It is a Monday morning – the day after the Denver Broncos lost to the Indianapolis Colts. Monday mornings are writing time (I said I am a process freak). But on this particular day, it is hard to stay focused. In between writing lines, I sneak over to the Denver Post to read recaps of the game, including, Kiszla: Broncos a lot further from perfect than 6-1 record suggests – The Denver Post. Mark Kiszla a beat journalist who covers the Broncos, laments about the Broncos’ loss to the Colts.
I have liked Manning since he was at Tennessee when I learned he was a “process” guy, so I really wanted to see him win. But the article Kiszla wrote opens up a flaw in the Broncos. In Kiszla’s words, “The Broncos are too much Manning and not enough substance to be in first place in the AFC West, let alone be anything near prohibitive Super Bowl favorites.” According to Kiszla, Manning, always the perfectionist, is not enough to pull the Broncos to the Super Bowl; it needs to be a full team effort.
As Kiszla suggests: “Some way, somehow, Denver must patch together a team that can lift Manning to a championship. As it now stands, the best the Broncos can do is beg a 37-year-old quarterback to do it all.”
For many financial planning firms, their teams are based around the owner, who is typically a founder. This leader either drives sales or came to the business loving financial planning and or investing. Either way, the person is the center of the firm, just like Peyton Manning is for the Broncos. For many practices, having one star is all that is needed, especially if you are a lifestyle firm, with a focus on flexibility while generating good income. However, I would argue that regardless of whether or not you want a lifestyle practice or to grow into a firm, then you need to “patch together a team.”
Benchmarks to Play By
Moss Adams LLP is an accounting firm that has made a niche out of focusing on financial advisory practices. Each year, they compile a survey of practices – the InvestmentNews/Moss Adams Adviser Compensation and Staffing Benchmark Study – and for the last seven years I have participated. This year 386 firms participated in the study, ranging in in size from one planner to 28 planners. Assets ranged from just more than $15 million to over $3 billion in assets under management (AUM).
I enjoy the benchmarks that the study provides. I get to see what other firms are spending on compensation, technology, marketing and business development. Additionally, it provides insight into trends and the future of the industry.
In the words of the survey: “The results of this survey should give you, as a business owner, not only information on how you compare to your peers and how to improve within the type of business you are but also what to anticipate ahead of you and what the trends are that you need to follow.”
In this entry, I want to leave you with the following: whether you are an ensemble – a firm with many partners and selling producers – or a solo firm, you need to have procedures in place.
Hallmark Is In Hiring
The 2013 InvestmentNews/Moss Adams Adviser Compensation and Staffing Benchmark Study emphasizes the need for process broadly and then goes into detail for ensembles on down to solo firms.
First off, hiring is important to whatever type of firm you are. You need to pass on skills and knowledge to your team and your successor so that they can support you in growth. The survey found that the top performing firms pay more to their employees. These firms were more profitable. How can a firm that pays more be more profitable? Because the firm is more efficient, can handle more clients per person and attracts more top paying clients. The top-performing firms also achieve operating leverage by increasing revenues and clients, while keeping cost per relationship lower, thus profit margins increase.
Just as might be the case for the Broncos, the key to success for top performing firms is to focus on creating a staff structure that supports large, profitable client relationships. At AUM in a Box, our goal in sales training for financial advisors is not only to build prospects, but also to put in place processes and procedures to help firms withstand an influx of new clients. Having a meticulous staff operating efficiently to get things done aids in this process.
Let’s see how these findings play out for the different types of firms.
Solo Financial Planner
The goal of the solo financial planner is balance in life. Hiring more and more employees might be profitable, but it is also a headache as adding people is not easy and requires the willingness to recruit and train people. For many an advisor, he/she got into the business for the ability to spend a lot of time with his/her family, to pursue their personal hobbies and interests, and sometimes even to only work part-time.
Regardless of the size of the firm, being a solo financial planner does not mean slacking on process and procedures. No sir. In fact, it may even require more since solo firms typically juggle more clients per person. According to the survey, the top performing solo financial planners prove this out: “Active clients per staff at a solo firm is 45 compared to 28 for the ensemble firm and 33 for the super ensembles.” Top performing advisors, on average, have two support staff. This means that the top performing solo firm has anywhere from 90 to 130 clients.
The trick is having a staff that is well trained with procedures that can support more clients on a cost-efficient basis. This can’t be done without having a process though. Maybe Manning only has three solid blockers for the game. If they don’t know the plays and the process he has for the offense, then they won’t be able to block the opponents.
The benefit of a larger firm should come with leverage – having different employees work with clients and those employees being very effective at servicing those clients. According to the survey, top performing ensemble firms have two things in place: an orderly process to pass work from one employee to the next, and a development system and career track for employees.
At my own firm, we use a CRM database to pass work from one employee to the next. Within the database each client account is listed so that we can assign tasks. When completing a procedure, we follow a checklist. When the checklist calls for passing a task off to the next person, a task is created in our CRM to prompt the next person to take action. This begins a string of events to follow the checklist. Once the task is completed, it is noted in the individual’s account.
For the development system and career track for employees, the survey highlighted a track that normally went something like this: analyst to service advisor to lead advisor and then to practicing partner.
- The analyst is there to support the lead advisor. The analyst does all the prep work but has no relationship responsibilities nor business development expectations. As the analyst becomes competent in performing tasks and shows a proclivity for client interaction or business development, the analyst is moved to service advisor.
- The service advisor works with clients directly, managing $125,000 in revenue and supporting a lead advisor with $250,000 in revenue.
- The lead advisor is independent, managing client relationships on his/her own with revenue around $350,000, which usually equates to 75 clients. The lead advisor is responsible for building new client relationships. The next step is partner.
- The distinction between a partner and a lead advisor is really the increased responsibility of bringing on new clients. The Moss Adams study indicated that partners were responsible for $200,000 in new revenue a year, while supporting $650,000 in existing revenue.
To effectively manage more clients and more revenue, the ensemble firm does best with written procedures and delineation between tasks, much like the Broncos need as they build their team. In this way, the firm is “patching together a team.”
As you can see, hiring and having processes and procedures in place are critical regardless of firm size. Do you want more insight from the survey? There are many topics in the Moss Adams study that are worth writing about. If you would like for us to write more on the findings, leave a comment and your specific interests and we will write more.