The Growth Plan: Keeping Your Practice on Course | Lord Abbett

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Practice Management

Planners must have a strategy and compensation plan to keep employees engaged and to grow their firms.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).

Many advisors have plans for growth, but does anyone really know what causes above-average sustained progress? Some might think exemplary esprit de corps among your employees will do it. Others may feel the best way to tap into a fantastic pool of potential clients is to locate an office where everyone has above-average incomes.

After years of experience and study, I have concluded that leading a firm is like driving a bus on a cross-country trip: you have to have a detailed plan.

Driving the Bus

Owners must address specific strategic issues to guarantee growth in net profits. If you ignore any of them, sustained, long-term gains are virtually impossible. Heed these warnings before you get far off course:

  • Figure out where you’re going or you might not like where you end up. Owners must agree on the core reasons for the firm’s continued existence. Once these reasons are crystal clear, develop specific goals with specific dates and numbers that everybody can work toward. I recommend developing a mission statement, stating tangible outcomes.
  • Make sure your firm can go the distance. Ensure your organizational structure is designed to support your goals. Plan to review this structure as the firm grows.
  • Take a roll call. No matter how successful your organization is today, it’s unlikely that you currently employ all the staff with all the skills necessary to effectively run an organization that is two or three times your current size. It’s time to take an honest look at your people and figure out what skill sets you’re missing.

    When you’ve done that, you might consult with outside professional managers, or consider training and promoting managers from within. If you aren’t sure what to do first, consider hiring consultants who have experience working with firms larger than yours. They can help you see what you need and might help you find such individuals.

    The same thing is true for your advisory teams. Growth means more advisors. If you aren’t filling the advisor pipeline with both experienced and junior advisors before you actually need them, you will experience a bottleneck in growth.

  • Get the right fuel. When evaluating your growth goals, ignore asset and revenue growth from market appreciation—as well as growth from M&A activities, unless you are acquiring more than 20% of your new net profits every year. Sustained growth can only come from continuously adding new assets from existing clients, adding new clients with assets or developing additional lines of business with totally different clients. This is driven by an appropriate compensation system for individuals whose job is to acquire new client revenues.
  • Supervise, manage, and govern so that you address complicated organizational changes as you grow. In the future, you may have an organization several times larger than it is now, and the resulting equity value could increase by orders of magnitude. Today, for example, many RIAs with $1 billion in assets under management (AUM) and $1–2 million in net profit are worth more than $10 million. Increase that by a factor of five, and you’ll find independent RIAs north of $5 billion in AUM with $10 million plus in net profit that are worth more than $100 million.


    If one of your goals is to create and manage a large enterprise, you must be moving to extend equity ownership to an ever-growing group of employees.

Engaging Employees

If a firm has created a strategic approach for growing, how does it keep employees engaged and productive in the long term?

We all know there are companies that grow using sales bonuses or advertising of some sort. While we’ve heard the phrase “what gets paid gets done,” we’ve also heard that job dissatisfaction, not pay, is a top reason that people leave. In our industry, how important is the compensation system?

Research from business schools over the past 70 years has repeatedly reached a compelling conclusion: When rewards are tied to explicit performance metrics, clear-cut firm-wide production goals are established, and individuals are given the training and flexibility to develop plans and programs to reach personal and company goals, the result is well-above average performance for individuals and companies across all industries, societies, and time frames.

In our industry, “finder” advisors bring in new clients. At my firm, Savant Capital Management, we’ve found the best motivator for finders is a merit compensation system coupled with clear-cut production goals.

Some readers might argue that many single advisor firms have flat-lined, even with substantial financial rewards for growing the firm. They assert this means advisors are not motivated by money. That’s not true. In most cases, the advisor is simply time-limited by the number of clients being served or by the work he or she does running the firm.

About five years ago, Savant instituted an easily understood compensation program for advisors based on acquisition of new client assets. We’ve been able to sustain annual profit growth greater than 10% in the past four years. What’s more, this occurred after we hit $2 billion in AUM, when growth is supposedly harder to achieve.

The Secret Sauce

All that involved creating a recipe that worked for both the owners and the advisors. Here’s what works:

  • Salary, based on the level of training and on experience.
  • Origination compensation, a percentage of fee revenue tied directly to the new clients the advisor brings into the firm. The origination fee is paid to the originating advisor for as long as the clients are with the firm, regardless who services them.
  • Servicing compensation, a percentage of fee revenue tied directly to the person working with the client as the lead advisor.
  • Co-advisor servicing compensation, which is a percentage of fee revenue tied directly to the co-advisor working with the client and the lead advisor.

Flexibility is paramount for sustained growth. An advisor may choose to earn only the origination fee and turn the client over to another advisor as lead because of the client load the originator already has.

All advisors are expected to originate new clients. With some exceptions, originating advisors can work with the client and earn both origination fees and servicing fees as lead advisor. Lead advisors may work by themselves or because of workload choose a co-advisor, sharing the servicing fee. Co-advisors can work with several different lead advisors, and in most cases can be lead advisors for clients they originate.

A parting thought: What really makes companies grow are owners who are willing by to work very hard, lead by example, resolve issues as they arise, and embrace changes in every part of their organization.

—by Glenn G. Kautt
Glenn G. Kautt, CFP, EA, AIFA, is a Financial Planning columnist and vice chairman of Savant Capital Management, based in Rockford, Illinois.



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