Over the past few decades, financial advisors have explored new ways to structure, build, and grow successful businesses alongside a growing acceptance that "successful business" can be defined in many different ways. Nevertheless, while firm owners have a variety of options available for structuring and building their businesses, the reality is that they can only prioritize a limited number of goals at one time, which then begs the question – how can firm owners navigate the options of work/life balance, margins, and firm growth to set and build their businesses to fit their goals?

In our 144th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can navigate the "calculus" between growth, time, and margins to define success on their own terms, then build a firm to fit their vision.

While "success" for an advisory firm can mean several different things, certain commonalities continue to crop up as firms develop: namely, that not all types of growth are possible at once. In the quest to develop and individualize their businesses, advisory firm owners eventually reach a crossroads where they must choose amongst the continual fast growth of the firm, high margins, and the amount of time an advisor puts into the business. And while some firms strive to have all 3 of these features, the reality often comes down to "choosing 2" (e.g., an advisor can have high margins and high growth, but it's extremely difficult to do so while also working a low number of hours).

This "choose 2" dynamic lends itself  to 3 kinds of advisory firm owners: enterprise firm owners, who maintain high margins and high growth, but put in longer hours to maintain both of those goals; lifestyle firm owners, who can put in fewer hours with higher margins, but sacrifice high growth to ensure they don't exceed their own capacity; and boutique firm owners, who have high growth and work fewer hours at the cost of lower margins – often because they are more mission- and purpose-driven, and thus may choose business initiatives that are less-focused on 'optimized' business growth.

Ultimately, the key point is that while there are many ways to build an advisory firm, there is no standard definition of 'success', which means that it's up to firm owners to decide which metrics they want to prioritize in order to build the type of firm that matches their personal and professional goals!

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About a decade or so ago, one of the most pressing issues facing the financial advice industry was the threat of an imminent deluge of advisor retirements coupled with a paucity of succession plans to transition clients to the next generation. While that scenario has yet to materialize as initially feared, the fact remains that transitions do occur on a regular basis, often as older advisors either sell their practices in one fell swoop or gradually offload part of their book while still staying engaged with a smaller group of core clients. In reality, the process of transitioning clients from one advisor to another is often challenging, especially when the legacy advisor and the next-gen advisor approach financial planning from different angles.

In our 143rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards explore the ways that next-gen advisors can navigate transitioning clients who may be accustomed to a more quantitative approach to financial planning, the 3 dimensions that the legacy and next-gen advisors should have alignment in order to increase the odds of a smooth transition, and the importance for advisors to ensure that they have some flexibility if not all of the transitioning clients turn out to be good fits.

As a first step towards making a client's transition away from a legacy advisor – particularly when the paired advisors have different communication and/or planning styles – as smooth as possible, the next-gen advisor might seek to replicate the legacy advisor's meeting structure and agenda in order to keep clients on an even keel. In an ideal world, the legacy advisor would participate in that meeting as well, chiming in as needed to reassure that the client is in capable hands. And, as a way to begin building rapport and trust, the next-gen advisor could reserve a few moments at the end of the meeting to introduce some of the foundational questions meant to establish a deeper relationship, including such hits as "Why is money important to you?" or "Is there anything that's top of mind right now that maybe we haven't addressed yet?" From there, the next-gen advicer could wrap up the meeting by reassuring the client that they've been heard and suggesting that whatever their answer was would be a framework for subsequent conversations.

In practice, even before a transition is initiated, advisors should give careful consideration to 3 broader planning dimensions. Specifically, the odds that a transition will be successful are increased when the paired advisors 1) have similar fee structures, 2) are aligned on investment philosophy, and 3) aren't polar opposites in regard to communication style. Even then, not every client will be a good fit, making it important for advisors to factor that possibility into the deal structure. For instance, rather than a fixed up-front payment, advisors could make an initial payment that's 60–70% of the total price, with the final 30–40% contingent on at least 90% of the revenue still being there a couple of years down the road.

Ultimately, the key point is that a next-gen advisor doesn't have to be a carbon copy of the legacy advisor or adapt their styles indefinitely to facilitate a smooth client transition. It does help, though, to keep transitioning clients on familiar ground, at least initially, and then gradually introduce new ways of framing the relationship and initiating meaningful conversations around money. And as an added bonus, the next-gen advisor can even offer the client the opportunity to reset by asking how they'd like the relationship to work. Because, at the end of the day, what matters most is doing work that is most meaningful for the client and that helps them progress toward their long-term goals!

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