“Every time I see an article on compensation touting the great salaries and easy hours,” one independent advisor wrote, “it gets tempting to cut my losses, clean up my r?(C)sum?(C), and jump over to one of these dream firms.” In one terse e-mail, this advisor summed up the challenge of growing an advisory business in an environment of increasing costs and compliance risks, ever-more demanding clients, and escalating payout to staff. His dilemma: whether to invest in his own practice or find another advisory firm that will pay him to focus on his passion for giving advice while relieving him of the risk and responsibility of running the enterprise.
In the aftermath of the great emigration to independence, a community of lost and addled small business owners are washing up on our shores. For many, their dream of independence did not include the headaches of entrepreneurship or the financial and emotional challenges of developing others. The ideal of business ownership certainly did not include so many lean years scratching and scraping for dollars while employees at other firms seem to be raking them in.
Advisors who have never experienced being an “employee” in a large financial services company often cobble together an enterprise that works in spite of their lack of business foundation. For refugees from national brand organizations, the experience of having to hire and fire people, cover expenses out of their own pockets, and tend to myriad business issues while still adding and serving clients can be a total shock.
In either case, those early years of trying to get the practice off the ground can be exasperating–especially when one observes the growth of the more established advisory firms in the community. It’s hard not to envy a business with a community brand that attracts the right clients, has professional management that addresses their quotidian obligations with relative ease, and a structure that processes business and delivers advice on a consistent, systematic basis.
Every practice goes through a life cycle. With the wisdom of hindsight, it is common for entrepreneurs to regret decisions made in the face of pressure. Just remember, those who are now operating some of the country’s most impressive financial advisory firms had the same trials. Only a few of them claim they actually knew what they were doing. They retell their stories with a mix of brio and warning, often confessing that it was either fear of failing or a passion for building the business that kept them going.
Whatever the motivation, most advisors will reach a point in their practice’s growth when they do not feel they are in control, or doubt their ability to reach the next level. When this happens, one must step back from the edge and ask some questions about which direction to take the business.
If the decision is to add capacity to the firm, who will manage these individuals? How will they be compensated–salaries, individual bonuses, team incentives?
Before hiring new staff, advisors must know what they are trying to build. Many advisors serve a combination of retirement plans, high-net-worth individuals, middle-class clients, and retirees. Each client requires a different approach in rendering advice, processing deposits and withdrawals, and presenting reports. Operating leverage makes a lot of sense for a growing business–but which business will you invest in?
The Drawbacks of Small
With the vast majority of advisors still operating as solo practitioners, it is clear that most have decided the questions are too complex to answer, too distasteful to address, or too hard to implement. So by default or intention, they keep the size of their practice within their reach–thus limiting income growth and taxing the firm’s ability to support clients.