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May 29, 2018 at 06:10 AM
Six years ago, I created “Diamond Teams,” an organizational design to solve human-capital training and career-track issues in the advisory industry. (I wrote about this in recent ThinkAdvisor.com blog and received plenty of feedback.)
I am repeatedly surprised by the unexpected benefits of the Diamond Teams structure for independent advisory firms. After my blog appeared online, a member of one of the larger firms I’ve worked with to implement Diamond Teams pointed out that I had failed to talk about the top benefit of Diamond Teams: “The true benefit is the steady 19% per year growth rate ever since we implemented it,” the person said.
Independent advisory firm revenues almost never grow at a steady rate. When advisory firms grow, they invariably run into predicable “growth barriers,” points at which their volume of new clients and assets out-grow their capacity.
At these points, firms need to increase capacity — typically by adding staff and upgrading technology — which requires a substantial reinvestment of cashflow. Consequently, growth rates slow for a time during these building stages.
Thus, it was a surprise when a Diamond Team firm with a steady growth rate didn’t appear to be affected by any growth barriers. After some investigating, I found the Diamond Teams structure provides several “unexpected” benefits.
The Structure By way of background, I came up with the Diamond Teams structure to shorten the time it takes to prepare and to better train younger advisors to work directly with clients. To do this, firms structure teams of four advisors. Envision a baseball diamond with a senior advisor at the top (on second base), two lead advisors (one each on first and third) and a junior advisor at home plate.
All four advisors then work with each “team” client in various capacities. The senior advisor runs the team and has ultimate responsibility for the care and service of each client. Responsibilities are divided up and shared. The lead advisors provide most of the client services. They usually, but not always, oversee either investment management or financial planning.
The junior advisor, who sits in on all client meetings, is responsible for taking notes in the meetings, putting together a report of the meetings’ key points and updating client profiles with any new information.
The team format gives each client a better understanding of the breadth of services they receive from the firm. Equally important, it gives junior advisors a bird’s eye view of what the firm’s senior advisors do for its clients — and how they talk to, work with and respond to clients.
As a result, the Diamond Teams structure greatly accelerates the time it takes to prepare junior advisors to work with clients and to take on more responsibility within their firm. At the same time, Diamond Teams are increasing the firm’s capacity to work with greater numbers of clients. As the firm grows and the lead advisors in its Diamond Teams become more experienced, they can be promoted to senior advisors, running their own teams. Junior advisors can be promoted to the role of lead advisor, and new junior advisors can be added to the team. This is how the system creates a steady stream of well-trained, experienced advisors to work with new clients.
A Real Gem It’s this stream of experienced advisors that seems largely responsible for the high and steady growth rate of firms organized as Diamond Teams. By continually training competent advisors, these firms are constantly prepared to work with an increasing number of clients and assets. Plus, they seamlessly handle new clients without the usual significant jump in expenses or the long lead time often required for hiring and training new advisors. In the Diamond Teams structure, younger advisors learn much faster and are prepared to work with clients sooner. Diamond Teams also keep firm costs down by reducing the need for management oversite. I call it “automatic management.” By working closely together as an interdependent team, advisors young and old tend to effectively manage each other and themselves.
People are social animals and have a strong built-in desire to not disappoint other members of our family, group or team. What’s more, older advisors’ oversight of younger colleagues in a Diamond Team is serious and ongoing, creating a natural culture of mentorship.
