Dwight D. Eisenhower once said, "Plans are nothing; planning is everything." Nowhere is this more true than in financial services, where everyone has a business plan but few follow it. Let's take a closer look at why the typical Financial Advisor's business plan is next to useless and—more importantly—how we can use the activity of planning to our greater advantage.
The Problem with Goals
There are two main reasons why business plans fail to become useful business tools. The first is the types of goals that advisors are asked to set—usually described as SMART (specific, measurable, attainable, realistic and time-bound).
There's nothing wrong with using SMART to set goals. What does go wrong is the type of goal the advisor is setting. Most often advisors set destination goals as the root of their plan. A destination goal, the most common type, measures a key indicator of success. The indicator is located at a specific point in time— typically a year in the future. For advisors, destination goals are usually associated with revenue, assets under management or total clients served. These are very useful measurements for the advisors to assess progress in growing a larger business, and helpful for the advisor's organization with keeping track of the meaningful results of activity in the business.
When destination goals are set, they provide a galvanizing point of focus for the advisor—which is a big part of their purpose. As the advisor gets closer to the goal, he gets a sense of success and accomplishment; if the advisor is unable to move toward the goal, it stands in judgment, convincing him of his failure to achieve. Either way, the destination goal pumps energy into the advisor's psyche. But it does nothing to support effective activity from day to day. As a living resource that helps the advisor actually achieve success, destination goals are useful as motivators, but are good for little else.
There Is a Better Way
There's a very different type of goal that works to transform a typical plan into a "living document" that tends to improve performance over time: performance goals. Performance goals describe the number and type of activities that the advisor intends to execute in a given period of time. Rather than describing the results of activities, these goals describe the activities themselves. Performance goals describe the way the advisor will achieve the destination goals.
Think of it this way: in January, an advisor sets a goal of accumulating $20 million in additional assets under management by December 31 of the current year. This classic destination goal does little to influence how the advisor will spend her time each day. But adding a performance goal allows the advisor to begin exerting control over her day-to-day activities.
Let's say that she decides to reach out to CPAs and attorneys to build collaborations. She expects that referrals from these relationships will add up to $20 million in new business. She determines that she needs one appointment with a professional every day, each week, to achieve the goal. In this case, her performance goal is to achieve five appointments each week with CPAs and attorneys.
When an advisor adds one or more performance goals to support the achievement of the destination goal, the plan becomes a living resource that influences decisions on a daily basis. Over time the advisor can determine if the goal of one appointment per day is more or less than needed to achieve the desired outcome at the end of the year. In this way it provides a measurable way to include feedback about the pace of execution over time. If five appointments a week aren't producing the desired results, the advisor can increase the number of appointments per week in order to ensure that the destination goal is achieved. In the same way, if the five-a-week pace is producing more results than anticipated, the advisor can elect to reduce the number of appointments and allocate that time to other tasks.
Taking a Closer Look
An advisor's time and energy are his two scarcest resources. Adding performance goals helps the advisor best allocate his time and energy, and transforms a business plan from something that sits in the bottom of a desk drawer into a living document that can meaningfully contribute to greater success.
Managing a successful advisory practice requires executing well in a wide variety of areas. In fact, AllianceBernstein's Advisor Institute has examined successful practices and determined that there are more than a dozen important activities that must be balanced. These include annual reviews, reviewing asset managers, new client outreach, staff management and discovery/close protocols with prospects. Every day the advisor is challenged by the number of diverse activities that must be managed effectively.
Without a set of performance goals to define an ideal distribution of time and effort among these various tasks, it's easy for the advisor to become overwhelmed by immediate concerns and to neglect necessary activities within the business. Most advisors can relate to the challenge of balancing time and energy effectively, especially when events in the world interrupt good intentions.
For example, it's very difficult to maintain a focus on daily outreach activities when markets become volatile and clients become upset. Obviously, managing existing relationships is a critically important commitment within the practice, and shifting focus to supporting distressed clients is absolutely necessary when markets get choppy. Unfortunately, the long-term need to grow the business doesn't go away if focus has to shift for a few weeks. If time and tides conspire to keep the advisor from meaningful outreach activity, the long-term aspects of the business will suffer because the other tasks are getting a disproportionate share of activity.
This is precisely where performance goals help the advisor execute more effectively. After two or three weeks of intensely focused activity in one area, the performance goals start to alert the advisor that her activities are out of balance and the practice is off course. As the goals stack up, the feedback loop becomes more compelling: the advisor is 20 meetings short of her performance goal for the quarter, then 30 meetings short, and so on. In this way, the plan that an advisor builds describes the activities that will be used in each of the important areas of practice management. The plan acts as a daily reminder of the advisor's best intentions.
But Wait, There's More.…
I mentioned earlier that there are two reasons why most plans fail to become living documents. The second reason is that the majority of advisors do not define the methods they intend to use to achieve their goals. This issue is a bit more complicated and deserves a closer look.
Observations over the past 20 years have revealed that most successful advisors achieved their success by remaining flexible in their activities and able to respond to new business opportunities when they appear. In fact, most advisors learn early on that they cannot control opportunities by their own actions; rather, opportunities appear and disappear haphazardly in the environment. The result of this experience is that most advisors approach new business development by executing lots of random, social activities and waiting to see what opportunities cross their paths.
Coaches and managers see this most vividly when they attempt to train advisors in defined methods of generating new business. As we discussed earlier, most advisors accept that CPAs and attorneys can make meaningful, quality referrals. At the same time advisors also say that they "never" get referrals from CPAs and attorneys. The conclusion is that there's nothing the advisor can do to control the flow of referrals, so there's no reason to put effort in that direction.
This belief deeply impacts the effectiveness of the advisor over time. Rather than seeking out and learning new methods that are more likely to generate results, the advisor adopts a passive, "wait and see" attitude toward new business development. Similarly, many advisors adopt a "wait and react" attitude toward client management, rather than adopting effective methods that allow the advisor to manage a proactive approach to managing his practice.
This is the point of planning: not to create an elegant piece of literature but to create a living document that positively and powerfully influences day-to-day activities. Obviously, there are no miracle methods that will revolutionize a practice. But there are methods used by successful advisors that increase the likelihood of running into high-quality opportunities. By stacking up a bunch of these activities, maintaining a balance of focus on all the important tasks involved in running your business and following your business plan, you can intentionally accelerate the pace of growth of your business.