The wealth management industry is chock-full of really smart people—Ph.D.’s, CFAs, CFPs, people who teach at universities, etc. They do incredible work for their clients and help protect them from doing stupid things with their money. Yet when it comes to protecting the value of their largest personal asset—their businesses—more than a few of these very smart advisors do some extraordinarily dumb things.

The top five that we have seen to date (moving from dumb to dumbest) include:

Number Five: Incorrectly using compliance consultants.

Many firms hire compliance consultants to conduct mock regulatory audits of their firms and give them advice. On the face of it, this makes a lot of sense. Nothing can more quickly obliterate enterprise value than having a compliance problem, and an extra set of expert eyes looking over a firm’s program can catch many problematic things before the regulators do.

However, incorrectly using compliance consultants can be extremely dumb for three reasons. First, consultants and attorneys fill different roles. The former help you to better manage your compliance program. The latter opine on matters of law. And one of the quickest ways many firms get into compliance trouble is scope creep—i.e., expecting their consultants to do the jobs of their attorneys.

Second, the advice a consultant provides is not “privileged”—in other words, unlike something you share with your attorney, what your consultant finds (and tells you) can be used against you. And while it is the duty of every compliance officer to cooperate with SEC examiners and provide them with an accurate picture of a firm’s compliance program, there are obviously certain potential matters that should only be discussed with one’s counsel. Sharing them with your consultant eviscerates any protection of privilege.

Lastly, many firms spend a fair amount of money to have consultants review their compliance programs and then do nothing about what they uncover. In other words, these firms have just paid extra to make an examiner’s job much easier.

Number Four: Recruiting professionals who are far less capable than themselves.

Many wealth managers have two classes of people: founders and others. The founders are extremely well paid and the others are not. And while the “others” include some successor professionals, who is kidding whom? These individuals are nowhere as capable as the founders and most will likely never be.

While such an approach may boost short-term profits, it is really dumb (and costly) in terms of enterprise value. Why? Unless a firm has successors who are capable of succeeding the founders, the owners’ only alternative for unlocking enterprise value is to sell the business.

However, potential buyers (at least when it comes to protecting their long-term outcomes) are far less worried about the selling owners than they are about the firm’s successors—since it is they who are integral to retaining clients and adding more in the future. But if your heirs apparent look like they belong in the Three Stooges, good luck in getting anyone to pay a lot for your business.

Number Three: Generating most of their new clients from only one or two referral sources.

Many wealth managers generate the preponderance of their clients from only one or two sources. For example, there are firms that capture 80% to 90% of their net new assets from custodian branch referrals. And although many such wealth managers have had explosive asset growth, their owners are deluding themselves if they believe that their businesses’ enterprise value is growing a fraction as fast.