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Taking Your Practice to the Next Level Shawn Brayman IFPAC February 22, 2008 Taking Your Practice to the Next Level Shawn Brayman IFPAC February 22, 2008

Shawn Brayman • Plan. Plus Founder • Customers in 9 countries and 4 languages Shawn Brayman • Plan. Plus Founder • Customers in 9 countries and 4 languages • B. Sc. , M. E. S. and Canadian Institute of Financial Planning prescribed course of study • International speaker on financial planning • Winner of the Financial Frontiers Award 2007 for leading research in Financial Planning. Shawn Brayman President Plan. Plus Inc. • Plan. Plus winner of Canadian Investment Awards 2007 “Advisor Education Award” IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Taking your practice to the next level 1. Industry trends 2. Advice versus products Taking your practice to the next level 1. Industry trends 2. Advice versus products 3. The planner as a professional 4. What constitutes a practice, and what action you should take? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Industry Trends 1. 2. 3. Product margins are reduced Competition is increasing, independents will Industry Trends 1. 2. 3. Product margins are reduced Competition is increasing, independents will loose share Regulators are demanding clarity between advice and product sales IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Pressure on Fees • North America has seen a consistent and steady decline in Pressure on Fees • North America has seen a consistent and steady decline in sales fees and MERs over the past decade • Malaysia just experienced a cap on commissions of 3%, an immediate reduction of 50% • High fees are associated with high cost of sales in early days. As the number of channels increase fees can and will drop. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

The Independent Channel Looses Market Share IFPAC 2008 – Kuala Lumpur © Plan. Plus The Independent Channel Looses Market Share IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Industry & Regulators are Shifting Product Sales Advice Wealth Driven Sales Management Regulated Advice Industry & Regulators are Shifting Product Sales Advice Wealth Driven Sales Management Regulated Advice Delivery - ISO 22222 on Financial Planning CFP® Practice Standards, Competency Matrix SEC (US) Merrill Lynch Rule Canadian Council of Insurance Regulators (CCIR) 3 principles as best practices (Feb `07) “…it will force many “brokers” to be subject to the same standards of care when providing financial planning services to clients. ” Journal of Financial Planning, Oct 2007 IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

What will happen • Large front end loads – transactional • Loads reduced, move What will happen • Large front end loads – transactional • Loads reduced, move to DSC/deferred sales charges – still transactional but client and advisor rewarded by staying the course • AUM/Assets Under Admin Fees – wrap style accounts – 1% per annum. Service focused. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Advice versus Products Using advice to enhance your services & your value proposition IFPAC Advice versus Products Using advice to enhance your services & your value proposition IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Firms & Advisors in Transition Product Focused Product with Advice on Request Process with Firms & Advisors in Transition Product Focused Product with Advice on Request Process with Advice First IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Advice Makes More Money • Earn 4 times more revenue with planning advisors than Advice Makes More Money • Earn 4 times more revenue with planning advisors than transaction based sales • Earn 60% more profits Source: Cerulli & Associates IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

2004 FPA Financial Performance Study Advice Driven Practices Attract Larger Clients IFPAC 2008 – 2004 FPA Financial Performance Study Advice Driven Practices Attract Larger Clients IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Advice Makes $ Stick Plan Elsewhere Plan Fee Account Elsewhere ++ Fee Account Stock Advice Makes $ Stick Plan Elsewhere Plan Fee Account Elsewhere ++ Fee Account Stock Sales MF Sales 0% 25% IPS 50% 75% Share of Wallet Source: Corporate Insights IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 100%

Fee based planning? 1. 2. 3. 4. 5. 6. 400, 000 “advisors” in USA Fee based planning? 1. 2. 3. 4. 5. 6. 400, 000 “advisors” in USA 50, 000 CFPs 26, 000 members of FPA 2, 000 members of NAPFA (fee only planners) 80% based on AUM fee 20% based on fee for time So about 1 to 2% of advisors are financial planners that charge for their time! IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Defining a Professional A calling requiring specialized knowledge and often long and intensive academic Defining a Professional A calling requiring specialized knowledge and often long and intensive academic preparation. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Are cigarettes bad for your health? 1. 2. 3. 4. 5. December 15 th, Are cigarettes bad for your health? 1. 2. 3. 4. 5. December 15 th, 1953 studies indicated cigarettes caused cancer. January 1954 industry issued statements insisting there was "no proof" that smoking causes lung cancer. "We believe the products we make are not injurious to health, " they said. The government provided free cigarettes to servicemen until 1974 and continues to subsidize tobacco farmers. September 1999 Clinton administration lawsuit filed against tobacco companies. Today, the government receives $6 billion a year in tobacco tax revenue and makes more money per pack from cigarettes than the industry does. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Is global warming caused by man? 1. 2. 3. 4. 5. 6. At CIFP Is global warming caused by man? 1. 2. 3. 4. 5. 6. At CIFP Conference in June saw Guy Dauncey, author of Global Climate Change: The Challenge and the Solutions 20% of attendees thought that claims mankind causing global warming were false and a conspiracy 20% of attendees said insufficient or conflicting information and could not make decision. 60% said man was the culprit. Over 600 peer reviewed scientific studies indicate mankind is the culprit, 0 say mankind is not Over 55% of media articles indicate there is insufficient or inconclusive evidence IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Do you help your client by selecting investment products? IFPAC 2008 – Kuala Lumpur Do you help your client by selecting investment products? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Allocation 101 1. Markowitz – Nobel Prize for MPT. 2. Brinson (1986, 1991) – Allocation 101 1. Markowitz – Nobel Prize for MPT. 2. Brinson (1986, 1991) – Determinants of Portfolio Performance – 91. 5% of return variability by “policy” IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

What happens when… Thousands, tens of thousand now hundreds of thousands of professional investment What happens when… Thousands, tens of thousand now hundreds of thousands of professional investment advisors are all playing in the same marketplace? Efficient Market Hypothesis • • The markets are about 87% efficient The markets and securities in the market reflect all information currently available • If the market is at equilibrium, any conjecture must be a guess (50/50) based on information not yet known. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Efficient Market Hypothesis Thousands, tens of thousand now hundreds of thousands of professional investment Efficient Market Hypothesis Thousands, tens of thousand now hundreds of thousands of professional investment advisors are all playing in the same marketplace? 1. 2. Samuelson (1970) – Nobel Prize that you cannot predict markets. Fama – nominated for Nobel Prize that you cannot pick stocks or mutual funds. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Allocation 101 • Study on value added of 1, 302 Active Management funds vs. Allocation 101 • Study on value added of 1, 302 Active Management funds vs. Chance from 1962 to 1995 – 2/3 rds under perform • October 2006 – Journal of Financial Planning – “On average active management reduces returns and increases volatility. ” IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Magellan Fund • Magellan Fund had 12. 5% compound return for 25 years. The Magellan Fund • Magellan Fund had 12. 5% compound return for 25 years. The average return of the investors in Magellan was 2. 5% • Dalbar study from 1984 to 1993 found, for equities, do-it- yourselfers averaged 5. 46% while advisor assisted averaged 6. 64%. Index (S&P averaged 11. 35%) IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Dalbar Study ? MER 12. 2% 10% 3% Equity Investor Experience Average Equity Fund Dalbar Study ? MER 12. 2% 10% 3% Equity Investor Experience Average Equity Fund S&P 500 Return Key To Investor Success Dalbar Study from 1984 to 2003 Findings The 'buy and hold' strategy outperforms the average investor by more than three to one after ten years IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Dalbar Study ? MER 12. 2% 10% 3% Equity Investor Experience Average Equity Fund Dalbar Study ? MER 12. 2% 10% 3% Equity Investor Experience Average Equity Fund S&P 500 Return Key To Investor Success Dalbar Study from 1984 to 2003 Findings The only thing most equity investors needed to do to achieve truly great returns was just to stay invested. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Dalbar 2007 IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 Dalbar 2007 IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Malaysia Markets • • • We looked at the KLCI using monthly data from Malaysia Markets • • • We looked at the KLCI using monthly data from December 1993 to December 2006 Assumed annual investment on the best and worst month of the year (based on highest or lowest level of index) The worst outcome had a compound return of 5. 13% The best outcome had a return of 10. 48% Testing for investing the same month each, regardless of the market, resulted in: • • June: 7. 57% October: 8. 56% © Plan. Plus Inc. 2007

Malaysia Markets • • • The spreads are higher than less volatile markets, but Malaysia Markets • • • The spreads are higher than less volatile markets, but this still assumes clients remain fully invested Clients loose by jumping in and pulling out of the market based on greed and fear Advisors who sell on timing and performance are conditioning clients to repeat this herd behaviour © Plan. Plus Inc. 2007

Daniel Kahneman: Prospect Theory • Overconfident (Ivy League Survey) • Exaggerate their skills (Driving Daniel Kahneman: Prospect Theory • Overconfident (Ivy League Survey) • Exaggerate their skills (Driving skills) • Believe they have more control than they do (Lights and buttons) • Fail to learn (Don’t stay surprised) • Have a coefficient of loss aversion of 1: 2. 5 resulting in poor decisions IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

The Cost of Having an Idea • Terry O’Donnel (student of Daniel Kahneman), studied The Cost of Having an Idea • Terry O’Donnel (student of Daniel Kahneman), studied 100 s of thousands of transactions – buy and sell within 48 hours • Compared the stock they sold to the one the bought for next 12 month performance • Investor lost an average of 3. 5% and paid a 0. 5% commission! • Women were better investors than men – they had fewer ideas. • Institutional investors picked up the 4% individuals lost IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

How Often Should I Rebalance So lets assume you have trained yourself and your How Often Should I Rebalance So lets assume you have trained yourself and your clients to remain firm and not second-guess markets or investments. How often should you “optimally” rebalance the portfolio? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

How Often Should I Rebalance • Winner of Financial Frontier Research Award in 2006 How Often Should I Rebalance • Winner of Financial Frontier Research Award in 2006 • Optimal Rebalancing Strategies for Stock & Bond Portfolios • Looked exhaustively at data from 1926 to 2005. • Compared: • % variance in an asset class (1/2%, 1%, 2% up to 10% in an asset class) • 1 month, 3 month, 6 month, 1 Year, 2 Year up to 10 years IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

So Clients Loose Because… 1. They get out of the market, and 2. They So Clients Loose Because… 1. They get out of the market, and 2. They or their advisors have too many ideas, and 3. We touch things to often IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

One Factor for Professionals is Research! • Does your Doctor only read pharmaceutical brochures? One Factor for Professionals is Research! • Does your Doctor only read pharmaceutical brochures? • Read the research – not the advertising! – – http: //www. fpanet. org/journal/ http: //www. aarp. org/research IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

The Challenge – Is Your Strategy Still Relevant • What is your business structure? The Challenge – Is Your Strategy Still Relevant • What is your business structure? • Do you have a process to enforce advice? • Do you know your unique value? • Do you know your ideal client? • Have you defined your client-service experience? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Do you have a practice? • Do you have any “equity or value” in Do you have a practice? • Do you have any “equity or value” in what you do? • Can you lever other resources or do you do it all yourself? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Organization Types • • • Early Solos Mature Solos Early Ensembles Mature Ensembles Market Organization Types • • • Early Solos Mature Solos Early Ensembles Mature Ensembles Market Dominators IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Productivity Increases with Size Source Moss Adams 2007 IFPAC 2008 – Kuala Lumpur © Productivity Increases with Size Source Moss Adams 2007 IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Do you have a process? 1 The Financial Planning Process 6 5 2 3 Do you have a process? 1 The Financial Planning Process 6 5 2 3 4 IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Process is Paramount IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 Process is Paramount IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Engagement is Your Friend! IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 Engagement is Your Friend! IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Apply the process… • With every client • Make the client see you as Apply the process… • With every client • Make the client see you as more than a salesperson – but as an advisor IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Defining Ideal Clients • Breathing • In the phone book • I want to Defining Ideal Clients • Breathing • In the phone book • I want to help expatriate families working and living in Malaysia • I want to work with small business owners who need help transitioning the business to the next generation IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Cross-Border Financial Planning IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 Cross-Border Financial Planning IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

International Mobility is Increasing • 5 million Britons live overseas – – – 33% International Mobility is Increasing • 5 million Britons live overseas – – – 33% increase over past 10 years 9. 2 per cent of the UK’s population The top destination countries are Australia, Spain, US, Canada • 3 to 4 million Americans live overseas – 688, 000 Americans living in Canada • About 1. 5 million Canadians live and work abroad Government of Canada Consular Affairs IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Physical & Financial Presence • 30 Million plus net worth • 28% have residences Physical & Financial Presence • 30 Million plus net worth • 28% have residences in multiple countries • 28% have financial advisors in more than one country • 37% have offshore accounts of some kind • 19% have children living abroad World Wealth Report - IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Define Your Distinctive Value 1. What are your greatest strengths? 2. What one thing Define Your Distinctive Value 1. What are your greatest strengths? 2. What one thing do you know most about? 3. What is unique about your services? 4. What knowledge or life experiences do you have that are not necessarily part of your profession? 5. What business related thing are you most passionate about? 6. What is the best thing about the service that you provide? 7. Why are you a good fit for your ideal clients? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Define Your Service IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 Define Your Service IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Next Steps – Put It Into Action • You cannot “leverage” staff without replicable Next Steps – Put It Into Action • You cannot “leverage” staff without replicable business process – build your systems. • Align yourself with other professionals that support a culture you wish to create. • Balance relationship and technical skills development. IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007

Questions… ? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007 Questions… ? IFPAC 2008 – Kuala Lumpur © Plan. Plus Inc. 2007