To scale, advisors should be willing to "break things on purpose"

Scaling is an important aspect for any RIA if they truly want to succeed and grow. However, when it comes to actually having a strategy, most of the time “advisors don’t have one.”

This is the number one problem advisors face, says Stephanie Bogan, founder and chief possibility officer at Limitless Adviser Coaching.

Bogan, who will be the keynote speaker at the upcoming RIA Activate event in San Diego, California, explains that most advisors "grow by default". This means they rely on providing good service, referrals, and market growth to gradually increase their assets.

"The typical advisory firm growth strategy, at least up to a point, is to be a good advisor, show up, do good work. Share of wallet, referrals and markets will compound growth over time," she says.

However, this approach often leads to hitting a capacity wall, typically around 100-150 clients. "When advisors hit that capacity wall, they ideally make a decision about how to scale beyond themselves," Bogan notes.

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While some options can include increasing average client size or adding advisory teams, Bogan highlights it tends to “be a game of Whack-a-Mole" as firms reactively address issues rather than proactively planning.

“It doesn't mean they're bad ideas or that they don't work, many of them do,” she says. “It's not an intentional strategy, it's a reactive one. That’s why we end up with client bases that aren't optimized and advisory teams that aren’t anywhere near their capacity.”

Instead, to truly scale, Bogan emphasizes the need for a disciplined growth strategy. This involves optimizing the client base, identifying target segments for growth, and projecting future capacity needs.

“Because we don't do that, we compound dilution and complexity, and we end up eroding margins and joy,” Bogan expains.

Additionally, Bogan identifies four key "growth inhibitors" that firms must address when it comes to scale: referrals, lead generation, closing rates, and advisor capacity. She calls these the "Four Horsemen" that can either hinder or help a firm's growth, depending on how they are managed.

“The biggest one, from a human capital perspective, is managing capacity,” she notes.

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For firms already experiencing growth, Bogan says this is the top priority. “If you're not yet growing at the rate that you want, and you don't have capacity issues, then it's going to be getting that growth engine in place. How do you get sustainable, predictable rates of growth?”

Bogan is quick to point out that the biggest bottleneck to growth is mindset.

“We are not clear on what we want to build and why, and we are not clear on how to align our time, energy and capital, human and financial, in ways that best support our ability to achieve those goals,” she says.

That’s why Bogan advises her clients on answering three key questions: How big do you want to be? How fast do you want to get there? How much risk do you want to take? This provides a blueprint for the firm's growth strategy.

She also emphasizes the importance of being willing to "break things on purpose,” making intentional changes to the business, even if it means disrupting the status quo.

"You can't just keep doing what you've done, because there's a very big difference between size and scale."

By developing a clear vision, disciplined strategy, and willingness to make tough decisions, advisory firms can achieve sustainable, profitable growth.

“The goal is how do we successfully create new levels of success? How do we scale growth without eroding margins or joy? That’s what we’re going to answer,” says Bogan.

For more information on RIA Activate California, or to register, click here.