more consistent revenue stream. So always pay attention to the financial performance of the revenue streams that you’re bringing in and the risk, I guess, level that is being applied to that. And, you know, do what you can to find ways of lowering the risk on every revenue stream.

The next attribute is growth potential. You see, when an acquirer typically looks at a business what they’re actually willing to do is they’ll pay more for a business that they see has got a lot of growth potential. So let’s take the previous example, you know, into this example. $100,000 in pre-tax profits each year over ten years but let’s assume that the pre-tax profit is going to increase by 15% a year. Now what does that do to the calculation. Well, when you do all the heavy lifting and all the math it changes the present value from a $500,000 value to a $1.2 million value. So you can see how that growth rate applied to a business can be just a huge, huge thing. So always make sure that you’ve got ways of increasing the profitability, increasing the, you know, in growing your business. And so again, this is one of the reasons why we’re spending time on this is because I’ve found that in the past, fee-based financial planners and financial planners and advisors in general they do tend to get to a point where they can’t grow anymore. And so it’s challenging to grow. And so if you’re at a point where you’ve, you’re looking at selling your business it’s hard to factor in a higher growth potential on those, on that part of your business because if you can’t grow it then, you know, I don’t think another business owner would be able to either. So let me ask you this, on the growth potential here’s some of the questions you want to ask yourself. Could you replicate your business potentially in another city. I mean now we’re starting to think like a business owner, not just working, it’s not just us it’s stepping outside and saying how can I grow this business beyond me. Could you replicate the business in another city.

Another question is what would you have to change in your company for it to handle say ten times the number of customers. I mean, just look at your business and say if I had ten times the customers coming in, ten times the leads, ten times the appointments, ten times everything what changes would I have to make in my business. So analyze that, look at that and say well, should I not be starting to put some of those changes into effect now because if you don’t have that foundation in place you’re not gonna be able to handle the ten times growth. And believe me, when things take off and you start to get all your ducks in a row when it comes to all the marketing and everything that I’m suggesting here it can take off very, very quickly. And if you’re not ready for it then it can be a pretty rude awakening.

Another question, another way of looking at things is if someone handed you a cheque for $10 million but there was only stipulation, you had to use it to grow your company as quickly as possible, let me ask you this. What would you invest the money in, what would you focus on, what would you say—yeah, look I got ten million bucks here and I can only spend it on growing my business what areas would you spend it on. Well, that might give you a key insight into an area you might want to take a look at in your business. So here are my thoughts on how growth potential factors into a fee-based financial planner’s business value. Reliability of revenues is key and every time we bring on a new client we simply add the majority of the revenue to the bottom line. Since a portion of our revenue is tied to the markets this portion will tend to rise over time especially if we chose to work with quality investment professionals for our clients. But insurance revenues, they are transactional but they’re a nice diversifier to the other revenue streams. So, you know, that’s one of the things that makes our business so great is that we do have a diverse revenue stream that we can bring in. We’re not just selling insurance, we’re not just investments, we’ve got a combination of it all. So it helps smooth that, smooth things out along the way. Especially, I mean, I’ve seen too many investment advisors who suddenly just said, well, I can’t make ends meet all of a sudden because I’m not making any transactions. Well, you know, live by that, die by that. So, anyways, those are just some of my thoughts on that.

Now the third attribute is reliance, okay. How reliant is your business on any one customer, employee or supplier and this one can be a bit challenging. You know, first of all what I would do is I would start off rank your customers and clients by the percentage of your overall revenue each represents. How can you increase the sales in, you know, to your smaller customers or find new customers so that you can add, you know, you can lessen the reliance on, you know, on the customers that you do have. Because one of the things you want to make sure is that you’re not focused on any one specific thing. You know, I grapple with this all the time. I truly believe that if you’re not willing to bring on other financial planners into your practice you need to cull your client base every once in a while to transition the clients who are not fully utilizing your services to another advisor who can service them at a level they would like to be serviced. You know, basically you’re going to get to a point and everybody, it happens to, I don’t know of any financial planner that it doesn’t happen to—where you get to a point where you kind of get tapped out and you can’t do anymore. Bringing on another client becomes a stressful event as opposed to an event that you should embrace and cherish. So what do you do. Well, you can either bring on other planners and advisors into your office and you can start bringing them on. That adds its own level of complexity. Or you just simply start culling your clients and saying, you know what, I can’t work with everybody and I need to really focus on the ones that I can work with. And so that’s why in a previous episode I did, I spoke about that. Is that you can’t work with everybody. So really get clear on and start focusing on who is it you can work with, who is it you can work with and start culling your client base for people that really aren’t ideally suited to the services that you provide. And you know what, we’ve all got that type of a client. And it’s not that they’re a bad client, it’s just that they’re not right for you so they should probably be, move on to somebody who, you know, is right for what they’re looking for.

I’m a firm believer in diversifying your suppliers but don’t ever what I call di-worsify your suppliers. You see, when I first started in this business everything was all about investments, it was all about, you know, the different investments and you became an investment picker. You were the, you wanted to become known as the guy who could find all the best mutual funds in the marketplace. And so you were creating all these great portfolios of all these great mutual funds. And you had, you know, the best investment, you were able to find the best particular mutual fund with fund family A, and then you went to fund family B and found the best one for the next component. You said, listen I need to add a U.S. manager so I’m going to find the best U.S. manager I can. And you had a great portfolio. But it was from seven or eight different companies. So you tend to, you know, you really tended to spread your clients’ assets among many different companies. But you need to be much more strategic on why certain investment professionals are in your practice, you know. Nowadays it’s very difficult for any one manager to really step totally above on, you know, to say listen I’m so good at everything. But there are some out there so spend some time on being very strategic on why a certain investment professional is in your practice. You see we have in our practice private portfolio manager whose, you know, investment methodology and discipline I truly believe in. And this allows me to provide our clients with access to a manager who can assist them with individual securities. This guy is awesome and he’s, you know, he’s got a strong discipline, he follows his discipline, he’s got reasons for why he does things. He purchases individual securities for our clients and our clients really quite like, you know, for the right client they really like that approach, they feel like they’ve got a lot of control.

Now we also have a sizeable comprehensive investment counselling firm who we can turn to to gain access to some amazing investment tools that really aren’t available anywhere else. So, you know, we turn to this one larger firm simply because they’ve got a huge toolbox and we can really build really nice diversified portfolios, incorporate some amazing strategies into the portfolio and for the right client this is exactly what they’re looking for. I also have an active management team that has a very low cost approach and, you know, for clients that are really fee sensitive then it’s a fantastic solution that we’ve been able to put together that allows us to, you know, get involved with a very good actively managed program but it’s very, very cost effective. And so, you know, we’re not sacrificing performance and, you know, we’re paying attention to the really, really fee sensitive client. Now no one solution is better than the other, you know, but we like them all for different reasons and we have them all for different reasons because we have different clients who are looking and have different objectives and so we want to make sure that we’ve got all the objectives covered.

Now what we’re not doing is we’re not then going much beyond that because, you know, it’s like why would we have two of the same things. So be very, very clear and strategic on why your relationships are with certain companies and, you know, don’t rely on any one company but don’t di-worsify things and spread it out everywhere because, you know, it’s always nice to have an investment company or a manager whatever, you know, take your call whenever you call. You know, we get a lot of attention from the firms that we work with because, you know, we’re a sizeable portion of their business and, you know, it kind of—anyways, they tend to see us as important in their business because, you know, we probably have a high concentration of assets that they manage in, you know, in the relationship that I have with them. So as a result of that they pay attention. So there’s some benefits to the concentration as well.   But as I say don’t over concentrate and don’t di-worsify. So find that happy sweet spot for your business.

Now, the fourth attribute we’re going to look at is cash flow. Will a potential acquirer have to inject a lot of cash into your company or will the company generate sufficient cash flow. So, you know, when your business is being built and if you ever get to the point where people are going to be potentially at buying your business they’re going to look at the business and say, okay, can I just acquire this business and then that’s it or do I need to then acquire the business and then inject a whole whack of cash into it in order to make things work. So what they’re going to be looking at, you know, you want to, you want the cash flow of your business to be quite high. And so, you know, that is again one of the benefits of our type of business is that the cash flow generally is really quite good. It’s, and some of the ways that you can make it better are things like, you know, moving to a subscription service, productizing your offering by, you know, and that makes it simply easier to charge up front for your wares. You know, the fee based financial planning model is designed to enhance the challenges that most people face in business, poor non-stable cash flow. So I recommend, you know, there’s certain things that you want to do when it comes to cash flow and really, really focus on the cash flowing into your business and, you know, designing things. And that’s where the fee based financial planning model is to ideal to this because it simply allows you to create that more stable cash flow.

So one of the stats that I track in my business and this is one that I think you should really, really take advantage of as well is—and I track this on a weekly basis—and it’s what’s called your solvency or I call it my solvency. And what it does is basically you take your current cash position and you divide it by your next 60 days payable. So basically forecast out and say okay over the next 60 days what do I expect, what are the things that I just have to pay for, things like payroll and things like rent and leases and all that sort of stuff What are the next 60 days payable look like, what does it all look like. And you simply divide that number into your current cash position. So what does this do. Well, I was always looking for a way of just keeping an eye on the solvency of the business. And, you know, up until, I hadn’t, up until the point I started doing this I really had no idea of where things are at. Yeah, I was, I had the financials going and stuff but, you know, it wasn’t easy at that point for me. So I needed to find an easy way. Well, this way is fantastically easy. So look over the next 60 days and anticipate what your outflows are going to be, divide that number into your current cash on hand so the number of, the value of cash that you have in your bank account today. So let’s use an example, let’s say that you’ve got $50,000 in cash on hand, so simply sitting in your bank account. Let’s say your payables over the next 60 days is $25,000. So 50 divided by 25, that gives you a factor of 2. Now, a factor from zero to one and a half, that to me is low. So in my mind that’s a number that says if I have a factor that’s less than one and a half I need to start focusing on building my cash position for me personally to be more comfortable. If my factor is between 1.6 and 2.5 now to me I’m sitting pretty. I always look for really two. Once I can get above two then, you know what, things are great. 2 point, you know, 2.5 and higher you’re probably sitting on too much cash. So I would recommend at that point is either re-invest in some new marketing programs, you know, start to deploy that cash and get it working for you or simply move the money into some quality investments. In other words you have too much cash lying around, not working for you so you need to do something about it. You know, play with the factor, with this factor because you need very quick ways of managing your business and you don’t want to spend a lot of time on your financials. This factor to me, this solvency factor has been a godsend because it simply allows me to quickly take a look at things and I track it and I keep a history of everything. So I can quickly look back and go are there any patterns that I’m seeing, you know, from a cash flow standpoint. And the one thing I found again from a fee-based financial planning model is that that in itself helps to smooth your cash flow and once you can build a certain level of cash flow and solvency in your business then it allows you to make better decisions cause obviously if you’re running at a solvency factor of say 1.5 or less you may not want to deploy into some new technologies or new marketing programs. You may want to start finding ways of, you know, doing some of your organic marketing and, you know, get organic traffic to your website and that sort of thing vs. going a paid route. But then if you’ve got, you know, if you’re flush with cash then it allows you to simply look at some other more advanced techniques that would cost some cash but you’ve got the money to invest.

So that’s from a cash flow perspective. Cash flow, you know, cash is king when it comes to running a business and so definitely focusing on that is important.

Now the fifth one is taking a look at the recurring revenue. Do you offer a consumable product that needs to be re-purchased regularly, okay. So, I mean, an example of that could be toothpaste, an example from our business is, you know, are there clients who are looking to invest on a regular basis. Well, that’s, you know, a renewable type revenue. A renewable, another example in business in general are things like auto renew magazine subscriptions. So you basically say listen I’m gonna keep on buying this subscription every year so just keep on renewing, here’s my credit card information until I tell you to stop. The best most stable type of revenues are contracts. So, you know, you’ll be familiar with this with your wireless phone contracts. Now, from our perspective, you know, could you add a consumable element to what you sell. So, you know, I look at it this way, that’s where the monthly contributions are good because they, you know, keep on, keep people coming and getting engaged and keep on renewing into their assets so that their assets are continually growing which at the end of the day increases the investment and oversight fee. Other things would be, you know, on an annual basis just simply automatically renewing people into your financial planning program and the maintenance and the monitoring programs that you offer, you know, so that could be through sort of maintenance contracts, that sort of thing. You know, auto renew your financial plan monitoring services and set that up all in advance is a great way to again help get consistency of cash flow coming into your business. Cause remember at the end of the day if you’re not in business your clients don’t win. And you’ve gotta remember that. Clients will appreciate if you set up programs that are gonna simply allow you to continue to stay in business. Cause when they put their investments and they, not just their investments but their time and energy into working with you and building that relationship they don’t want you going anywhere, they want you to stick around, they want you to stay in business, they want you to be successful. Because if you’re not successful they’re not successful.

Now the 6th one is the concept of monopoly. You know, Warren Buffett is famous for investing in companies with a protective moat around them, the deeper and wider the moat, the harder it is for competitors to compete. So how could you better brand your products and services, you know. Create your own financial planning process, you know, to help built that moat around you. Remember, you know, Dan Sullivan said it once. He says if you name it, you own it. So if you’re building that unique financial planning process to your business you own that. And, you know, there’s a lot of good that comes from that because that’s your branding and that’s what only you can offer. And if people want that, well guess what, they have to come to you for it. So build that moat around you.

Now, customer satisfaction, I can’t speak about this, you know, anymore. And I’m going to go into some great detail about this because this one’s important. The higher the satisfaction you have with your customers, the better. I mean, it just goes without saying, better business means people are going to be happier, they’re going to refer more, they’re going to do more, they’re going to, you know, it’s just better for everybody. But how do you really know for sure, how do you really know about customer satisfaction. You see, when we’re smaller business we intuitively know how satisfied our clients are because, you know, we’re dealing with them every day and so we get a sense of that. But as we grow it’s quite possible to lose touch with our clients. But in order to maintain their loyalty we need to be able to objectively measure their satisfaction level. So I’ve seen the comprehensive surveys, I know of companies that, you know, for a fee will do a full client, you know, customer satisfaction survey and interviews and, you know, and a client based analysis and provide the business owner with a complete understanding of how satisfied their clients are. But I always wonder how do we know for sure. I mean, I see big surveys as really kind of an imposition. You know the feeling you get when a company you respect asks you to fill out a survey for a chance to win something. You think well, I respect the company so okay I’ll do it. And then first thing you do is you get to the questionnaire and you check the progress bar to see how long the thing’s gonna be. And honestly after the third page I usually just stop. I say I don’t have the time to do this, it’s just, I don’t know what you’re getting at and I ask myself are all these questions really necessary to see if I’m satisfied or not. I mean, gosh, the questions are in, sometimes are just ridiculous and like oh my God you’re going too far, it’s taking too long. And what do I start doing, I start answering the questions in a way that will get me through the questionnaire quicker. And I don’t think that does anything for anybody.

Well, there is a better way, a much better way. The real question is what is the likelihood of a client either repurchasing from you or referring you to a company or a friend, isn’t that really what we’re looking for. Well, some really smart people at a company called Bain and [00:41:40.2] metrics, I believe is the name of the company have developed a single question that is predictive of both repurchase and referral for clientele. What I can tell you is this one question is very popular among the Fortune 500 companies but it’s even better suited for use with smaller companies. So what’s the magical question and why is it so well suited to companies and small companies. Well, here’s the question. On a scale of zero to 10 how likely are you to refer our company to a friend or colleague. See the creators of this question found that when clients answered this question with a nine or a ten, they’re usually, you know, statistically more likely to repurchase from that company, refer that company to others or do both. So, you know, the creator of the question he found that, you know that there was so much so really wanting to repurchase and refer that those companies that were, you know, high in that area were even more likely to grow. And the news of this information so to speak really resonated with the Fortune 500 companies because now they had a way of being able to very quickly analyze whether or not a company was going to be able to grow or not based on their, the scoring that came from this question. So it was a very powerful question. Today companies like Intuit, Southwest Airlines, they use this and it’s called the net promoter score as a way to quantify the customer’s experience. Here’s why using the net promoter score is really well suited to a fee-based financial planning firm. So number one, it’s easy, simple easy. From start to finish you can deploy this in less than five minutes. Now the way I’ve seen it done and I’ve done it in the past is if you use Googledocs and I don’t know if you’ve ever used Googledocs, but if you use Googledocs you can with surprising ease create a survey that you can copy and paste into an email and the results are updated in real time on your system. So if you just go to YouTube and search for how to create a survey in Googledocs you’ll be overwhelmed with step by step videos on how to do it. It’s super easy. The nice thing is it’s free, you don’t have to pay for any of the software. Another software program you can use, I’ve never used it but I have participated in surveys that have been using so it is a fairly popular one, is one called Survey Monkey. And I’m sure it’s easy to use as well. I love Googledocs because it’s free and, you know, the surveys that I’ve done in the past when I’ve done it you actually, you send out the information, you can literally sit there, watch the survey and in real time the data starts coming in. And it’s amazing. The graphs start to change and it’s amazing, it’s all real time. It’s pretty, pretty cool.

Now the other thing is with it being super easy and being one question that you’re sending out to your clients is your response rate will go through the roof, it’s extremely high. It’s just one question. So you can almost promote it as that. You can promote it as your, the one question survey that you’re asking your clients so they can literally open up their email, say it’s a one question survey, here’s the question, that’s an easy question. Answer the, you know, whatever the checkbox is that you put, they hit it and hit submit and they’re done. So, you know, definitely take advantage of it because it is easy.

The other thing is is that it provides you with a common language with any potential investors. Now this is important, it may not be so important right now but it will become important in the future. Don’t underestimate this point. You may not even be thinking of selling your business right now but by embracing the fee-based business model you are by default creating something that is worth something to someone else. And believe me there will come a time when you want to start thinking about your exit plan. The net promoter score is becoming more and more of a requirement and if you don’t already have your score most companies will require you to obtain it before they invest in your business, it’s that simple. So don’t plan for what is today, plan for what will be. The net promoter score is a great equalizer tool that companies are using when they’re analyzing businesses. So don’t, you know, don’t tune out at this point because this net promoter score as easy as it is is becoming more and popular and more and more required by companies that are looking to invest in other companies.

The third thing is that it’s cheap, I mean, you don’t need to hire an outside firm to deploy and analyze the data. I mean, I’ve done it where you basically watch the data come in real time and you know, you know if you send it out at the right time of day your clients are going to simply open it, answer it and move on and the data starts to come in pretty quickly.

So, you know, being that it’s done on a free platform and being that it’s done in a very, very inexpensive way and the data makes sense to you, it’s a pretty amazing tool. The other thing is that it’s predictive, okay. Most surveys as you know are long and time consuming. Most surveys ask questions that generate a lot of irrelevant data. The net promoter score, it’s proven methodology that asks one question that has been proven to predict the likelihood a customer will repurchase or refer you. The two things you really, really want to know. So definitely take advantage of the net promoter score and, you know, you’ll just find some amazing things that come of it.

So how do you roll this out, I’m just going to go through how to roll out this type of program. So number one is create the question survey in Googledocs, so I’m going to recommend that you do it in Googledocs cause it’s simple, it’s easy and it’s free and it’s, you know, somewhat fun. Number two, copy and paste, once you’ve got that done, copy and past the link to the survey or, I mean, in Googledocs you can even just copy the question, there’s an html code that you just copy, paste it in and then when the client opens up the email boom there it is right there, they’ve got the question and they hit the answer and it’s all real time. So copy and paste it into the email and send it to all of your clients. And simply do this once a year. So choose one time of year when you know that it’s a good time to do and just simply do it every year. And you can start to track the data on that. By doing this in Googledocs you can track your results from year to year. So when you do this and, you know, I said about tracking it every year, you can basically say okay, I’m gonna do, you know, my 2008, 2009, 2010, 2011, 2012 and you can just, it’s the same question year after year. And it simply starts to give you some really good data going forward to see how things are progressing for you. Is, are things getting better or are things getting worse and so it allows you to focus in on that. And here’s how you calculate the net promoter score cause it’s not just as easy as saying okay choose between zero and ten and then you go from there. There’s a bit of a formula that you use.

So those who give you a nine or ten on the score, they’re known as what you would call a promoter for your business. Those who give you a seven or an eight, they’re known as your passives, okay, so they’re satisfied but not likely to repurchase from you or they’re not likely to refer your company anytime soon. Then there’s anyone who scored zero to six they’re what’s known as the detractors, okay. So they’re the ones that, you know, maybe they’re just not satisfied, they’re just, you know, there’s something keeping them from saying anything higher than that. Take the percentage of your customers who are promoters, so the nine or tens and subtract the percentage of detractors. So here’s an example, excuse me. Let’s say 45% of the customers you serve, you surveyed are promoters and 20% are passives and 35% are detractors. So here’s what you do. You take the 45, take away 35 and you’re left with 10, 10% is your net promoter score. Studies show that if your score is north of 15 you’re above average. 10 to 15 is about average and anything below that obviously, you know, it’s below average. Now to give you an example of one, Apple by the way has a score of around 70. People are extremely happy with Apple. That is a phenomenal score. So, you know, I’m looking for 15 plus, Apple has 70. Well, there’s a reason why it’s one of the biggest tech companies in the world.

Alright, number eight, so the eighth attribute that we’re going to look at is simply hub and spoke and you’ve probably heard this word before or heard the phrase before, hub and spoke. Really the question is what extent can your business thrive without you. In most cases financial planners score really, really low on this attribute because they remain involved in serving customers directly. They simply, that’s the way it starts, that’s the way it finishes for them. However, you need to ask yourself do you want to be rich or famous. Remember the topic of, I think it was last episode, episode 17 where I dove into the topic of being rich or famous. Go back. If you haven’t listened to that episode, listen to it because it’s gonna really highlight the difference between being rich and being famous. Step number one, yeah, go back and listen to that. But bottom line is that you can’t and shouldn’t do it all, okay. So step number one in this whole process is hire an admin person as soon as possible. So in business, okay once you get things started you’re, you really want to hire an admin person as soon as possible. You know, I remember years ago somebody said to me the first person you want to hire is a computer input person, basically an admin person. I thought why would I want to do that. Well, believe me as soon as I hired somebody to help on the admin side which is basically all the pre-meeting and post-meeting work, as soon as I hired that person I leveraged my time tremendously so that was the most valuable person to hire I’ve ever had in my business. So I would strongly recommend even if it’s a part-time at first just hire somebody to do all the pre and post meeting work.

Then the second step is once you’ve done that, you’ve got that kind of rock and rolling, the second step is outsource your marketing implementation. And again I talked about that in the last episode. Outsource your marketing implementation, not the marketing creation, that’s gotta come from you. That’s the one thing you almost never want to outsource is your marketing creation because it’s gotta be your voice and your tone and it’s gotta speak from you directly. And it’s very hard to hire somebody to promote your tone and, you know, the way you do things. So what you want to do is you want to develop autopilot marketing implementation systems and then hire a virtual assistant to implement this for you, okay. So it may be a combination of virtual and actual assistance but the bottom line is you want to outsource this, you want to hire, outsource the marketing implementation.

Then once you’ve got that going, believe me once you get to step two if you’ve got this rocking and rolling you are going to be having a thriving business, you are going to be making an extremely high income, your clients are going to be really happy because they’re being serviced, you’ve got marketing going, you feel good, you know, it’s a great position to be. Now, the third thing you want to do, now you really want to step up the outsourcing and outsource your product implementation to other professionals, okay. We’re outsourcing our, you know, the investment side of things. So we oversee all of it, we make sure we’re in control of all of it and we’re monitoring all of it but the bottom line is I just didn’t have time as things started to grow for me, I didn’t have time to do the research that was necessary to keep on top of the markets and what was going on in that. So, you know, individual security selection oh my gosh, who had time for that, I just ran out of time. So I needed a solution. Well, we started hiring that out and that’s why we’ve, you know, we’ve hired out the investment solutions that we’ve had. We’ve also hired out the living benefit solutions. We’ve got a great living benefit specialist that we work with, some of the life insurance side of thing we have, you know, some really great high end on the life side for some advance concepts that we use, and advance strategies. Because, you know, at the end of the day sure I get how to do it and I can identify the challenges and the issues and the needs and I can identify when to bring them in but, you know what, they’re specialists at this and believe me it works quite well. I mean, when you’ve got a team that you can turn to for all of these solutions so the, you know, outsourcing living benefits, outsourcing life insurance, outsourcing the executive compensation plans, outsourcing the group medical benefits, outsourcing the group investment plans. Man, you’ve got a solid team that you can turn to in any, for any requirement, for any need that a client may have. And so it just allows you to truly be that quarterback where you can recognize exactly what plays need to be called and then start to execute those plays.

Step 4 manage everything. So once that’s all done the question is how do you keep all of this in order, how do you keep it all managed. Well, you manage everything through your financial planning process for clients because by developing your financial planning process around all of this you’re able to say okay you know when to bring in and do reviews on all the different, on your insurance reviews. You know when to do reviews of group benefits, you know when to do reviews on the investments. You know when to do all of this because you’re in control of it through your financial plan. So when you’re building your financial planning process incorporate the review portion of it so you can oversee all of that. And again that’s what clients are paying you for. They’re paying you to be on top of everything and to make sure that nothing falls through the cracks and that’s exactly how you do it.

So this approach will simply provide you with a better financial planning product. You’ll have an actual team that you can turn to, you know, when you recognize a certain need for a client. So, you know, a lot of information we’ve gone through today. I mean, there’s a tremendous amount there and you could spend, we could do a whole episode on each individual attribute if we wanted to. But if you focus on the attributes and really focus on, you know, go through just like I have and re-listen to this episode, talk about, you know, look at your financial performance. And if you want to you can just sort of map it out and say okay what do I think is a good multiple, not multiple but a good discount rate to apply to all the different revenue streams. You could actually start to build a spread sheet that will, if you key in the information it will actually give you what an expected value is for your business. So that may be a motivator as well. If you’ve got that spreadsheet put together and you can say okay this revenue is low risk so that means that it wouldn’t necessarily need as high of a discount rate on it. And then you say okay for the last 12 months my annual financial planning fees are x and my annual investment oversight fees is y and then the annual insurance revenues is z. You know, put all that together you can actually key in what you feel the return multiple is or the return, the discount that you’d apply to that future value and, you know, you could actually have a model this, simply keeps on, keeps track of what your business is worth to someone else going forward. So if ever anybody came and offered you, offered to purchase your business you can actually reverse engineer where their number came from and see if it makes sense to you.

Growth potential, always focus on the growth potential. So financial performance, growth potential, reliance, you know, let’s not be too reliant on any one company employee or customer, client, you know. I just, I would never feel comfortable having, if you had for example say two clients and 50% of your revenue came from each, I mean, that’s a pretty risky environment to be in. So make sure you do diversify your reliance on any one support or employee or client.

Cash flow, you know, cash is king, always focus on that. And, you know, use the solvency example. I’ve built that into our Salesforce system so my bookkeeper every week she just simply goes in keys in the numbers, it’s just two numbers that she’s putting in. The actual cash on hand divided by the next 60 days payables and so we’ve got that all historically tracked and, you know, I can just quickly update that report and boom I know all the information.

The recurring revenue build that into your practice, make sure you’re building that in. Again with the fee based financial planning model is all about is to build in that recurring revenue. Monopoly that’s when you start branding yourself. If you’re the only one that does that particular process, you’re the only one that does that process and so people are simply only going to be able to get that from you.

Customer satisfaction is very simple. I mean, once we’ve gone through it I think you get, I think you can appreciate how important it is and how easy it is. So it’s just simply one email a year that you send out, people put it together, send it out to all of your clients. People go on, they click on their score or what their rating is. You can even keep it so that it’s anonymous, you can keep it so it’s not anonymous, you can choose how to do that and it’s all done through Googledocs. Once you’ve got it set up once then it’s just very easy to implement. And I would almost recommend just doing it now, just get out there and send out that email with the net promoter score question. And once again I’ll just reiterate what that question is. What’s the, sorry, I just gotta look at my notes here, what is the, on a scale of one to ten, or sorry, on a scale of zero to ten, how likely are you to refer our company to a friend or colleague. And that’s the question and it’s so powerful. So that’s customer satisfaction and the final one, hub and spoke. This is a biggie and I think I’ve given you some solutions that will allow you to become less of a hub and spoke business. And as long as you keep, you know, keep these at top of mind and re-visit this on an ongoing basis you’re gonna build yourself a really, really strong practice.

So, you know, get out there and as I said, fail forward, you know, just do something. Take one item I’ve talked about in this or in any previous episode and commit to doing it. You know, to just do whatever is necessary to implement it. As small as you want it to be or as big as you want it to be, just do one thing. Keep failing forward as I was doing when I was learning how to get up on one ski with a double boot, you know. I kept on failing because and then every time I did I said okay, that doesn’t work, now I know that doesn’t work, now I know this doesn’t work and all of a sudden I tried one thing, boom it worked and it was effortless. And I did it again and again and again and just kept on working. So once you get it, failing forward is a very powerful tool.

And then ask questions, you know, email me. What I would actually love it if you could do is just to make it the podcast a little more, little broader is if you can record your question, just simply record it into your computer, turn it into an mp3 player or whatever, if it’s a .wav file or something like that and email it to me. Email that question so I can play that question on the air and then answer it on the air as well. So that would be great if you could do that. Just simply get out there and build yourself a better business. There’s no reason why you can’t do it, you’ve got all the tools available to you. Get out there and do it.

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Copyright © Scott E. Plaskett 2012 All Rights Reserved. No part of this document may be reproduced without Scott E. Plaskett’s written permission.

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