From the March 2016 issue of Investment Advisor • Subscribe!

The 4 Styles of Advisor Leadership

A successful firm needs a leader who can play to his or her own strengths

Firms are more successful when their leaders play to their strengths. (Illustration: Ikon Images/Corbis) Firms are more successful when their leaders play to their strengths. (Illustration: Ikon Images/Corbis)

In my Jan. 28 blog for ThinkAdvisor.com, “How to Make Owner-Advisors’ Lives Less Lonely at the Top,” I talked about the challenges that many owner-advisors face as their firms grow and they transition from primary revenue generator to CEO. We find that many owners have a hard time coming to grips with the reality that as their businesses get larger, their success increasingly depends on their employees — and decreasingly on their own actions.

To add value in this new role, owners have to shift their focus from being the “star” to supporting the success of their partners and employees. In that blog, I detailed some of the ways that CEOs can succeed in this new job: providing the right tools and training, creating a culture of teamwork, offering motivating compensation packages and really listening to employees, both about the challenges, needs and opportunities of their specific jobs, and about their goals and dreams so they can help them get there.

But to truly add value as a firm CEO, or majority owner, advisors need to become leaders — the person who sets the direction in which the firm is heading and inspires everyone in the firm to work toward that vision. In our experience, we’ve found there are many paths an owner-advisor can take to fill this role. However, CEOs must choose the management style that's right for them — that truly fits their personality and their nature — and fill other key roles with people who fit into them as well.

Here's a list of different management styles that we’ve seen work for advisory firm leaders.

The Visionary

In our experience, nine out of 10 advisors who have started their own independent firm consider themselves to be a visionary. I don't mean to be harsh here, but the simple fact is that most of them aren't. Launching a business that offers essentially the same services to the same target market as thousands of other existing firms is not a “vision.” Now, I’m not downplaying the courage and determination it takes to start your own business: been there, done that. But that doesn't make us visionaries, it makes us entrepreneurs.

Real visionaries see opportunities that other people haven't and create businesses to fill that need. They hate routine and being managed. They are constantly looking for what's new, better and sometimes just different. They adore discussion and debate. Visionaries are also comfortable with ambiguity and like taking risks. They like to try new things and tend to trust their own judgment. And they aren't wedded to past decisions: If something isn't working out, they are usually willing to pull the plug.

While they have to be careful about acting rashly, visionaries are usually passionate about the benefit of the whole, focusing on ideas that will benefit the entire team. Their strength is listening to ideas from everyone in the firm, but they have to be careful not to assume knowledge about areas where they no longer have direct experiences.

Visionaries’ drive to make things better can improve firms of any size, but their aversion to routine can make them feel frustrated in smaller firms. Their ideal position is with large firms that want to grow even bigger.

Here are some examples of notable visionaries: Bill Gates and Paul Allen creating the first desktop computers. (When they pitched t

heir idea to then IBM chairman Tom Watson, he famously replied, “Business executives will never want to have computers on their desks.” A classic example of “lack of vision.”)

Other visionaries include Steve Jobs and Steve Wozniak, and their user-friendly computer desktop; and the creation of Facebook by Mark Zuckerberg. In the financial world, we might include Fidelity Investment's Ned Johnson and the launch of money market funds back in the early 1970s; John Bogle and Vanguard's low-cost investment funds; the founders of NAPFA, who created “fee-only financial planning” in the early 1980s; and Schwab Advisor Services and the automatic deduction of asset management fees in the late ’80s. Launching an independent advisory firm within the past 20 years? Not so much. (Yes, it's true that all advisory firms need a “vision” for their future, but that still doesn't make owner-advisors into Michael Bloombergs.)

With that said, even if you’re not a visionary, there are plenty of other ways to lead a successful advisory firm.

The Operator

These are people who are “action-oriented.” They are focused on getting things done, and are comfortable improvising or using unconventional solutions to solve the problem at hand. When they have solved it, they move on to the next problem. These folks often work prodigious hours and expect the same from those around them. They lead by example, tending to push themselves as hard as they do everyone else. They are often comfortable working alone and abhor being micromanaged. They are the kind of people who would rather ask for forgiveness if things don't work out, than first seek permission to act in the way they see fit.

Operators’ strength as leaders is that they tend to give their employees the same latitude that they prefer. They don't micromanage and are more forgiving of employees who try and fail than they are of those who don't try at all.

Operators tend to do well in smaller firms that require their constant energy. As firms grow, and they transition into management roles and eventually to CEO, operators can become bored without hands-on involvement. Consequently, they are often happier to promote another partner into the CEO position, while retaining a more hands-on job for themselves such as rainmaker, new business development or even acquisition of other firms.

The Processor

These folks are classic managers. They value routine, trust data, are wary of intuition and hunches, prefer not be to rushed, tend toward the status quo and dislike risk. Their strength is their consistency: Their employees know exactly what to expect and what is expected of them. Because they are risk-averse, they recognize potential problems and take steps to avoid or manage risks.

Processors excel in mid-sized firms that have found a successful formula and can grow by continuing to apply it consistently. When the firm's business model finally reaches a plateau, most processors are happy to keep on doing what they have always done. Those owners who do want more growth usually step aside into one of the service roles — portfolio management or working with key clients — and turn over the CEO role to a more visionary partner.

The Synergist

These are “people” people. They like the company of others, tend to be comfortable in group environments, have a high degree of emotional intelligence, read people well, build strong relationships and understand group dynamics. These advisors tend to succeed through strength of personality — people like them and like working for them. They build consensus for their own ideas, listen to their employees and are quick to recognize their good ideas as well. Consequently, they create a strong sense of teamwork, and keep everyone working together toward the same goals.

Of these four leadership types — visionary, operator, processor and synergist — only the people-oriented skill set of synergists is generally considered to be “learned”; the other three styles appear to be natural inclinations. Consequently, we find that owner-advisors who fall into those types are much more successful when they recognize their type, so they can take advantage of their strengths and surround themselves with professionals who complement their weaknesses.

Doing this requires a very different mindset from what it took to launch one's firm, and to grow it to the point at which firm employees become more than a supporting cast for the owner. Of course, many advisors (the majority, as far as we can tell) don't want to grow their firms beyond this point: They are both comfortable and happy in their role as primary revenue source, and with its implications for their income and the eventual selling value of their firm.

But owner-advisors who find the benefits of a larger firm attractive — financially, professionally, culturally — need to decide what role they want to play in a larger firm, and create their new firm accordingly. We’ve found that one of the universal truths in the independent advisory business is that the larger the firm, the greater the need for good leadership. To fill that role, owners need to go with their strengths and the strengths of everyone around them.

--- Read "You’re the Owner, So Own Up" on ThinkAdvisor.

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