Mission Possible Iii

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Mission Possible III STRATEGIES TO SUSTAIN GROWTH IN CHALLENGING TIMES Ideas Without Limits® Our partner in developing this independent study: Contents Executive Summary...................................................................................................................................................4 Recovery Brings Reprieve but Operational Efficiency Remains a Concern................................................................................... 4 Tailoring to the Client Experience............................................................................................................................................................ 4 Taking Control of Workflow....................................................................................................................................................................... 5 Aligning People Through Effective Organizational Design............................................................................................................... 5 Additional Study Background................................................................................................................................................................... 6 Methodology................................................................................................................................................................................................. 6 Industry Review..........................................................................................................................................................7 Recovery Brings Reprieve........................................................................................................................................................................... 7 Back to Business as Usual.......................................................................................................................................................................... 8 Elusive Scale Economies............................................................................................................................................................................. 9 Understanding Operational Expenses.................................................................................................................................................... 9 Where the Best Firms Find Operational Efficiencies..........................................................................................................................11 Operational Control Starts with a Client-Centric Focus............................................................................... 13 Tailoring to a Target....................................................................................................................................................................................13 Clear Definition Provides Clear Benefits...............................................................................................................................................14 Designing Operations to Serve a Target Market.................................................................................................................................15 Managing Workflow............................................................................................................................................... 16 Controlling Complexity and Optimizing Value....................................................................................................................................16 Engineering Value Creation Through Workflow.................................................................................................................................17 Case Study: Strategic Wealth Partners, LLC—Applying Feedback with Technology for Workflow Enhancement...........21 Aligning People to Satisfy Clients and Maximize Profits............................................................................. 22 “That’s Not My Job”—Creating Clarity of Accountability............................................................................................................... 22 Productive Capacity—Professional Positions..................................................................................................................................... 23 Case Study: Tolleson Wealth Management—Planning Organizational Capacity Well in Advance.....................................25 Productive Capacity—Non-Professional Positions .......................................................................................................................... 27 Case Study: Balentine, LLC—Trust and Cultural Alignment Is Fundamental for Gaining Leverage .................................... 27 Conclusion................................................................................................................................................................ 29 Acknowledgements................................................................................................................................................ 30 M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 3 Executive Summary Recovery Brings Reprieve but Operational Efficiency Remains a Concern After the dismal financial performance of 2009, the typical advisory firm increased revenue at a rate of 18% in 2010, contributing to a marked improvement in firm profitability. The industry median profit margin, registering 11.3% in 2009, jumped to 18.9% in 2010. Many advisory firm owners may be breathing a sigh of relief that the worst of the Great Recession is now behind them. However, the “termites in the basement” first identified in our previous Mission Possible reports are still lurking, potentially doing long-term damage. Sub-par operational capabilities threaten the ability of many firms to manage expenses, achieve efficiencies and enhance productivity. While firm owners attempted to curb operational costs during the depths of the recession in 2009, spending seems to be on the rise again as the industry rebounds. In 2009, despite a 9.5% revenue drop, overhead expenses as a share of revenue remained virtually unchanged compared with the prior year. Although the overhead ratio did decline three percentage points as revenues improved in 2010, total overhead spending increased 10%. This compares with a 2010 increase in direct expenditures of only 7%. Typically when business increases, direct expenses—the cost of directly servicing client relationships or generating new business—should rise faster than costs associated with firm overhead. Rising overhead expenses on a per client basis prove additional cause for concern. From 2008 to 2010, these expenses increased at an average annual rate of 5.2%. Growth has returned to the advisory business but sustaining this growth in the long term depends on improving operational capabilities and keeping rising expenses in check. To assist firms with these issues, Pershing Advisor Solutions partnered with research and consulting firm FA Insight to publish this third installment of the Mission Possible series. This year’s report highlights three key strategies for improving firm operations: building operations around the client, applying disciplined management of workflow processes and aligning staff to satisfy clients and maximize profitability. Tailoring to the Client Experience > Understanding the distinctive needs of a given market segment is the first step to building an operational infrastructure that delivers superior client satisfaction and drives profitability. > In 2010, the industry’s top performers exhibited a greater tendency to define and pursue a target market. > Targeting a more homogenous market enables greater operational efficiency as supporting processes can be more focused and easily replicated. Further, a more focused approach helps the firm build deeper technical expertise and create greater client satisfaction. > Many firms still fail to adequately pinpoint and pursue a market with identifiable and similar characteristics. Although using a specific level of investible assets or client life stage as target criteria can be helpful, these are not specific enough for maximum efficiency. For professional use only. Not for distribution to the public. 4 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Taking Control of Workflow > Often overlooked, workflow management can help control costs when an organization increases in complexity. In 2010, just 41% of all advisory firms reported that they document all major business-toclient processes. Furthermore, just 32% of all firms surveyed indicated that they are always consistent in the implementation of their workflow processes. > Sustainable business success requires striking the right balance between customizing workflow to deliver value to clients and creating efficiency and scalability to deliver value to shareholders. Few process changes are worth implementing, however, unless the resulting new workflow is readily supported by the firm’s operation systems. > Flow diagrams can help define and improve workflow processes by simplifying tasks, identifying opportunities to delegate, eliminating bottlenecks and effectively applying technology. > Embedding key workflow processes within a client relationship management (CRM) system provides powerful insurance for achieving service efficiency and consistency. Complete documentation includes the sequence and timing of tasks, the roles that are accountable and instructions for transition points or handoffs within the workflow. Aligning People Through Effective Organizational Design > Poor application and alignment of people create challenges that even the best workflow systems cannot circumvent. > Clarifying roles, responsibilities and reporting lines reduces staff confusion and improves service efficiency. > In 2010, the typical professional dedicated only 50% of his or her available capacity to revenue-generation. Firms can redefine professional positions to increase their effectiveness. An inventory and review of tasks performed by the firm’s professionals can support thoughtful reassignment of non-revenue-generating tasks. > About one in four professionals is over capacity. However, firm owners should resist the temptation to hire new team members or rush to invest in technology to resolve a capacity issue. It may be more appropriate and cost-effective to address an imbalance between professionals and their support staff, ineffective workflow or a lack of role clarity. Technology cannot relieve capacity without an accompanying investment in planning and training time. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 5 Additional Study Background We explore operational issues and solutions more completely in the pages ahead, with the objective of updating and building upon the findings of past Mission Possible reports. Similar to those previous reports, Mission Possible III aims to provide practical guidance for any advisory firm interested in improving its operational capabilities. This report begins with an industry review of how firms have performed in terms of growth, profits, operational efficiency and productivity. The review examines operations-related expenses, including a look at where the top firms are containing expenses relative to other firms. With this foundational framework in place, we shift to dispensing tactical guidance for improving operational performance: > Building operational infrastructure around the needs of the target client > Applying a disciplined approach to workflow management > Aligning people to maximize profitability as well as client satisfaction Methodology A variety of information sources formed the basis of this report, including past Mission Possible reports, interviews, survey data and our own working knowledge gained from consulting with hundreds of investment professionals in recent years. Also important were a series of 45- to 60-minute interviews with executives from leading RIA firms. All data within this report are derived from proprietary survey data from the annual FA Insight Study of Advisory Firms. The study collects detailed financial and operating data from a broad cross-section of independent advisory firms. The majority of data used in the report are from the most recent survey fielded in the early part of 2011, but past years’ data are used as well. For professional use only. Not for distribution to the public. 6 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Industry Review Recovery Brings Reprieve The timing of our last Mission Possible report roughly coincided with the depths of the Great Recession of 2008 and 2009. The economic downturn caught many advisory firms by surprise. In its wake, firms struggled to control operating costs as deteriorating investment portfolios decimated revenues. Revenues for the typical firm fell nearly 10% in this time period (Figure 1). Client growth also slowed as advisors shifted emphasis from business development to retaining anxious clients. Figure 1: Client and Revenue Growth Rebounds in 2010 Median Growth Rates, 2008–2010 18.3% Annual Percentage Change 20% 15% 10% 5.6% 5% 4.8% 4.9% 4.5% 0% -5% -10% -15% -9.5% 2008 2009 Clients 2010 Revenue Source: FA Insight proprietary survey data, 2011. Advisors today have begun to rebound from the recession. Spurred by fee growth linked to recovering portfolios, revenue jumped 18% in 2010. For the typical firm, the increase was not only large enough to replace revenue lost in 2009, but surpassed revenue generated in 2008. As a result, advisory firm profits surged as well. However, all is not well. Revenue recovery has come on the back of appreciating security markets, a less-thanreliable driver for future growth. Additionally, firms still do not have solid control of operating costs. Figure 2 shows the median firm profit margin climbing more than seven percentage points between 2009 and 2010 while operating expenses, as measured by overhead expense as a share of revenue, fell three percentage points. Both metrics are moving in a favorable direction but the improvement in overhead expenses is only marginal in light of the strong turnaround in revenue and profit growth. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 7 Figure 2: Profits Jump; Overhead Expenses Decline Profit Margin and Overhead Expense Ratio Medians, 2008–2010 50% Percentage of Revenue 41.7% 41.1% 40% 38.1% 30% 20% 18.9% 17.6% 11.3% 10% 0% 2008 2009 Operating Profit Margin 2010 Overhead as Share of Revenue Source: FA Insight proprietary survey data, 2011. Back to Business as Usual The rapid improvement in revenue, all things equal, should naturally lower overhead expenses as a share of revenue. A firm with a 41% overhead expense ratio, for example, would see this ratio drop to 35% based on an 18% revenue jump and no change in operating costs. In reality, the much smaller decline in the overhead expense ratio indicates that total overhead expenses did increase, although at a lesser rate than revenue. While firms adjusted their operating spending downward in the face of the Great Recession, they nevertheless increased spending fairly quickly during recovery, indicating little meaningful progress toward operational efficiency or cost control. This lack of spending control is evident on a per client base. Figure 3 shows overhead expenses per client steadily increasing over the last few years. From 2008 to 2010 these expenses increased at an annual average rate of 5.2%. Figure 3: Per Client Costs Rise Median Overhead Expense per Client, 2008–2010 Overhead Expense per Client $3,000 $2,500 $2,197 $2,287 2008 2009 $2,431 $2,000 $1,500 $1,000 $500 0% 2010 Source: FA Insight proprietary survey data, 2011. For professional use only. Not for distribution to the public. 8 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Elusive Scale Economies In addition to the recent historical trends, there is no strong evidence that firms gain economies of scale as they grow. Typically, in any industry, overhead costs are expected to decline in terms of revenue share. Large advisory firms should proportionately require smaller investments in technology, marketing and compliance oversight for example, and enjoy volume discounts related to custody services and outsourced investment management. Further, larger firms would be expected to realize savings based on a greater potential to gain efficiencies through the specialization of management and support roles. Contrary to expectations, however, no clear correlation exists for operating expenses to decrease as a firm grows in size. Figure 4 shows a sharp rise in the overhead expense ratio as firms surpass $500,000 in revenue, a drop in this ratio as firms reach $1.5 million in revenue, then another increase once firms grow beyond $3.5 million. Figure 4: Little Correlation Between Firm Size and Cost Savings Percentage of Revenue Median Overhead Expense as a Share of Revenue by Firm Size 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 45.10% 34.90% 39.40% 28.60% $100k–$500k $500K–$1.5M $1.5M–$3.5M >$3.5M Firm Size in Annual Revenue Source: FA Insight proprietary survey data, 2011. Understanding Operational Expenses Does a firm need to grow far beyond $3.5 million in annual revenue to fully realize operational efficiency? The small variation in growth rates between the industry’s smallest and largest firms suggests that larger firms may be far from the maturity of development that usually fosters operational efficiency. In fact, in 2010, those firms with more than $3.5 million in revenue actually increased clients at a greater rate (5.1%) than firms under $500,000 in revenue (4.5%). The results indicate that even the largest firms are still in adolescence given their continued healthy rate of growth. Whatever their size, every firm can greatly enhance operational efficiency. Year after year, survey results from the FA Insight Study of Advisory Firms show low overhead expenses as being one of the strongest differentiators of standout firms. At every stage of development, these top firms show overhead expense ratios that are frequently 10 or more percentage points less than other firms. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 9 Gaining a better understanding of operational expenses is a good starting point. Figure 5 summarizes major advisory firm overhead expense categories, detailing what each includes and its average percentage share of all overhead expenses. Figure 5: Overhead Expense Summary Expense Component Included Costs Percentage Share of Overhead Expenses Non-Professional Staff Pay Base salary and incentive pay for management, administrative, technical specialist and support staff. 35% Other Staff Costs Payroll taxes, personnel development and retirement and insurance benefits. 17% Office and Equipment Expense Office rent, repairs, maintenance, depreciation and amortization and general office expenses. 20% Information Technology Computer software, computer hardware and IT-related consulting or outsourcing. 7% Business Development and Marketing Expenses related to marketing or business development activities such as advertising, publications and seminars. 5% All Other Overhead Business insurance, professionals services, travel and any other expense unrelated to direct revenue generation activity. 16% Source: FA Insight proprietary survey data, 2011. Costs for non-professionals make up the greatest overhead expense for a firm. Pay for management, administrative, technical specialist and support positions along with related payroll taxes, benefits and development expenses equal more than half (52%) of the average firm’s overhead expenses. Office and equipment expenses are also significant, representing another 20% of overhead expenses. Examining how overhead expenses evolve as a firm grows brings deeper insight. We previously suggested that scale economies are not readily apparent in larger firms, yet Figure 6 shows how the allocation of overhead costs change as firms increase in revenue size. Some cost components decline as a share of expenses. Office and equipment expenses drop most notably, falling from 26% of the overhead expenses for the smallest firm down to 19% for the largest firms. Shares for information technology, business development and marketing and “all other overhead” also decline slightly. For professional use only. Not for distribution to the public. 10 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Figure 6: Cost of Non-Professional Staff Grows with Firm Size Percentage of Revenue Distribution of Overhead Expenses by Firm Size 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 21% 27% 18% 32% 18% 26% 38% 20% 23% 16% 9% 6% 19% 8% 6% 19% 21% 7% 5% 17% 17% 7% 5% 15% $75k–$500k $500k–$1.5M $1.5M–$3M >$3M Firm Size in Annual Revenue All Other Overhead Business Development and Marketing Information Technology Office and Equipment Expenses Other Staff Costs Non-Professional Staff Pay Source: FA Insight proprietary survey data, 2010. Non-professional staff pay, however, becomes an increasingly dominant cost component as a firm grows. Accounting methods exaggerate some of this cost difference but, without question, larger firms deploy proportionately more non-professionals, which affects their cost structure. All things equal, smaller firms tend to show lower non-professional expenses because professionals with these firms must dedicate a good share of their time toward non-professional activities that go beyond directly servicing clients or generating business. Professional compensation is accounted for as a direct expense rather than overhead, however, because the professional’s primary role is that of an advisor. This phenomenon is especially evident among firms with less than $500,000 in revenue, many consisting of one owner or advisor who spends a good deal of time on non-revenue-generating activities. This practice is a likely contributor toward the low overhead expense ratio seen for these firms in Figure 6. Accounting methods play a minor role, however, in the increase of non-professional expenses as firms grow in size. Staffing data confirms a proportionately greater dependency on non-professionals for larger firms. A firm with less than $500,000 in revenue typically deploys one non-professional per professional. This ratio jumps to 1.6 for the industry’s largest firms beyond $3.5 million in revenue. Where the Best Firms Find Operational Efficiencies As a firm develops, operations change—in turn changing the firm’s cost structure. Understanding this evolution can help advisory firm owners who are planning for growth and looking to achieve greater operational efficiency. Identifying the top-performing firms within each development stage highlights the operating practices that drive superior performance. FA Insight used its annual survey data to find the top 25% of firms based on their ability to grow and to generate owner income. With regard to operating expenses, top firms reveal key differences in terms of staffing, office expenses, information technology and marketing. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 11 As shown in Figure 7, top firms at every development stage spend significantly less than other firms on nonprofessional compensation. Their lower costs stem from lower support ratios—having proportionately fewer non-professionals on the payroll. Figure 7: Top Firms Spend Less on Support Staff Percentage of Revenue Non-Professional Compensation Expenses as a Share of Revenue 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 17.4% 13.3% 12.3% 9.9% 8.2% 13.3% 9.4% 3.7% $75k–$500k $500k–$1.5M $1.5M–$3M >$3M Firm Size in Annual Revenue Top Firms Other Firms Source: FA Insight proprietary survey data, 2010. As recently as a few years ago, top firms used higher support ratios, deploying lower-cost non-professionals to increase the productivity of their professionals. In contrast, today’s top firms are achieving success by keeping labor costs down. Thoughtful organization, well-designed processes and prudent investments in technology enable these top firms to employ fewer non-professionals without sacrificing efficiency or productivity. Top-performing firms in early development stages also save 1%–2% of revenue on office and equipment expenses, suggesting that excessive spending on these items early in a firm’s development inhibits performance. Only when top firms reach $3.5 million in revenue does office and equipment spending equal that of other firms. In contrast, top firms below $1.5 million in revenue spend more than other firms to support business development and marketing. The trend reverses when firms exceed $1.5 million in revenue, suggesting that an upfront investment in marketing is important for establishing a firm’s brand and jump-starting growth. As top firms grow in size and take on more clients they are able to reduce marketing spend. It is fair to assume that technology can drive operational efficiency and firm productivity. Top firms, however, are not spending more on technology relative to other firms. With the exception of firms in the $1.5 million–$3.5 million revenue size range, top firms spend about 1–1.5 percentage points less on technology as a share of revenue. Top firms’ technology strategy mirrors their approach to people—more is not necessarily better. Achieving operational efficiency and productivity does not require firms to invest more but it does require them to invest wisely. This means building an operational infrastructure around the desired client experience and creating an implementation plan that emphasizes thoughtful design of workflow processes, prior to adding people and technology. We explore these themes in the sections ahead. For professional use only. Not for distribution to the public. 12 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Operational Control Starts with a Client-Centric Focus Tailoring to a Target At the 2011 Starbucks Coffee Company shareholder meeting, Global Chief Marketing Officer Annie YoungScrivner described how Starbucks successfully built its “second home market” in China. The traditionally teadrinking country has outperformed U.S. stores in both unit economics and margin contribution, climbing from 10% to 22% in just two years. The Starbucks strategy in China was clear: elevate the Starbucks brand by recognizing that coffee is perceived as modern and forward-thinking and reflecting this in the experience created in every store. Starbucks also recognized that while customers in China seek a classic American experience, the company had to meet the local taste profile by implementing a “global experience, local relevance” strategy for all food and beverage items. Showing respect for local tastes, black bean muffins replaced blueberry, black sesame cookies replaced chocolate chip, and a new line of traditional moon cakes with a unique Starbucks spin were introduced in celebration of the Autumn Festival. Sales of this exclusive line grew 40% between 2009 and 2010. Tailoring operations to the client is a primary philosophy for Moneta Group Investment Advisors in Clayton, Missouri. As Nancy Pritchard, Marketing and Communications Director for the firm, explains, “We are passionate about what we do and act only in the clients’ best interest. Everything is designed around their needs and expectations.” Modera Wealth Management, headquartered in Westwood, New Jersey, and Briaud Financial Advisors of College Station, Texas, also understand the importance of structuring their firms around meeting client needs. Modera Wealth Management includes medical doctors among its targeted clients. To better serve this segment they have developed expertise around the unique characteristics of doctor-focused retirement plans including customized profit sharing plans. According to Tom Orecchio, a principal with the firm, Modera also has a good understanding of the economics of a medical practice, which it factors into consideration as it delivers advice to doctors who are office partners. Operationally, Modera has templates in place to mimic doctor retirement plans and practice financials to ensure its advisors capture and monitor the right information as they work with this client segment. Briaud Financial Advisors also targets doctors as well as university professors. Natalie Pine, the firm’s chief operating officer, explains that both client types tend not to want to be “bothered with financial stuff.” As a result the firm is mindful of working as efficiently as possible with these clients and has structured its servicing accordingly, designating a key point of contact for each client. Briaud understands that university professors also have unique retirement plans, including salary deferral accounts. In this area, the firm has implemented a system that routinely monitors deferrals to immediately identify and address problem areas as needed. Especially in service industries, understanding the distinctive needs and characteristics of a given market is the first step in building an operational infrastructure that delivers superior client satisfaction and drives profitability. When advisory firms serve a clearly defined market, the client experience and supporting processes can be more highly customized and more easily replicated, thereby boosting profitability. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 13 Clear Definition Provides Clear Benefits In 2010, the industry’s top performers at every stage of firm development demonstrated a greater tendency to define and pursue a target market, thus enabling greater operational efficiency. Figure 8: Top-Performing Firms Across Firm Stages Pursue a Target Market Percentage of Firms Responding Firms with Defined Target Market 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 91% 78% 67% 64% 67% $75k–$500k $500k–$1.5M 71% $1.5M–$3M 80% 74% >$3M Firm Size in Annual Revenue Top Firms Other Firms Source: FA Insight proprietary survey data, 2010. Pursuing and delivering to a well-defined market also creates superior productivity. Depending on firm size, top firms achieved revenue per team member that was 14%–21% higher when compared with all other firms surveyed. Perhaps most remarkably, profitability per client was 2.4–3.5 times greater than all other firms surveyed, reinforcing the efficiency that these firms realize when managing relationships. To achieve such operational advantages, management must first define specific market(s) the firm will compete in. The growth opportunity within the prospective target market should be given primary consideration. Additionally, the level and type of resources required to effectively meet the needs of the market must also be understood. Many firms still fail to adequately define and pursue a market with identifiable and similar characteristics. In Figure 9, levels of investible assets and client life stage are the most commonly used criteria for defining a target market. Although somewhat helpful, these overly broad characteristics include a wide range of advice and service needs. The more granular a firm can be with respect to where to compete, the greater the opportunity to create an offer that meets the specific needs of the market. For professional use only. Not for distribution to the public. 14 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Figure 9: Target Market Criteria Requires Greater Refinement Characteristics Included in Target Market Criteria Levels of Investible Assets 70% 54% Life Stage Income 43% Occupation 40% 36% Geographic Location Self-employed Business Owners 31% 17% Industry of Employment Specific Technical Advice Needs 9% Specific Affiliation 9% 22% Other Characteristics 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of Firms Responding Source: FA Insight proprietary survey data, 2010. For most advisory firms, client characteristics range broadly, resulting in varying advice and service needs. Delivering to the needs of current clients and ensuring their satisfaction is important. Opportunity exists, however, to acquire new clients in a more targeted manner, directly enhancing future performance. A more focused approach toward client acquisition can yield multiple advantages: > The delivery of a highly customized and valued client experience, creating greater client satisfaction and supporting retention and growth through referrals of other like clients > The development of a clearly articulated advice and service offer for the target market that enables a deeper understanding of the cost of delivery and effective pricing > Improved opportunity for professionals to gain greater technical expertise in a defined area and create efficiencies in the delivery of advice > Greater ability to build consistency across the activities completed by non-professionals, such as client servicing and administrative roles, enhancing productivity and profitability Designing Operations to Serve a Target Market How can a firm create a client-centric approach to operations by delivering an advice and service offer to a defined target market? In Figure 10, we consider an example of an advice and service offering designed to deliver to the needs of medical practitioners. More specifically, the target market includes radiologists who are employed in a private practice and are in the wealth accumulation phase. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 15 Figure 10: Example Target Market Advice and Service Components Target Market: Radiologists, Private Practice in Wealth Accumulation Phase Advice Offer (Examples) Description Repaying your school loans We help you create an effective plan to minimize interest repayments and free up your current income sooner. Growing your professional income We help you navigate investing in your 401(k), establish a savings investment plan and finance your first home while ensuring you can enjoy the lifestyle you want. Service Offer (Examples) Description Young professionals financial seminar series Given your on-call work schedule, our educational sessions are held during the day and evenings three times a year and cover the topics most relevant to young medical professionals. Keeping you informed—our online investment portal We know that you do not have time to read all of your mail. Our online client portal gives you access to your investment statements so that you have current information when you need it. Figure 11 below demonstrates how key operations can be aligned to support the delivery of the advice and service offer. This example considers the implementation of the new investment portal (introduced in Figure 10) to better serve the target market. Figure 11: Aligning Operations to Support Delivery to the Target Client Service Component Keeping you informed—our online investment portal Client Processes Redefine the investment reporting procedure. Create a transition plan from current hard copy reporting to online portal. Document process for providing clients access to the portal. Technology Work closely with custodian or other provider to identify preferred online portal. Implement technology upgrades to support the new portal capabilities. Resources Allocated Determine budget required for website updates, a technology consultant, the COO to launch the new service to clients and the client service managers to ensure access for clients. Managing Workflow Controlling Complexity and Optimizing Value As a firm grows and matures, it inevitably increases in organizational complexity. Establishing new teams or departments, operating from multiple locations and broadening services to new and existing markets all require business operations to evolve in step. Organizational complexity resulting from growth can be a healthy sign. The question for management is, “Does increased organizational complexity translate into the creation of value?” In this section we examine the often-overlooked role of workflow management in taming this complexity and optimizing shareholder value. In 2010, just 41% of all advisory firms surveyed reported that they document all major business-to-client processes. Furthermore, just 32% of all firms surveyed indicated that they were consistent in the implementation of their workflow processes. These results suggest the difficulty of optimizing operational efficiency, delivering a consistent client experience and assuring profitability. For professional use only. Not for distribution to the public. 16 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Figure 12: Documented Process and Implementation Requires Attention Percentage of Firms Responding Documentation and Implementation of Processes 45% 41% 40% 32% 35% 30% 25% 20% 15% 10% 5% 0% Have documented processes Always consistent implementation of processes Source: FA Insight proprietary survey data, 2010. Extracting greater profitability through efficient workflow requires a disciplined approach. Thoughtfully designed workflow often loses out to “as you go” workflow where individual initiative and personal preferences dictate the way tasks are completed. In Mission Possible II we referred to this as the advisor-centric approach. Needless to say, a careless workflow design is unlikely to optimize efficiency or provide a consistent client experience. Beyond the advisor-centric approach, Mission Possible II outlined two other workflow management strategies. The first was the client-centric approach, a relatively reactive model where individual client needs dictate the way services are delivered. The second was the process-centric approach where workflow is designed first to create efficiency and secondly to meet client needs. Engineering Value Creation Through Workflow A successful, sustainable business must satisfy both clients and shareholders. As demonstrated by the industry’s top-performing firms in Figure 13, the right balance must be struck between customizing workflow to deliver value to clients and creating efficiency to deliver value to shareholders. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 17 Figure 13: Most Important Drivers in Developing Workflow Processes of Top Firms Most Important Driver in Designing Processes Efficiency 14% Consistency 34% Client Experience 49% Other 3% Source: FA Insight proprietary survey data, 2010. “The balance between process and customization is key,” emphasizes Daniel Zuckerman, a principal with the Chicago firm, Zuckerman Investment Group. Zuckerman goes to great lengths to personalize services for each client, but the firm always considers how customization will impact operations. Each new process must be readily supported and replicated by the firm’s operational systems. Maintaining disciplined processes is easier when serving a defined target market with similar advice and service needs. Although delivering financial advice in the U.S. is different from selling Starbucks products in China, the same fundamental workflow principles apply. Based on an identified target, workflow design should begin with a unique and powerful client experience. One critical question must be answered first: “How do we want our clients to feel and think as a result of their partnership with us?” Figure 14 demonstrates a simplistic yet highly effective means of building and implementing a desired client experience in the prospecting phase of client engagement. Again, the target market includes private practice radiologists who are in the wealth accumulation phase. The firm’s client experience is designed to build client confidence by demonstrating efficiency, reliability and professionalism. Involving all team members in the development of the client experience can go a long way to building commitment and accountability for the satisfaction of clients. For professional use only. Not for distribution to the public. 18 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Figure 14: Example of Designing Workflow to Deliver the Client Experience—Prospecting Phase Prospecting Phase Current State – I am embarrassed that I have not done more with the money I am earning. What do clients think and feel prior to making contact with our firm? – Can I really trust an advisor? – Are these the right people to contact? I feel uncertain and a little nervous. – Do I have enough money? Will they be prepared to work with me? – Can I afford their fees? – I do not have much time to meet with them; I hope this will not take up too much time. Value-Creating Workflow Enhancements What can we do to address client thoughts and feelings? – Phone call received by receptionist, greeted in a consistently friendly and professional manner. – Call is transferred efficiently to a Client Service Manager who refers to the new prospect script that will: – Ensure key questions are consistently asked, and that questions are not confrontational but demonstrate a genuine interest – Share initial firm background and the client value story, in particular, how the firm works with young professionals – Explain the firm’s process for new clients and what the first meeting will involve—would the client prefer to meet via conference call, in person or via Web meeting to save time? – Customized information kit is e-mailed within 24 hours. Information kit is tailored to professional wealth accumulators, explaining the areas of advice delivered, how the firm can help and all details on preparing for their first meeting. Suggested Accountability for Workflow Enhancements Which roles should be accountable? – Receptionist – Client Service Manager Desired Future State – They sound professional and are an established business. What do we want clients to think and feel at the end of the welcome phase? – They sound interested in meeting with me and learning about my situation. – I feel comfortable about meeting with the advisor and visiting the office. I know what to expect. – They have obviously seen my situation before. – I am excited to finally get help. Once firm management decides which enhancements to apply to the client experience these improvements must enter the firm’s workflow so they maintain process consistency and efficiency. At Weatherly Asset Management in Del Mar, California, the firm’s approach to process improvement involves extensive side-by-side comparison testing. Enhancements are viewed and compared against the original process, sometimes for a period of several months. Describes Brent Armstrong, a wealth management planner with the firm, “We point out the pros and cons of each, how [the new system] helps, cost savings and benefit to the client.” Although the firm may turn down as many prospective enhancements as it ultimately implements, Weatherly’s evaluation method helps to ensure that any process improvement will truly benefit both clients and the firm alike. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 19 Flow diagrams that explain each step in a given task can be helpful tools for defining and improving workflow. They are particularly useful for identifying the following issues: > Overly engineered tasks that can be simplified to achieve time and cost savings > Low-value activities that can be eliminated > Opportunities to delegate tasks to more junior team members or to outsource tasks to increase the capacity of both professional and non-professional positions > Bottlenecks that can be eliminated by redirecting workflow > Opportunities to further embed existing technologies or identify the need for new technologies Figure 15: Example Workflow to Deliver the Client Experience—Prospecting Phase Prospect arrives for appointment Client Client Relationship Manager Support Advisor (SA) Set up boardroom prior to prospect arrival Meet and greet prospect by first name and show them to boardroom Offer refreshments and prepare (use menu and record on file for future) Introduce client to the SA and PA Schedule discovery meeting with prospect (if applicable) Welcome prospect and take file notes as needed during meeting with PA and prospect Associate Advisor Principal Advisor (PA) Welcome prospect and introduce yourself and the role of the SA in the meeting Discuss pre-thinking questions with prospect and position agenda Run through presentation to introduce firm and explain advice process Is prospect comfortable? Respond to all questions Confirm discovery meeting with prospect (arrange for CRM to make appointment) Discovery meeting stage 2 Workflow development resources can also help define and enhance workflow. For example, Six Sigma provides a formal assessment of workflow to minimize process variability and better quantify cost reduction. For many advisory firms, however, a less formal internal review is sufficient. Located in Deerfield, Illinois, Strategic Wealth Partners, LLC offers an excellent case study of a firm that successfully manages workflow improvements. The firm’s innovative approach blends assessment software with client and staff feedback (see sidebar). For professional use only. Not for distribution to the public. 20 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Strategic Wealth Partners, LLC—Applying Feedback with Technology for Workflow Enhancement Strategic Wealth Partners is an Illinois-based wealth management firm. With just nine team members, the firm supports approximately 300 clients and $732 million in assets under management (as of July 2011). A disciplined approach to workflow processes plays a decisive role in supporting such a high level of productivity. As the firm’s Chief Solutions Officer, Moira Fahey-Ullrich works closely with team members to identify areas for process improvement. With guidance from Fahey-Ullrich, the firm conducted extensive internal workflow reviews, paying close attention to the need to enhance efficiency, client service delivery and regulatory compliance. The reviews combined innovative technology with input from clients and team members. Strategic Wealth Partners also held extensive internal discussions to map everything done throughout the client relationship and identify key areas for improvement. Each person performing a task had a direct voice. Workflow issues were assessed through the use of MindGenius mind-mapping software. The technology tool helped team members better visualize where improvements could be made. The firm discovered that, in some cases, assumptions were inaccurate regarding how tasks were completed across the business. The tool also more easily identified potential for errors and inefficiency. As Fahey-Ullrich explains, “Through the mind-mapping process we were able to identify quick hits for improvement. We were then able to prioritize longer term operational improvements that were also necessary.” As the firm refined its processes, further feedback was collected from team members to gain their assurance that the new processes were workable. Where individuals were required to make significant changes or otherwise faced challenges in adapting to change, Fahey-Ullrich emphasized communication within the firm. To promote buy-in and keep everyone well-informed, one-on-one meetings were held with individuals and process changes were regularly discussed at bi-weekly team meetings. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 21 Once the firm has reached consensus on a particular process, documenting the revised sequence of tasks promotes consistent implementation across current and future team members. Complete documentation includes assigning a role to each step in the process to ensure accountability. Incorporating these documented procedures into a CRM system provides even more powerful insurance for achieving consistency and efficiency. Mission Wealth Management in Santa Barbara, California, has enjoyed multiple benefits since incorporating key workflow processes into its CRM system. The firm uses Junxure, a leading CRM application for advisory firms. According to Matthew Adams, Mission Wealth’s director of investments, the software gives firm management the comfort that each advisor is consistently delivering similar service across each client type. The firm divides its clients into three service tiers according to different revenue metrics. Desired action sequences are set within Junxure to ensure that each client, according to type, gets the targeted minimum number of touches and receives the same service deliverable. Aligning People to Satisfy Clients and Maximize Profits Having defined the client experience, target market and best processes, firms can further enhance operations through the proper alignment of people with specific roles. Lack of accountability, strained or excessive capacity, and gaps in capability and culture each create unique challenges that even the best workflow systems cannot circumvent. “That’s Not My Job”—Creating Clarity of Accountability Within smaller, closely held businesses, individuals work across role types, filling gaps and assisting as needed. Confusion between team members raises questions and causes inconsistent delivery to clients: > Who is accountable for the completion of tasks? > Who has the capacity to complete the task? > When should tasks be escalated or delegated? > Who has decision-making authority? Working across roles becomes less common with larger firms that have the scale to support more specialized roles. Figure 16 demonstrates the relationship between narrower role accountability and firm size. This example relates to operations management, but accountability must be considered across all role types within the organization as the firm grows in size and complexity. For professional use only. Not for distribution to the public. 22 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Figure 16: Accountability Grows More Specific with Firm Size Percentage of Firms Responding Operations Accountability by Firm Stage 90% 80% 75% 70% 76% 78% 67% 60% 52% 50% 38% 40% 30% 20% 10% 0% All team members contribute to operations Have dedicated operations management position Firm Size in Annual Revenue $500k–$1.5M $1.5M–$3M >$3M Source: FA Insight proprietary survey data, 2010. Responsibility for specific workflow processes must appear in the position descriptions for each role, and team members need to be aware of how they affect the client experience. Management should reinforce levels of accountability with team members during performance review meetings, particularly when new positions are added to the organizational structure. These measures should leave little room for confusion or debate as to who is accountable and why. Productive Capacity—Professional Positions For many growing businesses, managing the capacity of a team requires regular attention. Too much productive capacity may reduce short-term profitability but increase the firm’s ability to capitalize on new growth opportunities. Too little capacity may have a positive impact on short-term profits but weaken staff morale and restrict longer-term growth. Invariably, the firm’s revenue size, delivery of the client experience and breadth of advice and services offered will influence the number and type of positions within the organizational structure. Before adjusting headcount to accommodate changes in these factors, however, consider less costly levers for optimizing capacity. Professional positions directly affect a firm’s ability to generate gross profit. These positions include all roles with primary responsibility for relationship management, advice delivery or business development. Despite the important role professionals play in growing revenue and increasing gross profit, the median percentage of professional work time dedicated to revenue-generating activity was just 50% in 2010. Additionally, 37% of firms reported that their professionals were operating “under capacity,” meaning that they had time to do more (Figure 17). Redefining the structure of professional positions could increase the efficiency and productivity of these roles. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 23 Figure 17: Capacity of Professional Positions Represent Great Opportunity Percentage of Firms Responding Capacity Level of Professional Positions 45% 40% 40% 37% 35% 30% 25% 24% 20% 15% 10% 5% 0% Over Capacity At Capacity Under Capacity Source: FA Insight proprietary survey data, 2010. Figure 17 also shows that for nearly one in four firms, professional positions are considered to be operating over capacity (defined as having an excessive workload that requires additional or extended work hours). The possible implications for firms with over-capacity professionals include: > Limited time for client acquisition > Ineffective service delivery > Potential burnout of professionals resulting in a weakened commitment to the firm and retention challenges > Weakened firm oversight in cases where professional positions also have management responsibilities Conversely, under-capacity professionals can help the firm by responding to new opportunities. Tolleson Wealth Management, a Texas-based firm, offers a good example of a firm that effectively manages professional capacity through constant communication and planning (see sidebar). As a result, Tolleson Wealth Management preserves profitability and reserves capacity for growth. For professional use only. Not for distribution to the public. 24 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Tolleson Wealth Management—Planning Organizational Capacity Well in Advance Tolleson Wealth Management in Dallas, Texas, is a multi-family office firm responsible for 95 family clients and, as of May 2011, had an estimated $2.3 billion in assets under management. With the exception of concierge services, Tolleson delivers full family-office services to clients, who average $28 million in assets. Chairman and CEO Eric Bennett explained how the firm oversees the productive capacity of its professional teams. Tolleson’s organizational structure starts with a number of clearly defined functional departments: a client advisory team of 30 people, an investment management team of eight and a recently restructured operations department of seven operational specialists. Additionally, a tax and bookkeeping department supports delivery of full family-office services. The firm’s holding company provides additional support including back-office accounting, human resource support and compliance. Bennett explains that managing team capacity requires a grassroots approach. Capacity is a frequent discussion point with team members and forms a basis for workload projections. Particular attention is paid to the firm’s five client advisory teams who, for the most part, are described as being at capacity. The firm is very mindful of the threat that lack of capacity can pose to growth. To address this issue, the firm prepares annual 12-month projections based on its ongoing team discussions. These projections ascertain how many clients each team can accommodate and the associated support that teams would require. Tolleson aims to hire 12 months ahead of any projected growth in to avoid capacity issues and assure adequate staffing. In Bennett’s words, “We don’t want to not be able to bring on new clients.” Inventory Responsibilities and Redistribute Where Applicable As the survey data suggest, advisors are often thinly spread across varying responsibilities, many of which are outside of their preferred area of focus and expertise. Frequently, advisors are firm principals who are also managing the firm. Whatever the reason preventing the professional from focusing solely on revenue generation, an inventory and review of professional tasks can pave the way for thoughtful reassignment of nonrevenue-generating tasks. A comprehensive inventory includes the following steps: > Clearly differentiate between revenue- and non-revenue-generating activities or high-value and low-value tasks. Lower value tasks should be reassigned to more junior and less expensive resources wherever possible. > Recognize where a professional lacks the expertise to effectively manage a given task. Consider who else could complete the task or if further training of the professional is required. > Determine which tasks could be outsourced cost effectively. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 25 Do Not Just Delegate, Leverage Your Talent Most firms recognize the importance of delegating tasks. Fewer firms understand that the primary objective for delegation is the creation of real leverage that improves profitability while ensuring client satisfaction. Where possible, senior professionals must offload non-revenue-generating tasks to more junior team members, who must also be encouraged to accept increased accountability. Two primary barriers typically prevent firms from more effectively using non-professionals as leverage: > A reluctance by professionals to give up control > A broad gap between the skill levels of the firm’s professionals versus its non-professionals Although professionals may think that it is “quicker to do it myself” or “no one else can do it quite as well,” such justifications for hanging on to a task create long-term systemic inefficiency. When these individuals continue to manage lower value tasks there are real tradeoffs in terms of cost and effectiveness. Professionals must regularly assess where they are spending their time and identify the tasks that do not fit well given their experience and skills. Professionals must be convinced that relinquished tasks will continue to be performed capably. Well-defined workflow combined with training and supervision are important in this regard, as is maintaining a general level of trust across all the team members involved in a process. For Moneta Group Investment Advisors in Clayton, Missouri, supporting the needs of the firm’s professionals is deeply engrained in the firm’s culture. As a member of the management team, Nancy Pritchard describes, “We say that one of our core values is delivering ‘raving fan service’ and that model is important to us. Our job as staff is to provide ‘raving fan service’ to principals so that they can focus their time and expertise on taking care of their clients.” Similarly, for Atlanta-based wealth manager Balentine, LLC, establishing trust and cultural alignment helps non-professionals to release professional capacity (see sidebar). A chasm between the capabilities of the firm’s professionals and the firm’s non-professionals can impede task delegation. Attention must be paid to bridging this gap as the firm grows and recruits talent. Creating a professional development plan that supports the advancement of existing staff is recommended. Creating an organizational structure transition plan to provide for the recruitment of key positions in the future also helps manage this challenge. For professional use only. Not for distribution to the public. 26 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Balentine, LLC—Trust and Cultural Alignment Is Fundamental for Gaining Leverage Founded in January of 2010, Balentine, LLC now maintains 24 full-time team members responsible for over $1 billion in assets under management (as of May 2011). The firm targets high-net-worth families ($5 million in AUM) and foundations and endowments (minimum of $25 million in AUM). President Jeff Adams and director of operations Erica Farber shared their perspectives on creating staff leverage. Although the two partners acknowledge that there is always room to create greater efficiencies, much of the organization’s success is based on “the ability to thoroughly trust the people that surround us.” The firm actively encourages relationship managers to focus more of their time on revenue generation and to hand off non-revenue-generating tasks. For these relationship managers to let go of inefficient practices, however, they had to have confidence that each task would continue to be handled in a way that was equal or superior to how they would have done it. The partners were quick to emphasize that the level of trust between the relationship managers and other staff has not occurred by coincidence. Farber explained that the firm pays as much attention to developing trusted working relationships as they do to creating operational procedures. Balentine maintains a focus on how its team members work and communicate with each other and firmly believes that such softer issues can have “unbelievable effects” on the firm’s ability to service clients. For Balentine, effective working relationships start with the recruitment process. The firm invests significant time and effort in hiring, with five or six of its personnel representing different segments of the business typically involved in the interview process. An external firm is also employed to evaluate how well a prospective employee fits into the Balentine culture. Balentine’s recruiting approach increases the firm’s comfort level that newly hired team members will be a cultural fit with the business and reinforce the solid working relationships within the firm. As the partners explained, “We can teach new team members the required skills for a given role, but you can’t teach the culture.” Productive Capacity—Non-Professional Positions The productivity of non-professional positions directly affects operating profit. These positions include management, technical specialists, client services and administrative positions. As reported in 2010, a significant proportion of non-professional roles are operating under capacity. Underutilized non-professionals can position a firm to grow as these roles may absorb professional tasks to free up capacity. This non-professional capacity may also be put to use as the professional team grows and new client acquisition increases. Frequently, however, excess capacity simply reflects ineffective workflow management or a bottom-heavy organizational structure. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 27 Figure 18: Greater Opportunity to Use Non-Professionals as Leverage Percentage of Firms Responding Capacity Levels of Non-Professional Positions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 20% 30% 37% 38% 61% 52% 54% 9% 11% 8% Technical Specialists Support Staff Administrative Staff 60% 20% Management Over Capacity At Capacity Under Capacity Source: FA Insight proprietary survey data, 2010. A more serious concern emerges when non-professionals are working at or over capacity. In this instance, firm owners are cautioned against trying to relieve pressure by merely “throwing bodies” at the problem by making a poorly planned hire. Understand the problem first; ineffective workflow, unclear roles and a lack of accountability may be consuming non-professional time unnecessarily. Similarly, while a big investment in technology is tempting, firms should avoid making hasty purchase decisions. As Daniel Zuckerman of Zuckerman Investment Group cautions, “Don’t just buy it. You have to change the way you work.” According to Zuckerman, an investment of time and money is required to fully realize the benefits of technology on your firm’s operations. Natalie Pine of Briaud Financial Advisors also emphasizes that firms cannot just “buy a solution.” To assist firm owners in gauging an appropriate resourcing level, Figure 19 provides industry median nonprofessional to professional ratios. Typical ratios are shown by size of firm as well as by select service model. Highest support ratios are observed for larger firms and investment managers. Small firms and financial planners typically maintain the lowest support ratios. Although these medians provide guidance for firm owners, the right balance depends upon client type, workflow processes, technology, staff capabilities and training resources in addition to firm size and service model. For professional use only. Not for distribution to the public. 28 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S Figure 19: Use of Non-Professionals per Professional, Selected Examples Firm Type Non-Professional per Professional Ratio Revenue Level $100k–$500k 1.0 $500k–$1.5M 1.5 $1.5M–$3.5M 1.1 >$3.5M 1.6 Service Model Investment Management 1.5 Investment Advisory 1.1 Financial Planning 1.0 Wealth Management 1.3 Source: FA Insight proprietary survey data, 2011. Conclusion The current industry recovery is helping to ease the financial pain brought about by the Great Recession, but little evidence exists to suggest that the downturn drove meaningful change in the ways that advisors manage costs, achieve efficiencies or promote greater productivity. Too few owners are taking the necessary measures to help their advisory firms weather future downturns. Rising overhead expenses per client indicate that firms continue to be challenged in their management of operating costs. Labor costs place a particular drag on an advisory firm’s ability to achieve economies of scale. The survey data indicates that the best investment for firms interested in greater operational efficiency and productivity does not come in the form of more people or more technology. Rather, the best investment is to commit time to planning. Efficient and productive firms have a clear picture of the type of client they serve and the valued client experience they provide. Operational capabilities are built around assuring the firm’s ability to deliver the desired experience to the target client. Well-defined workflow processes are another important but often overlooked contributor to operational success. With processes in place, the firm can develop a sound organizational structure and effectively align people with roles. The time spent on planning promotes greater operational efficiency and productivity, garnering a much greater return on investment from an advisory firm’s valuable people and technology. For professional use only. Not for distribution to the public. M I S S I O N P O S S I B L E I I I : S T R A T E G I E S T O S U S T A I N G R O W T H I N C H A L L E N G I N G T I M E S 29 Acknowledgements We gratefully acknowledge executives of the following firms, who contributed their insights to this report: Participating Firm Location Participant Balentine, LLC Atlanta, GA Jeff Adams, Partner and President Erica Farber, Partner and Director of Operations Briaud Financial Advisors College Station, TX Natalie Pine, Chief Operating Officer Mission Wealth Management, LLC Santa Barbara, CA Matthew Adams, Director of Investments and Principal Modera Wealth Management, LLC Westwood, NJ Tom Orecchio, Principal and Wealth Manager Moneta Group Investment Advisors, LLC Clayton, MO Nancy Pritchard, Marketing and Communications Director Strategic Wealth Partners, LLC Deerfield, IL Moira Fahey-Ullrich, Chief Solutions Officer Tolleson Private Wealth Management Dallas, TX Eric Bennett, Chairman and CEO Weatherly Asset Management Del Mar, CA Brent Armstrong, Wealth Management Planner Zuckerman Investment Group, LLC Chicago, IL Daniel Zuckerman, Principal Ideas Without Limits This independent study is part of Ideas Without LimitsSM thought leadership program. It is a sample of our unique practice management offering, designed to help firms drive growth, optimize human capital, maximize operational efficiency and manage risk—going beyond high-level guidance to offer actionable information, personalized consulting and ready-to-execute solutions. To learn more about Pershing Advisor Solutions call us at (800) 445-4467, or visit us at www.pershingadvisorsolutions.com. © 2012 Pershing Advisor Solutions LLC. Pershing Advisor Solutions LLC, member FINRA, SIPC, is a subsidiary of The Bank of New York Mellon Corporation. Clearing, custody or other brokerage services may be provided by Pershing LLC, member FINRA, NYSE, SIPC. Pershing Advisor Solutions LLC relies on its affiliate Pershing LLC to provide execution services. Trademark(s) belong to their respective owners. For professional use only. Not for distribution to the public. 30 MISSION POSSIBLE III: STRATEGIES TO SUSTAIN GROWT H I N C H A L L E N G I N G T I M E S FOUR KEYS TO YOUR SUCCESS Our experience and research show that four key issues represent the greatest challenges facing investment professionals today. Our practice management solutions target the areas that may have the largest impact on your business. This paper helps you drive OPERATIONAL EFFICIENCY. GROWTH Achieve your potential through client acquisition and retention, referral programs and mergers and acquisitions HUMAN CAPITAL Attract, retain and develop top talent while preparing for a smooth succession OPERATIONAL EFFICIENCY Take control of rising overhead costs and build a more streamlined, scalable infrastructure for your firm RISK MANAGEMENT Stay in step with fastchanging regulation, and protect your business against unexpected events About Us Pershing Advisor Solutions LLC (member FINRA/SIPC) is an affiliate of Pershing LLC and a leading custodian to independent registered investment advisors and dually registered advisors working in conjunction with many of Pershing LLC’s introducing broker-dealer customers. Pershing LLC (member FINRA/NYSE/SIPC), a BNY Mellon company, is committed to delivering dependable operational support, robust trading services, flexible technology, an expansive array of investment solutions, practice management support and service excellence. Through an innovative custody platform, Pershing Advisor Solutions delivers superior expertise and scalable and customizable solutions to help independent registered investment advisors manage and grow their businesses. Additional information is available at www.pershingadvisorsolutions.com. IS-PAS-MP3-4-12