This Framework Can Help Build Economies of Scale in Your Advisory Firm

Kenton Shirk
Kenton Shirk

03.08.23 in Marketing & Practice Management

Estimated Reading Time: 4 Minutes (658 words)

a framework of connected lines

It may seem ironic, but the more successful your financial advisory firm is (think more than $1 million in revenue per lead advisor), the more challenges it could face. One of the biggest challenges may be managing a growing client base while continuing to deliver personalized service to each client.

As your firm approaches a critical point like this, short-term problem-solving often gets more attention than strategic planning and business development. Yet when you neglect these core disciplines to meet current demands, you run the risk of sacrificing future potential.

How can you stay on track and maximize the resources you have? Conduct an in-depth audit of the activities that drive productivity in your advisory firm. Where can you improve? What changes do you need to implement? This work will help you build economies of scale that can position your firm for continued growth in the years ahead.

The following framework can help you get started.

Measure Productivity Across the Firm

First, you'll want to measure your firm's overall productivity compared with that of your peers. Revenue per head count is a great metric to use, as it reveals the performance of your entire business.

Revenue per Head Count Calculation
Revenue per Head Count Calculation

According to the 2021 InvestmentNews Adviser Compensation & Staffing Study, the median revenue per head count for independent firms is $284,250. This means each person at the firm, regardless of role, can support that much in revenue.

Lay the Foundation to Support Your Next Level

With this baseline in hand, it's time to lay the foundation that will help get your advisory firm to the next level. It starts with strategic focus and alignment.

Focus. A firm with strategic objectives for growth knows what priorities to focus on. Be careful, though: If you chase too many initiatives or pivot constantly to embrace the latest idea, your firm may struggle to gain traction. Your best approach is to create a hierarchy. This process will identify which strategies the firm should pursue—and which ones shouldn't be priorities in the immediate future.

Alignment. When firms operate with exception processing, where advisors or staff take different approaches to accomplish tasks, they can derail efforts to scale. While striking a balance between autonomy ("my way") and scale ("the firm's way") is challenging, it's critical to this process.

Consider your investment philosophy and methodology. If it falls into the "my way" category for you and every other advisor at your firm, it would be useful to come together and establish a consistent process across the firm that everyone can embrace.

Establish a Business Infrastructure Built to Last

A sound business infrastructure is one that is self-sustaining, operating without overreliance on a firm's lead advisors. It has the added benefit of maximizing the time you can spend with ideal clients, thus amplifying your own impact and productivity. But where do you start?

There are three critical actions at the heart of building scale:

Proactively evaluating your firm's core processes will allow you to quickly identify opportunities to be more efficient, offer a better client experience, and operate with greater consistency. This requires time and commitment across all owners, advisors, and staff who are involved with and affected by the respective process.

Here, conducting a process-mapping exercise can be especially beneficial in helping you visually analyze the steps involved and identify opportunities for improvement. You might look at how you onboard clients, for example, or how you prepare for annual review meetings.

You might also consider creating a more consistent and organized approach to client segmentation and your service model. Average revenue per client is highly correlated with firm productivity. So, segmenting your clients based on both revenue generated and qualitative factors is a valuable exercise.

You can then prioritize the highest-impact (but time-consuming) services for your ideal clients and emphasize more scalable options for nonideal clients. For example, you could offer to meet with the children of your A clients but provide only educational content for other segments.

As a firm grows, lead advisors need to shift their focus to client interactions, business development, strategic oversight, and leadership. To do so, you’ll need to improve your delegation skills. Several key actions come into play here:

  • Determine what you can outsource. Some firms outsource the management of model portfolio implementation. At Commonwealth, advisors can access our fee-based Preferred Portfolio Services® platform, as well as a range of other outsourced business solutions.

  • Maximize delegation of activities across the firm. As firms evolve, roles and responsibilities often become ambiguous, which can be confusing for employees. This is especially true when firms experience growth spurts or unexpected turnover among tenured staff.

  • Consider adding senior-level positions. Large firms with sizable resources often add management positions and other highly skilled roles, allowing lead advisors to focus more on clients. By hiring a chief operations officer, for example, you could delegate operations functions and management responsibilities.

Technology is a critical lever for building efficiency. It is especially powerful when it has been thoughtfully integrated with your firm’s core processes (organizing) and fully adopted by the people in the organization (delegating). Training relevant staff and advisors on both the process and the integrated technology can elevate the odds for successful adoption.

Taking these actions can help institutionalize how your business operates, allowing you to increase advisory capacity and streamline efficiency. Perhaps most importantly, they help ensure that your firm delivers a consistently great client experience.

Turn a Successful Firm into an Exceptional One

The above framework can be a powerful tool to help you assess opportunities when building economies of scale in your financial advisory firm. As you work through your growing pains, be sure to adjust your business practices to help you operate at maximum efficiency. With a strong and scalable infrastructure, you'll be able to achieve an extra dimension of performance that can turn a successful firm into an exceptional one.

Of course, there are other growing pains that firms of every size will experience as they add to their client base. Here, a Commonwealth advisor discusses how he overcame some common obstacles and shares his secrets to success.

Editor's note: This post was originally published in March 2020, but we've updated it to bring you more relevant and timely information.

This material is for educational purposes only and is not intended to provide specific advice.

Please review our Terms of Use.


Enjoy thought leadership from some of the most respected, seasoned professionals in the industry.