Diamond Teams: Successful Advisory Firms Are Works in Progress

As I've written before, perhaps the biggest mistake advisory firm owners — and business consultants — make is to assume there is a model or a template for building a successful advisory firm. Instead, we've found that every advisory business is unique, with different clients, target clients, services, service delivery, local markets, skills, personalities and goals of the owners and employees. All these variables interact in different ways, creating very different circumstances that require very different strategies for success.

A good example of this is the need for different marketing strategies. As you're probably aware, some very successful advisory firms have been built on attracting new clients through financial radio shows. Yet very few financial advisors have what it takes to be a media success. (And if I knew the formula, believe me, I'd be the next Suze Orman.) Consequently, a successful marketing strategy needs to be tailored to fit each firm.

In our experience, success in the independent advisory business is largely a matter of moving up a learning curve based on enhanced trial and error: taking what appear to be the smartest next steps, evaluating the results and making appropriate adjustments, or pulling the plug and trying something else. Of course, a good consultant or an experienced owner can narrow down the choices to those with the greatest potential success. At the end of the day, successful advisory businesses are built on learning what works for them — and what doesn't — one step at a time.

The advisory consulting business works very much the same way. One example of that is our "Diamond Teams" strategy.

Warning: Sports Analogy

About six years ago, we created Diamond Teams as a strategy to better train entry-level advisors to get them up to speed and productively working with clients faster. Rather than the traditional pyramid structure, with the firm owners at the top and increasingly larger layers of senior advisors, lead advisors and associate advisors at the bottom, picture a baseball diamond. At the top, on second base, is a senior advisor (usually the firm owner or partner); on first and third bases are lead advisors, who work directly with clients (and tend to specialize in either financial planning or portfolio management); and at the bottom, at home plate, is an associate advisor.

What's different about a Diamond Team is that rather than supporting the lead advisors (which is done by a non-professional client service specialist or what we call a "centralized client service team"), the associate advisor's primary job (where she or he spends at least 75% of their time) is sitting in client meetings, taking notes and learning how the firm's lead advisors work directly with clients.

Associate advisors also take notes, write follow up to-do lists for the other advisors, draft a recap letter for the client, schedule their next appointment, delegate work to the back office and update the firm's CRM. In the associates' free time, they help the team's lead advisors with investment screening and monitoring, and drafting financial plans.

As firms grow and a Diamond Team reaches its full capacity of clients — usually between 255 and 285 clients — one of the lead advisors will split off to form another team as senior advisor; at first with a lone associate who is fast tracked to become the second lead advisor. His or her role in their former team is taken by the associate advisor. A new associate is hired, and the training process begins again.

We've implemented Diamond Teams with great success in many advisory firms across the country ranging from $75,000 in AUM to firms with well over $1 billion under management. The result? Senior and lead advisors usually have time to bring in new clients, and the pipeline of associate advisors are trained and ready to step up and work with the new clients. We've also found that the Diamond Team structure provides other benefits to the firms that use them. Those benefits include:

An automatic career path for advisors from entry to partnership
Increased productivity
A built-in succession plan
Reduced recruiting costs (entry level advisors are much cheaper than experienced advisors)
A timetable for when to hire new associate advisors

Recruiting and new-hire retention improves because you can offer client-facing experience from virtually day one.

How We Improved the Diamond Team Concept

Building successful independent advisory firms is a learning process: not only for firm owners, but for their consultants, too. While Diamond Teams were already successful, we quickly realized that they could be even more successful if we introduced them in a firm a little differently.

Here's how:

1. Fix client service first. We used to think firms should start building Diamond Teams as quickly as possible. That way they'd get new associate advisors in the pipeline and learning to become lead advisors, so firms could take on larger numbers of new clients more quickly.

Over time, we realized that centralizing client service first is more efficient, which means that we untie a client service person from one team. All client service people work in a group supporting all advisory teams, not assigned to just one team. For one thing, client service people are cheaper and easier to hire.

More importantly, a bigger, better client service team is able to take a larger portion of client services off the desks of both lead advisors and associate advisors. In turn, the lead advisors have more time to work with more clients, and to mentor the associate advisors. The associate advisors can spend less time on client service tasks and more time learning to be good lead advisors.

We found that when we started "fixing" client service first, the senior advisors and lead advisors thought their associate advisors had suddenly become "brilliant."

2. Don't start multiple Diamond Teams at the same time. Once we came up with the concept of Diamond Teams, both we and our client firms were excited about introducing them as quickly as possible since, as I mentioned, they make a lot of tough problems go away. We soon realized that because Diamond Teams are a radical new way to structure an advisory firm, they require some time for firms to adjust, and all firms don't make those adjustments the same way.

So after we enhance the client service department, we now start with one Diamond Team, while the rest of the firm continues to work with clients the way they always have. That way if firm owners or advisors have a hard time understanding or committing to the Diamond Team concept it doesn't throw the whole firm into a tailspin while they figure it out.

3. Don't overload Diamond Teams at the start. This is important for all Diamond Teams, but even more so for the first one. Firm owners' inclination — ours, too — was to load up a new Diamond Team with what they estimate is a full complement of clients. After all, with four advisors on a team, that's a lot of overhead to cover.

But it's important to remember that a Diamond Team is just that: a team. All teams take time to learn how to work together effectively and efficiently. So it's important to give a team time to adjust to their new system and their responsibilities in it. They need to figure out how to do what, how client meetings are going to go and how many clients they can effectively work with. Yes, this all takes time, but they are important issues to get right. Overloading a team from the start will only make the process take longer and can lead to costly mistakes along the way.

4. Use the first Diamond Team as a learning experience. As I said, every firm deals with transitioning to Diamond Teams differently. So it's important not to view them as a plug-and-play solution. It takes time for a team to learn to work together; it takes time to figure out how to adapt a firm's service models to a new advisory structure.

The key is to avoid getting attached to any one way of doing things. Try what makes the most sense, and then carefully monitor how it works. Then change what needs to be changed and move on. Finally, use those lessons to make better decisions for creating future teams.

To build a successful advisory business, we've found that it's essential to view all changes and innovations as learning experiences. Learn all you can from what works and especially what doesn't. Take time to think about why, in both cases. Then use that new information to make better decisions next time. That way, even your failures will be building blocks to success.

— Read "Six Steps to Train Your Client Services Team" on ThinkAdvisor.