Building a successful advisory business often leads firm leaders to adopt popular strategies that promise a direct path to success. However, this approach can sometimes lead to long journeys that ultimately do not yield the desired results.

In this article, I aim to provide an alternative perspective on some of the most debated practice management topics to support your business planning. Drawing on many years of consulting experience, our team has consistently encouraged business leaders to delve deeper into their beliefs, critically evaluate the advice and information they encounter, and remain open to considering alternative viewpoints.

The purpose of this article is to offer you a critical perspective to help you determine what’s best for your business. With that in mind, here are four alternative perspectives on some of the most debated practice management topics:

1. “To build your business, segment your clients.”

In the wealth management industry, it is widely believed that client segmentation is essential for the growth of an advisory firm. This strategy often involves categorizing clients into A, B, and C tiers, where smaller accounts—perceived as less profitable—receive limited services. The goal is to increase profitability and manage advisor capacity by reserving the full range of services for the firm’s largest accounts.

However, this approach contains a fundamental flaw, particularly in the current environment of high valuations. Prioritizing immediate profits over the net present value of future cash flows may lead to long-term losses. Smaller accounts often grow significantly over time through recurring client savings and retirement contributions. If these clients are treated as lower priorities, they are more likely to leave the firm once their assets become more substantial.

Just as the value of time, money, and compounding interest drives investment growth, small accounts represent future revenue and valuation if properly nurtured. The wealth management industry was built on the principle that future cash flows are valuable. While not every small account will grow significantly, many will, contributing to substantial long-term organic growth.

2. “Do a deal—or perish.”

The risk of firm consolidation has been a topic of debate for over two decades. The concern is that increased mergers and acquisitions (M&A) activity will lead to consolidation into larger firms, leaving smaller advisory firms unable to compete and at risk of extinction.

However, despite years of speculation, there is still no concrete evidence that industry-wide consolidation poses a significant threat. Between 2000 and 2020, the number of SEC-registered independent RIA firms grew by 19%, totaling 13,880 according to NRS. If consolidation were a serious threat, we would expect to see a decline in the number of advisory firms rather than growth.

Over the past 20 years, small firms have been able to compete with larger firms by innovating in specific client segments, particularly smaller accounts. As larger firms grew, they often shed smaller accounts, creating opportunities for smaller firms to provide superior service. This focus on future cash flows has helped small firms thrive, balancing the potential threat of consolidation.

The greatest threat to industry-wide consolidation would be if larger firms developed programs to serve all clients more effectively than smaller firms could. As with many industries, innovation in specific client segments poses the most significant challenge.

3. “Advisory fees are shrinking.”

Fee compression in the financial advice industry has been a hot topic (think: fear) for many years. While fees are indeed shifting, particularly among younger generations of savers, they are not necessarily shrinking.

Historically, the industry charged for investment advice and included financial planning as a value-added service. However, this model is being reversed. Advisors are increasingly using investment management as a loss leader while charging for financial planning services, making fees more transparent.

The commoditization of investment management has challenged the rationale for charging 1% or more to manage portfolios. This shift has prompted advisors to rethink their value proposition, leading many to offer lower-cost investment management services and charge for financial planning.

Surprisingly, this shift toward planning fees has boosted advisors' revenues and profits. For example, an advisor charging a 1% AUM fee on a $250,000 account earns $2,500 annually. However, the average flat fee for comparable services is $315 per month, or $3,780 annually.

4. “Market now, hire later.”

Many advisory firm leaders believe that investing in marketing yields the highest return on organic growth. However, I argue that the best investment a firm can make in growth is balancing its capacity to grow. Businesses built around human advisors serving clients grow fastest by adding advisors.

Today, many independent RIA firms build digital client experiences and then layer marketing efforts on top of them. Marketing budgets can reach upwards of 10% of firm revenues. The challenge arises when firms assign new clients to their existing advisors without expanding capacity to handle the increased workload. This often results in advisors struggling to serve 150+ or more clients adequately.

Overloading advisors with new clients leads to declining service quality, increased burnout and turnover, and, ultimately, dissatisfied clients. This can harm the firm’s future cash flows, forcing leaders to address growth challenges through profitability measures, often resulting in client segmentation. Additionally, in today’s environment, clients expect unprecedented levels of responsiveness, regardless of account size.

When an advisor is too busy to respond promptly to client inquiries, clients may seek alternative advisors. They are also less likely to refer others to an unresponsive firm, which can negatively impact client referrals.

The foundation of building a successful advisory firm lies in having the talent to serve clients, generating referrals, and retaining clients for long-term growth.

My advice to business leaders is to critically examine all the wisdom they’ve gained in building their businesses. Just as in other industries, the methods for building an advisory business evolve over time. Taking a deeper, more critical look may be initially challenging, but it will provide greater clarity in achieving long-term success.