Six Observations for Advisors From 2023

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2023. What the hell happened?

2023

Global tensions and strife got me wondering about what we’re doing to each other. Can’t we play nice?

My wife Debbie caught Covid for the first time ever in October of this year. Can you believe it? Covid is so 2020. She wasn’t happy.

And I still love independently-owned financial planning firms for the great advice they provide. Stay strong people.

Here’s what I’ve noticed during 2023:

1. AI, AI, AI

All you have to do to get a speaking gig nowadays is whack AI in the title.

I attended Bob Veres’s Insider’s Forum conference in October this year and as one would expect, there was more than one presentation around AI. But as one conference go-er pointed out to me, the October before (2022) at the same conference, the expression AI wasn’t even used.

Things are changing super fast.

Here are two interesting points of view on AI:

I realise there are issues that need addressing with AI, but I also know you can’t hold back the tide. Maybe we just won’t need to spend so much time doing relatively mundane tasks as AI develops. We can get away from the boring stuff and focus on the really high-value stuff.

What will that mean for employment, society and nation-states?

I’ve got no idea

It’s either the dystopian outcomes of The Terminator, or the carefree enjoyment of Ferris Bueller’s Day Off.

2. The Future of Mid-Sized Financial Planning Firms

Do you run a financial planning firm with annual revenues of £1M – £5M?

I’ve heard that described as the messy middle, and the magnificent middle. Which one feels more apt for you?

The messy middle argument (straight out of business school) is that mid-sized firms are the hardest to manage. They’re too big to be small and too small to be big.

What I’m seeing with these firms is that as they grow, each new inflection point takes more and more investment and if you have been used to funding your growth from retained earnings (i.e. your income and profits), each new level feels riskier and riskier. So I can see the argument.

However, I listened to a presentation recently by Angie Herbers, the US consultant. She used the term The Magnificent Middle.

Angie argued that mid-sized financial planning firms have the greatest upside potential because:

a.) They can increase size and revenue fastest, which in turn can increase their sale value fast too.

b.) They are still agile when compared to larger firms.

However, she added that to capitalise on these advantages you’ve got to be making good decisions, which means saying ‘no’ to a lot of shiny things (my words, not hers).

I’m with Angie. Don’t buy into this story of mid-sized firms being the hardest to manage. It’s nonsense in our sector.

What I’m seeing:

A lot of great firms in the slightly narrower £1M – £3M revenue range are looking to continue onwards and upwards. But what got you here won’t get you there.

The truth is you might need some guidance as you navigate your way from quality boutique into rock-solid business with emerging second-generation (G2) leadership. My Uncover Your Business Potential groups are filled with these types of firms, as well as smaller firms that aspire to get to and grow through these levels.

Building a firm that lasts beyond you is the road less travelled. It’s hard, but it’s also the highest form of business achievement in my view. If you’re up for it, let’s talk in 2024.

“Being better than everyone else is hard if you’re generic but do-able if you specialise.”- Bob Veres

Tim Kochis of Kochis Global, a highly respected industry player, made some poignant observations at the Insider’s Forum.

He said, “You’ve got to pursue intentional growth in your business:

  • You can’t stand still
  • Growth is an imperative – your clients, staff and competitors are not standing still
  • A firm that is not growing is a suspicious place to do business with because we’ve promised we’ll be here for the life of our clients

So intend to grow at a manageable pace.”

What do you think?

3. Industry Consolidation – not a slam dunk for consolidators

I’m sorry if this offends some people, but I still think roll-ups and consolidations are a crock of shit.

The ones I see have no systems and no effective brand. That’s not a business. It’s a group of small businesses.

Is anyone doing this well?

Please let me know if you’re working on the inside of one of these ventures (after you’ve been there for 3 years, not the week after you’ve sold) and still think it’s great.

Anyone who’s any good in many of these organisations seems to be leaving and doing something else as soon as the exclusion period ends.

Being Acquired – far from the only option

Firms that get to £1M of annual revenue and can’t figure out how to move on to £2.5M often end up selling out. If selling out is a deliberate and planned strategic choice I’d be all for it. However, often I think it’s because they can see no other viable option. I’m here to tell you there is another option and I can help you with it.

Independently owned firms at £1M of annual revenue have big decisions to make and some work to do IF they don’t want to default to a sale to a consolidator that will almost inevitably fuck up their beautiful business. I know you convince yourself that won’t happen and you’ve done your due diligence, but it does happen – inevitably.

The central idea at the centre of most consolidators is not “provide amazing customer service” it’s “maximise return on capital.” See page 14 of my white paper, How To Solve The Scale Problem (In Financial Planning Businesses) to understand the difference.

If you are going to sell, try to find another financial planning firm that is looking to acquire. They’re out there. And they could provide a better destination for your staff and your clients.

Employee Ownership Trusts are a viable option for some firms – look at Paradigm Norton or Blue Sky Financial Planning as role models. So is succession for your up-and-coming future leaders. But you really need to start planning for that 10 years out, not 5 years or 3 years out. You’ll probably get your succession choices wrong the first time, so you need time to do it again and get it right. Check out my blog post The Secret To Succession Success. (Or speak to me).

Acquiring – another option

In another great session at the Insider’s Forum, Tom Orechhio, co-founder of Modera Wealth Management said when buying a firm you have to focus on the culture otherwise you’re just buying the numbers, and the numbers are not the magic – the people are.

  • Integration of the acquired firm only works if the people you’ve acquired buy in (I mean mentally and spiritually – not financially)
  • It’s not about the CRM or the systems, or the technical details. It’s not about the numbers or the tech, it’s about the people (they make the integration work)

“Are you growing for growth’s sake or are you growing for a purpose? Cancer grows too.”

Tim Kochis said about acquisitions:

  • The costs come early (money, time, disruption)
  • The benefits come later

4. How To Solve The Scale Problem (In Financial Planning Businesses) – my white paper

The initial reaction to my latest white paper has been really positive. It seems to have got people thinking.

I’m working with a small beta group of £1M+ firms that are looking to change their structure along the lines discussed in the white paper. They can see real potential as they address their growth challenges. We’re already generating a lot of learning as each firm starts from a slightly different position and makes different choices as they attempt to make changes to their business structure.

One of the CEOs in this group mentioned that handing off her client bank made her feel a bit exposed, which got her asking the question “What value do I add as CEO?” Are you going through anything similar right now?

I read a really interesting article on this very topic in Harvard Business Review called, The Leap To Leader by Adam Bryant. He reinforces the idea that you should be “getting off the tools” (my expression, not his) and CEO’ing more.

If you’re at £1M of annual revenue your next revenue threshold is £2.5M, then £5M then £10M. These are serious businesses. You need to take yourself seriously as the leader in a business like that and give yourself the time and space to lead (rather than ‘do’).

One simple question you can keep asking yourself to maintain the necessary strategic altitude is “What’s best for the organisation?”

5. Leadership – for growth

As I said earlier, financial planning firms in the £1M – £5M of annual revenue range have the greatest upside potential.

However, to capture that potential you need to be working on your own leadership skills and it’s a broad and tricky topic.

Heather Robertson Fortner, CEO of Signature FD was another experienced practitioner who shared some great leadership insights on a panel session at the Insider’s Forum.

When she was appointed CEO the business owner said to her, “Heather I won’t pay you for anything other than developing the next generation of talent. But you have to promote them and give them chances and let them fail.”

Heather said, “As leaders, we’re too scared to let people fail – we need to de-catastrophise failure. If we can model ‘failing well’ at the leadership level then others will see that they might be able to do it too.

Use terminology like – we’re running experiments:

  • What’s the experiment?
  • What’s the time frame?
  • What’s the budget?

So we can evaluate the results.”

Heather uses the firm’s core values to identify future leaders. Whenever the leadership team think to themselves “We don’t even have to mention our values to this person” they know they are a fit for leadership.

Defined career paths are key – they try to outline clearly, “Here’s what success looks like in this role.”

Three traits of future potential owners were outlined by Tim Kochis:

  • Competence
  • Contribution (we’d be worse off without your contribution)
  • Commitment (this is your final home – and if it’s not your final home then forget about ownership)

6. Killer client relationships is the new frontier

I had dinner with Barry Horner from Paradigm Norton a couple of months ago (can you tell? I’ve only mentioned him 17 times so far). He kindly sent me a book Unreasonable Hospitality: The Remarkable Power of Giving People More Than They Expect by Will Guidara. It’s a great read.

As Barry explained to me, the leaders of Eleven Madison Park (which was voted top restaurant in the world in 2017) knew that simply creating better food was not the solution to becoming number 1. They were already Michelin-starred. To go from bloody good to top of the tree meant focusing on their hospitality (relationships with their customers in other words).

It’s the idea of the whole business becoming dialed-in to this high-touch personal client experience.

For advisers long in the tooth, you might be quick to dismiss this and think “this is what I’ve always done.” However, in my opinion that would be a mistake. What we’re talking about here (like in Unreasonable Hospitality) are two things:

a.) Taking relationship management to another even higher level

And

b.) Institutionalising that level of service so it is delivered all-day-every-day consistently, across the whole business. And that’s a high bar.

In another presentation at the Insider’s Forum, Chris Galeski of Morton Wealth emphasised knowing these four things if you consider yourself having a deeper relationship with someone:

  • Their special geography (what’s their favourite place?)
  • Who is most important to them?
  • Things that shaped who they are
  • Their skills, passions and hobbies

Then share these with the team (or put them in your CRM).

To finish where I started, if AI is replacing the boring, we’ve now got to focus on the exceptional that only humans can deliver.

Hearing from amazing speakers at the Insider’s Forum – who both talk the talk and walk the walk and are open and willing to share their success stories and their learnings along the way – underlined this message, that culture and relationships will sit at the heart of the great financial planning businesses of the future.

See you in 2024 and I hope you enjoy some time off over the holiday season.

Related: Work That Matters Is Difficult