After five years, financial advisory firms move from the startup stage to adolescence, where they are faced with decisions that could affect their business for the next 20 years.
“At a certain point, advisers need to make a conscious decision to grow, and that means allocating resources to growth,” said consultant Michael Byrnes Jr. “Things break down if you get stretched too thin.”
Advisers at this stage need to develop or update their business plans to focus on the clients they want to attract, Mr. Byrnes said. They also have to develop a marketing plan to show they are experts in advising their target population and need to build a skilled staff to serve that clientele, he said.
Mr. Byrnes envisions a one- or two-page business plan, as well as a marketing strategy and a calendar that can be used to track which marketing tactics “get the biggest bang for the buck.”
Since 2008, traditional marketing has become even less effective for advisers, he said. The environment of distrust following the recession makes people less likely to trust a stranger.
While the first years of an independent practice might include taking on any client who advisers can persuade to walk through the door, advisers eventually realize that not all clients are worth their time.
“Smarter advisers begin to narrow their focus in terms of the types of clients they bring in, which helps them be more effective in finding clients and in the back-office side,” Mr. Byrnes said. “If you try to please everyone, you're going to end up failing.”
After seven years operating as Sharp & Linhart Financial Strategies, advisers Louise Sharp and Becky Linhart target professional women and their families as clients.
“Being women, we understand the issues of women,” Ms. Linhart said. “We listen, help them figure out their goals and give them honest advice. It's an area we excel in.”
The pair, who developed a formal business plan two years ago, learned after the first few years that it's not financially feasible to accept clients with small asset values. Today, they concentrate on high-net-worth clients.
Growth — in terms of additional employees and boosting the firm's profile — is their next step. They are looking to hire administrative help so they can spend more time with clients and prospective clients.
“We're comfortable with the income at this point,” Ms. Linhart said. “Now we want to grow quality relationships with our clients.”
The women even have a succession plan in case something should happen to one of them. They haven't yet tackled the issue of handing over the practice to anyone else, a task that's probably unnecessary until the firm is more mature.
Developing and working toward growth plans is crucial for creating a successful older firm, Mr. Byrnes said. “Those who don't plan usually get sidetracked and pulled right off the path,” he said.
E-mail Liz Skinner at email@example.com.