Select Page

As a consultant to both breakaway advisors and RIAs, some may question my title to this article, and others may question my timing, as “The Enduring Advisory Firm: How to Serve Your Clients More Effectively and Operate More Efficiently” was released over a year ago.  To the first point, any RIA struggling with profitability in the current state of the financial services industry should simply read this book and implement its strategies.  As for the second point, it seems now more than ever, as more and more larger RIAs enter the M&A game, operating a firm efficiently is essential to appear stable and scalable in the crowded space of consolidators.

Mark Tibergien and Kimberly Dellarocca do a fantastic job of highlighting the current state of the wealth management industry and detailing how RIAs can best position themselves for long-term success.  After laying a few widespread industry rumors to rest (fees are dropping, Millennials are lazy employees, Robos are taking over, etc.), they detail several “irrefutable facts” that should be top-of-mind for all leaders in financial services:

  • The industry is experiencing margin compression;
  • Growth for mature firms is coming more from existing clients than new ones;
  • There is an oversupply of clients and an undersupply of people to provide advice
  • The industry in general has a tarnished reputation among prospective clients and employees;
  • Compliance and regulation is a growing component in a firm’s financial statements; and
  • Industry consolidation is inevitable as age and economics drive owners of advisory firms to make difficult decisions.

Given this backdrop, how should advisory firms approach their business plans?  Tibergien and Dellarocca point out that the struggle for most businesses (advisory or otherwise) is that too few resources are spread among too many opportunities.  How can firms best focus their attention and form goals that will truly move the needle for their business?  They lay out a four-step process:

  1. Strategic Plan: the process through which you create a vision for what you want your business to become;
  2. Focus: whereby you develop a mission statement that clearly and succinctly articulates what your firm does, for whom and how you distinguish your business from others;
  3. Assessment: the process by which you determine strengths, weaknesses, opportunities, and threats in light of your vision, and then create specific long-term goals for your firm; and
  4. Operating Plan: wherein you create specific, measurable, actionable objectives to be accomplished in the next 12 months.

The authors caution that when operating plans are created without the context of strategy, focus, and assessment, the result is often muddled, and the firm’s resources will be poorly allocated.  When you create your action plan for the next 12 months, any initiatives that come up that do not move you closer to any of your stated goals should not be pursued.  The goals you commit to help you capture the right kind of clients, develop your staff, improve your productivity and profitability, and protect your firm from going down the wrong path.

The authors also warn advisory firms to not blindly seek “growth at all costs,” but to pursue “managed growth.”  They define managed growth as:

  • Being committed to your culture and your clients;
  • Knowing that growth at all costs is not success. Growth isn’t good if you lose your soul or control of your business in the process;
  • Staying true to your value proposition, business development activities, client experience, and brand – do not dilute them;
  • Managing risk. It means we continue to discern quality of the clients, employees, and partners we associate with, recognizing that one bad apple can ruin the tree; and
  • Never acquiescing leadership, and inspiring it at every level.

A key component to a firm’s growth strategy is finding a niche client base and providing a client experience that will “surprise and delight” them.  To assist in this effort, Tibergien and Dellarocca devote several chapters to detailing the nuances of each generational client segment and helping advisors think through the complexities and preferences of each.  Again, trying to be all things to all people is not an advisable strategy.

The third and final section of the book is devoted to a topic near and dear to our hearts here at PFI Advisors: Transforming Practices into Business.  While the authors do not call for the end of the solo practitioner, it is clear that size and scale matter.  Scale “enables such businesses to be more effective at the recruitment and development of talent without straining the income statement, it helps them to create critical redundancies, and it allows them to compete on price in cases when that is important.”

They caution, however: “To protect against self-destruction brought on by growth, advisors must view scale not as a natural byproduct of growth, but as something that occurs only when the leadership is thoughtful about the business they wish to create, systematic in the processes they implement to manage growth, and aware of the metrics that indicate when their train is going off the rails.”  To further improve a firm’s chances of achieving “managed growth,” the authors note that more and more leading RIAs are hiring professional management – COOs and/or CEOs to run the business and focus on the operating plan, thus freeing up advisors to focus their attention on business development opportunities and existing clients, rather than being bogged down by those crucial administrative and operational tasks.

CEOs and COOs are tasked with building the firm culture (“What do we want our business to be known for by both employees and clients?”), focusing on the financial metrics of the business to ensure the operating plan is being executed against assumptions that are still relevant; handling HR related issues such as hiring, training, and the formulation of salaries, official job titles and career paths, and they can contribute greatly to how firms deploy their technology.  “By realizing that what matters is not the number of tools used but rather the way in which technology is used, these professional managers introduced disciplined selection processes, emphasized training, and focused on improving workflow efficiencies.”

The book rounds out with some fantastic leadership advice, quoting highly-regarded authors such as Clayton Christensen, Simon Sinek, and Deepak Chopra.  The authors note that an operating plan is only as good as the people inspired to act on it.  “With our guiding principles clarified and communicated and our leadership vision in place, we can be confident that any business plans or people who are added to this foundation will have a much higher chance of success.”

I am obviously kidding about this book putting RIA consultants out of business, but if you have not picked up this book over the past year, you are missing out on some incredible words of wisdom from one of the foremost thought leaders in our industry.

To learn more about Mark Tibergien’s book, click here