During his three terms as mayor of New York City, Ed Koch was known for asking just about everyone, "How am I doing?" This month's Practice Edge will help advisors answer this introspective question by comparing the average advisory practice to the most accomplished ones.
In analyzing the way the industry's top advisors managed their practices during the challenging times in 2008, we uncovered a few characteristics that distinguished them from their fellow investment professionals. These techniques separate the very best from the rest and provide the rest of us with ideas to maximize our growth potential.
What Is a "Top Firm," Anyhow?
To identify the "top firms," we applied a multi-criteria scoring model that includes four variables: size of firm, growth rate, profitability, and range of services offered. Based on this screening, we created a Top Firms' Benchmark–comprising the firms that met our tough performance criteria. Then we contrasted the resulting 26 most successful RIA firms against the rest of the marketplace to showcase the differences.
One major distinction is that top firms enjoyed AUM growth of 6% in 2008, compared to the average RIA firm, whose assets slid 12%.
It's no surprise that the top advisory practices sport higher profits, and more clients, AUM, and growth rates than their peers. But looking deeper, we find that there are other factors that differentiate top performers from average firms: proactive communication with clients during challenging times, better time management and time spent with clients, marketing and focusing on a particular niche, higher assets, and higher average client size.
Proactively Communicating with Clients
While communication is always important, it's especially crucial during a crisis. That's because hearing nothing usually leads clients to assume the worst–including indifference on the part of their advisor. In 2008′s market meltdown, top advisors had a game plan for communicating key issues to clients. They were aware of their clients' expectations and reviewed their original goals. It's natural that advisors with solid relationships with their clients are more successful and have better client retention rates.
Our research verifies that theory as the best firms report that they lost only 1% of clients in 2008 compared to average firms, who lost 21% of their clients in 2008. The best advisors are much more proactive communicators that their average counterparts–with top firms outpacing the average ones in every communication method: e-mail, newsletters, client reviews, special occasion communications, and more.
Time Well Spent
Time management is a challenge for many investment advisors. Some report that they are too busy running day-to-day operations to think about strategic planning, but the most successful advisors have made time management an important part of their business practices. Time management allows top advisors to spend more time working directly with clients. Principals of top firms spend the majority of their time (41-50 hours per week) working directly with clients compared to the average firm principals, who spend 11-15 hours a week with their clients. Clients are getting more attention at top firms and are thus more likely to show loyalty to those firms.
