Financial advisors may not be able to maintain high-quality service to their clients if they are not being good stewards of their businesses and reviewing key financial ratios, an executive of Kestra Financial said.

Mark Schoenbeck, executive vice president of Kestra Financial, works with Kestra’s 1,700-plus associated financial professionals to help them manage and grow their firms, maximize productivity and implement financial safety nets.

“So often advisors are so focused on their clients that they might not always be focusing on their own house as much as they need to,” Schoenbeck said, noting that when the pandemic began settling in and the markets started falling, he and his team were proactive in reaching out to their advisors to help them assess their individual situations. 

At the minimum, Schoenbeck recommended that advisors review their books on a quarterly basis. “They should be going through and looking at their P&L statements, looking at their balance sheets and understanding their financial ratios,” he said.

In reaching out to advisors, Schoenbeck said, they would start with a conversation about revenue and what their revenue stream looks like if the market continues to fall. “Then from there you pivot to the liability side and what expenses did they have and how are they are going to manage to that,” he said.

Schoenbeck said the biggest expense for advisors is typically staffing. He suggests that advisors first look to see if they are appropriately staffed. With many businesses moving to a virtual environment, for example, it may not be necessary to employ staff to open new accounts, he said.

This type of situation usually leads to a conversation around changing workers' responsibilities to avoid laying people off, he said.

Another area that advisors should be reviewing is how their bonus packages are set up, Schoenbeck said. One common oversight, he explained, is that an advisor might have an employee bonus plan that is based on a percentage of total firm revenue. But advisors often neglect to specify that the bonuses only kick in once the business hits a certain revenue threshhold. 

“What we have seen historically is that the markets take a hit, your revenues drop 20% to 30%, you made this commitment to your employees, and now all of a sudden have a large bonus liability that you need to payout,” Schoenbeck said. 

In this situation, you first want to be upfront with the staff about what happened, Schoenbeck said. “It’s not always an easy conversation,” he said, adding that the advisor can start off by saying, “these are unprecedented times. We have gone through things we haven’t gone through before.” But equally as important is to go back and create a bonus plan that builds in protection for the business in case of extraordinary times. “You just want to build in some sort of language in there to protect the business in case things get really, really crazy,” he said.

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