The independent advisory business has matured to the point where more than a few businesses have reached $1 billion in client assets under management, and many more advisory businesses have set their sights in that goal. That’s the good news.
The bad news is that to get there, they will have to break though the barrier that I call the “Terrible Twos” — when you get to $2 million in annual revenues.
The problem with the Terrible Twos is that once you get to $2 million in revenues, owners have to reinvest a higher percentage of their profits than ever before. While these businesses will be growing, they are so large that the growth rates will be lower than they have ever been. That makes most owners feel that their businesses aren’t growing as fast as they should be. In response, they usually either lose heart, or they increase spending on excessively risky marketing plans. Neither is a formula for success.
In my experience, to get through the Terrible Twos and continue growing the business on up to the $1 billion AUM mark, the owner-advisor (or owner-advisors) have to make the most difficult decision of their professional lives. To successfully grow a business beyond this point will require a full-time chief executive officer (who will take the time to understand what’s involved in growing the business and devise and implement a practical plan to get there).
That typically means the owner, or one of the owners, will have to stop being a financial advisor and become a business executive. (Yes, some advisory businesses bring in an outside CEO at this point, but I don’t recommend it and will tell you why below.)
As I said, for most owner-advisors, it’s the most difficult decision they have to make. Virtually all the financial advisors that I know love being financial advisors. They love their clients, they love working with their clients, they love being financial professionals, they love solving financial problems for their clients and they usually love being the “big” revenue producer. Typically, they also love the flexibility and the lifestyle of owning their own businesses.