One of the great pleasures of doing the work I do is having the opportunity to work with people who are far smarter than I and nice enough to share their knowledge.  This week I'm so pleased that Kelli Cruz is contributing a guest post that breaks down how team structure ties into your growth strategy. Kelli is the founder of Cruz Consulting Group and consults with advisors on how to build their talent wealth. Take it away, Kelli...

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Your strategic plan, your organizational structure, and your people practices in combination with your operating systems are the necessary elements that drive the growth of your firm. The key foundation to building any business is to ensure you have the right people doing the right things. Building your business strategy first gives you the clear understanding of what you are delivering to your clients and how you want to deliver that service through your organizational structure.

The Questions You Need to Answer

By answering the following key strategic questions you begin to understand the characteristics of your organizational structure and can make informed decisions regarding whom you hire, in which roles, and ultimately how you structure the team.

1. Who are your target clients?

What are their advice and service needs? What does the desired client experience look like? A client-centric business model like the advisory business necessitates a service and advice offer built around the needs of your target clients.

2. In order to deliver to your target market, what skills will your team need?

How will your team ideally work together to deliver the desired experience to your clients? Are there any working styles that will better suit your target market and foster the desired culture and experience you want in your firm?

3. What levels of revenue and profit are you seeking in the 1, 3 and 5 years?

The financial plan needs to be determined so you can plan how many new clients you need to introduce to the business every year and the revenue required from existing relationships to sustain your cost structure. Setting financial goals will better enable you to plan the number of new team members you need and the functions needed to service your desired number of clients.

The Three Core Business Models

There are three basic types of business models found in advisory firms that describe the roles in the organization and how the products and services are delivered to the end client. There are pros and cons to all models but by far the team-based culture of the ensemble service model is where we see the future growth for the industry.

• The solo model is defined as an individual practice with one professional (the advisor) and one or multiple support staff such as an administrative assistant(s) or client service administrator(s). The practice benefits from the high touch of the owner and the reputation of the firm is tied to this principal. The characteristics of the solo firm; control, flexibility, and the potential to earn a high income, make this business model the preferred choice for many advisors throughout the life cycle of their practice and career. Add to this that most advisors I have met did not get into the advisory business to manage people, so the simple organizational structure of managing very few staff members is very appealing. However this model is very limiting as all of the burden is on the solo advisor to build the business (find new clients) and provide client service (retain existing clients); therefore the future valuation of the firm will likely be less.
• The silo model is a combination of practices that have multiple professionals/advisors that maintain their own book of clients (so clients belong to the individual advisor and not the firm) but share overhead expense (office space, technology, support staff). Compensation or income is derived largely from his or her own client base. There is little or no sharing of the bottom line profits and there is limited opportunity for joint initiatives or strategy. These structures are hard to scale, operate inefficiently and provide no real opportunity for a career track for staff or a succession plan for the advisors.
• The ensemble model is a multi-professional business that delivers products and services as a team utilizing pooled resources and profits. Clients are shared and are viewed as clients of the firm. Compensation is based upon this concept so typically it is in alignment with the firm’s overall strategy and goals & initiatives. Principals are able to spend more time with clients by pushing down accountabilities that can be completed by junior team members, better utilizing their time for new business development (something I hear every firm claim they need more time to do).

The Future of Team Structure

The ensemble model enables flexibility where various team members within a firm can be brought together to work on clients based upon both their capacity and their skill set. This means that where an individual has a technical strength that would be beneficial to a client, they can be utilized.  Ultimately that results in better support and service to the client. Resource utilization tends to be greater in a flexible team model as opposed to a silo or individual approach where the experience delivered to the client can be limited. The clients become more accustomed to dealing with a number of team members and are not wedded to discussing all matters with the principal. This means that simple client requests can now be managed appropriately down the line, again increasing capacity of the principal to focus on other revenue generating activities. Clients will also feel the benefit of getting access and support in a timely manner.

The Critical Role of Career Path

The client-centric team model provides a much needed career path, and if implemented successfully will help to attract and retain key talent and potentially lead to an internal succession option. This model lends itself nicely to adding new partners over time with increased responsibility and increased revenue. In my consulting practice we find firms that are operating in the silo model want to move towards a team or ensemble structure.

A Case Study

One of our past clients came to us for help because she realized that her organizational structure lacked scalability. As the founder and sole owner of an RIA doing $2.8m in revenue, she was wearing too many hats; CEO, rainmaker, lead advisor, manager and had reached capacity. She had virtually stopped bringing on new clients and new revenue. The existing organizational structure consisted of two senior advisors who had responsibility for servicing her existing book of clients and not generating new revenue. We recommended moving to an ensemble structure by hiring a junior level advisor to create a team approach to servicing the clients. This created leverage and capacity for the senior advisors to free up their time to develop new business. In addition she hired a dedicated manager in the role of Chief Operations Officer (COO)/Operations Manager to help her run the firm on a day-to-day basis and help with strategic growth initiatives. Additionally the COO recruit is a potential future owner and internal successor as she plans to begin existing her role part time in the next 5-7 years. One of the most difficult questions regarding the organization structure that our clients and many advisors struggle with is:

“When should I make my next hire before I reach capacity, or after? Should I hire an experienced advisor with a book of clients, or invest in a junior person that I can train in our way of doing things?”

Remember staff additions are most effective when they contribute to greater leverage at the advisor level, freeing up a professional's time to work directly with clients and prospects. Depending on where a firm is in its evolutionary stage (solo, silo, ensemble) and chosen practice model, among other factors, leverage will look different for different firms, but this overall concept holds true for the industry.

The Big Concepts

In closing, regardless of your current organizational structure the following concepts are important for you to consider when designing your organizational structure for growth.

‍1) Increase role clarity with your team. With greater role clarity and focus team members know their role well and become more competent and productive in the way they approach their work.

‍2) Define the functions and create job descriptions, and clear goals so that each person on the team knows what is expected of them to be a successful contributor to the firm.

‍3) Increase the specialization and the depth of skill that is needed to deliver to your clients. Ensuring that every advisory position can focus on the delivery of advice and revenue generating activities will drive growth in the firm.

‍4) Building the necessary management capabilities and adding dedicated management with the right skills set will create greater capacity and leverage for the advisory roles.

‍5) If you are building an advice and service business model then every team member should be focused on delivering advice and service. Even your support team should be externally focused on the client relationship and should understand how their role is supporting your firm’s preferred client experience.

Kelli Cruz is the founder of Cruz Consulting Group in San Francisco.

E: Kelli@CruzConsultingGroup.comT: 415-381-2087