Important Tips for Building a Durable Practice

Registered investment advisors (RIA) frequently espouse the virtues of long-term investing to clients. When comes to building their practices, they should heed that advice.

Of course, as is the case with investing and portfolio management, there are right and wrong ways to go about building a practice for the long haul. Of particular importance for advisors that have been in the industry for a while and are either looking to extend the life of their practices or ready for a sale, the strategies and tips that worked years ago may not be applicable today.

Translation: Advisors that want to grow practices and ensure longevity need to be open to fresh approaches, which can pay dividends over the long-term. Some solid starting points that don’t require costly, upfront outlays include focusing on diversification and improving soft skills.

Why Diversification, Soft Skills Matter

Michelle Lynn, Global Head of Data Science and Insights at Bloomberg recently highlighted the value of advisors embracing diversification and the importance of improving soft skills.

“Generally speaking, the advisors we surveyed don't believe their firms have made enough of an effort in recruiting from more diverse backgrounds. If you’re a young, successful woman of color looking for an advisor, you will be hard pressed to find one who looks like you or who understands your needs more deeply. I think that’s a real mistake if you hope to monetize your business and keep it growing,” said Lynn in an interview with FlexShares.

Advisors should remember that diversification takes many forms. There’s the obvious – race and income. Then there’s demographic diversification, which is to say advisors that want to grow their practices shouldn’t focus solely on one specific age group.

Still, there’s practicality in traditional forms of diversification. As just one example, various data and surveys indicate female clients are more comfortable discussing financial goals and problems with other women, implying that male-dominated practices might do well to add more female advisors.

As for soft skills, this may seem to be an elusive target for some advisors, but whether they realize it or not, they’re probably already deploying these skills and these traits are prized by clients, particularly in rocky market environments.

“Volatility, uncertainty, and down markets are opportunities to reassure, support, explain and guide. I think advisors who lean into those ‘soft’ skills tend to benefit in terms of retention, referrals, and attracting new business,” Lynn told FlexShares.

Balance Is Essential

Many advisors are striving to build holistic practices, offering investors services such as estate planning, tax strategies and many more. That’s a good thing in terms of growing revenue and potentially getting more clients in the door, but it also emphasizes the need for balance.

Said another way, advisors can’t do it alone and it’s not even worth trying to go solo because being “just OK” at a lot of services isn’t good enough for increasingly demanding clients.

“An overextended advisor is a less effective (not to mention unsatisfied) advisor. What’s more, the pressure is simply not sustainable over the long term. FlexShares’ 12-year research study, The Race to Scalability,  sheds light on the ways advisors are scaling their practices. For many, that includes taking advantage of outsourced solutions, whether that's outsourcing investment management functions, compliance, or marketing, to give them more time,” concludes FlexShares.

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