This page is intentionally blank PREFACE ix A CKNOWLEDGMENTS xi I NTRODUCTION xiii 1 The Financial Advisory Business The View from Here 1 2 Strategic Business Planning Defining the Direction 13 3 Knowing Your Clients The Value of Surveys 39 4 Building Leverage and Capacity The Challenge of Growth 49 5 The Fulcrum of Strategy Human Capital 71 6 The Care and Preening of Staff Professional Development 89 7 The Payoff for the Firm Compensation Planning 111 8 The Tools That Count Financial Management 137 9 Income, Profit, Cash Flow (and Other Dirty Words) 149 10 Referrals and Joint Ventures The Search for Solutions 173 AFTERWORD 183 APPENDIX 189 I NDEX 221 Contents This page is intentionally blank ix SO MANY OWNERS of financial-advisory practices complain that they don’t have the time to do what they enjoy most—work with clients. If you’ve picked up this book, you’re probably one of them. What keeps planners in such a vise? The answer is simple: the failure to manage a practice well. But how can you take control of your busi- ness? How can you help it grow, make it flourish? The answers lie in your approach to management and leadership. This book is designed to help you understand what strategic thinking feels like. It’s not about pat answers; it’s about acquiring the skills to solve problems. Financial advisers often tell us their biggest practice-management challenges revolve around ! not making enough money for the effort ! not having enough time to manage and generate revenue ! not attracting enough of the right type of clients ! not being able to find and keep good people on staff ! not being able to manage growth effectively These are the symptoms of a practice functioning in crisis. One of the great ironies of the advisory business is that many of its prac- titioners—even those who do an excellent job of planning for their clients—do not take the time to strategize, analyze, and plan for their own personal and business success. They get their strokes from dealing with clients, not from the tedium of practice management. Effective management is a function of your ability to make deci- sions, your aptitude for evaluating data, and your commitment to your business model. Good managers have learned how to leverage their organizations so that the business sustains itself rather than Preface depending solely on them. Our goal with this book is to vest lead- ers of financial-planning practices, investment-management firms, wealth-management firms, and other advisory firms with the tech- niques that make business managers most effective. X PREFACE xi Acknowledgments OUR WORK AS CONSULTANTS and accountants to the financial- services industry has been very fulfilling, so it is with great pleasure that we share our relevant practice-management experiences in this book. But there are many people behind the scenes who provided us with valuable content and coaching, compelling ideas and insights, and essential support. We thank the members of the Moss Adams LLP Securities & Insurance Niche consulting team, especially Cathy Gibson, Ron Dohr, Philip Palaveev, Steve Clement, Stephanie Rodriguez, and Bethany Carlson, who eagerly challenged and refined our think- ing throughout this process. Our thanks also go to Brenda Berger, Jennifer Long, and Lise Vadeboncoeur for keeping us organized and on schedule to meet our commitments. We would also like to acknowledge the years of wisdom that Bob Bunting, the ex-chairman of Moss Adams, has shared with us to make us more effective management consultants. He has generously given his ideas and support to make us better practitioners, and we have incorporated many of his lessons into this book. Our spouses, Arlene Tibergien and Grant Pomering, deserve a very special thank-you. The job of consulting with the financial-advisory profession takes us away from home more than is reasonable. When you love your work as much as we do, that’s not a hardship. But the sacrifices Arlene and Grant have made have allowed us to pursue our passion, and they’ve done it with great support. We also thank our consulting clients, as well as members of the Alpha Group and Zero Alpha Group, who have been willing to open up to us and who have continued to remind us that success in business is not purely a function of money and how you manage it but also the drive and desire to make a profound difference to the people you serve. Finally, our thanks go to all the practice-management authors whose work has paved the way for ours and to all of the other consultants who have dedicated their careers to providing advisers with tools to be better at what they do. We’re especially grateful to Julie Littlechild of Toronto’s Advisor Impact, who has enlightened us with her expertise in helping advisers bridge the gap between serving clients well and serving them profitably. Throughout the book, we recognize certain individuals for contributions they’ve made to the profession, and we’ve attempted to weave in their perspectives as we addressed the issues we deemed critical to the book. Of course, no one book or any single author can provide all the solutions practitioners need, but we hope that what we offer here will help you knit together the fabric of a truly outstanding financial-advisory business. M ARK TIBERGIEN AND REBECCA POMERING XII ACKNOWLEDGMENTS Introduction WHETHER YOU OPERATE as a solo practitioner or own an ensemble firm, whether your business is commission based or fee only, whether you’re a total wealth manager, a money manager, or an adviser who focuses on planning rather than implementation, this book will be relevant to your practice. The principles of sound management apply to financial-advisory firms of all stripes, and the tools provided here can work under any circumstances. To understand the principles, consider how you would structure a management team if you could build your optimal model and you were not constrained by limited resources—whether they be time, money, management, or energy. Recognizing that your resources are finite, we will focus on the critical management disciplines you need to master regardless of the size or profile of your business. Strategy: the framework for a firm, which informs all busi- ness decisions. As we discuss business strategy, we will walk you through the thought processes that can help you create a context for your management decisions. In our research and consultation with hundreds of financial-advisory firms throughout the United States, Canada, and Australia, we’ve learned that each business has a different set of parameters and perspectives to consider because each firm is unique. But whatever the structure, the work of sales and marketing, financial management, operations, human capital, and information technology is always better performed when the firm’s strategy is understood. So at a minimum, practitioners must have a clear idea of what business they’re in and how they define success. Management decisions become easier to make when you know what you want to achieve as a business. xiii Financial management: managing the bottom line. The infor- mation we present on financial management addresses critical issues such as benchmarking, budgeting, and management analysis. Financial advisers tend to give short shrift to the financial manage- ment of their practices, perhaps because they believe that simply having more clients will solve all their problems. The dynamics of a financial-advisory firm, however, require more active management and a solid understanding of what to monitor and act on to translate revenues into profits, cash flow, and transferable value. Human capital: achieving effectiveness. In exploring human cap- ital, we consider the concepts of recruiting, retaining, and rewarding staff at all levels. You can’t be a true entrepreneur without leverag- ing off other people. Such leverage is part of the difference between managing a book of business and managing the business itself. The selection techniques, leadership concepts, and reward systems we offer here can help you reinforce your business strategy. Sales and marketing: managing the top line. Volumes have already been written on sales and marketing, and there isn’t much we can add to what has been published on this subject by such gurus as Nick Murray, Steve Moeller, Bill Bachrach, and John Bowen, but we’ll tie in management concepts that allow you to apply their great ideas to your particular business. Operations: managing risk, processes, and protocols. Within a financial-advisory firm, managing operations is often the most complex part of the practice; it’s also one of the most important. Doing the job effectively hinges on how well you tie together the tools and processes that have already been introduced by industry vendors, broker-dealers, custodians, and other advisers. Again, considerable literature by such masters as Deena Katz, Bob Veres, Jeffrey Rattiner, Mary Rowland, and Katherine Vessenes is already available on varied topics as processes, protocols, client service, compliance, and outsourcing. Our review of the strategy, finan- cial-management, and human-capital issues affecting your busi- ness will contribute to your understanding of business operations, but this insight should be merged with your own knowledge and with the information that’s been provided by other experts in the field. XIV INTRODUCTION Information technology: processing information and communi- cation. Like sales and marketing, information technology has been extensively explored in the trade literature, mostly because hardware and software have become instrumental in helping advisers manage client relationships effectively and make more appropriate decisions on planning and implementation. Virtual-Office Tools for a High- Margin Practice (Bloomberg Press, 2002) by David Drucker and Joel Bruckenstein is an excellent reference in this area, and Andy Gluck has written countless articles that can help you to apply technology more effectively in your practice. The big challenge is in knowing how to frame your technology choices, how to integrate new technology into your practice, and how to evaluate your return on this investment. Our goal in discussing these management disciplines is to awaken your management skills and to give you a framework for committing to a strategy and for translating a vision into action. To accomplish that, we focus on the three critical disciplines of business manage- ment—human-capital management, strategic planning, and financial management. How you approach the management challenges related to operations, compliance, sales and marketing, and information technology will, of course, be influenced by the strategic decisions you make. Some of the larger firms in the industry can afford to employ full-time management to attend to these critical aspects of running an advisory business, but for many advisory practices, that option is not financially viable. Owners who cannot afford a separate pro- fessional management team must master the essence of these disci- plines themselves. But whether the work is done by experts or by the owners, the successful financial-advisory firms are the ones that have become effective in managing each of these disciplines. The management techniques at such firms are part art and part science, and leadership is even more challenging because it requires practice owners to create a vision and inspire others in the business to follow them into the fray. The best way to break into that league of successful firms is to eval- uate your business the way a physician evaluates someone who’s sick: ! Examine the patient ! Diagnose the source of the pain INTRODUCTION xv . 173 AFTERWORD 183 APPENDIX 189 I NDEX 22 1 Contents This page is intentionally blank ix SO MANY OWNERS of financial-advisory practices complain that they don’t. and implementation. Virtual-Office Tools for a High- Margin Practice (Bloomberg Press, 20 02) by David Drucker and Joel Bruckenstein is an excellent reference