Practice Management Building Your Business

How I'm Building Scalability Into My Practice

Commentary August 31, 2007 at 05:38 AM
Share & Print

It's been five months now since my journey began and I am finding the transition from employee to business owner requires a lot of time and energy. Last week I wrote about my efforts to develop a strategic plan. This week I continued working on the plan and started some specific projects, which, once created, can easily be replicated.

I have been working to develop tools, templates, process, and procedures that will provide scalability. This "scalability" is a critical component of a business's efficiency. The tools that we sometimes take for granted as an employee have to be created or purchased when you are an independent. A risk tolerance questionnaire is one of these basic tools.

For years I believed that people overstated their ability to tolerate risk. This was confirmed when I attended an FPA conference in Denver in 2004. One of the speakers was Dr. Daniel Kahneman, Nobel laureate in 2002. He suggested that people have a tendency to overstate their risk tolerance and referred to it as their coefficient of loss aversion. I've looked for a questionnaire that incorporated this, but have been unsuccessful. Since necessity is the mother of invention, I decided to create my own. Here's how I approached this project.

My new questionnaire has 12 questions and each answer has an assigned point value. The maximum possible points are 52 and the minimum is 14. The difference between the minimum and maximum number is 38 and I have 9 model portfolios. When you divide 38 by 9 you get 4.22. So there is now a grid with a minimum of 14, which increases in increments of 4.22, until it reaches 52. Depending on where the client scores it will assign them to one of the nine portfolios. The adjustment for their coefficient of loss aversion is accounted for in a few of the questions. After the answers are input, this process, which is now automated in Excel, creates a multi-page proposal, customized for that particular client. This can now be used with any client and takes very little time to reproduce.

I have several other projects in the works, at various stages and will keep you informed on their progress.

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Related Stories

Osaic Streamlines Its Digital Tools for Advisors Kitces to Join 2025 Coaching Roster at Limitless Advisor Honoring Advisors Who Serve(d): Veterans Day, 2024 Family Office Rolls Out New Tax Overlay Program Cetera Financial Group CEO to Retire 5 Strategies for Capturing Wealthy Clients

Resource Center

MDRT Multi-Country Survey Report link

Report

MDRT Multi-Country Survey Report

Why Charitable Expertise Should Be Part of Your Practice link

White Paper

Why Charitable Expertise Should Be Part of Your Practice

Generative AI Trends Among U.S. Financial Advisors and Consumers link

White Paper

Generative AI Trends Among U.S. Financial Advisors and Consumers