Scaling their business may be top-of-mind for many advisory firms, but that’s not always the right way to proceed, according to financial advisor and industry blogger Michael Kitces.
“Some of us are more inspired by the dollar, some of us are inspired by the size and the impact and some of us are inspired by waking up every day to sit across from clients and have those conversations,” said Kitces, head of planning strategy at Buckingham Wealth Partners, a private wealth management and advisor TAMP platform based in St. Louis that oversees around $50 billion in client assets.
Kitces, who’s also a co-founder of several firms including XY Planning Network, said “the whole essence of success is that it’s the accomplishment of a particular aim or purpose that we get to define and set for ourselves.”
In a report published in November, Cerulli Associates said scaling will be the “primary” driver of success in the RIA industry. “Over the next decade, the chasm between the at-scale, enterprise registered investment advisors … and smaller, lifestyle practices will only widen,” according to the research firm.
Yet Kitces proposes three different models for firms to consider:
Citing the sociological concept of Dunbar’s number — a suggestion that a person can maintain stable relationships with 150 people — Kitces has said on his blog that for advisors, that includes clients.
“The nature of being a financial advisor involves some pretty intimate relationships with clients,” Kitces said at the conference.
“The whole point of the advice relationship is not just your name and a phone number or an account number that comes up on my screen. I know you, understand your needs and circumstances, give you personalized advice and can anticipate challenges in the future because I understand your past. Because of the depth of that relationship, I can only handle so many of them,” he added.
Kitces said client relationships “live pretty much at the level of what we would call our casual friends because that’s about how well we know our casual friends and understand their circumstances.”
And for that reason, clients “start crowding out that group of about 150 people that we can know as our casual and ongoing friends,” he said.
With this in mind, firms must assess their goals as they approach having 100 clients, Kitces said, noting that’s the time to “take a moment and think about” their vision for success. “Do you want to be a solo advisor, do you want to be a multi-advisor boutique, or do you want to build an enterprise?”
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