We live in a data mad world, which can be helpful, if not overwhelming, for financial advisors trying to measure their ability to meet business goals. Key performance indicators (KPIs) are a useful management tool in that quest––if they’re done right.
“When I work with a firm that has its own KPIs, 99% of the time they’re not relevant because they haven’t been matched up to the business outcome they’re trying to achieve,” said Andy Putterman, former CEO and current chairman emeritus at Fortigent, as well as founder of the consulting firm 1812 Park. He spoke this spring on a KPI-focused panel at a conference in Philadelphia hosted by Gladstone Associates that dealt with mergers, valuations and succession planning among financial advisors.
“Another thing is that they have too many KPIs,” Putterman said. “I want no more than 10. And they have to be actionable.”
Given the panel’s focus on which KPIs impact valuation, the initial thrust was about finding ways to measure aspects that can boost an advisor firm’s valuation. But evidently, not all advisors are obsessed with valuation.
“Most of the time it’s about value, but I’ve met a ton of people who don’t care so much what their business is worth versus having a great environment and lifestyle, and dying with the business or leaving it to their kids,” Putterman said. “Be careful about boxing yourself in with KPIs.”
Others agreed. “The vision and what your purpose is will drive your eventual KPIs,” said Al Zdenek, CEO of Traust Sollus Wealth Management. “But for a firm like mine that’s looking to expand into a regional company and attracting partners, we want to make sure we’re attractive to that partner, so we look at things like Ebitda (earnings before interest, taxes, depreciation and amortization), Eboc (earnings before owner’s compensation) as financial performance metrics.”
He added that his company also looks at non-financial metrics such as client surveys that provide feedback on the client experience. “That could be a leading indicator because if you don’t do well there maybe you won’t have much future revenue,” Zdenek said.
Regarding KPIs, Putterman says advisors should think about five categories––financials (assets, growth, gross profit margin and the like); aspirational (the use of technology, M&A or anything else that could transform their business); client experience; employee development; and compliance and risk.
But numbers in a vacuum are just numbers. “All KPIs have to be measurable,” Putterman said. “It’s not a feel-good thing; it has to have a numeric value so you can trend it.”
Developing KPIs is one thing, but getting people to buy into them to make them work is another. “When you start putting KPIs into your business and require people to live up to those things, they have to be accountable and no one likes that,” Zdenek said. “You should be creating KPIs with your team because you need their support and they have to understand how that fits in with the vision.”
Ultimately, KPIs measure the people who put them in place. “If you’re looking for KPIs to help solve your business problems, you’re probably going about it wrong,” said Owen Dahl, president of Gladstone Analytics, a unit of Gladstone, which is a Conshohocken, Pa.-based business and transaction advisory firm focused on financial services companies. “KPIs measure your quality as managers, and that’s all they’re going to do.”
KPIs For FAs
July 1, 2014
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