Independent registered investment advisors are often referred to as small firms that are perhaps unsophisticated and inexperienced in their management processes and, therefore, need to learn some basic ways of managing their practices. (Hence one hears the phrase, “practice management.”) The default assumption behind many articles, research reports, and presentations is that the owners of the RIA firms are neither trained in management nor interested in managing a firm and that somehow they prefer to be “working with clients” rather than running their firms.

The same assumptions about small size and lack of sophistication and interest are also often driving the approach that investment managers, technology vendors and even custodians take to RIA firms. All these assumptions may have been valid 10 years ago, but today it is time to forget many of the popular practice management axioms and look for deeper understanding of business management for RIAs.

First of all RIAs are no longer so small. The largest independent RIA firms in the industry today manage well over $10 billion in AUM, have over 100 employees and are large and sophisticated enterprises employing highly skilled managers. This is not just true for one or two firms: To be listed in REP. magazine’s annual survey of the top 100 RIAs in America, an RIA has to have a minimum of $535 million in assets. This is backed up by the WealthManager.com list of RIAs; it too has at least 100 firms listed who have well over $500 million in AUM and large staffs. (WealthManager.com, a site for investors to find advisors, is not to be confused with REP. magazine’s website, WealthManagement.com.)

Beyond the listings, I see examples of the growth in experience and sophistication at just about every meeting I go to. For example, in the most recent Ensemble Institute held by my firm in Boulder, Colo., we had 14 firms with an average of $2 million in revenue and the two days of discussion showed service capabilities and approach to management that went well beyond the basics. The RIA industry has grown tremendously and with its growth in size has come an increase in the knowledge of the owners on how to manage the firm.

It is time that we stop speaking about “practice management” and start focusing on “business management” because the top RIAs today are no longer “practices” – small units that are extension of the skills and talent an advisor but rather real businesses with their own strategies and their own cultures. As a result, all of us who provide advice and council to RIAs need to not just update our terminology but also update the advice itself and reflect a true business management approach.

This means that we have to forget some of the most common axioms given to practices because they will not serve a business well. Here are some of them:

Focus on your [the owner’s] strengths. This is great advice for a practice but a problematic approach for a business. After all the whole idea of an enterprise is that it will transcend the skills and strengths of one person or even a small group of people and rely on the strengths of a team. The driving force behind a business should be its vision and the strategy for achieving that vision, not the limited experience and strengths of a person. An RIA of the size we see in the market today can acquire skills and strengths by hiring qualified people. If you are personally not the best operations manager – add a skilled chief operations manager rather than build a business without operations. This is also one of the true powers of a partnership – specialization and complementary skills.

Do the things you enjoy doing. Whatever business you create you should enjoy the experience and derive personal satisfaction from the process. However, as an owner, you have to be keenly aware of the needs of the business and be able to put those needs ahead of your own desires. Ideally, the creation of a business gives you more satisfaction than meeting some minor preferences. This process of “subduing the owners to the business” is very similar to the process parents go through. After all, you can’t build a family around doing only things that you enjoy. Trust me: You don’t see “Finding Nemo” seven times because you enjoy doing so. You do it because ultimately having a family is worth more than watching all the Tarantino movies. Similarly, if working from home is your priority, it may not be compatible with building a business. However if you can subject your preferences to a bigger goal, you may find that creating a successful business is worth the commute to the office.

“You are the brand.” This is a great way to build a personal practice and a very bad way to build a business. It is certainly true that most advisory practices were created based on the skills and talents of their owners. Clients essentially hired “Bob the advisor” to work for them because Bob’s experience and personal style was attractive to them. Unfortunately we cannot build a business around Bob without being very vulnerable to Bob. A business should at some point become “B and B Enterprises” when clients come to the firm not just a single person. Marketing as a person and worse excluding the rest of the firm from the relationship is an instinct some advisors may have developed as part of a wirehouse or regional firm but it is an approach that sabotages the ability to grow your own business.

Delegate you worst clients and the things you dislike to your staff. Needless to say, “dumping” unwanted work on someone will hardly make him excited about his job. What is more, the small clients or menial tasks may not even be a very good training ground for an associate. In fact such work may be teaching the wrong habits. For example, advising on $100,000 relationships may not be the best way to prepare someone to advise a $100 million dollar relationship.

Use compensation and bonuses to manage you staff. Compensation is a horrible way to manage staff much like candy is a terrible way to manage your children. Compensation can and should reinforce the goals and culture of the firm but it should not become the primary method for promoting or changing behavior. For example, a common advice for owners who feel that their staff does not contribute to sales is to create a bonus for sales. Usually the bonus does nothing to contribute to sales beyond a minor surge in meaningless activity. Instead, a well thought out training program and a realistic process (most of the staff really has very limited ability to generate leads) can be more helpful.

A well-managed firm should have many effective tools at its disposal – mentoring, performance evaluations, goal setting, training programs, ongoing feedback that can serve much better to drive behavior. What is more, there is much research that employees respond at a much deeper level to the culture of the organization and the sense of making a contribution than any complex bonus formula. Structuring compensation is the first-step advice that is often given to practices. The advice for larger firms should be: “Manage your culture and it will manage your people!”

Do what successful practices are doing. Learning from other firms and colleagues is an invaluable way of furthering your knowledge as a business owner; copying what they are doing, however, is often a flawed way of building a business. At a certain level of competition you will need to chart your own course and follow your own path to success. Following a cookie-cutter approach is a good way to build a franchise hamburger chain but not a good way to build a great restaurant. Every strategy, by definition, should emphasize what is unique about your business. As Gary Kasparov, former world chess champion, says, “Being a good chess player is about knowing the fundamental principles of strategy, being a great player is knowing when to break them.”

The transformation from a practice to a business is not intuitive and never easy but it is very rewarding for those who can achieve it. My friend Greg Friedman, CEO of Junxure and Private Ocean Wealth Management, told me a story that serves as a perfect test for when you have become a real business. Greg told me that one day he walked into the office and saw a person waiting that he did not recognize. He asked the receptionist, “Who is this?” She replied, “A client.” Greg told me that this was the moment when he knew he had a real business – he had a client he had not personally met. They say that the biggest enemy of great is being good; but, to build a real business, you often have to unlearn some of the basic practice management axioms that have served you well and focus on the next step – business management.

Philip Palaveev is the CEO of The Ensemble Practice LLC. Philip is an industry consultant, author of the book “The Ensemble Practice” and the lead faculty for The Ensemble Institutes. More information about The Institute and the book can be found on the website for the Ensemble Practice (www.ensemblepractice.com).