The best way advisers can grow their practices and increase the value of their firms is not by picking winning investments, nor does it have much to do with improving technology. Nope. The No. 1 thing advisers can do to grow is to bring on new clients.
But most advisers have hit a growth ceiling because the time they used to spend networking and acquiring new assets is now devoted to the management of existing clients and picking investments, along with staff and facilities management. That is why, when you look at the data (after you subtract market performance), over the last 10 years, many of the firms we audit for partnerships have experienced no actual growth.
What many principals are doing wrong is that they’re hiring young associate advisers, putting them on some sort of compensation “split,” and telling them to go out and hunt for new clients. This approach has several issues, foremost among them being that if a young adviser knew how to go out and drum up business, they wouldn’t be working for you.
Except for the occasional star (whom everyone is hoping to hire), the associate adviser hangs on for a few years and brings in very little in the way of “production,” the principal of the firm gets frustrated, and the adviser quits.
A far better approach is to accept that as the principal of your firm, the greatest value you can provide is to find more clients.
Think back to when you began. If you were like most of us, you got a job with a wirehouse or insurance giant, along with a bunch of other bright-eyed youngsters. You then worked your tail off making calls, handing out your card, going to networking events and trying to develop client relationships, all while watching your frustrated colleagues give up and go on to other careers.
True, the success you enjoy today is due in large part to the work you put in during those early years, but businesses change, and you need to adapt.
Besides, finding another one of you is not only hard, it’s time-consuming and despite repeated attempts, most of us never do. And all that expenditure of time, money, and energy has resulted in high turnover and zero growth for thousands of firms.
The organic growth I see today typically comes from hiring a great financial planner or two, transitioning the bulk of the planning and client service work to them, and then hiring a staff person to take care of the managerial duties, so your time is freed up and you can go out and drum up new business.
If you transition to this model for few years, not only will your practice start to grow, you’ll have a scalable, more recession-proof approach in place. And the result will be that when you’re ready to retire, if you want to sell, you’ll command a premium price.
Yes, it’s hard work. But it’s the best way to grow your practice and increase the value of your firm.
[More: Looking out for your Aunt Sally]
Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $8 billion in AUM.
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