Running an operationally efficient business today is exponentially harder today than it was thirty years ago. Technology and compliance costs have skyrocketed, wealth management services have become commoditized, and the current inheritors of wealth (women and millennial heirs) are leaving their benefactors’ advisors at alarming rates. Indeed, a bleak picture of what advisor-business owners are currently facing.
On the flip side, the advisors who are actively managing these challenges are positioned to thrive over the next 20 years — especially as wealth transfers and solopreneur advisors tire out. If you are one of these advisors, consider the following three powerful practice management initiatives for next year:
1) Evolve your service and fee structure.
The future holder of wealth looks, thinks and acts differently than the traditional wealth holder you are used to. I cannot stress this point enough. The one size fits all approach of “X% advisory fee covers all wealth management services” will no longer suffice. Advisors need to become more creative with how they hook younger-gen wealth holders who don’t have a lot to invest TODAY but have tremendous potential for tomorrow. Additionally, as fee transparency continues to be at the forefront of clients’ minds, providing simple-to-understand pricing structures that correspond to a clients’ point in the life cycle will be critical. Consider:
- Advice-on-the-go option: allow clients to pay you a retainer and fees each month (just like they would an attorney) for advice as they need it.
- Varying-levels-of-complexity: allow clients to fit into one of several tiers (1 to 5) depending on the level of complexity of their situation, as defined by your firm. Clients at the lowest tiers will pay the least but will move up in tiers as the complexity of their situation changes.
- Exclusive, comprehensive option: many advisors struggle to begin charging planning fees, in addition to money management fees, if they have never done so in the past. Begin to offer a comprehensive option that clearly lays out two payment structures: flat fee for discovery and creation of plan, and management fees and possible commissions for implementation.
2) Be mindful of the implicit costs of service.
Time and time again I have seen businesses plateau because of capacity issues. Bringing on new clients each year will always contribute positively to top line revenue, but almost always has an adverse effect on operating expenses. Identify the hourly rate you and other advisors / client relationship managers in your firm are worth. Assign talent to the various tiers of service accordingly. No exceptions.
And for the clients who are simply no longer profitable to the business – even marginally – consider moving them to a digital service option and charging them only for advice on the go.
3) Create multiple sources of revenue generation.
Most advisory businesses generate the majority of firm revenue from a single source: the founder and primary rainmaker. Create a culture of revenue generation by teaching others to business develop and incentivizing ALL team members to generate revenue. Consider your revenue as the derivative of four sources: prospecting in your target markets’ circles (including digital and social), introductions from current clients, introductions from centers of influence, brand marketing (advertising, content generated by your firm, etc.). If you are the owner of the first source, allow others on the team to take full ownership of the other three.
Introduce these three initiatives into your annual business plan next year and track progress on next year’s P & L.