Too many owners of financial advisory practices aren't thinking like businessmen.

"There's still an employee mentality, even if an advisor is the founder or principal of a firm," says Jeff Concepcion, founder and chief executive of Stratos Wealth Partners. "Owners will pay themselves a nice income, but they're not acknowledging the balance sheet."

Concepcion admits that he also didn't question this point of view for the first 20 years of his career. But that changed when he founded Stratos in 2009 and realized that he needed to create enterprise value in order for the firm to grow.

The Solon, Ohio-based wealth management firm, a member of aRIA, a think tank and study group for independent advisory firms, did grow, and now has nearly $2 billion in assets under management. As part of aRIA's case study series, Concepcion shared his insights about the process in a research paper, "Turning Your Practice Into a Business: Creating Profitable, Manageable & Sustainable Enterprise Value."

Here are some of the study's key takeaways for advisor owners and principles:

1. ASSESS YOUR FIRM'S VALUE

Could your practice exist without you? Far too many advisors running "lifestyle practices" are deeply disappointed when they discover that their firms don't have nearly the market value they expected when it comes time to sell, the report finds.

"In too many firms, everything begins and ends with the owner-advisor," Concepcion says. "But it's hard to put an enterprise value on that type of arrangement because there's so little transparency."

2. LOCK IN KEY EMPLOYEES

Identify the individuals who are critical to the long-term future of the firm, the case study recommends -- advisors who clients would turn to if the owner was gone and who are capable of keeping the business running.

An outstanding assistant, for example, may be taken for granted, but more valuable than given credit for. At one firm Stratos was considering buying, a sales assistant turned out to be one of the firm's key employees, Concepcion recalls.

"She worked as an assistant to the owner, but she had outstanding relationships, was knowledgeable, thoughtful and able to answer key questions," he says. "Clients had more interaction with her than the principal."

The best way to retain and incentivize the firms' employees is to give them skin in the game, the report finds. Larger firms with over $2 million in revenues should consider transferring equity stakes; smaller firms should consider bonuses or other rewards.

"Drivers [that trigger performance pay] can be improvement in the firm's margins, or an increase in top-line revenue," Concepcion says. "The rewards should be meaningful, and the mentality should be, 'We're all in this together.'"

3. DECIDE WHERE TO DELEGATE

The case study recommends that owners identify exactly what they do for the firm that no one else can -- and then separate out the tasks they perform that others can perform just as well, or better.

"For principals, an obvious strength is usually business development and rainmaking," Concepcion says. "They're able to bring in business and engage clients to find more prospects."

But those skills don't necessarily translate to other areas, he points out: "They may not be as good at paperwork, operational responsibilities or even portfolio reviews. So understand what you're good at and give others the rest of the work."

4. CREATE A TEAM DELIVERY MODEL

When it comes to customer service, the report's recommendation is blunt: "If your advisor/client relationships are still built on a one-to-one model rather than on a collaborative team delivery model, change them."

Firms need to systematize their organizational procedures to ensure a standardized, repeatable client experience -- regardless who is delivering the services, the report finds. Teams should include a relationship manager, a financial planner and a client services representative, and be supported by a centralized asset management team.

A word of warning from Concepcion: It's easier said than done. "They're great when they work, but most teams don't work," he says. "For every one that succeeds, I've seen 15 fail."

Why are teams so problematic? "It's human nature," he says. "People start keeping score, and if they think they've contributed more than the others but everyone is being compensated equally, they become unhappy."

5. EMPHASIZE PROFITS

Too many owners tend to focus on assets and revenues, ignoring the bottom line, Concepcion argues.

Looking at profits and losses may require a "mindset shift" to bring advisors in line with business thinking outside the industry, he says.

How to calculate the figure? "At Stratos, I determined what I would pay someone to do my job if I was gone," he says. "Once you strip out that figure, the rest of available revenue after operating expenses should go toward profit distribution for the rest of the firm.

"Focusing on profit also expands the universe of potential buyers outside other advisory firms," he says -- "because outsiders will be making a valuation based on a multiple of free cash flow."

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