Close Close

Practice Management > Building Your Business

Leveraging Your Strengths

Your article was successfully shared with the contacts you provided.

Peter Drucker once said, “Time is the scarcest resource and, unless it is managed, nothing else can be managed.” This observation, from one of the world’s foremost business management experts, is especially true for the investment advisory profession. Your time is a finite and scarce resource-one that must be managed and spent carefully.

Our AdvisorBenchmarking research shows that the way advisors spend their time varies greatly. Some advisors devote a great deal of time to gathering assets and communicating with clients, while others spend more time managing portfolios. By surveying advisors and asking them about their time management, we found some interesting results that may cause you to rethink the way you spend your time.

Time is Money

Most advisors surveyed (73%) work between 40 and 60 hours per week (see Chart 1). What’s surprising is that number of hours worked has no connection at all to profitability. The takeaway here is how much time you spend on your business doesn’t directly translate into profitability. It’s how you spend your time that can make a profound difference in your business.

The more time advisors spend on client-facing activities, the more profitable they are (see PracticeEdge, June 2005). The good news is that advisors have taken this to heart and are spending more time with clients and reaping the rewards. Our research shows that in 2005 advisors spent 27% of their time on client service compared to just 19% in 2004 (see Chart 2) and saw their profit margins increase from 27% to 35%.

In an effort to further isolate some trends in time management, we divided advisors into two groups-those who spend less than 30% of their time with clients and more than 30% of their time on portfolio management, and those who spend more than 30% of their time with clients and less than 30% on portfolio management. Using Prudential Securities’ classification system, we define the first group to be money managers and the second group as relationship managers. Money managers possess the analytical and technical skills needed to handle the actual management of client assets, while relationship managers excel at building trust and working with clients. See the results of our analysis in the table below.

Relationship Managers vs. Money Managers

Median Percentage of Time Spent with Clients Median Percentage of Time Spent on Portfolio Management Median Percentage of Time Spent on Marketing Median Number of Services Professional Partnerships in Place Median Profit Per Client Median Profit Per Client (Best Firms)*
Relationship Managers 40% 10% 20% 6 Yes, 55% $1,050 $3,328
Money Managers 19% 30% 10% 4 Yes, 15% $650 $2,981

*In order to identify the best practices, we separated the top universe of the RIA firms that participated in our survey research. We applied a multi-criterion score model to capture the top firms by examining four variables: size of firm, growth rate, profitability and range of services offered.

As the table shows, relationship managers have a definite edge over money managers. Not only are they more than 61% more profitable on average, they also enjoy:

? A deeper relationship with their clients

? A larger service portfolio

? Well-developed relationships with network professionals (They have more partnerships with CPAs, attorneys, etc.)

The chart also shows how the best firms (defined by examining size of firm, growth rate, profitability and range of services offered) are even more profitable-especially those that are more “relationship” focused. These firms have discovered the secret sauce of the investment advisory business-the growth of your practice and profitability of your clients rests on the quality of service you, and your staff, provide. Yes, time management is important for you, but it’s also essential for your staff to focus on activities that are most beneficial for the firm as well.

After speaking with many of the best-performing advisors, we found they prefer to focus only on those functions that make them the most successful, productive and motivated-whether that be on the relationship management side or the portfolio management side of the business. They are unafraid to delegate other responsibilities to their employees-a comparative advantage model of sorts. Herein lies a valuable lesson: Focus on your strengths and delegate the rest.

It’s no coincidence that the best-practice firms have done such a great job defining team member roles and capitalizing on individual strengths. Mark Parrott, a vice president at Creative Retirement Planning, sums it up best, “If you are one of those advisors who are trying to wear too many hats, you will fail. Advisors should spend most of their time at what they’re exceptional at.” This approach is a win-win for both the advisor and client, one that ultimately translates into a growing business.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.