Recently, I met with an advisory firm's owners who told me they shift approximately one-third of their staff away from their daily responsibilities for two weeks every quarter to focus solely on generating client reports.
To some, this might not seem like a misallocation of resources, but consider too that the firm was already paying for the outsourcing of its data aggregation and reporting. As it turns out, the staff was taking what was produced by the outsourced “solution” and re-entering it into Excel to generate custom reports.
The firm in this instance was a multi-family office with 50 full-time employees, but I’ve heard similar stories from across the country. These tales of inefficiency and frustration have come from such diverse firms as a $4 billion RIA in New York that’s been in business for more than half a century, a $250 million breakaway in San Francisco and a $1 billion firm in the Midwest with several regional offices.
These firms, and many more like them, have found that the complicated systems they devise in an attempt to compensate for the shortcomings of off-the-shelf products and outsourced providers still require them to devote considerable effort to key functions such as data aggregation, reporting, billing and work-flow management. The result is that resources—human, financial and technological—are devoted to systems and processes that don’t add meaningful value to the advisor’s core business of managing investments and client relationships.
In this, the first in a three-part series on how advisors can grow their businesses and better serve high-net-worth clients, we focus on the smart use of specialists. While that is the business my firm is in, the steps you should take to evaluate and smartly use specialists will serve you well regardless of who you choose to partner with.
The Value of Specialists
Advisors need to stop settling for outsourced providers and instead look for specialists who can provide efficiency and scalability without further burdening the practice’s infrastructure. A specialist will enable the advisor to retain complete control over how their firm operates and works with clients while seamlessly integrating with other systems.
Specialists bring focused knowledge and experienceto the partnership. Unlike an advisory firm that tackles issues of reporting, governance and account tracking only as it relates to their client relationships, a specialist whose core business is data aggregation and reporting solutions will invest their time, money and human capital in ensuring they are the best at fulfilling these essential functions.
For example, specialists can make major investments in emerging technology to remain competitive in the market. For the specialist, a $250,000 investment in a
program that streamlines the process of capturing paper-based account information is an investment that will produce a significant return as their business grows. An advisory firm, on the other hand, would be eating into its profits to make such a purchase and does not have the scale to make the investment profitable over the long-term.
In the case of the multi-family office, and advisors with similar business models, their challenges encompass more than just client reporting. The firm is losing efficiency and decreasing accuracy – the more people have to handle data, the greater the instances of error. The employees who are spending all this time on reports could be focusing on other vital functions, such as improving client service, prospecting for new business or onboarding clients more efficiently.
In comparison, a specialist is engineered to provide up-to-date information on all assets and track down new information as needed, taking the burden off the firm. A specialist can deliver innovative reporting solutions that allow advisors to customize reports that meet their clients’ needs and even move the advisory firm into the next era of client service—offering reports and statements online that give investors the ability to drill down to individual holdings.
A specialist can also provide the technology and innovation to streamline the reporting process, giving the advisor absolute control and oversight to ensure there are no errors in their reports.
Leading RIA and multi-family office firms have determined that hiring more staff to make up for deficiencies in off-the-shelf productsand outsourced providers is neither efficient nor scalable.These same firms have made the strategic decision to partner with specialists who are as dedicated to their own enterprise as the advisor is to theirs. The advisor benefits from this partnership by increasing their efficiency, building a more scalable practice and growing both their business and profitability.
For the advisor who is unable or unwilling to follow these sorts of best practices, they are destined to find themselves reallocating people, time and money to systems that are never quite going to support their objectives and aspirations.
In part two of this series, scheduled to be published on AdvisorOne on April 28, we will look at how breakaway brokers are creating a “new school” business model. In the final entry in the series, on May 12, we will consider the changes needed in reporting prompted by trends in high-net-worth clients’ investing.