Managing a firm of any size as it grows can be difficult, as many of the speakers at the 2006 Investment Advisor Summit noted, though it can be done, as the most successful firms found through the 2006 Moss Adams Financial Performance Study of Advisory Practices can attest. At the fifth annual Summit, hosted by IA and Moss Adams on November 30 and December 1 in Las Vegas, the major theme was about building and maintaining trusted relationships, and finding and motivating employees and partners, to successfuly deal with growth.
“The typical advisory practice is experiencing growing pains,” remarked Mark Tibergien, a principal at Moss Adams and monthly IA columnist, who presented the salient findings of the 2006 Study as he kicked off the two-day event as the keynote speaker (the Study is the subject of this month’s cover story). Tibergien, like the other speakers, focused on the issue of people in the business–firm founders, prospective employees, and those seeking to acquire an existing firm–and spotlighted the part each plays in the lifecycle of a successful practice. Tibergien cautioned that too many advisors like to revel in their past successes, and highlighted instead the greater potential for success held by advisors who see the present as a catalyst for the future. Moreover, Tibergien warned that the profession faces a “talent shortage crisis” as the advisor population ages–62% of advisors, he pointed out, are over age 55. That crisis may extend to clients, too, since, he said, “clients tend to mirror the age of their advisors.” He also wondered why most advisors’ marketing dollars are misspent. “The greatest amount of advisor revenue comes from existing clients,” he noted, “yet most marketing is directed at new clients.” He also recommended greater use of client surveys to improve customer service and sharpen marketing efforts.
A second major issue that firms face is managing growth. As the advisory business matures, the age gap between principals and their employees is expanding, and advisors are finding it necessary to seek new talent. Angie Herbers, a consultant for independent financial planning firms and a regular Investment Advisor contributor, focused her session on growing a business. Her first piece of advice: make sure you want to grow before you begin to expand. According to Herbers, nearly 80% of firms decide to grow, and about 30% of those firms wish they had not. Furthermore, once you choose to grow, the biggest challenge, as stated by Hebers, is the investment you make in hiring, training, and managing human capital. Philip Palaveev, a senior manager at Moss Adams, spoke about growth and human capital as well, disclosing some of the findings of the 2006 Study. Palaveev revealed that leveraged practices have a higher gross margin, and reiterated the idea that good people are needed to grow a business. Therefore, according to Palaveev, the best way to grow a firm is to develop it internally, using junior staff to leverage advisors. In conjunction with developing the firm, Palaveev’s other concern was that of leadership. “Your ability to lead people and grow future leaders is critical to the success of the firm,” he noted.
In separate sessions, Rebecca Pomering of Moss Adams and IA editor-at-large Bob Clark discussed how to grow–or exit the business–by the buying or selling of a practice. Lincoln Anderson, chief economist of LPL Financial, lent his bullish insights on the markets and the economy in the wake of the mid-term elections and provided forecasts for the New Year–it looks pretty rosy in the short term, he said. As for changes emanating from Washington, Anderson doesn’t expect any substantial policy changes or new legislation to occur until after the ’08 elections.
Taking a different approach to analyzing the business, IA columnist Olivia Mellan explored how to build strong client and colleague relationships from a psychologically savvy standpoint. According to Mellan, there are three typically problematic situations where communication is critical: dealing with a new client who may have been burned by prior experience; when there are gender differences between colleagues/clients; and when the client is a couple. She suggested building bridges of trust and respect with new clients and colleagues and easing couple complaints, helping them resolve their differences by meeting in the middle.
The conference concluded with Tom Giachetti of the securities law firm of Stark & Stark reminding attendees that it’s not nearly enough to have a policies and procedures manual; to make sure it reflects the way you really do business, “read your manual,” he preached, and “don’t dumb down your docs.” That goes as well for advisors’ errors and omissions coverage. “Make sure that it covers what you actually do,” particularly if you recommend or sell investments in alternative investments like hedge funds. That compliance session was followed by a town hall meeting, where the Summit’s “faculty” answered the questions left unasked throughout the previous sessions. Most of the issues presented to the professors revolved around motivating employees, compensation, building career tracks, and when and how to add partners to a firm. Tibergien had the last word on how to build a practice where employees are committed. “You can’t motivate someone,” Tibergien pointed out, “you can only demotivate them.”