A couple of years ago, my partner Bob Clark told me about an advisor he knows in Columbia, South Carolina, named James Wilson. A past chair of the National Association of Personal Financial Advisors (NAPFA), Wilson has been one of the leaders of the financial planning profession for many years. Yet, probably the most notable fact about him is his approach to taking new clients: He doesn’t take (or rarely takes) on clients who are under the age of 50. His reasoning, as I understand it, is that until most people reach about that age, they just aren’t ready to take advice–they haven’t been burned by a stockbroker, lost money on a tip from a golfing buddy, taken a flyer on a disastrous business venture, been over-insured by an agent-in-law, over-reacted to something they heard on the evening news, or suffered from any of the other myriad mistakes that teach otherwise competent people they are not qualified to manage their own financial affairs.
Wilson’s story has always stuck in my mind as the kind of wisdom one can only get through experience. And my years of consulting with independent advisors have led me to realize a similar rule for advisors themselves; regardless of whether they can afford it or not, until advisory practices reach about $700,000 in annual revenues, their principal(s) usually aren’t ready to listen to what a consultant has to say. Occasionally, I’ll come across an exceptionally business-oriented advisor who’s ready to start thinking strategically before they actually have a “business,” say at around $450,000 in revenues: these are the practices that can be positioned for amazing growth. In any event, until an advisor is ready to start thinking like a business owner, hiring a consultant to help them build a business is just a waste of everyone’s time–and the advisor’s money. But once you and your practice are ready to act like a business, a good business consultant can help you build a very successful firm, however you define success.
Stop Thinking It’s a Conflict
Many independent advisors are acutely sensitive to the conflicts between being a professional and running a business. And that’s perfectly understandable: the financial services industry abounds with examples of “businesses” that routinely make decisions that are in their own best interest, and which benefit their “clients” largely by accident, if at all. But it doesn’t have to be that way. A sound business strategy doesn’t have to be based on misleading or over-hyped marketing, or even keeping the cost of services as low as possible. There are many very good businesses that focus on delivering high-quality products and services: FedEx isn’t the low-cost delivery service, Disney World is no financial bargain, and Apple iPods, iPhones, and Macs compete with better features, not smaller price tags. In our world, Schwab gave up it’s “discount” moniker years ago in favor of offering better and more desirable services, Advent has always been the Mercedes of advisor technology solutions, and there’s usually nothing cheap about the best performing mutual funds. So, there’s no reason why advisors can’t build successful practices around high-quality client services (and we all know many examples of advisors who have done so).
Yet, coming to this realization–that sound business strategies can enhance rather than detract from client service–is one big step along the learning curve for most advisors. The fact is that financially robust advisory practices have many more options for enhancing the experience of their clients, should they decided to use their economic muscle in that way: broader and more complex services, more experienced advisors, more staff support, lower client/advisor ratios, better in-house (and outside) training, and better client communications are all ways that the more successful firms maintain, and indeed, increase their service gap with their peers. Yet, because advisors are trained as professionals with a focus on client service rather than practice management, it usually takes years, and more than a little pain for most advisors to understand that well-managed firms are a win/win for clients and advisors alike.