With apologies to John Dunne, we remind you that no advisor is an island. To be successful—whether you measure success by growth in assets or increased profitability or in excellent client service—advisors must partner with larger firms to conduct their research and trading, to custody client assets, to gain entree to money managers and investment vehicles, and to access technology tools to effectively service clients and run better businesses. Those partner firms all provide practice management assistance to their affiliated advisors as well, but are their offerings useful? Do they have a clear understanding of what advisors need, and are they then meeting those needs? Are they accurately measuring what works in practice management and what doesn’t? Are they putting dollars behind those offerings, or are they merely paying lip service to helping advisors run more efficient and effective businesses?
In this, our second published report on the findings of the inaugural AdvisorOne/ActiFi Pursuing Practice Excellence practice management study, we take an objective, comprehensive look at what those partner firms are offering advisors in the practice management arena.
Our first article in the June issue of Investment Advisor and online at AdvisorOne.com related what nearly 1,000 advisors in a comprehensive online survey told us they need and want regarding practice management help. For this analysis, we then followed up by conducting personal interviews with more than 50 practice management leaders from advisor partner firms of all shapes, sizes and affiliation models, from the wirehouses to independent BDs both large and small and clearing firms, from the leaders of large RIAs to the mutual fund companies and software firms advisors work with.
By listening to advisors first and then speaking to these industry leaders, in Pursuing Practice Excellence we will be able to identify the gaps between what advisors say they need and what their partners are providing. By analyzing those gaps with the help of a select group of industry experts in a roundtable meeting, we will present in our third article in August how the industry as a whole can more perfectly target its practice management efforts to meet advisors’ true needs, while giving advisors the tools and strategies they need to be more successful.
What Your Peers Are Reading
Who the Survey Participants Were
In the second phase of our Pursuing Practice Excellence study, we conducted comprehensive telephone interviews with 52 industry leaders from five different categories of firms. Our interviewees answered a series of questions and completed an in-depth online survey as well. This pool of interview participants represents a broad swath of the financial services industry. While the number of participants in the survey may be too small to make the sampling statistically significant on its own, the participants’ leadership positions affect such a large number of advisors that the results, we argue, are quite meaningful. Realizing that many of these firms compete with each other but wanting to encourage candid responses, we also guaranteed anonymity to our industry leaders.
To help measure the importance of practice management to these firms, we asked them to tell us the number of staff members dedicated to practice management. A majority reported having between one and nine dedicated practice management staff members. It is important to point out, however, that in almost all cases, interviewees reported that practice management staff resources have not been totally centralized as part of a specific department but spread across multiple areas of the firm. This may be a result of a strategic decision to provide an integrated offering delivered and managed across the firm. At the other end of the spectrum, individual components of practice management may have been grown organically without any coordinated oversight.
During our interviews, we also asked whether firms had formal practice management programs and how advisors were selected to participate in those programs. We found that larger firms tended to have formal programs and most often had defined processes for selecting the advisors that could participate in those programs. Several firms had formal pre-work requirements for potential advisors and also measured skill and readiness to participate prior to engaging advisors in their programs. Most of the firms based selection of advisors on recommendations from sales or branch managers or other field leaders. A small number of firms require advisors to participate in the cost of the programs. Finally, almost all firms had some sort of self-service option that was open to all of their advisors.
Words, Words: How Do Industry Leaders Define ‘Practice Management’?
Echoing what we asked advisors in the first part of our survey (see “Pursuing Practice Excellence: The Advisor Perspective,” Investment Advisor, June 2012), we asked each industry leader to provide us with their own definition of practice management. While no one quoted a formal definition, most were able to fairly quickly define what practice management meant.
The most common words used to define practice management were:
We had several interesting discussions about the differences between “business development” and “practice management,” with equal numbers of respondents arguing that the terms were interchangeable or that they were separate, unique topics.
Interestingly, while one Pursuing Practice Excellence participant said his firm tries to focus on helping advisors improve what they already have rather than adding anything new, another participant seemed to speak for many firms in saying they view practice management as a way to make their “internal program managers more effective sales managers.” So while there were certainly many similar definitions of practice management, there was also wide variation in the specific ways participants define practice management.
What Participant Firms Offer
Our 52 respondents reported that they are mostly working with non-employee advisors. Exactly half also reported that less than 25% of the advisors they work with take advantage of the practice management offerings that they currently provide.
The Leaders Speak
“A big challenge is to deliver information to advisors in a way they can absorb it […]. We all hear ‘I didn’t know you have that.’ Our biggest challenge is to get them to adopt what we already have.”
—CMO of West Coast-based independent broker-dealer
Which People and Programs Work
We next turned to the question of which staff members or outside providers tended to be most effective in delivering practice management solutions and which programs were most effective. Perhaps not surprisingly, 70% of respondents said they believed their own programs and staff were effective. However, their views of the effectiveness of sales management (46.2%) and product wholesalers (17.3%) in delivering practice management were rated much lower than their own staff’s effectiveness.
This demonstrates one of the disconnects between the advisors’ portion of the Pursuing Practice Excellence study and the industry leaders’. As reported in our first article in this three-part series—Pursuing Practice Excellence: The Advisor Perspective—50.7% of advisors reported that they have a “good” or “deep” relationship with their wholesalers. Look for an exploration of this and other disconnects between advisors and their industry partners in our August cover story. (Visit the Pursuing Practice Excellence homepage at AdvisorOne.com/tag/Pursuing-Practice-Excellence for updates.)
In terms of programs, participants were somewhat less enthusiastic. The highest rated program type, business management solutions, was only rated “effective” or “extremely effective” by 55.8% of participants.
In a theme we saw throughout the industry leaders’ portion of the study, despite their confidence in their own teams, participants were eager to improve their practice management solutions and staffs. More than 60% of respondents rated as “important” or “extremely important” each of the six options we presented. This indicates that there is ample opportunity to improve programs and that firms are actively working on making their offerings more effective. Practice management is an emerging discipline; while it has always existed in some format, making it a consistent and effective part of the advisor experience is relatively new.
What Are Firms Actually Spending on Practice Management?
In one significant finding from the industry leader portion of the Pursuing Practice Excellence study, it appears that most respondents expect their firms to allow them to put money where their practice management mouths are. A significant majority of respondents (60.8%) said that practice management will be a priority in their next budget cycle. Given the emerging nature of practice management solutions, it is also not surprising that success appears to be difficult to measure given the lower rankings of case studies, ROI analysis and the concept of advisors participating in the costs of providing these solutions.
We believe that the success of practice management programs will become more effectively defined and measured over the next few years as these programs mature.
Given the importance placed on helping advisors improve their sales efforts, it’s probably not such a surprise to see that most firms focus on activity and sales results to measure success of their programs.
The Leaders Speak
“We do have trouble objectively evaluating the impact, and the outcomes, of these [practice management] programs to be able to compare them to the returns on recruiting.” —Regional director of Southeast-based broker-dealer.
The participants viewed advisors as looking for solutions that are tailored to their needs, but the industry experts also argue for a sweet spot in terms of sophistication, rejecting approaches that are too basic and those that are too involved.