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The 4 Key Drivers of Advisory Firm Growth

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What You Need to Know

  • Advisors have to focus on the drivers behind revenue, profits and valuation.
  • Increasing a firm's referral rate is the first and most important step.
  • Next steps are increasing advisor capacity, close rates and lead flows, in that order.

Like most advisory firm owners, you likely want to increase at least one of three numbers in your firm: valuation, revenue or profits. You may even have more than one that you are trying to improve now, and if you are doing well, you are improving all three at the same time.

The problem is that you can’t just set goals on growing revenue, profits and valuation. After all, how much control do you really have over your company’s performance? You can’t make profits rise merely by thinking more about them. You cannot set a goal that says, “We are going to increase revenue” and then have it happen simply by talking about it. Action must be taken.

Instead, you have to focus on the drivers behind revenue, profits and valuation. It’s no different than in financial planning; you can’t change a client’s performance by focusing on it alone. It is the financial planning that enhances the whole picture. With your firm, strategic business planning and implementation drive the performance upward.

So the big question is, what do you focus your strategic planning on to move the performance of your firm? The simple answer is something other than revenue, profits and valuation. The goal is to know the four key drivers of growth to increase all three.

First Step to Growth

Increasing revenue, profits and valuation (I know you do not want to hear this) begins with leadership training. Most often, when there is a revenue or profit problem in a firm (that leads to a valuation problem), leadership is to blame. The problem is usually that an owner feels they do not have enough time to focus on the drivers powering their potential growth.

How do you find the time to focus on your business without sacrificing client relationships? There is no magical formula to time, but it can be as simple as reallocating one extra hour a day, or as complex as hiring. Nevertheless, it starts with the simple decision to do something about it. This is the first decision you must make before you delve deeper into enhancing your growth.

At the core, you must decide to make time for growth, strategic planning and implementation. Once that decision is made, the work can begin.

Over the years, I have found that indecision comes down to two behaviors: (1) owners spending too much time comparing their firms to others, and (2) owners continually making excuses. This wastes time. You must make time for what is important, regardless of what everyone else is doing. As I say to advisory firm clients I work with: “Make the decision. Without the decision, you will never learn.”

4 Key Drivers of Growth

Our firm focuses on the four key drivers in a particular order — from easiest to hardest. Unfortunately, most advisory firms start backward and make their work much more difficult than it needs to be, again wasting time.

The four key drivers in order are:

• Increasing the referral rate. • Increasing advisor capacity. • Increasing close rates. • Increasing lead flow.

Most often, overall performance is influenced by retention and expansion. It is logical for firms to think about expansion first, but retention is more important. Learn to keep the clients you have, and keep them happy, before you can move on to bringing in more clients.

The same goes for employees.

Again, this is no different than investing. Who earns more over the long term: the day trader with a bunch of turnover, or the buy-and-hold investor? Retention is about building and improving on what you already have, not trying to buy more. Additionally, if any advisory firm gets focused solely on expansion (adding more clients and employees), then they aren’t paying enough attention to what is already there to help you save enough time to do more.

Let’s take a look at these drivers of revenue, profits and valuation and what you can do today to improve them. The answers might surprise you.

How to Increase Your Client Referral Rate

Moving the client referral rate is about innovating and improving your client experience. The better you serve clients, the less complacent you become. And the more you become front and center in your clients’ minds for all things financial, the more new clients they refer.

To do that, you increase your communications that add benefit to their lives. This isn’t about a blog post on your website. Increased client communication is better communication, and it begins with educating your client on your client experience process.

What one action can we take today to improve client communication? Usually, the answer is training the client.

How to Increase Advisor Capacity

This is about your operations. I have no doubt that the fastest-growing firms are one-firm, one-process organizations. That means you have one cohesive service model within the organization that all advisors follow. Every advisor operates the same way.

Growth problems occur and capacity gets limited when different people in the same firm operate as if they were on their own. You must get everyone operating under the same process to improve the speed of everything else you do — from training new advisors to serving clients.

What does our firm need to do to get everyone operating the same way? Again, the answer is training — training the advisor.

How to Increase Close Rates

Increasing your close rate is about closing more prospects and closing them faster. If it takes you two months to win one new client, think about the dramatic difference it would make if it took you only one month to close instead. Many firms have good close ratios, but their time to close is the real hindrance. A long sale cycle significantly hurts profit margins.

What does our firm need to do to decrease the time it takes to close a prospective client? The answer is sales training.

How to Increase Lead Flow

Lead flow is last because if you have poor referral rates, limited capacity and a bad close ratio, then what’s the point of adding more leads? You should not invest money in marketing programs that can generate high lead flow if your business isn’t ready to accept such leads.

What does your firm need to do to increase lead flow? The answer is marketing training. If you’ve understood my point, training is how you can maximize revenue, profits and valuation. The fastest-growing firms do not layer on marketing programs when things are going poorly. They add them when they are winning.

To get good at any performance, be it sports, investing, or growing a business, you train and train, and keep doing it to win more.


Angie Herbers is an independent consultant to the advisory industry. She can be reached at [email protected].