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Life Health > Health Insurance

New Advisor Health Index Assesses Practice Health

By Marlene Y. Satter

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Russell Investments announced Wednesday the availability of its new Advisor Health Index. The tool, available on its Helping Advisors site, provides a means of evaluating an advisor’s practice by means of benchmarks across five strategic business measures; it also offers a personalized score.

Advisors answer seven questions about their practices. Depending on how the practice is structured and its stage in the business life cycle, it is classified against a category benchmark based on other practices with similar attributes; there are five different practice categories.

Once a practice has been classified, it is given a Health Index score and benchmarked against peers within its category on five different strategic business measures: total revenue per client, recurring revenue percentage, turn (revenue/AUM), active clients per FTE and AUM per client. Russell has weighted the measures based on how important it believes they are to the growth and success of an advisory firm.

The score, between 0 and 100, reflects how the firm compares to category practices within the top quartile. Higher scores indicate closer matching, while lower scores highlight differences between a firm and its high-performing category peers. The tool also provides details to the advisor on how his firm is benchmarked against each of the five strategic business measures.

Sam Ushio, practice management consultant for Russell’s U.S. advisor-sold business, said in a statement, “Although each financial advisory practice is unique, our experience has shown that many firms face the same challenges and there are notable similarities in practice management across top-performing firms.”

Benchmark data for the Advisor Health Index is drawn from a custom dataset of 534 firms with $25 million or more in assets under management taken from the InvestmentNews/Moss Adams 2010 Financial Study of Advisory Firms, conducted by Moss Adams, LLP. The benchmark data represent mean values of high-profit firms (top quartile practices in terms of pre-tax income per owner).

Ushio explained, “The goal of the Advisor Health Index is not to ‘diagnose’ an advisory practice but to facilitate a meaningful understanding of the metrics that drive the health of a business and provide a basis for comparison with high revenue firms so that advisors can modify business plans and practice management approaches as needed.”

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