As John Lennon put it, "Life is what happens to you while you're busy making other plans." I'd be willing to bet that the structure of your financial advisory firm is also a result of "what happened," rather than what you might have designed had you mapped everything out from the start.
Many advisors have firms that were not deliberately structured, but have evolved over time. There are five basic business models for financial advisory firms, each with a slightly different organizational chart. As you grow your business, it's natural to evolve through each, although many advisors will not want to go through all five.
As you read each description, look for the description that fits your current firm. Ask yourself: Is your business set up the way you think it should be? If you're not happy with your present state of affairs, keep reading. Perhaps it's time to move on to the next step in the evolution of your business.
Model 1:
It's All You
Most financial advisors start their businesses as single practitioners. Whether working out of a home, an executive suite, or a branch office, this model provides no administrative support. During this phase, you generally don't have many clients, so you can handle the wide variety of tasks that need to be done. Your entire focus is learning about products and strategies and becoming a competent advisor.
As your business grows, you'll generate cash flow, clients, and, of course, administrative duties. The focus of your time will shift slightly from learning and generating new clients to taking care of existing clients and handling the administrative details of running your business. At this point, many advisors proceed to the next business model.
Model 2:
Add An Assistant
Smart advisors will hire someone to take over the administrative functions of the business so that they can concentrate on generating new clients. Advisors typically use this business model when generating somewhere between $75,000 and $150,000 in gross revenue. It's common to start with a part-time assistant to process paperwork, write checks, and pay bills. Bill-paying can also be outsourced to a bookkeeping company.
Some advisors never hire an assistant. Some are uncomfortable with delegating, some don't want to supervise, and some simply don't want to pay the salary. One of the worst business decisions you can make is to perform work for $10 an hour when you could be doing work for $100 an hour. If you've been in the business for a number of years and you don't have an assistant, you are an assistant.
Start with a part-time administrative position and work it into a full-time position as your business grows. The role of an administrative position is to fully support you. Job duties may include filing, bookkeeping, answering the telephone, taking messages, booking appointments, processing mail, keeping the office organized, and handling some compliance issues. It's possible to work with one assistant out of a home or small office. This is an efficient business model, and could be a very desirable model to stay with throughout your entire career. There's absolutely nothing wrong with it. Many advisors, however, find that one assistant isn't enough and proceed to the next business model.
Model 3:
Two or More Assistants
Once you cross the bridge from having one assistant to having multiple assistants, the dynamics of your company will change. You will have made the shift from being a financial advisor to a small business owner with employees to manage. You will be required to draw on a whole new set of skills. You will need to commit time to training and managing these new assets to your business. You will need to have services and processes in place. If you continue to add assistants as your business grows, you'll increase your challenges exponentially with every new person who joins your team. This is a fairly standard model for busy financial advisors earning between $150,000 and $250,000 in gross revenue.
A financial advisor I've worked with had seven people reporting to him. The vast majority of his time was spent managing and overseeing his employees. Yet he was supposed to be the major income producer. If more and more of your time is spent managing administrative people, that means that less time is spent building your business, its infrastructure, and your own skills. It becomes extremely difficult to spend quality time with existing and prospective clients.
If you've hired your assistants but efficiency and revenues haven't increased, it's time to make a major structural shift and move to the next business model.
Model 4:
Hire a Manager
Here's the distinction between Models 3 and 4: Tasks are delegated to assistants; responsibilities are delegated to managers. Managers take on both the accountability and the authority to get things done. Advisors generally progress to this model when they're bringing in between $250,000 and $400,000 in gross revenue.
Hiring an office manager who is responsible for ensuring that your infrastructure needs are met and keeping everything running smoothly is a good place to start. Give the office manager a written position description that clearly outlines his role in the company and how he will contribute to its overall goals. Because you've delegated both the responsibility and the authority of managing the office to another competent individual, you can relax knowing it will be done correctly.
Hiring an office manager is often a very hard decision for financial advisors to make because they find it difficult to give another individual the power to run their offices. Many advisors like to be in charge. But in delegating and giving up some power in one facet of your business, you'll harness power in other areas that you really care about, such as generating income and interacting with your clients.
The key is to hire the right person. Accountants who have worked for a Big Six firm and are looking for a more relaxed lifestyle and a better income may be a good choice. This type of person is typically very organized and systematic, and is generally a good counterweight to the more freewheeling approach of most financial advisors.
As you build structure to your business and hire managerial people, you move from having a job to running a small business. Hiring the right office manager can set the foundation for dramatically improving your income and the quality of your life. It's a major structural turning point when you have a business that provides valuable services to clients without your direct involvement. If you get this model down, you'll be eager to move on to the next.
Model 5:
The Management Team
Once you recognize the power of hiring managers instead of assistants, you're ready to hire additional managers. At this point, advisors are generally earning $400,000 and up in gross revenue.
Typically, the next position to be added after the office manager is a marketing manager. The primary role of this person is to make sure your calendar is filled with qualified potential clients, meetings with strategic alliances, special events, and other high-level marketing activities that enable you to meet lots of qualified prospects.
At some point you'll probably need to hire a manager of paraplanning or of financial analysis. This person is usually very good with spreadsheets and helps manage some of the data analysis. They may also assist with money management.
A fourth person that you'll typically hire is a client service manager. He or she will take care of the 80% of your clients who generate 20% of the revenue. This will allow you to concentrate on the 20% of your clients who generate 80% of the revenue.
Employing a team of three to four managers to work with you is the ultimate business model for a small business. You're the visionary, the rainmaker who brings in new clients and grows the business. You have the vision, the capital, the skills, and the drive to be the chief entrepreneur. Your management team is in place to support your business vision and help generate the economic results needed to move your company forward.
An advisor I know had $110 million under management and was generating about $1.1 million a year in gross revenue and almost $850,000 in net income. He worked on his business about three days a week. His team met with clients, rebalanced portfolios, and took care of all the other day-to-day activities. The business worked because everything was documented. The team was comprised of competent professionals who had received solid position descriptions. They knew what their jobs were and they all worked together to help the clients achieve their goals. It was a value-driven business that pretty much ran itself. Ultimately, the advisor sold the business to a younger advisor who stepped into a well-structured, functional business on the very first day.
The important thing is creating a business that suits you. Identify where you are in your career right now, and decide what business model is best for your current situation. If you're currently working alone and you need an assistant, bite the bullet and make the structural shift. The most powerful thing you can do is surround yourself with competent people who allow you to do the things you do best and enjoy the most.
By making the shift from having a job to owning a business, you'll increase the quality of your life and your income as your company grows. If you don't make these structural changes, the success of your business may bury you, not to mention your personal life. By hiring the team you need to do move your business to the next level, you'll turn your business into a huge asset--a business that works for you so you don't have to work so hard for it.
