Advisors: To Grow Your Practice, Focus on 'Filling the Bucket'

Note: This practice management article for advisors was originally published on MorningstarAdvisor.com. Learn more about Morningstar’s products and services for advisors.

Business owners naturally focus on costs and expenses to maximize profits. Salaries, rent, the cost of benefits, and other normal overhead expenses remain relatively fixed during any given year. But rather than fixating on expenses, think of these as holes in your budget bucket. Instead of obsessing on trying to keep these costs as low as possible, focus on filling the bucket.

We recently had a billing snafu with a vendor. They failed to process a payment and hit our account with $35 in penalty and interest charges. Our accounting service and two employees spent several days and endless emails and phone calls to get it resolved.

I thought about how much time and effort we spent to save $35, and I realized how wasteful we had been with our time. My employees could have been scheduling client meetings for our advisors. Our accounting service could have been fine-tuning our budget for 2017 and working on the business metrics I need to evaluate our firm's profitability.This led me to wonder where else we were focusing on the wrong things.

I had the opportunity to spend some time over the holidays with a business turnaround expert from Australia. He described a recent project where he took a struggling company and doubled its sales in less than a year. I asked if he had to replace most of the staff to accomplish this, and he said no, the staff was fine; they were just focused on the wrong things.

Needless to say, after my $35 fiasco, he had my full attention. The owners realized their sales were dropping, so they went on a cost-cutting mission to maintain profitability. They suspended advertising, reduced the expense accounts of their salesforce, and cut support staff.

It sounds so foolish, but it is a natural reaction when cash flow drops to focus on cutting expenses. We all do it personally; it is how households work. But it is absolutely the wrong thing to do in a business.

When I asked how he turned them around, he told me about "filling the bucket." He restructured the compensation of the salesforce to reward the highest producers. He increased their expense accounts for meals and entertainment of clients and prospects and penalized those who did not spend their monthly amounts. He forbade them to eat lunch in the office or with each other. He brought back the support staff for the sales department and all but banished the salesforce from the office. He wanted them meeting prospects for morning coffee, talking business on the golf course, and taking good clients and referral sources to dinner.

He told me that the entire company exists to support the salesforce before, during, and after the sale. Time that a salesperson spends fixing a client issue is time not spent finding and closing another sale. Creating proposals and implementing the company's solutions are tasks that support persons should be doing--not the salesforce.

Adapting the Bucket Idea to an Advice Business I described our business of providing financial planning and asset management services. I explained that our salespeople, aka wealth managers, were responsible for sourcing new clients and providing the actual services of the firm.

Big mistake, I was told. Those wealth managers who can source and close new business should be paired with a support advisor who gradually takes over the client relationship and provides the ongoing service.

You can imagine all the objections I gave him as to why this would never work. The clients we bring onboard want to work with the initial wealth advisor. Our support advisors aren't experienced enough or senior enough to satisfy the client. Our real work is the ongoing advice, not just business development, etc.

Baloney, I was told. Many service businesses thrive using a model of initial service by one person or team and then migration to a permanent service team. Using a good CRM system allows the initial wealth advisor to stay in the loop with key clients without having to provide the actual day-to-day service. If the support advisors aren't strong enough, train them or hire more experienced staff. If wealth advisors capable of closing business are performing any administrative or operational functions, remove those duties immediately.

In a small firm, the senior wealth advisors must wear many hats, I explained. They can't just focus on new business development. Portfolios have to be managed, financial plans have to be created, client problems have to be solved, and so on. His response was that in a small firm, there was likely just one or maybe two advisors really adept at sourcing and closing business. The challenge was not only to identify them, but instill a culture of supporting them so they could concentrate on "filling the bucket." Compensation needs to be aligned with responsibility and performance. Much will be provided to these business-development leaders, but much is expected as well.

His best advice was a very clear delineation of roles within a firm, even a small one. If portfolio trading was not one of a senior advisor's roles, then they needed to keep their hands off. The people responsible for trading need the tools and the authority to make the best decisions possible. Same goes for client service. Give them both the tools and the authority to make decisions. When problems arise, and they will, let the staff responsible develop the solutions.

This level of delegation is difficult for many small business owners, but it is the only way for those capable of filling the bucket to get out there and do it.