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What Owner-Advisors Need to Know About Consultants

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Like most advisory firm owners and business consultants today, when I started my consulting business 15 years ago I thought business consulting was an ongoing process: with the consultant serving as an “off the books” member of the executive team, working to grow a successful advisory business. I even described my services as a “virtual CEO or COO,” or some fancy name that I care not to remember.

Over time, however, I’ve come to realize that, as with most relationships in life, there’s a lifecycle to consultant-client relationships. If a consultant is really good at helping advisory firm owners achieve their goals, the needs of those firms will change—requiring the role of the consultant to change along with them. 

Consequently, successful consulting relationships progress through a series of distinct and predicable phases as firms grow. Among other things (which I will address at the end of this blog), you need to understand these phases from the beginning of a consulting relationship. That way, both parties can accurately assess the changing needs of the client, and adapt their relationship—and focus their efforts—to the current needs of the firm.

If you don’t focus those efforts and understand how the consultant is going to help you, you might as well put your money in a shredder. 

Most owner-advisors look to hire a business consultant because they have a particular “problem,” such as high employee turnover, low client retention, low growth rate, the need to hire a key employee, build a succession plan, plan a merger, or not having enough time to manage their business. In my experience, the firm owner’s “problem” is almost never what is really wrong with her/his business. That’s because most firm owners see only the immediate problem rather than the cause of that problem. 

It’s like when we go to the doctor with a symptom: our stomach hurts, we get dizzy sometimes, we’re tired a lot—our main concern is to make those symptoms go away. The doctor’s concern is to first find out what’s causing those symptoms because there are different treatments for different causes. Managing acid reflux is very different from repairing a hiatal hernia. 

Of course, owner-advisors usually also “know” what needs to be done to “solve” their “problem,” such as hiring a new employee, firing an existing employee, creating a marketing plan, attracting more clients, adding a new service and so on. As you might have guessed, what these owners think will be the solution to their problem almost never is. 

Consequently, I came to realize that the first phase of a business consulting relationship is helping the owner to understand that what he/she thinks are his/her problems, aren’t really the problems at all.

In the old days, I’d “educate” firm owners by telling firm owners that the “solution” they were looking for wouldn’t, in fact, solve their “problem.” After they gave me the inevitable pushback, we agreed to do it their way and if (when, really) that didn’t work, we’d try it my way. After we went through that routine once or twice (some owners are faster learners than others), we’d start doing it my way from the get go. 

Obviously that isn’t the most efficient way of doing things. So many years ago, I decided to shorten the process by creating a “Snapshot Business Plan” where I would gather all the symptoms and present the treatment in a strategic plan. Then I would show the firms how effective that treatment plan was compared to similar highly successful firms. This formalized approach seems to resonate with most owner-advisors, who can then decide whether to work with us to solve their real problems. 

Phase 2 of a consulting relationship then starts when the firm owner (much like a CEO of a publicly traded company would do) retains a consultant to implement the treatment plan. We start by formalizing the companies’ goals and then create a step-by-step plan (including a timetable) for reaching them. We find that tying goals to a plan to achieve them energizes both owners and employees, and creates a focus that makes future decision-making much easier. 

For the vast majority of firms then, Phase 3 involves creating the foundational infrastructure to handle the target volume of business, including: financial management, human capital management, technology, a support staff plan, professional staff plan, an organizational plan, sales plan, client service plan and a marketing plan.

Then we implement those plans in a systematic and orderly way: initiating new projects, evaluating the results, making adjustments, and moving on to the next project. 

Phase 3 is as far as most consultants (and even the best firm owners) typically get. In part, that’s a result of having failed to tie growth plans to a clear and comprehensive vision of where the firm is going. In contrast, we’ve found that the result of implementing a clear and well-designed plan is more than just a larger firm, it’s a firm that knows how to grow itself: with motivated people in the right jobs, a system for making sound decisions, a solid firm-wide strategic plan and excellent client service. 

When a firm has reached this point, its need for an outside consultant is greatly diminished—which is the ultimate goal. So the consultant/client relationship shifts again, into Phase 4: One-off engagements to work on complex projects such as merging with another firm, adding new services (such as tax work or trusts), revamping the succession plan or finding a successor, teaching advisors to be owners, adding a robo-advisory component, changing custodians or BDs, and/or advice and support during a crisis (the loss of a partner, dissolution of the partnership), etc.  

Business consulting is, at first, really about educating the owner to be a successful business owner. Then it’s about implementing an ongoing treatment plan that cures the issues. Finally, it’s about addressing new and bigger problems on a project basis. When viewed by owners and consultants in this way—to create a firm that no longer needs consulting—it creates relationships that are both more comfortable,and far more successful. 

Speaking of successful consulting relationships, outside of understanding the lifecycle of the consulting relationship as I have described above, before you hire a consultant you need to understand a harsh reality about the state of practice management consulting advice in the advisory industry today. 

Consultants are on the rise. Meaning, there is a ton of consultants and consulting firms entering into the space to help owner advisors. I believe this is a very good thing, namely because we need more consultants. However, how a consultant gets paid to take you through this lifecycle is going to determine how effective the consulting advice is. 

Consultants fall into two camps: the ones that get paid by you and the ones that get paid by someone else. Simply put, if the consulting advice is free throughout the consulting lifecycle, it’s not objective. 

Currently, consulting firms for financial advisors are seeing millions of dollars being offered to them, from all sorts of providers (who I will not name) to make specific recommendations to you. In other words, the consultant is getting paid to recommend specific product to you, like a technology platform or a website, regardless if you need it or not. This flow of money can make a consultant and/or a consulting firm very rich. However, it can make an advisory firm less than average in its profitability.

The point is this: if you are going to hire a consultant (most firms need them) make sure they are going to stay with you through the long-term lifecycle, and second, ensure you write them the check. It’s not unlike financial advice. Consulting advice should be independent and objective, too.

During my 15 years of doing consulting work for advisors, I’ve left millions on the table. It’s extremely, extremely difficult to walk away from all that money. But I stand behind the belief that you should always be on the side of the client, and there is no organization I will ever be part of that isn’t structured that way.



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