Advisors that have determination to succeed naturally grow their businesses.  However, even if they have passion, they often lose momentum and their growth flatlines. 

To address this common industry issue, Adam Verchinski, relationship management vice president at Pershing Advisor Solutions, has been presenting in several cities on the topic of “Chemistry of Success: Powerful New Catalysts For Organic and Inorganic Growth.”

Recently in Boston, he explained there are four pillars of success, and growth is one of them. The other pillars are operations, risk management and human capital.

A Drive To Grow

Verchinski uses football fundamentals as an analogy. Most advisors are in defense mode. That means their focus is on keeping clients happy and possibly reacting to their feedback and opinions.

“You need an offense,” he told attendees. “This is how you plan for your growth. It’s the proactive process you are going to take for your firm. Advisors need a process for organic and inorganic growth. There is a tendency for firms to hit the revenue wall. The largest firms are the ones that grow the fastest, but even with them the law of numbers takes over.”

“The advisor hits the $1 million in revenue mark and then stalls out,” he said.  He asked the attendees why they thought that happened. One person believed it is because an advisor gets so big that the management of the organization pulls him or her away from growth activities. Another attendee said, “[At $1 million revenues], some are content where they are.”

“Advisors tend to be over confident at the peak,” agreed Verchinski. “They count on rising markets to protect AUM and growth.” 

The reality is that client attrition and outflows can adversely impact revenues. “Every year you have to start with a four percent head wind in your revenue,” said Verchinski.

That means their needs to be a focus on revenue generators: referrals, new clients from marketing, share of wallet increases, investment returns and inorganic growth, such as M&A and recruiting.

The Need For A Growth Plan

Proactive planning for growth was highlighted as a major step most firms can take to improve their focus. Yet Verchinski said, “A lot of firms do not have the aptitude to plan year after year for growth.”

Planning can include what to do with lower tier clients to defining the steps to acquire a new firm to freeing up time for advisors.

Verchinski pointed out that almost half of advisors do not have a plan in place. Further highlighting the potential for improvements, Verchinski noted that about three out of four advisors do not have client acquisition goals.  “Every firm should be starting to plan out their 2015,” he said.

Growing Organically

The most interesting observation during the presentation is that “top performers” grew their revenue by 50 percent more than other advisors in a study that looked at the growth in 2010. This was attributed to the top performers taking advantage of market turmoil, because they had the skills, infrastructure and processes in place. 

Another area for improvement is the prospect close rate. Many firms are batting one out of two, said Verchinski.  “If you need five clients a year, that means you need ten prospects. That is one new prospect every five weeks.”

To make improvements, the prospect close rate should be improved, starting with the discovery process. To do this, an investment is needed in staff and time should to be dedicated to find out what truly matters to the client. The focus should be identifying a greater number of prospects and improving the pipeline management.

Verchinski pointed out that many firms need to focus on their existing clients and increase their wallet share.

To improve client referrals, clients need to know who an advisor wants to work with and they have to be able to explain the value and services provided.  Verchinski suggested doing roleplay and video recording these conversations to improve communication skills in this area.

When it comes to improving marketing, Verchinski boiled it down to client segmentation and a clear message that is targeted at the ideal client and household. He also believes advisors are not great at having a unique value proposition.

Growing Inorganically

When it comes to mergers and acquisitions, he said, “The importance of the plan can’t be understated.  You can increase the value of your firm by just having a plan in place for inorganic growth.”

In one case, he saw a firm hire five full-time recruiters that sourced 400 leads a year. Even with that volume, they only brought in five advisors.

He offered seven key tips:

  1. Understand your market value.
  2. Plan for integration before a deal is final.
  3. Take one step at a time when integrating. Transactions are very large if you are merging teams, which will include technology, investments and people.
  4. Gain an intimate knowledge of who you are dealing with. This often gets overlooked.
  5. Be upfront about non-negotiable issues. Create a list of things like investment philosophy, technology preferences, management style or whatever is the most important. These topics are talked about at a superficial level early on, but instead they should be put the table with more detail from the beginning.
  6. Be sure of your level of commitment
  7. Closely align culture, values and philosophy.

Things as simple as a high level of client service can mean two different things, shared Verchinski.

If advisors want to grow inorganically, they should look to realize economies of scale, access a new market (geographic or a niche), bring in new skills and experience, or enable a succession in ownership.

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.