Three years ago, William White and his partner got serious about growth.
White had teamed up with a fellow Merrill Lynch advisor 10 years before, expecting to see assets and revenues of the Martin White Group, their joint Chicago practice, start soaring. But, unlike White's book, his partner's business was mostly transaction-based and it took a while to transfer to a more fee-based model. Then there were market ups and downs. The result: Growth of about 4 percent a year over the next eight years — a far cry from the doubling of revenues and assets White had expected.
Then, in 2008, the partners determined it was time to make a major shift. They were going to take steps to expand the business significantly. “We drew a line in the sand,” says White. To that end, they moved to Oak Brook, Ill., to save time on their commute, brought on a junior advisor who could take over their accounts of $250,000 to $1 million, and streamlined their investment process. Now, White can spend considerably more time working directly with clients and, as a result, he's been able to bring in additional assets; they now are about $500 million. Revenues are up about 15 percent from the year before, and White thinks he'll be able to double them over the next five years.
If you're like White — and you probably are — you want your practice to grow. The preferred rate of growth may differ from one person to the next, of course. But you still want to see an upward trajectory.
Just because you want to grow, however, doesn't mean you will. The fact is, despite their best efforts, frequently advisors find they're treading water. And that's usually due to a handful of common obstacles that stymie growth — roadblocks that advisors may not even be aware of. The upshot: To experience healthy expansion, you need to recognize what those stumbling blocks are, so you know how to overcome — or avoid — them. “Advisors who understand the things that can impede growth are in a better position to do something about them,” says John Nersesian, managing director of Wealth Management Services at Nuveen Investments.
Generally, it comes down to a failure to address a handful of key issues. Here's a look at five of them.
- Business planning
You know what they say: You can't build a house without a strong foundation. That, in essence, is why it's so important for advisors, from the beginning, to have a long-term vision and blueprint for the type of practice they want to create. Without that foundation, you're bound to chase after short-term wins without any underlying strategy guiding your actions, according to Dennis Gallant, who heads GDC Research in Sherborn, Mass. And that makes it next to impossible to do much more than limp along. “Advisors need to be more deliberate in planning,” says Gallant. “They often just take it as it comes.”
The answer, of course, is to form a plan — a comprehensive blueprint with everything from your investment process to the services you'll provide. In addition, according to Gallant, you need to revisit the plan annually, updating it as your goals, the state of the economy, your age and other factors change.
Take Scott Tobe of Signature Financial. Six years ago, he became president of the Pittsburgh firm, which has $85 million in assets; his father had launched the practice in 1991. He started creating a plan the first year he joined the firm, covering such issues as financial goals, type of client to target, marketing and networking plans, and specific client services to offer. He's also revisited it every year since then.
Several years ago, for instance, he decided to change his focus from clients with $250,000 of investable assets to those with $1 million to $10 million. To that end, Tobe rejiggered his blueprint, tweaking everything from his marketing plans to the number of clients he wanted to serve. For one example, he changed from participating in referral groups with other company heads to focusing on forming relationships with CPAs and attorneys serving high-net-worth clients. Tobe partly credits the firm's increasing gross dealer concessions, up 24 percent last year and on track to rise 30 percent this year, to the discipline that forming and following a business plan has given him.
- Delegating
In the very early stages of a practice, advisors generally have to wear many hats, because they lack the resources to hire employees. But as soon as possible, you have to start bringing in staff, so you don't spread yourself too thin. Most important is figuring out just what those other people will do, pinpointing the duties you can hand off to someone else productively. “As soon as you have a division of labor, with roles and responsibilities delineated for each staff member, everyone becomes more efficient,” says Richard Greenwald, first vice president, investments, with Raymond James & Associates in Bala Cynwyd, Pa. “Otherwise you get yanked in 10 different directions.”
Greenwald should know. In 2002, when he started his practice, which now has about $150 million in assets, he hired an assistant. Even so, initially, Greenwald still did a lot of time-consuming nitty gritty work himself — taking care of such laborious tasks as putting through tax-free annuity exchanges. Gradually, however, he started shifting those responsibilities over to his assistant, a move that freed up at least some of his time to work with clients. Then, five years later, he brought on an intern, whom he hired to be a full-time financial planner in 2009, a task he also used to take care of himself.
With those duties off his plate, Greenwald spends about 20 percent more time with clients, running client events, and cultivating contacts and referrals. Recently, for example, the owner of a small mutual fund company asked Greenwald to take over the firm's 401(k); he also made two referrals, worth about $5 million in business. Greenwald figures he wouldn't have had the time to cultivate that relationship before. So far, revenues for fiscal 2011 have grown 44 percent from the year before, compared to 8 percent from 2007 to 2008.
Delegating won't work, however, unless you also take the time to develop and train employees. “If you want your people to be productive, you've got to go from being a player to being a coach,” says Philip Palaveev, president of Fusion Advisor Network. Initially, for example Greenwald spent at least an hour each day working with his intern, getting him up to speed. In one early project, he devoted about six hours showing him how to help a new client deposit $1.5 million of AT&T stock dating from before the 1984 split-up of the corporation, developing a cost basis for the holding by combing tax returns, old statements, and receipts.
Now, however, Greenwald spends considerably less time doing handholding. “As they work up the learning curve, the need for hands-on training becomes less and less,” he says.
- Building a partnership
Major growth generally requires a team — and a partner. “At some point, management of the company becomes too complex, and you need somebody to help you out,” says Palaveev. “That's often best done by an owner.” Tobe, for example, runs the firm with the help of two partners, one of whom owns a minority share of the business; they make most business decisions together. During the recession, for example, Tobe often urged that they put most of their clients' money in cash, while one of his partners, inevitably, talked him down from the ledge. “We made those decisions as a group and they were better as a result,” he says. “It's an example of one plus one equals much more than two.”
But you won't get the full benefits of having a partner unless you divide up your responsibilities. The goal is to form a symbiotic relationship, through which your complementary strengths create a stronger level of service.
Aydin Tuncer is a case in point. In 2004, about five years after he joined the Global Wealth Management Group of Raymond James in Washington, D.C., growth hit a plateau, according to Tuncer. In response, he and his partner decided to shift their roles, defining more clearly each partner's responsibilities. Tuncer, who has a stake in the firm but isn't a majority owner, realized his strength was financial planning and working with existing clients, while his partner was more of a rainmaker, serving on outside boards, schmoozing with centers of influence. They also developed a new process, whereby he generally would take over client relationships after the first meeting. And, at the same time, they hired a full-time analyst to take care of such things as mutual fund research and overseeing their insurance business. Thanks to these moves, according to Tuncer, assets have doubled, to $200 million.
- Setting up systems
A healthy practice needs standardized processes for just about everything that happens in the office. And a lack of such systems inevitably creates inefficiencies — and hurts the business' ability to handle an increase in clients and complexity.
That's why, several years ago, Steve Gallo and his two partners at US Financial Services in Fairfield, N.J., made a concerted effort to install a standard work flow chart for every part of the business, from financial planning to investment advice — they mapped out who takes care of specific duties when a new client arrives, for example, as well as what documents need to be prepared and how to follow up after the meeting. There also are regular partner meetings every Monday and staff meetings every other Monday. “What we've tried to do is set it up so that everybody operates the same way,” he says. Another benefit: New employees immediately can understand what the processes are without a hitch. Over the past 10 years, assets have more than doubled, to $250 million.
- Serving the right clients
Fact is, you face limits on time and resources. And to be most productive, you need clients you can serve with optimal efficiency. To a certain extent, it's a numbers game. If you have too many accounts, you can't provide them all with enough attention. Then again, a book of business including many different types of clients with divergent needs means you have to be all things to all people — not a path to efficiency. “You don't need more clients,” says Nersesian. “You need the right clients.”
That means pinpointing the type of household you're after — anything from a specific asset level to a particular profession — how much time serving each client is going to take, and the optimal number you can serve. Generally, for practices providing a high level of service, that's around 100 per advisor, according to Palaveev.
Consider Ross Marino. In 1997, soon after he set up shop in Wilmington, N.C., with Raymond James Financial, he had an accident that severely limited his mobility and made it harder for him to be strategic about targeting clients. As a result, “The type of client I acquired was a hodge podge,” he says. Finally, about five years ago, he decided it was time to change course and boost growth.
To that end, he focused on fine-tuning his client list. That meant whittling down the number of households from 200 to a more manageable number and sticking with clients who fit a few important criteria, looking at such factors as whether they required evening meetings or how far away they lived or worked. He recommended other Raymond James advisors to clients who didn't make the cut. The result: He cut his client roster down to about 75 accounts — and revenues more than doubled from 2003 to 2008.
Since then, Marino decided to start a side business conducting symposiums for financial advisors. By automating some processes — for example, many client updates are scheduled via email — and delegating such duties as product research, Marino has kept the same number of accounts, while maintaining revenue levels and decreasing the number of hours per week he works directly with clients from about 30 to 10.
In some cases, the issue is less about eliminating clients, and more about finding efficient ways to serve them. For example, that's why White and his partner decided not to get rid of their C-level clients, but to hire a junior advisor able to handle them. “We knew these clients could bring in a lot more in assets and production, if only someone could spend more time with them,” says White.
