Keeping in Shape

Whether you have one client or 100, every adviser needs to have a practice management strategy in place. Practice management encompasses the way in which an adviser makes his or her business run effectively and efficiently; however, with the abundance of tools available, finding ones that are both effective and efficient is not always simple. In order to create an effective business model, efficiencies and scale are key, sources agree.

Here are five misperceptions advisers often have about practice management strategies and tools:

I need to make myself available to my clients 100% of the time.  

A large part of practice management involves communication with industry professionals: clients, prospects, participants, providers, third-party administrators, and investment managers, among others. There are many parties that can be demanding of your attention on a daily basis. However, it is important to not let phone calls and e-mail run your schedule, but to make it the other way around, suggests Gregg Andonian of Baystate Fiduciary Advisors.

Andonian is Managing Partner of Baystate Fiduciary Advisors—and its only employee. He has a policy of not answering his business line when it rings and, instead, lets people leave him a voice message. Then, at a set point in his day, he schedules a time to listen to the messages and return calls.

“If I answered every call immediately, I would be doing a disservice to myself and my clients,” he says. By dedicating a portion of his day to phone calls, he can give the person on the line his undivided attention. “After 10+ years of doing this, I have come to realize there are no ‘emergency’ calls if you’re running a practice that is in constant touch with the client. [Clients] prefer to get a call at the end of the day with an answer versus taking up their time on multiple calls to clarify the question or concern.”

Even on a team, where a client might be able to reach someone at all times, everyone does not have to be available 24/7. Randy Long, Founder and Managing Principal of Sageview Advisory Group, says client accessibility is critical. He has structured his team so clients know whom to call for support at any time of day. There’s a team member dedicated to participant calls, as well as a client service manager for sponsors to call. As the lead consultant, Long says he makes himself available for certain issues that arise. For Long, having a “well orchestrated team with clearly defined roles” is critical for his time management. “It’s a relationship business,” he says. “Access is important, and it’s best to solve something on the phone right away so it doesn’t become a game of phone tag.”

My practice management strategy can come after my client roster.  

When many advisers are just starting out, the focus is entirely on building a client base; they believe that they need to get as many clients as possible, and do it quickly. This is not the best strategy, says Andonian. He recommends finding practice management solutions and a business model that you feel comfortable with first, then finding clients that fit that model.

For example, Andonian figured out his maximum capacity would be 32 clients on the books at a time. This would provide him with the level of revenue he wants to reach, without stretching himself too thin and weakening his services as a result.

Not only does Andonian cap the number of clients he services at a time, but he also wants to make sure they are willing and able to fit his design; he has decided on a set service model that means he treats all his clients the same. Some advisers may argue that this practice management approach does not achieve the level of customization they are willing to provide. Andonian would counter that by saying all of his clients receive the same quality treatment “as it relates to the implementation of globally accepted fiduciary standards of excellence so there is no need for ‘special treatment.’” One exception to this would be on the participant education deliverables (i.e., extra quarterly visits or one-on-ones), he says. In that space, an adviser should take extra steps to ensure participants are on the right track.

Outsourcing parts of my practice management needs will inhibit my independence.

This does not have to be the case, says Troy Hammond, President and CEO of Pensionmark, a retirement advisory group based in Santa Barbara, California, that sells its practice management solutions to other advisers. Pensionmark’s tools include lead generation (for finding prospects); branding/marketing materials; investment analytics; a complete suite of participant education material, including Webinars and newsletters; plus other back-office support tools. Since beginning its “infrastructure outsourcing” offering about 18 months ago, Hammond says 11 firms with more than 50 advisers across the country have been using the services.

For those wishing to retain their independence, coming under the Pensionmark brand is not necessary, says Hammond, although most of the firms using Pensionmark’s tools have decided to use its branding and marketing materials. He says being able to show sponsors that you not only can offer them the personal assistance of a smaller shop, but also have the back-up support from a nationally trusted name, gives you added strength over competitors. Advisers still run their practices the way they want, he says, they just get to leverage the work Hammond already has done developing the toolset.

Likewise, the Retirement Plan Advisory Group (RPAG) offers a full suite of practice management support to advisers, and advisers get to retain their branding. One firm that went the RPAG route earlier this year is Legacy Executive Benefits of Atlanta, Georgia. Executive Vice President Bill Straub says Legacy chose to work with RPAG because it was “the strongest, most comprehensive package” it saw. Legacy maintains its independence and does its own marketing, but all back-office support is provided by RPAG.

Often, practice management tools come in a bundled package; what if I don’t need all the pieces? (It’s just too expensive to get the whole thing and only use parts of it.)

Understanding that each adviser is different and some may have resources from a broker/dealer or partner while others have nothing and want as many as they can get, Pensionmark has structured its practice management solution so an adviser does not have to buy the whole package. “If someone doesn’t need lead generation, or they don’t need participant education resources, we can flip the switches on and off. Most clients have taken it all, but we do have the flexibility to customize the deliverables,” says Hammond.

Hammond says two of the biggest time savers Pensionmark offers are investment analytics and its bilingual call center. “We run investment analytics and send automatic notices to sponsors. It’s the biggest time saver—every adviser needs to do it, and should be doing it quarterly… taking that off people’s plates, you always hear the sigh on the other end,” he says.

The bilingual call center is for plan participants and sponsors. Pensionmark maintains a log of all the calls and creates a report for the adviser, which helps to keep track of problem areas. “People have a lot of questions,” he says. “Being there to answer all of them immediately can be too much to handle alone.”

Some make do without outside tools. Andonian doesn’t rely on any practice management tools to run his shop. On the contrary, all of Andonian’s documents are formatted in Microsoft Word, Excel, Outlook, or as a PDF file—anyone he works with needs to send him material that can work in these programs. He says he has a template for each document he sends to clients, and works with vendors whose reports can be “copied and pasted” into it. Providers he works with, such as third-party administrator Angell Pension Group, are able to work that way, he says.

Once I find a practice management “rhythm” that works for me, I can leave it in auto-pilot.

Even though your client list may be long and your communications are running smoothly, that does not mean you can put practice management out of your mind. There are practice management services that can continue to refine your practice and keep it strong in the long haul.

Kim Dellarocca is Global Head of Segment Marketing and Practice Management at Pershing, a BNY Mellon Company. Pershing offers practice management for advisory firms that are looking to develop their “practice” into more of a “business,” she says.

Pershing has divided its practice management services into four areas: growth, human capital, operational efficiency, and risk management. The two areas that tend to be overlooked most often, and that are vital for practices that want to continue to develop, are human capital and operational efficiency, she says.

Human capital is about “setting up your business so that talented associates want to work there,” Dellarocca explains. This can include offering quality benefits or a clear career path that allows employees to grow. Job descriptions often are overlooked, she says, as is the “onboarding process”: bringing a new employee on board and introducing them to the culture. She says recruiting and retaining strong talent that fits well with your business’s culture will trickle down and improve your clients’ experience as well.

The other part of practice management that can bring a business to a higher level is improving operational efficiency. “Everybody wants to grow, which is fantastic,” says Dellarocca, “but, before you grow, or if you continue to grow at this pace, what will your operations look like? That includes the client experience, prospect experience, and associate experience—can they all bear the weight of this new growth?”

Pershing provides its client firms with a relationship manager to help them analyze their operational efficiency and create a “development plan.” This involves a 130-point questionnaire so an adviser can see where they’re doing well, or where they have issues, she says. Many advisers have a practice management plan—but making it a comprehensive one and sticking with it is not so common.

Andonian agrees with this mentality; he says the last thing you can do once you have a successful business is to become complacent. “Clients depend on me as their adviser to be constantly updating my approach or deliverables to be in line with the needs of the market,” he says. At every quarterly review, he brings up “New trends to be aware of,” “Hot topics,” and “What do you need from me?” themes. Everything needs to be updated he says—which may be why he’s replaced the “old” laptop with an “ultra-hip” iPad. 

—Nicole Bliman

Low Fees at the Outset Can Be Hard To Overcome

Advisers who offer lower fees to attract clients are finding it difficult to raise the fees to acceptable levels, contends a report from PriceMetrix.

PriceMetrix, a software firm for retail wealth management firms and their advisers, found that many financial advisers are forgoing an average of $20,000 in fees because they are underpricing their fee-based business when compared with other advisers in the industry.

PriceMetrix research shows that the fee and managed-account business has become a key source of recurring revenue for retail wealth management advisers, and the segment continues to grow. Assets in fee-based accounts make up almost 25% of total assets under administration and 37% of total revenue. From 2007 to 2010, the average adviser’s assets in fee-based accounts increased by 24%, while transactional assets declined by 1%. Furthermore, advisers are opening a growing number of fee-based accounts each year. The average adviser opened 11.5 new fee-based accounts in 2008, 13.5 in 2009, and 14.5 in 2010.

At the same time, however, advisers are earning less in terms of return on assets in their fee-based accounts, found Price

Metrix. The average return on assets declined from 1.47% in 2007 to 1.32% in 2010. PriceMetrix says this is because firms publish fee-based price schedules that range from simple flat fees to tiered pricing based on asset type or account size. Actual fees charged by individual advisers, however, usually are discounted, with most ranging from 72% to 79% of scheduled prices.

The report also highlighted differences among individual advisers. The top 25% of advisers charge an average fee of 2.01%; the bottom 25% charge an average of 0.81%.

PriceMetrix suggests that advisers control their pricing from the very beginning of their client relationships because they will find it almost impossible to raise prices once they are set.

PriceMetrix found that only 5% of advisers were able to raise their prices by more than 10 basis points on existing accounts over a three-year period. On the other hand, many advisers are charging more for new accounts and thus are able to raise their overall return on assets, and advisers who charged more initially were able to open 25% more accounts than those who lowered their fees.

—Nicole Bliman