The RIA profession is at an important crossroads. Some firms that were founded in the late 1980s and early 1990s have either evolved, or begun to evolve, their business practices to rely less on the “cult of personality” of the founders to win new business and run the operations of the firms. Significant progress toward the “enterprise value” equation has occurred over the last five years, in part due to necessity forced by the markets.

Now, more than ever in the last decade, many firms’ revenues appear to be not only back on track, but poised for record returns buoyed by favorable financial markets. For example, based on our 2012 Fidelity RIA Benchmarking Study, high performing firms grew revenue at 11% for the time period 2008-2011 based on compound annual growth rate.  Further, this same cohort grew assets under management at 20%. On a related note, another recent study Fidelity conducted showed that strategic planning is one of the key priorities for RIA firm owners.  In the consulting engagements that my group performs, we see that some firms across the profession are thinking about the future and are engaging in strategic planning. But for most firms, the words “strategic planning” remain just that—words. 

Why engage in strategic planning in the first place? We believe that strategic planning is foundational to setting up goals and milestones for a firm’s growth and enduring enterprise value.

So often when beginning the dialogue with a firm around this topic, tactical questions emerge: 

  • Should I hire a business development officer to fuel growth? 
  • Should I expand equity participation within the firm to retain key employees? 
  • How will we fund an equity transition to junior partners? 
  • Should we invest in a CRM system to better serve existing clients and manage our prospect pipeline? 
  • Should we go “up market” to focus on small endowments and foundations?  

These are just some of the questions we face when firms are considering their future through the lens of strategic planning.

Our Practice Management and Consulting team at Fidelity Institutional Wealth Services has spent a great deal of time considering strategic planning. In doing so, we’ve observed that some firms hit a wall in two main areas. First, they have trouble organizing their approach and so never get started. Second, for those firms that do craft a plan, in many instances they tend to take on too much and have problems executing the plan. As a result, the best laid “plans to plan” never get off the ground.  

For firms that want to engage in strategic planning, but don’t know where to start, here is a simple framework that I refer to as The Four Pillars of Strategic Planning. 

The Four Pillars

Start the strategic planning process by assessing your firm in four main areas:

Pillar 1: End Markets 

Which markets do you serve/target from a client and prospect point of view? Assess which clients you serve today, be clear on your target client profile of the future and make sure that the whole team understands the clients and prospects you are focused on. It is okay to serve more than one segment, but make that an explicit choice. 

As an outcome, document your target client profile and consider the right tactics to propel client growth going forward. 

Pillar 2: Capabilities

Does your firm have the right capabilities to serve your target clients of today and tomorrow? Presumably, the key ingredient here is staff. Experience is also critical. For example, if a goal is to focus on a different market segment from a growth perspective (e.g., small institutions), ask whether your team has the experience and qualifications to effectively win business in that segment.

Pillar 3: Organizational Structure 

In order to target the right markets and serve those markets efficiently, your firm must have a solid organizational structure with clear roles and responsibilities for the team (and competent, qualified people who are aligned with the firm’s vision and culture). Assess your structure and staff alignment. 

Pillar 4: Infrastructure 

This is a broad category that encompasses technology, operational processes, compliance and financial controls. Make sure that you assess and tend to these areas.  Any strategic plan needs to address these areas in order to anticipate and prepare for non-debilitating growth.

Which of the four pillars is most important?  In my view, all of them, because of their interconnectivity.  In other words, “the hip bone is connected to the leg bone.” 

After you have assessed your firm in these four main areas, decide where your focus will be over the next year, three years and beyond. For example, if asset growth is a goal, after an assessment your firm might conclude that to target client growth of 20% you may need to hire an additional advisor. However, fully considering this using all four of the horsemen provides a helpful screen. You may conclude that hiring a new advisor impacts organizational structure. Further, you may wish to consider whether your firm has in place appropriate infrastructure to do so. 

In any strategic planning exercise, we find it useful to evaluate the current state of your firm, and then to envision its future state. Finally, recognize that the four pillars are a framework and organizing principle from which to start planning. They can also serve as a springboard to go deeper. As an outcome, the analysis should help you decide on one to five key initiatives to continue building enterprise value, this year and beyond.

For Investment Professional use only. Not for distribution to the public as sales material in any form.