Power in Practice: A Coaching Program to Last a Career

Analysis of the Firm’s Financials

Financial management of the business itself includes a look at current and past revenue. Market fluctuation is an obvious reason for vacillation of the top line, but the firm that is not growing over a period of time is likely in decline. Expense analysis using industry benchmarks from Moss Adams helps advisors gauge whether they are overinvesting or underinvesting in their firms. A look at data over time as opposed to a single year provides a legitimate picture of expense management. Advisors calculate their gross profit margin and operating profit margin, and understand and appreciate the value of tracking these key indicators on an ongoing basis. Although comparing expenses with one’s colleagues may not be statistically valid or reliable, sharing and comparing does offer an opportunity for dialogue.

Finally, the book analysis described earlier is combined with the financial data crunched to look at the firm’s productivity measures. Productivity ratios include revenue per household; overhead per household; profit per household; revenue per staff; and number of households per staff.

The out-of-pocket cost to sustain the 80% of households that generate 20% of the revenue becomes a palpable and meaningful concept. The conversation shifts when an advisor recognizes that he or she is losing money to service certain households.

Business Risk and Valuation of the Practice Itself

Five minutes of brainstorming all the risks that advisors face is humbling, and it leads advisors to reassess their future business risk. For example, 10 years ago, technology security wasn’t on most advisors’ radars. Today, that threat is growing annually. Far beyond following best practices for password protection, advisors need to proactively demonstrate vigilance.

One overt risk that an advisor faces is the risk of dying without having prepared the business for transition. Advisors need a documented continuity and succession plan whereby their clients will be taken care of in case of the advisor’s demise. Workshop participants have at least an estimate of the value of their business and an understanding of current terms regarding the transition of financial advisory practices. The steps for putting a plan in place—finding a successor, completing due diligence, negotiating a deal—are both simple and enormous, and they are explored in some depth in the workshop.

It’s All Better When Done Together

There is nothing described in this approach that an advisor can’t do on his or her own. There is no magic in any coaching program, but there is value in going through a structured process in concert with colleagues. Even if advisors are used to analyzing their book, fees and financials, looking at the data in isolation is far less powerful than having the opportunity to diagnose and discuss the results with colleagues. Advisors typically say that it is the interaction with other advisors from which they gain the most value.

So what is the value of 20 people spending two days together to address all these money issues? When asked for the action steps they would take at the end of the workshop, here are several common themes.

• Several participants found the Pareto distribution within their book, and most found that they had some clients on whom, given their current fee structures, they lost money. One advisor said that she could lose her bottom 45 clients without it affecting her bottom line.
• The book analysis prompted some advisors to conclude that they needed to delegate identified households for servicing by another advisor within their firm or to prune other clients altogether.
• About half the advisors needed to form a continuity partnership with another advisor or review the arrangement they currently had in place.
• One advisor’s greatest takeaway was to have a much better sense of what to look for when buying another book of business. It is interesting to note how analyzing their own book encouraged advisors to be more diligent and selective about the due diligence they would apply in future purchases.
• Several advisors wanted to review their own life and disability insurance, and others needed to consider key-man insurance for their right-hand person or business interruption insurance.
• Some participants vowed to start behaving like a CFO and meet with their bookkeepers to stay on top of revenue, expenses, margin and productivity measures going forward. Others simply stated that a deeper understanding of the importance of margin and productivity ratios would help them make better decisions.
• One advisor decided to review his service matrix as a means of controlling the services he was providing without financial remuneration.
• Several advisors embraced the opportunity to recommit to a new personalized 20-point system to help them track the energy focused on revenue-generating activity, while others wanted to expand their 20-point system by implementing it with all advisors—or a few staff members—within their firms.
• Some advisors needed to formalize their fee schedule and put it in writing while others wanted to explore the addition of a planning or hourly fee or a retainer.

It is always intriguing how advisors take away such a wide variety of action items, which simply confirms that independent advisors are totally independent. They are their own best resources when it comes to identifying the most important changes they need to make to shift their practices to becoming better businesses.

In the next and final installment of this series, we review the final in-person gathering of the Power in Practice program.