I consider this article one of the most important I’ve written for Research magazine since I came on board in May 1990.
In it, you will learn how you have to modify your time allocation as you progress from one level to the next. Based on new research, I have now overhauled “The Model Day Worksheet,” which is posted for you at billgood.com/timemanagement. There you will also learn how to measure your time allocation, which is the first step to control.
How I Determined an Advisor Is Worth $1,000 per Hour
In 1985 and 1986, I did a series of time studies that led me to the startling conclusion that a financial advisor’s time was worth about $1,000 an hour meeting with and talking to clients and prospects. To do the study, I found a programmer who programmed one of the first handheld computers to hit the market. In short, he made it time and count activities.
When I got my first results, I was so stunned that I repeated the study. I could not believe the results. In 1991, we programmed a portable barcode reader. Using better technology, I repeated the study again in the former Prudential office in Rancho Mirage, Calif. The branch manager allowed me to spend a week in the office. All I did was observe and verify that time was being tracked correctly. Within a relatively narrow margin of error, I again came up with my $1,000/hour figure.
But I have never seen an independent study that in any way verifies my primary finding and the conclusions I drew from it.
I was given access to some critical findings from a survey of RIAs conducted by Cerulli Associates. All of the people surveyed were RIAs, meaning they have established their own investment advisory firms, registered with the SEC. Some were dually licensed – affiliated with an independent broker-dealer in addition to maintaining their own RIA firm. The survey did not disclose the percentages. But I don’t think it matters. The conclusions of that study apply to you whether you are in the RIA, independent, bank or wirehouse channel.
Cerulli Associates conducts studies across financial services. You probably have seen some of the headlines of articles reporting on these studies:
Clients Seek Second Opinions and Additional Advisor Relationships (August 2011)
Top Ways to Lose your HNW Clients to Other Providers (July 2011)
I would put it this way: They discover some of the truths about this industry.
With the kind permission of Cerulli Associates, I have reproduced a table from their time allocation study for you.
The rows highlighted come closest to activities that a financial advisor should be doing. Most of the other stuff they should not be doing and should be delegated.
Just eyeballing these, you can see that the larger the asset base the more time spent with clients.
I did a bit of mathematics on this table. I assumed a 40-hour work week. I converted the Cerulli percentages to hours. Then I calculated some subtotals.
As you move past $100M to the $250M-$500M category, time spent with clients and prospects increases about 50%. But gross revenue, based on a percentage of AUM, would go up anywhere from 100% to 250%. It’s called leverage. The principle of the $1,000 hour is true. It just grows exponentially.
My primary conclusion was and is: Gross revenue is increased by spending more time meeting with more and better clients and prospects. Time is the critical variable.
The conclusion I draw from the Cerulli Associates study is most certainly not that as your business grows you have to spend more time with clients and prospects.
It is precisely the opposite: You get there from here by spending more time.
The $500M to $1B Anomaly
I’m fascinated with the numbers for the $500M to $1B category. My guess is that as a financial advisor grows from $500M toward $1B, the entire structure of the organization has to change. By the time the practice moves past $500M, there should undoubtedly be several relationship managers. So the primary FA spends less time with clients. But they’re spending more time in preparation. As the practice moves on to $1B, time spent in “client meeting and plan preparation” drops. That’s probably because team members have been added for meeting preparation.
The Cerulli study provides some tremendously interesting insight on how one’s “model day” might evolve. Let’s assume you have less than $100M in assets. Using the “Model Day Worksheet,” I would try to configure my model day as if I had $100M. Build the model day for your next level. This is all based upon that profound philosophical principle, “build it and they will come.”
I first got an inkling of the idea that you have to “build it first” when a client of mine — Keith Vanderveen, then with Merrill Lynch, now a regional president with Wells Fargo, was on an incredible roll in the early 1990s. He sailed past $1M in gross revenue and immediately built the team that would support $2M.
But the team is only one of the many drivers that will take you from one level to the next. It is clear from the Cerulli Associates study that time allocation changes one level to the next. As part of your planning for 2012, my very strongest recommendation is: Figure out how to make your model day match that of your next level.
Bill Good is chairman of Bill Good Marketing. His Gorilla CRM® System helps advisors double their production or work half as much; visit www.billgood.com. His seminar program, “No More Pies! ®,” helps advisors manage ETF portfolios using technical analysis; see www.nomorepies.net. And his blog, financialadvisorsmarketing.net, has lots of useful information for advisors who need to beef up marketing. To preview Bill as a speaker, see his YouTube channel here: bit.ly/billgoodspeaker.