There is an art and a sci-ence to building a highly successful financial advisory practice. And the thing about the arts and the sciences is that while there will always be the revered “masters” of each who stand the test of time, we can always look forward to refinements of the old standards and challenges to traditional approaches so we can be further informed, inspired and entertained.

Such is the value of Practice Made (More) Perfect : Transforming a Financial Advisory Practice into a Business, by industry gurus Mark Tibergien and Rebecca Pomering. This book is an update of their influential work in Practice Made Perfect: The Discipline of Business Management for Financial Advisors, which was published in 2005. But their most recent effort is not simply an updated version of its predecessor.

As the title suggests, Practice Made (More) Perfect extends the notion that to be successful in today’s environment, it is no longer sufficient to be good at your craft as an advisor. You also must be skilled at managing a business.

The driving force behind this trend is the need for increasing efficiency as client expectations for service escalate at the same time as costs are soaring. The result is operational strain and margin squeeze. To manage these challenges, the authors suggest that advisory practices must evolve through three operating models:

1. Advisor-Centric. Individual advisors operate in their own way with their own processes, tools, etc. This works for a solo practice; but if the advisor seeks to combine forces with other advisors for economies of scale or business continuity, the inefficiencies of multiple structures to do essentially the same job become glaringly apparent.

2. Client-Centric. In this scenario, the process is often customized for each client as part of a segmentation or service-level strategy. This model is more costly because it often requires more sophisticated, flexible systems and, as a result, more highly skilled people to work those systems — both of which are more expensive.

3. Process-Centric. As practices grow, there is an increasing need to migrate to a model in which the approach to each client is standardized while the advice continues to be customized and unique to each client. Practices achieving optimal efficiency have a protocol for the way they interact with clients, from the very first contact through the regular review process.

Some advisors will debate that rigid systems cause clients to feel the service is “impersonal,” so it is important to note that the authors do not want you to standardize your solutions for clients or minimize the personal touch; rather, systematize the way you work with your clients. In fact, without such an approach, practices will struggle to grow because advisors inevitably will be spending too much time on operational issues rather than doing what they do best — building relationships and developing new business.

How do you know when it’s time to move on to the next model? Some telltale signs would be:

  • an increase in client complaints or defections;
  • an increase in staff complaints or turnover;
  • an increase in overhead costs as a percentage of revenue.

I was pleased to note that while the authors believe generally that “bigger is better,” they do not take the position that every advisor should build the largest practice possible, noting that, in fact, the vast majority of practices today are single-advisor shops. What the authors do highlight is the importance of making a choice as to how big you want your practice to become and then following through to implement that strategy. If the book is contentious at all, it is in the statement that most advisors are not true entrepreneurs; rather, they are simply employees of their own businesses.

The difference, in the authors’ view, is that entrepreneurs start a business and build it into an organization by investing in people, systems and branding, so the enterprise is not dependent exclusively on them. Self-employed advisors, on the other hand, are primarily reactive and the focal point of all activities, which likely limits their growth potential.

There is simply too much great information in this book to summarize it all fairly. With its conceptual base established, the authors delve deeply into the specifics of what needs to be done in order to make the transition from a practice to a business. There are several chapters devoted to the topic of managing human capital — finding, motivating and leading the people who will be required to carry out your strategy.

There also is extensive treatment of the number-crunching and financial aspects of sound practice management. In my experience, most advisors do not fully appreciate the “metrics” of their businesses and, therefore, cannot leverage their resources — particularly, their own time — to gain efficiencies and improve profitability.

Practice Made (More) Perfect delivers everything it promises. It is full of new, relevant and timely information that is accretive rather than repetitive.

This book reads a bit like a friendly textbook. But I’d suggest that once read, it will occupy a permanent place on your bookshelf for future reference.  IE