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How to succeed in (the) business: 5 tips from top wealth managers

The generation of entrepreneurs who hung out their shingles as fee-based financial advisors in the 1980s and '90s had a wide-open market opportunity. 

The simple idea of charging a fee and not being paid based on the actions or products you recommend was a novel concept in the retail investment market, and it has paid off in spades. Those small-business people changed the landscape of wealth management, and many of them now lead the companies topping CNBC's inaugural Top-Rated Fee-Only Wealth Management Firms list.

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These advisors, however, are no longer the upstarts in the market. Leaders in the industry generally agree that the competitive environment is more intense today than it has ever been and that the costs of doing business are increasing. Most expect that life will get harder for smaller practices and that the economics favor bigger firms capturing economies of scale. 

That's not to say you can't open up your own advisory shop tomorrow.

"There's still plenty of opportunity in this business," said certified financial planner Gregory Carlson, who co-founded Carlson Capital Management, where he now serves as CEO, in 1987. "If you have integrity and transparency, you can succeed." Carlson Capital Management came in at No. 16 on the CNBC list.

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The costs may be higher and the competition greater, but the demand for advisory services is huge and growing. "It's never a bad time for an entrepreneur," said Mark Stadtlander, certified financial planner and CEO of the Foster Group, ranked 13th on the CNBC list. "It takes a lot of time and energy, but it's a great business—just be ready for a battle."

We asked leaders of some of the top fee-based wealth management firms in the country for advice to would-be entrepreneurs in the advisory industry. Their five suggestions follow.


1. Investments aren't enough

Picking stocks isn't enough anymore.

Carlson suggests new advisors need to offer their clients comprehensive wealth management services, including estate planning, tax advice, risk management and philanthropic strategies. Those who only manage investments will struggle.

"There is not as much 'secret black box' about the investment component [of financial planning] now," he said. "With the advent of index funds and ETFs and robo-advisors, the investment model has become commoditized, and there's going to be more pricing pressure. You have to offer more."

If an entrepreneur can't offer integrated wealth management services themselves, they should be part of a team that can, he suggested.

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2. Know yourself

Be honest about your strengths, and look to find people to help with your weaknesses. 

"Figure out who you are and what you want," said certified financial planner Russell Hill, chairman and CEO of Halbert Hargrove, ranked the nation's No. 2 fee-only wealth management firm by CNBC. "Are you a business development person, an analyst, a people manager? If you're an analytical guy, get a business manager," he added.

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It's crucial, however, that partners and/or early staff hires fit with your values and with what you're trying to accomplish. Even a great sales personality whom you think could generate lots of business for your firm can be a mistake if you aren't on the same page. "Focus on cultural values first," Carlson said. "If a revenue generator doesn't fit culturally, it will come back to bite you."

3. Know your clients

Financial advisors who serve niche markets have a leg up on those who don't, and in a more competitive environment, niches can be a vital source of new business.

"You're leveraged when you focus on a niche," said Carlson, whose firm serves a large number of health-care professionals at the Mayo Clinic in Rochester, Minnesota. "You have to figure out the platform you need to serve them well. Loyal clients are how you get referrals and grow your business," he said.

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Fred Cornelius, certified financial planner and president and CEO of Burt Wealth Advisors, suggests new advisors also think about their ideal client in terms of personality and investment philosophy.

"We don't have a particular niche, but we've chosen to serve more conservative investors," said Cornelius, whose firm is ranked fourth in the CNBC ranking. "It limits our growth, but really aggressive investors are not a good fit for us."

Of course, start-up businesses are unlikely to turn away less-than-ideal clients—particularly if they have substantial assets. However, being disciplined about the kinds of clients you take on will pay off in the future, Cornelius said. "No advisor is equipped to take on every client. All advisors should know their profitability and know what clients they have to focus on to be profitable," he explained.

There is more competition in the marketplace today, but there are also tools and technology that now make it much easier to put together [a financial advisory practice] and get the business up and running quickly.
Fred Cornelius
president and CEO of Burt Wealth Advisors

4. Don't do everything yourself

Financial advisors thinking of starting their own businesses should be aware of the enormous task ahead of them. 

"It's a huge undertaking. The average person doesn't have a grasp of how overwhelming the compliance burden is," said Jana Shoulders, CEO of Adams Hall Wealth Advisors, which ranked sixth on the CNBC list. A certified public accountant, she launched her fee-only firm in 1997 with two partners from the brokerage industry.

"Being an entrepreneur is great, but you might be better off finding someone established to work with," she said.

The good news is, there is a lot more help in the market now than there was in the past. The growth of the financial advisor industry has been fueled by the development of the support services of the large custodians serving independent advisors. 

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Entrepreneurs can get help with all aspects of their business, from marketing and compliance to investment management and operations support. Cornelius at Burt Wealth Advisors suggested that new advisors review the offerings of the big custodians, like Charles Schwab, Fidelity, TD Ameritrade and Pershing Advisor Solutions, as a starting point.

"There is more competition in the marketplace today, but there are also tools and technology that now make it much easier to put together [a financial advisory practice] and get the business up and running quickly," he said. "Don't get bogged down in the details; take advantage of the tools that are out there."

5. Use peer networks

No financial advisor should be an island unto him- or herself. Carlson recommends that new independent advisors seek out counsel from peers and attend industry conferences to take advantage of the collective wisdom of other advisors. Better yet, find a formalized peer group with whom you can regularly share ideas about improving your business.

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In 1995, Carlson joined a group of six other like-minded firms to form Zero Alpha Group, which describes itself as "a national study group for fiduciary financial advisors." Leaders of the six firms now meet three times a year to discuss their business. "We can share anything," he said. "It's like having six other laboratories out there to do discovery and learning beyond what we can do ourselves."