For the record, an efficient practice is often defined as one that maximizes profit for the given resources at its disposal. Efficacy is defined as the power or capacity to produce a desired result (i.e., effectiveness). Efficacy is neutral on efficiency. That is, it is possible to be effective while being inefficient. As an example, suppose you provide an outstanding financial plan to your client. The client derives great benefit from the plan, but it took you (and/or your staff) an inordinately large amount of time to complete it. You might consider the delivery of the plan and the client's need as more important than the efficiency of delivering the product to the client.
It is also possible to be efficient while also being largely ineffective. Simply pumping out products or work without considering the value to one's clients could create such a situation.
Herein lies the paradox of financial advisory practices: Are those practices in place to provide outstanding services at any cost, or are those practices in business to make money? The unexpected thing is that, though seemingly opposing concepts, efficiency and efficacy can work hand in hand. In other words, you can have your cake and eat it too. To accomplish this, a financial advisory practice would first need to assess the efficiency level of the office and staff to determine to what extent improvements need to be made. A few of the questions that a practice might consider exploring are as follows. The point of the questions is to evaluate to what extent the statements are true:
1. We have technological systems that share data seamlessly and provide the benefits of efficiency in entering information only once.
2. We use software systems and other means of automating compliance responsibilities, including, but not limited to, electronic file storage and retrieval, letter templates and other advertising venues.
3. We prepare an annual business plan and check it frequently throughout the year to ensure we are on track for our goals.
4. We use a time schedule template to ensure that sufficient time is set aside to accomplish all tasks and appointments from week to week (and we follow it religiously).
5. We have prepared up-to-date procedures manuals for each and every task-oriented position in the firm.
6. We use our office space to its maximum efficiency given our space limitations.
7. The employees of my/our firm are the best people for the jobs they perform (all of them).
8. We have a company Web site that is truly interactive with constantly updated content and client usability features.
Though this list hardly covers everything associated with efficiency, it should suffice to begin the process of evaluating how you do business.
One of the key statements above is the one that deals with a business plan. Many firms create business plans, but often fail to use them as an efficient yardstick for their progress. As an example, suppose a restaurant has a really great turnout of diners for a holiday such as Valentine's Day one year, but fails to use that information to adequately prepare for next year. This could leave the restaurant short of needed staff, supplies or even sufficient food to serve. Restaurants frequently use projections in their business planning to assure that sufficient resources are in place to meet the needed demand for services. Financial advisory practices could borrow a chapter from the restaurant business plan process by considering the value of the ongoing use of a properly prepared business plan.
Financial advisors need to not only prepare business plans, but also compare business results with those plans as an ongoing process to ensure that expected growth projections meet with results. Often, in this planning approach, the financial advisor should consider starting with the end in mind. Determine a realistic net profit number for a given year ahead. Emphasis is given to net profit, as gross numbers tend to skew thinking on how the firm is really doing. Net profit reveals the efficiency of business planning. Yes, it is a harder target to reach, but a more satisfying one when it is reached.
The process might be compared to a reverse profit and loss statement (P&L). This is where the bottom line becomes the top line and all the details fall below. If you work through a broker-dealer and have B/D concessions, fees and other expenses to consider, the following example might apply:
The net profit number for 2006, though somewhat appallingly low in this example, illustrates the purpose of designing a reverse P&L statement. It shows the importance of net profitability. We can sometimes fool ourselves into thinking we are doing well when all we look at is gross revenue. But the reality is found in the net profit number. In this example, it is hard to imagine how the practitioner could financially survive. Yet many advisors have spreadsheets that might look similar to this.
By taking the 2006 numbers and applying a 15% increase in successive years, we can use this spreadsheet to show the effect on net profit should the practice experience a 15% increase in business. Over the three-year period shown, for instance, net profitability rose by 66%.
This spreadsheet shown could also be used, when multiple-year data is available, to better understand numbers such as advertising and marketing expenses. In years where more was spent on these activities, what impact did it have on the net change in net profit? It might provide an objective basis for determining marketing spending levels (or even the type of marketing) in future years.
Using the same line of reasoning, it might be inferred that a similar conclusion could be reached with wages. Often, practices respond to increasing workloads by adding staff. This decision may be made without consideration of overall profitability. We might justify the decision because of workloads and the need to provide timely service to clients. However, did the same decision result in lower overall profits, and is that a decision we would have made had we known that in advance?
Another point to be made regarding this concept of a reverse P&L statement is reflected in the expenses number. Often, financial advisors believe that the only way to increase profitability is either through increased business (bringing on additional clients) or cutting expenses. But this ignores the possibility that profitability could be increased by simply doing more with the expenses you already have. By developing systems and using technology more effectively, you and/or your staff can increase capacity. That is, your practice can handle more business with the same staff and equipment levels. With no additional costs, any new clients and/or assets added to the practice will translate into higher net profit.

David Lawrence, AIF  (Accredited Investment Fiduciary) is a practice efficiency consultant and is president of David Lawrence and Associates, a practice-consulting firm based in Lutz, Fla. ( He is a much-sought-after public speaker on a variety of leadership, financial and technical topics. For details, visit