The market turmoil of recent months, and all forecasts for the foreseeable future, show cloudy skies with a chance of rain, perhaps even thunderstorms ahead. Yet, given the aging of 76 million baby boomers planning for, nearing or in retirement in the coming decade, the forecast calls for another source of rain, albeit a more optimistic one, with both research and reason suggesting that there are growth opportunities for advisors in the coming years.
Regardless of challenging market conditions, and in some ways furthered by them, experts believe the planning profession has yet to see its heyday. The sheer number of aging boomers in need of advice tells us it's only a matter of time before a torrent of opportunity arrives. In response, firms are forging or growing ensembles to help achieve scale, efficiency and leverage to better manage their businesses, while also preparing to take advantage of the coming flood of opportunity.
Success no longer depends on a founder, as more firms move to an ensemble model. The reason is simple: Your ability to manage client relationships drives growth, which in turn is supported by advisor capacity. Rainmakers can make rain, but there have to be buckets to hold it.
In 2008, I presented a session titled "How to Build a Multi-Advisor Business Model" at the FPA Business Solutions Conference. Since then, I have seen a significant increase in interest both in building ensembles and franchising them to complete the transformation from successful practice to business enterprise.
Three-quarters of attendees said their firm had more than one advisor; 50% said their firm had three or more advisors. And yet, they packed a session on building a multi-advisor business. There have been ample studies about building an ensemble practice; advisors need to know how to build one successfully.
Most advisors aren't great managers. Principals expect new hires to grow the way they did: trial by fire, sink or swim. Many new advisors expect a formal structure with written procedures, defined career paths, compensation structures and documented responsibilities. The conflict created by the contrast in these expectations is having an impact - new hires seem to depart within three to five years of joining.
Recently, the industry has been compared to medicine or law. Yet, in these professions, we see internships, training and mentoring programs, as well as career advancement, compensation models and partnership structures. Advisors want the best of both worlds: an entrepreneurial business with the benefits of established professions.
Take note that there are fewer qualified advisors than firms looking for them. Is it possible that the industry has contributed inadvertently to the shortage with poor development?
Supply shortages increase prices, in this case, in the form of compensation. Candidates are empowered in the enviable position of choosing between firms. Firms are making offers to candidates who decline because they have better offers. And the only thing worse than not being able to hire advisors is having one leave after two years or less.
Build a business that is attractive to all involved parties: founder(s), partner(s), advisors and employees. Consider what would be appealing to you.
Would you choose a firm where the owner made abrupt decisions or where career advancement wasn't clear and partnership opportunities were nonexistent or not defined? Or would you choose a firm with a documented vision, goals, organizational model, systems and processes, position documentation, career advancement, compensation and partnership structures? It's not a tough question.
The solution is an Advisor Business Model - a formal document that defines and institutionalizes the firm's business model and advisor relationships. You define what advisors can expect of you and what you expect from them. Creating such a model will make your firm:
* More effective. Your performance will improve across the board.
* More money. The document enhances revenue opportunities.
* More profitable. The better your firm is run, the more advisors you have, the more you can grow and the more profitable you can be.
* More organized. Once you build it, you have a defined operational and organizational structure.
* More attractive. Top-quality advisors expect professional organizations with defined business models.
The time and energy invested will yield dividends with more candidates and reduced turnover. The Advisor Business Model helps build successful relationships because terms are clear at the outset, thus reducing possibilities for missed expectations.
For firms that already have multiple advisors, the benefits can sometimes be greater. Your advisors are thinking these thoughts and asking these questions - the sooner you provide answers, the better off everyone will be.
MAKE IT HAPPEN
A successful Advisor Business Model should include, at a minimum:
* Vision and goals.
* An organizational model.
* An advisor career ladder.
* A compensation model.
* Client models.
* Operational systems.
* Firm processes.
* Standards of practice.
These are guidelines. No two models will be the same because they're reflective of the firms they represent.
Successful ensembles are composed of advisors with a shared vision and goals, and we see countless examples of firms who liked the idea of an ensemble, but not the application. Nearly every firm has a different client segmentation, fee schedule and service model (documented or not). Advisors need to fit into the firm's client model, otherwise the business isn't scalable. I've seen numerous firms with a different client base for every advisor. You do not need new hires bringing in clients who don't fit your model.
Your operational systems define how you expect things to be done. This also promotes productivity, scalability and profitability - hardly bad side effects.
Defining what support and services advisors will receive is good for everyone. Support may vary with seniority or revenue managed, or it may depend on the firm's team model. If incoming advisors know they will receive marketing support, operations and client service assistance, and mentoring, they know they have a track on which to run.
Solo practitioners have the opportunity to develop the model prior to adding advisors, setting standards before inconsistencies or bad habits can occur. A model also helps determine what level of advisor is needed, how to pay and what responsibilities to transition.
For ensembles, the strategy is to create a model to reflect the firm you are building. The process will highlight inconsistencies or friction points, which are opportunities for improvement.
Ensembles tend to have some model elements in place, so the first step is to build the framework and then fill the gaps. The model helps ensure there is a well-defined blueprint for success that can be repeated and scaled across multiple offices. By laying this groundwork, advisors establish a model for how the ensemble and the advisors will operate.
Regardless of form, ensembles are most effective when all parties believe they can get farther together than on their own. With this belief system intact, the Advisor Business Model provides the groundwork and ground rules so essential to executing on this idea in ways that the sun will shine on everyone.
The first drops of opportunity are beginning to fall. Will your firm have the tools in place to attract, hire and manage advisors so you can take full advantage of the storm of opportunity?
Stephanie Bogan is founder and CEO of Quantuvis Consulting, a subsidiary of Genworth Financial.