To scale or not to scale? That is the question occupying most conversations in the wealth management industry these days.
With all the noise surrounding growth and mergers, it’s only natural for an independent RIA business to want to take advantage of the moment to increase revenue. Before you take the leap, consider these three factors as you plan to scale up your RIA business.
1. Business Management Skills
Being a business owner and an expert in the financial industry does not automatically make you a good business manager. Scaling up means more people to manage, more processes to oversee, and more technology to navigate.
Business owners need to make a brutally realistic assessment of themselves and their management skills. Efficient business managers have a strong knack for strategic planning, enforcing accountability, and balancing a diverse set of operational efforts from HR to IT to compliance.
If you’re not checking these boxes, then you need to identify someone on your team who is, hire someone with management expertise, or outsource some of these functions. Otherwise, you may want to consider other ways to boost revenue besides scaling up.
2. Cost-Benefit Analysis
The goal of scaling up is to increase revenue potential. However, the process comes with additional operational costs. Your business might certainly make more money over time but your bottom line may stay the same with the added administrative costs.
Exercise a fundamental business practice and run a cost-benefit analysis. Through this process you may find holes in your plan that can be corrected to achieve your revenue goals. You may also discover that the best path forward is not scaling up, but rather tweaking your current business practices for better efficiency.
3. Current Talent Pool
Business owners need more than just motivation to scale up. They need a solid financial team to go along with them for the ride. Consider assessing your current talent pool to find strengths among the team that can be utilized in the business’ new configuration.
Make sure your advisors are ready for a culture shift from a boutique firm to a larger operation. It’s also important to evaluate your team’s client load relative to the quality of services provided.
Depending on your plan, scaling up can potentially overload each advisor with new clients or mitigate that load by hiring more quality advisors to maintain a high quality of service. If hiring more advisors is a part of your plan, you will need to determine if the firm has the resources to attract the right talent.
Scaling up your RIA business is not for the faint of heart. It requires a lot of strategic planning and hard work to make those tantalizing revenue goals possible. Before jumping on the industry bandwagon, pause to make a thorough and honest evaluation of your management skills, the cost benefits of scaling up, and your current talent pool. Scaling up may be the right choice for your business but it’s not the only way to gain new earnings.