Subscribe
Share
Share
Embed
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 (00:00.142)
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 Sclafani and I'll be your host.
Let me ask a question that might come as a surprise. How many subscriptions do you have in your household? Now think about it. The Netflix account, Hulu, Spotify, Apple One, Amazon Prime, maybe a gym membership, or even your car wash subscription. Even dog food might be on the monthly delivery plan. When I asked this question of financial advisors, most start counting on one hand,
then they shift to the other. They're often shocked. You know, we are living in what I call the golden age of the subscription economy. And guess what? As a financial advisor running a firm that charges a fee on assets under management, you're sitting on one of the most powerful subscription-based businesses in the modern economy. So the real question is, are you investing in it like one? Because here's the deal. If you are the CEO of your advisory business,
not the founder or lead raymaker, but the CEO, your job is to do one thing above all else, that's deploy capital smartly, strategically, and with a long-term lens. Over the past 20 years in this business, valuation multiples have expanded dramatically. And that's not by accident. It's because recurring revenue like AUM-based fees is durable. It's predictable and it's scalable.
Ray Sclafani (01:57.674)
Investors, certainly love it. Acquirers love it. And clients love the consistency it brings. But here's the harsh truth. Many advisory firms haven't reinvested enough of their capital back into the business. They've held on to profits, paid themselves well, and in some cases failed to fund the very things that drive long-term enterprise value. So I'll ask you this. As the CEO of your business,
Are you investing in people who can take your firm to the next level? Developing new leaders, next gen advisors or practice managers, allocating capital to technology that can automate scale and enhance the client experience, making bold bets in business development, acquiring new clients, entering new markets or building new service offerings and proactively preparing to serve
the next wave of client segments like women investors, rising gen wealth, or business owners preparing for liquidity events. Because if you're not doing so, you're essentially betting that the market will do the work for you, that equities will rise, that the SMP will pull your revenues along with it. And while that's not a terrible bet, it's not a CEO strategy. That's a passenger strategy, not a pilot strategy.
Running a firm that benefits from recurring revenue puts you in a really unique position to forecast future cashflow with a great deal of confidence. You know your retention rates, you know your average client size, you can bet on the long-term growth of the market, you understand your margins. So what are you doing with all that confidence? Are you being bold in reinvesting or are you coasting? I coach many successful founders and controlling owners
who are sitting on highly valuable firms, but still operating with the same conservative mindset that helped them survive the lean startup years. They haven't made the leap to running a growth enterprise. So let me offer a shift in mindset. The most successful firms we coach today are acting like capital allocators. They treat their advisory practice like a portfolio, and they ask, where can we earn the highest return?
Ray Sclafani (04:18.338)
That might mean hiring an experienced COO to drive operational scale. It might meet standing up a marketing engine to support acquisition targets. It might mean launching a new service line for a niche market and building out a brand. It might mean funding a leadership development program to grow future partners. What it doesn't mean is standing still. We're still an environment here where capital is flowing into this industry. In fact, private equity is here.
It's estimated there's some one to $2 trillion on the sidelines looking to invest in this market. We've seen sovereign debt funds, pension funds, bigger dollars, long life capital partners are entering the market and strategic acquirers are active. And the firms that command the highest valuations are not necessarily the biggest. They're the ones with clear growth strategies, scalable infrastructure, and a vision of growth for the future.
As the CEO of your firm or the leadership team responsible for setting strategy, your job is not to hoard capital, but yet it's to deploy it. So I'll leave you with a few questions for your team. Certainly the leaders on your team to consider. Number one, what percentage of last year's profits did you reinvest back into the business? Are your investments today aligned with your three year vision of growth?
Where are you under investing and what's that really costing the firm? Number four, if you were a PE investor looking at your firm, what would you want to see more of? And lastly, are you leading your business like an owner operator or a capital allocator? Subscription revenue gives you this gift, predictability. The question is, what are you doing with it? Because your capital is only as valuable
as your courage to put it to work.