Michael Kitces: 8 Ways Planners Can Boost Efficiency, Income

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1.Choose a specialization.

Echoing comments he made in a recent webinar on scaling advisory practices, Kitces said that, regardless of field, “specialists make more than generalists,” whether you’re looking at accounting, law, medicine or just about any other professional field.

“We're now seeing a similar trend beginning to emerge amongst financial advisors” who select niche areas and create specializations, said Kitces, “particularly those who are at the top of their game in the top specializations, are often now generating income at the levels of specialist doctors and attorneys.”

The top 10% highest earning advisors who don't have a specialization earn as much as $400,000 a year in take-home pay compared to almost $700,000 of income that the top 10% with specializations make, he went on to say. “Granted, anybody who's at the top of their game is making some pretty good money, but those who are at the top of their game and specialized are earning 50 to 100% more.”

Having a specialty also makes planning more efficient, he said. If an advisor has done financial planning for over 20 ExxonMobil executives, for example, that advisor is bound to be more knowledgeable about such clients and able to complete their planning strategies faster.

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2. Get your CFP mark.

Comparing advisors who are certified financial planners with those who are not, “we find there's a material gap” in the amount of time they save, Kitces also said.

“Having the expertise of CFP certification speeds up the first-year planning process,” he said, and the gap widens with experience. Among advisors with at least 10 years of experience, it takes about 40% less time for CFPs to complete the first-year planning process, he said.

Meanwhile, he said, the more affluent an advisor’s clients are, the more complex their financial planning tends to be. When you lack expertise, “there's more and more stuff you’ve got to look up and get back to” clients on, he noted.

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3. Follow a seven-step financial planning process.

Advisors should try and stick to the Certified Financial Planner Board of Standards seven-step planning process, Kitces said. That includes: understanding the client’s personal and financial circumstances; identifying and selecting goals; analyzing the current course and potential recommendations; developing financial planning recommendations; presenting those recommendations; implementing them; and monitoring progress and updating as needed.

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4. Add more value beyond the investment portfolio.

Successful advisors will often have recurring revenue models with 90-plus percent retention rates, according to Kitces.

“Clients may stay 20 or 30 years and, because of that, the biggest driver of productivity is not what you do for your year-one client,” he explained. “It's what you do for those clients in the next 20 to 30 years after the first year on an ongoing repeatable basis around financial planning, so that we're adding more value beyond just the investment portfolio alone,” he said.

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5. Create annual service calendars.

“Increasingly, we're seeing a focus on what I broadly call annual service calendars, which is a description of what do you do for me as a client over the span of every year or every two years,” Kitces said.

As an example, for clients that “we work with in the first half of every year, we do an insurance review” and a review of retirement projections, he said.

Then, in the first half of the second year of every client relationship, “we review your estate documents,” he said.

The key is to make a schedule for all of this for each client and stick with it, reaching out to clients to remind them of scheduled meetings.

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6. Hold special events for your clients.

To help forge a community of sorts among clients, Kitces said: “We actually create a little internal message board for all of our clients where we let them share each other's vacation pictures. And then they end up asking each other questions,” he noted.

His firm also holds client educational events and, in November, “we do our end-of-year tax planning review,” he said. Such events help reduce the number of one-on-one meetings that may be needed with clients.

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7. Try to avoid client variability.

Treating every insurance client differently based on his or her specific needs and demands may be a "fine way to build a product business," Kitces said.

But that’s “not a good way to scale an advice business because what you get is a high level of client variability,” Kitces said. “This shows up in lots of different ways. Like some clients want to meet weekdays and evenings. Some want to come during the day. Some say, ‘I'm really busy with work.’” So they only want to meet on the weekend, while some only want to meet at your office or at their homes, he added.

“The thing to recognize about client variability is that there are a lot of ways to handle this” kind of request by a client. he told viewers. “Either we can accommodate them … or we can just ... say, ‘Nope, sorry. Don't do that.’”

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8. Drop clients who aren’t a good fit.

Don’t be afraid to drop clients who aren’t a good fit for your firm, Kitces said.

“Nobody has 200 amazing clients that are a great fit without being a much larger multi-advisor practice,” he said. “So if you're really on your own and you’ve got 150-200-plus clients,” you may need to right-size the business to avoid inefficiencies, he said, adding: “What's not efficient is having 10 service calendars.”

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