Is Your Plan Focused on the Right Indicators

By John Anderson, Managing Director, SEI Advisor Network on Thursday, November 13th, 2014

For years as a wholesaler and a manager, I discussed lagging and leading indicators as they related to the money manager selection process. To me it was very simple.  The performance of a manager is usually a product of his/her process and people, the leading indicator. Performance is an outcome of how they manage their investment process.  You wait months to know how you did, the lagging indicator.  Unfortunately, many consumers (and advisors) typically only look within a fund “supermarket” or a Morningstar sheet to find the best 1- or 3- year-performance, only to be disappointed when the fund can’t keep its 5-Star rating.  As you think about business planning for 2015, shouldn’t you be focused on the leading indicators too?

Last week I hosted a webinar during which a main topic of discussion was the path to sustainable growth.  Also presenting during that webinar was Dan Inveen, founding principal and director of research with FA Insight. Dan presented the results of their “2014 Study of Advisory Firms: Growth by Design.” By far one of my favorite webinar guests, Dan shared with us some key highlights from the survey around sustainable growth firms or “firms that reported experiencing significant growth for 2013 without encountering any negative impacts related to that growth.”  While a strong majority of the firms had significant growth last year only about 1/3 of the firms in the survey had sustainable growth. For me, one (of the many) key takeaways from the study is how the firms look at strategic planning. To quote the study: “Sustainable firms have strategic plans that are understood by all and contain implementation details.”

What is in your plan?

Most advisors start with an AUM goal or revenue goal, some aim for new clients with an average account size of X.  According to Dan (and now me), the 2014 study suggest indicators, such as money manager performance, would be a lagging indicator of the true performance of an advisory firm especially if you are trying to predict future results.  The goal this year should be to think about the leading indicators to your success.  As you sit down to complete your strategic plan pay attention to what can really affect your business in a positive way. 

Look at indicators such as:

  • Client retention and satisfaction:  your business grows by capturing additional wallet share and referrals.  Are you measuring your success with your existing clients?
  • Office efficiency:  can you take on new clients, assets or services without affecting your business?  Is your “house” in order?
  • Staff growth and retention:  while your office can be efficient and technology can be in place, your staff is key to client relationships. Are you supporting their growth alongside yours?

As you think about planning for 2015 – ask yourself, do I want to be lucky or good?  Do I want sustainable growth or growth for growth’s sake? 

What are my leading indicators?

  • Operations: Sustainable firms are more likely to document workflow processes and have staff that understands and implements consistently.
  • Serving clients: Sustainable firms know their clients and leverage their value proposition.
  • Marketing and business development: Sustainable firms spend less in marketing but have more effective annual marketing plans.

John Anderson is a contributor for Practically Speaking  and also serves as a managing director for the SEI Advisor Network.

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