According to a research from Cerulli released in 2014, the average age of financial advisors is 50.9 and 43% are over the age of 55. If you are a typical founder-owner of a financial advisory practice aged 57 or so, you have some important decisions to make. Pronto.
Pronto because if you are 57 today, you will be 62 in five years and 67 in ten years. You get the drift.
The first decisionThe first important decision you have to make is this:
Do you want to maintain the status quo and keep your practice as is, or do you want to transform it to a real business?
While thought leaders in our industry generally advocate the ensemble practice, you may lack the appetite or skills to manage a business. Perhaps you are a technician, not a business owner. Or you enjoy your independence and freedom of a small-ish practice. As most advisors your age, you may have left a wirehouse to get away from the cut-throat, impersonal Corporate-America that values profit above all else. To you, institutionalizing your practice might equate to selling your soul — and building the very bureaucratic organization you escaped in the first place.
A practice (vs. business) has its own benefits
As such, for you, remaining a practice (versus building a business) may be a perfectly viable option. I can immediately think of several benefits of maintaining the status quo.
What is a business (vs. practice)?
Despite these benefits, you may still want to transition your firm from a practice to a real business. (There are both financial and psychological reasons for this, but that’s for another time.) If this is so, you got your work cut out for you. Yes, it takes hard work to get there.
But first, let’s define “business” in the context of the wealth management industry. According to Philip Palaveev, a practice management consultant and the author of The Ensemble Practice, an advisory firm is a business when it possesses the following characteristics:
Additionally, Palaveev suggests the following criteria for a larger, so-called super ensemble firm with multiple partners:
What this means for you
Stated differently, you will have to ultimately do at least three things to turn your practice into a legitimate business:
It all sounds simple, but it’s hardly easy. It will require hard and intentional work.
In my next post, we will discuss what all this entails in some detail. Stay tuned.