Speaking on a Netwealth podcast episode, Eliza De Pardo, founder and director of consulting at US-based firm De Pardo Consulting, said there are a number of challenges advice businesses in both the US and Australia often face when it comes to achieving scale.
Looking at the US in particular, De Pardo noted that 86 per cent of registered investment advisers (RIAs) in the US have less than $500 million in assets and 60 per cent have less than $100 million.
While the US is often pictured as an advice market of multi-billion-dollar firms, she said many hit barriers when they try to move beyond the $500 million mark. Part of this, according to De Pardo, is an issue of mindset and appreciation for what it takes to continue growing.
“I like to say that the capabilities that secure your present are not designed for your future, and there’s nowhere that’s more true than in business. Firms oftentimes fail to appreciate how expertise needs to deepen and evolve with the creation of scale,” she said.
“Often, we see firms just really stall out because they just don’t have the expertise in that leadership function to be able to get them to the next level.”
Namely, she argued that some firms fail to evolve their organisational structures as they grow which can hinder efficiency and productivity once they try to push past the $500 million threshold.
“That is, firms continue to operate more like silos, where there is less consistency across the firm in the way that the advisers are operating, dragging on margins, dragging on productivity and so forth.”
A key role that must be introduced at this stage, according to De Pardo, is a chief operating officer to ensure there is a dedicated person to drive some of the bigger goals of the business.
“There are some linchpin positions in those early stages that firms have to get right. At around between $300 million to $500 million [in revenue], there has to be the addition of a very capable COO position, and a lot of firms try to make do with an operations manager through that period of time.
“The key distinction there is, of course, one is the operations role is much more tactical, day-to-day problem solving in the weeds, trying to figure out, for example, technology fixes, deal with the minutia of the day, as opposed to somebody who can handle much more strategic initiatives across the firm and ensure really the execution of the firm’s growth strategy.”
Another role firms might consider introducing as they grow is a human resources (HR) manager, though De Pardo said the point at which this becomes necessary will be different for every business depending on their needs.
Beyond organisational structuring, she said that having a clear strategic plan for the future of the business is crucial to growth for any size firm, but particularly those in the emerging stage.
“Try to very much think strategically about the future of the business. That is the ‘to-be’ state that you’re trying to create and be very clear on how you will grow and compete, what you’ll be known for in the marketplace. In alignment with that, be laser focused on the types of clients you plan to work with and how you articulate your value to the market.
“If you can get those things right up front, that enables you to really be much more laser focused with your resourcing, which in the early stages is just so incredibly important.
“Given how few people you have within the business to help you out, we have to make sure that every individual is really put to their highest and best use. To do that, you need real clarity around the direction of the firm and how you then assign those resources to help you get there.”
