Just 10 years ago, the goal of most independent advisory firms was to have $100 million in client assets under management. Today, there is a new standard. Many advisors I talk with want to take their businesses to $1 billion in AUM. To get to that level within the lifespans of their current owners, most firms need to greatly accelerate their rate of growth.
As the advisory business is significantly less complex than, say, running Apple or The Vanguard Group, most firms have relatively limited options: either add more clients, capture a greater share of assets of existing clients or both. Because most firms that are interested in growing have long since maximized their share of existing client assets, that leaves only attracting new — and hopefully wealthier — clients.
I know what you’re thinking: With a large and growing number of advisory firms trying to add new clients, and a flood of breakaway brokers opening new firms, this won’t be easy. And you’re right, which is why so many firms these days are focusing on their sales and marketing efforts. Unfortunately, that’s not your biggest problem — even if you are able to add significantly more clients, most firms today are running at (or over) maximum working capacity.
Many firms have been looking to hire experienced advisors over the past few years, amid a serious shortage of talented, experienced advisors. In response, many firms have been turning to younger Gen X advisors to create capacity to grow. However, they are finding that many of the advisors in my generation aren’t meeting their expectations. The good news is that it’s well within the abilities of most firm owners to solve the problem and grow their firms. All you have to do is accelerate your rate of learning.
This article is primarily for owner-advisors who are in the baby boom generation (although I suspect you Gen Xers will enjoy it, too). Take yourselves back to when you started your careers: sometime between 1970 and 1990. Television was all the rage and CNBC was on in every office. Everyone had a telephone — on their desks — and hotshot brokers did business via fax machines. Cutting-edge financial planners calculated client needs with hand-held HP-12c calculators (to be fair, I still use mine), and to learn the business, advisors went to seminars in plush hotels, led by the industry’s most successful “big producers” clad in dark blue Armani suits and Italian loafers with $300 haircuts (that was a lot back then).
Now, imagine how you would have felt if your first job was with a firm that didn’t have telephones and was communicating with clients and prospects via Western Union telegrams. To get current financial news, you had a radio on your desk, and to run your calculations they gave you a slide rule. For professional education, they sent you to a local Holiday Inn to hear a bearded guy in a frayed black T-shirt, dirty khakis and sneakers (apologies to Bob Veres). I suspect that not only would you have been underwhelmed by your employer, firm “efficiency” would have been an oxymoron. (That means “a contradiction of terms:” I looked it up.)
Today, most of you baby boomers are rapidly approaching retirement age. I know this because I primarily work with you. I also know that a lot of you have spent the past decade or so trying to teach and train the next generation — my Next Geners — to fill your Hush Puppies and take over your clients and your firms. Unfortunately, as far as I can tell, that transition isn’t going well. Despite the rather massive efforts of custodians, BDs, industry organizations and boomer advisors themselves, the next generation of advisors isn’t learning the business fast enough to fill the looming void.
The Evolution of Education
I know that the prevailing explanation for this looming void is that my generation is made up of a bunch of slackers — and a few us may fit that description. (When I am your age, I may say that about the 8-year-olds running around right now, too.) However, in my experience, the fundamental reason that you can’t find younger advisors who are ready to take over your business is that you’re trying to teach them the same way you were taught: through networking, study groups, industry conferences, book reading lists and by the example of older advisors. What you don’t realize is that educational tools have changed dramatically in the past 20 years.
Today’s young advisors have access to an almost unlimited amount of information, anytime, anywhere, via the internet. They attend conferences online, they form study groups on LinkedIn, they train themselves through online videos or gaming, and they network 24/7. If you’re not using those channels to reach them, you won’t — reach them, that is.
I have been researching this trend over the past six months and in doing so, I have talked to a great number of young advisors about their perspectives of their firms. As you might expect, there is a technology disconnect and it creates a number of problems for the boomer leaders of today’s advisory firms:
1. They think you are a caveman or woman.
As you probably would have felt in the above scenario, they won’t have much respect for someone or some business that is so far behind the times: you might as well be using stone knives and bearskins. As a result, it will be hard for them to believe that you have anything of value to teach them, and motivation will suffer.
2. They will learn poorly.
Their attention spans are short, they are easily distracted, and are constantly looking for something “more interesting” to focus on. Here’s an example: One younger advisor told me his boss recently recommended a book called “Double Double” about key performance indicators. But instead of reading it, he went online and read the reviews and comments about it. When I asked if he’d read it, he said, “I don’t need to read the whole book to get the general idea.” Then he explained the book’s concepts to me, and showed me a spreadsheet that he had created to capture them. It was all right on target. (I actually read the whole book so I can confirm he was right.) The takeaway here is that Gen X advisors have grown up on “The Ten Things to Do Now” articles: They don’t have any patience for the extra fluff that most books contain. To teach them, you have to boil down your ideas to the essential points, and give it to them short and sweet.
3. They will turn to the internet.
To overcome what seems to them like insufferable dullness, they will look online to get the information they need to succeed as advisors. While, ultimately, the internet should be one of your educational tools, too, one of the problems is that there’s a lot of information out there, and some of isn’t very good or easily applied. That makes unsupervised learning a risky proposition. For instance, many young advisors come across the eMyth and other business theories that don’t apply much to small advisory businesses — but they don’t know that. I’ve spent a good amount of time helping them unlearn that stuff.
4. Your training is inefficient.
One of the biggest challenges that owner-advisors have when training the next generation is finding time to do it, on top of trying to run a business and usually working with clients. I run into this same problem working with business management clients: It’s labor intensive. For instance, with those younger advisors at my client firms who have learned a lot of the wrong things on the internet, it has taken me forever to walk them through the unlearning process.
5. You are living in the past.
The late futurist Alvin Toffler, author of “Future Shock,” and “The Third Wave,” once wrote that we all live in the past, some further back than others, and that one of the advantages of having children is that they bring us close to the present. This statement is very true of most baby boomer advisory firm owners; they still think the world largely works the way it did 20 or even 30 years ago.
Now, I’m not saying all the changes that we’ve gone through since then are good, but I am saying they are real, whether we like them or not. To run a successful business today, we at least have to understand what those changes are and how we can use them to our advantage: in our teaching, gathering of information, use of technology and communicating to our clients and our employees. The firms that do this most successfully will be the ones that grow the fastest and the largest. Listening closely to your younger advisors will be a big step toward being one of those firms.
6. Your decision making is too slow.
Ever worked for someone who had a hard time making decisions? Who would put off making decisions while their staff sat around waiting for some direction, while they watched whatever opportunity was in front of them slowly disappear? In business, good decision making is based on information. Yes, experience helps, and there is certainly some judgement involved. But without good, timely information, those other two qualities don’t matter much. With the internet, there is more good, timely information available to business owners today than all the information that existed 30 years ago. Your younger employees know it. So they get frustrated and start to doubt your leadership abilities.
You don’t need to become an internet wonk, but you can start by enlisting your younger advisors and staff to help you gather the most current information on technology, industry trends, business management and changing client preferences. Pay attention to how they find all that information so you can start to do at least some of it, too. I recently talked with a client who wanted to attract more young clients, so I (jokingly) suggested he get some retargeting ads and create a hashtag. Problem was, he didn’t have a clue what I was talking about, which was a symptom of a much bigger problem. Don’t be that guy.
To address these problems in my own business I started embracing technology to help increase my clients’ education and that of their next-generation advisors, creating short, bulleted templates for younger advisors to read, and recording videos that streamed my computer screen that they could watch to learn (or unlearn, in some cases). They can watch them when they want, and text my office with questions. Then I talk with them about what they should be learning. I have a video for that, too. They learn much better this way, and it’s better for me, too: I can work with a lot more clients in a lot less time.
I believe this is a business model for the future of independent advisory firms, too. To grow firms and position them to be handed off to the next generation of advisors, today’s owners are going to have to change the way they teach and communicate with those advisors, and with the next generation of clients, as well. Your rate of learning will have a major impact on your future rate of growth. Those who do not adapt to teach the next generation of advisors in the way that they are learning now will see their firm’s growth slow.
After conducting these interviews with young advisors, I now believe the single biggest factor in determining your growth rate in the coming years will be how quickly you learn to communicate to the next generation and transfer knowledge in a new way. Just like 20 years ago when the industry had to embrace email, texting and online research, today’s owner-advisors need to embrace learning how to use technology platforms, online teaching and study groups, and integrate them into their firms. The $1 billion-plus firms are already doing it.