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“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.

Advisor says: I am a new but middle- aged financial advisor who came into the financial advisory industry after years of working in large enterprises. While I’m excited to be my own boss, I know I found comfort in the management discipline I learned in the corporate world. I’m wondering how to apply those principles to my new business. There are common sense things that are intuitively sound in any business environment, but I would welcome your guidance for a fledgling advisor.

Coach says: Congratulations on joining a great industry at a time when demand for financial advice is growing and the number of qualified people able to deliver it is shrinking due to an aging advisor population. The industry needs more people with a solid business background and life experience upon which they can draw. Today’s advisors are increasingly as much a life coach to their clients as they are financial specialists.

You are correct that there are good management practices that apply equally in startups and global organizations. That said, you have a significant advantage over the management team of a large enterprise in that you get to build your new business as you would like it to be.

Most large-company executives are tasked with growing their firms modestly and satisfying shareholders. Your objectives also will be growth and profitability; however, you get to dictate how fast and how high you want those to be.

For perspective on management, let me describe the business life cycle of a successful financial advisor as I have observed it over the years. When I speak at conferences, I illustrate this concept using a pyramid with four levels. Each level becomes smaller in size as we move from the bottom to the top of the pyramid. This graphic concept coincides with the fact that there are far fewer advisors who reach the top level than enter the bottom one.

Level 1: Survival
(Up to $25 million in assets under management [AUM] and up to $250,000 in gross revenue)

The base of the pyramid represents the advisors who enter the business.

The startup phase is generally a struggle. It is a time of frenzied activity as you “wear all the hats” – sales, marketing, operations, etc. From management and systems perspectives, there is little, if any formal process other than what is imposed by your sponsoring firm.

While you may have a strategy in mind for your business, it largely gives way to tactical activities. At best, you are likely to break even financially during this period and, regrettably, many wannabe advisors do not achieve sufficient success to continue beyond their startup efforts.

However, the chances of survival can be improved if you:

  • Have a thoughtful, written description of what you can realistically accomplish in your first year or two.
  • Determine the minimum resources required to carry out activities essential to your success, such as financial planning software and client contact management.
  • Leverage all available dealer resources.
  • Partner with one or more other advisors for administrative assistance.
  • Find a mentor to teach, guide and encourage you.

Level 2: Success
($25 million-$100 million in AUM; $250,000- $1 million in gross revenue)

To move to Level 2, you will have figured out what works and what doesn’t. By now, you have at least one full-time assistant and have begun to develop processes that integrate your management style into the company’s systems.

Your business will pay you reasonable compensation for your advisor activities. However, there will be little, if any profitability left as you continue to invest in your business through enhanced technology and increased staffing.

Your simple client contact-management system is likely to have evolved into a robust client relationship-management (CRM) system that integrates with your firm’s back office. You will have developed the notion of client segmentation, but likely without implementing any service differentiation across the segments.

The need for a strategy to capitalize on your success to date becomes more pressing. Your simple, short-term business plan requires a longer-term “vision statement” to provide a five- to 10-year framework within which to manage your continued growth.

The prospect of continued success can be enhanced if you:

  • Design and adhere to a client segmentation strategy that makes every client relationship profitable (except where you consciously choose to do pro bono work).
  • Create a long-term strategic plan that is supported by a short-term tactical plan.
  • Begin to look for ways to make your business less about you and more about your practice’s capabilities.

Level 3: Sustainability
($100 million to more than $500 million in AUM; $1 million to more than $5 million in gross revenue)

Most financial advisory practices that have prospered for five to 10 years can be considered successful. However, while these businesses may be successful in terms of the lifestyle they provide their founders, many practices at this level are not sustainable or transferable as thriving enterprises in the long term. That’s because their success is often wholly dependent on the founder – his or her relationships, reputation, expertise, charisma and the “secret sauce” the founder brings to the business.

To reduce that reliance and move to Level 3, you must begin thinking about building a business rather than managing a practice. A key to that is transforming the goodwill you created into the goodwill of your business. That generally means decreasing, eliminating or hiding your role as the lead advisor in many of your practice’s client-facing activities.

By this stage, you probably have three or more support personnel on your team. Some have general admin duties, while one or two may have specialized roles, such as research, financial planning and trading. One or more staff members may also be licensed and have a business- development expectation. In the upper half of this level, you also may have appointed a full-time business manager to relieve you of day-to-day operational concerns, which frees you to focus on high-level business development and key client relationships.

Because there are so many hands running your business, systems must be tight and strictly followed. Your CRM system must be full-bodied; your processes well designed and documented; and management reporting meaningful. Many practices of this size outsource several functions, such as portfolio management and marketing.

A sustainable business is one in which you have:

  • A practice continuity plan in the event of death, disability or disaster.
  • A concerted effort to elevate team members other than you in the minds of clients and your target market.
  • Profitability of at least 25% after all expenses are paid, including fair compensation to you for your financial advice and business-management activities.
  • Maturing associates who can be considered partners, currently or in succession.

Level 4: Significance
(Any size)

Because everyone defines success in their own way, for me to say when you have reached a level of significance in our industry would be inappropriate.

For some, success comes from building a large, sustainable and highly marketable business.

For others, success is working their way personally up Abraham Maslow’s hierarchy of needs to the self-esteem stage or perhaps to the hierarchy’s highest level: self-actualization (a.k.a. becoming the most one can be).

For many advisors, the measure of their significance is found in their succession plan or, more accurately, in the legacy they will leave when they leave the business. This measure is reflected in the reliability of the financial plans created with their clients, the success of recommendations made, the quality of their clients’ experience and the care employed in choosing a successor.

The passage from survival to significance is challenging, yet exciting; erratic, yet rewarding.IE

George Hartman is CEO of Market Logics Inc. in Toronto. Send questions and comments regarding this column to George’s practice-management videos can be viewed on