Over the past few years, I’ve noticed that many owner advisors (and more than a few business consultants) are adopting a “Field of Dreams” strategy, mistakenly believing that “if you build it, they will come.”
In the independent advisory industry, the “it” in “if you build it” is the firm of your dreams. And the “they” in “they will come” are the clients. The hope is that if you build a great firm, clients will be flocking to your ballpark.
Some of you may recognize the flaws in this “wishful” thinking.
But unless you’re in the 1% or so of owner advisors who went to business school rather than studying financial planning or other subjects, you don’t have a particularly clear idea of what a successful independent advisory firm should look like — let alone how to build one.
I’m not meaning to being critical, just realistic.
The takeaway is that building your firm around your imaginary model isn’t the best recipe for success.
To make matters worse, you have another major problem to cope with: Your business, more likely than not, is based on asset management fees.
Managing client assets can be the goose that lays the golden eggs for independent advisors (despite what the “flat earth,” I mean the “flat-fee,” folks will tell you). Without AUM fees, it’s possible that we’d all be selling variable annuities, like many advisors did back in the 1980s.
The problem with AUM fees isn’t market fluctuations. It’s that, in most firms, they generate such high, steady cash flows that many firm owners stop monitoring their cash flows. In layman’s terms, they waste money — often lots of money.
Put differently, rather than running their businesses like professional businessmen or businesswomen, they tend to run them like trust-fund babies. (My apologies to any inheritors out there). And that approach can be problematic.
Now, on the one hand, firm owners are being told to “go ahead” and start building whatever imaginary vision they have in their heads for their businesses. And other, more likely than not, they are already spending money like the Kardashians.
What could go wrong?
Here’s What to Do
The good news is that these really aren’t hard problems to fix, once you recognize that they are problems.
The first step is to quit spending like a drunken sailor.