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Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
Ray Sclafani (00:00.366)
Welcome to Building the Billion Dollar Business, the podcast where we dive deep into the strategies, insights, and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics, and mindset shifts that set the top 1 % apart from the rest. I'm Ray Schlaffani, and I'll be your host.
Today's episode will be relatively short. want to provide six very specific questions and four specific key considerations related to intentional growth. It seems to be the hot topic in our business builders academy these days. And our coaches continue to tell us that it's the number one topic that advisors are focused on. I wish I had a nickel every time I heard an advisor say something to the effect of, know, Ray, I just don't want to grow for growth sake.
I want to grow smart. Well, that's intentional growth, also known as profitable growth or planned growth. And for most in the business who are truly building something that's scalable and ultimately transferable. Well, that matters far more. We rarely ever improve simply by happenstance. We must first begin to ask the question, what is it that we actually want to accomplish when it comes to growth? And then
What will achieving that do for us? With the plethora of opportunities that are facing advisors in terms of wealth transfer over the next five and 10 years, we're noticing that the best in the business are getting sharper around their ideal client type. They're getting smarter around their value proposition and specialization and differentiation. Advisors are training and developing their teams and expanding their talent.
far beyond just the pure investment management and financial planning. In fact, I recently came back from the Pershing Advisor Elite Conference, and one of the hot topics was about this idea of family office and the expansion of services and wealth advising as a service. And it's fair to say that most advisors are looking at investment management, financial planning, and then beginning to expand services, the risk management services.
Ray Sclafani (02:26.67)
We even heard advisors talk a great deal about expanding services around providing access to concierge medicine and cybersecurity, training clients on how to protect themselves from cyber attacks and password protection. growth, when you're really thinking about expanding intentionally the types of clients your firm is built to serve, you've got to dial all that in and get really clear as a team.
As to first question, what's your real vision for your firm? What are you building for the future? What types of clients do you want to serve? What value proposition before you can step into the world of intentional growth, you've got to get very specific about what it is you're building for the future. And the second question is relative to that vision, what then are your long-term business objectives? Is it simply to grow top line revenue? Is it to grow profits?
Is it to build a succession strategy where next gen can be buyers of the business? Is it to maximize enterprise value and punch out? Well, those business objectives have to be in alignment with that vision. And the third question then leads us to something more specific. When you consider your current objectives and measures of key results, those OKRs as John Doerr in his book, Measure What Matters writes about, you've got to ask yourself, have you intentionally designed those OKRs
to increase the value of the business. Because after all, if you're grow this business and grow the top line, grow the profitability, well then it's really clear you've got to have a written strategic plan on how you intend to achieve your desired normalized EBITDA and valuation. So that leads us, that's question number four. So when you consider those OKRs, are they in alignment with that long-term business objective and the vision you have for your firm?
And are you writing the right strategic plan and educating the team, socializing that as a key ingredient to long-term success? That strategic plan's got to serve as a map, a blueprint for where you're really headed. And the fifth question is the key financial targets. Those targets would include the 40-30-30. It's a benchmark standard for most high-performing advisors in the industry, 40 % of gross revenues.
Ray Sclafani (04:51.982)
attributing on the P &L to professional staff expenses, those individuals that are advising clients front stage, 30 % of gross revenues, operating expenses, including support team members, and then 30 % profitability. Now some firms will have a slightly higher profitability, perhaps a slightly lower profitability than that 30 % because they're redeploying capital back into the business for expansion and growth.
And then the sixth question gets to what are your future exit options? If you're truly building an enduring firm and want to grow with intentionality, then you've got to be clear about what those exit exit options really, really are. So those six questions are very powerful. And when you start thinking about your growth plan, you've got to have good answers to those questions. We find ourselves at ClientWise helping advisors navigate the answers to those questions. There isn't a one size fits all. Every
business owner, every entrepreneur has to have a clear picture for what it is they're building. If you're to build intentionality in your growth strategy. let's not forget growth without a scale plan is chaos and scaling without growing. Well, that leads to bankruptcy. So you want to build that enduring firm, that billion dollar business.
that's truly transferable. And as you build out this intentional growth plan, you also equally want to build out your intentional scale plan. There are four considerations that I'd ask you to think about as you listen to this episode. And again, I'm moving through some material relatively quickly, but these episodes are meant to be good triggers to get you to think about some of the key ingredients to driving that billion dollar business success. It's important to realize that
upfront as you think about intentional growth, you're going to need access to capital, whether that's that 30 % profitability and redeploying some of that borrowing money, many firms are thinking about how private equity plays a part in investing in growth strategies to that end, pay close attention to the following four key considerations. The first is to take care to manage cash wisely, make investments strategically.
Ray Sclafani (07:09.55)
and make hires that will measurably enhance the enterprise value of your firm. That's number one. The second is know your various profitability targets. I already mentioned the 40, 30, 30. There are others to consider and you'll want to think about where you invest the capital and what the return on investment of that capital ought to be. There I would consider your lifetime value and your cost of acquisition of new client relationships, especially
as you're building your intentional growth strategy. I've got previous episodes on how to calculate the CAC, the client acquisition cost, and the lifetime value of a client. So we'll put those in the show notes for you. So if you want to reference those quickly, you'll figure out how to calculate that for your own firm. The third consideration is managing capacity. There's nothing worse than intentionally growing and not having that scale plan.
Delivering on promises for clients gets a whole lot tougher if you're not managing capacity. So you've got to know your revenue per professional number, your revenue per client measure. You've got to keep an eye on what your service model deliverables are and more specifically, how many hours you're spending with each client. I'm not suggesting that everybody starts tracking minute by minute like a law firm perhaps might, but you do want to be really clear as to whether or not you're
over rotating on service to particular clients, where the revenue per client maybe doesn't match up with what your budget is for that particular segment of client. This is a really important topic. We'll go deeper in future episodes for sure. So I would also ask you to consider the promises you're making to specific clients. hear advisors often say to me, yeah, we've got some clients we're over serving for what they're paying.
us in fees and they're not really profitable. And we've got others that we're under serving. And in fact, in the ultra high net worth and high net worth space, those kinds of clients generally want a more episodic relationship and don't require as much time until they need you. knowing how to manage that effectively and this whole capacity constraint issue is a really big consideration. Just one other quick note, I hear advisors who often ask me, Ray
Ray Sclafani (09:30.068)
how many clients can one advisor really manage? And I actually think that's the wrong question. I think the question really is, how many hours are you budgeting when it comes to capacity? It's a math equation. There's roughly 2000 hours in the year. You probably want to start with 80 % of that number and then ask yourself how much time do you want your advisors spending hunting for new business in the jungle,
versus spending time with existing clients, advising them, and then digging down deeper into those relationships for referrals and new assets. So it becomes a time constraint question matched up with the hours per segment. You've got yourself a good answer and you'll probably end up in a number somewhere around 65 to 85 depending upon your ideal client type. And that's an important question. So if you have any questions about that, feel free to
call us at ClientWise, we're happy to talk through this with you more. The fourth consideration is don't forget that intentional growth is also about growing organically, discovering ways to better serve existing clients so those relationships expand both in terms of assets and revenue and expand multi-generationally. Hey, a quick note about this organic growth. Recently, as I mentioned, we've been having lots of conversations with the advisor clients we're coaching.
around this organic growth. I've been asking advisors a very specific question. When you look at your CRM system and you click the report that shows opportunities with existing clients, the question I ask is, how well is your firm documenting exactly the opportunities now, near and far with respect to each of your clients? So for example,
If you've got a client who is planning on selling their business and they signal that in a current client meeting and they tell you in five years time, they plan on selling the business and the current value of the business is $12 million and they expect it to be 16 by the time they exit. Are you tracking that as an opportunity in your CRM system and really keeping track of those opportunities? Advisors who do this effectively.
Ray Sclafani (11:45.844)
increase their confidence about organic growth and are able to more effectively plan for the hiring of team members and the sequencing of the type of team members they need to hire. So this whole concept of organic growth relative to wallet share is about tracking opportunities. This is not an issue if you're a two advisor firm. But if you plan on building and scaling and growing with intention,
and adding lots of new clients and adding new advisors, you can't keep track of it any longer on a yellow pad. You've got to dial this in and somebody's got to be the champion at the team that asks each and every advisor after meetings with clients to document not only the notes, which we're all required to do, but also really document the opportunities, future opportunities that exist.
That's a key ingredient. We'll talk more about new client acquisition in future episodes and blog articles that I write at clientwise.com forward slash blog. You'll find more blog articles about these kinds of topics. But one other quick note on this intentional growth relative to organic growth. The new client acquisition is a signal that a business is really healthy. So the number one driver of new clients to affirm, we all know, it doesn't matter what report you look at,
Fidelity's institutional report, some of the data coming out of Barron's, the Schwab report, referrals continues to be the number one driver of new clients for a firm. However, we're also seeing more more advisors, digital marketing and all kinds of other new and creative ways to generate new clients and lead generation for the firm. The aggregators in the business out there are doing a great job.
at building platforms of lead generation, institutionalizing that lead generation. So more to come on that organic growth side, especially as it relates to new client acquisition. But I just want to make a point relative to serving clients more completely as a fiduciary duty. That growth should equate to the impact you want to have for the vision of your firm. Finding new business, believe it or not, is relatively easy when you put the right apparatus in place.
Ray Sclafani (14:04.226)
finding the right kind of clients, well, that can be a little trickier. Because what got you here, as Marshall Goldsmith once said, may not get you there. You've got to ask your next generation advisors what kind of clients they want for their future company. You've got to be really clear that you're building the value proposition and upgrading what clients want for the future. And the poet Ralph Waldo Emerson, I think summed it up pretty well. He said the purpose of life is not to be happy. It is to be useful.
to be honorable, to be compassionate, to have it make some difference that you've lived and lived well. Your clients are looking for you to help solve those problems in the future. You've got to build that value proposition wrapped and embraced in where your business is headed and that's intentional. But in life, seldom does anybody finish well by accident. It takes intention and it takes attention.
Well, thanks for tuning in. And that's a wrap. Until next time, this is Ray Sclafani. Keep building, growing and striving for greatness. Together, we'll redefine what's possible in the world of wealth management. Be sure to check back for our latest episode and article.
Ray Sclafani (15:21.486)
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