From the June 2013 issue of Investment Advisor • Subscribe!

May 28, 2013

Key Traits of Successful Practices

Sidebar to "Power in Practice: Wrapping Up"

Like most advisors, Joni Youngwirth is an inveterate searcher of wisdom. The Power in Practice program she runs can be traced, in part, to her desire to find practical ways to apply the insights that have long come from advisor benchmarking studies, particularly the Moss Adams studies.

In a presentation at the Shareholders Service Group conference in San Diego in early May, one of the leading authorities on the commonalities of successful advisors, Philip Palaveev, used his first-hand knowledge of the Moss Adams studies, and of AdvisorOne’s annual Top Wealth Managers study, to explore the “Secrets of the Top Firms.”

Though he likes to joke that a consultant is someone who “borrows your watch to tell you what time it is,” Palaveev, owner and CEO of The Ensemble Practice, modestly said that having consulted to over 1,000 advisory firms, he has learned that “as business people we want to be successful,” but that first “we have to define what ‘success’ means.” Too many of us, he said, get “carried away with business mechanics” like efficiency and profitability, while “forgetting about creating quality of life.” However, it’s not an either/or choice.

He suggested that there are two kinds of advisory firms. The first is a personal practice, which is highly reliant on the owner/principal, who has full control of the firm, no management responsibilities and yields a good quality of life. Unknowingly referring to Power in Practice’s goal of turning a practice into a business, the second type of firm is an advisory business, which uses leverage and has value, and where the principal moves from advisor to CEO, but with some loss of control.

“You don’t have to grow very large,” Palaveev said, but “growth creates opportunity,” and “greater growth leads to greater profits for the owner.” It’s not economies of scale that leads to greater profitability, but leverage in terms of your human capital. “Leverage the client relationship,” and hire junior advisors (“Don’t call them ‘junior,’” he recommended, but “associate” advisors). “The bigger firms are more profitable because they tend to have better, larger clients.”

The biggest secret to the most successful firms? “They’re the most attractive employer” in their local markets, so they can hire better people. “The more talented your players, the better your chances of winning.”

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