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Cannon Financial Institute

The unfulfilled promise: IBD growth via supporting advisor growth

For the executive leader of today's mid-tier broker-dealer, a key charge is to profitably grow the firm. The challenge is having the right balance of growth - which drives revenues - and operational efficiency, which drives profitability.

The last five years have seen a heavy focus on helping BDs and advisors create operational efficiencies as technology firms, process consultants, clearing firms and others all continue to bring new solutions to shave expenses and create additional capacity.

However, the growth area has been more challenging for the independent broker-dealer. External acquisition is one of the possible growth strategies, but the buying of other BDs and recruiting producers is a zero-sum game for our industry. Advisors growing their practice have always been the second critical assumption of how the broker-dealer will also grow, and this strategy produces net industry growth, but is much more difficult.

Advisors face challenges in relation to growth

Advisors, like their broker-dealer, have external acquisition, expanding current relationships and acquiring new clients as growth avenues. It is well recognized that advisors are faced with several dynamics that challenge their achievement of growth.

Here are three:

  • Identifying which growth path is right for them at the moment is a difficult decision to work through.
  • Sifting through all the noise about what could be done to grow is overwhelming, and though well intentioned, the current education strategy (or lack of one) from most of the home offices just adds to the confusion.
  • Cobbling together the pieces and parts to craft their path - and then staying engaged long enough to change their behaviors to get significant results - is unnecessarily problematic.

Conventions prove popular among certain BDs

Mid-tier independent broker-dealer executives have an additional challenge to support advisors growing their revenue. They don't have the staff and resources to build an effective education strategy. As an alternative, they use national conventions as the strategy for training. The hope is that advisors will hear new ideas and change what they do so they and the BD get different results.

However, this approach creates a two-fold problem: 

  • The expected results of conference- and convention-based training never materialize. A few advisors make some small changes and those anecdotal stories give just enough comfort to the firm to ignore the obvious lack of impact.
  • Because there is no "apparent" alternative, it is just easier to repeat the same failed activities because they are familiar.

 It is understandable why convention- and conference-based education is not very effective: It is designed for a different set of outcomes. There are three constituencies of these events - the home office, the sponsors and the advisors.

 Home offices

Convention- and conference-based education provides a way to create and reinforce the firm's culture, showcase why the affiliation with the BD is still a good idea, deliver compliance training, introduce or reinforce services and create relationship-building opportunities between home office staff and the advisors. 

Product sponsors

It allows them to meet and visit with a larger number of advisors and create an efficient form of marketing, branding, prospecting and relationship building.  

Advisors

They get to enjoy wonderful venues, while at the same time are exposed to important information that keeps them current on the important issues.

None of this, however, is focused on creating new cognitive capacity or building skills, changing behaviors and creating a concentrated plan for realizing different results - the requirements for improving performance. Conferences and conventions are great things - but they are not designed to improve performance or to generate the impact on growth that most broker-dealers assume will result from providing many different workshops and speaking topics.

Instead, they are great for generating awareness. However, if awareness were all that is necessary to move advisors to change behaviors and get better results, we would be seeing a much different set of problems for them and the broker-dealer.

Look beyond just conferences and conventions

The reality is that performance improvement is complicated. It requires several variables to be coordinated at once in order for real impact and improvement to occur. By holding onto the assumption that conferences and conventions provide all that is needed - or required - to do, sets up this self-reinforcing loop where the BD repeats what is not really working.

We have heard that more than once from home offices. We provide the opportunity, but it is up to the advisor to get it done. After all, they are independent-minded people who don't like to be told what to do. But, that approach is little comfort to the executive who must report growth results. You cannot report to the board or shareholders: "We gave them great ideas, they just didn't do anything with them, so it's not our fault." There must be a better way and some executives are finding it.

From the executive leader perspective, we understand that it can be painful to clinically examine the results coming from ingrained organizational activity. In doing so, one might have to admit the assumption that the current format for educating advisors on growth is not working as well as it might. This may lead to the conclusion we need to refine our approach, which brings on all types of imagined challenges that must be prioritized against all the other competing daily fires.

Firms impede their own growth

By applying a lens of neuroecomonics to the situation, it is easy to see the endowment bias becoming a significant roadblock for many firms to even consider alternatives. Couple that bias with the familiarity bias, and you end up with a psychological condition known as "Blocking."

Blocking behavior is evidenced by doing the same thing (that you think is working well) over and over to the exclusion of anything else. One may do this even if the results are poor. Worse yet, when in this state, one doesn't entertain alternatives because they are blinded by the seeming success of the current activity. This not only creates suboptimal results, but also vulnerability to disruption and opportunity for creating a competitive advantage by others.

Cannon offers a variety of solutions

Cannon has studied the advisor growth challenge from the perspective of the independent broker-dealer, asking the questions: "What will actually solve the root cause of low advisor growth?" and "What can we influence?"

We have culled the hundreds of programs we offer and identified the essential ones necessary to solve this challenge in a unique way. This provides you the way to break free from the biases and behaviors that generate lots of activity, but little real impact.

Our solution for the mid-tier independent broker-dealers is focused on:

  • Helping the broker-dealer assess the efficacy of their current education strategy
  • Providing supplemental expertise in creating an education strategy to realize different - and improved – results
  • Bringing a framework to drive advisor growth by organizing these essential programs into tracks that accommodate an advisors preferred growth strategy
  • Working with you to create a path to implement solutions that fit within your budget

If you would like to explore a solution that supports your firm's culture, fits into your budget and gives your advisors a choice of programs that will not only drive revenue, but also change their practice and professional capability, then get in touch with Cannon today.

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