The Practice Life Cycle - Business Management for Financial Advisers

Financial advisory form also go through a life cycle .They are born, they grow, they mature and they pass on. These stages are referred as “wonder, blunder, thunder, and plunder”.

The four phases in the life cycle of an advisory firm:

  1. Wonder– advisors feel optimistic, are very hands on, but manage by the seat of their pants, have no profits or cash
  2. Blunder– period of high growth at mach speed, advisors are feeling stressed, and their management style is crisis; financial performance is more revenue, but less cash because you’re re-investing in the business.
  3. Thunder– peak period in an advisors career where everything is falling into place, they start wearing dark clothing, they generate profits and cash
  4. Plunder– the declining years, advisors cut back their hours, they’re caught between wisdom and obsolescence, their management style is indifferent, their profits are declining but their cash is increasing because they’re trying to extract as much as possible from the firm before they get out of the business

The Business and Personal Cycle Link

Business and Personal Cycle Link

Where Are You in the Practice Life Cycle?

Some practitioners go from thunder to plunder in a short time, and some remain in the wonder phase for their entire career. It’s helpful to recognize where you are in your life cycle, because it helps you to frame your priorities better.

In the first phase, the watchword is “survival.” In this phase, every act performed is towards increasing personal reputation, building up referral sources and serving your clients well. Unfortunately, the financial advisory world does not have adequate opportunities for new people, making this phase a difficult one to sustain, finance and emerge from.

In the second phase—the blunder phase—the watchwords are “managed growth.” Most of the firms experiences stress in this phase, as they outrun the span of control, and their financial ability to manage growth. Some will borrow heavily to purchase office furniture and equipment, fund leasehold improvements, or undertake marketing initiatives—or even buy other practices.

The watchword in the third phase—the thunder phase—is “complacency.” Advisers at this point are typically brimming with confidence. But the seeds of destruction are sown in good times. During this interval, inefficient business practices—shaped by the survival and crisis management of the first two phases—take root as established office protocol. Client service can deteriorate.

Staff development can be ignored. Often, advisers in this phase let their marketing muscle atrophy, because they have so many opportunities coming in from their referral sources. But as many realized after the millennium market bust, when assets started shrinking and clients started turning over, they did not have what it took to regenerate themselves.

In the final phase—the plunder phase—the watchwords are “renewal or decline.” By the time a firm in this stage, the things such as shrinking client list, shrinking profitability, diminishing client service has been in place for a long time. During this phase the staff will start looking for new opportunities.

It’s common to hear advisers say, “My clients will do business only with me; they do not want to talk to anyone else.” For this reason, many advisers declare that they will “die with their boots on,” meaning that they will continue serving their favorite clients until they’re no longer able or no longer above ground. But this is not fair to clients, because if they get older and vulnerable to issues and if the advisor dies or becomes disabled, to whom will they turn to.

So advisors should think of a business model. There is a difference between a business and a book of business. A business is systematic, institutional, properly leveraged and staffed, and moving forward. A book of business is a client list, something that’s harvested until it’s depleted a source of income, and a hobby farm.

So the challenge for those who prefer the lifestyle practice is to make sure that it will fulfill the needs of their clients even as it satisfies their own financial and emotional needs. Throughout the business life cycle, opportunities arise to create structure, processes, and protocols that can achieve both—but not without the endorsement of the owner.

Money is not the only thing advisers need to invest in their business. As we observe the evolution of this profession from practice to business, we also recognize the need to invest in certain skill sets beyond technical proficiency. Owners of advisory firms will be more effective in helping their clients if they can transform their enterprise into a client-centered organization that’s not dysfunctional dependent on its owner.

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