11 Ways Advisors Can Be Smarter About Growth

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1. If you lack the capacity to take on a major new client, subtract a current client.

If your firm sees an opportunity to grow its revenue and client assets by adding on a major new client, Kitces recommended making a list of current clients on a spreadsheet with the fees you get from each client in a year.

“Draw a line at the 50th percentile,” based on “whatever the dividing line is of the clients that pay what are now above” your average fees and the clients that pay below average fees,” he suggested. “From now on, you're only allowed to add clients above the line, and every time you add one above the line, you have to subtract below the line.”

After all, he explained: “If every time you add one above the line and subtract two below the line, you will make more money for less work because now you will actually have fewer clients and more revenue per client.”

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2. Make sure adding a new client presents your firm with a ‘winning opportunity.’

When it comes to adding new clients, “the goal here is to make sure they're winning opportunities,” according to Kitces. There shouldn’t be concerns about a lack of capacity to handle the new clients or whether adding those clients will create too much additional work, he said.

The “C client castoffs” you drop could end up being another advisory firm’s A clients, he noted. “Someone else out there would love to get the clients that aren't a good fit for you and will service them wonderfully well because those will really be great clients for them,” he added.

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3. Before adding new employees, make sure they will be worth the investment.

While trying to grow your firm, it’s important to make sure you’re hiring the right number and type of additional employees.

“I remember my dad teaching me this a long time ago,” recalled Klein: “If you think it's difficult to bring a new client aboard, try bringing a new employee aboard. It’s a lot more work to bring the new employee aboard than to bring the new client aboard.”

Kitces agreed, saying: “What we always forget is the time it takes to hire, to onboard, to train and then to manage them on an ongoing basis…. We always get this idea in our head [that] ‘if I could just get a little bit more revenue, I could hire a few more people and then [things] would finally be so much easier.’ And that never comes because more people, more problems, or at least more people, different problems.”

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4. Make sure you know what part of your business you want to grow and why.

“The problems never go away, which is why” it’s important to figure out “what really are you trying to grow” at your firm and what is the “purpose of the growth,” according to Kitces.

The problem is “most of us just only live in this realm where the only path to growth is more clients and the only path to more clients is more advisors, and that's suddenly supposed to make me more money and give me more time,” he said.

However, “only sometimes does it make more money,” he said.

Too often, when a firm hires “more advisors, it's not because we have so many great clients coming to us; it's because we're trying to cling to the smallest clients that we're not comfortable letting go of,” he said.

What too often happens is “we take our smallest clients and we hire very expensive advisors to service them and it's just not profitable,” he added.

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5. Make sure you’re charging a premium price for premium client service.

In general, when consumers want a “premium solution, we do pay a premium price” for it and people who want that premium solution are “quite happy to pay for premium,” according to Kitces.

Too many advisors, however, don’t charge premium fees for premium service, he said. However, if “you raise your fees and a couple of clients leave, you still have more revenue because you usually raise them by a lot more than anybody who leaves” was paying, he noted. “And there’s less people to do work for, otherwise known as a higher profitability, more productive practice.”

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6. Don’t be afraid to increase your fees during a weak market environment.

Not only should advisors not be afraid to increase their fees, they also shouldn’t be afraid to increase their fees regardless of what’s happening with the stock market, according to Klein.

“I think a lot of firms are very nervous to go out in the middle of a bad market environment and say, ‘I'm going to raise your basis point fee,” Klein said.

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7. Make sure the growth your firm is seeing isn’t just a result of the market.

Klein cautioned that advisory firms should make sure that any growth they’re seeing is not just a fluke based on the market.

“I talk to a lot of financial advisors that will say, ‘my AUM is up X%,’” he noted. But what they aren’t considering is, “as Warren Buffet used to say, ‘it's when the tide goes out that we find out who's been swimming naked.’”

The question that needs to be asked is “how much of that is really a market-based phenomenon where we're just riding along with the markets and how much of that is actual growth,” Klein said.

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8. Consider specializing in one type of client base.

Kitces encouraged small advisory firms to select a specialty — a piece of advice he has given before.

“In the solo advisor space, the firms that are gaining traction that we're seeing are the ones that are picking some kind of specialization or focus area, and they're going after it and they're going all in after it,” he said.

“Sometimes that's around a technical expertise” and sometimes that could be by targeting specifically clients who are, for example, doctors, or even more specialized, eye doctors, he said.

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9. Be cautious with marketing budgets.

Advisory firms should be cautious about what they’re spending on marketing as they try to grow their business, according to Kitces.

After all, he told viewers: “You don't tend to see the marketing teams keep getting bigger and bigger and bigger because at some point you've got all the people [needed] to execute the marketing strategy.”

However, some firms will reach a certain level of growth they were looking for and decide to “take my foot off the gas,” Kitces said.

While growing, a firm’s entire business model may shift to where you have to “think of sales and marketing as a separate function from service and build each of them separately,” he said.

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10. Be wise with your firm’s tech investments.

Asked if there are ways advisory firms can create firm-wide efficiency through technology and how can they use that to leverage growth, Kitces said: “It's a great question.”

The first issue, he said, is “you have to break up where tech shows up in a firm into a couple of different areas.” Instead, “we tend to talk about tech and efficiencies of tech as though” it’s all the same thing, he noted, adding: “It’s really not because different parts of tech throughout the firm are really built to do different things.”

On one side of the tech offerings are customer relationship management (CRM) and workflow automation while, on the other side, are tech including e-signature and digital onboarding tools, Kitces noted.

Automation is destined to significantly help in the back office, he predicted, saying “one administrative staff member will be able to support even advisors and a thousand clients.”

Meanwhile, “you have to separate out tech that makes us more efficient, which is mostly a back office conversation, and tech that makes us more effective, which is a front office conversation,” he added.

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11. Delegate.

“Once you get to the point where you've got enough clients to keep you busy, if you're doing that work and you can't delegate it and let it go, well, we need to have a delegation conversation” at the advisory firm, Kitces said.

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1. If you lack the capacity to take on a major new client, subtract a current client.

2. Make sure adding a new client presents your firm with a ‘winning opportunity.’

3. Before adding new employees, make sure they will be worth the investment.

4. Make sure you know what part of your business you want to grow and why.

5. Make sure you’re charging a premium price for premium client service.

6. Don’t be afraid to increase your fees during a weak market environment.

7. Make sure the growth your firm is seeing isn’t just a result of the market.

8. Consider specializing in one type of client base.

9. Be cautious with marketing budgets.

10. Be wise with your firm’s tech investments.

11. Delegate.

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11 Ways Advisors Can Be Smarter About Growth

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More on this topic

1. If you lack the capacity to take on a major new client, subtract a current client.

2. Make sure adding a new client presents your firm with a ‘winning opportunity.’

3. Before adding new employees, make sure they will be worth the investment.

4. Make sure you know what part of your business you want to grow and why.

5. Make sure you’re charging a premium price for premium client service.

6. Don’t be afraid to increase your fees during a weak market environment.

7. Make sure the growth your firm is seeing isn’t just a result of the market.

8. Consider specializing in one type of client base.

9. Be cautious with marketing budgets.

10. Be wise with your firm’s tech investments.

11. Delegate.

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