Practice Management – Evolution or Revolution?

The following is based on one of The Covenant Group’s clients. All names and telling details have been changed.

Recall when we had hockey in our lives and imagine you're watching a game. This game, however, is very different from any other you have seen – it’s the financial services industry version and you're one of the star players. 

To begin with, there are 3 or 4 teams on the ice at the same time; banks, insurance companies, broker-dealers, financial planning firms, full service and discount brokers, direct sellers, credit unions or “do-it-yourself” portals. And more than one puck is in play: deposits, securities, mutual funds, alternative investments, insurance, wraps and other managed accounts, to name a few. Anyone can score using any puck.

The playing surface is ill-defined and the game sometimes even takes place outside the arena; on the Internet or even in grocery stores. Each team brings their own referee and they all fight among themselves to see who gets to be Chief Referee; surprising, given that the rules of the game are not decided by the league or teams but by government officials who occasionally drive by the arena.

Fan loyalty is fickle and many are willing to trade long-held season’s tickets for seats at the concert of some one-hit-wonder rock star who is briefly in town. Furthermore, the outcome of the game is not decided by how many goals are scored, but by members of the media, few of whom have ever played the game.

Despite all this confusion, teams from foreign lands are breaking down the arena doors to get in. They're bigger, faster and better-equipped than we are, but we let them in because they say if we don't they’ll buy us out. And, if we're good enough, maybe someday we’ll get to play in their leagues.

If you can imagine all this, you have a good picture of the state of the financial services industry today and what practitioners must do to survive and prosper. The starting point is accepting that traditional game plans no longer lead to victory. The good news is that the changes are an evolution not a revolution and if you're not yet on the right path it’s not too late to catch up.

That path has taken everyone – the industry, our clients and ourselves as advisors – through several transitions. The industry experienced a number of paradigm shifts that took us from a selling orientation to a marketing one and now onto a business management focus. Back in the 1970s, advisors could prosper by being good salespeople. Product ideas were simple in our “one-size-fits-all” approach where we worked to massage the customer’s needs to fit our limited product line. Through the 1980s and into the’90s, we learned about financial, estate and investment planning and how to “target market” people who, legitimately, were likely to have an interest in these more relevant solutions to their financial needs. The entry of the resource-laden banks and their brokerage-firm siblings into the business in a meaningful way took the industry to new levels of marketing sophistication.

Today, competitive realities have moved all players up a notch and the most successful advisory firms are those that have mastered the art of being in business. The emphasis is now on defining the type of business you want to have, identifying the clientele you want to serve and putting in place the resources required to make it all happen.

While all this was going on, our clients developed new perspectives and preferences. Buoyed by investment markets that only went up, consumers became somewhat cynical of the value of advice and looked to technology as an alternative source of financial information, comparison shopping and low-cost transactions. As the perceived value of advice eroded and products were commoditized, service became the only relevant differentiating factor among advisors. But how do you meet clients’ accelerating service expectations and remain a viable business in a world of shrinking margins? That leads us to examine the typical growth curve for advisors.

In the beginning, it’s all about survival – scratching, scrambling, making mistakes, learning lessons in the first 12-24 months of our career. Client relationships are frequently based on filling product needs as much as anything. Typically, that takes advisors to the $100,000 revenue level and up to $10 million of assets under management. We have few, if any, systems in place and wear multiple hats: salesperson, marketer, administrator, business manager, corporate activist. Then one day we hit a wall as the energy we use to survive wanes and we start to wonder if it's all worth it. If we conclude not we, regrettably, leave the business. Hopefully, though, we realize that systems and support are an answer. We hire our first assistant and spend the next year asking ourselves why it took so long to figure out that adding staff at crucial times in our career is not an expense but an investment in moving to the next level.

If we continue to improve, success follows survival and takes us to $250,000 income and $25 million AUM. A sense of primary market emerges and our products, capabilities and modest marketing initiatives begin to align with that vision. “Planning” becomes the basis for client relationships, supported by simple systems which result in us increasingly having to “manage the business” while continuing to produce to cover our increased overhead. As we approach the upper limit of our own capacity and that of our one, perhaps now two, support staff members, we have to break through this next ‘ceiling of complexity' to get to the next level. That requires us to master the art of being in business. It means having a vision of where we want to be in 3-5 years and articulating that vision in a thoughtful long-term strategy. It means segmenting our client base so that we can have a matrix of multiple promotional activities, sales initiatives and service standards appropriate to existing and future clients. It also means leveraging our human, capital and technological resources to free us to operate at our optimum level of capability, which normally means being in front of our clients.

If we get this one right, the business thunders ahead to a level of sustainability with a velocity we couldn’t have imagined – to $1 million or more of revenue and $100 million or more AUM. New business derives from existing clients or referrals made by them. By now, we are working “on the business” as well as “in the business” with the support of a team of specialists in office management, sales, marketing and client service. As the senior advisor, we work only with select clients and have attained ‘trusted advisor’ status with a few. Succession planning becomes a real-life exercise to monetize our success and leave clients in good hands.

Finally, there is that handful of practitioners who go beyond creating an ongoing enterprise to reach a level of significance and for whom a place will be made in the Advisor Hall of Fame (if there was such a thing). These people have learned that this is an infinite game and they have virtually unlimited capacity and generate millions of dollars of revenue on $1 billion or more of AUM. They have truly mastered the art of being in business.

Back to our hockey analogy. Wayne Gretzky was famous for his ability to “go where the puck was going to be”. Close your eyes and ask:

• What will I be doing 10 years from now?
• How much money will I be making?
• What will be the quality of my life?

Your answers will be the foundation upon which to build your business plan.

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The Covenant Group is referred to by many as the place entrepreneurs go to become Business Builders. They are considered to be thought leaders and have authored the best-selling books, The 8 Best Practices of High- Performing Salespeople, The Entrepreneurial Journey, and The Business Builder.