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Life Health > Running Your Business

When Making Clients Happy Isn’t Enough

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In a story for the February issue of Investment Advisor, “Advisors in Pursuit of Happiness,” Olivia Mellan quotes Cornell University psychology professor Thomas Gilovich on advisor happiness: “Knowing that you’ve increased your clients’ well-being and financial security — there’s no better feeling than that in creating the sense of satisfaction of a job well done.”

Now don’t get me wrong here: I think “doing good” is an essential part of true happiness. You don’t see a lot of truly happy people who do bad. In fact, I think that’s why we see so many people in our society looking for happiness in all the wrong places.

Yet I have to say that we see a lot of advisors who do right by their clients but are still unhappy. This is probably a perspective that only a business consultant could have — we know they are treating their clients right because we see what they recommend and what the results are.

But we also know that they are unhappy because they tell us. The bottom line is that while doing the right thing is an essential element for being happy, it’s not the only element. This is a particularly important consideration these days, as advisory firms are growing larger, and advisors’ jobs are changing along with that growth. Here’s what we’ve found to be critical to being happy as an owner-advisor.

Most owner-advisors launched their firms for specific reasons. Because starting a business is both hard and scary, these tend to be very powerful reasons. At the top of most owner-advisors’ list is control.

Even today, most owners of independent advisory firms started as brokers, insurance agents, accountants or employees of other independent firms. They usually started their own firms to serve their clients “better” (read: differently) than their former employer did. Sometimes that means offering more or different services. Or it could mean targeting a specific client niche or need. Usually it means eliminating conflicts of interest and offering advice that is more in line with clients’ best interests.

Of course, control also means firm owners decide whom they work with: their employees and partners, as well as outside vendors and affiliates. It means controlling the work environment, sometimes referred to as “corporate culture.” That means they control what’s expected of everyone in the firm, from how they treat each other to their ethics. Those expectations and how they’re enforced will determine what it’s like to work in the firm.

Firm owners also control everything from the hours people work to their training to the tools they have to do their jobs and the compensation they get for doing them. Often advisors become owners to increase the “fairness” of these factors for the people they work with. Of course, control also includes deciding how the revenues of the business will be spent, and if and how the business will grow.

Because control over how their clients and employees are treated and how their business is run is usually a key element in the happiness of owner-advisors, they need to be aware of factors that can affect their control. For instance, adding new partners can limit a founder’s ability to make unilateral decisions. I remember talking to one advisor who had expanded her firm to include a handful of new partners. The loss of control led her to leave the firm. “I couldn’t even buy a new computer with holding a committee meeting,” she said.

Control over their jobs is another reason why advisors start their own firms. Many advisors like working with current clients or like attracting new clients or like running a business. But whatever job they want, advisors find they can build their firm around it and hire others to do the jobs they don’t want to do.

Unfortunately, as firms grow, owners often find themselves in a job they don’t particularly like. For instance, an advisor who loves working with clients can find himself spending all his time running the business: managing employees, talking with financial people, reviewing marketing plans, recruiting, negotiating with custodians, etc. We find that doing the jobs they want is an important part of advisors’ happiness. The key is accurately assessing the job they really want to do, and changing course as soon as possible if they get off track.

The Bottom Line

Another key element to advisor happiness is income. Perhaps surprisingly, determining the bottom of an owner’s acceptable income range is usually more important than the top. In our culture, we have a tendency to assume that the more money we make, the happier we’ll be. However, at least when it comes to advisory firms, this generally isn’t true.

While many firm owners think they want to make “a lot of money,” the truth is, like most folks, advisors have a minimum figure that will fund the elements of their financial plan (pay for their lifestyle, educate their kids, fund their retirement, etc.). The tradeoffs involved in making more than that figure often produce unacceptable consequences such as working longer hours, less vacation time, less time with family and working to an older age. Balancing lifestyle and financial needs is just as important for owner-advisors as it is for advisory clients.

Finally, there’s the endgame. You probably won’t be surprised to hear that most financial advisors are pretty bad about planning their own retirement. Some people think this is just another version of the “shoemaker’s kids” syndrome, but I have a different theory: I think most independent advisors love what they do, their employees and their firms so much that they just don’t want to think it will end.

Still, it’s an important part of advisor happiness to have a well-planned endgame. True, some advisors will be perfectly happy to work until they decide to simply close the doors to their firm, but even that requires a succession plan.

To make “just closing the doors” work, an advisor has to have a workable retirement plan that doesn’t require proceeds from the sale of the firm, and heirs who aren’t looking for the proceeds of that sale — proceeds that in today’s market are often in the millions of dollars.

What’s more, advisors also need to consider the future of their clients and employees. The clients can be handled through an agreement with another advisor to take them on, and then a transition period to allow the clients to become comfortable.

The employees are a bit trickier. It’s hard to keep them on board — particularly the professionals — when they know that sooner or later they’ll be out of a job. If they leave before firm owners are ready to close up shop, the ability to deliver high-quality client services can be seriously compromised. That’s why many older owner-advisors opt for a succession plan, even if they don’t really need the money.

These days, to attract good, young professionals, a firm needs to have a partnership track that includes a succession plan. Most young professionals eventually want to own a part of the firm they are helping build. They are obviously in the best position to continue the high quality of client service the firm currently provides. Consequently, it’s easier to transition clients to them.

Whatever an advisor’s exit plan is, it’s just that: a plan. Sometimes things don’t work out as expected, so a good succession plan can also serve as an insurance plan. If a firm owner has to close her doors before she’s ready, the junior partners are there to continue servicing the firm’s clients, and the revenues from the succession buyout can support the family.

Doing right by their clients is an important part of advisors’ happiness. It’s the reason most independent advisors went independent, but it’s not the only part. As their firms grow and they reach retirement age, advisors need to evaluate the elements of their own happiness: the level of control they have over their business and how their clients and employees are treated; their work environment or corporate culture; the job they actually do when they come to work every day; their desired income and the tradeoffs required to get it; and their endgame — what will happen to their clients, employees and dependents when all is said and done. We find that the happiest owner-advisors address each of these issues.

— Read Compensation Golden Rule: Money Can’t Buy Happiness on ThinkAdvisor.


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