Participants:
Stephen Wershing
Julie Littlechild
Spenser Segal
Stephen: Welcome to Becoming Referable, the podcast that shows you how to become the kind of advisor people can’t stop talking about. I’m Steve Wershing, and on today’s episode we talk with Spenser Segal, who is CEO of ActiFi, a software and solutions company focused on delivering scalable practice management programs for financial advisors. We have a conversation about how to put together the right kind of client experience based on solid processes. We talk about why the DOL rule is driving the need to have a consistent auditable process regardless of which regulatory regime you fall under. We talk about how to deliver a customized experience to clients. We talk about why benchmarks are not necessarily the right way to measure portfolio performance. And we talk about why top performing firms invest in engineering solid processes based on today’s technology. It’s an interesting conversation with a lot of valuable information for anybody who wants to create the kind of experience that is consistent and that makes clients want to tell their friends about it. So, without any further delay, here is Spenser. Julie: Well, Spenser, welcome! We are so excited to talk to you today. Every time I talk to you, I get so much insight about what’s going on in the industry. So welcome and thanks for being here. Spenser: Yeah, my pleasure. A real privilege to be with you guys today. Julie: That’s great. So look, hey, why don’t we just start high-level, and then we’ll try to dig down, but while we’ve got you, I know you have your eye on the industry and the trends and what’s going on, so maybe you could just kick us off by talking about some of the key trends that you see going on that ultimately will affect how advisors need to think about how they attract and service their clients. Spenser: Well, I’ll talk about three specific ones in general. So starting with the clients themselves, there’s definitely an evolution that we’re seeing, and it’s across all sectors of our economy where clients are becoming more empowered. They are able to configure, if you will, or select the way they want to be served and how they want to be served. And increasingly, advisors are going to have to be able to listen in an increasingly effective manner to those preferences of the client: how they want to be served, where they want to be served, and the overall engagement model. So we just see this hard trend of consumer empowerment across industries. So that’s point, kind of trend one. Trend two, with DOL and other regulatory changes, we are seeing this movement toward a more transparent, auditable process. So we don’t see, regardless of what ends of happening with DOL, what we’re going to see more and more of is firms looking to create that consistent, auditable experience. And thirdly, which sort of ties to one and two, in order to be able to deliver that more customized client experience, to be able to do that in a documented and auditable way, advisors are going to have to be increasingly sophisticated in their use of technology. And we’ve seen a real explosion in innovation, the whole FinTech capabilities, all sorts of capabilities available to advisors, available to clients, and we don’t anticipate that level of innovation and change slowing down any time soon. Stephen: Spenser, can you elaborate a little bit on what you mean by ‘auditable’? Spenser: So, auditable means the ability to … If a regulator would show up and say, “So tell me a little bit about how you arrived at the solutions you arrived at for the Smith family”, be able to show, “Well, this was the discovery I did. We discussed these questions, here’s what the Smith family told me. Based on that, here’s the analysis I did. Based on that analysis, here’s how the recommendations …” And having that in a CRM system or other type of technology system that actually shows each step of the way is documented. Now, the key from our experience, auditability, is advisors tend not to be great at doing the work and then documenting the fact that they did the work. They are much better at doing the work and having that documented sort of automatically as a byproduct of the way they use their systems. And that would be certainly the recommendation that we would have is that, wire into your operating model the use of these systems which generate these audit trails of what the interactions between the advisor or the staff and the client were, and be able to write those into some path that can be then reproduced for a regulator. Or for the client, for that matter. Stephen: And what do you see as potential applications for that kind of thinking in doing quality control within a firm where you may have multiple advisors delivering advice to those clients? Spenser: Well, and that’s a very good question, and it really evolves around the firm having a defined standard, whether it’s investment management or financial planning or wealth management. Having some sort of consistent standard embedded in the process so that even if a client works with different advisors, there’s a certain standard that is upheld, and the organization, the support part of the organization is helping orchestrate that particular process, whether it’s an analysis for an investment proposal, whether it’s planning recommendations, whether it’s other types of holistic wealth management type solutions, that there is a consistency in that. Stephen: Okay, great. Thanks. Sorry, Julie, go ahead. Julie: No, no, that’s great. And in fact, I wanted to just … I want to talk a bit about technology because it’s such a rich area. But I’d love to go back to your first comment about clients becoming empowered. And I know in a lot of our work, we’re looking at concepts like co-creation of value, and I think that sort of matches with what you’re saying, but when you think about the client being more empowered and having more choice around the client experience, what components of the client experience are you talking about? Where do you see clients having more input, choice, and power in the areas they’re deciding on? Spenser: Well, I would say across the whole spectrum, but I’ll give you a couple of very specific examples. So, starting with kind of frequency and location of meetings. How do I want to interact with you? Do I want to interact in a web conference from my office at 4:30 in the afternoon? Do I want to drive to your office? Do I want to meet at a coffee shop? Do I want to meet you four times a year, one time a year? What kind of depth/breadth, sort of the meeting types, frequency, location, those sorts of things would be one set of preferences. Because I do think it’s important, there are certain clients, there are certain things that clients can really understand and are clear preferences for them, and there’s other areas where they don’t know. I mean, they’re not going to get into, “Well, gee, in the small cap allocation, I want to lean it this way versus that way.” Those aren’t the preferences that we’re looking for. So we’re looking for communication preferences, we’ll call it. We’re also looking for the way they like to receive information. So there’s different styles, whether we’re talking kinesthetic, auditory/visual, also different levels of breadth and depth. When I’m being presented the performance of my portfolio, am I looking for a 30-page in-depth report broken down by sector and subclass, or do I really want a one-page summary that just says, “Am I on track to my goals? And is the performance that I’m getting adequate to helping me achieve my goals?” And there isn’t necessarily a right answer, there’s a spectrum from the one-pager to the 30-pager, but in addition to that, how do I want that delivered? Do I want that delivered in an interactive conversation, where we talk about it? Do I want it emailed? Do I want to put it in a portal? Et cetera. So all of those sorts of things are very specific examples of how clients want to kind of configure the experience to what their needs are. Julie: Right. Spenser: And the one thing I talk a lot about is the platinum rule. Are you guys familiar with the platinum rule? Julie: Tell us! Spenser: So the platinum rule is … We all know the golden rule: Do unto others as we would like done unto ourselves. Well, the platinum rule is 20 times more valuable than the golden rule, and what it says is: Do unto others as they would like done unto themselves. So you do not presuppose all of your clients want to be treated exactly the way you do. You actually ask them, “How do you want to be treated? What are your preferences?” And then be able to customize the experience to their preferences without being so arrogant to think that everybody wants to be treated and communicated with the exact way we want to. Stephen: That’s incredibly valuable. Julie: Yeah. And it’s interesting because I feel like, for so long, we’ve talked about standardization as the ultimate goal, and I think for good reason. We looked for a way to create a robust, repeatable process with our clients, and yet increasingly, not just in our industry, but I think if we look around us, the whole notion of personalization seems to be becoming more and more important. And I guess that’s where technology starts to play a role because how do we deliver this absent of using technology effectively. So can you talk to us a little bit about how advisors can think about technology, particularly in terms of some of the high-impact examples around client experience? Spenser: Sure. Well, I think it’s a very astute observation that you just made, and the one thing that I just want to add to that is that the ability to create the personalized and really customized experience depends upon having the standardized experience well-defined, because you can’t customize that which is not defined. So I do think those things go hand in glove. And I like to use the term ‘mass customization’. So we’re not looking to customize every aspect of our standard process, we’re only looking to customize the things that A) our clients care about, and B) that we can actually execute. There’s nothing worse you can do than ask a client for their preferences. Say, “Well, I’d really prefer this and this and this”, and then completely ignore them. Because if you don’t know, you can at least claim ignorance. “Well, I didn’t know you preferred it that way!” If you actually ask them, and then you don’t deliver on it, it really can be very damaging to the relationship. So that’s kind of point A. And point B, again, I think that in terms of the specifics, the CRM tends to be a catalyst in doing that, so things such as report types. So you can create three packages that are based on … Or you can create five packages, whatever the number. It’s not 500 packages, though, it’s some single-digit number of preferred reporting packages, if you will. Whether that’s quarterly or monthly or semi-annually or whatever the frequency is, which is another thing that you can customize, that each client, in their record, says, “Okay, this client’s preference, their preference is toward that one-page summary, they don’t want the big report”, gives them a headache, they get package A. Versus second client, they’re more of an engineer and they really do like to dig into some of the specific performance details, they get package C. And then there’s package B and D and F and so forth. So that’s a specific example. And then that feeds into the portfolio management system. So the portfolio management system, these package A, B, C, and D are all set up, and then which package which clients get can be tracked and managed either in the portfolio management system or the CRM system. And that can tie into same thing with financial planning and that sort of thing. So that’s … Those are a couple of specific examples. I can certainly go deeper, if you’d like. Julie: One thing I’d love to know about as well is, we talk about things like preferences. So, “How often do you want to receive reports?” “I want it X number of times a year”, and we can automate that. We’re also, I think, seeing increasing examples where people are taking goals-based data or, you know, how do you think about money and those sorts of questions, and then using that input to inform the client experience, as well. Are you seeing more of that? Spenser: Absolutely. I was just with an advisory firm probably two weeks ago, and both in terms of the client portal as well as in terms of the quarterly, and this particular firm does standard quarterly reporting, they actually want to lead with the goal-achievement components. And now the more modern, sophisticated portfolio management systems allow you to pull in, we’ll call them widgets, from whether it’s financially planning or CRM or other systems where you can actually display the progress or status from the planning system inside of the more traditional “performance report.” So we’re definitely seeing an evolution there in terms of what is the order and sequence of what’s presented. And what we’re encouraging advisors to really think about is, what is the story and the experience that they’re trying to deliver? And then their reports and the tools that they use to deliver that should follow that flow. Julie: Mm-hmm. Stephen: Are you, Spenser, when you say that, are you talking about being able to generate sort of a graph of performance against goals as opposed to performance against some random benchmark? Or are you talking about something different? Spenser: Correct. No, I’m specifically talking about that. You’re green toward your retirement goal, you’re yellow toward your son’s college education goal, you’ve got a 72 percent probability, whether you’re using a Monte Carlo simulation. But you actually see those dials at the front of your report is, “Well, regardless of what the actual benchmark performance is, am I on or off track to achieving the three goals that I really established with my advisor that mattered most to me?” Stephen: Yeah. That’s cool. Now if I could pivot a little bit, in addition to working with a lot of the technology stuff, ActiFi does a lot of work in the process and procedure area, too. So beyond the technology, what role do business processes play in creating the kind of client experience you want to deliver? Spenser: Well, the way I look at business processes is, they’re really the instruction sets that tell the technology what you want it to do. Again, most … And this is probably one of the biggest challenges that advisors face is, “I’ve done a great job acquiring these very powerful technological capabilities, whether it’s portfolio management systems or CRM systems, financial planning systems, et cetera, but I’m not doing an equally good job using them in a way that is creating maximum value to the client, maximum value for our employees, and maximum value for the shareholders. And in order to do that, I actually have to re-engineer my business processes.” And this is what’s really difficult for firms is they’ve become successful doing something the same way for fifteen years, and it really does work. And then they acquire these new capabilities and they want to sort of jerry-rig the new technology to adopt to this process that has been successful for them, but in fact really does not take advantage of the efficiency and the capabilities that the technology provides because the process was designed in an era that never imagined these types of capabilities. And then a lot of firms don’t have some of the skill sets to sort of think about those workflows and those instruction sets processes in a way that is truly end-to-end. Stephen: You know I … Julie: Okay. Carry on, sorry. Stephen: Go ahead, Julie, I’m sorry. I remember seeing a presentation a long time ago when we were first … When broker-dealers were first coming out with portals for their advisors, and I forget his name, but he was the Operations VP for Raymond James and was talking a little bit about, we’ve been really good about digitizing a lot of our manuals and processes and those kinds of things, but really all we’re doing is creating electronic versions of pieces of paper, and if we want to realize the power of this, then we’ve got to think in a whole new environment. If we keep with the whole concept of the piece of paper, then we’re really not making the kind of revolutionary progress you could be making. And that sounds like what you’re talking about here. Spenser: Yeah, precisely. And I think that’s one of the scarcest resources out there, is the managerial skill inside of these practices, or outside of them, to manage a firm through that behavioral change. To take processes that have been successful and really re-engineering them for a more client-centric environment. Stephen: And so how does a firm go about doing that? I mean, how do you grab ahold of a new way of thinking and implementing it? Spenser: Well, that’s a … That’s a big question! And there’s a lot of different components to it, but I’ll just start at a very high level. At the highest level, it comes down to an acknowledgment at the top of the firm, at the ownership level, at the partner level, to say what got us from there to here isn’t going to get us from here to there. And basically saying that this isn’t really optional. So that’s kind of step one. Step two is going through a process mapping exercise to kind of look at what is the current process, what are we proposing, what are the implications of that. And step three is really institutionalize that, wiring it into the operating model, vis-à-vis workflow leveraging technology. So typically that would be … The CRM tends to be the primary system of record, if you will, for those workflows, although we have seen firms very successfully embed those workflows in a document management system or embed them in other tools they have, depending upon their particular business model. Julie: So, Spenser, I can imagine if you’re a single advisor or maybe in a partnership with an assistant, your head’s probably spinning around about this point. And just like you said, it’s not just not having the managerial skills, but the bandwidth to even think about these things. Are you finding that the custodians and broker-dealers or financial institutions are playing a different role? Or maybe need to play a different role in supporting advisors through this? Spenser: Absolutely. One of the things we’re seeing, a scenario we’re very focused on, is we really see the partnership between advisors and their financial institutions that they partner with becoming increasingly important because again, these skill sets … I always say this, the skill sets required to be a great advisor are very distinct and separate from the skill sets required to run a great advisory business. And we’re seeing the financial institutions really increasingly get more sophisticated and better at helping advisors run better businesses. Because in the old days, the answer to everything was just “Sell more.” Well, if I just sold another product or another solution, I could throw bodies at the problem and it didn’t matter. The experience, the process, all that stuff, I’m making enough money and I’ve got enough coming in to not worry too much about what’s going out the backdoor. Well, that model doesn’t work anymore. In this more modern age, where there’s more fee transparency, it’s not just about selling another thing, it’s about an ongoing client relationship, it’s about really having deep, trusted relationships with clients, not having a thousand accounts that you’ve sold something to at some point. It does require a different set of managerial skills and processes, and that’s where we’re really encouraging both the institutions and the advisors to partner on that. And the level of sophistication that we’re seeing from the broker-dealers and custodians continues to grow on literally a quarterly basis. Stephen: And if I can, if I can sort of add to that, I think in addition to what you just pointed out and the scalability of the organization, I think the other thing that advisors don’t realize they’re doing is that they get more clients, they want to provide more services, they may even want to provide them more consistently and more robustly. And so they add staff to do more of those things, but what they’re doing is adding more and more staff to the value proposition that they’re carrying out as an advisor, and what they don’t realize is that they’re still not creating a business. It’s still a practice, it’s just a practice that’s still, that’s supported by more people. And it’s not really a business until you can walk away from it for two months and have it continue to click along and not even realize you’re gone. So that’s where that whole thing about business management really comes in. That unless you can take the focus off of you, unless you can build an operation that doesn’t necessarily require you to operate day by day, you haven’t built a business yet. Spenser: Precisely. Stephen: But let me ask you to elaborate a little bit on that partnership between financial institutions and advisors. What do you see coming in that evolution? Spenser: Well, I really see … The fact of the matter is that the clearing custody function has become increasingly commoditized. There’s no institution that says, “Hey, gee, I can clear a trade and send a confirm and a statement better than anybody else and that’s why you should come with me is because of my ability to produce that statement and that confirm.” It really is this evolution up the value chain. So I envision, and I don’t envision, I’m actually seeing this with some of the market leaders, where their value proposition is, “I’m going to help you build and run a better business, and I’m going to be able to bring resources beyond what are available that you could get on your own to help you do that.” And those resources are going to be around human capital, it’s going to be around the processes that we’ve talked about. I can bring some best practices, some starting points. It’s going to be around the technology. We have these relationships with these vendors, we’ve done some pre-integration, we’ve done this and we’ve done that. But it really moves up that chain to saying, “I’m going to be a true, trusted business partner and bring these resources to you given the size and scale that I have that, again, you likely don’t have and would be difficult for you to acquire on your own.” So we see that evolution of the partnership. Now, it will vary on a segment by segment basis the way a multi-billion dollar firm, it’s got a corporate staff of 20 and manages 30 billion dollars, a very very different set of circumstances than the solo practitioner. We’re kind of seeing this really being most impactful in the middle of that bell curve. So with the majority of advisors that are bigger than a breadbasket, want to build a real business that isn’t dependent upon themselves, isn’t so large that they can go spend a million dollars a year in salaries on a whole staff of professional business managers, et cetera. The bulk of advisors fall somewhere in between, and that’s where I do think that these financial institutions are in a unique position to fill in that gap, deepen those relationships, and really accelerate the success of the advisors that are affiliated with them. Stephen: Now, if I can pivot a little bit, I want to make sure that we get to this before we finish. One of the things that ActiFi does is something that Julie used to do, and that’s collect client feedback from clients. And we talked about discovering client preferences and customizing your approach to that feedback. So what, in your view, is the role of client feedback and attracting new clients and enhancing that experience? Spenser: Well, I think client feedback is critical. And I’m a fan of kind of that surround sound approach from doing formal feedback mechanisms similar to the ActiFi Engage program that we help advisors do. But also embedded in the conversations that advisors are having with their clients on a regular basis. Having a feedback question embedded. One of the ones I like to do, and I try to practice what I preach with our clients, is at the end of a meeting, I’ll ask them on scale of 1 to 10: 1, this meeting was a complete waste of your time, and 10, this far exceeded all of your expectations. What would you score this? And then what I’m actually even more interested in is the follow-up question, which I ask, so everyone has a little bit different scoring mechanism, but say they give me an 8, well what would have had to happen to make it a 10? And that’s what you’re really looking for. And that gives that client, this specific example, kind of the permission to say, “Well, I have you an 8 or I gave you a 7, which is really a pretty high score, but you’re asking me what would it be to be a 10. Well, now I can give you some feedback without offending you.” So I think it’s the combination of those kinds of questions just embedded in the normal, ongoing conversation using formal feedback mechanisms, like surveys and that sort of thing. And then even, I know Stephen over the years, you specialize in this around these client advisory boards. Stephen: Yeah. Spenser: And again my point of view is the right answer is: all of the above. And you’ve got to, based on where you’re at, and you can’t maybe bite it all off at the same time, but this is something that in the end, the client’s going to win because they get to vote with their wallet. So it is very important for every practice, regardless of size, regardless of scale, to have some mechanism to understand where they’re at in delivering on the expectations that that client has. Stephen: And I might even add to the question that you ask, or that you encourage advisors to ask about what score would you give this meeting. I think it could be also useful to ask a question that we often ask at the end of advisory board meetings, which is doing what facilitators call a Plus Delta, so to say, what were two or three things about this meeting that were valuable for you? And then, what two or three things would you change about this meeting to make it more valuable for you? Spenser: Mm-hmm. Absolutely. Julie: Let me … Stephen: And Julie, we want to hear from you, since you’re the feedback expert … Julie: Yeah, I’m a big fan of all of this. Look, and I think Spenser’s really made an important point there, is that it’s, feedback, it needs to be baked into how you do business. It’s not just a survey. It’s not just an advisory board. It’s a way that you think about how you operate, and it’s in fact the combination of these different forms of input that you get that’s so important. Now, I mean, we’re also talking ultimately about what makes you referable in our podcast. And Spenser, so I’d love to just pick up on what you were talking there about with feedback, and ask how in your mind is that then linked to either increasing referrals or making you more referable? Spenser: Well, there’s a couple of things. So if you are getting the feedback, “Hey, this is truly meeting and exceeding my expectations”, one other question I like to ask is, how would you describe what I do? Like if, getting a sense of how would that client describe the solutions and really the relationship experience that you’re delivering to them to their friend or their colleague. And I think in my mind, one of the ultimate tests of referability is, does the client refer business to you, not at all because they’re trying to help you, but because they’re truly trying to help their friend or colleague. That they know that their friend really needs the experience and the value that you bring, and that you’re in fact doing them a favor, doing the client a favor, by meeting with the person that they’re referred. Stephen: Amen. Spenser: So to that, that’s the ultimate thing that an advisor should strive for. I personally am not a fan of the … And as a client, I would be very offended of saying, well, how … These things that said, “Referrals are how I get paid in traditional insurance world.” No, it isn’t! I’m actually paying you a fee, I’m paying you 10,000 dollars a year, you know … Julie: (laughing) Yeah, that’s … Stephen: (laughing) Spenser: I’m actually paying a more than fair price, so you’re telling me on top of what I’m paying, I’m not paying you enough and I have to give you referrals … Again, that’s offensive to me. (laughing) Julie: It is. And I think, you know, you raise such a good point because we make assumptions. You know, in our mind, we know that clients provide referrals, and we think they’re sitting down and holding the hands of their friend and looking deep into their eyes and saying, “You’ve gotta talk to my advisor, they’re going to change your life.” And really, when they talk about it, they say, “Oh yeah, I just said you should call Bob, he’s great.” And that was sort of, you know, ‘could you pass the salt’? That was essentially the entire conversation that they had. So really kind of digging in so that you can understand what’s going on and support that, I think is just wonderful. So, hey Spenser, just, we’ve got a couple minutes here. I’d love to wrap up soon, but if … If somebody listens to all of this, and you’ve talked about a whole range of things, from the high end at the industry level to technology to gathering client feedback, but if advisors could do sort of one thing to get started after listening to this episode, what do you think it should be? Spenser: Well, if I boil it down to one thing, I think it’s just asking for that feedback. I mean, I use the example of the 1 to 10 question, it doesn’t have to be that. But really baking into their standard operating model, that the normal frequency, cadence of the meetings and so forth, an agenda item or a topic or a question or whatever they feel comfortable with to really ask for feedback on the relationship. That would be the one thing. I do also want to go back and make one quick comment on what you just said, which is, what has been shocking to me, and this is in terms of how do people describe what you do. I’ve actually asked our clients that exact question. So if I was a fellow advisor and I was asking you, “You work with ActiFi, what do those guys do?” And it’s really been eye-opening. And I can tell you that the way clients describe what we do is, generally speaking, substantially different than the way I would describe it. And it really has been eye-opening to me – Stephen: Isn’t that funny? Spenser: To understand how we’re perceived. I mean, usually what they do is they describe one stand-out benefit that they got, which was about one-thirtieth of our value proposition, and they described that one-thirtieth as, “Well, that’s what those guys do.” And my guess is, and I’ve seen this to be true for advisors as well, is clients can usually describe about, and maybe one-thirtieth is an exaggeration, but it’s certainly a small percentage of your overall value proposition. Really, the element that kind of sticks out in their mind, where they’re getting value, they’ll talk about that one component, but not accurately describe the entire value proposition. And it requires training. I mean, you ultimately have to train your clients on how to both appreciate and articulate that value proposition. And if you do that in a very client-centric way, it actually also deepens the relationship. So I guess I’m giving you two take-aways, one embedded in, but then two, really work to evolve those relationships where you and the client are really understanding and describing that value proposition that you’re delivering to them in a common and well-understood way. Julie: So, I’ve got to ask then, before I let you go, how do you describe what you do? Spenser: How do … From an advisor …? Julie: How would you want one of your clients to describe what ActiFi does? Spenser: Well, as we increasingly move toward … Our focus has moved more and more toward the institutional space and really helping firms deliver value to advisors. I would want them to say, “ActiFi is uniquely positioned to support institutions who want to accelerate the success of their advisors through people, process, and technology solutions.” So that’s what I’d maybe say in a nutshell. They’re the catalyst to accelerate advisor success. We certainly still work directly with advisors a little bit, but more of our focus, because we do see this trend toward the partnership between the institution and the advisor becoming more important, we really want to be a powerful enabler of that partnership. Julie: Mm-hmm. Perfect! Well, thank you for that. Well, and thank you for everything. It’s been an absolute pleasure speaking with you today and I know everybody’s going to get a ton of value out of this. Thanks, Spenser. Spenser: My pleasure. Great conversation. Julie: Hi, it’s Julie again. It was great to have you with us on Becoming Referable. If you like what you’ve been hearing, please, do us a favor and rate us on iTunes. It really does help. You can get all the links, show notes, and other tidbits from these episodes at BecomingReferable.com. You can also get our free report, Three Referral Myths that Limit Your Growth, and connect with our blogs and other resources. Thanks so much for joining us.