In the recent post for the OIC Advisor White Paper, “Tales From the Front,” we?reviewed?the sections, TYPICAL OPTIONS CLIENT and HOW THEY TALK TO CLIENTS ABOUT OPTIONS.?
For this fourth part, we’ll look at?HOW THEY MAKE TIME FOR OPTIONS and?
HOW OPTIONS HAVE BENEFITED THEIR PRACTICES.
HOW THEY MAKE TIME FOR OPTIONS
All of the advisors OIC interviewed acknowledged that including options in their practice took time. The greatest investment was at the beginning when they were bringing clients on board with the concept, understanding how the back office operated, and determining the strategies they would employ.
Over time it got easier. At least half of the advisors had a partner who shared the responsibilities, or someone on their staff who handled the back office, or did the initial options screening. Some turned to their options desk for help. All agreed that whatever the time and effort, it was worth it.
- ?Selling the idea of options is hard, but it can be worth it and like many things, once you become more knowledgeable and know what you?re doing it does become easier. But there?s no question that there?s a hurdle in getting yourself up and over and really, the purpose of this white paper is to say here?s how to make things easier or here?s why it?s worth the trouble to do it.?
- ?I think it?s important that we find the time. Yes, we?re all busy, but if it?s something that?s going to help the client why not take the time to do it, or hire somebody for your firm to do. If you think it?s something that your clients should own, aren?t you doing them a disservice by not having that option available to them??
- ?I?m not certain that if I was in this by myself I could do the investment plus the planning and management. I don?t think that I could in good conscience have as high a percentage of my practice using options without being on a team. If you find the right tools out there too, that?s incredibly helpful.?
- ?It helps to have the right business model. I think having the ability of using discretionary fee-based accounts is the greatest operational leverage there is for us. If we can get in and out of one stock in a day, we can do 200,000 shares of stock in 200 accounts in a minute and not have to make 200 phone calls to get 200 clients to say yes or no.?
- ?Well that?s the thing, it isn?t easy. At the beginning it?s hard, because you do have to do the calculations, you do have to go out and search for the best strike prices or whatever, and then you have to think about each individual client and what makes sense for them and their tax situation?and which accounts, so no, it?s not easy, but it?s the right thing to do. And when you?re doing the right thing for your client, that?s fun.?
HOW OPTIONS HAVE BENEFITED THEIR PRACTICES
Asked how options had benefited their practices almost all the advisors said it had helped differentiate them in the marketplace, strengthen client relationships and attract business. With so many high net worth clients having multiple advisor relationships (a recent Cerulli study found 70% have relationships with more than one advisor) the need for differentiation has never been greater.
- ?I need to stand out to clients and add value and have an interesting and different strategy that?s not the firm?s discretionary model that the firm is running for all the advisors. I want to go out and build my business with high net worth individuals who are much more astute investors but who do not necessarily want more risk. I think this is the strategy that will make me look different from the average broker.?
- ?I feel like I am an extremely specialized individual, in a world of commoditization, which is to me investment management. That?s what I was taught: buy some mutual funds, charge a 1% fee, rebalance them annually, re-allocate, modern portfolio theory, blah blah blah. That?s what they teach everybody. Through options, and the stock market, I have decided that I no longer believe in asset allocation and that I don?t believe in modern portfolio theory. I do to a degree, but when push comes to shove, when there?s stress on the system, everything can fail.?
- ?I think options give you a more unique value message. Let?s say you have a high net worth prospect who is evaluating advisors, and you are the advisor that is comfortable with options. Maybe you?re just really comfortable with one strategy. But if you?re that person, you would set yourself apart.?
- ?Options weren?t a strategy that was available in the firm that I transferred from. Now that I?ve moved I can differentiate myself by offering them. I can go back to the same clients and say, ?hey, by the way, all the things I was doing before I can still do, but here are some things that I couldn?t do before that I can do now.?
In the past, advisors have said they were concerned about putting client relationships at risk if they offered options, but many of the advisors OIC interviewed said using options strategies in their clients? portfolios had actually strengthened their relationships.
- ?It does change the client relationship and it helps us to help our clients. I think that clients are relieved to know that their advisor is willing to look for whatever strategies may help in any given environment. It?s not that they are necessarily looking at their returns and saying ?yes, I?m doing better than I would if my advisor were not using options. But more I think the feeling is ?wow, that is awesome, you were thinking outside of the box, to try to find strategies that will work in difficult times.??
- ?All I can say is we have a very, very high percentage of clients where we know we have all of their business. I can?t say it?s just because we use options, but I can say that I think it has to do with our willingness to look and evaluate any strategies that may help them. I think the fact that we use them shows our clients that we?re actively managing their?investments and we?re being proactive. It sets us apart and I think that?s what clients are looking for, someone who realizes that we?re not in 2000 anymore or even 2008 anymore. They want somebody who?s proactive and will learn strategies that add value.?
Offering options strategies as part of a comprehensive wealth?management service can separate an advisor from the competition. It not only helps make the advisor a more attractive choice and generates referrals, but enables the advisor to be the chooser?going after the client with whom they want to work.
- ?We actually have a referral program and do a quarterly marketing piece where we let the people providing the referrals know what?s working and what?s not working. We have told them that the options story is working, so when they have a client who is reticent about getting into the market, but needs to at least keep up with inflation those leads typically come to us.?
- ?When you come along with a product like this?let?s say you meet someone who has a couple of million dollars in a single stock position. Sometimes they?re lone wolves, but other times they know a whole bunch of people with the same stock position, so this can be a book-building product. In my case I had one guy with $3 million in UPS stock, and he referred me to $150 million of his buddies. So it became an amazing way to grow the business and if you?re in prospecting, which most FAs are, it?s a great way to prospect?
- ?I think the risk management story and the use of options allows an individual advisor to target the clients he really wants to go after.?