Growing an advisory firm can seem like a complicated endeavor, as there is no clear place to start and prior efforts might have resulted in little more than wasted time and energy.
But according to Michael Novak, president and CEO of Wellspring Financial Advisors in Cleveland, choosing a plan is not as elusive as it might seem as long as advisors works “on” the business, not just “in” the business.
“Early in my career I had a client who was asking me what kind of business I had, and I thought it was a foolish question. He said, ‘Do you have a lifestyle business or do you have a real business?’ And I was, like, ‘I guess I have a real business,’” Novak recounted. “And he said, ‘By the pause in your answer, you have a lifestyle business. And if you can't figure out the two and the difference between them, then you're never going to be able to truly have the business that you will want to have at some point in your career.’”
That was in 2009, and after a little discussion among his partners, Novak said it was clear none of them was good at the real business development the firm would need to grow to the level they wanted. Like most young advisors early in their careers, Novak and his partners were very much focused on working in the business—seeing to those client relationships and delivering on their promises.
“But you've got to make the time to work on the business, not just in it,” he said.
With that, Novak said, Wellspring went through an operational transformation, creating a process for everything, building transparency, and positioning the firm for scaling up.
“In the beginning years, it was very difficult,” he said. “The first year, we hired a consultant. “We went through about an 18-month period with that consultant. We had several quarterly off-sites, we had weekly meetings and check-ins. But we completely reworked the business internally and ultimately externally. And so that was the key driver for us and how we got to where we are.”
Novak, who founded his firm in 2007 as a family office, last week shared his firm’s growth story with Capital Group’s Practice Lab, an advisor-centric division built to help advisors succeed in their business.
Ryan Radtke, RIA relationship manager at Practice Lab, said he regularly talks to advisors all along the growth spectrum, from those who don’t do any business planning at all to those who go all out like Wellspring, and can sum up the obstacles pretty quickly.
“I see three big issues out there when it comes to advisors and business planning,” he said. “Number one, there is no plan. Number two, if there is a plan, it's not specific enough. And number three, the plan doesn't hold anyone accountable.”
Using Novak’s real-life experience as illustration, Radtke highlighted the five steps advisors need to take in order to grow their firms the way they want to.
Step One: Assess The Practice
This may be easier today than it was a month ago, he said, as Capital Group recently unveiled an assessment tool advisors can use to see how they stack up to the advisories with the most growth along some key metrics: AUM, revenue, growth, productivity, efficiency and client retention, satisfaction and acquisition, among others.
The assessment points out deficiencies and makes suggestions for improvement, whether the advisor’s goal is client acquisition, stronger relationships or strategic development.
“For example, one firm used the assessment, and their stated goal was, ‘We want to grow faster,’” Radtke said. “It's probably not a surprise. Most advisors out there within reason want to grow. Interestingly though, when they took the assessment, they scored in the 90th percentile at new client acquisition. They were really good at it. The below average scores? Strategic scale. They were really good at bringing clients on, but ineffective in their processes because they didn't have great standard operating procedures. That's what was hindering their growth.”
The benefit of the assessment is the digging down, he continued. If a firm just looks at new client acquisition as a proxy for growth, the detail of the firm’s shortcomings could have been overlooked.
Step Two: Define Goals And Objectives
For Novak, dialing in a defined and repeatable process for sharing information with his team or getting feedback on the state of progress was a critical part of the growth journey.
“We have an annual planning process where we have a two-day off-site at the beginning of the year where the management team meets out of the office. Why? Because if you're in the office, you're going to take a call, you're going to go check an e-mail, and you need to get out to work on the business,” he said.
This is when senior management lays out the goals for the upcoming year. In addition, however, management discusses the three-year and 10-year plans, he said.
“We get pretty vulnerable in these discussions,” Novak said, adding that the management team shares what they think they do well and also hears feedback on what other managers want them to stop doing. “We’ll talk about the dysfunctions of the team.”
After the year’s goals are agreed on, there’s a one-day strategic planning session to share the firm’s goals and objectives with the entire team. From there, they drill down to quarterly check-ins with project leaders, monthly scorecard updates and weekly manager updates.
“Ultimately, the accountability is a huge piece of this. Because at the end of the day, how many meetings am I going to come to where my name is behind something but I'm not giving an update or I have nothing to talk about or I missed deadlines?” Novak said. “The transparency of accountability has to be part of that culture of going through this process.”
For example, one of the firm’s goals this year was building a strategic marketing plan, which required hiring a full-time position for the effort, creating a LinkedIn presence Wellspring never had and establishing direct-to-client marketing content.
“We are tailoring communications to centers of influences on marketing and brand identity, but also just thought leadership,” Novak said. “The way we market is by being thoughtful, much like Capital Group and doing this Practice Lab.”
It’s the creation of a plan around a goal that makes it possible for a firm to be successful, Radtke added.
“A goal without a plan is just a wish,” he said.
Step Three: Prioritize Based On Impact
For example, an advisor with the goal of selling a practice in two years might settle on three priorities that support the objective. In order to do that, the first priority would be to create a standard operating procedure for onboarding clients that could easily be tapped into by new teams.
Second, the advisor might want to increase new-client rolls by 25%, and do that by increasing digital leads through content marketing and targeted social media ads. And third, the advisor could reduce client attrition by 40% by adding banking services to bring additional value to his existing relationships. All three priorities would put the firm in position for a successful sale.
“Make sure that everybody has a voice when it comes to business planning. Now, the voices may not be equally weighted, but everybody is at least heard. It gets them on board with the firm values and gets them to buy into those goals,” Novak said. “It can also help solve the problem. We all know about the talent shortage here in financial services and what better way to be able to train the next generation of your advisors or give feedback to the team.”
Step Four: Align The Team
To ensure action, each of these goals was assigned to one senior manager for execution and accountability, Novak said, with an understanding that accountability often requires vulnerability and a new level of risk with each new task.
To keep that alignment in force and self-doubts at bay, he said Wellspring has a bonus structure designed to keep everyone on the same page and accountable.
“We take a percentage of our profits every year and allocate them towards staff. Not anyone on the management team or ownership, but just staff,” he said. “We allocate 30% of that just based on everybody's respective salaries. And the other 70% reflects the direct impact of the work that they're doing that given year.”
Management has to make sure that everybody at the firm is singing the same tune from the person at the front desk to the para-planner to the rainmaker, he said, and incentives are a great way to do that.
Step Five: Set Milestones And Monitor Progress
Setting milestones for Wellspring meant making a new set of decisions that supported the goals, Novak said. For example, to increase new clients by 25% through content marketing and social media ads, Novak realized he needed to hire an ad agency, hear its assessment and proposal, allocate a budget and then implement the plan. Each of these was given a concrete date for completion.
Progress in the plan and any results around new client growth were monitored quarterly, he said.
“It's hard to do this,” he concluded. “It's difficult because it takes time. Without the process that we had, without the accountability that we had, without the buy-in that came through that process, we would not have been able to get to the culture that we now or build the firm that we have today. Don't let perfect get in the way of the good. Just start with something and create that process with the accountability of checking in on that. We do it every week, every quarter, every year.”