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Practice Management > Building Your Business

Ready, Fire, Aim

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With the dramatic growth of the average financial advisory business over the past five years, practitioners are being forced to develop a new skill in order to cope with the changing dynamics of their practice: management. Some advisors choose to hire professional managers while others maintain the position for themselves for fear of giving up control.

Whatever the decision, the key to effective management is to deploy processes and protocols that allow you to monitor how well you are doing. Unfortunately, in most small businesses, owners tend to manage through “seat-of-the-pants” techniques, reacting to circumstances and using their native wiles to evade and avoid catastrophe. But a crisis-management style tends to bleed businesses of their energy and focus. Moreover, managing a financial advisory firm staff this way ultimately leads to a crisis-management style when it comes to client relationships.

While it’s important to dedicate management time and attention to the more rules-based elements of a practice–financial management, operations, compliance–perhaps the biggest reason to build management muscle is to deal with the more abstract and dynamic elements of a practice: human capital. At a time when the average age of advisory firm owners is rising, and the competition for good talent is increasing, elite firms need to dedicate management time and energy to the retention and development of their people.

That said, I’ve found it ironic that individuals who are superior at managing client relationships are often deficient at managing their own staff (and partners). They share a common skills set, one would think. When working with clients, the process is to define goals, identify gaps, coach and influence people to make decisions and take action, and monitor and manage the results. The parallel to working with staff is obvious. Yet, the worst managers try to lead from their position (meaning their rank in the hierarchy); while the best manage through persuasion (meaning helping staff to see the vision and the power and benefit of buying into this vision).

Building Trust, Tearing It Down

The stress of a growing practice–rising costs, compliance pressures, demanding clients–often sucks the energy and patience right out of practitioners, and they have nothing left to give to their staff. The symptoms become apparent: mistrust, hostility, overreaction. The emotions overtake good judgment, and advisors then stop doing personnel evaluations on a timely basis in order to avoid the conflict and anxiety. Or they throw money (raises and discretionary bonuses) at employees as a means of appeasement, certain that buying love should do the trick.

Meanwhile, employees see their relationship teetering if not descending into an abyss. They begin to question the wisdom and ability of their bosses to lead them into the Promised Land. They begin to resent the questions they are being asked, and the tasks they are asked to perform. Like Charlie Brown in the Peanuts cartoon, they see you as Lucy, ready to pull the football away every time they approach to kick it. You build up trust, and then tear it down. One day you show love, and the very next day you show contempt.

How many times do you find yourself uttering the following litany? Why didn’t I just stay small? I did just fine managing myself and not worrying about these prima donnas who don’t have the same work ethic and values that I do anyhow. And man, don’t talk to me about the moms who want alternative work schedules. Or the generation Xers who think they should be my partners!

Self-immolation becomes the modus operandi for the inexperienced and impatient manager. But when you have the epiphany that one very good employee is more valuable than your very best client, it may become less painful and more rewarding to invest the same amount of attention in your people. No doubt, you have comparable frustrations with clients who don’t act on your recommendations, and you learn to cope. But if managing people is not your interest or strong suit, you may need to surround yourself with competent managers and supervisors to camouflage your weakness as a leader and manager.

Managing people, not assets

These should be your clues that your people-management skills need work:

  1. When your questions are longer than their answers.
  2. When you resent staff who ask for clarity in their roles and career paths.
  3. When you use money as a substitute for active management.
  4. When you repeatedly change appointments or interrupt meetings with employees to deal with other “more important” issues or to meet with clients.
  5. When you blame their “failings” on their age or their gender.
  6. When you complain about their weaknesses but don’t take action to help them shore up areas in which you think they need improvement.
  7. When you fail to confront bad behavior or poor performance, yet complain persistently to others about your dissatisfaction with an employee.
  8. When you show favoritism toward one employee over another.
  9. When you postpone or ignore timely personnel evaluations that would allow you to give your staff meaningful feedback and direction.
  10. When you react to rumors, innuendo, and assumptions about your employees rather than facts and your own observations.

Human Capital Horror Stories

In the past year, we have witnessed egregious violations of basic people-management practices in a number of advisory firms. As consultants, we welcome the opportunity to provide guidance; as business people, we blanche at the dysfunction that is often created due to lack of attention.

In one case, the owner would, without knowing it, incense his staff whenever he confronted them about issues raised by a new employee with whom he was enamored because of that person’s academic pedigree. This in spite of the fact that the owner had more than 10 years’ experience with most of his team before the new guy joined, and was fully aware of their work habits, ethics, abilities, and commitment to the enterprise. Confrontations based on innuendo rather than fact chipped away at a once healthy and trusting environment. But instead of relying on his own observations and evidence to the contrary, he took someone’s opinion without first trying to validate or clarify it.

We were engaged by another firm ostensibly to help them fix their compensation plan. To our surprise, we discovered that members of the owner’s staff were being paid nearly double the industry averages for similar positions, yet the employees were boiling mad at the owner and threatening to leave. They had framed their issues in terms of adequate compensation for all they were doing, but we soon discovered that they were really seeking compensation for the emotional damage being inflicted by the Tsarist boss. More money was not solving the problem, but it was making it harder for people to leave. Meanwhile, the culture was cancerous and metastasizing.

Getting off the Highway to Nowhere

We did not get the impression that the owners in either of these situations were being purposefully mean, nor did the owners themselves view their firm situations as satisfactory. Often their insides were roiling from the frustrations experienced in getting their businesses to a new level of performance. The emotional torment would often twist their business plans into roads to nowhere. Dysfunction, not inertia, was the culprit. Inexperience, not malfeasance, dictated their approach. Ebullience and depression became their metrics, not productivity, individual growth, or financial impact.

Many advisors are perpetually caught in this malaise because of their inability to recognize why the people-management side is causing them so much heartburn. Many others see this as the turning point and use it as a catalyst for bringing in professional management to be accountable for specific areas of their practice.

Dedicated Management and Revenue Growth

Of course, recognizing that at least half of the U.S. advisor population does not choose to grow their businesses beyond the comfort and control of a solo model, the thought of adding this accelerant to their practices may cause them to feel apoplectic. Obviously, when one adds management, one also adds a cost. For too many, this cost never translates into an investment and in fact becomes a time, money, and energy drain of the highest order.

In work we did with about 100 of the top financial advisors for an Australian financial services firm, we found that when most of them reached $750,000 of annual revenue, they brought on a general manager to deal with key issues like people, processes, and workflow. The result was a dramatic increase in their growth to double and sometimes triple their size, with commensurate increases in profitability.

While we recognize the reluctance to turn the rudder over to someone else while in the middle of a storm, those who do make this decision ultimately see the benefits. In the 2006 Moss Adams Financial Performance Study of Advisory Firms, sponsored by SEI Advisor Network and JPMorgan Asset Management, we found a corollary between firm growth and professional management (see “Prevalence of Dedicated Management” chart, below).


We also found that firms that either added a professional manager or dedicated one of its own advisors to this role saw material increases in gross revenue and profitability. We also have observed that many firms with dedicated management tend to have lower rates of staff turnover because issues like regular performance evaluations, mentoring and coaching, and career path progression are being implemented rather than treated as a nuisance.

The Answer is Both Cause and Effect

But the skeptics among you may well ask: Is this cause or effect? Does adding management drive growth, or do growing firms need active management? Which is it?

In truth, it’s a little of both. The more a firm grows, the more its owner(s) needs to delegate the details to others. The more people a firm adds, the more layers of supervision are required to ensure consistency, quality, and progress. But as long as the lead advisors are caught up in managing the business reluctantly and occasionally, the chances of getting any return on this time is low.

We’ve found there are several possible explanations for the correlation between dedicated management staff and revenue growth.

Advisors recognized that their “unique ability,” in the words of coach Dan Sullivan, is to focus on growing and serving clients rather than managing the business.

Professional managers bring a discipline to practice management that in the early phase tended to be addressed in crisis or reactive mode.

As span of control expands, the need for specialization within a practice increases–not just in planning and investments, but in operations and strategy implementation as well.

Advisory firms are moving inexorably closer to becoming significant businesses, which means that there are many more moving parts we need to tend to while watching over clients at the same time. As practices become more complex, the need for professional management increases.

For owners of practices who wish to move in the direction of manager and leader vs. advisor, they should take an inventory of their skills set and then decide what their next commitment to continuing education will be: the technical skills for rendering advice, or the management skills for running an enterprise.

If diverting the owner to management is not the highest and best use, then the time may be near to identify, recruit, and work with a management specialist who will allow you to leverage up to the next level of efficiency, effectiveness, and profitability.


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