Principal advisers seeking to build large, high-margin financial advice firms face a clear trade-off between client work and executive leadership, according to outsourcing firm Vital Business Partners (VBP).
In a new report on scaling advice businesses, the firm argues founders cannot effectively act as both lead adviser and chief executive once operations reach a certain size. It warns that many fast-growing firms encounter early-stage challenges, including declining earnings, as complexity increases without sufficient management capability.
The report says this “scaling trap” can be avoided if founders strengthen leadership skills or appoint experienced executives, alongside implementing clearer structures, systems and risk frameworks.
VBP CEO Nathan Jacobsen said firms pursuing growth through mergers, acquisitions, and organic expansion must reduce reliance on key individuals.
“A declining EBITDA margin is not inevitable,” he said, adding that larger firms require stronger capabilities in operational efficiency, governance and strategy.
Jacobsen, who is also CEO of AZ NGA, said scale can deliver cost efficiencies, improved access to capital and more disciplined growth, but requires sustained investment in people, technology and processes.
The report – From Cottage Industry to Professional Companies – draws on the company’s work with advice firms and outlines key risks and considerations for principals weighing expansion, noting that increasing regulatory pressure and compliance costs are driving a broader shift toward scale.
Click here for the full white paper.
