An inappropriate client mix often results in a poor product or service mix, causing distractions and inefficiencies, which is the fourth factor hurting many advisors. As an example, Tibergien cites the case of a firm whose largest client, a successful business owner, asks the firm to run his company's 401(k) plan and the advisor goes for the bait, not realizing that the 401(k) is labor- and service-intensive.

Fidelity's Lanigan, who worked with Tibergien on the report, has seen that problem arise on a number of occasions. "It's important to define your business strategy and then align the way you manage your practice against that strategy," he comments. "And manage your human capital in ways that support your business strategy."

Unfortunately, advisors aren't managing their operating margins much better than their gross margins, Tibergien adds. The three primary factors causing problems in this part of their income statement are mismanaging overhead, not generating enough volume to support their infrastructure and a lack of cost-control discipline.

Compounding these problems is the solution that many advisors have devised, blind cost-cutting. "Don't think you can simply cut your way to profitability," Tibergien says. "Many advisors are making the market their excuse. It's the declining staff productivity and poor client selection that is causing so much stress."

There is simply no substitute for shrewd management of a firm's human resources to which Lanigan alluded. "View people as assets on which you need a return, not as an expense," Tibergien says. "The more you are willing to invest in and develop people, the more you can see revenues per client, income per owner and revenue per staff employee all go up."

That means channeling a firm's personnel into areas where they are most productive and most passionate. "Look at their ability, motivation and interest," Tibergien counsels. "Many people have jobs they are qualified to do but they hate that kind of work."

Many advisors have a proclivity to add overhead, or service people, rather than professionals who can help develop their business. The reasons are two-fold. First, as small-business owners they understandably are concerned about how their level of service stacks up against larger, better-capitalized rivals. Second, most advisors are passionate about serving their clients and, since this is what they do best, tend to monopolize this function.

When the partners and staff learn to share clients, amazing things can happen to a firm's growth rate and bottom line. A decade ago, Sullivan Bruyette Speros & Blayney was a tiny Mclean, Va.-based firm with only a few million in assets. Today, it has about $800 million in assets and has surpassed firms that are larger or of similar size. The partners say the decision to share clients and let personnel focus on their areas of strength was the overriding factor behind their remarkable growth.

"If every client relationship has to go through you, you will die on the vine," Tibergien warns. "Sustainable profitability is a function of a sphere, or a span of control. Recognize that when you have a death grip on the business, you can destroy it."

Indeed, an advisor who is that much of a control freak might want to consider becoming a solo practitioner with just an administrative assistant. The problem is that many advisory practices occupy a no man's land, or as Tibergien puts it, they are either too large or too small.