Last month, the 2008 Beijing Olympics not only witnessed new athletic speed records, it also set television records by attracting 214 million American viewers over 17 days–making it the most watched event in U.S. television history. Mesmerized by the best athletes in the world, we watched with bated breath to see if 41-year old Dara Torres still had it. If Michael Phelps could be the winningest athlete in Olympic history. If Usain Bolt was the fastest man. As I watched, I wondered how many of us are inspired by these remarkable athletes. How many kids wonder if down the road they could be another Nastia Liukin or Shawn Johnson or even Michael Phelps?

So why were we all glued to our TV sets? Likely for two reasons: Because we were watching the best of the best and because there’s so much to learn from them. Just as athletes can refine their abilities by watching Olympians, advisors can apply “training tips” from the highest-ranked advisory firms to improve their own businesses.

The Top Firms

In identifying the “top firms” in the Rydex AdvisorBenchmarking study, we applied a multicriterion scoring model that includes four variables: size of firm, growth rate, profitability, and range of services offered. Based on this screening, a Top Firms’ Benchmark–comprising the firms that met our tough performance criteria–is created. The resulting 36 most successful RIA firms are contrasted with the rest of the marketplace.

It’s no surprise that the best advisory practices sport a higher profit margin, number of clients, AUM, and growth rate than their peers. But looking deeper, we find that there are other factors that differentiate top performers from average firms. The major differentiators are: delegation of client relationships; staff management and compensation; time management; and marketing skills.

Delegation of Client Relationships

One of the greatest concerns advisors express is their obligation to not only work in their business but to also work on their business. The fact is that a fourth (25%) of average advisors don’t delegate meetings and a third (32%) don’t delegate client relationships to staff members. In contrast, a mere 5% of best firms decline to use internal talent as a time-stretching resource. (See Practice Edge July 2008) Top firms also allocate more of their expenses to staff (37% vs. 20%). These firms are also more likely to tie employee incentives to individual revenue, which ultimately leads to higher individual compensation and a higher employee retention rate.

Principal Responsibilities and Time Management

Our research also shows that advisors are preoccupied with business administration tasks. As a result, they don’t spend enough time on client service–a key area in an advisor’s business. An average advisor spends only 25% of his or her time in front of clients. In contrast, the best practices are providing what their clients want most–their time . (See Practice Edge May 2008) The chart below shows that principals of top firms spend the majority (60%) of their time with clients–more than twice as much as the average advisor. Clients are getting more attention at top firms and are more likely to show loyalty to those firms.

Top firms are also spending twice as much time (16% vs. 8%) on business strategy. That is, they aren’t being complacent. They’re pondering the additional services current clients may benefit from and thinking about what prospective clients may want. In short, best practices deliver personal attention and seek to achieve results through conscientious business strategies that are always forward thinking. Moreover, top advisors spend a tenth of the time that average advisors do on administrative duties (3% vs. 31%)

0908-PEChart11.gif

Marketing

Another differentiator between top advisors and average ones is the amount of time spent on marketing. Top advisors spent twice as much time on marketing as average advisors (12% vs. 6%). Marketing is a major challenge for advisors. Only half (54%) of average advisors have a marketing plan in place, in contrast to the top advisors who all have marketing plans for their businesses. Although advisors are optimistic about business growth over the next five years–almost half of the advisors surveyed (44%) expect to propel their business to the next level by growing more than 30% annually–very few firms actually hit that mark. The key driver for this growth is not market performance and client contributions, but client acquisition. At the same time, client acquisition remains it’s the biggest challenge. When evaluating their businesses, advisors cited finding new clients (63%) as the most serious threat to their business. Only those firms with a solid marketing plan in place will be able to overcome that challenge and drive a healthy growth.

A basic marketing plan will take into account:

- A market assessment (evaluate the internal and external environment, i.e., a SWOT analysis)

- Goals and objectives (Set target metrics for your business such as revenue goals, AUM growth, number of clients, number of new clients, average account size, profitability, and even desired perception of your firm)

- Strategies (the marketing and business strategies to attain your objectives, i.e., referral program, pursuit of specific client types, etc.)

Borrowing From the Best

Overall, top firms have broader services, higher asset growth rate, and higher profit margins. As demonstrated by the best firms, spending time on the right things is likely the best place to start. By delegating administrative duties, advisors can focus on the areas that are most beneficial for their bottom lines: client interaction, strategy, and marketing. While there is no “guaranteed method” for practice management success, by studying these best practices, you may be able to borrow “tried and true” ideas from winning firms.

How the Average Firm Measures Up Against the Best

All Firms

Top Firms
Assets $155,000,000 $975,000,000
AUM Growth Rate 9% 21%
Revenues $1,668,000 $7,564,000
Expenses $1,260,000 $4,520,000
Net Profits $408,000 $3,044,000
Profit Margins 24% 40%
Number of Employees 9 18
Principals 2 5
Number of Clients 356 621

Maya Ivanova is a market research manager with Rydex AdvisorBenchmarking.com. She can be reached at mivanova@advisorbenchmarking.com.

About Rydex AdvisorBenchmarking, Inc., an affiliate of Rydex Investments

AdvisorBenchmarking is a free practice management program designed to help RIAs better manage and grow their firms. The analysis on Rydex AdvisorBenchmarking.com is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex Investments or any of its affiliates.