Judging the progress your firm is making is difficult in isolation. Owners and advisors need to know what others in the business are experiencing.
Are you growing fast enough or are you taking on more than you can handle?
Are you spending the right amount on technology, salaries, and other resources?
Is the firm as profitable as it should be?
Those are the questions that need to be answered periodically by looking at industry benchmarks.
“Benchmarks are like a dashboard in a car,” says Philip Palaveev, CEO of The Ensemble Practice, a support and service organization for financial advisory firms based in Seattle, Wash. “Benchmarks showing what other firms are experiencing can tell you if you are growing too fast or too slowly and if things are working properly.
“The owners of a firm may think, ‘We’re only spending 45 percent of revenue on overhead, so we are doing well.’ But then when they make comparisons to other firms, they find out others are spending 35 percent on overhead, so that is a revelation to them,” he says.
Palaveev urges firm owners to talk with other CEOs and to participate in benchmarking surveys so that more firms can have good, comparative information.
“An advisory business is a living organization that changes constantly from inception, through growth, maturity and succession,” says The Ensemble Practice.
However every practice is different, notes Mark Schoenbeck, senior vice president, business consulting and managing director of Kestra Financial Inc., which uses The Ensemble Practice services.