From the August 2012 issue of Investment Advisor • Subscribe!

Pursuing Practice Excellence: Where Advisors and Their Partners Part Ways

In the final report on our comprehensive practice management study, we identify the areas where advisors and their partners differ on practice management.

Photo Illustration by <a href="http://www.corbisimages.com/">© Sung-Il Kim/Corbis</a> Photo Illustration by © Sung-Il Kim/Corbis

Advisors rely on their partners to run their businesses, and many financial services businesses count advisors as key clients. So shouldn’t it be the case that advisors and their partners are on the same page when it comes to what works and what doesn’t in practice management? Wouldn’t the strength of the relationship between advisors and their partners be built on shared perceptions as to setting goals and how to measure success on practice management initiatives? Wouldn’t they agree, at the most basic level, on the definition of practice management?

The answers to those questions, the Pursuing Practice Excellence study found, are both yes and no. While there are shared perceptions to be sure, there are also wide gaps between what advisors say they want and need and what their partners are providing and planning to provide. In truth, there is both a push and pull effect in evidence when it comes to practice management initiatives: While their partners may be further ahead on the curve than advisors in some ways, in other ways, advisors’ needs are not being met. Their partners in some instances are expending dollars and intellectual capital in certain practice management areas that, according to advisors in the survey, are of little or no importance.

In the accompanying cover story in this issue of Investment Advisor (see “Beyond the Buzzwords,” page 24), we present the shared wisdom of four especially insightful industry leaders who came together in person in June 2012 to explore the reasons for these gaps, to suggest why advisors and their partners may have different priorities and to craft ways for advisors and their partners to narrow those gaps. Here in the final article in a three-part series relating the findings of our premiere practice management study, we tell you what the data shows and suggest some conclusions, but also allow you to draw your own conclusions.

During the course of our research, which has resulted in the Pursuing Practice Excellence study, we surveyed 954 advisors and interviewed 52 industry leaders from five different categories of firms that partner with advisors. In the first article in the series, we reported on what advisors identified as their key practice management needs and sources of help to meet those needs. In the second article in the series, we asked the executives responsible for building practice management solutions for advisors many of the same questions we asked advisors to see if there were differing perceptions—there were some fascinating ones—and to describe what those differences were so as to suggest ways for both groups to work together more closely to ensure each others’ success. In this concluding article, we identify gaps between advisors and their partners.

Yes, It’s Important, but…

To begin with the bottom line, both advisors and industry leaders found practice management services to be highly important to their relationships. But in the first of our surprising gap findings, more advisors (27.3%) said that these services were critical to the relationship with their partners than did the industry leaders (17.3%). Moreover, the number of advisors who said practice management topics constituted little or no impact on their relationships with their partners (13.3%) was lower than the industry leaders (19.2%). Considering that the industry leaders are dedicating their careers to practice management and should be the biggest proponents of these services, it appears that the industry might be undervaluing the overall importance of practice management to advisors.

All My Offerings Are Above Average

However, when we analyze the importance of specific types of services provided to advisors by their companies, industry leaders appear to overvalue all of the practice management services they provide. In particular, when asked about the importance of business services, a gap of over 20% opens up between the industry leaders and advisors.

Reviewing the specific list of 30 different activities, as you would expect given the summary numbers above, 28 of the 30 activities were overvalued (that is, rated as more important than by advisors) by industry leaders. There were several significant gaps of over 30% between what advisors and their partners valued, including client segmentation, staff efficiency, benchmarking and succession planning. There were only two activities that were undervalued: utilizing social media and PR/community outreach.

Who Delivers the Goods?

There were also some gaps in the perception of what types of people are effectively delivering practice management solutions. We asked slightly different questions to each group, but the answers to those questions show a major difference in terms of the perception of product wholesalers. Advisors ranked them as having the best relationship while the industry leaders put them below 20%. It is also interesting to note that the perception of the effectiveness of branch/field/sales management came in under 50% for both groups.

The Value of Training

For the most part, industry leaders again overvalued all of the training methods to deliver practice management services. The major exception was actually the easiest to deliver —basic education. We should also note that at least 40% of advisors found each of the methods valuable.

How to Deliver

Advisor responses to the value of various practice management delivery methods were more tightly bunched than the industry leaders’. Advisors’ responses ranged from 17.6% to 47.9%, while the industry leaders’ responses ranged from 0% to 82.7%. In addition, industry leaders were more likely to overvalue in-person methods and undervalue the self-serve methods, though to be fair, advisors did rank the personal methods higher in general as well.

Summing Up

The Pursuing Practice Excellence study discovered these gaps and more between advisors and their industry partners when it comes to the subject of practice management and even the definition, which is itself constantly evolving in scope, depth and best practices. As we mentioned, the shared wisdom of four industry experts in the accompanying cover story shines a light on those gaps, and the participants discussed in a wide-ranging roundtable how those gaps can be elucidated and narrowed. We are planning to make this research effort an annual event. The first year’s results will create a baseline that can be used to determine shifts over time in both how advisors think about practice management and the industry’s response.

We intend to keep digging into the issue at ActiFi and in Investment Advisor and on AdvisorOne.com—where additional resources on the Pursuing Practice Excellence study can be found. Only together can we find the solutions to achieving practice excellence.

See our Pursuing Practice Excellence home page for further resources.

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