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The most important metrics for advisors — and the least

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SAN DIEGO - If asset growth is the lifeblood of RIAs, metrics are the guideposts.

"Metrics are essential for the vision of the company," said Paul West, managing director of Carson Wealth Management, "and firms have to make sure there is accountability and responsibility for tracking, performing and implementing those metrics."

West, speaking at TD Ameritrade's National conference, said the metrics that every firm should track include:

  • Net New AUM – This metric is "one of the healthiest things a firm can do," West said. "It's a high-quality reality check and the best way to track growth." Net-new assets under management are needed to meet current revenue obligations, West noted, and to offset accounts that the firm is losing.
  • Breakeven Point – This metric evaluates a firm's health and predicts future success, West said. It helps an RIA determine the sales volume required to cover all costs and expenses and the quickest means of reaching profitability.
  • Revenue Per Active Client – Divide revenue by the number of active clients in your book, West told advisors. Track the number carefully, he said, because increasing the metric is a proven avenue for growth.
  • Client Touches Per Year – Retaining clients is more cost efficient than acquiring them, and frequent touches help keep clients on board. Top performing advisors spend nearly two-thirds of their time on the phone or meeting with clients, West said. "Get administrative tasks off your plate," he told advisors.
  • Technology Investment – Spending on tech should be viewed as an investment, not an expense, West stressed, "and the total should be trending upward." Without new technology, a firm's capacity to service its clients can be fatally diminished, he added.

And what is the worst metric?

West described total AUM/AUA as a "false metric." It's a metric that doesn't accurately measure business success, he maintained, unless an advisor is 100% fee-based and has pricing discipline.

"You can have unprofitable assets," West said. "It's not an indicator of the health of a business."

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