Attracting new clients is the key to increasing value

Given the record number of advisory firm mergers and acquisitions, over the past five years most advisers have seen the value of their practices skyrocket.

Despite this, in part because of the return of volatility to the market, nobody knows for certain whether valuations will continue to rise or start to fall in the future.

Since you have no power over what the demand for firms will be tomorrow, the key is to focus on what you can control. And what is the No. 1 (but, surprisingly, most often overlooked) driver of value for a financial advisory firm? The ability and desire to bring on new clients.

If you control an advisory firm or even a small practice, odds are you started in this business the hard way. You worked as a “producer” for either a wirehouse or an insurance company, and your success was based on the number of clients, or accounts, you could acquire. The advisers who weren't successful at this washed out, while those who figured out how to prospect and convert clients managed to survive.

If you’re reading this, the odds are that you were one of the survivors.

In short, you became successful at attracting new clients.

The growth ceiling that many successful advisers eventually hit is the point when most of their time is spent servicing their existing clients, leaving them without enough time to market. (Another growth ceiling occurs when advisers become satisfied with their lifestyle and are content to service existing clients until the day comes that they lack the energy to continue.)

However, if you want something more than to simply retire in place, and you want to continue to grow the value of your practice or firm as part of your succession plan, I’d argue that the most productive use of time is not spending it with current clients, it’s attracting new ones.

With an eye toward growth, some principals hire a younger adviser and then expect that adviser to find new clients.

This is lunacy. Expecting a 25-year-old newly minted CFP to somehow find new clients is unrealistic. Most don’t know the first thing about marketing. And tactics such as cold calling that you probably used to get started 30 years ago don’t translate well into the present day.

A superior approach, and one that would truly impact the value of your firm, is to bring on an associate adviser to service the bulk of your existing clients so that your time is freed up to use your good name and community contacts to find new clients.

One big reason that most advisory firms eventually stall out and stop growing is because it takes a lot of hard work to keep it going. Spending time with clients who love you is easy. The hard work is converting that skeptic you meet at some function into choosing to work with you.

Are you truly interested in growing the value of your firm? Choose an associate, transition the bulk of your clients to them, and redirect your time and energy into business development.   

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $15 billion in AUM.