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Moving Parts

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A proper assessment of your business revolves around the frequency of serviceerrors, rising overhead expenses, compliance violations, declining client satisfaction, high staff and client turnover, lower profit margins and delays in getting things done right. Most advisors do not have a baseline against which to compare any of these data points, so initially you may be forced to set an arbitrary standard that is acceptable.

For example, you might tolerate no more than four errors a year that cost you money. Such errors may be the failure to execute a trade on a timely basis or to bill fees on the right amount of assets. After thinking about the types of mistakes you and your associates are inclined to make, you can install measures and training to minimize future failings.

Diagnosing the problems may be the easy part. Implementing a new approach may be more challenging, especially for advisors who are not comfortable delegators and for firms that have neither the time nor talent to address management issues properly.

As a result, once you have begun to look at the patterns unfolding in your business, it will be time to ask several critical questions:

* Are my strategy and optimal client obvious?

* Does my organizational structure support my strategy?

* Do I have the right people doing the right things to execute my strategy?

* What measures should I put in place to evaluate performance around operational issues?

* What changes in my client service experience do I need to make to ensure consistency and focus?

Growth has many benefits. It enhances personal income and business value. It results in a greater presence in the marketplace. But it always carries with it material risk, particularly around how to manage quality and span of control. There is a direct correlation between rapid growth and business deterioration if the right processes are not in place or the staff is unprepared to manage through the evolution from job shop to enterprise, from entrepreneurship to professional management.

The good news is that many advisors are warming to the idea of document management as an efficiency tool. But what's often missed is that the value of a paperless office is not just saving trees and office space but moving documents around effortlessly. This is the concept of workflow management.

As advisory firms grow, they begin to outstrip their ability to operate efficiently or achieve scale. This symptom is being revealed in the rising overhead as a percentage of revenue for the average advisory firm. Often, advisors perceive that their processes are simple when in reality they have many moving parts involving technology, people and procedures. When one looks at a function, it's easy to overlook the components, not unlike an investor who looks only at return without regard to risk, liquidity and how the market has already moved.

The primary culprit dragging down efficiency is the absence of any workflow model. We know this because the expense ratio is going up for the average firm at the same time revenue is. The optimal overhead ratio is 35% of revenue; in 2010, the average expense ratio increased to almost 45%. Multiply that variance times your annual revenue and you will see the real financial impact of an inefficient business.

It's no surprise that expenses rise in dollar terms when a business is growing, but expenses rarely should increase as a percentage of revenue unless a firm is investing ahead of anticipated growth. This proves that manual processes often cause advisors and staff to plow through the day doing things that don't add value for the client or the business itself.

As the chart below indicates, there is a huge difference between how top-performing firms and average firms manage their time. By automating workflow around routine procedures, advisors with lower operating costs and higher margins can spend more time with clients and prospects. For the average advisor, every task that is not automated or delegated adds a 10-pound sack of potatoes to the load. With pounds of spuds hanging from their shoulders, they can't move quickly or efficiently, and eventually reach the limit of what they can carry.



The absence of an appropriate workflow model also suggests that advisory firms may have weaknesses in how they ensure consistency and quality in their client service experience; more disturbing, it may reveal the lack of an adequate, automated command-and-control process to guard against risks.

When an advisory firm's processes are manual or very paper based, data has to be keyed in repeatedly; if the firm is still receiving documents by mail or fax and not streaming information through technology, it has a workflow problem.

How a firm manages workflow becomes a big issue when it attempts to expand because very little is scalable when most steps are labor and resource intensive. In fact, much depends on human judgment, which often results in human error. So there are big questions advisors must ask themselves about achieving greater efficiency:

* How do I want to grow over time?

* How can I drive down costs?

* How will our business change?

Ideally, these questions would emerge from a strategic planning process through which you create your vision, agree to your goals, evaluate your current state and identify the gaps you must fill. For example, you may determine that your vision is to be recognized as the dominant provider of financial planning and investment advice in your area.

You will need to establish an office in key markets and an adequate command-and-control process to ensure the consistency and quality of the client experience, and you will need to monitor if not supervise individuals operating in satellite locations. Further, you will want to house all documents in a central database that the right people on your team can readily access when they need it.

How would you break down each of these operational components into work streams so that you can identify the components and build a process around them? Are there redundancies you can eliminate or, in cases of risk management, enhance? Can functions be combined? Do you have the right support structure for each function? Workflow is more science than art; there is logic to how the process is designed to help advisors achieve optimal efficiency based on what they are trying to accomplish.

The first step is to understand where you and your staff are spending time and what types of talent and skill sets support your business. How much of their time and yours is spent processing work manually, moving paper, looking for information and waiting for documents? How well is your staff communicating and tracking administrative tasks?

Fundamentally, you are attempting to understand how paper moves and how data moves. You are trying to get a grip on how many people are involved in performing, monitoring and approving work before releasing it to the next step. For example, when you open an account, how many steps does it take? When you develop and deliver a financial plan, how long does it take to perform each step?

The way you used to do business may have been right then, but with size comes complexity. Even if you haven't grown much, the increasing demands on your time from staff, clients, regulators and your family mean that you must review how you do your work. What got you here will not get you there.

Excerpted with permission of John Wiley & Sons from Practice Made (More) Perfect. © 2011 by Mark Tibergien. This book is available at bookstores, online booksellers and from Wiley at wiley.com or (800) 225-5945.


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