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Wealth Advisor, Heal Thyself: A 5-Question Checkup for Your Firm

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“Wealth advisor, heal thyself.”

Investors rely on wealth advisors to guide them toward a clear plan to retire comfortably. However, ironically, many advisors neglect the well-being of their own businesses as they devote their precious time to providing outstanding service to their clients and managing an abundance of low value-added administrative tasks.

As I covered in my first article in this 3-part series based on the “Physician, heal thyself” proverb, there are several symptoms plaguing today’s advisors: the upcoming generational wealth transfer, fee justification, regulatory hurdles, the fragmented technology landscape and cybersecurity.

To get on the path to recovery, advisors must first be open and honest about the fact that their business is showing some concerning symptoms and that without adapting their business model, they may face an unhealthy future. The next step in the process leading to recovery is clearly defining what “optimal health” looks like three to five years down the road.

The final step is to create a path to get from “here” to “there.” But before I lay out the approach to paving the road to recovery, which I will cover in Part 3, I want to help advisors envision what their businesses will look like when they return them to peak health.

Part 2: Defining a “healthy” future-state business

There are many variables that factor into the objective definition of company health, and the definitions will vary from advisor to advisor. To develop a clear picture of what a thriving business looks like for your company, here are the questions that wealth advisors should carefully consider:

1. Wealth advisor, can you define your metrics for success?

When I set my New Year’s resolutions around improving my physical fitness, it is always better for me to say, “Be able to run a 10K in under 50 minutes, do 50 push-ups and 15 pull-ups, and weigh under 210 pounds by June 15” than it is for me to say “Get in shape.” Great goals (according to a well-known framework laid out in Management Review many decades ago by George T. Doran) are S.M.A.R.T. — specific, measurable, achievable, relevant and time-bound.

Following this logic, it’s important to quantify SMART objectives for success in your business. Can you quantify 3- to 5-year goals for AUM, fees or profits? Will success be measured by customer retention or average account growth percent? Are there financial metrics that you believe your team must hit? Are there revenue-per-advisor goals? Is there a certain number of customers that defines your maximum capacity?

Whatever your goals are, write them down. Make them SMART, in the same way that you have guided your clients. Define health for your business so you can track your progress toward these “healthy state” goals. Be ambitious, but realistic. Make stretch goals that can later be adjusted if your bottoms-up success plan does not support attainment.

2. Wealth advisor, can you describe how you will differentiate from your competition?

As an enabling technology provider, YCharts works with hundreds of advisors that market themselves as providing stellar customer service and a full range of services. While those are certainly important elements of their business, and admirable competencies to maintain, we’re finding those attributes simply do not set advisors apart from the pack. Those descriptors are table stakes in wealth management.

Schwab’s latest Independent Advisor Outlook Study revealed that advisors have started going the extra mile to stand apart from the rest and justify their fees. Forty-four percent of advisors have begun to provide extra services at no cost to their clients, while roughly 40% have been spending more time on client accounts without adjusting fees.

So what are you going to do to make sure you can attract that next desired customer or to ensure that your current customers stick with you, and that your fees are deemed “fair”? How is your value proposition compelling? If nothing comes to mind right away, or concern and discomfort crept into your head, don’t worry. You don’t need to break new ground. Here are a couple of ideas for how you can discover your future-state value proposition just by committing to listening and learning:

  1. Sit down with your friends, neighbors and prospects, and listen. Understand what they like or don’t like about their wealth advisors, or why they don’t utilize one. Formally or informally survey your current customer base. Ask them what unmet needs they may have regarding feeling good about their financial future. They will appreciate you asking for their input. Listen to what they say. When you do so, you are sure to gain insights about future opportunities.
  2. Take a look around the market landscape and emulate future-ready strategies that you’re seeing as effective or innovative. Are you aware of a market-leading advisor in California focused on a certain niche of customers (e.g. retired 30-year-old software executives in Palo Alto)? Does their “secret sauce” have direct or tangential relevance to your business? Has an admired firm found a great way to bundle financial planning and life coaching services together? Do they use an interesting mix of human and robo offerings to expand their account base to more than 100 accounts per advisor? 

According to a new survey reported on by the Financial Times, 54% of wealth managers said being able to differentiate themselves from competitors in the fees they charge would prompt them to embrace technology more quickly. Could enabling your customers or your business via technology be the extra push that sets your practice apart from like-minded firms? 

Understand your options by doing some research, then pick a value proposition that is relevant, matches your strengths and excites you. Be careful to be introspective about what is realistic. You are unlikely to succeed in building a thriving, relationship-based wealth management practice centered around financial and life planning services for professional athletes if your practice is located in Helena, Montana.

3. Wealth advisor, can you achieve time efficiency?

YCharts estimates, based on our daily prospect and customer discussions, that more than half of advisors’ time is spent on low-impact administrative items or non-value added efforts. Leveraging the Stephen Covey “Time Management Grid,” we’ve identified a plethora of items that are urgent, but not that important — for instance: manually updating spreadsheets, reading up on cybersecurity or compliance mandates, trying to integrate software packages, manually tracking market indicators, etc. We’ve found that far less than half of their time is spent on true value-added, generally face-to-face, efforts that help grow or secure their book of business. Ask yourself: When your business is healthy, how will you allocate your time? Hopefully, you will be devoting 75% or more of your time to things that drive revenue and increase client satisfaction.

To find a path to a cure, take a break from normal business operations and reverse engineer your processes. Sort through all the questions on how to create more time efficiencies and make sure you are leveraging processes, technology and tools that will help you get your day back.

4. Wealth advisor, can you envision what your optimal operations look like?

Advisors should constantly be striving to ensure that the processes and workflows that they put in place to manage their businesses are the right ones. However, a recent survey from EY shows that only 10% of wealth managers say the primary focus of their strategic budgets in the next few years is dedicated to operational efficiencies. We all know that budget allocations reflect priorities and are leading indicators of outcomes.

If you’ve got your long-term SMART goals in place, and have defined your unique value propositions, what do you envision your supporting infrastructure of people, processes and technology to look like? What will your customer interaction pattern need to look like? If your differentiation is going to be around providing your clientele of attorneys and doctors with self-help technology tools that they can leverage anytime and anywhere, you’ll need strong and relevant business development efforts and a great technology infrastructure to support these client personas.

To achieve optimal health, operations must be a well-oiled machine for advisors. The less time they need to spend putting out fires from a business process perspective, the more opportunities there are for business development and ensuring customer satisfaction.

5. Wealth advisor, have you defined your exit strategy?

A recent study, conducted by Ensemble Practice, examined more than 200 RIAs and broker-dealers and found that 43% plan to make an acquisition in the next two years. It’s no secret that the M&A landscape in the advisor space is heating up. With so many potential scenarios in play, advisors must be prepared for what the future holds. Is your long-term goal to grow organically? To drive rollups? To be rolled up?

It’s imperative that advisors understand their situation and are gaining the necessary industry intelligence to access the best route for their future growth or exit. If you don’t have a clear impression of your exit, you may not be developing the right infrastructure along the way to support that exit.

Example: If you think your path to ultimate success is to be acquisitive, folding in practices to build AUM and drive profitability, then you need to ensure you build a scalable technology and operational infrastructure that can support additional volume while adding minimal incremental expenses. If you believe your exit is to be acquired in five years, then you should make sure you define who the most likely suitors may be, and ensure that over time they become aware of, and impressed by, your book of business and client service.

To summarize Part 2’s key components to defining your “healthy state”: Create objective long-term healthy state metrics, define a differentiated value proposition, and envision an operational infrastructure that supports improved time and operational efficiency and leads you toward your desired “exit.”

If you find that you’ve been able to answer all of the questions posed in Part 1 and Part 2 to your satisfaction, your business is future-ready and seems truly healthy … or soon to be healthy.

But if these questions have your head spinning, you are not alone. You have been so focused on your customers and the day-to-day that you have not had time to address these thorny topics. If you can acknowledge the symptoms of your illness, and clearly define what healthy looks like to you, you are ready to create a path back to good health.

My next post will help advisors plan a logical “route to recovery,” taking you from “here” to “there.”


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