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Formulas for Success: Ten Things to Do Now

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Each year I identify 10 Big Things that advisors should consider as they develop their long- and short-range assumptions for strategic planning purposes. In the past, I tended to dwell on sweeping industry issues like the talent shortage or pending regulatory changes. But after meeting with scores of advisors over the past

year to learn what’s keeping them awake at night, I realized that after so much suffering, advisors today would prefer to see the issues boiled down into manageable solutions that could “move the needle.” We’re not talking about seismic shifts but rather smaller, incremental movements that are measurable by advisors.

In surveying the advisor landscape, the hills and valleys are a bit higher and deeper than they were just two years ago. The typical firm is experiencing stress from many corners–clients, staff, and regulators. Profit margins are squeezed and time is more compressed. So now is a good time to redefine your goals and how you will get there.

But before applying these 10 initiatives, it will be helpful to establish a mechanism to monitor and evaluate your firm’s performance to determine whether your management actions are making an impact on:

o Gross profit margin (gross profit dollars ? revenue)

o Operating profit margin (operating profit ? revenue)

o Productivity (revenue/staff; revenue/client; operating profit per staff and client)

Establish a base line from three years ago and calculate the ratios for each of the subsequent years. When evaluating your business performance in 2010, you then can observe the trend line and compare your performance to what may have been your best year. With the end in mind, it will make it easier to create buy-in among partners and associates on the critical action steps required to achieve better operating performance.

Assess Pricing Strategy. An effective pricing strategy aligns with your value while remaining conscious of what the market is getting for comparable services, and produces a reasonable profit margin. Most firms have discovered that the asset-based pricing model serves them well in up markets–but puts added pressure on them in down markets. Evaluate whether your current pricing strategy reflects what you offer and produces an adequate profit per client.

The Optimal Client. To determine what your future client service experience should be, develop a profile of your optimal client. Create a matrix with the 25 existing clients you would like to replicate and track common characteristics. A matrix can identify traits such as the source of the business (how they came to you), the catalyst for them in engaging you, how far they live from your office, their personal demographics, or their interests. See how many common boxes are checked. This will help you to define your optimal client relationship.

Develop One Associate. Most advisory firm managers struggle with finding time to proactively develop their people. This year, commit to the development of one person who can help you develop other people in future years. This will make the process manageable–and potentially leverageable. First assess the individual’s strengths and areas that need improvement. Create a plan that focuses on both. Set measurable milestones throughout the year, and commit your calendar to regular counseling meetings. Your biggest challenge will be deciding which associate is going to get your special attention.

Procure the Right Clients. Many advisory firms are still trying to get back to even after the market collapse. Some are instituting business development initiatives. Avoid bringing in clients who may clog your system and inadvertently alter your value proposition and client experience. Design an incentive plan that rewards bringing in clients who value what you offer and pay what you are worth; conversely, incentives should not reward development of those who do not fit your profile. This finer focus will help rebuild your business around your optimal client.

Improve Workflow. Once again, take a bite-sized piece and examine one process from start to finish. This could be client on-boarding, developing a financial plan, or portfolio rebalancing–three areas where advisors struggle to gain efficiency. Analyze each stage of the process with an eye to eliminating mistakes, reducing manual handoffs and improving the time in which the process is completed.

Deploy a Referral Program. The quickest way to develop a referral program is to reach out to Advisor Impact (, Julie Littlechild’s firm, as it has an effective means of turning client surveys into revenue generating opportunities. Short of this, advisors should understand which clients have a proclivity to refer other clients. Build a systematic approach to harvesting opportunities around these key clients.

Leverage Partners and Platforms. All the custodians and broker/dealers talk about the value added benefit from affiliation with them. Yet many advisors I’ve met cannot state with clarity how they are leveraging these platforms. If your relationship manager at one of these firms has not yet engaged you on how they can help your business, put pressure on them. Ask them–or a competitor–what they can do for you.

Add Capacity. In an era of cost control, it may seem counterintuitive to add another person. But the elite practices have begun to invest in capacity in order to take on more of the right kinds of clients without straining their systems. The many disenchanted, disenfranchised employees at financial services firms provide an opportunity to add capacity to your firm. Capacity translates into more revenue and profits for your business at a time when increasing numbers of clients are seeking professional advice.

Align Incentives to Behavior. In addition to rewarding acquisition of the right clients, adjust incentive compensation to get people focused on your business goals. Incentives may be directed at client service, or productivity, or personal growth. Two things to keep in mind: how you fund the incentives (profits, revenues, or changes in either); and who is eligible (what criteria will be used to reward participants in the plan).

Eliminate Low Impact Expenditures. Clearly we will be operating in a low-return environment for some time. The challenge is to gear expenses to pre-2008 levels while still experiencing margin compression. Aside from adding expenses to help drive revenue and a better client experience, deploy zero-based budgeting techniques that question spending money on anything that does not add value to your practice. The chronic malaise of the last two years is a good reason to question which costs are relevant to your business today.

Make It Manageable

While hardly exhaustive, this list is manageable–which is the point. Incremental improvements in specific areas of practice management could have a profound impact on your business success in 2010 and beyond. But because most owners and managers of advisory firms are consumed with other pressures, it is important to stage these initiatives out in some priority but with a goal of getting through the list and implementing changes by the middle of the second quarter so that you can realize the benefits in the coming year.