In today’s world full of distractions, it is easy to lose focus—and more importantly, to lose focus on what really matters in your business. I’m not going to discuss how social media and the need for immediacy plays into this problem.
It’s hard to blame anyone for being confused about how to run their financial practice or firm in the face of constant pressure to keep up with “robo” advisors and mega growth from firms like Schwab and Vanguard, all of which can compress management fees. Add to that this little thing called the “DOL fiduciary rule,” which has the potential to change the industry forever. But in the end, frankly, worrying about all of this outside noise makes you lose sight of what really matters in growing your practice or firm.
Whether or not we all think about it academically, there really are only five major ways to grow a financial services firm:
1) market performance
2) increase share of wallet from current clients
3) obtain new clients
4) expand services to enhance revenue
5) lower redemption rates
I’m fortunate to have the opportunity to talk to many great advisors in the course of my job responsibilities, and I try to observe common themes. Several growth triggers appear obvious when viewing a large sample size, and other factors make me question whether or not they have any impact on the growth of a practice or firm at all.
The most obvious one is market performance.
Most firms spend so much time focused on it because their overall value proposition is to outperform benchmarks, but the impact this has on the growth of their business is actually quite small. When we looked at the growth of more than 10,000 advisors on the Envestnet platform from 2012-2014, market performance was a relatively minor component of overall growth.
If the total growth of a firm or practice during that time period was 100%, market performance as a component of that total growth only represented 6%.
Another operating principle that has intrigued me is how a firm views spending time with current clients. There are two schools of thought, and I hear them both almost on a weekly basis.
One advisor told me last week: “I love my clients, but once they’ve been with me for two years, their needs are pretty simple. I try not to over-service them because they are happy, and I should be spending time finding new ones.” There’s also the more typical view: “I really service my clients well, and spend a lot of time with them because it will lead to referrals, and I’ll lose fewer clients.”