Most registered investment advisers are built around the genius of one entrepreneurial leader.
Yet every study shows us that the top-decile firms, whether measured by growth or profitability, are those that have been able to extend their leadership by leveraging the larger team. Giving up unilateral control of a firm may be the most difficult decision that an adviser will ever make, but it also may be the best decision that the adviser can ever make.
In 2013, Zappos, the billion-dollar online retailer, said that it would adopt “holacracy,” a new way of running an organization that removes power from a management hierarchy and distributes it across clear roles, which can then be executed autonomously, without a micromanaging boss.
Tony Hsieh, chief executive of Zappos, had very clear reasons for this restructuring.
“Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15%, but when companies get bigger, innovation or productivity per employee generally goes down. So we're trying to figure out how to structure Zappos more like a city and less like a bureaucratic corporation,” Hsieh said.
“In a city, people and businesses are self-organizing,” he said. “We're trying to do the same thing by switching from a normal hierarchical structure to a system called Holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”
Will this work for advisory firms?
It may be a little drastic to expect every employee to act like an entrepreneur. But how about a more distributed power structure that can help take the practice from a one-person show to a partnership recognizing multiple leaders?
In fact, it may the necessary ingredient for a firm that is contemplating mergers or adding key recruits, thereby adding scale, bench strength and long-term succession planning avenues.
Professor Adam Galinsky at Columbia Business School has the perfect analogy.
“Think about when LeBron James went to the Miami Heat,” he said.
“Right away, it was Wade’s house, LeBron’s kingdom and Bosh’s pit. Who’s the leader there?” Galinsky said.
But it was only when they were able to work as a team that they won the 2012 NBA Finals.
RIAs are people businesses where the only asset is human talent.
Advisory practices need to reach beyond a hierarchical organization structure to create a more fluid, flat organization that enhances the firm by empowering people. It may be the best growth impetus for the practice.
Rajini Kodialam is the co-founder of Focus Financial Partners in New York.
This story is part of a 30-day series on smart ways to grow your practice.