Who are the Champions?
What separates the best advisors from the rest

Last month, the 2008 Beijing Olympics not only witnessed new athletic speed records, it also set television records by attracting 214 million American viewers over 17 days-- making it the most watched event in U.S. television history. Mesmerized by the best athletes in the world, we watched with bated breath to see if 41-year old mom Dara Torres still had it. If Michael Phelps could be the winning-est athlete in Olympic history. If Usain Bolt was the fastest man. I was also riveted by the games and as I watched, I thought, “How many of us are inspired by these remarkable athletes? How many kids wonder if down the road they could be another Nastia Liukin or Shawn Johnson or even Michael Phelps?”

The highest ranked advisory firms
In identifying the “top firms” we applied a multi-criterion score model that includes four variables: size of firm, growth rate, profitability and range of services offered. Based on this screening, a Top Firms’ Benchmark—comprised of the firms that met our tough performance criteria—is created. The resulting 36 most successful RIA firms are contrasted with the rest of the marketplace.

It’s no surprise that the best advisory practices sport a higher profit, number of clients, AUM and growth rate than their peers. But looking deeper, we find that there are other factors that differentiate top performers from average firms. The major differentiators that separate the best from the rest are: delegation of client relationships, staff management and compensation, time management and marketing skills.

Delegation of client relationships
One of the greatest concerns advisors express is their obligation to not only work in their business but to also work on their business. The fact is that a fourth (25%) of average advisors don’t delegate meetings and a third (32%) don’t delegate client relationships to staff members. In contrast, a mere 5% of best firms decline to use internal talent as a time-stretching resource. (See Practice Edge July 2008.) Top firms also allocate more of their expenses to staff (37% vs. 20%). These firms are also more likely to tie employee incentives to individual revenue, which ultimately leads to higher individual compensation and a higher employee retention rate.

Principal responsibilities: time management
Our research also shows that advisors are preoccupied with business administration tasks. As a result, they don’t spend enough time on client service—a key area in an advisor’s business. An average advisor spends only 25% of his or her time in front of clients. In contrast, the best practices are providing what their clients want most—their time (see Practice Edge May 2008.) The chart below shows that principals of top firms spend the majority of their time (60%) with clients—more than twice as much as the average advisor. Clients are getting more attention at top firms and are more likely to show loyalty to those firms.

Functions of Principal

Marketing
Another differentiator between top advisors and average ones is the amount of time spent on marketing. Top advisors spent twice as much time on marketing as average advisors (12% vs. 6%). Marketing is a major challenge for advisors. Only half (54%) of average advisors have a marketing plan in place, in contrast to the top advisors who all have marketing plans for their businesses. Although advisors are optimistic about business growth over the next five years—almost half of the advisors surveyed (44%) expect to propel their business to the next level by growing more than 30% annually—very few firms actually hit that mark. The key driver for this growth is not market performance and client contributions, but client acquisition. At the same time, client acquisition remains the biggest challenge. When evaluating  their businesses, advisors cited finding new clients (63%) as the most serious threat to their business. Only those firms with a solid marketing plan in place will be able to overcome that challenge and drive healthy growth.

A basic marketing plan will take into account:

• A Market assessment (evaluate the internal and external environment, i.e., a SWOT analysis)
  
  
• Goals and objectives (Set target metrics for your business such as revenue goals, AUM growth, number of clients, number of new clients, average account size, profitability and even desired perception of your firm)
  
  
• Strategies (the marketing and business strategies to attain your objectives, i.e., referral program, pursuit of specific client types, etc.)

Borrowing from the best
Overall, top firms have broader services, higher asset growth rate and higher profit margins. As demonstrated by the best firms, spending time on the right things is likely the best place to start. By delegating administrative duties, advisors can focus on the areas that are most beneficial for their bottom lines: client interaction, strategy and marketing. While there is no “guaranteed method” for practice management success, by studying these best practices, you may be able to borrow “tried and true” ideas from winning firms.