As you grow your practice and expand your service offering to attract and retain your ideal client, it’s common to encounter issues with scale and capacity. You may have started off as a portfolio manager, but as your clients grew their wealth, their needs became more sophisticated, so now you offer a host of wealth management-related services, such as cash flow planning and retirement income planning. The problem is, you may not be doing so profitably.
The following tips to streamline your advisory business can help you build scale and capacity into your client service model and improve your firm’s overall efficiency and profitability.
1) Establish a Fee Schedule
Many advisors settle on a 1-percent fee and call it a day, but you could be leaving money on the table if you don’t price differently for different account sizes. Make establishing a fee schedule a priority for your business. By doing this, you’ll provide transparency to your clients and help maintain your profitability.
Before developing your fee schedule, take a moment to consider the average fees charged by your competitors, as well as the value of your time and the services you plan to include in your fee.
There is a delicate balance between charging rates that are appropriate and rates that are profitable. Your fees should be generous enough to support your company’s infrastructure but also reflect a quantifiable value to clients. The following fee schedule illustrates a breakpoint approach.
When evaluating your pricing, it may be worthwhile to consider categorizing your clients (A, B, C, for example, or Platinum, Gold, Silver) and developing a tiered service matrix that outlines the particular services you will provide to each segment.
2) Set Account Minimums
To ensure that you continue to attract the most profitable clients, it’s important to determine a minimum account level for your fee-based business. This can help you:
- Focus on building stronger relationships with larger and more valued clients
- Avoid losing key clients who feel they are underserved
- Increase profits without adding additional staff
- Ease the burden of maintaining smaller accounts
- Raise your clients’ (and prospects’) perception of you as a professional
Many of Commonwealth’s advisors typically set their fee-based minimums at $100,000, $250,000, $500,000, or even higher, especially if they are managing the portfolios themselves under the firm’s Preferred Portfolio Services® (PPS) Custom managed account platform. This can be time-consuming, as the advisor is responsible for all the management, research, rebalancing, and account servicing needs. And the more accounts for which you serve as portfolio manager, the more of a time burden that management can become.
If you don’t want to turn away smaller clients, consider leveraging a turnkey asset management program, which allows you to outsource product selection, asset allocation, and rebalancing. Alternatively, you can use commission-based asset allocation mutual funds for these assets. The time you spend on investment management services for smaller clients should be minimal, leaving you with enough hours in the day to address other questions and needs while remaining profitable.
3) Construct Model Portfolios
By constructing your own model portfolios, you can save time and resources as you grow your fee-based practice. Why reinvent the wheel for every client who walks through the door, when you can select the predetermined model that best fits his or her financial objectives and risk tolerance? Model portfolios allow you to:
- Be more consistent in your client interactions
- Optimize efficiencies and systematize your processes
- Delegate responsibilities as you grow your practice
- Reduce the number of investments you track
- Spend more time with clients and prospects
4) Outsource Portfolio Management
How much of your work week do you spend researching funds, determining asset allocations, tweaking portfolios, trading, and rebalancing? By outsourcing investment management, you can drastically streamline your advisory business.
With the time you save, you can dedicate more hours to customer satisfaction, and you might find that this improves client retention. Moreover, you can offer more services, such as distribution planning, financial planning, estate planning, and more.
Despite these benefits, many financial professionals are uncomfortable with the idea of outsourcing portfolio management. They feel that clients are paying them to make investment decisions, and some find it difficult to give up control and flexibility. (Remember, if you outsource, the wrap manager now has the control.) These are valid concerns, but the time you can save and the increase in services you can offer will likely offset these challenges.
The decision to outsource doesn’t have to be an all-or-nothing proposition. You can outsource certain clients, certain types of accounts, or even just a portion of a client’s assets. It is a tough decision, but with the financial industry becoming more complex, you need to concentrate on planning and advising and get comfortable delegating as much as possible.
Brian Lampron is director, investment consulting services, at Commonwealth Financial Network®, member FINRA/SIPC, an independent broker/dealer–RIA.
