One way to increase the profitability of your practice is to shift your focus away from assets under management (AUM) and toward revenue generated by your clients, says Jennifer Black, an advisor with Dedicated Financial Solutions in Mississauga, Ont.
“People forget that this is a business,” Black says. “We provide a service and we always work in the best interest of the client. But at the end of the day, the more successfully you can run your practice, the more successful your clients will be.”
Black offers some tips on how you can boost your bottom line:
> Identify your ideal fee structure
First, take a look at your practice. You might have impressive AUM, but if you are not clear on how those assets compensate you, you may have a problem.
One solution is to decide upon the kind of model or fee structure that best fits your book of clients. Do you want to run a fee-based practice? Or are you more focused on a transaction-based structure?
> Focus on recurring revenue
When considering compensation structures, look at ways to create recurring streams of revenue.
Whether your income takes the form of sales commission, trailer fees, asset-based management fees or specific fee-only charges for your services, establishing a steady flow of revenue will help your business in the long term.
> Develop a method of tracking revenue
One problem with reporting systems for advisors, Black says, is that few, if any, produce reports that specify revenue per client.
“You don’t have a magic button you can push and up it pops,” Black says. “The reports generate assets under management, but it seems as if the industry has it backwards.”
To create her own revenue report, Black examines each of her client accounts and tabulates how much revenue each client household generates.
This strategy requires a significant investment of time to start. But it has enabled Black to identify which households are helping her build her practice and which could be holding her back.
You might find that you are investing as much of your time on a client who is generating only $3 in annual revenue as you are on a client with a $1-million portfolio. Says Black: “It’s probably not the best way to run a good business.”
This is the first instalment in an occasional series on running a profitable practice.
Tomorrow: Can you cut clients loose?