Picture your wealth advisory business in five years: Is it just you? Or are you leading a large firm with a lot of advisors and support staff? Perhaps it’s something in between? Most importantly, are you building a firm or a practice?
Articulating this aspect of your vision is an important first step, as it will help you navigate all the decision points you’re facing. There is no right answer, only that which is right for you. To help you make an informed decision, consider the implications of each.
Building a FIRM: The benefits of a growth business
Building a firm requires thought, planning, and importantly – reinvestment in your business. This could look like a lot of different things – hiring seasoned advisors, hiring junior staff, expanding your service offering, even making acquisitions. If this is done effectively, the financial sacrifices that you make today will bear fruit in the future, creating wealth for you and your family as well as a legacy that lives on.
Think about these key factors for building a wealth advisory firm:
- Scalability: One of the main advantages of a growth business is its potential for scalability. By making key investments in infrastructure, hiring additional staff, and expanding your client base, you can significantly increase your revenue and ultimately enterprise value. Larger, profitable advisory firms command higher valuations.
- Legacy: If you have a growth mindset and aspire to leave a lasting legacy, a growth business may be the right choice for you. Building a successful practice that can be passed down to future generations can be immensely rewarding.
- Enterprise value: Interestingly, the decision to build a high-growth business will most likely mean making a trade-off between income and down-the-road value. As your business expands, you can leverage economies of scale to increase the attractiveness and value of your firm to the acquirers of wealth businesses.
- Professional development: Growing a business may bring with it the opportunity to attract, hire, and retain top talented individuals who would like to be part of something bigger or with greater upside potential.
- Time commitment: Building a firm is not for the faint of heart – it requires an investment in your time and commitment to the cause.
Not everyone aspires to be a business builder and that’s okay. Perhaps you pick up a referral or two each year. You are focused on optimizing your current cash flows as opposed to building for the future and amassing wealth.
Building a PRACTICE: The benefits of a lifestyle business
While a lifestyle business does not afford the same potential to build wealth as that of a growth firm, it affords the owner with greater current earnings and the potential for an enhanced life experience.
Think about these key factors for building a wealth advisory practice:
- Autonomy: As the owner of a lifestyle business, you have the freedom to make decisions independently. At the end of the day, you call the shots and are afforded the opportunity to shape your practice according to your vision.
- Work-Life balance: A lifestyle business provides the founder the opportunity to set their own schedule and potentially to allocate your time to pursue interests outside of the office.
- Deep client relationships: As the pursuit for the next client or the next dollar falls lower on your priority list, you are afforded the opportunity to focus on deepening relationships with your clients. Delivery of personalized advice and guidance can help clients achieve their financial goals while allowing the advisor to build a personal connection.
Choosing between building a “firm” or building a “practice” is a personal decision driven by your own motivations and goals. A lifestyle business offers autonomy, work-life balance, deep client relationships, and the promise of strong earnings potential. On the other hand, a growth business offers scalability, legacy, increased enterprise value, and the allure of professional development to attract high potential talent. Consider your long-term aspirations, personal inclination, and the stage of your business to make an informed choice.
If you find yourself at a crossroad, consider yourself lucky. You’re winning, as both options are great. At the end of the day, what matters most is finding a path that aligns with your personal values and aspirations. Oftentimes, when you find it difficult to work through a decision like this – it makes sense to reach out to a third party for an unbiased opinion. MarshBerry would be happy to help.
If you have questions about Today’s ViewPoint, or would like to learn more about how MarshBerry can help your firm determine its path forward, please email or call John Orsini, Director, at 440.220.4116.
Investment banking services in the USA offered through MarshBerry Capital, LLC, Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, LLC, 28601 Chagrin Blvd, Suite 400, Woodmere, OH 44122 (440) 354-3230