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Practice Management > Building Your Business > Leadership

3 Steps to Boost Organic Growth

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What You Need to Know

  • Most firms already have what they need to meaningfully improve their growth.
  • Advisory firms make clients happy and keep them by ensuring that there’s plenty of service capacity.
  • The best gauge of when to hire is related to internal benchmarks, such as a firm’s advisor-to-client ratio or advisor-to-revenue ratio.

Are you wondering where your firm’s next leg of growth will come from? Leaders often look outside their business for the answer — typically, they’ll gravitate toward adding marketing services, hiring star advisors, or exploring mergers and acquisitions.

But the fact is that most firms already have what they need to meaningfully improve their growth. Rather than searching for external silver bullets, firm leaders could choose a path that may be more labor-intensive but often far more effective. The key is remembering that the field is people-centered.

Organic growth doesn’t get the kind of headlines dedicated to non-organic growth in industry publications, and probably never will. But the most common question that advisor firms ask my consultancy is not “How can we sell or buy?” but “How can we really get growing organically?”

There’s a huge amount of interest in organic growth among wealth management firms. Those who have figured it out are the same ones being deluged with acquisition offers.

Often, firm leaders assume marketing is the way to take growth to the next level, for example: “We provide a great set of services, and we just need to broadcast that to the world!” That line of reasoning is understandable.

But our firm’s two decades of experience has taught us that growth is all about a firm’s people. Financial advice is a service-based business, and the more advisors you have, the more opportunity you have to serve clients and spread your brand message.

But that doesn’t mean you should rush out and hire five advisors. Instead, it’s imperative to lay the proper groundwork. Here are some tips:

1. Understand your capacity requirements.

A major mistake most firms make is failing to ensure they have enough capacity within their advisor teams to enable sustainable growth. The recurring revenue model makes it easy to continually assign new clients to an advisor without stopping to think through how many clients each advisor can effectively serve.

There is no one-size-fits-all formula that firms can use to determine the optimal ratio of advisors to clients, simply because each firm’s service model is different. It’s up to each business to figure out the right ratio — as well as maintain that ratio by hiring more advisors at the right time. The No. 1  killer of organic growth is employing too few advisors to properly serve the growth in clients, which means hiring too late.

And these days, the definition of good service has changed. When clients contact an advisor with a question or concern, they expect a response in an hour or two. Advisors who are tasked with serving 250-plus clients, which is common in the industry, simply won’t be able to meet these new expectations.

A lack of service capacity can make clients sour on the firm, and it certainly makes them think twice about recommending it to others. The inverse is also true: Clients who sense that their advisor is really taking the time to care for them are likely to become great advocates for the business.

That’s why I’ve long argued that the best investment a firm can make in growth is adding to the capacity to grow. Advisory firms make clients happy and keep them by ensuring that there’s plenty of service capacity.

It’s tempting to hire more support people in the hopes of solving capacity problems; they’re cheaper than advisors, after all. But experience has taught us that, while they can help a bit with the capacity gap if they’re used properly, they can’t close it. Once you’re clear on your firm’s target ratio of advisors to clients, it’s time to do some organizing.

2. Clean your closet.

Imagine you have a messy closet: Every time you’re not sure where to put something, it goes in the closet. You keep filling that closet with more and more random objects every year. When you’re looking for that odd something or other, you search the closet, but of course it’s in such disarray that to find anything, you have to take everything out, and then put it all back in.

The chaotic closet is, unfortunately, a good analogy for financial advice firms’ organizational structures — how they divide responsibilities among their people. A well-organized business is like a well-organized closet: When you need something, you can open the proverbial door and grab it quickly, without wasting productive potential.

Firms that assign new responsibilities to different advisors willy-nilly quickly lose a realistic understanding of their capacity to serve clients. When new clients come in the door, these firms don’t know where to put them, so they become another object thrown into the closet.

Many firms layer on marketing or add advisors without creating a sustainable organizational structure that can accommodate the entire growth curve of the business. They end up with the business version of a cluttered closet, and their growth and profitability suffer as a result.

So to maximize organic growth, understand your capacity requirements and make sure responsibilities are well organized. That alone will allow your firm to add a substantial amount of growth. And you will have created a good foundation to which you can add advisors when the need arises.

3. Ready, aim, hire.

As your firm grows and adds clients, it’s important to make objective, clear-eyed decisions about hiring. Many firms fall into the trap of adding advisors based on temporary capacity constraints. Advisory firms go through workload cycles; tax season and the end of the year are usually busier than, say, the summer months.

During those peak-load periods, firm leaders can feel overwhelmed, advisors may complain of overwork, and on an intuitive level it will feel right to bring more advisors aboard. But the best gauge of when to hire is related to internal benchmarks, such as your firm’s advisor-to-client ratio or advisor-to-revenue ratio.

Once firms get a good handle on their capacity benchmarks, do the organizing work and position themselves to hire wisely, growth picks up naturally. When advisors have the bandwidth to do the work that really impresses their clients, referrals tick up. As clients join the firm, advisors are hired to keep the firm in the client/advisor ratio sweet spot. Then, if firms want to ratchet up growth even more, they can look at layering on marketing programs.

Unfortunately, most firms seeking organic growth start with what should be the final step — beefing up marketing. If marketing yields new clients, they are assigned to existing advisors, who become overwhelmed and leave the firm. Firms react by hiring advisors in a game of catch-up.

In the course of my consulting career, I’ve found that the top reason firms stop growing organically is because their leaders fear the firm won’t be able to accommodate the growth. The answer is simple: Hire more advisors. The work needed to get to that point can be substantial, but it will pay off in the long term.