Growing your RIA business in the face of rising competition for clients, assets and staff has become more challenging than ever. One of the best ways to help overcome this challenge is to benchmark your business performance. Armed with valuable business information, you can set out to make strategic moves that can give you a sustainable competitive edge.
In this, the first of a two-part blog, we’ll look at why benchmarking is so important for advisory firms today, ways to benchmark intelligently and how to turn the results of your benchmarking efforts into an action plan for your firm.
The fact is, you need to know where you stand before you can map out your strategy for future growth. Benchmarking gives you a comprehensive view of your practice’s current health by compiling performance data, financial results and other metrics.
By comparing your results with those of other advisory firms (in your geographic area or with similar asset levels), you can assess how you’re doing in various categories relative to your peers and competitors. Those insights will enable you to identify areas of strength within your firm so you can take steps to maintain your advantages, as well as spot areas of opportunity where you can make improvements.
Benchmarking can also serve as a rallying tool to drive your team toward your objectives. When your partners, staff and other key people know the firm’s strengths and weaknesses, they gain much needed clarity about what they need to do to take the firm to the next level—and become motivated to make it happen.
Tips for Effective Benchmarking
Your benchmarking efforts and the specific metrics you track should be informed by where your practice is in its lifecycle. For example, early stage firms and advisors who have recently transitioned to an independent model often are most concerned with maximizing revenue. By contrast, relatively mature practices may care more about achieving scalability and efficiency gains.
That said, certain metrics are almost universally tracked. Some examples include growth-oriented drivers such as revenue growth, asset growth, number of new clients and new client acquisition methods (such as referrals from existing clients and referrals from other professionals). Tracking these and similar growth metrics enables you to identify and focus on the most valuable sources of new business within your firm. Another key area measured by many advisors is productivity. Metrics such as “revenue per client-facing professional” and revenue per employee can help determine your practice’s overall levels of effectiveness and efficiency.
Additionally, attitudinal metrics (such as a firm’s top strategic priorities for the next 12 months, its biggest perceived barriers to growth and its key enablers of growth) can also be valuable (See sidebar). Although such metrics are “softer” than quantitative measurements, they allow you to learn what issues, initiatives, predictions and concerns are on advisors’ minds.