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What are your KPI’s (key performance indicators) as a financial advisor?
I had a great conversation recently with Andy Grillo of Fabe Assist https://fabeassist.com/ He works with financial advisors preparing to purchase another practice as well as people packaging their practice for sale. His technology is interesting because it gives people a comprehensive overview of a financial advisory practice and critical data on performance and revenues.
What are your KPIs or key performance indicators?
After a brief conversation, we were clearly on the same page when we look at financial advisors' profitability ratios, productivity ratios, and client selection ratios. To see what I mean click here https://fabeassist.com/solution/customized-wealth-management-dashboards/ We had a great conversation about revenue per advisor and revenue per staff. Andy said that financial advisors work towards these ratios their whole career, but most don't even know they exist. How do they stand when they are benchmarked against other elite practices? These ratios will give you a clue about some of the most successful practices and award-winning financial advisors.
We all want to run a profitable and productive practice. Knowing what your KPI's are helps you measure them. As Peter Drucker says “what gets measured gets managed”. What are you currently measuring in your practice? The typical advisor knows their client selection ratios such as assets under management, and assets per client household. They know the number of households, but do you know the gross and operating profit per household? And can you project it into the future? Successful financial advisor practices map it out for 10 years. They also stress test it to see what happens in down markets and bad economies. We hate to look at operating profit in a down market but making minor improvements to this measure makes massive gains potentially for the practice. As entrepreneurs, we fool ourselves sometimes with our projections. Knowing the data helps make better decisions.
Do you use relationship analytics?
In my conversation with Andy Grillo, he talked about utilizing relationship predictive analytics to provide financial advisors with insightful information to make better decisions. Decisions such as when you're selling your practice the transition risk and the depth of the relationship and the depth of financial advice. Andy's experience and knowledge in valuations and understanding financial advisors are very extensive but his dashboard summarizes the whole conversation very quickly because you can measure it. You can see the numbers and how to improve on one page. This is why benchmarking is so important to financial advisors.
Countless studies indicate firms utilizing appealing graphs and charts to monitor and display data are more inclined to focus on the data. Our brains find pictures and colors more appealing than spreadsheets. Often times financial advisors and financial executives need to distill large amounts of complex data quickly to make decisions. Data should be converted to charts and graphs that tell the story of your firm according to Andy. The use of dashboards from your firm as well as benchmarking data can help financial advisors make better business decisions, now and 10 years into the future.
How are you using your data?
Most firms benefit from using interactive dashboards to monitor income, expenses, or products and services. How are you using your data to make changes in your practice? This is where practice management comes in. Taking the data and analyzing it, and building strategies to improve the short-term and make a massive long-term difference. For example, going from $250,000 in revenue per staff member to $350,000 revenue per staff member changes the practice revenue and valuation dramatically. Elite firms are around $700,000 net revenue per staff member. This helps tackle the two main challenges for most financial advisors. Number one is capacity and number two is managing and training staff. Knowing the ratio now and the goal shows financial advisors quickly how they can improve their practice. Most successful financial advisors keep track of 10 KPI's to help them manage their practice and make major decisions such as hiring and investing in their practice.
OPERATING PERFORMANCE KPI’s
These ratios are considered quantitative calculations and are especially useful when compared to similar firms.
• REVENUE PER ADVISOR PROFESSIONAL
• REVENUE PER STAFF
• HOUSEHOLDS PER ADVISOR PROFESSIONAL
• CLIENT HOUSEHOLDS PER STAFF
• OPERATING PROFIT PER CLIENT HOUSEHOLD
• OPERATING PROFIT PER ADVISOR PROFESSIONAL
• OPERATING PROFIT PER STAFF
• REVENUE PER CLIENT HOUSEHOLD
• AUM PER CLIENT HOUSEHOLD
• GROSS PROFIT PER CLIENT HOUSEHOLD
• AVERAGE INCOME PER OWNER
While many advisors may be aware of the aforementioned KPI’s most are less familiar with Relationship KPI’s which provide insight for both practice management and valuation purposes.
QUALITATIVE RELATIONSHIP KPI’s
• DEPTH OF RELATIONSHIP
• DEPTH OF FINANCIAL ADVICE
• TRANSITION RISK
• SERVICE AND COMMUNICATION
• SPECIAL SERVICES RISK
Related: What Does Being the Best Financial Advisor in the Financial Industry Mean?