In the past 30 years, there has been a gradual evolution of the financial advisory profession: from a cottage industry, where advisors hung out a shingle and worked from their homes, to more formal organizations with professional offices, business structures and models, and even dedicated management.
Regardless of what the size of a firm is, however, its organization also needs to evolve. It’s something every entrepreneur should think about. Specifically, does your firm’s organization align with its strategic approach?

Is There A Disconnect?
When you think about the history of your firm, was there ever a period when the organization was out of sync with its vision and mission—and did it matter?
I can think of what’s probably a common example for advisories. About eight years ago, many firms experienced challenges because they were not designed to align with the emerging technology of the day. Specifically, many of their tenured employees (especially employees of a certain age) lagged in their knowledge of technology. Today, many of those “older” employees have either caught up to learn it or have been replaced or shifted to other roles. Firms have learned that tech knowledge is not optional—for any employee of any age.

There are many other circumstances that may require a shift in an organization’s design: if a new client base is targeted, if the firm’s vision is rearticulated, if new technology emerges or if the service model transitions from predominately in-person review meetings to predominately technology-aided meetings. It is vital to account for these shifts. When things get off-kilter between a firm’s vision or strategy and the internal structure it has built to deliver services to clients, the disconnect can result in inefficiency, higher costs, lower morale, a negative effect on culture and, ultimately, a diminished future.

Evolution Of The ‘Typical’ Firm
As advisor firms have grown and changed, how have they addressed the issue of design? Historically, entrepreneurs in our industry casually unrolled an organization via daily decisions, without the necessary foresight or planning.

Let’s rewind through 20 years of a “typical” firm.

It most likely began with a solo advisor who, when busy enough, hired an assistant to help out as a “juggler” who acted as a receptionist, completed paperwork and did other various things. As the firm grew, a second assistant was hired to do the same thing as the first. By the third hire, a division of labor began: One employee would be the receptionist and the other two would do client service work.

As growth continued, perhaps the advisor hired a paraplanner to support meeting prep and investment management. Continued growth brought the introduction of an additional advisor. From there, growth evolved to include a marketing support person, a technology support person or some other specialty position. If the organization continued to prosper, the addition of more financial advisors and support staff evolved. Sound familiar?

More recently, we have seen the addition of dedicated middle management to oversee support staff. As more advisors have been added to firms, more partnerships have emerged, as have leadership positions such as the CEO and CFO in super ensembles. This evolution has worked! Growth has sparked hiring, which has led to more growth, and so on and so on. The industry has provided an attractive option for those who worked hard and prospered. But it’s still shifting.

Identifying Trends
To start thinking about how to align organizational structure with strategy, it’s helpful to identify industry shifts and how they may affect different facets of your organization.

Technology. In today’s world, technology allows advisors to meet with a higher percentage of clients via technology-aided reviews. In fact, many report having fewer in-person review meetings. If this emerging trend continues, will there be a need for a full-time receptionist?

Another trend is that while technology systems have made some processes more efficient, they are also becoming increasingly complex. Most advisors can no longer bear the cost of designing even modest systems internally—not to mention assuming the responsibility for the daunting task of ensuring cybersecurity. Will internal technology experts instead become technology trainers? Would all technology-related services eventually be outsourced to strategic business partners?

Products and services. It looks like exchange-traded funds and indexing are here to stay. The commoditization of investment management has also been predicted for some time. How will positions like the paraplanner be affected? On the other hand, what new roles will emerge if advisors begin to emphasize financial planning (rather than investment management) as their centerpiece service? For example, would there be a greater need for risk management specialties if advisors took on the responsibility to position insurance to address clients’ needs?

Growth. Advisors will increasingly be responsible for multiple locations. Again, technology will aid them in the delivery of support services to all locations, but there will be redundancy. Perhaps the “juggler” employee of the past will re-emerge?

Furthermore, these larger organizations will inevitably require greater management sophistication. The “laissez-faire” management style preferred by many advisors is likely not going to cut it in the large ensembles of the future. The cost of hiring a professional manager who formally does what the advisor has “kind of” done for years can be a tough cost to swallow. Nonetheless, I wouldn’t be surprised to see a shift toward more professional managers or managing partners.

Independence. Advisors may see a higher percentage of their ranks shifting to salaried positions and away from the independent contractors who predominate today. How that shift might affect firms’ attractiveness to younger advisors or female advisors is a thought-provoking question.

Structure. Today, advisor/leaders may talk about “departments” within their firms. But the firm of the future, at least in more populated metropolitan areas, will be composed of the operations department, the financial planning department, the compliance department and the analytics department.

Regulation. Compliance and the need for oversight are here to stay. If anything, the issue is becoming more important. Given the current realities and trends, firms will need internal personnel to focus on this area. It’s a tough cost to absorb, perhaps, but eventually it will simply be a cost of doing business.

Considering these trends and the potential ensuing shifts in advisory firms’ organizational design, there is little doubt that the firms of the future will look different from the ones of today (and much different from the ones of the past). Many have noted that greater business acumen is going to be essential in the future. It’s not just that the changes are bigger, but that big changes are being introduced at a faster pace. Depending on your perspective, that’s either challenging or exciting.

What Could This Mean For You?
Regardless of the size of your organization, there is one component of organizational design that applies to every firm. The alignment of the right person with the right job is critical for everyone. As roles and responsibilities inevitably evolve, so must people. An employee’s inability to adapt makes him or her irrelevant, yet advisory leaders will likely hesitate to let such employees go and instead try to work around them.

Does all this talk about organizational design sound a bit corporate? It’s true that for some advisors—solo practitioners, advisors in rural areas or older baby boomers with “lifestyle” practices who intend to work indefinitely—the discussion may be moot. But for the youngest baby boomers, Gen X and Y advisors and older baby boomers looking to establish a “legacy” firm, the organizational design of their businesses will need to be at the forefront of their thoughts. Specifically, the future will require firms to be consciously designed so that structure reflects strategy.

A Conscious Design
The astute business owner will need to proactively design the firm according to future needs rather than inherit and assume the organization of the past. To accomplish this, a SWOT analysis (of strengths, weaknesses, opportunities and threats) can help an advisor assess the external industry landscape and competition, as well as how internal strengths and weaknesses may combine to influence strategy. Furthermore, advisors should assess the defined client base, including clients’ needs and wants and how these align with their firm’s mission and vision. The results of these analyses will provide the foundation for moving in a specific direction.

To be sure, there is no one right organizational structure for the industry to be copied by everyone. There is no structure that lasts indefinitely. But as firms become more sophisticated, the sophistication of their strategic approach must also develop. Sizable organizations need to attend consciously to this design. One thing is clear: The required skill set of advisor leaders in the future will include the competence to design and then redesign their organizations to align with their vision, client focus and strategy.