Practice Management Primer, Pt. 6: How to Benchmark Your Firm


In the previous post of our seven-part series on practice management, which we’re calling the ActiFi Practice Management Primer, we discussed the importance of key performance indicators and measuring results as it relates to your overall practice management plan. With that information in mind, along with the other points we’ve discussed, in this blog we’re covering the next step in the process: benchmarking. 

The most important benchmarking you can do is against your own goals and objectives to determine what is working and what is not.  Once you are clear on your performance against your goals it is useful to take a broader perspective and determine where you stand in relation to your peers and competitors. By comparing your results and stats to those of other practices, you’ll be able to see where you’re coming out ahead and where you’re falling behind. 

To get started, you’ll need to identify the appropriate benchmarking studies related to your firm’s goals.  Several broker/dealers and custodians have very good benchmarking data. In addition, studies by FA Insight and InvestmentNews/Moss Adams are a good place to get independent benchmarking data. We are beginning to see portfolio management software providers share powerful business statistics as well.  For example, Orion Advisor Services has a very cool Business Metrics report that they offer to their advisors.    

Having the data and knowing how to use it, however, are two different things. Rather than getting lost in a thicket of statistics and numbers, review data with specifics in mind. When you’re looking at benchmarking data in aggregate, it will ultimately be less useful to you than if you look at a specific metric as it relates to one of your specific goals.  Specific data will be more meaningful to you and also easier to understand. 

It is possible that you may have achieved a particular goal but as you look at industry benchmarking data you might realize that while you are on the right track, there is still significant opportunity for improvement. By understanding how you rank against your peers, benchmarking can provide the motivation to improve specific aspects of your business to make your practice more competitive and efficient. 

One caveat: the industry benchmarking studies are typically done

across a range of different advisory business models and, therefore, certain metrics may be less or more relevant to you based on the specific type of business model you have.  For example, if you are a pure asset manager comparing yourself to a family office the benchmarks may not provide meaningful data.  

Whether you find successes or deficiencies, you can start building new goals and tasks into your business plan. If, for example, you’ve made strong advancements towards your goal of adding new clients, and are benchmarking well against your peers, you need to consider the impact that will have on your business. Is the added business maxing out your existing staff? If so, the next step is to find out how to solve that problem, whether it’s adding new employees or embarking on a plan to increase efficiency. What’s appropriate will vary, as all practices are different. 

The skills required to be a great advisor is different than the skills needed to run a great advisory business. To put your practice on the fast track to success, benchmark against your peers and use that information to build your business plan with added insight and knowledge. 

In our next post, the last of the series, we’ll take a high-level view of everything we’ve covered thus far and share some final tips that will help you to continue building a better practice well into the future.

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