Three ways to create an Efficient, Effective & Expedient firm.

    At the Christmas party Ben Baldwin threw for his staff and their significant others in 2003, the veteran Northbrook, Ill., investment advisor happily toasted to a major milestone: He had successfully acquired a $23-million-asset management firm earlier that year. But the former Navy pilot also remembers a niggling feeling that put a damper on the night. "I felt like I wasn't in control of the firm like I used to be," he says.
    Baldwin's sneaky suspicions track the experiences of other advisors, and a growing body of new studies and surveys that find many investment advisors indeed do not have a handle on their growth. Whether it's operations, staffing, strategic planning or pricing, many of the integral functions that make advisory firms successful are either running on autopilot or barely limping along.
    Last year's way of doing things may no longer work when some advisor's assets are growing by 20% or even 50% a year. Competent advisors know this, but they haven't had time to do much about it because they're growing at breakneck speed. Despite lagging systems and processes, fee-based investment advisors have grown more quickly than just about any other financial services industry. In fact, research from Cerulli Associates, Spectrem Group and Phoenix Investments shows that consistently, more and more wealthy investors are trading in their wirehouse brokers for investment advisors.
    That's fantastic news, especially as retiring baby boomers accelerate the trend, but it's not without challenges, says Mark Tibergien, a principal with Moss Adams who has studied advisors' practices for more than 30 years. "Traditionally, advisors have thought if they could just get one more client or several million more in assets, than everything will be cool. But if you don't address the underlying hindrances, more clients and assets won't solve the problems, they'll only exacerbate them," Tibergien says.
    So the premise of this story is simple: How do you think more profoundly about your business? "It isn't about running faster, but about running in the right direction," the consultant-guru says.
The truth is, growth is happening at many advisory firms without the kind of planning that would help advisors truly craft their destiny. Or for that matter, contain costs, which have inched up significantly over the past five years as consumer demands have increased and become more specialized.
    Baldwin, who helms Responsive Financial Group, knows all of this and has still managed to more than double his firm's assets to $55 million in less than three years, all with only two paraplanners on board. He expects to do the same again in the next 24 to 36 months, albeit by increasing staff.
    The conduit to the next stage of his success? He's hired a leading business coach to help him create an integrated plan for his firm's future. "When we're on track, I won't have to worry about retirement, because I'll have several homegrown employees who will be able to run or buy my firm," says Baldwin, who is 45 years old.
    To help other advisors accelerate their own growth plans and work more intelligently, instead of just spending more hours on the job, we've talked to experts across the country who themselves spend countless hours pondering, researching and analyzing just these types of questions: How can advisors grow gracefully without totally outgrowing their systems and processes? And, how can they get bigger without working 60 hours a week or being victimized by their own success? Here are the leading findings to help the industry work through its enviable conundrum.

Create Operations Efficiency
    Why is operational efficiency so important today? As advisors shift to wealth managers, success demands a higher level of asset allocation, planning, client service experiences and complex compliance. To provide these services, an advisor's operations staff must be as important to a firm as its investment advisors.
    These are the bold findings of a new study from Pershing Advisor Solutions, Jersey City, N.J., which commissioned Moss Adams last October to investigate and characterize advisors' operations processes, including staffing, workflow, technology, outsourcing and costs. "We had a growing suspicion that the role of operations has been neglected by a lot of firms and that it is impacting growth potential," says Pershing Managing Director John Iachello. That is surely the case according to the new study, "Mission Possible: Finding the Optimal Operations Model for Your Advisory Practice," a roadmap of sorts for mastering the art of operations efficiency, including staffing, defining workflow and managing technology.
    "What we often find is that advisors spend too much time on operations," says Moss Adams's Tibergien. "The price for that is lost productivity, lost time with clients and lost revenue-generating capacity."
    The cause? "Advisors' failure to let go, to staff correctly or to outsource," says Tibergien. If nothing else moves you, think of the sheer costs of inefficiency. The study found that inefficient operations cost an average advisory firm 8.3% of its total revenues each year, not including the lost productivity of advisors. Turnover of operations staff is over 25% (40% at smaller firms), a costly hit to a firm's bottom line.
    If your firm wants to grow, but doesn't have a principle dedicated to operations excellence, you need one, the study found. You can do it yourself, designate someone or hire a chief operations officer, if revenues warrant it (many firms justify the hire at $3 million in revenues, the study found). Currently most firms use a principal to manage operations who lacks the time and skills to be a true leader. That means no one is defining or managing workflow, budget allocations, staffing, technology development or technology integration.
    Firms with COOs experience some increase in the level of overhead expenses, but generate nearly double the revenue of similar firms with no COO, the study found. Instead of blaming operations staff, who are grappling with higher volume armed only with old processes and systems, it's probably time to redesign your operations. An operations overhaul involves leadership, a clear assessment of your current system and staff and hiring experienced operations specialists (as revenues warrant) who have a career path every bit as meaningful as what you provide for advisors, Tibergien says.
    Deciding who does what and managing workflow between advisory and operations staff, where most errors occur, is a critical function that often gets short shrift. Moss Adams recommends that operations staff increasingly participate in client meetings and even be assigned to clients. At its most efficient, an operations model should be process-centric, Tibergien says.
    In other words, advisors and staff should develop and follow one standardized process, instead of allowing different advisors to force staff to do things two or three different ways based on their whims. This allows all aspects of a firm's workflow and technology development to be tracked by one set of standard operating procedures. It also cuts down on staff frustration and turnover and potential errors in client accounts.
    To keep his operations crisp, Bill Ramsay, president of Financial Symetry in Raleigh, N.C., holds a "go do it" meeting every Tuesday, with all four of his staff and the three interns he routinely uses from the business and planning programs at North Carolina State, just a few miles down the road. The meetings, which run from 9:30 a.m. until noon, start with a quick status report from staff members regarding projects they're working on (which range from client contact software to data management).
    After that the staff, including Ramsay, work on their respective projects and then report back on their headway. "It's a great way to make sure we continue to make progress," says Ramsay, who credits the meetings with helping his firm double assets to $68 million in the past three years.

Is The Price Right?
    It only tracks that what you charge will determine, at least in part, what you earn. The problem is, many advisory firms are simply not doing the analysis needed to price their services competitively or fairly. The people who pay the price for that profound oversight in profitability planning are advisors, according to a white paper from Schwab Institutional and Moss Adams. "Despite the obvious importance of pricing and its impact on profitability, we found that may firms do not analyze their pricing when establishing fees for new clients or when considering changes to their current pricing model," says Schwab Vice President Ann Simon.
    "Pricing is an area where small changes can have significant impact," Simon adds. "So when advisors are developing a pricing structure, they should consider the cost of servicing a client account, the competitive landscape and the value of the services they deliver to the client."
    While few firms would risk increasing prices without the justification of increasing services for fear of losing clients, a review of the current landscape reveals a wide range of pricing. The difference between the highest and lowest fee charged by advisors on a typical $1 million account is more than 150 basis points, according to the "2004 FPA Financial Performance Study of Financial Advisory Practices." While the median fee on the account is 79 basis points, 5% of firms charge more than 125 basis points on the account and 2% charge less than 25 basis points.
    Making sure that advisors can fully avail themselves of all their independent broker-dealer has to offer, in addition to managing costs, is crucial to advisor revenues, says Bill Dwyer, managing director of national sales at LPL Financial Services of Boston and San Diego. To that end LPL advisors are clearly doing something right-on average they have pretax income of $247,000, nearly double the industry average of $132,000.
    Dwyer says it's a combination of many things, including the profitability and cost consulting the company offers and the added-value products and services offered by LPL's trust, mortgage and insurance companies. "We just hired a finance person in our national business planning whose focus is analysis of branches to help advisors study their profitability, pricing and costs," Dwyer says. "He discovered very quickly that one of our top 50 advisors was only netting 63 basis points on their business, compared to the average advisor who nets 100 basis points. What we found was that he's charging clients substantially less than other advisors. We're helping him analyze his value proposition."
    The company is also rolling out the second part of its imaging program, which will allow advisors who work with LPL to image all of their documentation (the first part of the program already created imaging for all LPL documentation). The upshot is that in some offices the technology will save an entire administrative staff position, which can cost as much as $65,000 in major metropolitan areas.

Find Optimal Clients
    In entrepreneurial mode, many advisors will take on anyone who walks in the door. Not such a good idea for mid-career advisors who are having a hard time finding the capacity to work with their existing client base. "You have to have a better focus on who your optimal client is," says Tibergien. "I don't want people to interpret that as culling out clients, but rather focusing on finding new clients in your sweet spot."
    When you're clear about what your sweet spot is, you can build an efficient service experience and procedures around these clients. It doesn't mean that the solutions will be the same for every client, but the approach you take in serving them will be, Tibergien adds.
    "One way to find your sweet spot is to look at your current client base and say, 'If I could replicate the best 20 to 30 clients, who would they be? What would their characteristics be?'" he says.
    Executives at AIG Financial Advisors in Phoenix teach advisors across the country to do written evaluations on each client and have staff do them as well, as a way of determining who their optimal clients are. "I'd include things like assets under management, revenues, the pain and pleasure factors, and the number of referrals and quality of referrals clients provide," says Keith Johnson, vice president of business development for AIG Financial Advisors.
    "It's important for both staff and advisors to determine what value each client brings to the relationship and to your overall business," says Laura Rosenbaum, director of sales and strategy development for AIG Financial Advisors. This exercise, while providing quantitative and qualitative analysis, will also train advisors and staff to think critically about clients and the time they spend on projects.
    At the end of the day, it will be easier to spot optimal clients when they walk in the door. It will also be easier to tailor marketing events, such as cocktail parties, to attract sweet-spot clients and their referrals, Rosenbaum adds.