Location Dislocation

That is not to say that a multi-office strategy can’t be successful. In fact, some form of branch office or multi-office footprint makes a logical step in the evolution of an advisory firm. Another office allows advisors to replicate what they’ve built successfully in one place and, over time, can give the firm operating leverage by expanding its base. Done consistently, a multi-location expansion plan can also result in higher overall profitability, access to talent pools in other markets, higher valuations upon exit and even more succession options.

But in order to do it right, advisors should implement the following best practices before opening a new location or, if a second office already exists, these steps should be considered.

1. Think strategically. With most business decisions, actions without context often produce unintended consequences. In the case of opening offices, we have observed that many of these situations occur by chance and not by plan. Sometimes reacting to an opportunity bears fruit, but more frequently, it bears heartburn. Questions to ask before expanding include:
a. In five years, what do we expect this office to look like (size, clients, assets, staff)?
b. How will this extend our brand?
c. What is the most logical location for another office based on our vision, mission and clients?
d. What will it cost, over what period of time, and what will be the payback?
e. Who will lead it and how will we evaluate their success?

2. Organize according to your strategy. A common mistake is to structure the office around the capabilities and interests of the person who will lead it and the other talent there. This creates an advisor-centric operating model instead of a process-centric model, resulting in inefficiency, errors and inconsistency. Clearly defining what you are trying to accomplish and designing the local organizational structure around that strategy helps to create a more profitable, more leveragable office. When contemplating the structure, also determine what could be addressed in the headquarters. The more the local office can be geared toward procuring and serving clients rather than the more commoditized aspects of running an advisory firm, the greater the chance of having a profitable operation. Further, narrowing the scope of what is done in the branch enhances the firm’s ability to create scale and redundancy in certain positions.

3. Manage full time. A branch office is a different kind of animal from the main office. People working in satellite locations often feel ignored or slighted by people in the headquarters. This is further aggravated if they depend on the main office for support in any way, such as in producing financial plans or basic operations. In addition, people who work outside of the main office oftentimes do not see or experience the same developmental opportunities. Making a branch office operate smoothly requires the presence of dedicated management who ensure that the brand promise, culture and processes are carried out consistently, and that individuals in the branch are developed and rewarded at the same level as those in the main office. This is also an expense, but the cost of turnover, mistakes and dysfunction over time is greater.

4. Don’t over-diversify. Related to strategy and process, avoid stretching your resources over too many markets either geographically or by type of client. When dealing with a varied client base with different advice and service needs, you strain your infrastructure and run the risk of confusing the local market as to what you are offering and who you are serving. A branch is the tip of the spear in creating a local market, not a cumbersome 2” X 4”. Be as specific and targeted as possible to generate brand awareness, rather than exhausting yourself trying to find and serve the right market.

The study created for Pershing—Creating Growth: The Rewards and Challenges of the Multi-Location Model—revealed that every firm with multiple locations has a different approach: some centralize, some decentralize; some open offices to serve migrating clients, others do so to create new markets. For advisory firms that have built a strong brand in their local markets have implemented efficient processes for how they do business and have clarified their strategy, a new location can be an effective means of growth—if conceived properly and executed according to a plan.