Financial industry variations from region to region within the United States make it advantageous for advisors to compare their practices, and set practice strategies, on a regional-rather than a nationwide-basis, and the Financial Planning Association has a new tool available to make such comparisons possible.
The FPA and McLagan Partners have launched the Practice Management Scorecard to allow independent financial advisors to compare their practices with those of others in their particular area of the country. Sponsored by Fidelity Investments, the Scorecard should enable advisors to identify improvement possibilities in their practices and allow them to set appropriate growth goals based on the unique conditions and expectations in their geographic area.
Results of the first regional Scorecard revealed that practice revenue ranges from nearly $800,000 in the New York City area to just under $300,000 in smaller, rural markets of the northeast. Other Scorecard findings include:
· Practice profit margins (before paying owners) vary from 68% in New York City to 45% in Dallas-Fort Worth.
· Practices in southern California, Washington D.C., and San Francisco have low net payout rates because of higher overhead costs.
· Markets with the highest net effective payout enjoy a combination of high productivity levels, low overhead rates and low professional compensation costs. For example, while the New York tri-state area features high productivity levels that generate scale economies for practices located there, Virginia and North Carolina achieve high effective payout rates with moderate productivity because of relatively low professional compensation costs.
· Washington, D.C., and San Francisco offer opportunities for growth that may make up for the higher cost of those markets. In the case of Washington, D.C., it has more than $9 million of new assets per financial advisor, which ranks second among markets surveyed in new assets per financial advisor.
· The greatest opportunity for asset growth per financial advisor is in New York City with $9.3 million in new assets per advisor compared with a low of $3.7 million in new assets per advisor in St. Louis.