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Practice Management > Building Your Business

4 Steps to Take When Launching Your Advisory Business

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During the past year, I’ve noticed a trend that promises to have a bigger negative impact on large independent RIAs (with more than $500 million in client assets) than the lack of a full-time CEO.

Many advisors have contacted me about leaving their current RIA firms to set up their own businesses — the majority being my new client prospects. And worse, that number appears to be growing.

It’s ironic that most owner-advisors of independent RIAs started their businesses to escape the pressures and conflicts of the “financial services industry,” only to recreate a similar environment in their own firms.

While many independent RIAs have grown dramatically in the past decade, a significant number of these also have adopted the “production” and “revenue” quotas that used to be typical of only the sales side of the industry.

Consequently, when advisors leave to start their own firms, it’s not due to making more money, but rather, to gain more autonomy in how they work with their clients and reduce the pressure to grow the number of clients.

Today’s larger firms may think their biggest current challenges are fee compression and maintaining their margins, but I suspect that a high turnover rate among their professional employees will prove to be the biggest impediment to their success in the near future.

Next week, I’ll talk about what larger advisory businesses can do to reduce or even eliminate this looming professional brain-drain. But today, I want to talk to the growing number of advisors who are thinking about jumping ship.

I’m not going to try to talk you out of it.

The history of the independent advisory industry has been built on advisors jumping ship from somewhere, even if leaving RIAs to do so is a relatively new phenomenon. But I am going to walk you through your decision so you can be reasonably sure you’re doing the right thing for the right reasons.

Here are some thoughts to consider:

1. Ask youself if you really want to have your own business.

From a business perspective, there are two kinds of people in the world: those who want to be their own boss, and those who are more comfortable working for somebody else. It comes down to how much you value freedom verses how much you dislike risk.

Some people just don’t like the idea of others telling them what to do. As you might guess, they often have problems working for someone else. (This doesn’t help much in relationships, either.)

Other people don’t like taking risks. They like getting a steady paycheck that someone else is responsible for covering, and having their potential career advancements laid out in from of them.

So, if you’re risk averse, which is likely considering you took a job in large firm, you need to think long and hard about whether you’re really going to be comfortable starting your own business. Take it from me, owning your own business isn’t easy and often not that much fun.

My advice is that if you don’t really feel the strong want/need to have your own business, you probably should stay where you are, give yourself an attitude adjustment and figure out how to get what you need from your current firm.

Maybe you’d be happier in a different job: moving from financial planner to portfolio manager, or visa versa. Or perhaps you’d do better as a rainmaker.

And, hopefully, articles such as this one will get thorough to the owners of large RIAs and they’ll make their firms better places to work. As a last resort, you always can look for a smaller firm that hasn’t gone corporate yet.

2. Forget the business plan.

If you’re one of the unlucky few who are compelled to own your own business, you’ll most likely need an attitude adjustment, too.

Unless you’ve owned your own business before, you probably have business-schoolesque ideas about writing a business plan, mapping out your future, setting milestones, etc. Forget all that.

I know, I used to believe in that stuff too. But over the years, I’ve realized that building a business isn’t like assembling a bookshelf. Every business is different — which means it’s a learning experience, not an assembly project. 

To build a successful business you have to take it one step at a time, do the best you can, assess the result, and then decide what needs to be done next. There’s no point in worrying about those “next steps” until you take the first one.

I can’t tell you what those next steps will be — no one can. But I can tell you what your first step should be.

One of the most important things that Billy Bean and his “Money Ball” management style taught us is that just getting on base is the key to winning. Sure, you can swing for the fences, but even the greatest hitters don’t hit home runs often.

By getting on base the chance of scoring is much greater. The business translation is this: Don’t worry about the future, just build your business one step at a time — one hit at a time.

To launch your business, the first “hit” is to generate enough revenue to live on. That’s it. That’s all.

How much do you need to bring in to take care of your living expenses? Calculate it, and write it down. Then calculate how many clients you’ll need to hit that number.

Then, devote the majority of your time and energy to figuring out how to attract that number of clients: Who are they? And, how can you convince them to work with you?

3. Believe in yourself.

At least that’s what all the self-help books say. But that’s only half the formula.

Of course, it’s important that you (and any partners in your new firm) believe that you’re good advisors and can dramatically improve the lives of your clients.

But to start a business you also have to really want to do it, too. I mean, really, really want to. 

These two notions — that you’re doing good, and that having your own business is the best way to do it — will enable you to figure out how to attract enough clients, and what to do after that. 

4. Take the next steps, one at a time.

By taking these first steps, you will have positioned yourself to grow a successful business, and to believe you can.

What’s the next step? I don’t know, but you will when you get there. And then you’ll figure out the next step, and the next step…

Successful advisory businesses are built one step at a time: Doing what needs to be done next now — and when you get to the future, doing what needs to be done next then.


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