Three Ways to Boost Advisor Efficiency

Three Ways to Boost Advisor Efficiency

A bigger financial advisory practice doesn’t necessarily mean a practice that’s running more efficiently, a new report commissioned by Pershing Advisor Solutions explains.

“Mission Possible III: Strategies to Sustain Growth in Challenging Times,” found that revenue surged sharply following the 2008 crash a median growth rate of 18.3 percent in 2010 among the firms surveyed, compared to a drop of 9.5 percent a year earlier.  

Yet overhead costs per client continued to rise at an annual average rate of 5.2 percent from 2008 to 2010.

“Even among the largest firms, you do not see the operational efficiencies that you would expect as a firm grows in size, as you might see in other industries,” says Dan Inveen, principal and director of research at FA Insight in Tacoma, Wash., which did the research for the report.

The survey looked at more than 200 firms, including b/d affiliates and RIAs with asset levels from $10 million to over $1 billion. (FA Insight hopes to have 2011 figures later this year.) Inveen estimates that one in four advisors actually is operating over capacity.

“As a firm grows, they can afford to specialize and, say, have an individual who does nothing but trading or client service support, roles that an advisor in a one-, two- or three-person shop is taking on himself,” he says. “The challenge you see as a firm grows is the clients they serve are becoming more complicated and harder to serve in a standardized way.

“Also the firms themselves are becoming more complicated as they take on these specialized roles. They throw more bodies at the problem, so to speak, yet their infrastructure for managing and developing and supervising people isn’t where it should be or needs to be to get maximum benefit from the new positions they’ve added.”

The report outlines three ways that financial advisors can boost their levels of efficiency.

1. Client-centric focus. Targeting specific client markets, such as radiologist, produces higher profitability; indeed, profitability per client among top firms that targeted investors was 2.4 to 3.5 times greater than all other firms surveyed in the report.

“If you’ve got a relatively homogenous client base, you can more readily develop expertise that speaks directly to the market,” Inveen says. “Maybe you can focus on executives of a Fortune 500 company in your town, and all these executives have a similar type of stock option plan and similar types of benefits that you need to manage around. You can develop an expertise in those benefit programs, and all of a sudden you become very efficient…You can be known as the expert in servicing that type of individual. They speak with one another, and it becomes very easy to get client referrals.”

Selecting the right market is crucial. Advisors want groups that show the best growth opportunities. Advisors also need to consider the resources that will be needed to service such clients

2. Watch the workflow. A growing firm inevitably becomes more organizationally complex, the report notes, but not all managers are tracking how well that creates value. Only about two out of five firms in 2010 actually document major business-to-client processes, while only a third were consistent in their processes, such as managing telephone calls from clients to ensure the staff sounds professional.

One way firms can improve is by incorporating such processes into their client relationship management system, the report says. One firm uses the system to divide its clients into three service tiers ranked by revenue metrics; each tier has specific service “touches” that allows for consistent client experiences while ensuring that staff aren’t spending excessive time with low-revenue investors.

3. Align staff with roles. There’s the tendency among some top managers to perform work that would best be delegated, particularly if the manager thinks it would be quicker if he or she just handled it. Such attitudes sap the time that’s available to managers to handle important client releationships, however, and it can create long-term inefficiencies.

“You’ve got instill confidence in your senior people that those underneath them will get the job done to a quality and standard that will meet expectations,” Inveen says. “If you’ve got a good training process in place, you’ve got good guidelines and standards that are documented within the firm, all those kinds of things are going to help increase the senior advisor’s confort level in terms of delegating down.”

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