A husband-and-wife team that run a good business wrestles with the idea of hiring their first employee and expanding. For advice, we turned to Richard Steiny, president of AssetMark, a consulting firm in Pleasant Hill, Calif.; Matthew McGraw, senior research manager with Tiburon Strategic Advisors, a market-research firm in Tiburon, Calif.; and Ed Morrow, chairman of the International Association of Registered Financial Consultants and president of Financial Planning Consultants in Middletown, Ohio.
Thomas and Judy Joyce have it good. They're still together after 23 years of marriage. They're both 52, in good health and live on 11 1/2 acres in bucolic Sebastopol, Calif. They own a small vineyard on their property, play in their own oldies band and run a five-year-old financial-advisory practice with $70 million in assets under management. Still, they have the sneaking suspicion they could be doing a lot more business — if only they could bite the bullet and hire someone. On the other hand, they wonder if it's worth going through the hassles that come with being an employer.
Neither Thomas (he goes by Tif) nor Judy had any intention of going into financial services. Music was their love. Tif, who played guitar, studied music composition at Cabrillo College, then ran a struggling cabinet-making business with his brother. Judy, also a musician, attended San Jose State, but dropped out due to financial problems and took a job at a printing business where she had worked while in school. She and Tif met through a mutual friend. When it looked like they were going to get married, they tried to find a financial advisor for guidance, “but we were too young and poor,” says Judy. “No one wanted us.”
That experience, plus Tif's financial troubles running a small company, got him thinking about getting into the financial-advice business himself. In 1987, he became a certified financial planner and joined what was then IDS to become a bank-investment rep, selling mutual funds and the like to bank customers. About five years later, after Tif developed more clients than he could handle, Judy left the print shop — where she had become production manager — got her Series 7 and started working with him. By 2000, they had so many accounts, Tif decided he'd had enough. He wanted to start his own practice where he could work more intimately with a small number of clients. So they set up shop in their home and affiliated with LPL Financial Services.
Getting accounts was easy, they say. About 70 former clients moved over to the new practice. The Joyces still have about the same number today, although many newer ones are retirees who have come from referrals. Tif serves on the board of a local estate-planning group and get lots of referrals from local CPAs and attorneys.
Through it all, however, they've never hired anyone, not even an assistant. That's largely because of their affiliation with LPL, which, they say, gives them access to a lot of useful technology. For example, when they go on vacation, people can call an 800 number if there is an emergency. According to Tif, there's never been a big problem while they were away.
Still, having no employees makes for plenty of difficulties. They do everything, from bookkeeping to answering the phone. And, they'd really like to introduce innovations like a client satisfaction survey or a better way to measure the practice's performance. But they don't have the time to do it. There's also, says Tif, “just a lot of other stuff” they could hand over to someone else — data gathering, for example, or slogging through a client's investment to get an accurate basis. Plus, friends often tell them they could make much more efficient use of their time if they brought someone in. With perhaps 10 years to go before they plan to retire, there's still lots of time left to make changes, too.
Tif and Judy have also watched friends hire staff and seen it not work out well. The employees would go through an extensive training period, only to leave the firm shortly after, or simply not perform up to snuff. Judy recalls her experience at the print shop and the management headaches she had to deal with: “You'd go through 10 people who were a problem,” she says. “If you were lucky, you'd stumble onto one who was really a fit.”
There's also the matter of space. Hiring even a part-time employee means having to do considerable renovation work on their home or leasing an office. They've discussed and eliminated the idea of getting a virtual assistant because they want to be able to supervise their employee on the premises. The bottom line: They'd have to spend perhaps $100,000 to redo the house. It's a daunting prospect — and it has left them unsure about what to do next.
Building up the business without additional help will be difficult. We've found that only 10 percent of advisors spend more than 60 percent of their time interacting with clients. But that 10 percent make 300 percent more money than the average advisor. That means you must have help and get really good at delegating, or you're going to be stuck in a rut for life.
The couple is dealing with issues that are often faced by advisors when they reach between $50 million and $75 million in assets. It's typical, for example, that they would have a whole array of things they wish they could do but don't have the time for — things that would really help them expand. But the fact is, without an assistant, they'll never be able to grow.
If they have only one employee, it should be an administrative assistant, someone picking up the phone, responding to client inquiries — anything that comes up related to serving clients. That could free up a lot of time. I did retail financial advice for 10 years. And every time I had to hire somebody, it was always a little frightening. But, it always catapulted me to another level. What's more, they don't need to add a big space to their house — maybe a 14 by 14 ft. room. It's also probably a good investment for their home. As for hiring the right person, if they carefully list the attributes they need and have a clear vision of whom they want, they'll find a good candidate.
It seems that Tif and Judy have four possible routes to take: continuing to run the practice the same way, finding a virtual assistant, hiring an assistant to come in and handle telephone work and the like or finding a paraplanner with a higher skill level.
I think their best move is the first choice, keeping things the way they are. They have a comfortable lifestyle. They're making pretty good money. And their clients are used to high-touch service and talking directly to them. What we would suggest is that they consider leveraging themselves with more technology, particularly with a document-management system. That way, to look up client information, they could go to their computer and have everything electronically in PDF format. There would be considerable upfront costs, especially in terms of the time to scan all the documents. But, over the long haul, it would be worth it.
If they hire someone, I would pick a paraplanner over an assistant. A paraplanner could lead directly to more business. By hiring an assistant, the couple would have to work harder just to support that person's salary. The upfront cost would be huge, as would the ongoing expense.
Operating from their home is a false economy. Especially if they think they might want to sell their business at some point, because you can't do that if you're running the practice from your home. They should start now and establish a local office. This doesn't have to be enormously expensive. They don't need a big space. At the same time, if they look around their community, I'll bet they could find a small office building to buy. By the time they're ready to slow down, they'd have it paid for.
To continue to grow the business, they must have an employee. And with $70 million in assets under management, they have the revenue to do this. What they need is someone who would start out by working from his or her own home, meeting once or twice a week with Tif and Judy. That person could be touching base with clients, seeing what else could be done to help them, increasing the frequency of contact. Then, the person would move to the office after a while and increase his or her hours. Tif and Judy would train that employee to take on more and more responsibilities.
Finally, if you want to see your business expand, you can't go out of town and dump everything on LPL. You'll come back and find one or two clients have gone. With an employee, they can put his or her picture on the Web site, include information in a newsletter and discuss him or her in meetings. Then when they go away, clients will feel comfortable calling that person if they have a problem.
Fix My Business is a semi-regular feature that seeks solutions to real-world advisory problems from a group of consultants and industry insiders. Submit your questions to [email protected]