High Impact Financial Operations Network

4 Steps to Building the 2025 Advisory Firm

Written by HIFON member: Jon Holmgren     

You know the sound that a record player makes when it comes to a screeching halt and the music abruptly cuts off. That was the sound in my head when I was recently asked the question, “What percentage of the work you do on a day-to-day basis will impact how the firm operates in 2025?” I had just finished two weeks straight of marching straight into operational fires one after the other and the question snapped me back into focus. The question started me thinking not only about what that percentage was but also what are the long term activities that firms need to think about as they are building and growing that are unique to the wealth management space. I have offered four trends below that I think will continue to be major discussion points in our industry as firms build towards the future.

1)  Enhancing Advisor Productivity: The industry has several roads that all lead to enhancing advisor productivity being one of the most important parts of our industry over the next decade. The industry will continue to face competition from highly scaled existing firms like Vanguard and pivoting wirehouses focusing more on the financial planning space. There is also a well-known talent shortage of advisors entering the industry to replace the advisors that will be retiring over coming years that will create capacity issues.

If your firm is not very intentional about activities advisors are performing you risk having them bogged down in activities that hamper the number of clients they can service and revenue generating activities they can allocate time to. These inefficiencies will continue to be magnified in the coming years. The firms that will have a leg up in the future are starting to think about the following questions and activities now.

  • How many clients can the average advisor effectively service currently? What process improvement or technological enhancements would need to be done to double that number?
  • What tasks and activities are advisors currently performing in operations, prospecting and client service processes? Where should their time be allocated?
  • What does an ideal advisor work week look like? How should an advisor’s time be allocated?
  • What structure best supports increased productivity for advisors?

2)  Building a Moat Around Your Business: The most successful firms in any industry are able to build a moat around their business and fend off upstart competitors that try and enter the space. This is no different within the wealth management industry. The question you need to ask yourself is “How long would it take someone to build your exact business from scratch with only access to capital?” For some firms, that is a very uncomfortable question. The uncomfortable firms would be the ones whose value proposition centers almost exclusively on products that are being more commoditized like investment management. Consumers are more educated than they have ever been and are only getting smarter. There are not many ways left to make money off commoditized products that do not involve massive scale. The best firms are asking themselves how they can continue to build out that moat. For most firms in our space, that will involve providing increasing value through the planning and education resources we are making available to clients. This could be incorporating tax planning or higher level estate planning into your core financial planning services. Building a moat could be done through other strategies such as unique sales and marketing programs, talent development pipelines, social media, etc. The bottom line is that firms need to be intentional about discussing what differentiates them and how they continue to build upon that in future years.

3)  Making M&A and Succession Planning into Core Competencies: There are certain activities and competencies that elevate in importance based on the characteristics of the industry as opposed to individual companies. The wealth management industry is seeing consolidation and a large number of retiring advisors. As firms are required to invest in increasingly expensive technology, the firms that are able to spread that cost across more revenue are going have an increasing competitive advantage meaning this consolidation trend is likely to continue. The firms that are going to be better positioned in 2025 are those that excel in succession planning and M&A type scenarios. This does not mean that firms suddenly need to become a firm like United Capital that focuses more in these areas. However, operations leaders at firms must understand the M&A and succession planning process and be able to execute when the opportunity presents itself. You never know when a retiring advisor or another firm may approach you. The firms properly preparing for the future are taking the following steps and ask themselves the following questions.

  • Has the firm thought through its value proposition? Put yourself on the other side of the transaction. Why would an adviser want to join the firm? What sort of tailwind would the firm be giving them that they are not getting now? Has the firm thought through its comp system?
  • Detailing out what the process looks like when a retiring advisor approaches them. Does the firm understand the proper due diligence questions that need to be asked? Does the firm structure easily allow them to facilitate transactions?
  • Does the firm have the proper industry connections to bring in on these type of situations? Has the firm talked to consulting firms and have a good understanding of where to turn depending on what is called for?
  • Does the firm have an elevated understanding of its core financial metrics and what happens to those depending on transaction type? This helps avoid going down rabbit holes on proposed transactions that have little chance of coming to fruition.
  • What other people are you talking to in the industry regarding M&A and those type of transactions? Have you formed a study group with other firms that have similar goals in different geographic spots in the country? The firms that are most prepared are the ones that are intentional about seeking out these types of conversations.

4)  Building a Culture that Lasts: Most business leaders intuitively understand that culture impacts every aspect of their business. Either you have a tailwind behind everything your business is trying to accomplish or you are going into a headwind. While you can be successful flying into a headwind, it makes everything you do a lot harder. Culture is only going to become more important over the next decade. In the past, firms have been able to operate behind a veil of secrecy that has hidden many of the worst cultures. It seems like every week a new story comes out that removes one of those veils. The best firms that are preparing for that future understand that dynamic and are intentional about building a differentiated culture. Do you only talk about culture when something goes wrong or is it a part of your firm that you are talking about quarterly? Do you have a culture that is getting more diverse or staying the same? Do you allow your employees to have a say in what the culture looks like? These are just some of the questions that next-level firms are asking about their cultures. Does your firm culture match up with a future world that is increasingly more diverse, more collaborative, less tolerant about bullying, etc.?

 

I have detailed some of the core competencies and trends that I think firms need to start thinking about now to start building out firms that will still be successful in 2025. This is not meant to be an exhaustive list. Our firm has put together a list and talks through these quarterly at our strategy sessions. I am also starting to measure where my time is being allocated and trying to ensure I am focusing on the right activities that will help build an Atlanta Financial Associates that is even bigger and stronger in 2025.

 

Jon Holmgren is Vice President of Operations at Atlanta Financial Associates and can be reached at jholmgren@atlantafinancial.com.

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