able employees . Indeed , the industry ’ s largest firms allow its smallest ones to compete on equal terms with them for new clients .
Nevertheless , a group of extraordinarily successful participants will emerge from the industry ’ s current chaos . They will capture the vast preponderance of new clients and the tens of billions of dollars of enterprise value these clients create .
Ten traits will be common to these organizations :
1 . They ’ ll have decisive owners with very long investment horizons .
The single greatest competitive advantage of any wealth management firm is having decisive owners with very long investment horizons , those who think in terms of decades rather than years . Successful firms will make substantial investments that won ’ t pay off for a very long time . They will also decide on and implement strategies today that will determine their outcomes in 10 to 15 years .
2 . They ’ ll do whatever is necessary to capture as many new clients as quickly as possible . The low acquisition cost for clients will not continue indefinitely . At some point in the nottoo-distant future marketing costs will climb and wealth managers will also have to do much more for clients .
In the interim , advisors can build enterprise value . We estimate that adding a 45-year-old client with $ 2 million in assets who saves an additional $ 100,000 per year will produce fees of about $ 600,000 ( in net present value terms ) and have an acquisition cost of only $ 20,000 or less . But these economics won ’ t last .
The most successful firms understand they are in a limited time land grab . They also recognize that those firms that innovate and change the terms of competition will benefit most from this opportunity . Consequently , astute firms will do whatever is necessary to capture as many new clients as quickly as possible .
At the same time , they will not depend on outside parties , such as custodians , to generate prospects . Instead , they will create their own referral networks through other influential people .
3 . They ’ ll re-engineer their operating models to better use their talent . Advisors who want to capitalize on the organic growth opportunity will re-engineer their operating models . Instead of compensating their best marketers for the size of their books and discouraging them from getting new clients once they are full , the most successful firms will allow their talent
to specialize : The most talented marketers will focus their time on recruiting new clients . “ Closers ” will spend their time persuading new clients to sign up . And everyone else will service clients .
Advisors shifting to this model will accelerate their organic growth rates four- to fivefold while taking advantage of their existing excess client servicing capacity , which virtually every wealth manager has .
But implementing these changes will be extremely challenging : Key employees currently control client relationships , and this is the source of their bargaining power with their employers . By unilaterally shifting to a specialization-by-function operating structure , which would institutionalize relationships , firm owners could strip the power from these key employees , perhaps triggering their departures ( with clients ) and risk blowing up a firm .
The challenge is to find new people who buy into the new system . If you can ’ t get people who embrace this new system , the business can ’ t be scaled .
To avoid the risk of key people leaving , the most successful firm owners will instead adopt a twotrack approach . First , they will create a compensation system that lets marketers share in the value created by each new client they recruit . The most talented ones will be able to build immense personal wealth over time .
Though some current key employees will likely re-
40 | FINANCIAL ADVISOR MAGAZINE | DECEMBER 2023 WWW . FA-MAG . COM