But one of the biggest epiphanies of Whitehead's career may have been learning that he just doesn't like to manage. That's why in 2002, Whitehead turned the Alliance into a nonprofit organization now governed by members, retaining only the title of spokesman.
Today, he spends as much time as possible promoting his new book (Facing Financial Dysfunction: Why Smart People Do Stupid Things With Their Money, Infinity Publishing) and working with his own 200-plus clients. "I can usually generate $1,500 an hour when I'm in front of clients, and that's what I love to do," says Whitehead, principal of his own planning firm, the Cambridge Connection, with offices in Arizona, California, Florida and Michigan.
The point is that Whitehead has figured out precisely what he likes to do and does well. Today, he delegates to staff all those things he doesn't like, so he has more time to devote to client meetings.
At the end of the day, we think doing what you love and making a healthy profit at it is essentially what good business is all about. This is a story of the fundamental flaws and fears that stand in the way of most planners' success.
To help you figure out how to identify and remove those impediments at your own firm, we talked to consultants and executives across the country who work to help advisors create better businesses everyday. Here's what they had to tell us.
Figure Out What Success Looks Like-To You
When George Johnson, the cofounder of Entrevis, an executive consulting and coaching firm in St. Elmo, Minn., decided to develop "The 7 Entrepreneurial Skills" for financial planners, he held focus groups with both successful planners and those who are foundering. What he discovered was that planners who are having problems "have no vision," Johnson says. "They have no idea why they're running a firm or what they want to accomplish. They have planning proficiency in terms of their own clients, but it doesn't translate into business prowess. I ask these folks: 'What would success look like to you?' And their answer to me is, 'I don't know.'"
The problem, says Johnson, is if you don't give your brain an idea of what it should be working toward, it doesn't know what to look for or how to help you. It's one of the reason Johnson says he sees so much paralysis among planners. Say a planner creates a to-do list of next steps for his firm. Maybe it includes marketing to CPAs. But the planner never quite gets around to picking up the phone, Johnson says. He attributes the paralysis to the fear of failure and lack of direction. "You have to have an ideal. It doesn't have to be something you accomplish in the next week or even year, but it will help you to direct your energy. "Do yourself a favor and commit your goals to writing. Think of the document-even a sentence can suffice to get you started-as your vision of success. "Vision will help direct your work flow, your energy and your business investment. It will also make it much easier to lead and motivate staff," says Johnson, who is preparing to unveil Entrevis' new coaching and teleclass for planners interested in becoming more entrepreneurial.
Stop Waffling
You can decide to grow or stay small. Whatever you decide, there is no right or wrong answer, only the reality that different opportunities and limitations flow from each. The business climate and growing expenses today, more than ever, make it incumbent on planners to decide what's important and fulfilling to them.
Trying to both stay small and grow your firm at alternate times is a sure-fire recipe for stress. "The problem with some advisors is that they frequently change course between these two business models, maybe based on the most recent article they read or coach they listen to," says Chip Roame, managing principal of Tiburon Strategic Advisors, Tiburon, Calif.
The firm benchmarks the practices of hundreds of advisors to ferret out industry trends, and finds that a lack of clear focus bedevils many of them. "This hurts profitability and creates excess work," Roame adds. Time and energy is spent making major sea changes in business strategy, which throws the firm, it's business and strategic operations and staff off kilter. At a certain point in the near future, you'll be best served by deciding what type of firm you really want. A small firm has numerous charms, including more time for family and hobbies. It can provide a planner with an honorable practice and a lifestyle richness. The allure of big firms is the potential for greater wealth and the ability to leverage staff.
Become Counterintuitive
Your vision or mission statement can be as simply stated as, I want to be the best financial planner for divorced women. You can substitute doctors or engineers or small business owners as you see fit. But making that simple declaration is likely to do miracles for your workflow, staffing, productivity and profitability. In and of itself, it will say volumes about where you should direct your energy and effort and what types of results you should begin looking for. While it sounds simple and rewarding enough, consultants know this stumps a lot of planners. That's because the very notion of turning away clients who don't fulfill a firm's vision, and limiting what your firm does, feels counterintuitive. "Oftentimes a planner calls me in because they believe their practice is languishing, and it is," says Mark Tibergien, head of the financial services consulting practice at Moss Adams in Seattle. "It isn't producing the returns the owner thinks it should. There are no efficiencies and no top-line growth."
What does he frequently find? "That the firm has too many different clients and offers too many product and service lines to really harness its resources." What are the signs? "I'd find your staff, if you had any, would be unhappy because they don't have a sense of direction. I'd find compensation is misaligned with what you're trying to accomplish. Your gross profit margin would probably be diminishing, caused by poor client mix, poor pricing and poor productivity. At the same time, I likely see your overhead costs rising."
No one is asking advisors in the early years of launching their business to turn away clients. But as practices grow and mature, focusing on the client group you want to serve can make running either a small one-person boutique or a large multi-planner firm more gratifying for you and clients. Simply put, it will allow you to develop the depth and breadth of experience needed to serve clients well without having to reinvent the wheel every day.
Draw Your Line In The Sand
It's easy and exciting to get caught up in the demands of growing a business, especially when it begins to take on a life of it's own. But years or even decades later, it's likely that your likes and strengths will have changed. Cambridge's Bert Whitehouse used to like managing his four-state firm, hiring and firing and training staff and organizing all of the activities that go into running a business. Then he stopped liking it so much. He began to hire staff to do those things he didn't like to do, right down to reading the 100 or so e-mails he gets every workday, a task he began delegating about three months ago. Whitehead calls it "e-mail triage."
Every morning a staffer deletes all his junk e-mail, answers what she can and directs other e-mail, where appropriate, to paraplanners and team advisors on his staff. "E-mail was fun ten years ago," Whitehead says. "Then it started taking me an hour-and-a-half just to plow through it." Now he receives the three or four e-mails that need his attention, and gets to spend more time in front of clients earning the hefty retainer fees he charges (the fee ranges from $2,000 to $25,000 and averages $6,000, depending on assets and complexity). "Fee-only planners think of their work as a calling, and one of their sins is they don't charge enough," he says. "I charge what the service is worth, and that gives me the resources to hire paraplanners and others to help run my business." The strategy isn't all self-serving. In the past 20 years, Whitehead has trained 20 different planners who went on to buy their client list from him.
Get A Real Compliance Officer
It would be hard to talk about the quality of your life as an advisor without underscoring how important it is to avoid raising red flags with regulators. And so it stands to reason that the days when advisory firms appointed their receptionist, administrative assistant or proverbial low man on the totem pole as the firm's chief compliance officer are drawing to a speedy close. That's because starting in October, the Securities and Exchange Commission will require that you appoint a chief compliance officer and that he or she create, implement and review compliance policies and procedures at your firm annually.
"Nine times out of ten when we do mock audits and the person responsible for compliance is the low man, the audit doesn't go well," says Gary Watkins, a partner with Adviser Compliance Associates in Washington, D.C. It won't fly with regulators soon, either. "The SEC wants to see that the person in charge of compliance sets the tone at the top, has knowledge of how the business operates, what conflicts there are and can operate independently to change procedures where necessary."
The last thing you want during an audit is to trigger regulatory ire over who you've appointed as chief compliance officer. "Besides, the low-man types are getting wise," says Watkins. "They're shying away from the job once they realize they have real liability."
How Ethical Are You Really?
Sometimes advisors believe that because they're honorable, they don't need to disclose activities that the SEC will undoubtedly view as a conflict of interest. "That's the biggest mistake I see," says Michelle Heyne-Wyrick, a partner with the Seattle-based consulting firm BD/IA Complete. "Referral arrangements advisors have with their broker-dealer or custodian are big deals. So is anything that an advisor is deriving economic benefit from, whether it's practice management software or lower execution fees for greater volume," Heyne-Wyrick says.
It's important to have the mindset where you recognize the need to disclose any items or benefit that may impact how you make decisions affecting clients. Lori Richards, director of the SEC's Office of Compliance, Inspections and Examinations, says that as many as 70% of advisors are found to use deficient disclosure materials with clients. Richards says SEC examiners will step up the frequency of audits for advisors found to have disclosure deficiencies.
It really will pay to be thorough and accurate. Which is why it's more problematic than ever to cobble your ADV disclosure forms from those written by folks at other firms. "What we're seeing in some cases is ADVs that are not related at all to what the firm is doing," says Jennifer Aracri, a consultant with National Compliance Services Inc., Delray, Fla. "I just got through reading a client's ADV and it's a mishmash of other firms' services. Eventually a regulator or competitor is going to catch on. Send an incorrect ADV to a regulator and you'll spend a year communicating back and forth," warns Aracri.
Have Fun
If you're tired of hearing about succession planning, take heart. Your clients may be well taken care of in the event of your demise-despite you. One or two spouses of deceased or disabled planners call buyer-and-seller matchmaking service FP Transitions monthly. David Grau, president of the Seattle-based online service, says he is now regularly handling sales for surviving spouses. "We're finding that when the firm is listed within 30 days of the precipitous event, survivors are getting full value. We're seeing a 90% to 95% retention rate of acquired clients. And the whole deal, start to finish, is taking on average just 21 days, with between 20 and 25 buyers vying for the firm."
This along with other mounting data from FP Transitions is taking at least some of the hot air out of the imperative for elaborate succession planning, including the strategy of taking on partners. Grau says that 98 out of 100 sellers don't plan on shedding their business until several months before they list their firms with FP Transitions. "It's almost an impulsive decision. They don't sell to retire but to take on another opportunity, and they don't wait until retirement age," says Grau, who notes that the average seller is age 55 to 57.
"People in our business are conditioned to believe that a partner or employee must take over internally. That's fine, but our data and experience is that it doesn't add value. It just adds another layer of bureaucracy and someone to get rid of if you want to sell. You'll lose value if you hand out ownership prior to selling," Grau says.
Obviously, this shouldn't stand in the way of advisors dedicated and determined to build large firms. But it should provide some comfort to sole practitioners who have been worrying what might happen to their clients and firms next.