Which way to grow?

Whether you run your business as a lifestyle practice or a growing enterprise will depend upon the type of work-life balance you want
by Tim Cooper

As the founder of an advisory firm, one of the biggest questions you’ll have to answer is: How big do you want your business to be? Would you rather work in your business or on it? The former, a lifestyle business, involves fewer risks, less stressful management activity and gives you more time to see clients, while also affording you a more flexible lifestyle. The latter involves growing your firm into an enterprise to increase its long-term value. This should make it more sustainable and resilient, allow more risk-taking and increase long-term profits. With good management, it could even run without you.

There are, of course, commonalities between both models. FP Advance is a boutique consulting firm that specialises in working with growing and aspiring financial planning businesses. Founder Brett Davidson helps clients to achieve their goals through better business management skills. 

“To be a small lifestyle practitioner, you need to run your firm like a business anyway, albeit with different goals,” he says. “Otherwise, there will be no lifestyle.”

Lifestyle businesses need to hire decent people and outsource suppliers, too. Outsourcing isn’t an easy fix for a small business, but when done properly, it passes difficult issues like recruitment to the outsourced firm.

That’s where the similarities end, though. In a lifestyle practice, the owner is at the centre and everything is tailored towards helping them achieve their chosen lifestyle, whether that be only working with clients and outsourcing administration tasks or only working a few days a week. In an enterprise, the business is at the centre and decisions are made according to the best interests of the business, not the owner.
Growing an enterpriseMichelle Hoskin is founder and director of Standards International, a consultancy that supports the professional and personal development of financial adviser business owners. She says building an enterprise requires huge energy levels. “That massive input from your professional and personal life can come at a cost. Often, when people realise that, they won’t allocate the time and effort. 

“They can’t do it taking Mondays and Fridays off. You cannot build a growth business with half a leader.” The cost could be literal in terms of pay cuts taken during times of hardship or when investing for growth via business development, brand building or recruitment. In other instances, the cost comes in the form of demands on your time.

Gordon Wilson CFPTM Chartered MCSI is managing director of Edinburgh-based Carbon Financial Partners, which launched in 2011 with 24 staff when the directors bought it out from a larger group. The firm has now grown to a team of 40. Gordon says that, as an owner, you are never far from the business, but he and his co-founding directors wanted to build a firm that could operate without them. This would allow them some freedom, such as being able to take holidays without any interruption to client service.

To achieve this, Carbon recruited support staff and planners as it grew its client bank. In the early days, that was mostly through connections. Gordon says organic growth is easier because buying businesses is difficult in financial planning. “Culturally there aren’t many that would fit,” he explains. “We have found much more success recruiting and training graduates than parachuting in experienced people. The key is to recruit two or three graduates a year. Some become financial planners, others go into operations or paraplanning.” 
"We have found much more success recruiting and training graduates than parachuting in experienced people" Other enterprises do choose to grow through acquisition, however. Until three years ago, US-based Straight Path Wealth Management in Michigan was a lifestyle practice. Acquiring two businesses jump-started its journey towards a scalable, growth-oriented firm.

Founder Matthew Boersen CFP® says the advice landscape was changing due to improvements in technology, such as sophisticated platforms and client portals. The software wasn’t cheap and it was difficult for a small, independent lifestyle practice to offer it to clients, hence the decision to scale up through acquisitions.

“Our clients have seen tremendous benefits from the shift, even in a short period,” says Matthew. “Buying an accounting practice with a small financial services arm has broadened the skillset to include tax professionals, which makes the financial planning more in-depth and more valuable. It also helps us identify and focus on what our clients value most, which includes retirement planning, tax planning and generally more in-depth planning, rather than plain asset management.”

Whether you choose to grow organically or through acquisition, there are certain things that every enterprise must focus on to be successful, including operational efficiency and building a strong brand and reputation. 

Carbon has established its brand through sponsoring events. Its target market is senior executives and business owners and they tend to like rugby and golf, so the firm sponsors charitable events around those. Also, the firm has built a strong reputation by emphasising values, ethics and community work. “If you get a reputation for always doing the right thing and delivering good service, you will get referrals,” Gordon says. About 80% of Carbon’s new business now comes from client recommendations.

Consistency has also been an important factor in Carbon’s growth. Everyone follows the same central processes, pricing and proposition, working as a team, not in silos. To support that consistency, work goes through a central client services team and paraplanners. And from the start, the firm has had an operations director who is an equal shareholder. That frees the ‘rainmakers’ to concentrate on winning business and delivering advice, says Gordon.
The recruitment challengeFinding people who can win new clients can be tough, says Gordon. “Not many people are hunters – some recent research showed perhaps only one in ten financial planners are. They are hard to find as people like that are often established or have set up on their own. But if you have some who are good at finding business and others good at looking after it, that works.”

Finding talented paraplanners can also be a problem. Many good paraplanners are millennials, who often don’t stay long in jobs. 

FP Advance’s Brett says retention is one of the biggest concerns that growing businesses have, and it often stops them from investing in things like staff training. But Joni Youngwirth, managing principal of practice management at Commonwealth Financial Network in Massachusetts, US, says implementation of formal training structures is a major reason why large firms tend to keep growing. Formal training needs to set clear goals, develop a curriculum, and measure performance to confirm learning outcomes.

This structured approach is more likely to help retain staff. But at a more fundamental level, you should let people find what they love and are good at, challenge and stretch them and have a decent social purpose behind your business, Joni says. Even mobile millennials will stay in a good financial planning practice like that.
"If you have some who are good at finding business and others good at looking after it, that works”Recruiting support staff such as paraplanners is the right strategy when you’re planning for growth. Brett believes an adviser should be able to make £600,000 revenue with two to three great support staff. You can add another partner and a practice manager who will help structure your support team in a way that suits the firm. Some firms prefer working in pods of advisers, paraplanners and administrators; others use a central pool of support. Both approaches can work, but to achieve scale using the pod structure, good communication is essential. 

Brett also recommends tracking management information metrics, such as productivity ratios. If productivity is low, you must fix that before hiring more people. Poor productivity could be for many reasons, including the wrong staff or over-engineered financial planning processes. Despite the recruitment challenges, when you get it right, the satisfaction gained from helping others to start and develop their careers can be immensely rewarding. “People have more opportunities to develop in a larger organisation and we help them in any way we can,” Gordon says. “I have seen people come in from graduation and grow to become CERTIFIED FINANCIAL PLANNERTM professionals.” 
Building a practiceThe management responsibility involved in growing an enterprise isn’t for everyone. Warren Shute CFPTM Chartered FCSI, director of Wiltshire-based Lexington Wealth Management, initially grew his firm by recruiting financial advisers. However, managing them took him away from client-facing work – his favourite part of the job – so he returned to being a sole adviser.

Today, he outsources compliance, paraplanning, investment reports, and some secretarial and marketing consultancy. “Using outside expertise adds value because they work with other firms and bring best practice,” he says. “They are always available and it works brilliantly.”

Warren works with clients for two and a half days a week, has Wednesday afternoon off, and dedicates Thursday and Friday to financial education activities, such as blog writing, and marketing.

“There is less value in the business because it is just me, but with technology and outsourcing, a small firm can punch above its weight and compete happily with larger firms,” says Warren.

However, a practice doesn’t have to be a sole adviser. Louise Norman CFPTM APP Chartered MCSI joined Bagshot-based HC Wealth Management in 2010 and is a director and one of seven financial planners. They are supported by five back-office staff, including one paraplanner. The back-office team oversees administrative tasks and the planners deal with client relationships. 

Louise likes the client exposure you get within a practice environment. “All the directors had experience of working for a larger firm and felt it was too prescriptive and didn’t account fully for the individual needs of clients,” she says. “A smaller practice means directors can still meet clients, and have the flexibility to offer a more personalised approach, which our clients value.”

Louise also feels it is easier to maintain control over the company in a smaller practice. One challenge in her role is striking a balance between managing her client relationships and overseeing the operations of the business. To help manage the time that each takes, Louise splits her working week so that certain days are allocated to client work and others to projects and running the business.

Another challenge is the time it takes to keep abreast of regulations. “There is so much going on but a smaller organisation has limited resources,” she says. “We work with compliance consultants, then have to review all the materials ourselves. But smaller businesses can be just as profitable – in fact, it can be easier to identify efficiencies.”

In 2016, HC Wealth Management reviewed and restructured its proposition. “We refined some of the documentation and client review process,” says Louise. “We also looked at individual tasks to make sure they were aligned with people’s skills.

“We make sure everyone understands why they do what they do and we encourage them to think about whether there is a better way of doing it. We keep roles as broad as possible, so that the support team has variety, otherwise people can get bored. We also have a fairly flat structure, which helps people to stay engaged.”

The restructure enabled HC to release some capacity within the team and to free up time by passing on unnecessary tasks.

This sort of efficiency is what Mitch Anthony, US-based president of Advisor Insights and co-founder of Return on Life, helps advisers to implement. He believes a practice allows an adviser to choose who to work with, how and at what pace, but you need systems and processes that allow you to focus on what you do best and pay others to do the rest. 

The most effective way for practices to achieve efficiency, however, is to reduce client numbers and raise services levels. Mitch says the most fulfilled practice owners provide in-depth services to 100–150 clients. 

“Letting money drive every decision compromises quality of life,” he adds. “Move life to the centre, make money secondary and you have an attractive value proposition.”

To make a conscious decision about whether to go for a lifestyle practice or an enterprise, ask yourself the following questions: is it the hands-on aspect or would you prefer to build up an enterprise with a good team and then take a step back? How many days a week do you want to be in the office, and how much do you need to earn to achieve this? Will the business be able to run without you when you retire, or if you decide to pass it on? These are crucial questions you must ask at the beginning of the business process. So, look ahead. 

The original version of this article was published in the Q2 2018 print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'
Seen a blog, news story or discussion online that you think might interest CISI members? Email bethan.rees@wardour.co.uk.
Published: 12 Jun 2018
  • Financial Planning
  • The Review

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