In today’s world of compressed fees, more competition, and clients’ laser focus on managing costs, there are two keys to maintaining a profitable practice, according to Sue Kelley of Ann Schleck & Co.: adopting a formal process to assess profitability and having a strategy in place to optimize profitability.
Taking part in a panel discussion at the 2013 NAPA/ASPPA Summit in Las Vegas, Kelly was joined by Troy Hammond of Pensionmark Retirement Group and Chad Larsen of Moreton Retirement Partners.
Kelley listed five ways changes in the marketplace are affecting advisors’ profitability:
1. The old focus on number of new plans is shifting to the new focus on revenue per client.
2. The focus on AUA is shifting to a focus on cost per client.
3. The focus on maximizing revenue is shifting to a focus on controlling costs.
4. The focus on asset-based fees is shifting to fixed fees.
5. The focus on providing the same services to all clients is shifting to segmentation – that is, providing different services to different clients.
Hammond suggested four key metrics to measure profitability:
1. Financial (growth in annual revenue, expenses as a percent of revenue, and profit margin growth)
2. Productivity (revenue goal per producer, and time spent on billable vs. non-billable hours)
3. Client-specific (time spent per client, profitability per client, and client retention and satisfaction rates)
4. Sales (number of new clients/new plans, cross-sell revenue)
Larsen outlined a process for assessing your profitability:
1. Identify weaknesses that negatively affect productivity (time wasters, manual processes, etc.).
2. Create a written plan to address inefficiencies, including steps and who is responsible.
3. Implement the plan.
4. Review progress using a dashboard of metrics to monitor.
Addressing fee structure, Larsen reported that hard-dollar fees currently make up about 35% of Moreton’s revenue. At Pensionmark that figure is around 15%, Hammond indicated. His firm has adopted hybrid pricing for some (mostly larger) plans.
What’s it like when effective assessment efforts really kick in? For Pensionmark, Hammond said, the “a-ha” moment came when they ran reports from different perspectives, showing profitability by plan size, location, provider and product.
Look for more from Kelley, Hammond and Larsen on segmentation and strategies to boost profitability in a future post.
