Benefits of institutionalizing your practice

Shyam Sunder of PeakAlpha Investment Services on why advisers should institutionalize their practice and how to go about it.
By Guest |  24-02-17 | 
 
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Morningstar invites thought leaders from the investment community to share their insights. Views expressed are personal and should not be construed as investment advice.

My usually cheerful and confident client looked a little worried that day. Clearly, he had something on his mind. “Shyam,” he started tentatively, “we have a lot of faith in your advice and your handholding. Our experience with you over the past few years has been very valuable, and we feel much more confident in our ability to handle our money. But there is something that has been worrying me, that I wanted to discuss with you.”

He continued “you have advised us to understand risks to our financial plans and put in place risk management strategies to counter them. But one risk that we haven’t talked about is, what happens to our plans if something happens to you.”

There are many reasons to institutionalize your practice. But the most important of them is your clients, the reason your practice exists. We are used to discussing risk management with our clients. But the big untoward incident in those discussions usually is something bad happening to them. But what if something happened to you, their trusted friend, guide and adviser? Years of painstakingly built trust, understanding and relationships cannot be replaced easily. So, if you really care about your clients, you must institutionalize your practice, so they can count on your assistance as they pass various stages of their life.

Institutionalizing has other benefits, including peace of mind. Institutionalizing brings reliability to your practice, and makes it much easier to monitor and manage. Both your customers and you can be confident that while external factors such as markets and the economy may create volatility, your own practice will not contribute to the problem through unsound advice and failed transactions.

Finally, you have built up your practice over the past many years. What is it worth? A practice that collapses if you walk away is not one that someone will be willing to pay much for. An institutionalized practice, on the other hand, is likely to be valuable for an acquirer, since he knows that customer assets and relationships are not person-dependent and will retain their value even under a new ownership.

How to institutionalize your practice

The key to institutionalizing is building robust processes across your practice. Such processes ensure that the absence of one team member does not render the business incapable or significantly weakened. The increasing advent of technology makes the creation of such processes easier and more reliable.

Critical to the success of these processes is a passionate, well-trained and efficient team. The four key functions of recruiting, onboarding, training and managing are crucial to building teams. Having a team that cares deeply about what you believe in makes the journey truly worthwhile.

Business processes span multiple areas, including customer acquisition, financial advice, transaction processing and customer support.

Customer acquisition: In smaller practices, growth happens through referrals and word-of mouth. As practices grow larger, however, customer acquisition must be approached more scientifically. Every practice must identify and clearly define the type of customer they are best capable of serving. Practices must then develop strategies to reach and market to these customers. Multiple people must be able to lead these efforts with consistency and predictability. Effective use of CRM and lead management systems can help significantly in this area.

Financial advice: Perhaps more than any other, this area requires attention in terms of strong processes. The regulatory environment increasingly demands that advice be in the customer’s best interests. If you are a SEBI Registered Investment Adviser (RIA) you have a fiduciary duty to your clients, which means you have a fundamental obligation to always act in your client’s best interests. Further, strong processes also mean that your clients are receiving the best advice, no matter who gives it.

The advisory process can be broken down into information gathering, needs analysis, developing recommendations, instrument selection, execution and monitoring. Setting up reliable, step-by-step processes for each of these, enabled by appropriate technology, will ensure that the advisory process is reliable, predictable and person-independent.

Transaction processing: The best advice is of no use unless it is put into action. Transaction processing is where the rubber meets the road. Unfortunately, this is also where Murphy often plays a big role, with his law “if anything can go wrong, it will.” Transaction processing therefore has the most to gain from the use of technology. In the past few years, the Indian mutual fund industry has taken big strides in the enablement of electronic transactions, particularly through stock exchange platforms. Both advisers and end customers can now initiate and complete transactions entirely online, with no physical paper changing hands. When the operations capability is regarded as a key strength of the practice, rather than as an insignificant back-room activity, the reliability of the entire practice will be significantly enhanced.

Customer support: Some customer queries and issues can be resolved instantly or within a few hours. Most, however, tend to span multiple days. Strong support processes must therefore be established, with clear responsibilities, turnaround times and handoffs. When support processes are inefficient, customers may well feel that the enthusiasm displayed by the practice for revenue-generating activities evaporates when support is needed. The adviser who stands by his client at the time of need, in the form of prompt redemptions, assistance with statements or claims, will have won a client for life.

It is widely felt that the mutual fund story in India is only beginning. There are opportunities aplenty for knowledgeable and trustworthy advisers to partner with clients and enable their wealth creation. By institutionalizing your practice, you ensure not only that your clients achieve their dreams, but also that your practice plays an important role in the future of our growing industry.

P.S. The client at the beginning of the article is now confident about PeakAlpha’s institutionalized systems and processes, and continues to work with us even today.

Shyam Sunder is Managing Director of Bengaluru based advisory firm PeakAlpha Investment Services.  

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