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Practice Management > Succession Planning

Beyond the Buzzwords

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“You are here today as part of a culmination of a nearly year-long effort and partnership between Investment Advisor and ActiFi,” said Investment Advisor Group Editorial Director Jamie Green.

So began a day-long roundtable discussion with practice management experts in the advisor space. Held in Chicago on June 13, it tackled the Herculean task of defining “practice management” and addressed the findings of the first Pursuing Practice Excellence study.

“Our intent was to devise a practice management survey, to field it, to analyze it and report on the study that we’re calling ‘Pursuing Practice Excellence,’ which we humbly believe is a groundbreaking study that goes beyond what many already helpful benchmarking studies provide to the industry,” Green added.

The goal of the Pursuing Practice Excellence project was to assess the current state of practice management, identify best practices among advisors and their partners and to discover advisors’ key unmet needs and their future challenges and opportunities.

The data was gathered in two ways. The first was through an online survey of advisors from across the business model spectrum who were invited to participate through; 954 advisors completed our survey in December 2011 and January 2012. Second, ActiFi conducted scores of telephone interviews with industry leaders from firms that partner with advisors to find out where they were spending their practice management dollars and efforts on behalf of advisors.

By comparing the advisors’ perspective with these partners’ data, the aim was to help broker-dealers, custodians, manufacturers and other service providers develop and offer better solutions so advisors can grow more profitable businesses.

For their part, roundtable participants were asked to explain what practice management is, its relevance to advisor (and client) success, how it’s deployed on a daily basis and how results are measured. Their key task was to analyze the gaps between what advisors said they needed and wanted from their practice management partners and what those partners were offering, in hopes of narrowing those gaps.

The four participants were invited to Chicago based on the (admittedly subjective) quality of the answers they gave during the interview portion of the survey and the critical thinking they displayed in those interviews. The quality of the roundtable discussion confirmed their choice as some of the best and brightest in the industry, as was their willingness to speak frankly about what the industry—advisors and their partners—has done wrong and what it needs to do right to increase advisors’ chances for business success.

The participants were Kim Dellarocca, director of segment marketing and practice management with Pershing; David Patchen, managing director of practice management with Raymond James Financial Services; Kirk Hulett, executive vice president of strategy and practice management with Securities America; and Jim Komoszewski, senior vice president of practice management with Investment Centers of America.

They were joined by ActiFi’s Spenser Segal, CEO, and Brian Stimpfl, senior vice president of relationship management, as well as John Sullivan, editor-in-chief of Investment Advisor and Green. A condensed version of the conversation is presented here; an enhanced version is available at

Defining Practice Management

Jamie Green: Beginning with the advisor portion of the Pursuing Practice Excellence study, one thing we noticed was that it made sense to include sales and marketing in a practice management definition.

Kirk Hulett: If the topic is “How do you define practice management?” my clarifying question would be “How do you define sales and marketing?”

Spenser Segal: We literally put it out there and let the advisors define it.

John Sullivan: Have you gotten many requests from advisors for that kind of help?

Hulett: Sparingly. But when we go in and do our diagnostics in working with advisors or groups of advisors, we certainly will come across the fact that asking for referrals is a challenge. Being proactive at building a network is a challenge. It isn’t the structure behind it as much as their interpersonal skills or their competence in being able to do it.

Segal: One of the things we consistently see relative to sales and marketing among more experienced advisors is the lack of definition of the sales process. If there are multiple advisors in the practice and they want to use a sales pipeline management system, they don’t have common and clear definitions as to the stages to go through. There’s not much rigor around that, and those terms exist, they’re not commonly shared.

David Patchen: One of the great things about practice management is that some of our top advisors help us drive the content, tools and tactics. Two years ago, Carter Financial, a very large independent RIA in Dallas that has a broker-dealer relationship with RJFS, asked if we would put together a sales training program for their younger advisors. I grabbed a couple of my colleagues, and the more we brainstormed around the request, the more we realized that we may be on to something. So we put together a two-day program that covered many of the things you were mentioning, Kirk. The program eventually morphed into what we call the Zen Advisor Program, and we have done that all over the country. But the challenge about sales education is that it’s not a one-stop endeavor.

Kim Dellarocca: I would agree with a lot of what you’re saying. I think the point that Kirk hit on is that mature advisors tend to be the ones you’re working with, and the opportunity around the next generation is really important. The way that business development was done in the past is changing dramatically. It’s much less expensive to develop a training program and to bring advisors through that program than it is to continue to play the recruiting game. So how do you even shift the whole business development process and paradigm? It needs to change.

Hulett: Young people don’t like the word “sales.” They don’t want to be salespeople. I would want to play off exactly what you said, Kim, which was questioning techniques and tactics—teaching people how to ask better questions, rather than teaching them to close someone.

Segal: You’re not closing the deal, you’re opening a relationship, right?

Hulett: You can go deeper because you know how to ask the right questions and how to actively listen.

Jim Komoszewski: Practice management has become a buzzword in our industry, but one definition I can come up with is “trying to get everybody to look like one practice.” The question we have to ask ourselves is, “Why did we rifle through thousands of new advisors over the last 15 years to have a 70-something-percent failure rate?” And I think it’s because we’re training them all to look and act and dress and talk like one rep, one advisor.

Generally speaking in the industry, we are leading with solutions. We have sales training programs for people that we cram through, but we’re not even sure what their problems are. My philosophy is that the first step has to be an accurate, thorough assessment of the current state of one’s practice. The second thing I want to know is what their goals are. Do you want to grow your practice? Maybe you don’t. Maybe you want to trim it down and get more assets from what’s already there. Step three, a critical part of the process, is to create a customized strategy for that individual and their practice; is to bridge the gap between where they are today and where they would like to be in one, three, five or 10 years or whatever that horizon is. Our advisors who went through the process last year had an average annual increase 40.9% in GDC.

Differentiation and Wholesalers

Green: To your point, Jim, industry leaders in the survey said their firms are actually going to increase their budgets when it comes to practice management. You speak about the importance of specialization and customization in how you’re delivering services and how advisors are then making it their own. Is it not so much that the solutions aren’t there, but how do you get the advisors to buy into them?

Patchen: I’m surprised that [Jim] would think that people are leading with solutions. That’s foreign to everything we know as salespeople, marketers and promoters. You want to ask, understand and then be understood. The products and wholesaler relationships are available to everybody. That’s not unique, and it doesn’t differentiate your offering from other firms’. What differentiates your offering from a tools and tactics standpoint is what your talented, top advisors are doing and whether or not they’re willing to share what’s working.

Green: Looking at the survey results, some of you, as well as third-party coaches, are seen as less valuable to the advisor than their wholesaler relationships (50.7% for wholesalers versus 30.9% for custodians and clearing firms, and 23.2% for third-party coaches). Any thoughts on why this might be?

Komoszewski: I’m going to make a disparaging remark. I was [a wholesaler] for 10 years, so it gives me license. This was disturbing to me, but I think it speaks volumes to my comment about leading with solutions. I don’t think any of us are. But I think, generally, the industry is and we get diluted in that system. So when people hear practice management, they don’t think of the four of us who are doing things diagnostically, assessment evaluations, etc. They instead think I’m saying, “I’ve got a toolkit. Here’s a link. Good luck.”

Patchen: There’s no magic bullet, and coaching is difficult. Coaching makes you uncomfortable; it asks you to take risks. It is hard to do, but when advisors come out the other side and they see those results, we ask them, “What was the biggest benefit from a coaching relationship?” They’ll have a 35% to 40% increase in revenue, and they’re very thrilled about that. They’ll go back and say it was the accountability, accountability, accountability. “I didn’t have that before. I have it now. It allowed me to focus; it allowed me to pick high-priority activities, not things that were distracting, and that led to the difference in my business results.”

Succession Planning

Green: We noticed in the survey that most advisors do not have formal succession plans (33.9% of advisors said they value succession and retirement planning activities). What’s more interesting is that older advisors, especially, don’t particularly find succession planning more important. Is that bad for the industry?

Komaszewski: The latest statistics I’ve seen is that about 19% of financial advisors actually have a succession plan. So even of the 33.9% who say it’s important, only roughly half of those actually have one. The problem is it doesn’t hit their bottom line today.

Unfortunately, twice in the last 12 months I’ve had to go to funerals for advisors from one of our firms. They were about my age, and in one case, at the funeral I had the surviving spouse in tears approach me and ask what could be done. The bottom line was the advisor did not have anything set up. The spouse was not licensed, but we can do a little bit of continuing-commission work. Here’s what’s worse; he had a succession plan in the works to help with the transition. So, candidly, we’re trying to figure out how to mandate steps on the succession planning.

Dellarocca: That’s the angle on which we hang a lot of this discussion. It’s probably the most critical part of an advisor’s future responsibility and fiduciary responsibility in looking out for their client. Your client has to know what’s going to happen if you get hit by that proverbial bus. And we’ve just gotten so tired of hearing about [the lack of succession planning] and sitting here and talking about it and not seeing anything done with it. We’re reframing it into a conversation that advisors like around growth planning. So we’re not really talking succession planning anymore or sales planning. We’re talking about business continuity and the importance of that for their clients, investors and for the associates that work with them and show up by their side every day.

Patchen: Kim, those are great points. I would add that I think the reason that a lot isn’t done here is—I don’t want to say a lack of understanding—but less understanding than there should be around what succession planning is or what it needs to be, and the difference between a catastrophic plan versus a true succession plan. A catastrophic plan is much easier to put in place. It is the proverbial “hit by a bus” plan. And we find a lot of success and generally a progression that happens once we get someone to put a catastrophic plan in place. We can then get them to really move toward a succession plan.

Let’s be frank about what true succession planning is. It’s a pretty in-depth process to actually have a groomed successor in your business that’s capable of taking over. Some failures around succession planning are that younger generations aren’t necessarily salespeople. They’re not rainmakers, if you will. Absent that rainmaking skill set, [the lack of a] client acquisition asset gathering skill set, which so many in the generation seem not to have, poses an enormous challenge and frustration because in many cases there’s almost a revolving door of junior partners earning equity in the firm, then getting a buy-out and leaving.

Dellarocca: We have a paper coming out this summer called “Advisor of the Future.” What we identified when you look at that benchmark is an 11-year gap between the most senior principal growing the firm and their next-in-line that could step in. Eleven years is a lot. That’s why we’re focused on changing the conversation to be one of growth planning and business continuity because it gives you time to train and develop that next generation.

Patchen: That’s a tactic that we’ve had some success with. If your clients aren’t asking about your succession plan, they’re at least thinking about what would happen. If you’re not talking about it with them, you probably should. What we find, especially with sole practitioners, is that when they have a plan in place and share it with clients, they gather more assets.

Dellarocca: Underneath that is the issue of trust. If you’re not working with good counterparties or a great custodian, it’s a tough conversation to have. There’s this 11-year gap, which is really an opportunity to train these folks and bring them on board, but I think we’re ignoring the reason why they don’t want to do it.

Younger generations saw what the baby boomers gave up in terms of lifestyle and being tied to the business. They don’t want to take the risk of being a business owner. They can’t afford to buy in, and the expectations of the sellers are still really high, especially in terms of what their business is worth. They don’t just look at multiples; the principals are also adding on all their years of toil, their bank loans that got them started and a lot of “walking to school with no shoes uphill in both directions.” Couple that with the feeling of entitlement that the next generation carries around, and it’s obvious why it’s not working.

Still in Pursuit

Building client trust, succession planning, practice management training—these topics are large (and important) enough to be discussed all day, which is what the roundtable participants did. Weighing in at 56 pages and 35,000 words, the transcript was cut short only in the interest of time. The larger discussion will go on for some time, as the formation of an informal working group was proposed at day’s end (even though the four representatives were from competing firms).

Two additional tranches of the roundtable transcript can be found on our Pursuing Practice Excellence home page, along with the three-part series on the full results of the ActiFi survey, including the final installment, Where Advisors and Their Partners Part Ways.” 


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