From the November 2005 issue of Investment Advisor • Subscribe!

Wising Up

Before listening to consultants, advisors should listen to themselves

My newest client is one of those advisors who would generally be considered wildly successful. He has more clients then he can handle, manages some $250 million in assets, generates nearly $1.5 million in annual revenue, and brings close to $900,000 to the bottom line. To paraphrase Austin Powers, his colleagues want to be him, and consultants want to help him build an "elite" $5 million practice. But instead of reveling in the success of his model practice, he's absolutely miserable and afraid to admit it--he goes to bed every night tired, worried, and wishing he could turn back the clock and build a very different firm.

After working with him for a few months, I realized the money and the lifestyle that comes from his "success" are irrelevant to him. He doesn't parade around in Armani suits, drive a BMW, or belong to a fancy golf club. No, he does for himself exactly what he does for his clients--saves much of his income for his retirement so that some day he can buy a beach house in Santa Barbara and live comfortably. He wants to help people reach their retirement goals and provide high-touch client service to make sure that happens.

Instead, he works long hours, has no partners, does virtually all the client meetings himself, and although he pays his employees well above industry standards with great benefits and an amazing retirement plan, his growing staff of seven continually fail to meet the goals he sets, exhibit chronically low morale, and regularly demand higher compensation. What's more, the single goal that he strives to achieve--high-touch client service--seems out of reach. He has a company that requires him to be a manager of people rather than an inspiration and guidance counselor for them. In his mind, he's failed.

In dealing with hundreds of financial planning firms, I've noticed this disquieting trend more times than I can count: Advisors becoming disenchanted with their own practices. They get so caught up in growth--which consultants proclaim they must attain to reach "critical mass"--that they forget why they started their business in the first place. Almost always, advisors find themselves owning a firm they dislike or one that no longer motivates them to do their best work. Ironically, the more successful they become, the more unhappy they feel. The solution? Simple: before you create any kind of a strategic plan, determine your own vision of success.

Most consultants would strive to groom my "successful" advisor into a manager of people and develop an organizational structure that would solve his employee problems. But I've found the one-size-fits-all-grow-your-way-out-of-problems solution to small business management rarely works in the long run because it fails to address the real issue: the lack of direction by a business owner who has not found his vision of success.

Without a business owner who's motivated and inspired by his vision of success, problems start to multiply one on top of another: uncommitted, unfocused employees will lack respect for the owner; employees who try to fill the leadership void will constantly bang heads with each other and with the owner, creating high turnover; a chronic lack and misuse of financial resources; and an unhappy owner who becomes burned out, inefficient, tardy or absent for important meetings, procrastinating endlessly, and focusing on petty issues. Such an owner drives employees crazy, and leaves the practice adrift.

In my experience, nearly 95% of firms decide to grow or keep growing, adding more clients, staff, income and assets, yet at least one third of those firm's owners regret growth because of the lifestyle sacrifices growth demands. Managing growth in your business requires knowing exactly what success means to you. No research paper or consultant can tell you what your practice should look like if you don't know where you want to go.

Questions to Define Success

Here are five questions that I use to help advisors find their personal definition of success. If you answer these questions honestly, you will be more prepared to accept help from an objective consultant who can help you build a business that will truly make you happy.

What job do you want? There are two types of planners. There are those who enter the profession for the long-term income potential it offers; and the ones who are driven by the need to help, motivate, and inspire their clients. There is merit in being part of this industry with either of these goals in mind, but whichever you choose will determine the role you play as owner.

If you mostly want the income potential, then you are going to have to step into a manager, strategist, or rainmaking role within your company. Rarely when growing a business with optimal income potential does the owner assume or stay in a comprehensive advisory role working solely with clients. More often an owner will gravitate toward more of a managerial role. In this case, you would spend most of your time prospecting for new clients, inspiring, training, and managing staff, or strategizing about the most effective ways to grow the business you've created. As the business gets larger in terms of assets and more profitable, more of your time will be focused on these activities and less on the business of creating plans or meeting with clients.

On the other hand, if working with clients is what you want, then growing your practice into a larger business is probably not a good option. This is the case with my client, who, instead of growing his practice, needs to scale his firm back to focus on a more manageable number of target clients, with fewer employees offering a limited menu of higher-quality services.

How much control do you want to have? It's a fact that every entrepreneur has control issues: that's why they want to work for themselves. They have a vision, are good at their trade, and want to provide service in the way they believe it should be done. I suspect this is why we have a large number of solo practices in this business, which some consultants may argue are not efficient. While I believe there are benefits in building larger ensemble practices, I don't think we can ignore the fact that many planners just don't want to give up the control they have over their lifestyles, their vision, and their rewards. What's more, they don't want to manage a large staff of people, nor do they want to hire a manager to assume some of it.

I can honestly say that I have worked with more owners of smaller planning businesses who are happy and fulfilled operating at lower profit margins, than satisfied owners of larger firms with high profit margins who have less control. I have seen firsthand what giving up control for higher income potential has done to owners who have been told this is the only way for them to be successful.

What many consultants won't tell you is that if you want to keep control and stay in an advisory position within your company, you would be far more satisfied having a small, focused client niche, providing those services yourself, and limiting your growth to how much money you need to make, than you would be growing to optimal industry standards.

How much do you need to make? I just spent the last two days working with one of my smaller clients, a 43-year-old owner of a planning practice. His vision was to grow his firm from about $400,000 in annual revenue to about $1 million. When I asked him how he had come up with that specific amount, he replied that throughout his financial planning coursework he had calculated how someone could be a millionaire by the time they were 50. In order to achieve that end, he felt he had to grow his business to produce at least $1 million in revenue.

Financial planners spend all their time planning the financial futures of other people but they neglect to focus on their own. Take the time to develop your own financial plan and determine what it is that you need to carry out your own life planning goals and objectives to answer this question.

How much time are you willing to spend? Time management is by far the biggest challenge planners have in their businesses. Inevitably, more productive time spent toward building your business would and should produce greater results. It takes less time to build a small practice because of the flexibility and control you have over your time. More clients, more revenue, and more take-home pay often means more time expended. What is an acceptable level of time that you have to give to something that makes you feel fulfilled? Bigger means more. Smaller means less. You have to choose.

What legacy do you want to leave? Contrary to popular belief, not all business owners want to make the investment to create value in their businesses to sell to fund their retirements. In fact, many of the firms I have worked with view this as an unattainable goal. Therefore, they choose to fund their retirement out of cash flow produced in the business. Which do you want: A business you sell in the end or a business that reaps high rewards throughout? Many business owners don't have any desire to groom successors to whom they can sell their business. While that is not the way I would recommend you do it, there is a lot of merit in just building a business that dissolves when you no longer need its cash flow for your retirement.

Stepping Back So You Can Step Up

Don't get me wrong here. I think consultants can add a tremendous value to planning practices and our research of this industry. However, I am also a firm believer that only one person can define your success: you. Whether you are a business owner or a young planner, I encourage you to disconnect. Shut down your laptop, put the research on the shelf to be reviewed another day, find your favorite chair, and ask yourself, "What does success mean to me?" Then answer it. Tomorrow, start putting that answer into action. Be a better employee. Be a more fulfilled business owner. Be the best you can be based on what you want to be, not what we consultants think you should be. That is by far the most valuable advice I could ever give you.

Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at angieherbers@cox.net.

Reprints Discuss this story
This is where the comments go.