After launching a practice two years ago, an RIA is ready to take the next step: ramping up growth in assets and revenues. But he's not sure how to do it.

For advice, we turned to our panel of experts: Philip Palaveev, president of Fusion Advisor Network, an Elmsford, N.Y.-based network of advisors; Chip Roame, managing principal of Tiburon Strategic Advisors, a Tiburon, Calif.-based market research and strategy consulting firm for financial institutions and investment managers; and Hellen Davis, president of Indaba Training Specialists, a management consulting and training firm in Treasure Island, Fla.

The Situation:

In 2010, after a decade with a small boutique RIA firm, Thomas Balcom decided it was time to go out on his own. As it happened, a colleague, a veteran advisor, was itching to do the same thing. So, Balcom formed a practice, based in Boca Raton, Fla. and his partner joined, working out of an office in Miami. The two decided not to divide revenues and profits, but to share overhead expenses and investment decisions. Now, with his practice firmly established, Balcom wants to turn his attention to increasing assets, which are a combined $50 million. He's not interested in building a financial empire. But he does want to grow. How best to accomplish that task, however, is something he's less clear about.

After graduating from the University of Miami in 1994, Balcom worked for a defense contractor and medical group in Boston. During that time, he started investing in a 401(k) and became fascinated by the process. That's when he decided to become a financial advisor. To that end, he enrolled in the University of Miami's business school, with a focus on investments. He graduated in 2000 and went to work at a boutique RIA firm in Miami, where he stayed for 10 years.

Eventually, however, Balcom got the entrepreneurial bug and left to start his own practice. He discussed his plan with a colleague, a long-time advisor, who also, it turned out, wanted more autonomy. The result: They decided to join forces and, in 2010, Balcom and the colleague formed a practice, which they called 1650 Wealth Management.

The business model they decided on was largely eat what you kill. Balcom had 100 percent ownership of the firm, but each advisor would own his clients, and take all of the revenues earned on those clients. At the same time, they would share expenses, including such costs as insurance and rent — Balcom was based in Boca Raton, near his home, and his partner had an office in Miami. As for staff, Balcom, seeking to boost efficiency, decided not to hire any administrative employees, relying on his custodians to process paperwork. They also bought Morningstar Office for portfolio management, further reducing the need for administrative staff. “In our old firm, there were employees stuffing envelopes every quarter for reporting,” Balcom says. “We decided to automate that.”

The two also agreed to share in investment decisions, creating their own brain trust; each had veto power over any potential move. Now, during daily phone calls and once-a-month face-to-face meetings, they discuss their strategies for the mutual funds, structured notes and ETFs they invest in. “It's a check and balance system,” he says. And, they also pool money when certain investments require a minimum level of funds.

Now that the practice is all set up, however, Balcom figures he can move to the next stage, attracting new clients to the business, with a focus on the executives and small business owners who already make up the majority of his book. “The infrastructure and systems are in place,” he says. He's working on getting referrals from clients, but isn't quite sure how to go about it effectively. And he's considered, and rejected, the possibility of running seminars. “Here in Florida, a lot of people just come out for a free lunch,” he says.

His goal: to get to a combined asset level of $100 million in five years. “I have no aspiration to create a billion dollar firm,” he says. He also figures that, were he to grow too big, he'd have trouble providing adequate service to clients.

The Advice:

Philip Palaveev

He wants to grow his personal practice but doesn't want to create a larger business infrastructure. In other words, he would like to continue expanding his assets without complicating his life. There are hundreds of thousands of professionals just like him. As much as we tend to talk about building an ensemble firm, the majority of advisors are like him.

I look at his situation as almost back-to-basics. Nothing fancy. He has a good starting point in terms of assets. But to grow his practice there are the basic things you need to do in terms of marketing and business development. Number one is look at your existing clients as your best possible referral source. Seventy-five percent of leads come from existing clients. That means making sure your clients understand your value proposition, that you're looking to grow, and the kinds of clients you'd like.

Two, look at where existing clients came from. Who referred them? Are there patterns in terms of referral sources outside the existing client base? Is there perhaps a CPA firm or an attorney, somebody who's already been referring clients to him? Then look to create a strategic relationship with that referral source. Again, make sure they understand what makes you different, what you specialize in, what are the characteristics you're looking for in clients, the type of clients you're looking to serve. As for developing other referral sources, he should do that. But deeper beats broader. He should seek deeper relationships with fewer referral sources rather than a casual relationship with many.

You've got to arm yourself with patience. This will take time. It's not the kind of process that's going to come to fruition in one month, or two months, or even three months. It could take a year or two or three. You have to continue working your way through the basics. If you want to lose weight, what do you do? Eat less and exercise more. You're not going to slim down in a week. The same with a practice. Approach your referral sources, including clients. Patiently work to develop relationships and give it time. It is reasonable to expect growth of 15 percent to 20 percent a year.

But he has to realize at some point he will probably need an operations person. You can't have $100 million in assets on your own. It will be extremely inefficient and nearly impossible. In fact, if he does not employ anyone it will be difficult to reach $100 million. I don't know of any advisor who has $100 million in assets and does not have any staff. But he doesn't have to create an empire. He just will need some help.

Finally, I don't think he needs to change his relationship with his partner. But I would encourage them to look at what can they do together that will benefit them both. They should take advantage of any chance they have to market together. There might be opportunities available to two people that are not available to a single person.

Chip Roame

The way to grow for someone like him — someone who's already in the business, and not just starting out — is to concentrate on getting referrals from existing clients. He needs to consider implementing a systematic and simple client referral solicitation program. This is overlooked by a lot of advisors, and it's a powerful way to grow. Whether you have 40 clients or 200 clients, all of them have friends who have at least as much money as they do.

When we ask clients about whether their advisors ask for referrals, they say two things. First, their advisor doesn't ask them. Second, even when their advisor does ask, he doesn't make it easy.

So the first thing is, asking clients for referrals needs to be a systematic and recurring event. You have to tell your clients that you want referrals. You could be putting that in your newsletter. You could be mentioning that in your client meetings. You could be sending a special letter to them once a year — it's referral time. You could put it on your business card. There are a lot of ways to systematically remind your clients that you want to get referrals.

Second, you've got to make it easy for them. We hear from a lot of clients, “My guy asked me, but he asked me and I was flat-footed so I didn't give him any names.” Advisors don't do it in an empowering way for the client. In other words, you might need to tell the client ahead of time that you're going to ask him or her for a referral. And then let some time go by before actually asking for the referral. So, for instance, one advisor told me he sends out an e-mail confirming his client meetings a week ahead of time, and that confirmation note mentions his intention to ask for some referrals. The client is empowered for a few days to think about it and decide, oh, maybe this friend or colleague would make a good referral. Whereas if you just ask them when you're sitting in your meeting, I probably couldn't come up with a name, either.

So again, he has to ask for referrals systematically and in an empowering way. Until you've mined your own client base for referrals, I don't want to hear about any other marketing strategies.

Hellen Davis

I would find another three or four guys who are the same age as his partner and start getting referrals from them. There are a boatload of guys looking for junior partners who would be willing to do this.

These guys would share investment advice as well as something else — help with getting referrals from their clients. So, he would say to them, “Listen, I'm going to prospect with you. You guys don't want to do a lot of new business at this point. But what I'll be doing is mining for referrals with you. And I will split that business with you 50-50. Then when you retire, I'll take over your book of business whenever you want to. I don't care when it is. One of these days.”

I would make it formal. I would say, “We're going to meet once a week or once every two weeks and we're going to go over your book of business and we're going to take those guys to lunch and we're going to ask your clients for referrals,” which the guys probably have not done in years and years because they're at a point in their businesses where they just don't do it anymore.

Each relationship would be independent. So he's going to look for three or four of these guys over the next year and he's going to strike a deal with them. And he's going to say, “I'll be waiting in the wings to take over your practice. Or not. But in the meantime we're going to share referrals.” Then he'd suggest how that would work, how he should be introduced. They'd say to their clients, “Listen, this is somebody I trust. One of these days if I'm not around or become disabled, I want you to be able to have someone to call. We've always talked about what happens to you. But in financial planning, you always have to look at what happens to your planner. And also, we're going to look at who you know who might be around the same age as this young gentleman. It's time for us to give back.”

Finding the advisors would be fairly easy. All he has to do is go to any local FPA meetings. Or just call his custodian and ask if they know anyone interested in this type of arrangement. I guarantee there will be dozens.

Of course, he also should try to get referrals from his clients. He needs to tell them the following: “I've been very remiss in not looking after the people you care about. And the reason I haven't is because I hate asking for referrals. But let me tell you what's going to happen if I don't ask and you don't give. If I don't, one of these days, somebody you know is going to die or become disabled or be broke when they go into retirement, or they won't have enough money if they have a problem. And the only way to make sure they're taken care of is to make sure they have a financial planner like me. I don't want you to come to me and say, ‘I wish my brother-in-law had seen you.’” Then he ends his speech asking for a couple of names that day and explaining that he'll bring the topic up at least twice a year after that.