I've spoken with thousands of independent financial advisors over the years, and in those conversations, a common theme emerged. When I ask advisors what their greatest challenge is, virtually all say it's not product complexity—or even the regulatory landscape—that causes the most stress. It's lack of time. They simply don't have enough time to assess their business, proactively prospect for new clients and, ultimately, develop the right balance between personal and private lives.

The notion that financial advisors are under serious time pressure is nothing new. Pick up any trade magazine from the past several years and you'll find countless studies that point to an ongoing trend of time constraints and inefficiencies among your peers. Underneath this common predicament lies a deeper issue—not only are advisors pressed for time, but they also don't know how to accurately gauge what their time is worth.

Most advisors have no idea how much money they're actually earning per hour. Consequently, they invest much of their time disproportionately, relative to financial return, or in tasks that aren't tied to revenue.

Spending time with clients is an advisor's primary revenue-generating activity, yet when my firm surveyed 880 independent advisors in the last year, almost 90% of the respondents said they spend less than half of their time meeting with clients. The survey also revealed that the vast majority of advisors have not analyzed the net margins of their practice or looked for ways to improve profitability, nor do they have a clear understanding of the value of their business. I'm convinced that if financial planners tried to run Microsoft the same way they operate their practices, the technology company would eventually go bankrupt.

The good news is that most planners recognize that they need to make changes but are overwhelmed by the thought of ripping their practice apart and rebuilding it from the ground up. When they learn they can substantially improve their profitability without transforming their entire operation, they are relieved. And when I tell advisors that all it takes is a few, simple action strategies to address inefficiencies and build a more sustainable practice, most of them are eager to get the process under way.

The Numbers

The path to better profitability begins with a thorough assessment of your practice in its current state. To determine what could be changed, you first must understand how the key parameters of your business—revenue, time and overhead—affect your bottom line.

Performing this type of self-analysis is often unfamiliar terrain for advisors. Jeremy Feucht, a tax/investment consultant with Feucht Financial Group in Fond Du Lac, Wisc., says that advisors' time and energy is focused on "helping clients improve their situation and prepare for the future. We often forget to consider our own situation or find ways to improve our operations."

The more efficient advisors are, the better service they can provide clients, he says. "Analyzing my practice didn't necessarily lead me to make any major changes, but it gave me a valuable affirmation that I was headed down the right path."

While financial planners generally don't know how much they're earning on an hourly basis, they're nevertheless able to place a value on these hours. On average, many would value an hour of their time at approximately $200.

Using that figure as a base rate, if an advisor works 2,000 total hours in a year—40 hours a week with two one-week vacations-he or she should be generating annual revenues of approximately $400,000.

But according to a Tiburon Strategic Advisor study, more than half of independent advisors report annual revenues of less than $250,000 per year. Clearly, there is a disconnection between advisors' expectations of what they should be earning and what is actually coming in the door.

At least 95 of 100 advisors could tell me off the top of their head what their gross production was last year, but the same number would struggle mightily to tell me their net production. As an independent producer, you incur the same expenses as any other small business owner—office rent, supplies, assistants' salaries and benefits—in addition to expenses specific to your profession, such as ticket charges for stock, bond and mutual fund transactions.

Average expenses for independent advisors typically range from 40% to 60% of gross production. Under that assumption, if your annual gross production last year was $250,000 and your total expenses were $125,000, your net revenue was $125,000.

The Client Piece

To close the gap between what you feel your time is worth and what you're actually earning, analyze your year-end commission statement to determine which clients are generating the most revenue. If you have 250 clients and 25 of them are generating 70% of your total revenue, those top 25 clients should be getting 70% of your time.