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If you’re working your way to £1M of revenue (i.e. your current revenue is less than that, but you have the ambition to grow) then you’re going to face what I call the owner’s dilemma.
Here it is in a nutshell:
Business growth seems to require more advisers, yet more advisers (hired too early) stunt your business growth.
I’ve written and spoken extensively about the mistake most up-and-coming businesses make; hiring more advisers to generate growth.
However, in modern financial planning businesses (and I’m differentiating them from old-school sales businesses) advisers generally don’t generate growth. The business (when it works) generates growth and at some point, you require more staff and advisers, to service that growth.
Hiring advisers too early just creates a bunch of management problems that the business is not mature enough (structurally) to handle.
If you end up with yourself, a few support staff and another adviser or two, you’re going to have HR and people management issues coming out of your wazoo. That means you also now need a Practice Manager, but there’s not enough revenue coming in to afford that key hire.
What should you do?
A Better Approach
The first thing to get your head around is that typically, you – the business founder – are far and away the best adviser and rainmaker in the business. That’s what gave you the chutzpa to start your own firm.
You did it because you could.
Notice that the people working for you haven’t decided to start their own firm. They’re taking the guaranteed salary but give off regular noises that they’re not quite earning enough and it’s up to you to do something about it.
Please don’t misunderstand me. I love and support these people too. However, I want you to embrace your own value to the business. Look at yourself dispassionately as an asset of the firm. You’re super-valuable at this stage of the firm’s growth.
So, priority one is building your personal productivity.
What does that look like?
You’re aiming for £600,000 of revenue that you manage.
Your only goal is to build a team around you that allows you to be that productive; administrators, paraplanners, and eventually a shadow adviser who supports you. Your shadow adviser probably gets hired at around £300,000 – £400,000 of revenue to help you take that next step up to £600,000. They get to work closely with you for a year or two which gives them on-the-job training and lets them meet all of your clients.
At around £600,000 if you have a shadow who is capable of moving into a servicing adviser role (and you probably do have one by this stage) split off the bottom ⅔ or ¾ of revenue and make them a fully-fledged servicing adviser looking after say £400,000 of revenue.
The up-and-coming adviser can be put on a salary (not variable remuneration) that shows them respect for the skills and responsibilities they will now assume.
How much do you need to pay an adviser to whom you’ve given £400,000 of recurring revenue?
The answer is not a percentage. It’s a salary.
Depending on their experience and skills and your location, you might pay them a salary of £60,000, £70,000, £80,000 or £100,000.
No more of the ‘£40,000-plus-35%-after-achieving-qualifying-earnings’ remuneration model. That type of variable remuneration often sees less experienced advisers bringing in clients well below the target threshold the firm is geared up to serve.
It also creates individualistic behaviour.
By moving your experienced shadow adviser into a servicing adviser role, you free yourself up again to see more of the best quality leads that arrive at the firm.
If you don’t follow this approach you can end up stuck, servicing a full client load with almost no space to meet with new prospective clients. So in a lot of cases, high-quality leads are being passed to your less-experienced advisers and the closing rate is way too low.
It makes sense that the best new leads should be seen by the best adviser in the firm (you).
Other benefits of this approach are:
- The servicing adviser is now over the moon at earning some proper money and they feel seen and valued within the business.
- As the owner of the business, you’re over the moon because your ‘effective’ pay-away is now far lower than under most variable remuneration schemes. Even at the £100,000 salary level, your payaway is only 25% of revenue, not 35%.
- Now your less experienced adviser is instantly productive; there’s no 10-year wait for them to bring in the same level of revenue.
- Your gross margins increase, giving you more room to hire support staff and a professional Practice Manager (when the time is right).
- Your client service quality stays high because you’ve got a fully staffed team and your net profit margins can still be at 25% after everyone (including you) gets paid a full market rate for their day job.
- Finally, it helps you banish variable remuneration from your firm.
Be Nice
I hope it goes without saying that I still want you to treat your team well. Don’t make people feel like they are supporting an ungrateful Diva. This phase of growth is only phase 1 in your master plan and you need to encourage and support everyone around you. You can do that and still understand your own worth to the business.
In Summary:
What I like about this approach:
- There’s much less management hassle and complexity in your early years. It’s not that there’s no complexity, because hiring a team is still work, but you’re not adding self-generated complexity by adopting the wrong approach to growth.
- The business grows faster because the best person in the building stays focused on what they are best at and what adds the most value to the business.
- Team members have room to grow and be promoted because new spaces are opening up regularly and the existing team is always the first port of call for a promotion. You can backfill their existing role as they step up.
- This makes your firm an attractive place for new talent to land as they can see that not only is there a good job in a growing business, but there’s also the opportunity to develop and be promoted.
- It gets you to £1M of revenue, ready to grow to £2M.
Give it a try.
And let me know how you go.
Related: Evolution of Your Role: Adapting as Your Business Grows