A new evaluation system created by Toronto-based software company PriceMetrix can help retail brokerage firms and advisors recruit and build more profitable businesses.
Based on the same idea as the baseball analytics made famous by bestselling book and hit movie Moneyball, PriceMetrix looked at the causes behind books of business that grew or shrank over a five-year period. As a result, the company discovered 10 metrics that firms can use to offer an accurate price when recruiting an advisor. The metrics include such factors as the number of retirement accounts held in the book, the asset-size of an account and advisor experience.
“It’s going to be game changing for those companies and those advisors that adopt it.” says Doug Trott, president and CEO of PriceMetrix, “As an employer or as an independent firm, I can ask an advisor who is working today for some other company for 10 measures that are easy to get and I can predict how quickly they’ll grow or if they’ll lose production.”
As well, Trott adds that these measurements are beneficial to individuals. The 10 metrics put a spotlight on an advisor’s book and highlight what needs to be changed to build a stronger business. “It’s like an x-ray,” he says, “and it says: here’s the two or three weak spots.” Trott says advisors should evaluate their books once a month to maintain strong businesses.
Bigger is better; youth counts
One of the important findings in creating these metrics, says Trott, is the importance of account size. PriceMetrix research shows that advisors holding on to accounts of less than $250,000 are losing money and the traditional belief that these accounts will eventually grow is unfounded.
“Many reps fool themselves. It’s rare that their clients are fundamentally different and they picked the right client who’s going to win the lottery,” says Trott. “If you think you can pick the client that’s going to win the lottery, I suggest you play the lottery yourself.”
As well, according to the PriceMetrix findings, an advisor with less experience is more likely to be successful than a more experienced advisor with a similar book size. For example, if there are two advisors with books of similar worth but one advisor is 10 years younger, the younger advisor’s business is more likely to grow.
As part of the study, PriceMetrix researched advisors with five to 20 years of experience through the company’s aggregated retail brokerage database of six million investors, 500 million transactions and over $3.5 trillion in investment assets.
PriceMetrix’ full Insights report can be found here: http://www.pricemetrix.com/moneyball-for-advisors.