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Entrepreneur Clients Can Help You Run a Better Practice

By Miriam Rozen February 4, 2014

There’s no question that small-business owners benefit from sound wealth planning. But as advisors who serve entrepreneurs know, it’s a two-way street. Clients who launch and run companies frequently impart managerial wisdom that can improve a financial-advice practice. These clients often provide instruction without even meaning to, advisors say, serving either as role models or cautionary tales and offering lessons both practical and philosophical.

Business owners taught David Kujawa, a partner with OnPath Financial in St. Charles, Ill., how to delegate. He has advised dozens of entrepreneurs during his career, first as an insurance-company employee and, since 2011, as an advisor. Kujawa watched many such clients grow increasingly overscheduled and frustrated as they tried to control every aspect of their business. That helped him see what not to do at OnPath Financial, which has $500 million under management. “You can’t wear all the hats,” he says. “You have to have a good team.” Before starting any task, Kujawa asks himself whether the hourly rate for carrying it out matches what his time is worth. If it doesn’t, he assigns it to a subordinate.

Of course, delegating makes sense only if the second piece of the lesson — having a good team — is in place. This means nurturing talented staffers and culling those who aren’t working out. Adam Broughton, an advisor at Sackett Financial Group in Brea, Calif., which manages $90 million, says he constantly hears business owners, who account for 95% of his clients, complain about problem employees without taking action to shed them. Most of them know when an employee is not a fit, Broughton says. “But often they keep that person in the company far too long. It’s damaging for the person and the company.”

Bucking a Trend

Seeing these clients’ mistakes, Broughton and his firm have adopted a policy: “Get underperformers out quickly.” He says Sackett also takes pains to give employees the tools and the independence to do their jobs, and to make sure they’re suited to what they do. “We talk here about getting the right people on the bus and putting them in the rights seats,” Broughton says.

Advising entrepreneurs has also helped him manage risk in his own practice. Business owners “own a concentrated microcap position,” Broughton says, so he spends a lot of time building diversification strategies for such clients. That brought home to him the wisdom of making sure he doesn’t rely too heavily on a narrow client base. Despite the vogue among financial advisors for specialization, Broughton wants his clients to reflect a range of professions and geographies. Doctors and dentists who own their practices account for around 60% of his client base, but he tries to keep the other 40% non-medical, he says. In the same vein, he looks for a diverse mix of ages and account sizes.

Rob Hockett
Another risk that entrepreneurs and independent advisors share is the chance that an unexpected event can derail the business. Founder Rob Hockett of Cambridge Wealth Counsel, which has $235 million under management and offices in Georgia and Utah, says he has seen too many small-business clients without exit strategies or contingency plans. About 75% of his clients are professionals who run or ran their own practice or small-business owners.

A sole practitioner who gets suddenly sidelined can put the whole enterprise in jeopardy, says Hockett. For example, the value of a dental practice can plummet to zero within six months if the founding DDS can’t come in to work. Taking this lesson to heart, Hockett has structured his own firm — which has four advisors and eight other full-time employees — so that any one of the principals can leave for an extended period without leaving a single client unattended.

Misfortune tested that structure two years ago. Hockett’s wife died in 2012, and for more than three months he rarely came into the office. But when he returned, his ensemble had taken care of everything except a small handful of calls and e-mails. Now, he teaches new entrepreneurial clients the wisdom of being prepared, just as the older ones taught him.