© 2020 Arizent. All rights reserved.

How lifestyle advisors can succeed

Register now

Lifestyle financial advisors shouldn't be considered second-class citizens.

Indeed, advisory firms with a lifestyle orientation can offer significant advantages over enterprise practices, according to a new study by SEI. Advantages for lifestyle firms include stronger cash flows, higher quality of standards and a more loyal clientele.

Lifestyle firms can be profitable too. Fifty-three percent of respondents from mature lifestyle firms have a profit margin of more than 31%, and 55% have revenue greater than one million dollars.

Nonetheless, lifestyle advisors have long been associated with “negative undertones,” according to "The Purposeful Advisory Firm." Pressures to grow revenue and add valuation have pushed some lifestyle advisors down the enterprise road without thinking about what’s best for themselves or their firms, the report said.

“We’ve been beat up by the media, by peers, by broker-dealers,” says John Anderson, managing director of the SEI Advisor Network. “Everybody keeps talking about businesses getting bigger and bigger and more diversified. But, many advisors set up a nice business with a nice work-life balance and a nice income.”


What do lifestyle practioners need to do?

Almost three quarters (74%) of the 400 lifestyle firms SEI surveyed said they expect their practices to survive well beyond their careers. The implication: preparing for succession is the number one challenge facing these firms.

The study suggests focusing on four “essential components” that can realize the most potential for a firm: people, value proposition, investment philosophy and technology.
From a people perspective, one of the most important factors is to make sure your staff is well trained and well compensated. Anderson suggests using profit-sharing models or other incentive-based compensation that rewards hard work and keeps employees motivated to succeed. “If a key employee leaves, you have to go back and start from scratch,” Anderson says. “That’s something you can’t afford.”

Finding a niche is also critical. “The more generic you are in your approach, the more easily you can be replicated,” Anderson says. “But, the more narrow you become, the more you become that go-to person – focusing solely on your niche – the more of a trusted investor you become.” Think of it as the opposite of an enterprise firm that can do everything for everyone.

Investments should be a models-based approach that maximizes efficiency and profit, Anderson says. “There are too many one-offs and that level of complexity can drain your business with regard to profit and time.”

Advisors also need to update and integrate technology to save time and money. Focus on using technology that can help strengthen your brand, Anderson says. For example, technology that is client-facing is important to attract and retain customers. On the other hand, internal technology can be outsourced to cut back on spending. “You don’t want to end up becoming the CTO,” Anderson says.

The majority of respondents (64%) see themselves as advisors first and business owners second, up two percentage points from five years ago.

“Everybody keeps talking about businesses getting bigger and bigger and more diversified," says SEI's John Anderson. "But many advisers set up a nice business with a nice work-life balance."

“The industry is kind of going down the lifestyle route and the question becomes: how do you maximize your potential?” Anderson says. This becomes especially difficult when navigating a firm might not come as second nature to many advisor-first owners. The research suggests asking questions. “Do I like the people management or client management aspect of my role?”

The hardest obstacle to overcome is often the advisors themselves, according to Bob Veres, a co-author of the study and a Financial Planning columnist. “The biggest challenge that founding advisors are facing is their own inertia,” Veres said in the report. “There is nothing wrong with optimizing a lifestyle practice, and these firms will continue to be the backbone of the profession. If advisors choose to follow the road more traveled of an enterprise firm, then they must be intentional in their decision and consider their own unique goals and skillset.”

One of the most shocking statistics in the survey for Anderson: 73% of advisors think their brands were differentiated enough from their competitors. Anderson thinks otherwise. Firms need to think deeper about branding and “double-down” on their initiatives, he says.

“The Purposeful Advisory Firm” survey was conducted in March 2017 and covered the full spectrum of advisory businesses, including respondents from fee-only (43%) and dually registered RIAs (8%) and broker-dealer affiliated advisors (45%).

For reprint and licensing requests for this article, click here.