Advisory practices with over $1 billion in assets under management are setting themselves apart from the rest. At the recent Pershing INSITE conference, "insite" was shared on what these firms are doing that eventually results in them pulling away from the pack.
Gabriel Garcia, a director and head of relationship management at Pershing Advisor Solutions, in his presentation, asked attendees what it would take to double their firms in size. He then provided answers, stating that to do so in three years, a “net-net growth rate” of 26 percent is needed. A 14.9 percent rate is needed to double in five years and a 10.4 percent rate is needed to double in seven years.
Whatever the speed an advisor wants to grow at, Garcia said, they can learn from super-ensembles and their five keys to success:
1. Defining A Vision
“Define the what, the why and how,” said Garcia. This is especially helpful if there are multiple partners. It also keeps the entire team on the same page.
A good vision will determine where a firm is going and map out how to get there.
2. Institutionalizing Business Development
“Develop the brand of the firm so it attracts clients. Also, train and encourage all professionals to develop new business. Set a goal and hold people accountable,” said Garcia. These action items were noted to help set a culture of growth across the foundation.
“What does growth look like in your business? Have you established key performance indicators?” asked Garcia.
Start with some high-level goals and keep track of the KPIs around growth. Know things like the desired annual growth rate and total revenue that the firm wants to achieve for the year. Then drill down into more specifics and recognize the milestones.
It also helps to have a client acquisition methodology. Each associate should have a plan for growth and receive guidance to achieve those goals.
3. Establishing A Sustainable Ownership Structure
“Create a process for adding new partners and retiring existing partners,” advised Garcia.
He gave an example of what not to do by sharing a story of an advisor that expensed personal things through his business and was not investing in the firm. This approach lowers the profitability of the firm and potentially lowers the compensation for a partner. The firms that fit in that general description are not going to do a good job of adding new ownership. When building out the ownership structure, founders should put the firm first.
Super-ensembles usually have a clear understanding of the criteria of what it means to be an owner of the firm. They have fair and equitable partner compensation, while also sharing communications around the economics of the firm.
The scenario where the owners are not the day-to-day managers is something else that should be considered.
When it comes to bringing in a next generation of ownership, founders need to look from the perspective of those individuals. “The decision is complex,” said Garcia.
For many younger individuals, the choice of taking on some ownership means going into debt. Find out if that is something they are OK with. Garcia pointed out that Millennials prefer to rent versus own when it comes to real estate. Does that perspective translate to how they want to be involved in the organization? Step one is gauging interest, determining if they want to be an owner.
4. Adding Lateral Partners
“Develop a method for attracting and integrating partners from outside the firm,” said Garcia. To grow at a rapid pace, it cannot always come from just the existing team. Pershing says the super-ensembles are doing a much better job of bringing in external individuals and they are more effective consolidators.
In these more successful firms, ownership is distributed more broadly. They are tapping into the external professional marketing place, added Garcia. By doing so, the new additions are bringing with them new talents and new capabilities. They add resources and provide scale. Plus, these new teammates bring assets and revenue that allow an organization to leap-frog organic growth goals.
By bringing in new partners, these firms are almost always better off when it comes to succession plans.
The goal is to become an employer of choice. Bringing on new partners should be intentional. Garcia said, “Everyone talks about [adding] tuck-ins, but they haven’t clearly put in a process.”
He said many firms do not understand the compensation model. You need to understand what you are willing to exchange and know what your value is in the marketplace, explained Garcia.
The retirement business is a great example of where a firm might not currently be in a position to bring in these types of accounts. However, with the right vision and team additions, an organization can expand into something new.
Deanna Arnold-Frady, vice president of business relations at KMS Financial Services, sat on a panel on the topic of Rev Up Your Retirement Business. Her general advice is that the “generalists” need education and support as the specialists are better suited to work in the retirement space.
So for a firm looking to expand its revenue and clients directly from the retirement business, it might want to bring on a retirement specialist if it doesn’t already have one.
5. Growing In New Markets
Garcia told attendees, “Expand your geographic footprint through mergers and acquisitions or by starting from scratch.”
For many super-ensembles, this means opening locations in more states around the country. An expanded national reach can improve the brand perception of an organization. The added credibility can help not just land more clients, but it can also help bring in wealthier clients.
Striving to become a super-ensemble? It does not happen overnight. But if you do not take initial steps to learn from the best and evolve, it will likely never happen.
Mike Byrnes is a national speaker and owner of Byrnes Consulting, LLC. His firm provides consulting services to help advisors become even more successful. Need help with business planning, marketing strategy, business development, client service and management effectiveness? Read more at ByrnesConsulting.com and follow @ByrnesConsultin.