Why are financial advisers using 1950's sales and marketing tactics

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FranzFerdinand8's picture
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Joined: 2007-03-16

I'm not in the business, and have a question that will sound either naive or impertinent or both.  Financial advisers in 2012 appear to be using 1950's era sales tactics e.g. cold calling, while it appears most other industries have moved well past this.  Other professionals such as e.g. CPA's , attorneys, don't appear to do any cold-calling at all.   In the technology industry (where I work in sales), marketing generates leads for sales through thought leadership, white papers, email lead nurturing, etc.  I do some "cold calls" if course, but it is exception and not the norm.  It doesn't appear that new financial advisors have any marketing support at all?   Even in the other aspects of the financial world e.g. institutional sales, and investment banking, cold calls don't appear to be the norm of how new business is generated.  My issue with cold calling is that it diminishes your status as a professional, and causes the prospect not to take you seriously and ultimately trust you with their money.  Heck, even used car salesmen don't cold call.   Obviously, it does work to some degree, but to mainly or solely rely on this one technique appears to explain the extremely high  failure rate of new financial advisors, versus other sales professionals.  I would love to get folks perspective on why the retail brokerage / financial advisor industry has elected such a different sales and marketing mix, than other industries?  Maybe I am missing something here?      

KingBobby's picture
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Joined: 2011-10-03

FranzFerdinand8 wrote:My issue with cold calling is that it diminishes your status as a professional, and causes the prospect not to take you seriously and ultimately trust you with their money.

You ask why we do it, and then tell us why it doesn't work? lulz.. How would you know if you're not in the industry?

Two quick things:
1. It's a numbers game. How one contact feels has no bearing on the next contact, or results.

2. I partially agree, that advisors trying to build trust as leverage on the cold call are in for a disadvantage. However, the disconnect (and many advisors have this disconnect as well) is a very minimal amount of trust is actually needed on prosecting calls. Trust is built over time, as you gain more and more assets. Supplying a bond buyer with a tax free bond that pays a set, established coupon semi-annually and exceeds their yield or ratings expectations, doesn't require a strip search or even a handshake. That's just one example.

And I assume you're probably right about the marketing budget, but I can't confirm, as I'm indy.

Ulairi's picture
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Joined: 2011-11-17

I work for a wire and they'll give you minimal marketing support, if you're lucky and your branch manager is in a good mood.  I'd also add that I was a CPA for one of the big four and I had friends leave to start their own firm and they did cold call, a lot of tax guys cold call to get clients.

FranzFerdinand8's picture
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Joined: 2007-03-16

You ask why we do it, and then tell us why it doesn't work? lulz.. How would you know if you're not in the industry? As I said in my original post, I am not saying cold calling doesn't work at all.  It obviously does work to some degree, just as going door to door would.  (I suppose Edward Jones actual does that.)  What I am saying is that it appears to be a very time inefficient way of building a business, and appears to be one that has been largely abandoned by other industries.  This is what I am attempting to understand better, why this industry has such a different business model from most others?Why the wirehouses would continue to employ a model with such a high failure rate? I have to think the turnover for them is costly.  

All The Way's picture
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Joined: 2011-09-20

I do it because I'm 12 months away from earning 500K a year, not sitting around for either things to happen or to get a wage increase of CPI +1%.......and if you're calling from a good firm, it elevates your image and the prospects tend to listen....bottom line....it works....to each his own. /it's a crazy business model, I'll give you that.....not for the thin skinned.All The Way

dashover's picture
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Joined: 2009-10-07

 People can't remember what they had for lunch yesterday...So while a mildly aggressive, intruding, cold call which determines interest,need, and whether assistance would sincerely help is initially tacky...They will probably not remember how the relationship started...and long term can be very constructive for the client.I have numerous 20 year clients, who have entrusted me with their life savings (in the millions), and who have done very nicely with their investments, and it all started with a lowly cold call.As an advisor becomes more advanced, they can rely more on referals, but they are occasional, and the cold call is always available.Yes, I am a big fan of the cold call done right...Get Their interestPropose an interesting idea , leading to face to face meetings if possible,and most important, Size them as to assets of over $250k at a minimum but preferably $1,000,000 at least...Money is like milk, Cows don't give milk, you have to take the milk... (Dashover) My 2c Growsavings All the links I use daily ...p.s. People are generally lazy, They like to be told what to do , not what to think.They don't want to think about these investing issues, They want someone, who has their best interests in mind, to handle all of that for them... YOU!      

BondGuy's picture
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Joined: 2006-09-21

I wish i had a marketing department giving me leads. Your naivety is irritating. You have passed judgement on something you know nothing about. Let's get the time frame and history of cold calling down. Cold calling started in the late sixties-early seventies.  Prior to that time brokerages only hired those who were wired into money. These brokers were required to put the touch on every family member and friend they could get their manicured fingers on. Biff was given the accounts of every club member dear old dad could extort into giving him business. It was all very , well, clubby!!! Enter the cold caller. Martin Shafiroff was a Lehman guy who, without the blue blooded lineage to fall back on, decided to call rich folks and offer them the "Opportunity" to work with the best minds on Wall Street. Did it work? Well Shafiroff amassed a book of over 10 billion dollars in assets. Compare that to today's average top quintile Merril Lynch guy with 70 million in assets to manage. Most of those ML guys have gone the "We are professionals we don't cold call" route. As for us cold callers, I started with 5 guys in this biz. Today, our assets range from 300 million to 2.5 billion. We all bring home over a million dollars a year in income, with some bringing multiples of that.   We all started broke and with nothing. We are all cold callers. It is all we know. Obviously we have something of value to offer, because nobody hands you those kinds of paychecks for being lousy at what you do. Make no mistake, those paychecks come by way of satisfied clients. That said, anyone can do what we did. Which explains why it is still being done in this age of social media. Look at the numbers. For effort expended would you rather be the Merril guy making $350k a year or one of us making over a million dollars a year? The choice is yours. How hard do you want to work?Amazingly, though it is so unprofessional, it works. The richest, the most powerful, and the smartest investors in the country all have gladly given us their money on nothing more than a phone call. But, that said, if you want to get your ace marketing department write us a White Paper, hey, we are open to all the help we can get.  

dashover's picture
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Joined: 2009-10-07

BondGuy Kudos,If you sincerely have built your practice to that level, wow!I need to go back and reread your posts!I am a bit under 100 Million and trying to double it over the next 5 years.I am using the approach of getting interest and then trying to stop by and embarking on the 3 meeting approach...In my early days I called with muni's and tried to jam 10 bonds down their throats and worry about the future later.Are you still calling to sell something on the first call or do you combine some initiial meetings?I'd love to hear your 2012 Cold calling Mandate.Gratefully!Dash     

All The Way's picture
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Joined: 2011-09-20

Bond Guy,Once again......good post, I also know guys who are making good dosh all from cold calling and  a guy, doing 1 million...he's my mentor and it does work.I look at where I got myself to and where it's going and truly kinda deep down hope that a lot of the tourist in this business don't pick up on the colds and go the other route so as to not firebomb areas I'm calling into to.....but to those who are looking to build a good book, while adding and providing value service, and don't have the contacts....please...pick up the phone, a few years from now......you'll be looking at yourself in the mirror, saying......well done. Who's Biff?

All The Way's picture
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Joined: 2011-09-20

Dash,A quick message to you. always enjoy your post and salute you on , not only your success...but your drive to keep it going.These are the best posts, guys like you so keep us posted. Very good.All The Way

FranzFerdinand8's picture
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Joined: 2007-03-16

BondGuy wrote:I wish i had a marketing department giving me leads. Your naivety is irritating. You have passed judgement on something you know nothing about. BondGuy, my deepest apologies to you for being so naive and irritating.   Congrats on all your success, that is truly impressive.  While you have enjoyed success cold calling, from my anecdotal experience talking to people who attempted the business at different firms is that  the vast majority of new entrants fail to build a business cold calling. The minority that do succeed have natural markets like Biff in your example.  No doubt the people who fail are nowhere near as good as you are, but I wanted to get at why the wirehouse firms (who are publicly traded) continue to operate using this model as it doesn't appear to be profitable from their perspective to pay all of these base salaries to trainees and training expenses only to have most of these people fail.    

KingBobby's picture
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Joined: 2011-10-03

FranzFerdinand8 wrote:BondGuy wrote:I wish i had a marketing department giving me leads. Your naivety is irritating. You have passed judgement on something you know nothing about. BondGuy, my deepest apologies to you for being so naive and irritating.   Congrats on all your success, that is truly impressive.  While you have enjoyed success cold calling, from my anecdotal experience talking to people who attempted the business at different firms is that  the vast majority of new entrants fail to build a business cold calling. The minority that do succeed have natural markets like Biff in your example.  No doubt the people who fail are nowhere near as good as you are, but I wanted to get at why the wirehouse firms (who are publicly traded) continue to operate using this model as it doesn't appear to be profitable from their perspective to pay all of these base salaries to trainees and training expenses only to have most of these people fail.    

Franz, I know it's controversial, but wires aren't exactly crying the blues when they lose trainees. Think about it, they're no longer paying their salaries, yet they still keep all the assets they may have brought in. ;)

Also, I don't think cold calling is their 'business model'. They seem do try many avenues, and when I first started talking to wires they wanted to know about my natural market, friends, family, business contacts, and wanted network activity etc (so I didn't go big wire) I get the feeling that they don't necessarily teach cold calling effectively. Also, yes, as far as conversion ratio, the numbers don't appear efficient..but the results are. And, its very low cost, produces immediate results, and allows advisors/brokers to be honest about their intentions. :)

Ulairi's picture
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Joined: 2011-11-17

I work at a wire and our new director built his business cold calling in the atlanta area so he is big on it. Which is great because he's giving us lists and people to dial.

TheMachine's picture
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Joined: 2011-06-30

The bottom line is cold calling still works and is the fastest way to earn business outside of being well connected. Thanks to gents such as BondGuy and All the Way for encouraging and useful replies/posts.

ECD's picture
ECD
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Joined: 2011-07-13

Great post BondGuy, but why all the Merrill hatred man? 

bmp135's picture
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Joined: 2011-10-26

Fundamentally speaking, new business will be a function of the number of contacts you make times the value of the assets that the contacts have. Fundamentally, the more contacts you make and the higher the asset level; the greater success you will have. The faster you make contacts the sooner money will be made.Whether you name it cold calling, seminars, door knocking, networking, etc. the simple question is what is the fastest way to have these conversations to drive new business? My thinking is you can have the conversations immediately (by telephone), or back in to them over time (seminars, networking). The smarter way to START out is to call because new contacts need to be established. Then implement seminars etc., as The Judge lays out.The variable then is: who to call? What to offer? Who to call is an avoidance question because the Unites States is filled with prospects. The call must be made to the prospects though. What to offer? Something of value. It is your job to figure out how to offer value via a conversation with a cold prospect. The more value you can offer a prospect, the greater the chance that they will buy something. Have 50 conversations a day with prospects you think might have interest. 99% of them will say no; but not 100%.  

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Charlie Sheen's picture
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Joined: 2012-05-30

Franz... This sales gig is unlike any other industry. First of all it is highly regulated and the FAs in the big leagues are knee deep in compliance..social media, internet, etc will never get past compliance at most firms. Secondly, even if you could do those things it wouldn't work.  The product or service FAs offer dont give you instant gratification. You can't hold it, smell it or make love to it. It is really a concept that may or may not pay off in the future. The money that they are "investing" is money they could have used on a new car or hookers which would give them definite gratification although it may be short lived esp. in the case of the latter.To get clients to fork over their hard earned money into solutions that take time to pay off an  varying amounts of risk requires personal contact and appealing to the person's Greed/Fear. Nothing can replace human interaction to do that. It is what the whole industry relies on to get money from your pocket into "Wallstreet".

spike101x's picture
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Joined: 2012-02-09

I'll say in large advisory firms cold calling is difficult. You aren't provided lists you have to buy them out of pocket from possibly unreputable sources. Scrub them and lose 90% of what you purchased. Hopefully the list company replaces them, but they may not. No one in this business walks in off the street and says "I want to invest!" So you constantly have to go out there and bring people in. I started my business cold calling business owners, because their numbers were easily acessable (free) and there is no business DNC. I've had limited sucess. Largely due to the firms $250m minimum. Business owners is a dead area unless you are in a large city with many LARGE businesses. Most business owners just re-invest in their business and take out what they need to live on. As Charlie said social media is basically prohibited. So how MOST advisors make it in this business, today, is having a large natural market and being connected to money. Just like it was in the "olden" days. If cold calling was as widely used as you claim you'd be denying 5 calls a day like back in the 90s.

KingBobby's picture
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Joined: 2011-10-03

^^ The only hurdle that you brought up that makes any sense is the 250k minimum to get the account. That sucks. Other than that,there's plenty of small business owners that are millionaires.. call out of your city (if it's truly that small) and slip em a bond/fund/annuity offer. If 49 out of 50 say they're investing it all back in their business, you're cool with that, if you're playing the numbers.

sylkron's picture
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Joined: 2012-08-08

I believe that Edward Jones uses 1950s sales and marketing strategies as a device to lull "regular folks" into the nostalgic sense that its quaint little storefront offices (called "nonthreatening" by the Harvard Business Review) and unassuming, ordinary "advisors" can be entrusted with their nest eggs, whereas those fancy-pants guys in the metro high rises would make them feel anxious and insecure. Jones' genius, of course, is that it conveniently fails to mention its exorbitant fees. I have just posted the first in a five-part series on the Edward Jones empire at kronstantinople.blogspot.com.

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