American essayist and environmental activist Edward Abbey once wrote, “Growth for the sake of growth is the ideology of the cancer cell.”
As you build and maintain your advisory business, it’s critical to keep a close eye on your growth initiatives and make sure they are ultimately sustainable and profitable for your business. Growth for growth’s sake is shortsighted and often creates unintended challenges for your success.
As advisory firms grow, they typically see higher overhead expense ratios because they operate in a service-oriented, staff-intensive business. Increased size and higher top-line revenues may not result in increased profits for a firm because such growth may result in exponentially higher overhead expense ratios.
Thus, by taking the wrong approach to growth you may see expenses rise and profit margins decline even though your top-line revenues are expanding. Growth may result in additional layers of infrastructure, which results in more and more overhead expense. This type of growth doesn’t solve profitability problems. It actually compounds them.
The business mantra “grow or die” is probably not a relevant approach for independent financial advisors. A better motto may be “improve or die.” In other words, you should focus on improving your value proposition, your client experience and your operational efficiencies to grow intelligently.
Instead of a sole focus on growth — that is, growing your business — you should equally focus on improving profit margins — that is, changing the way you run your business.
Gain, maintain, enhance
Profitable growth depends on gaining scale through operational efficiencies, maintaining organizational focus and enhancing your existing core competencies.
Gaining scale through operational efficiencies. To grow profitably, you’ll want to employ the right technologies to boost efficiencies, enhance capabilities and reduce costs. This may include leveraging technology integrations, establishing repeatable processes and outsourcing certain non-revenue-generating functions.
Maintaining organizational focus. You’ll need a disciplined focus from your staff to deliver on your value proposition and achieve daily operational excellence. Your growth strategies should reflect your competitive advantages, be forward-thinking and evolve with changing industry dynamics.
Enhancing core competencies. As you think more strategically about how to grow your business and better serve your top clients, you may also consider offering additional products and fee-based services. This approach not only strengthens your value proposition, but it’s also a time-efficient and relatively low-risk way to grow and diversify your revenues.
Smart ways to scale
Scaling your business means increasing revenues and client relationships without a substantial increase in overhead costs. Your ability to scale will depend on establishing repeatable processes and a strategic approach to business development and operations.
Here are some ways you can scale your practice and grow your business intelligently.
Review and refine processes. All too often a firm’s workflow process evolves organically over time, and with it a variety of inefficiencies and manual steps. Implement a process-mapping exercise to review and analyze each step to make sure it is as automated, efficient and consistent as possible. Make reviewing your service model part of this process review as well.
Leverage technology to reduce the amount of time spent managing accounts. Administrative and managerial activities such as fee billing, performance reporting, record keeping and opening accounts can eat up to 50% of staff time in some practices. Technology that is integrated into your account management process can simplify and automate these tasks, making your practice more efficient and profitable.
Simplify investment management. Fully integrated trading technology makes managing investment strategies, model and client portfolios easier with efficient trade execution, powerful rebalancing options and convenient inter-model transfers. And you don’t have to give up customization or worry about making small accounts profitable if you use the right trading platform.
Consider outsourcing money management. Think of all the time you spend managing portfolios, from researching investments and determining asset allocation to trading, rebalancing and reporting. By outsourcing some or all your investment management, you can spend more time providing additional fee-based services and developing new business.
Of course, you still want your business to grow — treading water is never a good strategy, at least if you want to stay in business. But it’s critical to remain focused on the right type of growth: the kind that leads to net profits. To intelligently grow your business, it’s important to leverage the right technology to build a scalable process that delivers on your unique value proposition.
