As advisory firms grow, so too does the need for more structure in how they do business. Yet for the entrepreneurs who created these enterprises, the notion of adding layers and approvals and mechanisms insults their sense of independence. In fact, for many firm owners, such bureaucracy is why they either left or decided not to join a large company.
I recall the time when my partners and I made the decision to merge our small consulting and valuation business into a much larger CPA firm. There’s nothing quite like an auditor’s oversight to add annoyance to one’s quotidian duties. The greatest adjustment for most of my associates was our new parent’s insistence on certain rules:
- Before rendering a recommendation to clients, have another set of eyes in the firm do a double check.
- Make sure agreements are signed before beginning an engagement.
- Verify or refute any potential conflicts or appearances of conflicts before accepting a client.
- Document any criticism of staff performance in case you need a strong foundation for firing them later.
The list of rules was actually much longer, but you get the idea. What we thought we heard was “Never assume that clients or staff will deal with you in an honorable way lest you be burned.” This sad introduction to the reality of contemporary business caused many of my associates to leave before the merger was consummated. The maddening part of being forced to adopt these new protocols is that they turned out to be very good business practices that freed us to grow in a more managed way.
While many investment advisors never experience the change in culture and approach that accompanies a merger into a larger organization, most will experience stress that comes from growth. Assets under management and revenue do not create this stress–but rather the number of clients served and the number of staff hired.
In spite of the current unfortunate period of misery delivered by the markets that advisors and their clients are undergoing, the average advisory practice has doubled in size over the past five years and many have quadrupled.
What catches most small business owners by surprise is that firm growth often outstrips their ability to manage. What worked as a five-person firm won’t work as a 10-person firm. What worked in serving 75 clients won’t work in serving 150 clients.
Pain points in an advisor’s practice are easier to identify than to resolve, but problems consistently pop up when processes fail to create the client service experience that was promised. When firms grow quickly, people and systems often struggle to perform required tasks. Often these shortcomings point to the lack of a gap analysis or confusion as to what capabilities and steps are needed to do the work.
In planning each discrete activity like prospecting, or delivering quarterly reports, or preparing for a client meeting, it’s a good idea to map out what’s involved in each step and identify where and when the handoffs should occur.
Many firms have a “push process” for moving from one step to another, meaning that when a task is completed, the accountable person forwards the project to the next stage in the process. The deficiency in this case is the lack of a “pull process” that proactively nags for more information, or more data, or the completion of the step.
Inadequate staff training and knowledge also create problems. Most entrepreneurs do not have the time to serve clients and to manage staff–so the latter tends to get short shrift. In many cases, advisors conclude it is faster and easier just to do the task themselves rather than train somebody new–perpetuating the culture of inefficiency.
To resolve these often obvious workflow problems, advisors must align their processes to create a consistent seamless experience for clients and staff. Rendering advisory services is a synchronized effort, not a solo (or silo) performance.
Three distinct operating models as an advisory firm evolves through its life cycle:
Please note I use the term “client-centric” here to refer to business processes, not the delivery of advice. From a management standpoint, we are trying to observe how processes affect firm efficiency.
In the advisor-centric office, each of the advisors has his own way of doing things. While functional in a solo practice, this structure becomes inefficient as advisors combine forces with the aspiration to achieve economies of scale and build practice continuity.