11.15.18
What Winemaking Can Teach Us About the Financial Advice Business
by: Ken Kehrer, Kehrer Bielan Research & Consulting
I recently spent some time with my son-in-law who is studying winemaking in Spain, and I was struck by how applicable his learnings are to financial institutions trying to create a sustainable business that meets the investment services needs of their clients.
Here is a taste of the similarities:
It takes time to be productive. When a vineyard is planted, it doesn’t yield enough quality grapes to make wine for a couple of years, but then the quantity and quality of wine improves year after year. Sound familiar? Kehrer Bielan research on advisor tenure shows us that advisors are slow to ramp up when they first arrive in their assigned branches, but they experience a growth spurt during the third and fourth years. They then increase their production year after year, on average.
It takes an investment. When a vigneron (a person who cultivates wine for winemaking) plants a vine, the vineyard’s profit margin takes a hit, just like what happens to a financial institution when it hires an advisor. But if the vigneron didn’t plant new vines, the vineyard would eventually run out of grapes and not make any profit.
Less is more. Vignerons don’t want the vines to produce a lot of grapes. They prune the vines, don’t irrigate, remove clusters of grapes, etc. The grapes that make it through harvest to pressing are richer and more valuable than a bumper crop. Financial institutions already have learned this lesson, realizing that most of their advisors are trying to serve too many clients. Those advisors can’t spend enough quality time with each client to become the client’s trusted financial advisor. So, financial institutions are trying various ways of pruning advisors’ clients to rightsize their books.
Don’t be in a hurry to turn the vines into a cash cow. The winemaker gives away samples of the new vintages to critics, tastemakers and distributors, attends wine fairs trying to win awards, sponsors wine dinners, etc. The winemaker is trying to build market share. Once the brand is established in the market, the vineyard can begin to enjoy the fruits of profits. Haven’t financial institutions been premature in asking their investment services units to become profit contributors when their investment advice brand is still weak, and their market share is thin?
There are more examples, and I’ll be pleased to share them with you — over a glass of wine.