Close Close

Practice Management > Building Your Business

Vanquishing the Practice Management Demons

Your article was successfully shared with the contacts you provided.

Do you like scary movies? I do, and apparently I’m not alone. Horror flicks have been a real bright spot for the movie industry in recent years with the proven potential to post monster profits. Moviegoers love a good fright, as long as they know there’s no real danger. What happens in real life, of course, is an entirely different story. In our 2007 survey of advisors, we asked them what threats to their businesses worried or scared them the most. Three-fifths (64%) said they get the heebie-jeebies when faced with managing their businesses and staying strategic, and at the same time juggling day-to-day operations.


In a competitive, complex, constantly changing environment, it’s understandable that advisors would be challenged by wearing dual business hats. This often-overwhelming environment can hinder advisors’ ability to see the big picture and potentially can lead to the mismanagement of their businesses. So what can advisors do to meet this challenge?

Scene 1: Create Your Business Plan

Committing a plan to writing is your best bet for getting your thoughts in order, establishing your objectives, and determining the actions you’ll need to take to achieve your business goals. We saw an increase in the number of advisors who have business plans–up to 68% in 2006 from 58% the year prior.

While business plans vary in complexity, even a simple plan should outline your:

- Strengths. Determine what it is that you do that adds unique value–then focus relentlessly on that. Don’t try to be all things to all people. Think about what special knowledge and expertise you have and how this translates into a competitive advantage that differentiates your firm from others in the marketplace.

- Market. Based on your expertise, what clients are best for your firm? You may want to start this exercise by considering the types of clients you have now. Are there any commonalities? Who are the clients that you prefer to deal with? Why? This examination will help you determine what target market or markets–you can have more than one–you want. Then determine the best ways to find clients that meet these profiles. Most advisors fail to focus on specific markets. In fact, we found that 19% of advisors have no market focus, and 65% consider only a wealth range as their demographic focus. As a result, they spread themselves too thin with a wide variety of clients. To be more successful, you need to be more focused.

- Services. Once you’ve determined the client base you want to focus on, it’s essential you provide the services they need. Be specific about what kind of investment management advice and services you will offer, what additional investment services you may wish to add in the future, and whether you will also sell investment products. Many advisors fail by offering too many services, so you will be well-served by keeping a tight focus. The savvy investor may not be looking for a “jack of all trades” advisory firm. Instead, by offering an exceptionally wide band of services, a firm could be signaling that it doesn’t have an area of specialty or expertise. This is not to say that providing multiple products and services isn’t an important part of a successful wealth management business model, but there’s also something to be said about firms that have their fingers in too many pies. For example, a company that hires its own accountants or attorneys will likely have higher overhead costs. Conversely, in order to provide clients with a wide range of services without housing them internally, many advisors are utilizing strategic alliances with specialized professionals, thereby offering a high-level, polished expertise to their clients and prospects and creating a “two-way street” for client referrals. Of the RIA firms that participate in Rydex AdvisorBenchmarking’s survey research, 35% offer six or fewer services to their clients. These same firms are the ones that showed wider and healthier profits–$450,000 compared to $284,000 for those firms offering more services–a substantial 58% difference.


Scene 2: Determine if Your Financials Measure Up

Your financial goals. Aiming for specific objectives is one of the best ways to balance the strategic with the tactical. You are running a business, so financials are paramount. One of the ways to judge your success is to benchmark against your peers. Take a look at typical industry measures, such as profitability and productivity, to see how you stack up.

If you’re below these averages, don’t despair. Look a little deeper and determine why you’re deviating. You may not be making an apples to apples comparison of your firm to other RIA firms that look and run much the same. Find out how you measure up to those firms with the 2007 AdvisorBenchmarking study. It allows you to compare various asset ranges and how profitability and productivity measures stack up based on size.

The bottom line: The advisor market is growing and so is your firm. Make sure you’re planning your practice’s development carefully so the need to work on and in the business simultaneously isn’t so scary.

Maya Ivanova is a research analyst with Rydex, an affiliate of Rydex Investments. She can be reached at [email protected].

If you would like to receive any of the following research reports via e-mail, please contact [email protected].

The Advisor Confidence Index monthly release;

AdvisorBenchmarking’s Comprehensive Analysis of the RIA Marketplace Study;

AdvisorBenchmarking Media Exposure Series.

To receive a customized benchmarking analysis of your practice, visit the free online tool

AdvisorBenchmarking, Inc., an affiliate of Rydex Investments, is a research and analysis center focused on the RIA marketplace Through its web site,, the firm conducts multiple advisor surveys every year covering a host of business management and investment-management practices. The findings and analysis of the data are then released to the marketplace in the form of annual studies, quarterly research notes and monthly newsletters. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors, as well as learning best practices of the most successful advisors.