I'm often asked, "What's the biggest practice management mistake that firms make?"
My two-plus decades of consulting for financial advisor businesses has shown me that the biggest error isn't really a practice management mistake. It's a leadership misstep.
Many firm leaders seek to apply quick-fix solutions to their businesses instead of looking inward to identify the real problem they need to address.
Plus, when advisory business leaders take action to address problems, their fixes are usually tied to practice management — such as implementing a new compensation plan, marketing strategy or sales process.
Here's an example. A client firm leader recently came to Herbers & Co. with a desire to update his firm's partnership compensation plan after the business hadn't reviewed its arrangement in a few years.
We went through our normal information-gathering process and developed a plan. But months later, the plan had not been executed.
The leader of the organization hesitated when we asked him about this. He didn't request us to tweak the plan, and he wasn't giving us any feedback (or pushback) about issues tied to its implementation.
Naturally, we needed to find out what was going on, and so we changed our tack. In a meeting, I asked the leader to pretend he was standing on a balcony, looking down at his business.
Next, I asked him what he saw. His answer was surprising and instructive: He didn't say that the firm's executive compensation plan needed reconfiguring and updating, as he'd told us earlier. Instead, he said, "I see partners who've been in conflict for years."
For changes to compensation or for other practice management shifts to be effective, the firm had to first address the long-term tensions among the partners — since this was the cause of the inertia around a new compensation plan and other issues.
Out of Focus
What's most important to note is that the firm's leader indeed made a flawed leap by deciding to focus on compensation rather than on partnership disagreements and communication problems. In essence, he made a leadership misstep.
No leader can accomplish great things alone; there are countless people, inside and outside of their firms, who help along the way. But making decisions and taking responsibility for those decisions is what leaders must do alone. And they ultimately earn credit or blame for the results of these decisions.
If leaders are uncertain about their decision-making ability, they tend to throw solutions into the air to see if it might solve problems, solicit the advice of friends in leadership roles, join study groups or follow the decisions of other managers in their firm.
In other words, they distract themselves from admitting, finding and facing their firm's deepest problems by focusing instead on quick solutions or tasks related to but not as critical as the real challenge.
It's easy to understand why. In human psychology, the struggle to perceive and comprehend issues accurately is known as a self-awareness deficit. It can hinder self-reflection and personal insight.
