1. Leadership. You must designate a
CEO. That means a full-time executive
whose sole job will be to lead the firm to
achieve the designated goal. This usually is the firm owner/founder, but it
could be another partner or employee,
or an outside hire.
Granted, this can be a difficult decision for many firm owners. In my
experience, most independent financial advisors love what they do: working with clients and helping them
to reach their financial goals for
their families and themselves.
And even though a business with
a few million dollars in annual revenues is still considered a
small business, to get there, stay
there, and keep growing it is a
This means to be successful, the
CEO is going to have to turn most
(if not all) clients to another advisor in the firm. Generally, I advise
the leader to turn over “all” their clients,
but I have worked with effective CEOs
who continued to work with a small
number of accounts.
Of course, firm owners can designate another partner to be CEO or
even bring in a CEO from outside the
firm. That option has proven successful in some of the largest firms in
But if you’re contemplating going in
that direction, think long and hard about
whether you’ll really be able to turn
over the reins of “your” firm to someone
else. That can be very difficult for many
owners, and most of the firms I’ve seen
in which the owner regularly interferes
with the CEO would be much better off
with no CEO at all.
I’ve often worked with advisory-firm
owners to make the decision to go to $1
billion and to decide who is going to run
the firm to get there. A recurring problem is filling the role the owner-turned-CEO has been playing.
One such case was with a firm that
was generating $3 million in annual
revenue. Before he became CEO, the
primary owner was producing around
60% of the firm’s revenues. His own
rainmaking skills had produced a good-sized firm. But to reach his goals, the
firm needed a full-time leader, so he
When he transferred his responsibilities to other advisors, they suddenly
were working with more clients. This
both decreased the quality of their services and virtually eliminated their time
for bringing in new clients.
What’s more, he realized that if he
hired more advisors to solve the problem, that would increase his costs faster than his growth rate. The moral of
this case is to expect a decline in profit
margin when you become a full-time
CEO. Over time, tap someone to think
about growing the business, which
usually leads to a substantial increase
in profitability — just don’t expect to
see an immediate increase in revenues
In this example, it took three years of
lower profits. It was a struggle for the
CEO not to take on client relationships
during that time. The good news is that
although it was painful, the CEO liked
his new job, and the firm eventually
grew four times faster than it had before,
largely due to his trained advisor strategies to attract new clients.
2. Your brand will be challenged.
Someone must monitor your brand to be
sure it doesn’t change and defend it. The
job of a CEO is both to develop a brand
and to monitor employees and clients to
protect the brand.
You should expect that as your firm
grows, your competitors will increasingly attack your brand. One client got
sued by one of his competitors over his
firm’s marketing message. His attorney said this was a signal that
his business had truly become a
3. Corporate finance. I continually am surprised to find that
more advisors don’t understand
corporate finance. If you want to
run a larger business you have to
start making decisions based on
the numbers, not your intuition.
The key metrics are operating income and return on investment. As CEO, you should be
concerned about more than what you
are taking home: You are working for
all the shareholders. It’s a different
The key to running a growing independent advisory firm is to get out of
limbo as quickly as possible. To do that,
surround yourself with people who have
done this before. And, if you don’t want
to do this, I suggest you go the other way
and get smaller.
Whether you decide to get small or
grow larger, a decision about the future
of your firm must be made. It’s either to
get to $1billion in AUM or to get smaller
and change how you offer exceptional
The limbo zone is not where you
want your business to be these days. It
indicates a pattern of indecision. Make a
decision and go for it.
Angie Herbers is an independent consultant to
the advisory industry. She can be reached at
The limbo zone is not
where you want your
business to be these days.
It indicates a pattern
of indecision. Make a
decision and go for it.