Ask a principal how they plan to grow the practice and the answer is usually a version of more. More clients, so hire another adviser. More scale, so buy another firm. The logic feels sound, and it is the logic most of the industry runs on. It also, more often than not, fails to produce the growth it promises.
The problem with hiring is that the cost lands on day one and the return, if it comes, lands much later. You carry the salary now, with the reasonable expectation of a lift in productivity or output over the next 6 – 12 months. As a small or medium sized business, you’ve likely invested in your onboarding process so new team members seamlessly integrate. But it often means they become a participant in a process that already has inefficiency in it. A new person dropped into an inefficient process does not fix the process. What you have really done is teach one more person to run the business the way it already runs, which means the firm gets busier without getting better.
The inefficiency is almost always larger than the principal thinks. Picture how an advice business ran a decade ago, then add every regulatory and governance change layered on since. Most firms absorbed those changes the same way: by adding a step. A sign-off here, a check there, a form to capture the new requirement. Very few ever went back and removed a step. The result, in a lot of practices, is a long chain of tasks between meeting a client and implementing the advice, most of which exist not because anyone decided they should, but because no one ever took them out. That chain is invisible on the org chart and expensive in practice. It is the reason advisers are busy without the firm being able to see more clients.
If the core business is not a clean, repeatable operation, borrowing to buy a second one does not resolve the first. It gives you two businesses that do not fit together and the debt you took on to combine them. Buying growth before you have fixed how the business runs adds scale to the problem rather than solving it. This is not an argument against ever acquiring; it is an argument against acquiring as a substitute for getting the operating model right first.
Which points at the actual issue. The constraint on a mid-market advice firm is rarely a shortage of activity. These firms are not idle. The constraint is that too much of the activity is absorbed by work that does not need a qualified adviser doing it, and adding people or firms multiplies that work rather than removing it. You do not break that constraint by doing more of the same. You break it by changing how the firm operates.
The clearest place that plays out is the investment function. In a lot of practices, portfolio construction and its administration sit on the adviser’s desk. Every change to a client’s portfolio becomes a document, a consent, an implementation task, repeated across the book one client at a time. It is steady, and it consumes an enormous amount of the one resource the firm most needs for growth: adviser time spent with clients. Move that function to a discretionary structure and the administrative burden largely goes. A decision can be applied across every relevant client at once, rather than flowing through an adviser, an associate and client service for each individual. The time that frees up lands with the people who actually generate revenue, and it lands as capacity to see more clients, take more referrals, and do the work only an adviser can do.
That is the mechanism, and it is worth being precise about it, because it is easy to hear “managed accounts” and think the point is an investment product; it is not. The point is what happens to the advice business when the investment function stops being something advisers administer by hand. The growth that follows does not come from a better portfolio or a market call. It comes from capacity returned to the client relationship.
None of this means the answer is to outsource everything and stop thinking. It is not that simple, and the firms that treat it that simply tend to trade one problem for another. There is a real question about when keeping the function in-house is the right call, and a sharper question about what separates adopting the model well from adopting it badly, because doing it badly can cost a firm the very thing that made it distinctive. Those are the questions that decide whether a firm actually captures the growth or quietly gives it away.
That is the subject of our white paper, The growth a mid-market advice firm is leaving on the table. It makes the full case for the operating model as the growth lever, sets out the one condition attached to getting it right, and includes a short self-assessment a principal can use to see where their own firm stands. If the argument here rings true, the paper is where it goes next.
