Blogs - The Diamond Appraisal
5 Ways To Assess and Manage Necessary Growth
Diamond Consultants
Thursday, November 8, 2012
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Benjamin Franklin said, “Without continual growth and progress, such words as improvement, achievement, and success have no meaning.”  Franklin was right. 

While it may seem obvious that business growth is central to any advisor’s ultimate success, in today’s highly complex and competitive marketplace, the importance of growth cannot be overstated. 

In fact, if there’s one thing that all advisors have in common - no matter what stage in their careers – it’s the desire to grow their businesses.  Whether they are early in their tenure or late in the game and focused on succession planning, savvy folks know that attrition, rising costs, and pressure from the competition will kill a business not in growth mode.  In addition, growth is necessary to satisfy the needs of clients and to attract top talent.

Growth primarily occurs two ways: organically and inorganically.   Organic growth is considered as the traditional process of business expansion by adding new clients, and increasing assets under management. Inorganic growth is achieved through an increase in the size and scale of a business in other ways including:

  • Changing firms or models and leveraging superior thought leadership, platform and technology
  • Mergers
  • Acquisitions, or
  • The recruitment of individual advisors

Most advisors agree that organic growth alone is generally not enough to allow them to remain competitive.  Further, it’s a widely held belief that if an individual advisor or team is not continually adding assets, they are losing ground.  The most successful advisory businesses grow both organically and inorganically.  There are many coaches and consultants who specialize in helping advisors maximize organic growth.  Often these specialists will conduct internal seminars on sales, marketing and asset gathering techniques.  Inorganic growth requires significant consideration as well in that there are several very different avenues to explore.

Take the example of Mike and Todd, a wirehouse team on the west coast with $250mm in AUM.  For the past few years, the team had been struggling to grow their business by adding clients and assets.  Mike had an entrepreneurial spirit and wanted to do some outside marketing activities within his community to raise the profile of the team and mine for new clients.  However, getting these activities approved required time to clear the firm’s cumbersome compliance hurdles, and the team was becoming increasingly frustrated because they were not able to move more quickly on initiatives that they found crucial to their growth and business goals.   They ultimately decided to reach out to us because they knew we understood their circumstances and short and long term goals.  After several productive discussions, we laid out a variety of options for them to consider.  Mike and Todd agreed that it was time to do some active due diligence on a few independent options where they could have the freedom and flexibility to run their business as they saw fit.  They also wanted to explore one other wirehouse since the transition package was so significant, but they both knew deep down that it would not ultimately satisfy their desire to run their own business. 

Taking meetings was an eye-opening experience for Mike and Todd who had not explored their options in a decade.  While they were very surprised at the differences between their firm and the other wirehouse, their original gut feelings were confirmed.  They were looking for a new and different model and found it in the independent space.  They saw in one B-D the opportunity to run their own business, market it as they saw fit, and even recruit 2-3 advisors over the next few years to add assets.  They also became excited about the possibility, over the long run, of acquiring a similar-sized, or somewhat smaller firm, possibly with an expertise in estate planning, in order to offer new services to their clients.  Now, Mike and Todd know they have taken some very positive steps to grow their business and plan on moving in the first quarter of 2012. 

This approach is not one size fits all, yet the idea that growth is essential in order to succeed is universally acknowledged. The following are five key questions to reflect on when thinking about growing your business:

1. Where Am I Today?

Many advisors start looking for solutions before they determine what their problem is, or if action of any sort is even necessary.  Without a clear vision of your current picture and goals, there is no way to establish the appropriate actions.  Begin by asking yourself:  Do I need or want to grow?  If yes, what do I want to accomplish? What is the delta between where I am and where I want to be? What people, systems, platform, products, and services will I need to add or gain access to in order to achieve my goals?

2. How Much “Pain” Am I Really In?   

Making a change is not easy, so the value add must be significant.  If you feel like your growth is being hampered in your current environment, a change would be in your best interest and that of your clients.  When looking to change firms, or partner with another firm, be clear on what you want to achieve beyond growth. Assess your personal, professional, economic and long-term goals.

Determine what you are willing to give up and what you must have, and create a list of tough questions.  If a change is the best course of action, be relentless about securing the “must haves,” but be flexible on the rest.

3. Can I Achieve My Goals at My Current Firm?   

The path of least resistance, naturally, is to do nothing at all.  If you can achieve the growth you want by remaining at your firm and relying on your current systems and infrastructure, then you are in good shape.  Consider also if your pipeline of new business is likely to get you to where you want to be in the near term, and if you can service your clients the way you want to with your present resources.  If you feel that you cannot achieve the growth you are seeking at your current firm, then you may need to look elsewhere in order to achieve your goals.

4. Who Can I Trust to Guide Me?   

The most successful advisors get counsel when considering how to best grow their businesses.  It’s important to identify people you trust who can add their expertise and insight to your thought process – in essence, your personal Board of Directors.  These people can include attorneys, CPAs and other centers of influence, and certainly recruiters and consultants who are objective, know your business and can act as a confidant and sounding board.

5. Where do I start to explore?  

If you’ve determined that you need to explore your options, you will find that the advisory landscape has changed dramatically in recent years and there are more high quality alternatives to consider than ever before.  You will want to narrow your focus to a short list of firms that could offer succession planning, superior client service, access to greater resources, monetization opportunities, acceleration of growth, greater enterprise value, etc.  In the end, 1 1 must equal 3 for any change to be worthwhile.

Clearly there are a number of ways for advisors to achieve growth - the key is gaining the clarity to determine what is most important about growth for you before you start exploring options.  To maximize your opportunities, be bold in your thinking and don’t let inertia or fear keep you stuck in your comfort zone.  With proper guidance and counsel to grow, you can be prepared for the future and power your business to the next level and beyond.

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