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Wealth Management Firms Need to Get Ready to Pounce

Mike Langford
Jan 3, 2019

This article is the first in a series of “Get Ready to Pounce” themed posts by Truelytics. The goal for this series is to help wealth management firms, broker-dealers, and individual advisors prepare to take advantage of market changes that are likely to occur in 2019 and 2020.

Do you remember how scary 2008 and 2009 were? The financial crisis feels like a lifetime ago, doesn’t it? In the years since, most wealth management firms have known nothing but continued revenue and profit growth. If your firm wasn’t growing with ease during those years, you were almost certainly losing clients or something else was going terribly wrong in your business.

With 2018 in the books it now seems like the era of free growth has come to an end for the time being. Who knows what 2019 and beyond will bring, but one thing is for sure, it’s time to start preparing to take advantage of the opportunities that always arise when the markets and the economy get a little more volatile.

This Is When Fortunes Are Made

It is often said that fortunes are made when the markets are down. That’s when prices are low and the average business leader is more focused on survival than investing for the future.

However, it is the shrewd business person who looks at a down market as the perfect time to buy low and invest for the future.

Anyone can make money when the market is going up. As long as you keep your clients happy, and of course they’re happy when their statement shows growth, you are going to make money. But to make money when fear is gripping the market and your AUM is falling - that requires a steady hand, preparedness, and a long-term vision for the future.

How to Prepare to Take Advantage of a Down Market

Step 1 - Make Sure Your Ship is Ready for Stormy Seas

It is easy to get excited to about buying a rival firm at a deep discount or seizing on the opportunity to recruit advisors who are leaving sinking ships. However, you need to make sure your own firm is sound enough to weather the storm and capable enough to handle your planned acquisition or hiring spree. Make sure you leverage Truelytics to perform a thorough valuation of your firm and consult with our M&A team to evaluate your readiness.

Step 2 - Ready Your Vulture Fund

I first heard of the phrase “vulture fund” when I read a book by that name, written by Stephen Frey back in 1997. It’s one of those popcorn page turners in the style of John Grisham, but for finance geeks like you and me. The general concept of a vulture fund is to get your capital and financing in order so when the time comes for you to swoop down on an acquisition target you can move quick.

Remember, when the markets and economy are going through a down cycle it can often be difficult to raise funds. Start preparing now so you don’t miss out on a golden opportunity. If for some reason you don’t use the funds, you can always reinvest in other areas.

Step 3 - Innovate While Things are Slow

One of the side benefits of a down market or economic cycle is business tends to slow. Suddenly, clients aren’t all that excited to chat about investing and prospects are harder to find. If you are running a broker-dealer you may find that advisors are tougher to recruit as well. Again, most people freeze up and focus on survival during tough times.

However, you can use this time to your advantage by investing in new technology (chances are prices will come down), securing better office space, refining your client acquisition processes, and a myriad of other innovations that will set your business up for a meteoric rise once the markets and economy rebound.

Step 4 - Invest in Leadership Development

If I had to pick one thing our industry too often overlooks, it is leadership development. Many firms are populated with lifers who rose up the corporate ladder through attrition rather than innovative leadership. Now is the time to rally the troops and invest in them for the future.

It is far too easy for the lifer to get complacent and fall into a rut. While their decades of experience and loyalty have been incredibly valuable to your organization over the years, you need to make sure they are ready for the future. To compete in the decades to come, your firm’s leaders are going to have to be technologically savvy when it comes to client acquisition and service.

They will need to be comfortable engaging with millennials and before you know it, Gen Z. The next wave of clients will not be impressed with 30 years of experience and oak paneled offices. Your team is going to need to adapt to thrive in the future.

Step 5 - Get Outside the Industry Echo Chamber

It is hard to imagine what could be if all you surround yourself with is what is. Our industry has changed a great deal over the course of my 25 year career. It is rare, however, for wealth management firms to lead the way when it comes to innovation and change.

One piece of advice I have taken to heart from my friends in the venture capital and startup world, is to force yourself get outside of your own bubble on a regular basis. That can mean attending conferences in a completely different industry or reading blogs on a variety of non-financial services topics or simply getting together with other business leaders from a variety of different backgrounds.

What you are looking for is to open your eyes to new possibilities for your business. You want to see what your competitors are missing because they are too focused on trying to survive the down cycle.

What Are You Planning for the Future?

As I mentioned in the intro for this post, the “Getting Ready to Pounce” theme will be a recurring one for Truelytics in 2019. It is our belief that we are on the cusp of a wave of opportunity in the wealth management industry. We are excited to help you and your team prepare to grow your business organically and through M&A in the years to come.

We would love to hear your thoughts on this topic and what your plans are for the future. Feel free reach out to us here.

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