Advisors shouldn’t have to create a mega-firm to build a successful practice and enjoy a fulfilling career, according to a recent white paper.
In “The Purposeful Advisory Firm: Maximize Your Firm By Design, Not Default,” Oaks, Pa.-based SEI Advisor Network suggests that advisors are probably better served maximizing their value within the business model they prefer.
“Most advisors are edging towards a lifestyle practice approach to their business, when the industry is telling them that building an enterprise firm is the way to go,” says John Anderson, managing director, head of practice management solutions at SEI. “There isn’t a lot out there right now to help lifestyle advisors maximize their revenue and assets.”
Lifestyle practices are owned and managed by their founder, who may not be interested in scaling the business or increasing valuation, but who are instead focused more on cash flow and helping their clients through retirement. These firms are designed to minimize overhead and maximize margins and current income, Anderson said.
The end result is that the owners of lifestyle practices have the potential for higher income than those of an enterprise business, with the tradeoff that the money they get if they sell the business will be lower.
"Lifestyle advisors will have a higher current income from their business, but when it comes time to sell, they will see a lower multiple," Anderson said in an interview. "Enterprise firms generate high firm income, but not high individual income. ... So lifestyle advisors are trading higher current income for a lower future multiple."