By Dryden Pence
Recent megadeals involving independent financial advice firms make it obvious we are in a period of accelerated consolidation. That puts pressure on smaller practices to grow to survive.
There was a time when $100 million in assets under management was the standard for success. Now, it’s more like $1 billion. Although your practice might be able to make that type of leap over the course of a few years, a decade is a more reasonable timeline.
Taking these five steps will increase your chances of getting there.
Segment your clients, but don’t forget about the less profitable ones. Identifying common traits among profitable clients not only clarifies which ones need the most time and attention, but it also spotlights where you should focus your business development efforts. For most, the best way to do this is to use some formula that combines assets, demographics and profession.
While assets are no doubt important, focusing too much on them can sometimes cause you to overlook promising clients/prospects. Consider, for instance, a 35-year-old who just finished their medical residency and is making progress toward paying off their school loans.
On paper, this may not seem like someone who would help power your practice forward, since at that point in their career they likely wouldn’t have outsize assets. A closer look, however, would reveal something entirely different.
Provide services that apply to your roster of clients and complement your skill set. As you focus on refining your client base, pay special attention to the services those clients need. This sounds intuitive, but it’s surprising how many advisors don’t adjust their offerings as their client base begins to evolve.
High-net-worth individuals tend to benefit from more sophisticated investment management, asset location and estate planning strategies. Meanwhile, business owners may need advanced solutions for insurance, and retirement and exit planning.
Whether you take pride in being able to capture investment opportunities based on a client’s personal principles or have a specialty in serving recent widowers, the point is to have differentiating services that will help you rise above your competition.
Streamline your staffing and operations. As you seek to offer better services to more profitable clients, take a closer look at your staffing model to make sure the level of redundancy is low and responsiveness high. This could entail everything from assigning team members new duties to retraining them, to adopting new software and tech tools that create greater efficiencies.
The objective is for every staff member to have not only a clear and distinct role but also one that matches their strengths and career goals. That way, they are likelier to stay motivated and to exceed expectations.
Make connections with centers of influence to win referrals. No practice can expand in a vacuum. Centers of influence, such as prominent local accountants and attorneys, can become great referral sources. The key is how you establish relationships with them.
Rather than making a bunch of cold calls and immediately asking for referrals, instead begin the dialogue by talking about who you are and what kinds of clients you serve. Then ask them about their business and their own service model. This tends to flatter other professionals, who naturally love to talk about what they have built, paving the way to creating a virtuous referral loop where you refer business to them, and, just as often, they to you.
Add equally growth-hungry advisors to the team. Recruiting younger, similarly driven advisors with their own established books of business is perhaps the fastest route to the billion-dollar mark. The sticking point, of course, will be the terms of their recruitment. Established advisors like this will want both to get paid a premium to come aboard but also a voice in critical firmwide decisions, especially if they are being set up to be the successor.
Still, the rewards can be considerable, with the new additions often able to help your practice grow with the addition of their own clients and centers of influence, as well as the outside perspectives they may have about how to tweak your operations and services to best supercharge growth.
During the next decade, your practice will face numerous challenges as it strives toward $1 billion in AUM. With drive, ingenuity and teamwork, you can make it happen.
Dryden Pence is chief investment officer of Pence Wealth Management, a firm based in Newport Beach, Calif.