Perspective: Let AUM Guide You at Your Peril

The seventh ineffective habit of retirement plan advisers

When introducing themselves and their businesses, many advisers jump to assets under management as an indicator of their presence in the marketplace. While this may provide a baseline for understanding the size of a practice, some advisers mistakenly treat AUM as an indicator of business health as well. They ignore the existence of unprofitable AUM via low-revenue, high-effort clients.

In the experience of Russell’s practice management consulting group, retirement plan advisers will get a better measure of business health if they focus on revenue and profit per client.

As Jim Collins indicates in his best-seller Good to Great, “All good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability. In particular, they discovered the single denominator – profit per x – that had the greatest impact on their economics.”

You can’t pay yourself and your staff in assets under management so it’s best to focus on revenue as it relates to your service effort and therefore, your profit per client.

When you arrive at a profit per client figure, tracking its movement will become the best indicator of your business health. When considering any aspect of your business, ask yourself, “is this an interesting profit per client opportunity?” Apply this question to decisions about marketing, service, operations, staff, technology, products, and every other money producing or spending aspect of your business and you’ll be more likely to make decisions that impact your bottom line.

When you operate in this way — looking beyond AUM to understand service effort vs. revenue and how it impacts profit — you will have a stronger business development mechanism than many of your peers.

Seeing your client base in this light may even prompt you to disengage from low-revenue, high-effort clients, even if they represent sizable AUM. Disengagement is defined as completely severing your ties to a client and transitioning them to an adviser with a service model that is better suited to their needs.

When you have more profitable clients, you are less likely to have your lowest revenue clients creating a drag on your service capacity to your highest revenue clients.

If you have trouble getting to a profit per client figure because you don’t know the true cost to serve your clients, then track revenue per client until you understand your service costs.

In order to advance toward your ideal business vision, it is vital that you confront the reality of your current situation. It is the discrepancy between current reality and your vision that can provide you with motivation to close the gap.

Refocusing your metrics on meaningful measures that better demonstrate the health of your practice will allow you to advance from what got you here to what is required to take the next step.


This concludes our series examining ineffective habits of retirement plan advisers. Previous columns in the series were:
Seven Habits of Highly Ineffective Retirement Plan Advisers

Don’t Fall For the Experience and Intuition Trap

Do Your Best to Move Beyond “Doing Your Best’

Cast a Broader Net, Catch a lot of Suckerfish

Direct Marketing Often Fails the Viral Test

Don’t Confuse Sales Activities with Verifiable Advances

Avoid Being a Low-Cost-Provider Commodity


Matt Smith is managing director of retirement services with Russell Investment Group. He is responsible for DC research and strategic development of Russell’s defined contribution investment management business in the United States. Smith joined Russell in 2001. Over his 20+ year career, Matt’s experience spans the spectrum of the qualified plan business. Prior to joining Russell, Matt held the position of vice president and general manager of ADP’s west coast retirement services operations.

Copyright © Russell Investment Group 2007. All rights reserved. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Russell Fund Distributors, Inc., member FINRA, part of Russell Investment Group.

RFD 07-7163. First used: November 2007