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Practice Management > Building Your Business

Mind Your Business, Part II

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None of us lives forever. When you retire or otherwise exit your business, whether by actually selling it or transferring it to another advisor within your firm, you (and your family) will be a lot better off if you’ve focused on — and succeeded at — maximizing its value. As my last column covered, maximizing your business’s value makes sense whether you’re on your own or work smack dab in the middle of a big firm. An entrepreneurial (or intrapreneurial) attitude will benefit you, your clients and your employees or team members, as well as your organization.

From the big perspective, you need to enthusiastically embrace an ownership mentality. After all, it’s your business. Even if you’re an employee, when it comes to creating long-term value, you are the boss of you. While you must work cooperatively with your manager and make intelligent compromises as to your time and efforts whenever necessary, it’s you — and you alone — who can build the long-term equity that will turn an ordinary practice into the extraordinary: a highly valued business that will enable you and your loved ones to reap maximum financial benefits and enjoyment from your years of hard work.

Beginning Right by Setting Long-Term GoalsAs Steven Covey famously put it in his classic book, Seven Habits of Highly Effective People, you should always begin with the end in mind. Always keep in mind, then, that you are building your business to someday transfer it to another advisor, whether externally or internally. If you don’t do this, you’ll consistently work less efficiently, less effectively and in a way that ultimately creates far less value.

Begin with the end in mind by continuously setting goals for yourself. What do you want your business to look like in one, three, five and 10 years? It may help you to wrap these goals in a comprehensive business plan, but in any case, keep three important points in mind.

First, your goals should embrace far more than just C.I.F. (cash in fist). C.I.F. is easy to grasp, both physically and mentally. However, based on C.I.F., most advisors (often egged on by their managers) set only production goals for themselves. But if you let the production tail lead the business dog, you’ll consistently shortchange yourself. There’s a whole lot more to creating a valuable business than hitting production milestones.

Second, work diligently with your team to ensure that they are completely on board with your goals and are using their time well. Also, keep tabs on — and if necessary fight for — getting the right assistants and an appropriate share of their time. If you’re only given part of one assistant’s time and that person is constantly occupied with someone else’s activities, then it’s up to you to do something about it. Don’t just settle for leftovers.

Finally, in terms of your use of technology, customer relationship management software, and other office systems, always “work” the system for the best possible results you can get. Especially if you’re in a big firm, you’ll be limited in your ability to use new or different software, or to create your own CRM system. But you can befriend the technology people in your firm and ask them to give you an overview of what’s available, or to let you in on any beta testing.

The Wealth Management Model and the Four Cs of Creating EquityBased on our many years of experience and on extensive empirical data, at CEG Worldwide we’re certain that the very best way to build a valuable business is to become a true wealth manager. Wealth management is multifaceted, but suffice it to say here that wealth managers focus on serving relatively few — but wealthy — clients who typically constitute a specific market niche. Using a consultative process, wealth managers provide world-class service — in part through networks of outside experts — to address all of their clients’ financial needs and goals.

By following the wealth management model, you’ll also maximize what we call the four Cs of creating equity: cash flow, clients, company and competitors. These are the four primary drivers of value that will cause potential external buyers or internal successor advisors to covet what you’ve created:

Cash flow: The value of your business is directly related to the discounted value of its current cash flow. The more cash flow you have — the more it’s growing and the higher your profit margins — the more value you’ll have demonstrated. But don’t mistake good cash flow for good earnings; it’s not what you make, but what you keep, that’s important. So focus on the net, not the gross. Financial advisory businesses can generate substantial profit margins at every size, so make sure that you’re matching up your costs with your revenues from the get-go. Also, the data is clear that wealth managers on average earn significantly higher incomes and have better cash flows than other types of advisors. So if your goal is to create an extremely valuable business, then it makes eminent sense to adopt the wealth management model.

Clients: You want to demonstrate a pattern of highly satisfied wealthy clients with a high retention rate, a strong tendency to make referrals and a predisposition to not be tied to any single person (even you). To the extent that your clients enjoy the elegant experience of your consultative process, it will be easier for you to demonstrate a high level of satisfaction and ongoing loyalty.

Company: You should be able to show high retention and satisfaction of employees or team members, both in terms of their work environment and their compensation. Be prepared to tell success stories of employees or team members who have moved up through the ranks, taken on additional responsibility and grown their compensation along the way. You should also be able to demonstrate good business management in four key areas: financial management and processes; client management and processes; employee management and processes; and operations management and processes.

Competitors: You want a business model that competitors either cannot figure out or that is difficult to replicate. Your competitors should be in awe of your business model’s growth and profitability. However, don’t think that this means that you have to have some sort of complicated trade secret that drives your success. In fact, what competitors are most often in awe of is an extremely simple business that works extremely well. And that, again, is why we strongly advocate the wealth management business model.

The bottom line here? The most effective way for you to maximize the value of your business is to implement the wealth management business model. Interestingly, our 2007 survey of 2,094 advisors shows that the percentage following the wealth management model has actually gone down over time (to 6.6 percent). This means that you have a golden opportunity to leverage a business model that few others have embraced — one that will enable you to build a business that’s not only more enjoyable, but that at the end of the day maximizes your own personal financial reward.

Patricia J. Abram is a senior managing partner with CEG Worldwide in Florida; see


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