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Looking at Your Financial Advisory Firm as a Business

Financial advisers are dedicated to their clients’ wellbeing, but they also need to manage their practice rigorously as a successful business.

Financial advisers as a rule are very dedicated to helping their clients reach their financial goals. They are committed to their client’s success. At the end of the day, however, a financial advisory practice is a business. It's how you support your family and how you achieve your own financial goals.

Looking at your practice as a business not only makes sense for you, but also for your clients as well. Ensuring that your practice is profitable can help ensure that you will be able to continue to provide your clients with the service and advice they count on.

Revenues and Expenses

Like any business, a good place to start is to analyze your firm’s revenues and expenses. On the revenue side, get an understanding of how various clients contribute to the overall level of revenue. Is a high percentage of your revenue concentrated among a small percentage of your clients? If you offer several levels of service, how is your revenue distributed among these types of services?

On the expense side what are your highest expenses? This might be salaries, office rent or perhaps technology. How do these expenses factor into the delivery of the various services that your firm offers?

Which of your clients are the most profitable?

Periodically you should look at each of your firm’s clients and determine how profitable each client is for you. This will be a function of how they are charged and how much you charge them. This may be on an assets under management fee, a flat retainer, an hourly arrangement or some other arrangement.

Compare this to your best estimate of how much it costs to service the client. This is most likely based on how much time you or others spend servicing this client annually. This can be based on actual time spent with the client if you track this, or at least an estimate based on notes in their file.

If you find clients who are not as profitable as others, or perhaps who you are clearly losing money on the relationship, you have some decisions to make. Are there ways to change the way you work with these clients that would make them more profitable and still provide the client with the services they need?

In some cases you might need to increase or perhaps otherwise change their fee arrangement. If the issue is they demand more of your firm’s time than is warranted, perhaps it's time to have a talk with them about changes in the relationship that are needed. Or perhaps it's time to make the difficult decision to part ways with the client.

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How has your business changed?

The COVID-19 pandemic has changed the business model for a lot of companies across a lot of industries. This certainly includes those who provide professional services like lawyers, accountants and financial advisers.

The trend toward digitization and meeting virtually was well underway prior to the pandemic. The onset of COVID-19 has accelerated these trends. There is a new generation of clients who are comfortable with virtual meetings and who want a robust digital experience when working with their financial adviser.

It’s important to look at how this impacts your practice as a business in terms of the delivery of advice and prospecting for new clients. Is your practice ready for these digital and virtual next steps? Along these lines, are you offering the services your clients want and delivering them in the fashion they want to receive them?

Staff and Business Partners

It’s important to periodically review your firm’s staffing. Are the other advisers in the firm a good fit? Is your client base evolving and if so does this require some additional types of talent? Do you have the right people in place as far as managing the firm’s technology and the firm’s client services functions? Are there staff members who aren’t performing as well as hoped and who need to be replaced?

A financial advisory business is all about people, even with the ever-growing influence of technology. Like any business, it's important that you have the right people in place. This helps ensure that your clients are well-served and that your staff is onboard with moving the firm forward.

Most advisers partner with outside firms in a variety of ways. Whether this is a main custodian for your client’s investments or a firm that provides various types of software used in your practice, it's important to review these relationships periodically. Are you and your clients getting the level of service you need and is the cost of this service still competitive?

Ownership Considerations

The past few years have seen a good deal of consolidation among financial advisory firms. This can mean a lot of things including merging with another advisory firm, purchasing a practice from an adviser who is looking to exit the business or perhaps scale back a bit or potentially selling your practice to one of the firms in the industry looking to expand.

If any of these paths are potentially right for you and your practice, this will take a great deal of analysis. What’s in it for you, your employees and your clients? Does a new business combination make financial sense for your firm and for you?

As dedicated as you may be to your clients, being a financial adviser is a business. This is the case whether you are a small solo practitioner or you have a good-sized firm with a number of employees. The best way to serve your clients is to ensure that your business is healthy and properly configured to provide the best service possible.