Building a Practice for Love AND Money: Weighing the Intangibles


When we measure the business end of an advisory practice, the goal is not to reduce the joy and responsibility of working with clients to raw dollars and cents.


The goal is to create a relatively independent way to evaluate your career and where you want it to go.


In other words, if your practice were a new planning client, the benchmarking is the discovery stage.


It's where we add up the assets -- AUM, profitability, clients per advisor, all the metrics -- and then weigh them against your financial and extra-financial goals.


The wirehouse is the place where the financial goals always win. 


Over there, it's all about AUM and production. The only question is whether the numbers on the paycheck are big enough to leave the advisor feeling adequately compensated for his or her time. It's a job.


But even there, the intangibles add up over time until they finally outweigh the dollar signs. 


One advisor may jump because he's tired of being on call 18 hours a day. Another goes because she wants to be a mover and a shaker, to build something of her own. And a third just wants to earn the clients a few added basis points a year.


They all jump, but for each, the concrete goal and its price tag is different.


The first advisor might be happiest as an associate IAR in a large RIA firm, even if it means curtailing his long-term earning potential. 


The second might want to create an independent RIA -- or even a hybrid RIA/IBD -- and do all the heavy lifting on her own, taking the biggest risks for the brightest glory.


And the third might opt for either independence or an associate role, depending on the configuration that allows clients maximum access to all the products and services they need at a competitive price.


Naturally, every good advisor would like all of these things. But if the resources available are non-infinite, it’s probably going to come down to a hard decision -- and unless we know the "price tag" associated with any particular choice, we won’t know what we can or can’t afford right now.


At that point, planning comes into play. If you’d dearly love to run your own RIA but can’t afford to do it right now, you just need to figure out how to redirect your practice to make it happen.


And if you say you'd dearly love to run your own RIA and the metrics reveal that you can actually start tomorrow, you now have to either push the button or figure out what’s actually holding you back.


Sometimes it takes less than a wholesale shift in business models to get what you really wanted in the first place. 


Letting go of a difficult client can make all the difference in the world, but a lot of advisors out there are still discounting their fees to court all the assets they can -- no matter how hard these new accounts are to work with, or how little they actually earn.


If these clients satisfy your ethical or other intangible goals, great. 


But are low-quality new accounts giving you an ulcer and still not bringing in enough revenue for you to hire an associate to lighten the load? If so, it's time to sit down with your fee statements and ask yourself the serious questions about how all this prospecting moves you closer to achieving your long-term goals.


Maybe it does, and this is just something to grit your teeth and live with in the short term.


But if it doesn't, those fee statements give you a way to weigh the incremental revenue against your headaches and decide who's boss: the revenue or your own quality of life.


Now expand that example out to the big issues of business model and professional affiliation, and the road map of your future career starts to get a lot clearer.


Incidentally, we might define the "culture" of a business model or professional affiliation as its ability to satisfy advisors' intangible goals. We’ll touch on that next time.

This Website Is For Financial Professionals Only