From the April 2014 issue of Investment Advisor • Subscribe!

The Single Most Important Factor for Improving Your Firm’s Performance

The key to a successful advisory firm is making one key change at a time

Key to advisors' success is focusing on goals that will take them to their targets. Key to advisors' success is focusing on goals that will take them to their targets.

It seems to be human nature. We’ll go along, avoiding a problem or challenge—in our personal lives, our health, our relationships or our business life—until one day we just can't ignore it anymore, so we decide to “do something.”

If it's a big problem, we’ll often seek professional help. Then, in our new-found zeal to solve the problem, we’ll launch a full attack on all fronts: stop smoking, go on a diet, buy a new wardrobe, find a new job, move to a new apartment, etc.

This behavior (often borne out of more than a little unexpressed insecurity about our ability to get the result we want) is what psychologists call “setting ourselves up to fail”: attempting to make so many big changes at once that our likelihood of succeeding at all or any one of them is very low.

In the independent advisory business, we often see advisors setting themselves up to fail. They’ve built their firm with some ideas but without real goals and, not surprisingly, without sustained success. In a moment of clarity, they realize they need some help and come to us to solve their problem, whether it's low growth, high turnover or long hours. In their zeal to fix the problem, they want to do everything at once.

Too many goals sets them up to fail for two reasons: It puts too much stress on the owner and staff, and no one can successfully make too many big changes at one time. When we try to talk them out of taking this path to self-destruction, owner-advisors often become quite belligerent, argumentative and sometimes even verbally abusive—and we’ve lost a few new clients this way.

Ironically, we’ve found that not only does making one major change at a time lead to a much higher rate of success, in the advisory business often one change is the key that makes all the other changes much easier, actually shortening the time required for the whole process and greatly improving the end result.

The first step in an advisory firm makeover is getting the firm owners and everyone else involved to understand the difference between “goals” and “targets,” which enables them to focus on the process rather than the results. Golf is a good example for this distinction: Your ultimate target is probably shooting a lower score, but if you go out on the course thinking about shooting a low score, you will 10 times out of 10 achieve the opposite result. To score in golf, your goal must be to hit the ball properly every time (solidly, in the right direction, at the right trajectory, with the right firmness and with the right spin). If you can do that, you’ll reach your target of scoring low without even thinking about it—and you’ll have a lot more fun.

In an advisory business, the key to success is to focus on the goals that will result in reaching your targets, then work on achieving each of those goals one at time. When we ask advisors to tell us what their goals are for their firm, they usually say things like increasing revenues, attracting the right clients, getting more of existing clients’ assets, hiring more advisors or increasing firm capacity and efficiency. While each of these is worthwhile, they are targets, not goals. They are the results, not the causes. When properly measured, they will tell us when we’ve achieved success, but they don't tell us how to get there.

To create a road map, we start by having our firm owners set targets, usually both short-term and long-term, based on their personal goals and the kind of firm they want to build. But we ask them not to think about those targets, except at preset intervals (usually annually or semi-annually) to gauge their progress. Then, we work with owner-advisors to create a list of all the changes that they need to make in their firms to reach all of their targets.

Next, we group those changes into one of six areas: client services, marketing (attracting more clients or assets), sales (making prospects into clients), human capital, operational processes and procedures, and firm leadership and succession. To focus our efforts, we look for the category where changes will have the biggest impact and ask the owner, “If you could change just one thing in this area, what would it be?” The answer determines the goal for that category to make those changes.

Finally, we start working on that goal. This enables us to focus our full attention on making the change that will have the biggest impact on a firm—and because all areas of an advisory firm are connected, once we successfully complete those changes, improving the other areas becomes much easier.

Easier Said Than Done

Of course, determining that one goal and getting owner-advisors to focus on it is easier said than done. Here's an example: Firm growth is an area that firm owners often feel would have the most impact on their targets. When a firm has flat growth, advisors often think their focus should be on improving their employees or their marketing plan, but experience has taught us that those are almost never the solutions.

Instead, we’ve found the problem usually lies in the sales process. The solution, in that case, is to get a firm's close ratio up. We’ve tested different approaches over the years, and have found that a three-meeting process is best. In the first client meeting, we talk about how the firm takes care of its clients and what services it offers to do so; in the second meeting, we talk about the prospect's situation and goals; and in the third meeting, we present our plan for how to help the prospects meet their goals and sign them up as clients.

We find that three meetings provides enough time to convey what an advisory firm is really about and gives the clients enough attention so that they don't feel they are being sold. It's also important that every person in the firm understands the sales process: what needs to happen and their role in the process. When everything comes together, it can dramatically increase a firm's closing ratio, which reduces the number of new prospects the firm needs to bring in the door and almost always solves the growth problem.

Once that happens, all of a sudden many other things within the firm get better and many of the owner's targets are met. By attracting more clients with less marketing effort, the firm has more resources to service each client better, which increases client retention and referrals. With more clients, the career path for young advisors becomes more tangible, and they more quickly get the experience they need to become senior advisors and eventually firm owners, which solves the succession problem. There are also more resources to hire support staff, making the advisors more productive. The firm can be more choosey about the clients it takes, too, creating even more efficiencies and economies of scale.

In our experience, every firm has that “one change” it should be focusing on that will make the next change much easier or even moot, and it starts a chain reaction of successful results. The key is to find that change and focus on it—and only it. We find that even when we identify a firm's one change and convince the owners to focus on it, they eventually get dissatisfied. Sometimes it takes all of our powers of persuasion to get them to stay the course, but we find that if they can just see the first big change through to a successful conclusion—whether it's the close ratio, adding another advisor, creating a process for operations, whatever—and they can see the effects of that change on the whole firm, then they get it. Making the next big change becomes easier and easier, as does the firm's success.

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