What Your Favorite Restaurant Can Teach the Wealth Management Industry

Think of a restaurant you love going to.? Consider the atmosphere, music, the food, the layout etc….? It can be a place that you’ve gone to any number of times.? Fancy feast or a total dive – it’s your imagination – you be you.

What makes it special?

Many reading this know that making your way in the world today takes everything you’ve got and taking a break from all your worries sure would help a lot.? Wouldn’t you like to get away?

?????????????? Sometimes you wanna go,

?????????????? Where everybody knows your name,

And they’re always glad you came,

You wanna be where everybody knows your name.

Yes – we’re using our first Cheers analogy in the blog and with Dr. Frasier Crane back on the airwaves what better time for a metaphor.

The theme song encapsulates the idea of why the characters keep coming back – an empathetic understanding of who someone is and an atmosphere that provides community.

Sam Malone ran the bar for the regulars – Cliff, Frasier and of course Norm.?

Sam could have squeezed in more seats, been quicker to pour, or allowed anyone off the streets to sit on the right side of the bar but he didn’t.? Sam wanted to really know his customers.

I previously wrote that I would talk about Dunbar’s Number (Link), fortunately, friend of the blog, David P. O'Leary, CFA, MBA posted about this three weeks ago (click to view).?

“This shows up in the 2023 Advisors’ Edge Report Card, as David notes: “Dunbar's number, named after British anthropologist Robin Dunbar, suggests that the physiological limit to the number of people with whom we can maintain relationships is about 150. Meanwhile, the average advisor in Canada, according to the Investment Executive?2023 Advisor Report Card, manages 221 client households. That's the average. This means many advisors are managing more. I've heard of advisors managing as many as 1,000 clients.”

In the end – if we as humans have the capacity to truly understand someone else – the way Sam does with his staff and regulars – we are capped. ?So why does the average advisor manager 221 households??

“A penny saved is a penny earned” as the saying goes.? Typically, it’s used in the context of controlled spending and delayed gratification… If you’re a business owner with a loyal customer base, a customer retained is equal to a new loyal customer earned you could say.

What if it wasn’t so.

What if incentives made it so that a new customer is worth slightly more than a customer lost?? Stated another way – what if the incentives for new customers outweigh the incentives to prevent existing customers from potentially leaving?

Like when a firm has a ‘bring on a X new customers this year you qualify for $$ bonus’ [this doesn’t show up on the websites though, more of a ??]

These are called sales targets.

When a penny earned is worth more to an advisor than a penny saved.

Under this, Sam Malone would be focusing on throughput of service with performance measures such as ‘drinks poured per hour’ over the quality conversations that made Cheers different.?

This plays out in service quality in the wealth management as J.D. Power and Associates noted about the personal financial landscape in Canada (link in comments):

·?Only a fraction of investors receives comprehensive advice: 6% of investors in Canada are receiving a comprehensive level of service and advice from their wealth management professionals.

·?Just more than half of full-service wealth clients have financial plans. 57% of full-service wealth management clients say they have a plan, within that group, 43% do not agree that their advisors’ recommendations are in their best interests.

· 38% of investors who say they have a plan don’t think their advisor understands their goals and needs.

Let’s assume that an individual is capped at 150 people, and say that half (75) of them are personal relationships – friends, family, colleagues etc… - that leaves 75 for professional work, for advisors that means client relationships.

This simple math – 221/75 = 2.9 – essentially stating that the average advisor has 3x more clients than they could deeply understand their goals and needs.

With 43% not agreeing that they do not have a plan, it’s no wonder why they believe they don’t believe tehri advisors recommendations are in their best interest – how could they possibly be if they don’t know what those interests are?

Now Norm is in the crammed table in the corner and his needs aren’t understood, and Sam is trying not to sink in operations and beyond his capacity to understand those needs.

Brian Portnoy, CFA is at the forefront of shifting the paradigm of advisor service and thought leadership in the wealth management space, he notes: “If you’re making investments outside a well articulated plan – meaning that some or all investments are not explicitly matched to defined objectives – then you are speculating, not investing.”

43% of people paying for a full service advisor are not getting the full service.? Their advisor is speculating on their behalf.

Demand more, you deserve it.