Whether they are early in their tenure or late in the game and focused on succession planning, savvy advisors know that attrition, rising costs, and pressure from the competition will kill a business that is not in growth mode. You've got to grow to satisfy the expanding needs of clients and attract great talent.
The question often becomes, organic growth or inorganic growth, or both? Should you grow from the inside, tweaking your business model, adding new clients, increasing assets under management, hiring new financial advisors (organic growth) or should you buy or merge with another firm (inorganic)?
A textbook example of this scenario is Stephan, who runs a small independent firm in rural Pennsylvania. For years, Stephan's assets were hovering just below $100 million. He tried to grow by hosting seasonal tax seminars, running local advertising to increase his visibility in the community, and placing ads in industry publications to recruit other advisors. Nothing worked, and he became increasingly frustrated at the amount of time he was spending away from serving his clients.
After speaking with a consultant, Stephan began to consider acquiring a smaller practice. Shortly after setting his sights in this direction, he was introduced to Mary, a 60-year old independent advisor doing $300,000 on $40 million in assets under management. Mary was working part-time from home and was thinking about retiring within five years. After several meetings, Mary and Stephan felt that joining forces could be a good solution for both of them. Stephan was able to offer Mary some upfront money and give her an enhanced payout for six months to ease her transition. Mary started working with Stephan on a part-time basis and expedited the transfer of assets to his firm. Her clients got access to a new suite of services, and Stephan raised assets in his firm by around 50 percent. Mary can retire in the time frame she had hoped for, knowing that her clients will be secure with Stephan.
For some individuals and teams, growth is best achieved by changing firms or models. Take the example of Mike and Todd, a wirehouse team on the West Coast managing $250 million in assets. For the past few years, the team had been struggling to expand business by adding clients and assets. Mike had an entrepreneurial spirit and wanted to do some outside marketing activities within his community to raise the profile of the team and mine for new clients. However, getting these activities approved required time to clear the firm's cumbersome compliance hurdles — too much time.
After some consultation with outside experts, Mike and Todd agreed to explore the idea of joining or starting an independent firm. Their due diligence led them to an independent broker/dealer that will allow them to market themselves as they see fit, with few delays, and even to recruit two to three advisors over the next few years to add assets. They are also considering, over the long run, acquiring a similar-sized firm, possibly with an expertise in estate planning, in order to offer new services to their clients. This is not something they could have done at a wirehouse. Mike and Todd plan to move in the first quarter of 2012.
The following are a few key questions to reflect on when thinking about growing your business:
Where am I today? Many advisors start looking for solutions before they determine what obstacles to growth they face. Assess what you have where you are, and what if any people, systems, platform, products, and services the practice will need to add or access in order to achieve growth goals.
Can I achieve my growth goals at my current firm? If not what's getting in the way, and what other firms or business models would allow me to grow in the way I would like?
Who can I trust to guide me? It's important to identify people you trust who can add value to your thought process. Attorneys, CPAs and consultants all have a valuable place in helping you to access and understand the appropriate firms, capital and resources you will need to meet your growth goals. They should know you and your business, but be objective in the ability to make recommendations.
Where do I start to explore? You may want to cast a wide net — the advisory landscape has changed dramatically in the past decade. But focus on those firms that offer succession planning, superior client service, opportunities for monetization, growth support and enterprise value.
Mindy Diamond is president of Diamond Consultants, of Chester, N.J., which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com.