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Smart Growth: How to Scale Up Without Overextending

By R.A. Monroe November 2, 2015

In today’s fiercely competitive landscape, many advisors have growth on their minds — and it shows. A typical firm from a decade ago might have had $350,000 in revenues, three employees and one principal. Nowadays, that “typical” firm has $3.5 million in revenues, seven to 13 employees and three or four principals, according to industry sources.

Expanding your practice, whether by acquiring another firm or attracting new clients, can lead to revenue growth and a more sustainable business. But growth carries a price. Practices that scale up too fast may find they’ve stretched themselves too thin and have upset clients in the process. Consider the following advice on how to grow effectively.

Jeff Concepcion, CEO of Beachwood, Ohio-based Stratos Wealth Partners, which manages $2.6 billion, believes that rapid growth can be a blessing and a curse. “We’ve opened a new office every month since our inception in February 2009,” Concepcion says. “We’ve learned that if you don’t have a strong infrastructure in place, it’s easy to overextend yourself, and then you risk diluting the quality of service.”

Before taking any steps toward scaling your practice, Concepcion recommends making sure your own house is in order first. “You don’t want to construct a three-story building on an unstable foundation,” he says.

Focusing on making your practice more efficient can help ensure that you have the capacity to grow without overextending yourself. For example, creating block-traded model portfolios for your clients can free up a substantial amount of time. Concepcion also warns against the common mistake of trying to do too much. “We see this a lot with principals — they want to be involved in everything,” he says. “But that’s not possible as you scale up.”

Adds Concepcion, “Ideally you’ll go from wearing seven hats to wearing the two or three hats that fit best.”

Kevin Prendergast, head of investing at Schaumberg, Ill.-based EFG Advisors, which manages $300 million, observes that ceding control is a necessary part of sustainable growth. Several years ago, Prendergast’s firm realized it had reached a plateau and needed to put a new strategy in place in order to take the business to the next level.

Prendergast and his colleagues found that maintaining control over every aspect of the business was actually impeding the firm’s ability to grow. So they began outsourcing asset allocation and ETF selection. “We came to the conclusion activities that weren’t client-facing didn’t add a whole lot of value,” he says. “A small advisory office can’t realistically research every detail in a 50-page variable-annuity contract.”

Prendergast recommends that growth-oriented firms identify their core competencies and go from there. “Pick the areas that you not only enjoy doing, but in which you also have a competitive edge, and build your growth around that,” he says. “Don’t get greedy and try to offer everything a client might want; realistically, you won’t be able to do that — and it’ll only come back to hurt you in the end.”

Matt Cooper

Growth was a priority when Matt Cooper co-founded Newport Beach, Calif.-based Beacon Pointe Wealth Advisors, a unit of Beacon Pointe Advisors, which manages $9 billion. Because the overall client base is aging and advisors can’t rely on the next generation sticking with their parents’ advisor, firms need to constantly work to acquire new (preferably younger) clients. “If you’re not growing, you’re dying,” Cooper says.

Making smart hires is another critical step in growing effectively — but making the wrong hires can have the opposite effect. “In the mid-2000s, we made a couple bad hires that probably set us back,” Cooper admits. “If you hire the wrong people, they won’t grow into their roles. They’ll just sit there and stagnate, and that can have a major effect on your potential for growth.” Both of those early employees ended up getting let go.

Cooper learned an important lesson in the process: take time to hire the right person. “I made those two hires virtually solo and didn’t get enough input from the rest of the team, because we were in a rush,” he admits. These days, a prospective hire at Beacon Pointe may meet with as many as 15 people at the firm — everyone from partners to staff members.