From the September 2014 issue of Investment Advisor • Subscribe!

Investing in Yourself

Successful advisory businesses need a strong foundation

To build their firms, advisors need to start with strong foundations. (Illustration: © Sanford/Agliolo/Corbis) To build their firms, advisors need to start with strong foundations. (Illustration: © Sanford/Agliolo/Corbis)

In our work with independent advisory firms, we have always stressed the importance of creating a solid foundation upon which to build a successful business. Yet the vast majority of owner-advisors who come to us don't see this bigger picture. Instead, they’re looking for a quick solution for whatever they perceive to be their immediate problem: slow growth, advisor recruiting, employee turnover, work overload, the need for a succession plan, etc.

For many years, we would try to convince our clients and prospective clients that what they were viewing as problems were actually symptoms of a larger problem: the lack of a firm-wide foundation that would maximize the contributions of all employees—and owners—while creating opportunities for growth.

We found that only about half of the firms we worked with took this advice and got to work overhauling their businesses: They have become our most successful clients. With the other half, we adopted a strategy of addressing their immediate concerns in the hope that, as our relationships developed, these firm owners would begin to listen to us and undertake the larger changes necessary to take their businesses to the next level and beyond.

While this approach did work with some clients, over time we’ve realized that over all it was a mistake. For one thing, most of these firms worked on their foundations only half-heartedly, lacking the commitment to successfully change the way they did business, which limited their success.

More importantly, with the advisors who wanted only one solution, we found that we were constantly backpedaling to fix problems created by the new solutions: under-capacity, over-capacity, under-trained employees, employees in the wrong jobs, poor client service, unprofitable clients, antiquated technology, owner burnout, employee burnout, high employee turnover, low prospect close ratios, etc. We realized that if we just built a good foundation first, solving their problems would have been much, much easier—and virtually all of these other problems would never arise.

What's more, in recent years we’ve realized a more troubling problem with these firms. Without a good business foundation, it's very difficult to make a smaller change work successfully, and bigger changes are even more problematic. As it turns out, things like organizational structures, recruiting, training, compensation plans, marketing, client service, advisory boards, M&A strategies and succession plans all depend on a solid business foundation to succeed. Even the client “perks” that we wrote about in our March 7 blog (see “The Big Secret to Getting Client Referrals) work better when you have a good foundation. Without that, it's almost impossible for advisory firms to reach their goals.

To help you build a good foundation for your advisory firm, here are the four steps we use with our clients. Keep in mind that the order of these steps is the key: Each phase needs to be in place to successfully implement the next phase. Building them out of order is much more difficult and, way more often than not, creates more problems down the road. Taking them in order, one at a time, may seem as if it will take longer, but in our (sometimes painful) experience, it will get you where you want to go faster, and may take you farther than you thought possible.

Phase 1: The Foundation Vision

This is something that owner-advisors can do themselves or, if you’re the kind of person who needs a bit of structure and motivation, in a workshop, an online program or simply a printed Q&A assessment. Ironically, it's very hard to get advisors to do this first (even the E-Myth doesn't provide the details of the foundation vision, only the categories), even though it has to be the first step for owners of advisory firms of every size.

The reason the vision is so important is that it clearly sets out where you want your firm to go and the tools you have on hand to help you get there. We find it's best to start with your vision for your firm, which is what you want your firm to be:

  • What's your overall mission (that is, what is it that you’re ultimately trying to do for your clients)?

  • What are your core values?

  • What values do you expect of all employees?

  • What do you want your corporate culture to be?

  • What do you want your working environment to be?

  • Who are your ideal clients?

  • What services do you want to provide to them?

  • How do you want them to pay for those services?

  • How are you going to get those clients?

  • Who is on your current leadership team that is going to help you achieve your vision? Who's missing? And, how do you plan to organize them (owners, employees, contractors, board of advisors, etc.)?

Phase 2: The Foundation Plan and Infrastructure

Once you know where you want to go, it's much easier to think about how you are going to get there. We like to start with finances, as they usually dictate what next steps are possible. You’d think that financial advisors would have good financial management, but sadly, that's often not the case. So we have to be sure that we have a handle on the firm's cash flow and its prospects for the near future. Then we look at human capital: assessing who's on the team and whether they fit the firm's vision and are in the right jobs. After that, we tackle operations, assessing current efficiency, and the firm's current technology, noting where upgrades need to be made. Next, we tackle marketing: assessing the firm's brand, messaging, collateral, website and multimedia efforts.

Finally, we look at the firm's leadership, specifically how it handles stress, time management and employee accountability. To pull all this info together, we combine all of our assessments into a plan for using the firm's resources to take the next few steps toward realizing the firm's vision.

Phase 3: The Foundation Implementation

Now we’re finally to the point where we start doing something to make the firm owner's vision a reality. Typically, this involves recruiting to improve the team; creating an ops manual (detailing the processes and procedures for every service the firm provides to every client); training to maximize each employee's contribution; upgrading technology; launching the marketing efforts, which usually include a program to increase referrals, public speaking and some client/prospect events; and working with leadership to increase their effectiveness.

If you take only take one thing away from this article, make sure it's that you don't start with this step.

Phase 4: The Foundation Innovation

This is the point where all the patient groundwork to build a solid foundation really starts to pay off. Many firms seem to go collectively on auto-pilot, with new employees boosting productivity; new client services and marketing attracting new clients; and employees at all levels taking initiative to contribute to the success of the programs implemented in Phase 3. Owners and senior management also typically find that they have more time—and increased motivation—to think about ways to build the firm including new client services, new client markets, programs for training new lead advisors and new firm owners, succession plans and even acquisitions.

I’m sure it seems as if it will take a while to get your firm on the path to greater success and you’re right—it's not an overnight fix. Still, my experience tells me that you’re probably not talking about your first “quick fix”: that you’ve probably been down this road one or two or eight times before. At some point, you have to ask yourself, “How's the quick-fix thing working out for me so far?” It's tempting to think that the right fix is just around the corner, but if it were that simple, you and thousands of other advisors would have stumbled onto it by now.

Most independent advisory firms started out as independent jobs with a bit of clerical help and grew from day to day. There's nothing wrong with that model, as long as you don't want your firm to get any bigger than you can run out of your hip pocket. But if you want a larger firm, you’ll need the help of people just as capable as yourself, and you’ll need a foundation bigger than yourself to support them. That will take a bit of an investment—mostly an investment of time—but the last time I checked, you were in the investment business.

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