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Success is determined by planning. There are essential actions that entrepreneurial financial advisors must take to accelerate firm growth. A fundamental step is to plan for business succession. While growth and succession can be accomplished using a DIY approach, there are benefits (professional and personal) that come with working with a strategic partner to achieve those goals.
Entrepreneurial advisors want to build and lead a successful business and should employ the best and most efficient use of their limited time and resources. Advisors should contemplate what provides them the most energy and/or satisfaction. Is it being an advisor or running a business? As a financial advisory practice grows, firm owners often find themselves working in too many low-impact areas of their business. They must explore solutions that will help them with business planning and an appropriate end goal in mind.
Prioritize people when looking at succession
When advisors are running a practice, the people component is often not prioritized. Both the owner and the successor get too caught up in the valuation and multiples and do not spend enough time considering how the various succession solutions will affect their clients, employees, and even the seller. Owners should not just look to sell to the highest bidder. They should carefully analyze the cultural fit and ensure that the successor will maintain a similar client experience. Then, they can work on the math and to achieve the best outcome.
Wanting to break away? Consider the power of autonomy
On the other hand, advisors who want to exit their practice are hesitant to break away because they do not want to deal with the burden of compliance oversight. Wirehouses and large firms tend to exaggerate the risks associated with running your own compliance as a deterrent to breaking away. However, if you structure your practice the right way – fee-based advice and a straightforward, uncomplicated investment approach – there is very little risk and not a ton of time spent maintaining your compliance program.
Once advisors move past their initial hesitation, they can explore how great it is to have the autonomy to run their own business with uncapped upside. You can be your own boss and design and implement a great client experience.
Don’t get bogged down
Advisors typically get into the profession because they want to provide great service and solutions to clients. However, they eventually realize there is a lot more that goes into creating and running an advisory practice than the client aspect. There is compliance, marketing, technology, managing vendors, etc. Then, as the practice grows, they begin hiring people and managing employees. Ideally, advisors should look for solutions that allow them to outsource most of the non-client-facing activities so that they can concentrate on being advisors and growing their practice. Put another way, advisors should concentrate their efforts and energy on the business, not in the business.
How to choose your path
In terms of structure, there are three paths:
1. The traditional path of building your own business as a solo entrepreneur. This path gives you the ultimate control and ownership, but as complexity increases, more of your time is demanded by hiring and managing people, rather than meeting with clients and building the business.
2. You take outside capital or join a firm where your equity stake is fixed. This gets you a platform that can enable incredible scale and let you focus on what you love to do – serving clients and new business development. This works well but has one big downside. You effectively give up part of the ownership in what you are building. If you have given up 50% of the equity, you have to hope you can build something more than twice the size.
3. The last path is less common. An equitable partnership model allows entrepreneurial-minded advisors to join a platform that delivers scale while maintaining full upside in the growth of their business. Each partner office keeps the equity and profits associated with its own office, including all future growth while contributing to the shared infrastructure. Like a TAMP, it removes the complexity of trading, billing, and reporting, but because all the advisors are part of the same firm it also fully centralizes the functions of marketing, compliance, human resources, and operations.
There is a downside for each equity structure. For example, some would call the last path an eat-what-you-kill model, which it essentially is. How do you address the negative connotations of such an equity model? In my firm, we try hard to balance the personal upside with a collaborative culture. Partners and advisors recognize that they have unique areas of expertise. They can deliver better advice to their clients by relying on each other when those areas come up. One partner might know more about taxes, for example, while others know more about estate planning, charitable giving, special needs planning, digital currencies, or insurance. Each can call up the others to consult freely on a case or bring each other in on big cases where a co-advisory relationship might be needed. The trick with any equity structure is to recognize its strengths and shortcomings.
Brian Shapiro is the advisor development officer at Wealth Advisor Alliance. He focuses on recruiting like-minded advisors and Registered Investment Advisor firms to join Forum Financial Management (WAA’s parent company). Through a consultative approach, Brian works with firms to uncover their needs and challenges to identify ways that a partnership with Forum would be beneficial to their business.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
