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How to Manage Your Firm’s Data Instead of Drowning In It

Focus on monitoring the most important metrics, including these 4 KPIs.

The main job of an independent financial advisor is to dispense financial and investing advice to clients. But this constitutes just part of what most advisors spend their time doing. The typical financial advisor must also spend time analyzing clients’ financial situations, meeting with prospective new clients and performing all the tasks involved in running a business.

A study performed by Kitces Research determined that the average lead financial advisor spends just 8.8 hours per week meeting with clients. The average advisor spends 5.3 hours per week preparing for these meetings, 6.6 hours doing the supporting financial planning and analytical work, and 6 hours on follow-through client servicing tasks.

In addition to these direct client activities, the average advisor spends an average of 9 hours per week prospecting for new clients, 5 hours on marketing and new business development, 4.7 hours on management tasks, 4.2 hours on administrative tasks and 3.2 hours on professional development.

Given this, it’s critical for independent financial advisors to carefully manage the business information that comes into their firm to avoid information overload and manage their time more efficiently. Two of the crucial sets of data that financial advisors must manage include client data and business data, both of which have the potential to become overwhelming. Let’s look at some ways to manage this data effectively.

Client Data: Structured vs. Unstructured

Your client data falls into one of two broad categories: Structured data and unstructured data. Structured data has been predefined and formatted into a set structure, which allows it to be easily retrieved and used by your firm. Structured data can also be analyzed by computers using machine learning to uncover patterns that aren’t obvious to the human eye.

Unstructured data is data that exists in its native format, whether in emails, office documents (e.g., Word, Excel, PowerPoint), charts, graphs or audio files. This kind of data cannot be easily analyzed, manipulated or used by an advisor. Therefore, one of the first steps in improving the management of client data is to translate unstructured data into structured data.

Most advisors store structured data in a customer relationship management system. There are a number of benefits to using a CRM system to manage customer data. For example, you can consolidate client data so it’s centralized and accessible, maintain and sync your scheduling, automate routine processes to increase productivity, track communications and capture important information about client relationships and improve client retention.

Digital tools can also help you improve management of client data, which can free up more time to spend meeting with and serving your clients. These tools limit the amount of guesswork, research time and manpower required to make good decisions for your clients. They are especially important when client data is spread across multiple platforms.

Tools that can help you better manage client data and avoid information overload include those that enable:

  • Account aggregation;
  • Information reporting;
  • Open architecture; and
  • Modeling scenarios.

Business Data: Which KPIs Should You Track?

Key performance indicators, or KPIs, are a critical data source for independent financial advisors. KPIs are quantifiable measurements that let you compare your firm’s actual performance to your goals and objectives. But which KPIs should you be monitoring so you don’t drown in too much information?

Here are 4 KPIs that financial advisors should keep a close eye on:

1. Assets under management — This is probably the most cited KPI for financial advisory firms. AUM is the total market value of all the investments managed by your firm on behalf of your clients. Healthy, growing firms should see AUM increasing over time. If your AUM is decreasing, investigate whether this is due to a loss of clients, the movement of some client assets out of your firm, market performance or some other factor.

2. Gross and net profit margins — Profit margin is calculated by subtracting your business expenses from your revenue. Most financial advisory firms have direct expenses and overhead. Direct expenses are costs related to working directly with your clients, while overhead is all the costs incurred in running your business, such as salaries, rent, equipment, technology, and marketing.

Gross profit margin is your revenue minus your direct expenses, while net profit margin is your revenue minus direct expenses and overhead. One rule of thumb is to shoot for 40/40/20 with 40% of revenue going to direct expenses (or a 60% gross profit margin) and 40% to overhead, leaving a 20% net profit margin.

3. Individual client profitability — In addition to overall firm profitability, you can also measure the profitability of each client. This will help you determine which clients you should devote the most time and energy to. Start by calculating how much revenue is generated by your average client (divide your firm’s total revenue by the number of clients).

Next, determine the distribution of revenue generated from each client. This will tell you whether most of your clients are in the sweet spot right around your firm’s average, or you have a segment of wealthy clients that is balancing out a base of smaller (and less-profitable) clients.

4. Firm growth rate — A financial advisory firm’s growth can come in two forms: new revenue from new clients and new revenue from existing clients who buy more products or hire you for additional services. Revenue can also be generated from market performance that increases AUM.

To measure your firm’s growth rate, you must monitor how much revenue is being retained from year to year. KPIs here include the percentage of revenue that is recurring (AUM and retainer fees vs. hourly and one-time planning fees) and the percentage of clients who are retained each year.

Avoid Information Overload

Getting a better handle on the relevant client and business data flowing into your firm can help you increase efficiency, focus on the most important metrics you should be monitoring, and avoid information overload. Don’t wait—get started today.

Gino DeRango is a Senior Vice President at Axos Advisor Services.

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