A former colleague of ours who moved on to a new role developing strategy at one of the UK’s leading wealth management firms introduced us to Simon Sinek’s book Start with Why.¹ His book proved to be a powerful catalyst to begin asking every advisor we meet about their why.

The query itself may remind us of the insistent and annoying strings of questions we hear from young kids, but forcing an answer gives clarity to our decisions. Too often in business, we hear people tell us what they do and how they do it. There is a heavy emphasis on the mechanics of what we do. But rarely do the answers touch us emotionally. Ultimately, we need to understand why we should care.

Imagine that your prospects, clients, employees, and vendors are asking the same questions about you. How would you respond?

This is your mission should you choose to accept it:

• Why do prospects come to your firm and why should clients stay?
• Why do employees join your firm and why should they stay?
• Why do you believe your business exists?

These questions prove very hard to answer for many. We have a tendency to respond with features and benefits. We emphasize what we do rather than who we are. We don’t talk about the communities we are connected to, but the solutions we provide. When you think about it, anytime we hear others prattle on about their business in a way that sounds remarkably familiar, our eyes glaze over. Almost every advisor’s website says something like, “We provide comprehensive wealth management tailored to your needs.” That is truly yawn-worthy, isn’t it?

What Sinek believes is that great companies don’t lead with the “what and the how,” but an unyielding belief in their purpose, their mission, and their cause. He says, “People don’t buy what you do, but why you do it.”

When I read Sinek’s book, it remined me of Vidal Sassoon’s old tagline, “If you don’t look good, we don’t look good.” At the time, Vidal Sassoon was a company leader who believed that no matter who you were, you had a right to look your best, and they created offerings to help you accomplish that goal. That resonant tagline and the philosophy that inspired it disappeared after the company was sold to a soulless corporation with the purpose of selling hair products.

Consider the businesses you patronize most frequently. Why do you choose them? Why are they so compelling? Do you feel you are getting a special value or that they are making you feel a certain way? Do you feel they have somehow connected with what you believe? Using Apple as an example, Sinek says they are a computer company just like other computer companies. But what makes them such a powerful force is their core belief that in everything they do they want to challenge the status quo. They want their people to “think different.” You don’t hear them talk about power, speed, or size. In fact, their products look quite similar. Yet try to get near an Apple store on a weekend.

When we polled the leaders in our firm about companies they love, their answers ranged from Zappos to a local restaurant to Nordstrom. Interestingly, none of them mentioned their own financial advisory firm or the bank they use. Rather, they were responding viscerally about what makes them loyal to these businesses, and why they were passionate advocates for them. As one of our colleagues put it, “It’s all about how they make me feel.” According to Sinek, this gut decision is a giant driver of behavior that seems to defy logic, data, and facts.

But many companies are still focused on the how and what, instead of the why that provides a reason for these organizations’ existence—or why anyone should care. In professions like financial advice, most practitioners are doing the same thing in the same way, so differentiation is hard to come by. Advisors will often claim not to have any competition, but what they never see are all the people who’ve opted not to call them at all.

It may be helpful to understand why prospects choose not to do business with you, or even consider your firm. What makes them pause and say, “It just doesn’t feel right.” If you don’t know why you do what you do, how will your clients?

When we think about the many advisory firms we have visited over the years, we have vivid recollections of both the positive and negative experiences. While we weren’t clients or prospects, our interactions gave us a glimpse into the first impression they make on those all-important people. There were advisors who had our names on a welcome sign, whose receptionists came around the desk to greet us warmly. Other places were well prepared to make us feel special with fresh fruit, bone china cups, and espresso machines at the ready, giving us something to enjoy while we reviewed professionally produced handouts and videos that allowed the advisors and staff to do clever presentations. In contrast, there were also firms with hovel-like offices, whose receptionists didn’t know who we were or why we were there, and whose staff moped around in all forms of grumpy poses. More often than not, those were also the firms who served bad coffee in paper cups.

On reflection, it’s compelling to think about the lasting impact those first impressions made on us. Clearly, the superficial elements by themselves will not engender loyalty or even passion if the rest of the firm’s messaging is disconnected from the beliefs of the target client. Had we been prospects of those welcoming advisory firms, we would still want to find a connection at an even deeper level.

One of the most telling comments in a study we did several years ago about women and investing was: “My advisor does not make me feel smarter. He doesn’t teach me anything. He talks down to me.” No wonder the statistics show a tendency for female clients to leave their advisor after their husbands croak. The conclusion is that many advisors never felt that their purpose was to help their clients be financially literate, better informed, or more in control of the decisions they had to make.

A good example of a firm that is connected to the why is Personal Capital, a digital advisory firm that crossed $2 billion in assets under management (AUM) in less than four years. The company’s CEO, Bill Harris, believes the core of their business is simplifying financial lives through technology and people. Allowing clients to be in control of the communication with their advisor indicates that they are also in control of their financial destiny. If they want to connect through FaceTime at 8:00 PM, that’s not a problem. How about a monthly Skype session? E-mail? Chat? Phone? Okay, okay, okay, okay. The client dictates the terms of communication because Personal Capital believes that interaction with one’s advisor is at its best when it accommodates each client’s preferences and schedule.

Advisors who connect to their why are those who can articulate their purpose clearly. For example, they may express their mission as one of helping individuals to make an impact with their investments, to build wealth to spread wealth, or to help people take control of their personal financial lives.

When Michael Gerber wrote The E-Myth about how entrepreneurs not only survive but thrive, he made it clear that very few successful business owners were driven by the desire to own or operate a company. Most times, they started because they had an idea that could change the world, enhance the lives of others, or tap into their passion. Not one of the successful entrepreneurs whom he interviewed said their motive for starting a business was to make a lot of money.

For advisors, there are many great drivers to latch on to, but perhaps the most profound is the opportunity to affect the lives of others. Now is your chance to translate why you do what you do into a compelling draw for both employees and clients, in a way that truly separates your firm from every other financial solution provider.

Vision, Mission, Goals, Objectives

Once owners of advisory firms have developed a deep and cogent expression of their why, they must develop a process for turning this purpose into strategy and action. The best-managed firms demonstrate strategic discipline. The need to have a framework for making decisions is especially important now when we are experiencing a rapid rate of change.

New assumptions and new challenges have emerged since you last looked at your strategic plan, and upon assessment, you may have found that not everything you set out to do in the current plan was completed. Additionally, competitors may have introduced new innovations or tactics that could threaten your business and new opportunities have likely emerged.

For financial advisors, it’s easy to assume that the business is much simpler and not much has changed over the course of a year. But experience tells us this is delusional thinking. On the one hand, if your practice is one that is not growing or evolving, chances are the seeds of destruction were planted long ago. On the other hand, if your business has been going through dynamic change, including rapid growth, the risks to your business could be growing exponentially as well. It’s possible your efforts to get bigger may have caused you to miss new opportunities. It is even more common that pursuit of new opportunities may have inadvertently caused you to alter your strategic course without you even realizing it.

Key to reviewing the basics is to remind yourself of the framework you created for making strategic decisions in the first place. In other words, what’s your vision for what you want your business to become? Did the choices you make throughout the year move you closer to your vision or detract from it?

For example, assume your stated long-term vision was that you wanted your firm to be recognized as the leading provider of comprehensive wealth management to business owners in your region. But most of your growth this past year came from a jump in assets from foundations and retirement plans, so much so that you hired two people to support this activity. Would you say that your investment in the business and your deployment of resources moved you closer to your vision or detracted from it? Furthermore, would you say that this dramatic growth may have even changed the strategic direction of your business?

Many advisors would argue, “Who cares? We grew revenue and we have more assets. Does it really matter where it came from?” If you measure success in short-term movement, it probably doesn’t matter. But if you developed your vision and strategy thoughtfully, based on a reasonable set of assumptions, then your active pursuit of non-core business is like violating the guidelines of your investment policy statement. If you made the same type of opportunistic decision with client money after agreeing to a strategy, how would you justify it?

Now one thing we are certain about is that entrepreneurs, including financial advisors, tend to recoil whenever they hear consultant speak that includes words like vision, mission, and culture. As a result, many firms tend to avoid the time-consuming process of strategic planning and the discipline to implement it effectively. Rather, they deal with issues as they arise. That’s just like your clients who want you to implement an investment strategy without going through the process of goal setting or assessment of risk tolerance. The reality is that it takes just as much effort to tread water as it does to execute a business strategy, so why not do the latter.

A Refresher

In its simplest form, a well-conceived strategic plan has four stages:

1. Strategic plan: the process through which you create a vision for what you want your business to become.
2. Focus: whereby you develop a mission statement that clearly and succinctly articulates what your firm does for whom and how you distinguish your business from others.
3. Assessment: the process by which you determine strengths, weaknesses, opportunities, and threats in light of your vision, and then create specific long-term goals for your firm.
4. Operating plan: wherein you create specific, measurable, actionable objectives to be accomplished in the next 12 months.

It is important to grasp the distinction between strategic and operational planning. The strategic plan tells you where you want to go, whereas the operating plan tells you how to get there. The tactical elements of an operating plan have immediate appeal to entrepreneurs because its action orientation is designed to create an immediate impact, like reducing costs, driving revenue, or increasing profits. When operating plans are created without the context of strategy, focus, and assessment, however, the result is often muddled and resources are poorly allocated.

Once your plan is in place, it is necessary to have a process for measuring and monitoring your progress against the plan. This step is often missed, which is why so many plans sit on the shelf gathering dust.

Where to Go from Here?

The business challenge then is to decide which phase you are in. Is it time to refresh your strategy or merely a time to assess your gaps vis-à-vis the market and the competition? At a minimum, it is a time to update the plan of action for the next 12 months. What is critical is that the action plan—your specific objectives—are specific and measurable and support one of the goals you established in your strategy.

For example, you may have five goals that sound something like this:

1. Increase the amount of revenue from our optimal client (as defined in your vision statement).
2. Increase the number of partner candidates inside our firm.
3. Improve our profit margins.
4. Add more clients that increase the average net worth of those we serve.
5. Enhance the risk management processes within our firm.

All of these are priorities for your business and each of them will require attention in the coming year. When you create an action plan for the next 12 months, if you come up with an initiative that doesn’t help you move closer to any of these goals, then you should discard it. But be careful! You could easily rationalize the goal of improving profit margins without regard to which types of clients you take on board. You need to test your decisions here to make sure that if you take steps to do one thing that it doesn’t compromise another. For example, improving profit margins without regard to whom you do business with could undermine your strategy and force you to misallocate precious resources.

Strategy is not marketing. Marketing is a component of one’s strategy. Strategy is the sum of all your decisions that make up your business from how you structure the business, to whom you hire as employees, to what lines of business you offer, to which markets you serve. The development and implementation of a strategic plan is all about resource allocation. So if your vision is to be recognized as the leading provider of wealth management solutions for business owners in your region, then you have a framework for where you will spend your time, money, management, and energy.

The goals that you commit to then guide you to build an operating plan that helps you capture the right kinds of clients, develop your staff, improve your profitability, enhance your productivity, and protect your firm from damage. A vision for your business that will attract new business, energize you and your staff, differentiate you in the marketplace, and produce a reasonable return is the key to transforming from practitioner to business owner.

Zoom Out and Zoom In

Many businesses are created by accident without a conscious strategy. But as they evolve through their life cycles and more people become dependent on them for products, services, and paychecks, their need to develop a conscious plan becomes more important. This is especially true in the business of financial advice, in which practitioners often use the same language as everybody else to articulate their vision and “unique” proposition.

As described earlier, conventional wisdom is to create a strategy for your business that covers the next five years, and then write an operational or tactical plan that focuses on implementation for the near term, typically one year. The challenge with this approach is that assumptions change faster than your ability to execute them. Much like a suntan, you develop a nice glow for a short while and you then quickly go pale.

So for your strategic plan to work effectively, it is important to implement a process that allows you to be more nimble in periods of rapid change. Momentum has proven to be a great force multiplier when circumstances are changing rapidly.

On several occasions, we have had the opportunity to listen to John Hagel III, cochairman of the Deloitte LLP’s Center for the Edge, who challenged this conventional approach to strategic planning. John has spent the past 25 years in Silicon Valley as a successful entrepreneur and consultant, and he has a giant list of accomplishments easily discoverable online.

John argues that the most effective strategies implemented by the best-performing companies—especially in the technology arena—deploy an approach he refers to as “Zoom Out/Zoom In.” The basic concept is that businesses will benefit when their leaders answer two critical questions and develop “an explicit view” of what the future market will look like. His questions are: “What will our market look like 10-20 years from now? And what kind of company will we need to be 10-20 years from now in order to be successful in that kind of market?”

With the answers to these questions in hand, leaders are able to zoom in to a very short period of time—six to 12 months—to focus on two or three initiatives that he calls “needle movers.” The idea is to accelerate movement toward the longer-term direction.

The challenge with most businesses, he points out, is that they are usually spreading too few resources around too many choices, thereby not affecting any one of them. Accomplishing each of the short-term objectives helps to fund the long-term plan.

But the idea of staying actively engaged around the long-term assumptions is also important because change is a constant. He says that most companies get locked into their long-range plan and do not revisit or challenge their assumptions, and therefore don’t alter their plans. Two examples of this are Kodak and Microsoft, both of which were dominant companies in their markets at one time.

Kodak, he explained, was run by chemists who believed the future of photography would always be in film. Oddly, they were among the first to have a patent on digital photography but they could not get past their bias as chemists to think the way in which pictures were processed would remain relatively constant.

Another prominent example is Microsoft, which felt the need to be the leader in desktop computing, and in fact accomplished that goal. In the beginning, this was a great perspective that gave them focus and allowed them to become dominant in computer operating systems. But as they entered into scores of new business ventures and concentrated their resource development on software applications for the desktop, they became outmaneuvered in the personal technology space by the likes of Apple and Google. In other words, they were excellent at zooming in but lost their ability to zoom out in a way that would help them challenge their assumptions, revisit their long-range vision, and make short-term decisions that would move them closer to the right long-range goal.

Hagel says it is important in this environment to get to critical mass in your market before anybody else. He noted that fast followers are rare and that it is hard to overcome the dominant provider. While the concept may not be immediately apparent to financial advisors, think about how you could localize this concept by created a winning strategy for a key client strategy in your defined market that would not be easily replicated by any other firm. For example, the strategy could revolve around a well-defined market niche, a unique solution to solve the optimal client’s biggest challenge, or a recruiting program that makes your firm the employer of choice for top-performing financial advisors.

Hagel says that most companies can be categorized as one of three: (1) infrastructure management, (2) innovative product development, or (3) customer centric, meaning providing helpful solutions to consumers. He says the worst performers are those who can’t decide which business they are in so they straddle all three. Hagel’s advice: “Unbundle the company. Pick one and be superior. Get out of the businesses you shouldn’t be in.”

In financial services, an example could be a firm that manufactures and distributes mutual funds, acts as a custodian or broker/dealer, and has a direct retail business. Or an advisor who has a retirement plan record-keeping business, mutual funds actively managed by them, and a high net worth wealth management practice.

There are countless other examples but the point is that too much diversification of a business, especially into non-compatible or competing activities, tends to strain resources and retard growth in each of their lines of business. If it takes too long to explain the whole enterprise or even diagram the sentence that describes your business, you probably are badly structured.

Hagel’s comments got us thinking about the many advisory firms we have encountered over the years. The best-performing firms were able to define their optimal client, think in the long term about what those clients will need and should expect from their advisor, and methodically build an offering to respond to that need. Furthermore, they were very attentive to which of those offerings they would own and invest in and which they would rent or collaborate on with other providers. For example, members of M Financial are all high-end estate planning insurance professionals who share a common resource to deliver risk-based financial solutions for complex and high-end estate planning. Individually, they don’t manufacture anything, but collectively, they leverage each other’s expertise as well as the balance sheet and tools of M Financial itself.

The key to an effective Zoom Out/Zoom In strategy is to constantly challenge and inform your assumptions about the business. In this industry, that would include discussions about the impact of regulation, demographics, new methods of competition, investment environment, and emerging client needs. Hagel advises business leaders to take the time to discuss long-view issues in every management meeting, and dive deeper into the issues every six months.

The second key is to think in terms of a six- to 12-month tactical plan around one to three initiatives. Hagel says, “Go fast in short increments.”

Hagel points out that there are two most common failure points:

• You ignore the long term and just focus on the incremental.
• The true believer mindset in which you have a long view that is in stone.

To effectively execute a Zoom Out/Zoom In strategy, it is important to be informed by the facts. The tendency is for businesses to look at financial metrics that are interesting lagging indicators but may not be helpful in understanding trends that could affect you in the long term. The key, Hagel says, is to develop metrics that serve as leading indicators. Examples would include client satisfaction, client turnover, demonstrations of loyalty through referrals, and major sources of business opportunities among many.

The best-performing firms make the discussion around business assumptions a critical part of their regular management meetings and a key way to create ownership in the outcome that you and the rest of your team envision. An effective way to organize this discussion is to look at the trends revealed through the leading indicators. Debate what you believe the implications to be and let that help you inform the direction your business should take and the immediate steps needed to get you on the right path.

Clients of the Future

We spend a lot of time thinking about what will drive success in the future of this business. We know from financial performance studies, for example, that advisory practices are better managed today than they were just a decade ago. We also know they are larger, often more sophisticated, more independent, and more reliant on technology. Yet, something has been nagging at us about the way in which most advisory firms are oriented.

The epiphany came when we realized our view was more about the advisor of the future than the client of the future.

It seems the average advisory practice model has been built around the Baby Boom. The trade press and industry advertisements often state that retirement needs should be the focus of one’s practice, especially if your market is the mass affluent. While the new liquidity created by those born after World War II is substantial, it’s also clear that the wealth of this generation is more in the de-accumulation phase than in the growth phase. In other words, what is becoming available for advisors to manage and charge for are assets that were previously tied up in some other form such as a small business or a 401(k) plan. Now they are being repurposed to fund one’s retirement with the hope that the last check gets paid to the funeral home. . . . And it bounces.

Retirees and pre-retirees can be a great catalyst for advisors building assets under management, but it also puts a substantial brake on how the advisory firm will grow organically.

Two commonly suggested statistics support this argument. First, real rates of return on client portfolios for the foreseeable future are estimated by many to be closer to 4 percent. And the required withdrawal rates for people financing their life in retirement will likely need to exceed 4 percent on average. We will defer to the financial planners whether they feel these rates are within the realm of reason, but few will argue that we are now in an environment in which our assumptions about returns are lower than before and our assumptions about adequate withdrawal rates are higher than previously thought.

Meanwhile, advisors whose incomes are tied to fees based on assets under management could be stuck in neutral or even face decline. Furthermore, the cost of doing business continues to rise, which will squeeze their profit margins and depress their business value.

The resulting pressure is to find more clients with newly liquid assets to offset the withdrawal rates of clients seeking to fund their lifestyle in retirement.

This has not always been the case, of course. While retirement was on the horizon, advisor growth was coming from inflows of assets and market appreciation from this group. For years, advisors could rely on the Boomers as the most important demographic from an economic standpoint that they would ever see. Heck, most advisors are Boomers, so they could relate intimately to their clients’ issues. But if you viewed your client base as a laddered portfolio, you might see that you are layered too heavily in a category that will reach maturity earlier than you may desire.

To help advisors diversify their practices to include Gen X, Y, and Z, Cam Marston of Generational Insights wrote a helpful e-book titled The Gen-Savvy Financial Advisor (2013 Generational Insights). Boomers were born between 1946 and 1964; Gen X clients were born between 1965 and 1979; millennials were born 1980 to 2000.

Marston’s central thesis is that everyone sees the world through his or her own generational filter. While in some cases the differences between generations are minor because of things like religion or where one grew up, in many other cases, the differences are vast and consequently challenging for advisors.

While Marston acknowledges the staying power of the Boomer generation, he urges advisors to consider what they are missing by not retooling to capture their clients’ children and their children’s children. For example, he notes that:

• 29 percent of wealth investors are under age 50 and control 37 percent of potential investment assets.
• Investors between ages 18 and 50 will inherit more than $41 trillion by 2052.
• 86 percent of heirs say they will not use their parents’ advisors.

But the book does not say all is lost. In fact, it goes through a helpful process of identifying the financial traits of each generation, ways in which to connect with members of each generation, and methods to position your business to serve the generations you are most interested in reaching.

For example, Marston identifies the millennial investor as generally well-educated—perhaps the most educated generation in history. They also tend to delay marriage, childbirth, and other adult markers until later. Of course, they grew up with technology unlike previous generations, and they tend to be both individualistic and group-oriented, a contrast that is helpful to understand. Unlike the Gen X investors before them who may be the most cynical of all generations, Millennials tend to be optimistic.

A trait common with members of the millennial generation is that they tend to be friends with their parents, which few Boomers can relate to. The positive result is that they tend to treat people from all generations as equals. Significant for advisors who may think they know all the answers and demonstrate impatience with those who don’t respond to their recommendations, these new clients are not accustomed to being spoken down to. When making big financial decisions, they will likely consult with their parents and perhaps even bring them along.

Marston has contributed much to the discussion around generational differences that advisors and financial services organizations have come to appreciate. With this book, he is both challenging and instructive to advisors who are beginning to think about how they will build a business that will endure beyond them while staying relevant to clients who need their help today. The question is whether you should care.

You should care if you want to create opportunities for your partners and employees, or if you want to build a business with transferable value. You should care if you want to invest in your growth rather than simply focus on harvesting what seeds you’ve already sown. You should care if you are experiencing attrition through death or the retirements of your existing clients. The challenge now is how to make that change.

The answer usually begins by asking whether your strategy is still relevant. This means, do you have a clear idea of what you’d like your business to look like five or 10 years from now? Do you know who your clients are likely to be and who will be working in your practice? Do you know who will be leading it and how the business will be positioned in the market? Do you have a sense of who your competitors might be and how you will differentiate yourself from them?

Once you have framed your vision of the future including who will be your optimal client and what will be your optimal client experience, it will become more obvious as to what your organizational structure should be and what type of people you’ll want to have working in your business.

For example, assuming you deem it critical to appeal to millennials, will you need to actively develop millennials as advisors who will serve them? What kind of training gap for you and them does that present? What types of tools and technology will they need to communicate with clients and make your business accessible to them?

Historically, this is a business that has made a gradual transition through the life cycle. But the generational differences present a form of revolution rather than an evolution. Different people serving different clients in different ways dictate change.

How exciting and hopeful is it that the economy is experiencing a new wave of liquid wealth, and those who are well positioned to capture this trend will also ensure a business that will last beyond them.