One-person advisory practices are dependant on a single person. In the early days of a new business, that is their strength. They’re not weighed down by overheads or politics. They can charge low rates and still have healthy margins. They can offer a totally personal service and can have complete quality control.
But successful sole proprietors always run into the same problem: there are only so many hours in a day. Their income stream is limited by the hours they work.
Many adviser businesses aren’t able to get past this establishment stage. They continue to be principal-dependent, saying ‘yes’ to any client, putting in maximum effort for low rewards, being revenue focused and activity based.
This is no way to live and no way to run a company. Most advisers see their practices as valuable assets they will eventually sell. But you can’t sell a business if you are the business.
To make that valuable asset a reality, you have to stop being the business and start building it.
core competency
The biggest issue we have in supporting advisers is to convince them not to try to do it all themselves. As businesses grow, the first step is for principals to follow the big business principle of leveraging their core competency. In other words, to only spend time doing what they do best.
Although doing the books and the filing yourself may seem like a cost saving, it’s actually more cost-effective to hire support staff.
High profit firms have a higher ratio of support staff to income producers. The additional income a principal can earn will more than cover support staff salaries and enable the business to maximise its revenue stream.
You can reduce the cash flow impact of hiring non-revenue generating staff by initially using part time staff or sharing support resources with another business.
business structure
Once you’ve stopped getting bogged down in non-profitable tasks, you need to create a business structure that stops the practice depending on a single person. If you have administrative functionality and support in place, you’ll have time to look at evolving the business so that it will run effectively without you.
It’s worth bearing in mind that most successful financial advisory businesses have practice managers. There’s a difference between a practice manager and a client services manager, and no one has time to do both well. If you try to combine both roles, both will be compromised and neither will be performed effectively.
You have to decide whether you’re going to stay on the client services side — working in the business and working with your clients every day – or whether you’re going to work on the business.
If you stay on the client services side, the revenue will continue to be totally dependent on you. If you become the practice manager, you will have other people within your business who will generate revenue — the first step in weaning the business off its one-person dependence.
You can then think about the business proposition you want to take to the market.
revenue stream
Having structured your business to stand alone, the next step is to look for ways to expand your potential revenue stream. This usually requires finding other people to work within or be associated with your practice. In business, sustainable growth comes from two sources: acquisition or adding value to your proposition.
One way of growing a sustainable practice is to merge with another one. This instantly expands your client base and provides another client facing professional to back you up. However, many advisers dislike the loss of control that comes with aggregation mergers. There are also substantial costs involved in standardising processes, ensuring quality control and centralising back-office functions.
A more organic means of developing a sustainable practice strategy is to join forces with associates: specialists who complement your service and can refer their clients to you for your specialisation. In this way, you can provide a ‘blended’ offer, looking after all of a client’s financial needs through one established and trusted point of contact.
Offering ‘holistic planning’ enables you to grow your share of each existing client. This is a powerful strategy for growth: increasing your income from existing clients costs far less than establishing new ones.
It’s important to realise that, to offer holistic planning, you need to use individual advisers for each specialist service. Diversification doesn’t work. No one wants to see an adviser who is a ‘jack of all trades but a master of none’. Stick to your specialisation and find like-minded associates to offer expert advice in other areas.
It may be that this approach results in advisers sharing an office with two or three other experts, in which case you can also share some of the back-office costs. Each adviser will have their own different specialist skills and their own core client base, differentiated by its core focus.
To select the associates that will most benefit your practice, examine your client base to identify the most likely additional areas of need.
Marketing
Marketing is not just about attracting new customers; it’s about retaining and selling more services to your existing client base.
Target your marketing carefully, and allocate your marketing resources in the areas where they will yield the best return. In the case of your existing customers, this means devoting the most time and energy to selling additional services to your most profitable customers and to encourage referrals from your best clients. When trying to attract new customers, market to the people who are most likely to need and afford your particular service.
Andrew Doquile is general manager ofTandem Financial Advice.
