Identifying Business Priorities

At the end of the year, it can be helpful to reflect back on the past twelve months and consider your firm’s wins, identify any opportunities for improvement and gain experience from lessons learned. Looking back at the past year’s PracticeEdge articles on solutions and ideas that advisors can use to grow their businesses, we identified a number of key themes and want to reinforce their importance in building your business.

Last month (November 2006), we conducted a supplemental survey of the RIA market to assess topical issues. We asked advisors to tell us the “watchword” or macro theme for their firm for 2007. The results mirrored much of what we’ve discovered in our research into best practices. Relationships ranked as the number one theme for advisors, with service following closely behind.

Relationships. Advisors ranked “relationships” as their leading watchword for next year, which tells us that building a stronger relationship with clients is the top priority. That’s good. But how do you measure or quantify those relationships? Our research indicates that the best firms have a lower ratio of clients to employees, ensuring customers get a high-touch experience, which leads to better client retention. (See PracticeEdge August 2006). As you strive to build higher touch and deeper relationships with clients, consider your own ratio of clients to employees. Would you be better off with larger clients or a certain type of client, rather than a broader cross-section of clients? You could provide a much more high-touch experience if you had fewer clients that have more commonalities. Today’s best firms appear to have the ability to attract more profitable clients and give them more personal attention. And those firms with greater staff support proved much more adept at replacing their lower-asset clients with larger more profitable ones. Ultimately, these clients generated higher profits, allowing the larger firms to reinvest, add capacity, and continue to grow.

Consider asking your clients what you can do to better serve them and to enhance your advisory relationship with them. You may be surprised that the answer is something you can easily do–like provide them with more investment education or communicate to them more frequently or in a different way such as via email. By asking the question every year, you can measure your progress on client satisfaction and depth of relationship. It’s a good benchmark to have for your firm.

Service. Our research shows that the best practice firms offer a narrower range of services–which counter-intuitively translates into a more profitable business. In fact, top firms offer six or fewer services to their clients. Your takeaway is to evaluate your existing service offering and decide how much value they bring to your clients. Are they the right services for your clients? How good are you at offering them? (PracticeEdge, March 2006). Determining your optimal list of services may be a challenge. You may need to rank your clients and cross-reference it with the services they use to determine how important each service is to your business. And don’t forget profitability. Knowing which services benefit your business the most is essential.

Alternative investments. In order to better meet client expectations and help them achieve their goals, advisors are increasingly turning to alternative investments. Our latest November 2006 supplemental survey reveals that nearly half of advisors (45%) expect to increase their use of alternative investment products by at least 25% in the next five years.

Advisors have turned to alternative investments for a variety of reasons–different investment techniques (40%), seeking absolute returns (38%), filling portfolio allocations (29%), addressing portfolio correlations (28%) and seeking unique vehicle structures (25%). One interesting point is that advisors have told us that many of your clients, especially retirees, are tentative about investing in alternatives–mostly due to a lack of understanding. This brings us back full circle to relationships. If you have a strong relationship with your clients and they have buy-in and trust with the way you manage their money for them, they’ll be increasingly loyal to you.

2007: The Future Looks Bright