When it comes to due diligence and even a transition, no two advisors – or their paths – are the same. Here’s why that matters…
It’s interesting how advisors think that many of the processes around due diligence and transition are the same.
And, of course, there are certain steps that pretty much are what they are.
Yet there is one component that is truly unique in each and every case: The advisor.
Of course, each advisor interacts with their firm, team, and clients in their own distinct way—and they have personal values that are a fundamental component of their goals and vision. So, it would make sense that the exploration process, and even the transition itself, will be exclusive to the advisor.
Yet, after 27 years in the recruiting world and literally hundreds of thousands of conversations with financial advisors at all levels, we’ve recognized that there are certain molds each advisor can identify with when it comes to conducting due diligence. And since each archetype comes with its own unique risks and benefits, it’s helpful for advisors to understand which category they fit into so they can avoid some common missteps and best position themselves for success throughout the diligence process.
Here are the five types of advisors we commonly encounter during a due diligence and transition process:
- The Lone Wolf
This advisor is typically a sole practitioner who is used to making any and all decisions about the business by themselves. They aren’t naturally inclined to work with a recruiter or consultant, and even the exercise of talking to managers likely makes them uncomfortable. The risk here is obvious: their thinking becomes insular, and they don’t know what they don’t know. It’s healthy and productive to get input from the outside, whether it’s a recruiter (shameless plug!) or even a friend or colleague at another firm. On the positive side, when it comes time to make a difficult decision, these advisors often shine since they are the sole decision-makers in the day-to-day running of the business.
- The Social Butterfly
This needs little explanation as it’s a common bucket for many advisors. After all, many skills that make for a productive and effective advisor lend well to this type of person. However, the social butterfly may be overly concerned with the actions of colleagues, making it hard for them to drown out the excess noise. We often hear from those who chose a particular firm because their friend did so before them. This is usually a recipe for an unhappy marriage if that’s the primary reason the firm was chosen—and not that the firm was well-aligned with the advisor’s goals and objectives. On the plus side, these advisors don’t typically suffer from a lack of information, as they are exceptionally “plugged in” to the Street and have a wealth of resources available should they have questions about a particular firm or model.
- The Bird’s Eye Viewer
This is the advisor who sees everything from 10,000 feet—unconcerned with the details. It can be a highly efficient way to run a diligence process, but the risk is that they don’t ask enough (or the right) questions. For example, nobody loves technology demos, but they are important, nonetheless. And it’s time-consuming to thoroughly vet mutual fund managers on a new platform, but it is, of course, critical. There is a fine line between details and broad strokes, and it’s important to walk it: It’s okay to be a big-picture thinker, but not at the expense of gathering all necessary information.
- The Details Person
On the opposite end of the spectrum is the advisor who lives in the weeds: the details person. Analytical by nature, they live by the age-old adage “Measure twice, cut once.” But they walk a fine line: It is, of course, important to be concerned with the minutiae of one’s practice when considering a move, but not so much so that the advisor runs into “analysis paralysis.” The reality of a move is that there will always be uncertainty and unanswered questions. The advisor’s job is to gather as much information efficiently and effectively as possible and then make an informed decision based on that analysis. It’s a fool’s errand, though, to try to guard against every possible outcome.
- The Transition Pro
This is the bucket in which we find many long-tenured industry veterans and those who have made a transition in the past. These folks know a lot about what it’s like to conduct proper diligence and ultimately transition a book of business. Also, because they tend to be more seasoned advisors, they know many of the managers in town. There are a few notable concerns for these advisors. First and foremost, it’s important to “play the game.” No one likes a know-it-all, and hiring managers like to run their process a certain way. Secondly, it’s critical that even the most experienced advisors realize that there are some things they don’t know. For example, the industry landscape has evolved dramatically in recent years. So, while these advisors may know every manager at every traditional firm in town, they may know less about the independent space.
As an advisor reads through this, they may say, “Sure, the lone wolf, that’s me.” Or perhaps they may feel they fit somewhere between one category and another—such as the social butterfly and details person. Either way, it’s a good thing because a third-party perspective of your thought process can guide the best path through due diligence and alleviate some of the stress that often comes from trying to fit a square peg into a round hole—resulting in painful pitfalls and time-consuming mistakes.
As seen on WealthMangement.com…