Some practitioners go from thunder to plunder in a short time, and some remain in the wonder phase for their entire career. It’s helpful to recognize where you are in your life cycle, because it helps you to frame your priorities better.
In the first phase, the watchword is “survival.” Everything you do in this phase is geared toward enhancing your personal reputa- tion, building up your referral sources, and serving your clients well.
Unfortunately, for most this is also the time when they know the least about the advice they’re giving. And even more regrettably, the independent financial-advisory world does not have adequate intern- ship opportunities for new people starting out, making the wonder phase a difficult one to sustain, finance, and emerge from.
In the second phase—the blunder phase—the watchwords are
“managed growth.” Oddly, most advisory firms experience stress fractures in this phase because they outrun their span of control and, in many cases, their financial ability to manage growth. Some will borrow heavily to purchase office furniture and equipment, fund leasehold improvements, or undertake marketing initiatives—or even buy other practices.
The watchword in the third phase—the thunder phase—is “com- placency.” Advisers at this point are typically brimming with confi- dence. But the seeds of destruction are sown in good times. During this interval, inefficient business practices—shaped by the survival and crisis management of the first two phases—take root as estab- lished office protocol. Client service can deteriorate. Staff develop- ment can be ignored. Often, advisers in this phase let their marketing muscle atrophy, because they have so many opportunities coming in from their referral sources. But as many realized after the millennium market bust, when assets started shrinking and clients started turn- ing over, they did not have what it took to regenerate themselves.
In the final phase—the plunder phase—the watchwords are
“renewal or decline.” Usually, by the time a firm is in this stage, the
conditions of shrinking client list, shrinking profitability, and dimin- ishing client service have been in place for a long time. The staff at a firm in this phase begins looking around for new opportunities, and the clients begin asking, “What will happen to me if something happens to you?” The question for the owner is: Are you willing to reinvest the time, money, and energy to revitalize the practice?
We find the resolution of business practices in the plunder phase to be more of a moral question than a financial one. Most advisers develop a close, interdependent relationship with their clients. Because of this, many advisers are also reluctant to involve others with their clients. It’s not uncommon to hear advisers say, “My clients will do business only with me; they do not want to talk to anyone else.” For this reason, many advisers declare that they will “die with their boots on,” meaning that they will continue serving their favorite clients until they’re no longer able or no longer above ground. The moral question is: Is this fair to your clients? They’ve become dependent on you to guide them through their difficult financial decisions and sometimes even their personal and family decisions. But as they get older and more vulnerable and less able to address these issues, to whom will they turn if you die or become disabled?
For this reason more than any other, advisers should be thinking about their business model. There is a difference between a business and a book of business. A business is systematic, institutional, prop- erly leveraged and staffed, and moving forward. A book of business is a client list, something that’s harvested until it’s depleted, a source of income, and a hobby farm. Those who are committed to staying alone and not preparing their clients for the inevitable—theirs and yours—are managing a lifestyle practice, not an enterprise.
So the challenge for those who prefer the lifestyle practice is to make sure that it will fulfill the needs of their clients even as it satis- fies their own financial and emotional needs. Throughout the busi- ness life cycle, opportunities arise to create structure, processes, and protocols that can achieve both—but not without the endorsement of the owner.
Money is not the only thing advisers need to invest in their busi- ness. As we observe the evolution of this profession from practice to business, we also recognize the need to invest in certain skill sets
beyond technical proficiency. Owners of advisory firms will be more effective in helping their clients if they can transform their enterprise into a client-centered organization that’s not dysfunctionally depen- dent on its owner.
I
N THE MOV IE City Slickers, the character played by Jack Palance asks Billy Crystal’s character, “Do you know the secret to life?”Bewildered, Crystal’s character says, “No. What?” Palance replies,
“One thing, just one thing; you stick to that, and nothing else don’t mean s**t.”
“That’s great,” Crystal replies, “but what’s the one thing?”
“That’s what you’ve got to figure out,” Palance says.
For advisers, that is your quest as well: What is that one thing that is the secret to the life of your business?
At the core of every decision you make in your business, every dollar you spend, every client you accept, every person you hire, is your strategic plan. It’s the single most important tool you have in your business; indeed, developing a strategy and maintaining it are the most important responsibilities for anyone leading or managing a business. For most financial advisers, however, strategic planning is such an overwhelming process that it’s frequently ignored. Many work harder to achieve their goals than they ever would have to if they had committed the time needed to plan.