Article Review: Stop Operating A Practice And Start Running A Business | Financial Advisor

APRIL 4, 2016 • RIC EDELMAN

Eric's comments:  This article applies to a lot of industries with independent advisors, practices, etc.. We've seen what new regulations can do to the medical industry.  As government grows and intervenes into your profession, will you be ready?

Many talented financial advisors don’t own a business; they merely own their jobs. Because of the competitive, technological, regulatory, branding and economic/market challenges, those who own their jobs will die. Death will be due to new regulations (the DOL has offering a taste with the fiduciary rule that could shut down products, companies, some broker-dealers and insurance firms). How to survive regulatory change: 

Level 1. If you’re like most advisors, you began by clerking. Customers pointed to what they wanted and you the clerk simply gave them what they asked for, e.g., you had a client who wanted tax-free income, so you sold them a municipal bond. 

Level 2. Talented advisors evolve from “clerks” into “salespeople.” A good salesman gives people what they need and uses effective strategies to do so. Thus, salesmanship is an elevation of the advisor’s career.

Level 3. Successful financial planners have ongoing contact with clients—people who previously bought something from them. Meeting with old clients requires operational efficiency. Congratulations! You’re now actually operating a real practice.

But this is where many advisors stop. They’re frozen at Level 3. That’s been fine, until now. You must move on. 

Level 4. It is here that you leverage others. You deal with profit-and-loss statements. You’ve hired more advisors.  You've hired people in such fields as IT, HR, operations, compliance, trading, marketing, etc. to help you grow.

Advisors at Levels 1 through 3 have jobs. If they quit, their income stops. At Level 4, you’ve built a business. The question for you now is: How can you maximize its value? 

If you don’t focus on this question, you run the risk of having that value dissipate. 

Level 5. This is a rare achievement. You’re now managing a  company worth hundreds of millions of dollars that one day will be acquired or launched as an IPO. 

It’s not necessary for you to have such lofty goals of achieving Level 5, but getting to Level 4 is important.  If you are in levels 1, 2 or 3 you have three options:

1. You can stay where you are, but you won’t likely be in this business 10 years from now. 
2. You can merge with practices similar to yours to create the scale to move to level 4.
3. You can join a firm already at Level 4 or 5. 

Ask yourself which level best describes your operation, and how you’ll get yourself to the next one. 

Ric Edelman, chairman and CEO of Edelman Financial Services LLC, a registered investment advisor, is an investment advisor representative who offers advisory services through EFS and is a registered principal offering securities through SMH. Advisory services offered through Edelman Financial Services LLC. Securities offered through Sanders Morris Harris Inc., an affiliated broker-dealer, member FINRA/SIPC. You can connect with him on LinkedIn or on Facebook at www.facebook.com/RicEdelman. Follow him on Twitter at @RicEdelman.

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