How Solo Advisor Firms Can Get a Handle on Their Operations

Financial advice firms have historically lagged behind other professions in their attempts to scale beyond the original founder and a group of loyal employees. Today 86% of Registered Investment Advisors have fewer than 10 employees1. A large part of this is due to inefficient processes.

Recent findings from Kitces Research indicate that, in spite of improvements in technology, revenue per professional has actually remained flat from 2014 to 20202.

Many advisory firms share a similar origin story: the founder advisor begins as a solo practitioner, and grows initially by gaining clients. On the way, systems and staff are acquired one by one on an as-needed basis3.

For a while, growth continues mainly on the basis of the founder’s prospecting activities, before reaching a plateau at around 50-100 clients4. This is a point at which many firms stall. Why is this, and why is it so hard to scale?

It is partly because of the early success (most advisor founders are excellent salespeople) that the issue of process remains hidden and undiagnosed.

The advisor’s dilemma

Since the advice business is in the early days run with the advisor at the center, and the advisor is mainly preoccupied with serving and acquiring clients, there is often little thought given to how to run the business as a business.

If a staff member has a problem, it is the founder who must devise or approve the solution. This leads not only to many rushed decisions, but also to a general lack of coherence in the way the business is built.

By the time it comes to break through to the next level of growth5, the advisor is busier than ever, and there is no one on staff who is empowered or informed enough to take the processes of the firm in hand.

The lack of processes means not only that the firm is operating at a lower level of efficiency (meaning either lower profits for the firm owner, or higher prices for the firm’s clients), but it also makes it hard to onboard new staff or advisors and integrate them in a coherent way.

Since everything resides in the advisor’s head, there comes a point at which no further complexity can be added. The firm either ceases to grow, or experiences a form of “pseudo-growth” where separate advisory firms join together under a single name and continue to operate in their own idiosyncratic fashion.

For a service like financial planning, which requires careful rationing of expertise, and coordination between employees to execute complex and often sensitive tasks, operating without robust processes is risky, and effectively precludes true growth. Firms that do manage to grow in spite of everything often see no economies of scale6 and flat or declining profitability.

Finding order in chaos

The advisor’s dilemma has a solution, and that is to critique, refine and externalize (remove from the advisor’s head) the firm’s processes so that they can be documented, followed, and updated as the firm grows. The process requires several steps.

Step 1: Founder “lets go”

The first step is the most important: the advisor has to overcome the psychological hurdle of letting go of control. In truth, it is typically this, rather than any technical or logistical obstacle, that stops most firms from graduating to a mature enterprise.

Step 2: Align on firm strategy

Even with this hurdle overcome, the firm needs to articulate its vision for its offering, desired growth goals, and target KPIs. These provide the framework for the eventual roadmap against which progress can be measured, but also lay the groundwork for the assessment exercise in the next phase.

Step 3: Review the status quo

The status quo processes must be reviewed in order to understand if they make sense.

This procedure will likely highlight a number of quick wins as well as longer-term problems, chief among which is the absence of a staff member with a measure of empowerment to manage and update the operational procedures without the direct involvement of the founder.

The aim during this critical phase should be to assess the current processes for efficiency (are they carried out with minimal waste of time and resources, and a low probability of error), and effectiveness (do they fulfill the company vision).

For example, if the firm aspires to offer a high-touch, family office service, using Mailchimp to communicate with clients might be a cost and time-efficient approach, but endanger the client’s brand and key relationships.

Step 4: Implement the roadmap

The final step, once the new processes have been agreed upon, is to embed them in the firm so that the exercise is not a mere academic discussion. It is at this point that various technology solutions should be considered (not before), as a means of ensuring that the plan is implemented as envisioned.

This could result in replacing existing technology (e.g. CRM) or implementing new solutions (e.g. electronics workflows, time-tracking). The goal is never to view tech as an end itself, but always with reference to a strategic KPI.

Moving Forward

At Clarsynt, we understand that process improvement, if done properly, is not achieved with a one-size-fits-all software solution or a few weeks’ work. It is a transformation process that touches everyone involved in an organization. We’ll work closely with your team to ensure they understand the changes being made and the value these updates bring to the organization.

In addition to change management, we also bring the experience and the hard skills needed in the crucial implementation phase to ensure that the technology undergirding your newly optimized organization is leading-edge, and built to last.

Operations are often neglected in a financial advice firm or relegated to a support function status. Increasingly, however, operations are being recognized7 as key to the success of financial planning, as alternatives from the world of Big Tech are commoditizing the traditional, advisor-centric offering.

Together, we’ll make sure that your people and processes are in lockstep to deliver a robust, unbeatable value proposition.

1 RIA Data Center
2 Scaling Financial Advice: What Actually Drives Efficiency And Advisor Productivity
3 New frontiers in wealth management
4 How Do Financial Advisors Actually Spend Their Time And The Limitations Of Productivity?
5  How to Escape the Small RIA Firm Poverty Trap
6  Advisory Firms Don’t Scale: Why Growth Doesn’t Solve Profitability Problems
7 Hire These Support Staff for Your Advisory Firm

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