The jerseys of football players for the University of Notre Dame, like many other athletic teams, famously don’t have names on the back in a show of the importance of the team over the individual players. Then again, soccer star Cristiano Ronaldo sold 520,000 jerseys in 24 hours after transferring to the Italian club Juventus, generating an estimated $62 million in sales overnight before ever touching the ball.
Whether we are picking a sports team to root for or a professional services provider, we all choose based on a mix of team and individual. Different combinations can be compelling to clients. Each combination has its strengths and weaknesses in terms of their impact on the strategy of the firm, its performance and its culture. What really matters for each advisory firm is to be very self-aware of how it approaches clients and manages that mix mindfully and strategically. There must be consistency between the way the firm markets to new clients, the way clients are serviced and ultimately the way the firm identifies those who are held in high regard and compensated as the top contributors.
Unfortunately, many star players and even some advisors derive satisfaction from how many games their team loses without them. Also unfortunate is how sometimes struggling teams can suppress their only talented professionals. I once watched a firm struggling to grow admonish their only promising business development professional for “being out of the office too much!”
Consistency and balance are critical—put too much emphasis on your stars and you may be vulnerable to their performance and eventual departure. Just ask the Cleveland Cavaliers of the NBA what it’s like to lose LeBron James twice in eight years. Suppress your star talent and demand too much conformity and you may lose your best people and struggle to grow. Yet advisory firms rarely consider “the mix” between the individual and the firm. To take control of it, they need to look at three dimensions:
• Existing Relationships—Where should client relationships reside? Are we present as a firm in front of the client or are we entirely dependent on the relationships our people have with clients?
• Business Development—Why do prospects choose to work with us? Do they come to our “star(s)” or do they come to our firm? Over time, are we trying to elevate the firm to a more prominent position in the mix or are we trying to develop more stars?
• Culture—What is the culture we have? Do we praise and look for stars or do we focus on the common good when we make decisions? Do we encourage “stardom” when we compensate or praise contributions or do we revert to the mean? Do we do everything we can to retain and please our top people or do we ask them to suppress their egos?
Let’s take a look at the implications of the mix, starting with the relationships because that’s what ultimately defines a wealth management firm.
The Impact of the Mix on Client Relationships
People have relationships with people. Theoretically, clients can have a relationship with an organization and a brand. In reality, the dimensions of such relationships are much more difficult to define. It is so much easier to get confused about what “relationship” really means. At the end of the day, if we as business owners want the clients to have a relationship with our firm, we need to put faces to the firm and ask multiple people to represent the firm in its relationship with the client.
My personal bank gets very confused about our “relationship.” I frequently get letters from them that say “we have enjoyed our relationship …” but the reality is that I do not know a single person in my bank. Not a single individual. To be honest, when I need to go to a branch to deposit some checks, I tend to go to the ATM by the front door rather than the clerks. I certainly am not the only one—many times I have seen a line at the ATM while the clerks are standing in an empty lobby chatting with each other.
In advisory relationships, people represent the firm. The more involved and engaged those people are, the stronger the relationship. We can’t replace the person with the brand no matter how strong that brand is. As a result, we are tempted to rely and even over-rely on people and their talents. Advisory firms often talk about “intimacy” in their relationships with clients, implying that the relationship is one-on-one. Unfortunately, this means that the pendulum has swung too far the other way.
This has its own drawbacks. Picture a long line at the grocery store where the clerk is engaged in a very active and very long conversation with the client in front of them. This is great for the relationship but boy is it frustrating for the line!
The researcher and consultant Heidi Gardner studied the client base of a large accounting firm and published the results in her book Smart Collaboration. She found that 75% of clients who only had exposure to one professional said that they will leave the firm if that professional left. Conversely, 90% of clients who had relationships with multiple professionals in the firm said they will stay with the firm if their primary contact left.
Adding the firm to the mix helps retain clients for more than one reason. Gardner actually found in this and many other case studies that collaboration on a single client relationship improved also the ability to identify new opportunities for that client and the ability to handle complex issues. The net result is increased revenue for the firm generated from the “shared clients.”
The balance between firm and professional brand in the relationship with a client defines the firm. It determines the staffing of client service teams, the people who choose to join and those who choose to stay. The balance between individual and firm also drives the compensation philosophy of the firm and ultimately determines the size of the firm.
In Business Development
We often get e-mails from our website that say something like, “We are interested in working with a consultant.” Then comes a very important second statement—sometimes it says, “Could Philip reach out, we would like to talk to him.” Sometimes the message says, “Could one of your consultants get in touch with us.” The difference is of tremendous importance to us. One message signals that we still develop new clients as individuals, the second version implies we attract clients as a firm.
Every new client chooses a professional (advisor) and a firm that the professional is affiliated with. The two are always present in the decision even if one is dominant. It is entirely possible that the client only cares about the professional and is really not very concerned about the firm. The opposite can also be true—early in my career, a number of clients worked with me only because I represented a firm they trusted—Moss Adams.
Finding the right balance in business development is both a strategic decision as well as a matter of self-awareness and consistency. Strategically, if the firm asks professionals to mostly rely on their personal reputation and charisma, then the firm should be prepared for the consequences. Those consequences can be harsh: “unsystematic growth,” loss of scalability, lower retention of talented people who don’t want the “star” career track and ultimately an unstable culture.
The “superstar” firms built around a few rainmakers are also very vulnerable. Creating leads through an individual reputation is difficult and an unreliable process. Even the best business developers are not quite sure how they have become successful and have a hard time helping others replicate that success. Individual networking is also very vulnerable to personal characteristics as well as background and circumstances. Finally, individual reputations develop slowly and not much can be done to accelerate them.
Firms that rely on a high percentage of individual effort in their growth strategy inevitably find that only a select few professionals are successful and the rest are frustrated. The successful rainmakers may also feel entitled to most of the “spoils,” since the ability to bring clients to the firm is clearly exposed as a scarce skill. The resulting cultural and economic implications can be profound.
The mix can be skewed heavily the other way. There are good examples of firms in the industry that develop new business through marketing methods—radio shows, direct mailing or referral relationships with custodians. Firms that are part of an accounting firm or a financial institution may also be assigned to this end of the spectrum. In such firms, the leads arrive through the “pipe” and most professionals have no trouble “closing” the qualified cases.
Such “institutional” business development tends to swing the pendulum the other way: The firm dominates the cultural landscape and individual egos are less important. Compensation is not invested in new business development, and the firm tends to be in control of the brand. The consequences of a “super-firm” can be equally severe—stagnant growth, slow careers, and a dogmatic culture where everyone competes on how well they have memorized the strategic plan. Other hallmarks of these firms are lack of innovation and inability to change. “Super-firms” may be more stable than the “super-star firms” but only in the sense that a blister on your foot during a long walk is more “stable” pain than stepping on a nail.
Institutional strategies create very repeatable and stable business models, but implementing such strategies successfully may be more difficult. In addition, the investment in the brand needed may be very high. The “institutional” source may also imply its own vulnerability, especially if the source of leads changes or disappears.
In Culture And Decision-Making
The mix between the individual and firm is ultimately a cultural decision. A firm that relies heavily on individual skills and efforts will predictably have a culture that celebrates individual success and rewards it with positions, money and praise. A firm that seeks to institutionalize will likely subdue the individual praise and instead focus on building unity, consensus and internal harmony.
The mix is self-perpetuating. Firms that rely on individuals for business development tend to end up with individualistic culture, which then grows individualistic-inclined professionals. Firms that spell “team without I” tend to attract and groom professionals who are less tolerant of the big egos. This self-perpetuating loop makes changes very difficult.
Changes in the mix usually occur only if a “star” very consciously subdues their ego to build a firm that is less “star-driven” or if a “star” departs and the firm has to learn to survive without their former leader. Such events are often tied to the succession of the founders. The founders are often the stars that can change the firm or they can force the firm to function without them.
Ultimately, most firms should seek balance. Like most cocktails, if you only use one ingredient you either end up with a drinking problem or a bland liquid that should have been water. Very few firms can say that they have done everything they can to create opportunities and service clients as a firm. At the same time, there is nothing wrong with having a star and encouraging those with talent, ambition and a willingness to develop and go further.
The key in finding the mix is consistency. The choice of strategy is up to every firm, but you can’t have a “no name on the uniform” strategy and expect your players to sell jerseys. You also can’t rely on “superstars” and then complain that they are prima-donnas.
A version of this article originally appeared in Financial Advisor Magazine.