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Practice Management > Building Your Business

How to Build, Cross and Burn Bridges

By Angie Herbers

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The coming new year may be a tough one business and advisory wise, so here are changes to make so you and your firm can survive and prosper in 2018.

Mark Tibergien, CEO of Pershing Advisor Solutions, recently said “The seeds of destruction [in the advisory business] are sown in good times.” The good news/bad news is we’ve been having some very good times in the independent advisory industry lately.

Over the past five years, the S&P 500 has nearly doubled, gaining more than 82%. As you might imagine, this is creating some very fertile ground for those seeds of destruction.

The most common mistakes firm owners make stem from assuming that “good times” will continue indefinitely — no matter how many market cycles we go through. During these good times, they grow their businesses to meet an increasing work load while depleting their financial reserves and maxing out their management capabilities.

To make matters worse, the independent advisory business is becoming more complex and competitive as firms get larger by offering more services, adding more technology, and marketing more aggressively. To prepare for these coming challenges, here are steps managers should take:

1. Check a C-Suite.

As advisory businesses grow, their needs change. This is especially true of firms with annual revenues more than $1 million. While attracting new clients will always be a top priority, other concerns begin to increase in importance. For instance, maintaining the quality and consistency of client service becomes essential to retaining existing clients, which also affects the all-important new client referrals.

Growth means financial management becomes more complex, as do the decisions about the future direction of the business. More advisory firms find they need professional help in these areas, often called the C-Suite, comprised of a CEO, a COO and a CFO. Many larger firms also add a chief marketing officer.

This explosion in upper-level management as firms grow is due to each critical area requiring a full-time manager to oversee the growing number of challenges. The days of owner advisors overseeing all the critical management areas of their firms is quickly coming to an end.

2.Put effort into the business.

In addition to other responsibilities, successful business owners need to spend time thinking about and working on their businesses. Just like their employees and clients, their business has needs, too. Budgeting and cash flow, client services, profit margin, client turnover, compliance and new projects are all areas that you’ve got to get right to have a healthy business. This means regularly monitoring these areas and addressing problems promptly.

Owner advisors or CEOs should set aside a day every two weeks to just monitor and think about the needs of the business. In the coming year, it probably will be prudent to do this review more often. (For more on this, see my recent ThinkAdvisor blog “Growing Your Business Is Not Like Being in a Contest.”)

3. Take a new look at advice.

With the explosion of technology, asset management rapidly is becoming a commodity. That’s not to say advisory AUM fees are too high — that jury is still out — but asset management is becoming an “expected” service included with financial advice rather than a differentiator for your firm.

Largely due to the fiduciary discussions at the Department of Labor, at the CFP Board, and most recently, at the SEC, today’s investors are more aware than ever of the differences in the quality of financial advice. This trend is likely to strengthen.

To meet this demand, independent advisors need to become as good at “selling” advice as they are at selling investment management. In fact, the “advice” portion of their pitch to prospective clients should become the main focus.

The broad financial planning approach — which addresses and coordinates all aspects of a client’s financial life — will become increasingly important (as will advisors’ fiduciary duty to put their client’s interests first). Consequently, the future success of advisory firms will depend in large part on their ability to articulate how they use both services to make the lives of their clients better.

4. Protect your brand.

With client revenues increasing at most independent firms these days, another challenge is advisors leaving and taking clients with them. This is not just happening in the broker world with breakaways. We are seeing a large group of advisors at independent firms leave and take clients.

Surprisingly, the cause of this costly exodus isn’t really the advisors involved. In many larger independent firms today, clients are assigned a “client service” person, who is their primary contact with the firm, and it’s this person who most clients form the strongest bond.

Many of today’s lead advisors have noticed these client service relationships. Therefore, when they decide to leave their firm, they take with them the client service person who has worked with their clients. Ironically, it seems that clients are more likely to follow with the CSR than they are their advisor alone.

The good news is that there’s a fairly easy fix for this situation within your organizational strategy. I’ve recommended that firms stop assigning CSRs to specific clients and, instead, rotate client calls among all their CSRs.

That way, clients form an attachment to the high quality of service they get from the firm, rather than a specific person — and therefore are far less likely to leave the firm with a CSR or an advisor.

5. Review your service model.

Millennial generation advisors are creating a new advisory model that’s targeted to the needs of millennial investors.

The bad news is with their clear separation of advice from asset management, it’s very different from today’s Baby Boom/GenX approach. The good news is to add this new model to an existing old-school firm, all you need to do is hire a millennial advisor and let her/him do her/his thing.

The key to this new millennial advisory model is simply charging a relatively low monthly fee for financial advice ($150) and then directing the clients where to open their own investment management accounts and how to allocate them.

By dealing with their clients exclusively online or on the phone, millennial advisors can deal with three times the number of clients of traditional advisors, which makes this model very profitable and less labor intensive.

With a possible market correction looming, the flat-fee millennial model will become a much-sought-after addition to many traditional firms in the coming new year.

6. Manage your bridges.

To survive and prosper in the new year, owner advisors are going to have to take a hard look at their “bridges.” Staying competitive and doing what’s right for your business is going to require some changes, and some may be harsh.

The key will be staying true to your goals while taking a hard look at virtually every facet of your business and making required changes. For example, some employees and/or partners may not fit anymore or your service model may not be right for the future (vs., say, the new millennial model).

The vendors custodians or broker-dealers that you’ve worked with for years may not serve your needs any longer. Even some clients may not be a good fit anymore.

For many of today’s independent advisory firms, success in the coming new year and beyond is going to require making big changes. In my experience, if you’re not ready to do something different, you’re not ready to grow.

The only things you shouldn’t change are your values and your goals.

In the coming year, financial advice will be pivotal and challenging for the entire industry. As you see changes occur, remember the key to surviving the seeds of destruction is how you manage your bridges: Some bridges you build, some you maintain, and some you burn.

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