“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.
Advisor says: in a recent column on the “buy vs build” debate, you cautioned that an aggressive acquisition strategy requires commitment to running a larger practice because “as practices grow, they inevitably become more complex and require more management time.” You then asked: “Does that fit with the vision you have for your business and your role in it?”
My answer is an emphatic “No.” I am already spending too much time on non-revenue-producing activities, yet I’m attracted to the idea of growing my practice by buying books of business from other financial advisors. I’m convinced that the combination of aging advisors and increased compliance and regulatory requirements – the second phase of the client relationship model (CRM2), in particular – will open up the market of advisors looking to exit the business because of retirement or other reasons.
Second, a larger practice will mean more revenue that I can spend on additional staff, etc. So, shouldn’t I be able to avoid the management squeeze you describe by adding people and other resources?
Coach says: you might be able to minimize the management “time drain” by hiring additional, competent people, but I doubt you will be able to avoid it altogether. There always is a practical limit to how far you can go with that strategy. I’ve seen too many practices that grew quickly, only to have most of the additional revenue consumed by increased expenses. The outcome is a larger business that isn’t much more profitable, yet it requires more of the lead advisor’s time for management duties.
When I work with advisors for whom that situation appears to be happening, one of the first things we do is to break down all the essential activities that need to go on in the business. We then identify those that absolutely require the advisor’s personal skills and attention and those that possibly could be done by others or in a different way.
From there, we analyze the support staff to see if they can take on additional responsibilities. If the staff do not have the capacity or the skills, we try to determine if there are ways to increase the staff’s capacity, perhaps through technology or process design or by upgrading their capabilities through training. If none of that provides a satisfactory solution, we’ll then decide whether to hire additional staff or outsource some of the required activities.
Outsourcing is becoming an increasingly popular option, not just for resources-starved practices, but also among advisors who simply want to get out from under some of their activities that aren’t related to business-building or the primary client relationship management role.
So, what can be outsourced? Virtually any activity that is not required to be done by the advisor, either due to regulation, registration or relationships. Below is a list of activities and responsibilities that some advisors are farming out to other professionals.
I am not suggesting in any way that these are things you should subcontract. Follow the steps outlined above to see which ones, if any, make sense for your business. I have divided the steps into five major categories, with no judgment regarding which might be most important in any given practice.
– Administration
Some obvious things here seem innocuous and may perhaps even provide some personal satisfaction. However, these duties easily can consume an advisor-owner’s attention, which might be better spent on other things. One of the most frequent time thieves we encounter is tinkering with technology – upgrading hardware and systems, installing new software or creating custom applications. Hours pass quickly and the results often fall short of expectations.
Bookkeeping, accounting, database management and other administrative duties fall into the same “important but not essential for the advisor to do” classification.
A relatively new area in which external expertise is offered more and more is compliance. Although you are unlikely to be able to relieve yourself of ultimate responsibility, you can outsource criteria development, workflow design and reporting procedures.
– Advisory services
Performing your role as an advisor should be your raison d’être, but the increasing complexity of the products, services and advice that clients need may make teaming up with a specialist in a focused discipline a sensible option. Tax and legal expertise are givens; other partnerships among investment and insurance professionals and estate planners also are on the rise.
Given the sophistication of financial planning software available, subcontracting the basic analysis and number crunching can be done reliably. A good para-planner won’t take long to recognize your planning philosophy and approach and meld them into the software applications’s output, resulting in consistency of recommendations customized to a client’s personal circumstances.
– portfolio management
This is probably the area in which we are seeing the greatest movement toward outsourcing. The extent to which that is done runs all the way from simply utilizing company-recommended model portfolios to the full transfer of responsibilities for client risk-tolerance assessment, investment policy statement (IPS) creation, customized securities selection and using an investment counsel/portfolio-management firm. In the last instance, you then take on the role of “managing the manager” and sit alongside your client in meetings with the portfolio manager.
Research and portfolio rebalancing are related areas that more and more advisors are redirecting to outside resources. (See story on page B6.)
In a recent U.S. study paper, entitled Investment Management Outsourcing: Impact on Clients, 92% of advisors said that clients responded positively to their advisor’s decision to outsource investment management; 80% reported no clients lost in the transition; and 70% of advisors said their business grew as a result of a decision to use external investment-management providers.
– Marketing
The underlying message you communicate to the marketplace always should reflect the brand image you want current and potential clients, as well as centres of influence (COIs), to have of you and your business. That said, the actual deployment of marketing activities and promotional material is something that can be done readily by someone else. The world is full of highly capable people in the fields of advertising, marketing communications, collateral material design, event organization, publicity and public relations.
No discussion of marketing today would be complete without considering the skyrocketing use of social media as a means of communicating to your target market (as well as existing clients, COIs, etc.). You should have an integrated social-media strategy, but it takes time and diligence to be effective – something social-media experts can bring to the table at a surprisingly reasonable cost relative to value.
– Strategic planning
All of the above opportunities for outsourcing must be considered in the context of a broader overall vision for your practice and a strategy to realize that vision. Although most advisors have an idea of what they want their business to look like down the road, many advisors find it difficult to articulate those thoughts in a well-designed strategy backed up by specific tactics, activities and tools to enable their success. With only modest apologies for appearing self-serving, that’s where a strategic planning consultant or coach can help.
These professionals can offer a disciplined approach to evaluating your business against the best practices of other successful advisors and then create a personalized road map to success, as you have defined success. Ongoing coaching provides accountability to ensure adherence to the plan and continuous improvement to reflect actual experience against objectives.
There are many jobs to be done and many hats to be worn in a successful advisory practice. At the beginning of your career, you probably wore them all. As your business and experience grew, you began to see places in which you wished you could find some other way to get some things done. From what you have said, you are at an inflection point, at which you are tempted to leapfrog your practice ahead by acquiring other books of business. Outsourcing might be what gives you the freedom of choice.
George Hartman is managing partner with Elite Advisors Canada Inc. in Toronto. Send questions and comments regarding this column to ghartman@eliteadvisors.ca. His practice-management videos can be seen on www.investmentexecutive.com.
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