In this column, I will review part of our business-our "small account solution," which is one of our companies: TMG Investment Advisory Company, or TMGIAC for short. We're going to discuss something wrong with it-quite wrong, according to my staff.
TMGIAC was developed around an idea I had in 2006. In my March 2008 column, I talked about "dividing and conquering" your market and matching your business model to your client base. I discussed our solution to market segmentation, which was to implement TMGIAC. I thought then, and still do, that my model could be successful-but our self-analysis proved otherwise.
MORE THAN A BAND-AID
Growth has a funny way of stressing an organization. A few more clients and wham-you need more staff, more technology and lots more time to serve them. Eighteen months after forming TMGIAC, we went from zero to 40 clients with no marketing. By the end of 2008, we had over 60 clients.
Some original TMGIAC clients are now larger than the smallest clients in our big firm. Two graduated from the small to the large firm, but most clients remain stuck in the small firm.
We offer the same investment program to those in the smaller firm, but unbundle all planning and other services. So the only regular contact we have with clients is an investment review.
I say "we," but the only person serving the clients is our director of operations, an individual with years of portfolio management experience. Although he's bright, articulate and has spent over a decade with our firm, he's not a CFP. Not a problem, I figured, because we aren't offering financial planning.
A couple of years into running TMGIAC, however, difficulties began to appear. Clients ask you questions on a wide range of topics, and while professionals aren't compelled to answer stuff they don't know anything about, the propensity of Type-A achievers is to do whatever it takes to help clients; thus, they provide an answer. Once you start providing answers, you've expanded your service offering to that client.
Some of our smaller legacy clients for whom we had provided planning in the big firm moved to the small firm as a result of substantial reductions in their portfolios. Several of these clients expected some level of planning advice-without paying for it.
I thought I had a fix by offering a "planning lite" service to all TMGIAC clients for a modest fee. I let a CFP candidate interning with us and our director of operations handle developing the planning offering and marketing it to clients. Surprisingly, only a few clients said they were interested. We attributed this low response to two issues: a lack of effective marketing and an unwillingness to pay separately for planning services when invested assets average only $250,000. My "fix" didn't fix anything, so I let the idea drop.
Other issues surfaced. The professional staff in the big firm, all CFPs, were concerned that we were providing investment management to TMGIAC clients without a complete understanding of their financial situation. Our service is not in violation of any federal or state statute, CFP Board or SEC code or regulation. That much I'm sure of, because we passed SEC and CEFEX audits on both firms with flying colors.
The staff, however, felt this offering was somehow increasing our professional liability. I disagreed, based on my analysis of each client's holdings and my understanding of his or her financial situation. But there clearly was a divergence in opinion as to what services we should provide to the larger TMGIAC clients.
Other cracks in the system appeared. Data on the TMGIAC clients is purposefully not available to the planners in the big company. However, from time to time our planners have to deal with TMGIAC clients. Why? Because many TMGIAC clients are children of TMG clients, and their parents ask us to do something for the kids.
In my May column, I discussed how the overall system in which we operate may unintentionally affect our business actions. TMGIAC is a perfect example of unintended consequences.