The folks who run Accredited Investors Inc. are sharp cookies who rack up awards and recognition within the financial planning profession. One of the keys to their success is knowing when to tweak their business model.

Following the deep downturn of '08-'09, they realized it made sense to re-examine some of their business practices. "Last year we decided to set up a number of different things we wanted to work on and that this is a good time to retool, rethink and find out where we're at with our clients," says Wil Heupel, managing principal at the Edina, Minn.-based firm.

"From an organization structural standpoint, we want to refine and realign ourselves to accomplish growth," Heupel says. "One of the key things for us is to identify and mentor the next generation of leadership."

The firm hired a management consultant, evaluated its staff and clients, and ultimately let go those employees and customers it thought wouldn't be a good fit going forward. The goal, Heupel says, is to find out "who's on the bus" as the firm tries to get to another level.

Accredited Investors is one of many advisory firms looking to redo certain aspects of its business in the aftermath of the recession. "I think advisors are now a little more confident to take time out and work on their business versus just working in the business and putting out fires," says Dan Inveen, principal and research director at the consulting firm FA Insight.

"Maybe before the downturn there was motivation by some firms to re-examine their strategic direction," he continues. "But the downturn put that on hold. What we're seeing now is a pent-up demand for strategic planning that's been set aside for the past 18 months."

Getting Focused
There's nothing like a crisis to sharpen one's focus. "It's easy when things were going well like it did for most of the past 18 years with unabated growth for the most part," says Steven Lockshin, chairman and CEO of Convergent Wealth Advisors in Rockville, Md. "It created a confidence level that allowed you to not focus on things that weren't working. I think one of the biggest things to come out of [the downturn] is people are starting to focus on areas that weren't as strong in their business."

Lockshin says his firm last year started organizing its clients into three distinct segments. One is a high-net-worth category that comprises clients with up to $5 million in investable assets. The second is taxable clients with more than $5 million. The third segment focuses on non-taxable institutional clients.

"That alone has allowed us to differentiate our offering-both in terms of technology and service-so we can run as efficiently as possible," Lockshin says.

As Convergent has expanded and opened a number of small, far-flung offices over the years, Lockshin says, the company has remained mindful of the problems of trying to build a consistent corporate culture. Consequently, it has recently downscaled its footprint.

"We decided to close our two smallest offices [in Philadelphia and Atlanta] and eliminate the managerial headache," he says. "They contributed 4% of the revenue between the two of them. Those are the types of decisions this type of environment helps you make."

Andy Berg, CEO at the Atlanta-based wealth management firm Homrich Berg, says one of the things his firm is doing in the post-downturn world is changing the way it uses alternative investments. "I know we were using more alternative investments than most other folks--especially illiquid alternatives," he says. "As a result of the downturn, clients want things simpler and more transparent."

In response, Homrich Berg's focus in the alternative space is less about things like private equity and private real estate funds and more about areas such as liquid hedge fund strategies, Berg says.  

In the area of technology, Berg says his firm is exploring whether to move much of its business processes onto a cloud computing service, which involves delivering hosted services over the Internet. The advertised benefits include ordering services on demand. Plus, the service is managed by the provider and an advisor needs nothing but a computer and an Internet connection. Such a move to cloud computing would be indirectly related to the downturn, he says, "in that it made us think we have to continually differentiate ourselves to succeed and keep growing."

Maximizing Staff
Change for change's sake is sometimes a good thing; then again, sometimes it's not.

"Are we doing anything different? That's not easy to answer because different isn't always good," says Armand Dinverno, principal and co-president of Balasa Dinverno Foltz LLC in Itasca, Ill. "You just don't want to throw something against the wall to see if it sticks if it's not a good solution. Will events like what just happened be a once-in-a-lifetime event, or will it happen again in the next five to ten years?"

Dinverno says his firm has participated in think tanks with other firms to strategize about topics such as finding better risk management tools other than just asset allocation. "That generally involves more active management, which can be a positive and a negative," he says. "But how do we want to do that?"

While his firm mulls that over, in the past year it has organized its ten wealth advisors into two camps: relationship managers who focus more on serving existing clients and then business developers who work with fewer clients and spend more time bringing new ones into the fold. "We're splitting up into teams to better align our professionals to make sure everyone is at the top of their game," says John Smith, head of the firm's client servicing and relationship management.

Last September, Accredited Investors hired a consultant, Jim Grubman from FamilyWealth Consulting in Turners Falls, Mass., to help it evaluate various aspects of its business. He comes in every quarter for two days-one full day to meet with the entire staff, and another day to meet with the four principals. Then the top executives talk with him every month over the phone for three hours.

Grubman has prompted Wil Heupel and founding principal Ross Levin, along with the firm's two next-generation principals-Kathleen Longo and Paul Dinzeo-to move into more strategic roles. "It's about us getting more into leadership roles and allowing the next generation of people to move up the ladder and allow us to mentor them," Heupel says. "And that allows us to work on business development. Ross and I both have been doing this for a long time, and we have relationships in town and how can we use our longevity and relationships within the community to develop business versus just working day in, day out in the business."

Heupel previously worked at Wells Fargo and U.S. Bank and has been in the financial industry for 23 years. "I thought I knew about organizational structures and how to put organizational charts together," he says. "With Jim, I'm on Version 9.0. When you think you can do it yourself, it's amazing how often you're off base.

"It's a healthy, challenging environment," he says, "and it gets you to think a lot more about putting a structure together that accomplishes some of the goals you're looking for. In our case, it's succession planning."

Top Grading
Accredited Investors is working to create a compensation structure that takes into account its employees' job and life balance. "We want to retain our staff, and we want them to be a top-graded staff," Heupel says.

Recently, the firm let go of three staffers. "It's a testimony to Jim, who showed us how to communicate and work on interests-based discussions with our staff," Heupel says. "At least two of the three felt it was good parting of the ways."

Heupel says another area the firm is working on is developing the "emotional quotient" for its next level of people. "It's the ability to connect not just to the analysis, but to know how to communicate and ask open-ended questions and getting at possible issues and feelings," he says. "They're good at analysis, but are they good at really connecting with clients and uncovering the issues?"

Dan Inveen from FA Insights says one of the issues faced by some large, successful firms run by owner/advisors is the need to find a dedicated full-time business manager to help take the lead in strategic planning. Another issue at some firms is the need to build out the "middle area" of their personnel between the owner/advisors and the less-experienced, entry-level employees. "People are talking about growth again and how to put in place the proper capacity to meet those growth plans," he says.

And on the client side, part of that growth can be helped by culling the turkeys from one's customer base. "We've had a rule for the past decade not to have difficult clients," says Steve Lockshin from Convergent Wealth Advisors. "We call it the no ***hole rule. You want clients who value what you do and don't beat you up on fees, and who have the kind of relationship where you want to call them."

Heupel says part of his firm's strategic rethink entails taking a closer look at its client base. "On the client level, it's about evaluating the working relationship and values," he says. "Do we share the client's values? If they're just focused on rates of return, they're not going to be a good long-term relationship. We've parted ways with some clients because it's hard on the staff if those relationships aren't healthy."

Heupel says the firm's approach to evaluating clients is more about a team discussion than it is a formula. With potential new clients, two of the principals sit in on the initial meeting so they both can evaluate the prospect. In a recent situation, both Heupel and Levin sat in on the meeting and had differing views about the prospect. "We didn't take on the client because we weren't in complete agreement," Heupel says.

Inflation-Adjusted Outlook
Lou Stanasolovich, CEO and president of Legend Financial Advisors Inc. in Pittsburgh, sees the post-meltdown landscape riddled with inflation. And that is shaping how his firm is doing business.

"We expect to see rising inflation going forward-maybe not next year but in the long-term-and we think that'll affect our real estate lease costs," he says. "We're looking at a longer lease. We also expect salaries to rise tremendously in the second half of the decade because of inflationary needs. As a result, we're doing what we can to expand our revenue base through client acquisition."

One of Legend's big growth initiatives centers on a new firm it recently launched to address the middle market. Legend typically services people with generally $1 million in investable assets. The new firm, called EmergingWealth Investment Management Inc., will effectively have a $300,000 minimum.
Legend will subadvise the portfolios, and will eliminate as much mail as possible by sending everything by encrypted e-mail. Stanasolovich says the firm has used an encrypted e-mail product from IronPort Systems, a Cisco division, for the past year with good results.

In addition, he says Legend is looking to outsource as much as possible to get mundane work--such as performance reporting--out of its shop. Outsourcing can be helpful, but Stanasolovich says his firm has become more aggressive in dealing with outside vendors. Specifically, he says Legend has been burned in the past by vendors who didn't deliver what they promised. In response, he says the firm has started recording every vendor conversation.

"It's helpful when we go to court to get our money back," Stanasolovich says. "We're doing this going forward as a regular precaution against getting sold a bill of goods."

When it comes to investment management, Legend has crafted a game plan based not on the recession just passed but on what it believes is the downturn to come. "All the writing is on the wall for another downturn similar to '08," Stanasolovich says.

His rationale includes a negative view on the housing market, where the 500,000 units built in 2009 and 2010 is a mighty drop from the 2.3 million units built in 2005. "Yes, that's 10% higher than the low point," he says, but big whoop! It's still very weak."

And Stanasolovich believes unemployment will likely persist around 8% during the next six to seven years. Plus, he forecasts the second wave of the mortgage crisis will hit this summer, and that many countries-including the U.S.-will be plagued by debt problems.

"We'll have high inflation going forward, so we'll have variable problems that will cause the market to turn down," Stanasolovich says. "It'll probably be a good six to seven years before the secular bear market is over."

For that reason, he says, Legend has built portfolios around contingency plans based on such scenarios as high inflation, deflation and prolonged periods of lethargic economic growth. "We think we need these contingency plans to be successful as an organization going forward," Stanasolovich says.

Whatever form it takes, advisory firms are trying to position themselves for the next stage of the industry's growth.