Starting a new advisory firm: How to outsource and structure your practice

This is the second in a three-part series detailing what I would do if I were to move to a new town and start an advisory practice from scratch.

In my first installment, on marketing, I described how an adviser should go about acquiring a steady stream of new clients, which is the lifeblood of any practice. Without an effective marketing plan, your business won’t survive.

In this installment, I want to focus on the structure of the practice, and specifically, what functions it’s best to outsource, what functions should be kept in-house and how to organize for growth.

The most valuable use of any financial adviser’s time is communicating with clients and prospective clients. Time devoted to other tasks, things like investment management or office administrative work, doesn’t generate revenue and can suck up a huge portion of an adviser’s week.

That’s not to say those things aren’t important, because they are. In fact, there are many financial advisers who enjoy selecting investments, managing portfolios and monitoring the markets.

But, to be frank, this is a poor use of time. Not only do these tasks consume hour upon hour that could be used for marketing, they simply don’t generate any money. An adviser who spends too much time in these areas will quickly find him or herself with too few clients and little or no income.

Further, how much value will an adviser really add by spending time on investment management? If most professional money managers can’t outperform the market indexes, how can a retail financial adviser, with a fraction of the resources of the major investment firms, outsmart them?

What should you outsource?

If I were just starting out, or even if I’d been an adviser for a while and had hit a wall, I would absolutely outsource the investment management portion of my practice. There are some fantastic turnkey asset management programs, or TAMPs, that can handle investment management at a reasonable cost. Using a quality TAMP frees you up from having to deal with the day-to-day investment management functions, which gives you more time to directly serve clients. (As a quick aside, I would not consider bringing investment management in-house until my practice grew large enough for me to afford hiring a portfolio manager.)

(More: Outsourcing is route to greater growth, Fidelity study finds)​

Assuming I’d have little money while starting a new practice, I’d make sure that 75% of my time was spent on revenue-producing activities. That means most of my time would be spent finding new clients to serve, and communicating with existing clients (for advisory, retention and referral purposes). This leaves me with just 25% of my week to do the financial plans and the rest of the responsibilities that come with running a practice.

When it comes to office selection, rather than leasing my own space, finding furniture, and wiring for the technology, I’d use an executive suite agency such as Regus. Not only does this provide a simple, flexible and inexpensive solution, it allows me to have meeting locations in different areas. (Plus, this gives me access to executive-level conference rooms where I can host educational workshops with clients and prospective clients.)

There was a time when temporary office space seemed both inadequate and impersonal. But not anymore. These entities offer you just enough personalization, convenience and amenities to make it both worthwhile and cost-effective; the rest is up to you.

Still not certain? Think of this common scenario: A prospective client who lives 90 miles away wants to meet with you but isn’t keen on traveling (or wants to work with someone nearby). With the explosion of the executive-level rental market, you now have access to modern meeting locations in every city in the country.

Of course, long-term I’d plan on having my own space where I could control the look, the signage, the receptionist messaging, even the reading material and decor. But until I had ample revenue and a steady stream of new clients, an executive suite provides a great solution.

(More: Getting to scale — the virtual solution)​

Outsourcing compliance

Compliance represents an important legal and structural part of what we do, and if you aren’t keeping pace, you could quickly find yourself faced with problems that are too big to overcome. Don’t scrimp or take shortcuts.

When it comes to outsourcing compliance, there are a handful of great firms that help independent advisers meet their responsibilities, including the maintenance of relevant registrations, filings and credentials, adhering to regulations and applicable laws, marketing messaging and, of course, preparing for audits. I’d locate a quality firm and rely upon them whenever possible.

An important reminder regarding compliance: When you are just getting started, outsourcing compliance is convenient and even essential. But it doesn’t absolve you of your responsibility to adhere to the rules and regulations of our industry.

Now, amid all this outsourcing, when it comes to daily administrative tasks, I’d hire a person to work for me as soon as I could possibly afford it. True, as with office space and compliance, there are some online companies that I can hire to oversee or manage a variety of projects. But I’ve learned that it’s helpful (and worth the expense) to have someone on my team who can “own” certain aspects of the work.

Planning for future growth

One thing I did when I co-founded Hanson McClain Advisors some 25 years ago was plan for what we wanted the organization to look like in the future. When it was just my partner and me, plus two assistants, we began the practice of developing organizational charts with 16 different functions, thinking ahead to five, 10, even 15 years into the future.

I would do the exact same thing were I to start fresh today. I’d list all the tasks that need to be completed — from financial planning to answering phones and marketing — and put together an org chart of what might be needed when I had 500 or 1,000 clients.

As we grew, whenever we got to a point where I couldn’t spend 75% of my time communicating with prospective or existing clients, I’d go to the org chart and figure out what my next hire needed to be.

Don’t be penny-wise and pound-foolish. There are places to spend money, and there are places to spend your time that help you make money. Knowing the difference and choosing wisely is an essential part of your success as an adviser.

Technology obviously plays a huge role in my practice, both in terms of helping me be more productive, and in providing a superior experience for my clients. I’ll delve into that topic next Tuesday for my third and final installment of Starting Over.

Scott Hanson is the co-founder and a senior partner at Hanson McClain Advisors.