Not So Fast, Tortoise

Do you have the right people? Are they in the right jobs? Do they have enough of the right training? The right equipment? Do you have the right clients? Do you provide the right client services for those clients? Do you have the right strategic partners or other outside support?

Once you’ve answered these questions as honestly as you can, you may have to decide to do something about some of these issues. You can always choose to fix existing problems later, but in my experience, with a few rare exceptions, it’s almost always better to fix them now so you and your firm can move on.

2. Manage risk. When you’re building an advisory firm, your inclination is to take almost any client who can fog a mirror. But if you want to position your business for substantial growth, you should take a more strategic approach — which includes managing your risk. For most independent advisory firms, their biggest risk is a lack of diversification in their client base.

Yes, I know that’s it’s usually more operationally efficient to focus on clients who have some similarities in both their financial lives and their financial needs. What I’m talking about is diversifying by client size.

I’m often surprised to find that many advisory firms — even larger firms — are generating a significant portion of their revenues (20% or even higher) from as few as two or three clients. Perhaps you can see the problem here; the loss of one of these clients can create a hit to revenues greater than many market drops. Because wealthy clients are often friends, losing one can snowball into disaster.

Now, I’m obviously not saying that you shouldn’t have wealthy clients, but if you have one or a few clients who represent a substantial portion of your firm’s revenue, you have a risk problem. And the way to solve it is to increase your diversification: either by getting some more wealthy clients or by adding a lot more not-so-wealthy clients.

3. Get back to delivering what clients truly want. This is perhaps the hardest thing for most owner-advisors to understand these days, and I don’t think it’s really their fault. Advisors today are deluged with advertisements, reports, studies and speakers, all talking about what financial professionals “need” to succeed: new technology, marketing approaches, services, financial products, ways to communicate, etc.

The best data I’ve seen tells me that at least 80% of the value advisory clients get is the advice that comes out of their advisors’ mouths — not from online portals, the Vault, eMoney, reports, tweets or blogs. In my experience, however, as advisory firms get bigger, they tend to cut back on the advice and client face/phone time in favor of adding all that other stuff, which they apparently believe they need to add to keep up with the competition. But what they are actually doing is adding costs while reducing client service.

In my view, this is exactly the opposite of what advisors should be doing, especially in this age of downward pressure on pricing. The key to competing — and winning — is to increase advisor/client contact and not to decrease it. Clients don’t want stuff. They want advice that will help change and enhance their lives.

4. Focus on your client base to grow. In this fast-changing digital age, many advisors seem to have forgotten that their clients still represent their greatest growth opportunities. Today, most firms do not manage all their clients’ financial assets. In fact, most firms don’t even know their clients’ total financial assets.

Before you implement a detailed growth strategy or a fancy marketing plan, take a year and work on discovering the gems in your existing client base. This doesn’t have to be complicated. Simply ask clients a few deep questions about additional assets, outside assets, future assets, etc. I’ve found that the reason advisors don’t manage more of their clients’ assets is that they never ask about them.

It’s far easier to fix a business first and then to grow it rather than vice-versa. The main idea behind building a pre-foundation for your firm is to eliminate as many potential risks as possible and take advantage of existing opportunities. Once you’ve done that, you’re ready to release the slingshot and propel your firm into the future.

— Read The Key to Success Is Often What You Don’t Know on ThinkAdvisor.