Enterprise firms are also usually interested in creating multigenerational practices by mentoring young advisors and prospecting for younger clients, something that many lifestyle businesses have no intention of pursuing.
According to Anderson, the industry is saturated with recommendations geared towards establishing scale and efficiency within advisory practices, but a lifestyle practice might better suit client needs and an advisor’s goals.
SEI Advisor Network finds that, while some advisors are interested in building large, multigenerational enterprise firms, others would rather maintain and grow the lifestyle practice they have today—and there’s nothing wrong with that, says Anderson.
“If having a lifestyle practice is such a negative thing, why are there so many successful advisors who fit into that model?” he asks. “I think the CPA industry is a good analogy. There are three or four big national firms, some big regional firms, but there are still plenty of mom-and-pop shops doing tax returns, too.”
As it turns out, the lifestyle practice is probably the dominant business model of today, and may continue to dominate among independent advisors. In a survey of 400 managing partners and owners, SEI found that 74 percent identified with the lifestyle business model. Most of the respondents, 64 percent, thought of themselves as advisors first and business owners second.
Almost three quarters of lifestyle advisors, 74 percent, believed that their practice would outlive them, which could be difficult in practice, according to SEI. Lifestyle advisors might also find it more difficult to successfully transition their practices at retirement, Anderson says.
A lifestyle practice, he adds, is suited to the type of advisors "who say that they want to go home every Friday at noon to see their kid’s baseball games.”
A majority of the respondents said that they are building or want to own an enterprise practice, but many of them may believe that this is what they should do as a result of a wealth of media, presentations and consultancy suggesting that the future of financial advice lies with enterprise firms, says Anderson.
Both business models, according to the study, can successfully generate revenue: 59 percent of enterprise firms and 55 percent of lifestyle firms generate annual revenue of more than $1 million.
Advisors should choose their business model as early as possible in order to optimize their firm, rather than being caught between, says Anderson.
According to SEI, all advisors should keep four components of their business in mind as they grow: people, brand/value proposition, investment philosophy and technology.
While enterprise firms may end up hiring hundreds of employees, for lifestyle firms, the "people" consists of the advisor and maybe a couple of support staff, says Anderson.
“Staffing has to be strong if you’re a lifestyle advisor—they have to be utilized correctly and paid accordingly,” says Anderson.
While lifestyle advisors are typically better served outsourcing asset management to create efficiencies and spend as much time with their clients as possible, enterprise firms may choose to manage investments themselves. Anderson recommends that enterprise firms consider hiring a CIO to manage non-core assets if they believe that investment management is core to their value propositon.
Branding and value proposition also works differently depending on business model, says Anderson, with enterprise firms seeking to create a brand that centers on the firm or the services it provides.
“With lifestyle advisors, you’re doubling down on your personality,” says Anderson. “We want to focus on the advisor, working with referrals and events and building things around that individual.”
Lifestyle firms will need to put more emphasis on websites, portals and client relationship management in their technology build, says Anderson, while enterprise firms will focus more on workflows and efficiencies.
SEI conducted its survey in March. Among the 400 respondents, 43 percent represented fee-only RIAs, 8 percent were dually registered RIAs and 45 percent were affiliated with broker-dealers.