1. What three factors have the biggest influence on an advisory firm’s success?
Consistency is always important, and then activity and taking great care of clients. I wouldn’t put them in that order. Client service is first. It’s a lot harder to develop business and get business. It’s way more competitive today. I’ve been at this a long time and I can say that it used to be much easier. Marketing was answering the phone; now you have to go out there and market and sell your firm. I know the new generation bristles at that, but you’ve got to be asking for business.
The founding generation got into the business by selling, and they always wore multiple hats. First you started out by selling the business, and then you moved on to taking care of business. With the next generation, these things are getting broken up. What’s a challenge is taking that generation that came in to be a financial adviser and teaching them that you also have to have really good sales skills. A lot of firms struggle with essentially that issue. We do, too.
It’s possible that a lot of the programs that teach financial planning now don’t emphasize this enough. We get these people five years out of these programs and we’re doing a lot of training. We’re bringing in consultants to develop these skills so that tells me that they are not being taught them.
2. Where do you see your firm’s growth coming in the next three to five years?
Our strategy is twofold: We want organic growth through referrals and developing business around that, and we will also consider acquisitions. A number of founders are 55 to 65 and older. The founding generation needs to find a home for their clients, or a sole proprietor may need one or two partners to achieve growth.
It’s definitely the prevailing wisdom [that mergers are on the rise], but the numbers continue to not back that up. The actual ones that get done versus those that are contemplated are still about 20-to-1. Mergers are tough; it’s one of the hardest things I’ve ever done in business. Unless someone is bought out and leaving the business, it can be very difficult. When it’s a true merger, and both founders are going to be around, you have to deal with blending cultures.
You have to do your due diligence and talk clearly on your philosophy and on investments and strategies. You may find that one firm has a different risk tolerance than another firm. There could be fundamental differences to how you approach the business.
3. What do you see as the biggest challenge to your firm’s growth potential?
It’s a very competitive market in the Bay Area, and that’s the biggest challenge. When there is severe competition it shows itself in two ways: it’s harder to get a client because everyone is shopping, and existing clients are getting [approached] by so many people. You used to never hear that, and now we’re hearing that even with long-term client relationships that you thought were solid, there is a lot being done to erode that. That’s the nature of business: When an industry gets more mature, it becomes a commodity. When there are more firms than there are people, you’re in big trouble.
4. How has an incentive compensation plan affected your firm’s performance?
It’s a work in progress. We started it last year and learned some things, and then really geeked it up and changed some things. I think it’s too early to tell the success of the incentive plan and its results.
I think of something that Mark Tibergien [chief executive of Pershing Advisor Solutions LLC) has said: You can’t motivate people; you can only demotivate them. Now I’m actually coming around to that. You need a decent plan that is fair and has incentives. But if you have people searching for the Holy Grail [of incentive plans], you probably have the wrong people. The way I feel is that if you put me in any incentive plan, I guarantee you that I would be successful. You have to have your own reasons for blowing the doors down.
5. What advice would you give someone who was starting their own practice?
I was lucky that when I started, it was during the Wild West of the business. You could get training from a company and get way more prospects than now. The advisers’ level of sophistication then is nowhere near what it is today. So you need to ask yourself, “If I set up shop, can I make a living?” You have to set up shop and hook on with a custodian to do some things. You not only need money, but you are competing with a firm like us next door. It didn’t used to be like that.
There are lots of opportunities to be owners now. There are career paths that didn’t exist 20 years ago. But it’s way tougher than it used to be to set money aside. The economy is not creating and minting millionaires like we used to do. There was a smaller set of advisers, and literally, millionaires were being minted. Now there are twice as many advisers and so there is a supply-and-demand issue.
