Practice-management experts say that business metrics can be useful tools in building and maintaining a financial advisory business.
\u201cYou need metrics to figure out whether you are optimizing your time to deliver your services, and whether your practice is profitable,\u201d says Pierre McLean, senior vice president of national sales with Franklin Templeton Investments Corp. in Toronto. Examining this data, he adds, can help you determine the factors contributing most to your success.
Business metrics are periodic measurements that allow you to track the health of your practice using variables such as assets under administration, attrition rates, client and practice profitability, and staff productivity. Metrics provide information that can be used to make strategic decisions, maximize resources and productivity, strengthen margins and track profitability.
These measurements facilitate \u201ctaking a harder look at not just your top line but also your bottom line when determining what\u2019s driving your business,\u201d says Julie Littlechild, president of Toronto-based Advisor Impact Inc. <\/b>
Although many financial advisors use business metrics, says McLean: \u201cQuite a few do not know how to make use of the wealth of information that the various metrics provide.\u201d
Here\u2019s an explanation of some of the metrics that you should track:
> Growth In Book. <\/b>Track the growth of your book over a defined period, says George Hartman, president and CEO of Toronto-based Market Logics Inc. <\/b>
Measure variables such as new accounts, average account size, retention rate and lost or closed accounts.
You should also look at growth by source, advises Littlechild: are new assets coming from existing clients, client referrals, centre-of-influence referrals or prospecting?
Measure how much growth is the result of market performance and, adds Hartman, \u201ctrack the ebb and flow\u201d of AUA resulting from seasonality.
> Fixed And Variable Costs. <\/b>As much as possible, try to establish your true fixed and variable costs and allocate these costs to each client. McLean says it is not always easy to do this on a per-client basis, but you can allocate costs to segments of your client base.
\u201cMany advisors do not allocate a cost to their time,\u201d Hartman says, and that is probably one of the biggest costs in determining client profitability.
McLean suggests you ask yourself: \u201cHow much time am I spending with a client? Should I allocate more or less time?\u201d
Littlechild recommends measuring costs associated with such activities as marketing, prospecting, client meetings, COI meetings and financial plan preparation.
Measure by activity \u2014 marketing vs servicing, she advises: \u201cLook at how much time you spend managing vs running your practice.\u201d
> Client Revenue. <\/b>Measure and rank clients by revenue to determine who are most important to the success of your practice, says McLean. You may find that the size of a client\u2019s account does not necessarily mean greater revenue.
Also, adds Hartman, determine the percentage of your revenue that is recurring.
> Client Profitability. <\/b>Your success \u201cis all about client profitability,\u201d says Hartman.
Littlechild agrees: \u201cSome advisors often take a simplistic approach when looking at profitability. But you should take a deeper look at cost by client.\u201d
Calculate profitability by subtracting fixed and variable costs associated with maintaining each client from revenue generated. At the end of the day, Hartman says, client profitability comes down to how many resources are applied to servicing the client vs the amount of revenue that is generated.
> Product Mix. <\/b>Some products generate greater revenue than others, Hartman says: \u201cThe more products and services you offer, the \u2018stickier\u2019 the account.\u201d
\u201cSome advisors look at revenue from different products,\u201d says Littlechild, \u201c[but] you have to start with what\u2019s right for your clients.\u201d
> Productivity. <\/b> Track the productivity of your team, advises Hartman. Determine revenue and clients per staff member. Finding out whether productivity is rising or falling would allow you to determine whether to change resources allocation.
You can also track the productivity of your marketing initiatives. For example, what is your conversion rate for various marketing activities? Are some activities more profitable than others?
> Practice Profitability. <\/b> For many advisors, says McLean, \u201csuccess is typically measured by growing revenue.\u201d But, he adds, you need metrics to determine \u201cwhat is contributing to or detracting from success.\u201d
In reality, your revenue might be growing, but so are expenses. The key metric you need to measure is the growth of your bottom line.\tIE<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"
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