08/10/2012

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Automate or DieDeena Katz CFP

Evensky & Katz and Texas Tech UniversityEvensky & Katz and Texas Tech University

Automate or Die!Deena Katz, CFPTexas Tech UniversityEvensky & Katz Wealth Management

IFP Annual Conference and Exhibition1 – 3 October 2012Celtic Manor Resort

08/10/2012

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Regulation Changes Everything

1. Systematically Identifying Risk (Suitability)

2 Retool Business Model2. Retool Business Model

3. Targeting Appropriate Client Relationships

4. Managing Operations

RDR - 4 Areas to Refine to Stay in Business and Be Profitable in this Regulatory Climate

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Suitability: KPMG* findings:

Advisors Only Adequate in:

• Risk Profiling• Risk Profiling

• Processes and Tools

• Data and Recordkeeping

• People and Reward

• Governance and Management Information

1. Risk Measurement

• Governance and Management Information

*UK Management at Tipping Point, 2012

• Risk Tolerance

• Risk Capacity

U d t d Ri k St d di

• Risk Capacity

• Risk Requirement

Understand Risk , Standardize your Assessment Approach and be Consistent with your Message

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Projected Hypothetical Risk Exposure

Overall Risk Level

Total Return (Inflation= 3%)

“Worst Case”(12 Months)

Bear Market*(10/07-2/09)

Several portfolio performance projections are listed below. Also provided are hypothetical potential losses for these portfolios. Check the portfolio that most nearly reflects your goal for your portfolio.

Low/Low 6.0% -4.0% -10.6%

Low/Low 6.8% -7.0% -14.5%

Mod/Low 7.2% -9.0% -16.2%

Mod/Low 7.4% -10.0% -20.1%

Mod/Low 7.6% -11.0% -22.9%

Mod/Mod 7.8% -13.0% -25.7%

High/Mod 8 0% 14 0% 29 1%High/Mod 8.0% -14.0% -29.1%

High/Mod 8.3% -16.0% -32.4%

High/High 8.6% -20.0% -35.3%

High/High 8.8% -22.0% -40.8%

High/High 9.0% -24.0% -45.9%

High/High 9.4% -27.0% -50.9%

*90% probability

Most Least

For each of the following attributes, circle the number that most correctly reflects your level of concern. The more important, the higher the number. You may use each number more than once.

Capital Preservation 6 5 4 3 2 1

Growth 6 5 4 3 2 1

Low Principal Volatility* 6 5 4 3 2 1

Inflation Protection 6 5 4 3 2 1

Current Cash Flow 6 5 4 3 2 1

Aggressive Growth 6 5 4 3 2 1

*6-1+yr; 5-2+yr; 4-3+yr; 2-5+yrs; 1->5yrs

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THE ‘ADAPT’ SUITABILITY PROCESS from FINAMETRICA

• Awareness: client to understand their risk tolerance compared to the population including differencescompared to the population, including differences.

• Discuss report with client[s] particularly differences from the risk group and any partner. Agree risk score.

• Asset allocation link from agreed risk score

• Project asset allocation forward using cash flow modeller to confirm moneys will be available to meet clients goals as they fall due and test for risk capacity

• Test client understands the risks, particularly frame performance and volatility expectations.

QuickStart Guide introduces FinaMetrica's risk tolerance questionnaire and report, and explains a methodology for integrating risk tolerance into planning process.

Linking Spreadsheet User Guide allows a client's risk tolerance to be linked to the parameters of portfolio construction.

Risk and Return Guide and Charts (United Kingdom) covers how to use FinaMetrica to educate clients about risk and return and to manage their risk and return expectations for each of FinaMetrica's seven risk groups.

Client Resource designed to help clients understand why they are taking the questionnaire and promote credibility.

FINAMETRICA’s Answer

FinaMetrica FAQs summary of most requested information

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“ We used to sell transactions and i d i give away advice.

Now we do just the opposite.”

David Shaw, First Union Securities

2. Retool Business Model

WHAT DOWHAT DO CLIENT’S VALUE?

Client Value Disconnect

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YOUR VALUE TO CLIENTS• ADVICE VS. SALES (PROCESS NOT PRODUCT)• DISTRIBUTION FOCUSED- Decumulation Strategies• REAL RETURN FOCUSED (NET EXPENSES/FEES,

TAXES INFLATION)TAXES, INFLATION)• RISK MANAGEMENT Meeting the Changing Needs of

the complex family• FAMILY SUPPORT SYSTEM- Resources for Help with

Adult Children• ESTATE PLANNING EMPHASIS INCLUDING “Living

Estate Planning”CA A SO i k h i• CAREER ADVISOR- Part time work, changing careers, small business counseling

• VALIDATOR – Life “check up”• MENTOR Sounding board, support and chief strategist for

planning and life issues

The Creak and the Carpenter

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A Fundamental Shift of PowerFROM TO

Business Institutions

ConsumersIndividuals

THE END OF CONSUMER DEPENDENCE

• Protect Capital

• Secure Future

• Risk Averse vs. Loss Averse

Clients Won’t “Pay” for Investment “Stories” Anymore…They will “Pay” to Sleep Well

• Risk of Loss Outweighs Opportunity

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CORECORE

INSURANCEINSURANCE

INVESTMENTSINVESTMENTSCASH MANAGEMENT

CASH MANAGEMENT

CORE SERVICES

HOLISTIC PLANNING

CORE SERVICES

HOLISTIC PLANNING

RETIREMENTRETIREMENTESTATE PLANNING

ESTATE PLANNING

DO YOU SELL INVESTMENTS OR DO YOU PROVIDE INVESTMENTS THROUGH YOUR PLANNING ADVICE?

• CLIENT MUST BE PROFITABLE• 5 Times More EXPENSIVE to

acquire than retain• Happy Clients Make Referrals

U h Cli t H BIG• Unhappy Clients Have BIG MOUTHS

• Clients whose Expectations are Managed are LOYAL even in Uncertain Markets

• Manage Expectations MUST BE MANAGED from the FIRST

Target Appropriate Clients

MANAGED from the FIRST Meeting and FOREVER…

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Profitability

Client Viability

Pre-Screening Client Qualification

Ideal Client ProfileIdeal Client Profile

Client-Fit Ratio

Pre-Data Guide

Segmentation

Client Service Mix

Pricing and Fees

Tools for Getting the Right Clients

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• How much time will you spent with each client (example only):• Total

• 23 hours in the first year x $330 = $7,590 • 11 hours ongoing x $330 = $3,630

• Amortize the upfront investment over 5 year relationship• Fi t t $7 590 / 5 = $1 518 • First year cost $7,590 / 5 years = $1,518 per year

• Minimum client revenue necessary to meet goals = $3,630 + $1,518 ~ $5,200 / year

TOO EXPENSIVE? What are we going to change? Work more hours in a year? (we assumed 2,500)

Spent more time on clients? (60%)

Assess Client Viability

Lower your revenue goal ($500,000)

Spent less time with the client?

• Available Resources 20 points

• Desire and Ability to Delegate 40 points

• Reasonable Expectations 20 points

• Personality/Chemistry 20 points

• Scoring:

• 93-100 Excellent Fit

• 85-92 Good

• 77-84 Average

• 70-77 Below Average70-77 Below Average

• Below 70 Unacceptable

Client-Fit Ratio

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• $1-10 Million in Investable Assets• Long-Term Investment Horizon

“Ideal” Client

Long Term Investment Horizon• No Cash Flow Needs from Portfolio• Sheltered Assets• Delegator• Perceived Self as Conservative Investor• Recognize They Have Limited Investment Experience/Knowledge• Individuals or Institutions• Nice People• Clients Who Value What We Do

Develop Your Ideal Client Profile

• Revenue

• Profitability

• Demographics

• Psychological Characteristics

• Value Cluster

• Unique Client Needs

Segment Current Clients

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SovereignAll of our clients receive our best attention and service. Our Sovereign Service provides our sound financial management along with personal mentoring and coaching. Various services available to you include:

Comprehensive Financial Planning Investment Management Cash Flow Management Tax Planning Multigenerational Planning Estate Planning Philanthropic Planning Mortgage Restructuring Bill Paying

Service Mix:

Create L l f

y g College Funding Strategies Retirement Planning Planning for Incapacity Property/Casualty Analysis Home Technology Support Quarterly Reports and Reports-On-Demand

Levels of Service

Percentage of Clients Sovereign 9 4.5%

Imperial 38 19%35.5

Monarch 24 12%

Regal 81 40.5%

Charter 48 24%64.5

Who Falls Below Client Minimums?

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Percentage of Clients Sovereign 15%

Imperial 18%83%

Monarch 23%

Regal 30%

Charter 17%17%

Don’t Believe the Pareto Rule

• Profitability• Sustainability

4. Manage Operations

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Advocacy

Reinforcement

Transactions

Comparison

Awareness

• Understanding Relationship Marketing

• Automate for Efficiency• Automate Prior Human Tasks – Mitigation of Errors

F ili P• Facilitate Processes

• Standardization for Profitability• Renewed Competitive Environment

• Increased Compliance Regulations • More Complex Rules and Procedures

Automate or Die

• More Complex Rules and Procedures

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Systematize It!Then Automate It!

• If you do it more than once• You do it frequently• You do it infrequently

• If more than one person works on it

Hand

Cost Effective

AutomatedCrafted Service

Expensive

Automated Service

More Cost Effective Service Drives Performance

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Need the “Killer App?”

Investor Objectives and Constraints

Portfolio

Monitoring Investment Objectives

Asset Simulation Model

Capital

Portfolio Construction and Revision

Money Manager Selection, Implementation and Execution

INVESTMENT POLICY STATEMENT

Attainment of Investor Objectives Performance Measurement

Monitoring Money ManagersCap ta

Markets Expectations

Managers

Design the “Killer Process”

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• Develop Standards

• Job Descriptions

• Clear Follow Up Procedures

• Empower with “Nordstrom Authority”

• Reward Performance and Talent

• Fix the Problem, Not the Blame

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Accountability

• What do I do best?• What needs to be done that does not NEED to be

done by me?• What can I train someone to do that will give meWhat can I train someone to do that will give me

more time to do what I do best?

Remember, clients like EXPERTS, but they value DEPTH of support, because the MOST VALUED support is SERVICE.

H A B U !

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Finally- Market Your New Self!

Focus on the Few

““II’’LL TAKE THAT LL TAKE THAT PROSPECT AS A PROSPECT AS A PROSPECT AS A PROSPECT AS A

CLIENT IF HE CAN FOG CLIENT IF HE CAN FOG A MIRROR.A MIRROR.””

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• Viral Marketing• F d W b it

STEALTH MARKETING

• Focused Website• Twitter• Linked-In• Blogs• E Newsletters• Search Engine Optimizationg p

Use Social Media and Turn a Whisper into a Roar!

Retirement Retirement Planning Small Planning Small

Business OwnerBusiness Owner

Retirement Retirement Planning for Planning for AttorneysAttorneys

Retirement Retirement Planning forPlanning for Focused andPlanning for Planning for PhysiciansPhysicians

Focused and Specialized

VERTICAL MARKETING

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Pre-Client Loyalty Marketing

“Running down the R g do t e wrong road faster will not get you to your destination any sooner.”y