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Angie Herbers, advisory firm consultant and columnist

Practice Management > Building Your Business

Leadership Means Taking a Hard Look at Real Problems

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I’m often asked, “What’s the biggest practice management mistake that firms make?” 

My two-plus decades of consulting for financial advisor businesses has shown me that the biggest error isn’t really a practice management mistake. It’s a leadership misstep. 

Many firm leaders seek to apply quick-fix solutions to their businesses instead of looking inward to identify the real problem they need to address. 

Plus, when advisory business leaders take action to address problems, their fixes are usually tied to practice management such as implementing a new compensation plan, marketing strategy or sales process. 

Here’s an example. A client firm leader recently came to Herbers & Co. with a desire to update his firm’s partnership compensation plan after the business hadn’t reviewed its arrangement in a few years.

We went through our normal information-gathering process and developed a plan. But months later, the plan had not been executed. 

The leader of the organization hesitated when we asked him about this. He didn’t request us to tweak the plan, and he wasn’t giving us any feedback (or pushback) about issues tied to its implementation. 

Naturally, we needed to find out what was going on, and so we changed our tack. In a meeting, I asked the leader to pretend he was standing on a balcony, looking down at his business. 

Next, I asked him what he saw. His answer was surprising and instructive: He didn’t say that the firm’s executive compensation plan needed reconfiguring and updating, as he’d told us earlier. Instead, he said, “I see partners who’ve been in conflict for years.”

For changes to compensation or for other practice management shifts to be effective, the firm had to first address the long-term tensions among the partners since this was the cause of the inertia around a new compensation plan and other issues.

Out of Focus

What’s most important to note is that the firm’s leader indeed made a flawed leap by deciding to focus on compensation rather than on partnership disagreements and communication problems. In essence, he made a leadership misstep.

No leader can accomplish great things alone; there are countless people, inside and outside of their firms, who help along the way. But making decisions and taking responsibility for those decisions is what leaders must do alone. And they ultimately earn credit or blame for the results of these decisions. 

If leaders are uncertain about their decision-making ability, they tend to throw solutions into the air to see if it might solve problems, solicit the advice of friends in leadership roles, join study groups or follow the decisions of other managers in their firm. 

In other words, they distract themselves from admitting, finding and facing their firm’s deepest problems by focusing instead on quick solutions or tasks related to but not as critical as the real challenge. 

It’s easy to understand why. In human psychology, the struggle to perceive and comprehend issues accurately is known as a self-awareness deficit. It can hinder self-reflection and personal insight. 

A similar dynamic applies to firm leaders. Seeing what a firm really needs to do to achieve its business goals can be very difficult. 

Identifying Problems

But seeking quick fixes rather than searching for and understanding the greater challenges doesn’t help leaders or their ability to better manage their businesses. What does help leaders achieve practice management success is making the decision and commitment to better understand true business problems. 

Financial advisors and firm leaders are used to being experts. Every day, they recommend solutions that can and do improve their clients’ financial lives. Thus, it can be hard for them to pivot from being a solution giver to being a problem identifier. 

A solution giver says things like: “We need a better client experience. We need to acquire a firm. We need to build a new compensation model for our talent.” 

A problem identifier might say: “We have a low close ratio. We have conflicts with partners. We have high employee turnover. Our lead ratio has fallen.” 

Just like putting the horse before the cart, identifying the problem first and then implementing the solution is the most effective way to solve practice management problems.

The client I mentioned earlier had put the cart before the horse. He wanted an executive compensation plan — a solution he identified before zooming in on the firm’s most pressing problem. 

When the comp plan failed to launch, the firm leader was forced to recognize the firm’s real problem. Yet identifying the problem, as uncomfortable as it was, presented us with the opportunity to help the client’s firm and his partners to address what they were avoiding.

We spent just over a month developing a new partnership compensation plan. A month later, when it still was not implemented, we started questioning why. Finally, nearly three months after we started this process, the firm’s leader admitted the real problem. 

Think about this in terms of wasted time and resources. How much time could have been saved by the firm leader if he’d chosen to be solution oriented, rather than problem driven?

Lessons Learned

Unfortunately, when it comes to practice management issues, leadership missteps are the greatest barrier to moving ahead toward workable solutions. Had the leader decided to discuss the firm’s deepest problem, rather than taking a task-focused approach, would we have spent an entire quarter focused on developing a new partnership compensation program? Likely not. 

Instead, that time could have been used addressing communication issues among partners, strategic business planning to get aligned and focused on cohesive firm goals, and helping each partner address conflict in a productive and open way. 

Behind every great business is great leadership, the essential quality that makes firms stand out and succeed. 

As you focus on a new year, commit to prioritizing how you can enhance, build and develop leadership abilities. Don’t spend your time being the all-knowing solution giver.

If you work on skills tied to identifying the real problems at your firm — and what’s really holding your team back — you should find that many of your practice management issues will disappear. 


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