What Metrics Should Matter To Your Practice?

The AUM is the right metric that shows how successful your practice is. Agree? Let’s discover how true this statement is…

5 min read

Micah Shilanski
Micah Shilanski
Financial Planner, CFP®

We hear all the time that being in the RIA space is lonely. Finding like-minded individuals who want to help you succeed is hard.

The question is: what makes you a successful financial advisor?

The answer isn’t and can’t be, staying in business. But, of course, we all know lousy financial advisors with more clients than they should! For the most part, though, the Financial Advisors that we surround ourselves with want to deliver massive value to clients, spend more time out of the office and still be highly profitable.

Now the real work starts: how do you define what those measurements of success look like for your practice?

Co-founder of The Perfect RIA, Matthew Jarvis, and I started recording podcasts because we needed a space to vent about all the B(@#!S!)@#!! Metrics people use in financial planning to tell you if you are a successful advisor by people who NEVER MEET WITH CLIENTS. Yeah, right; if I am going to let someone tell me whether I am or I am not successful, I want them down there in the trenches with me experiencing the head trash that goes into talking to clients about raising their fees, the grief you feel when long term clients pass and the blame you take on when clients do not listen to advice and make terrible mistakes. 

As an industry, we need to redefine the term success when it comes to financial advisors and their practices.

How do you define success? Is your practice successful? How do you track if you are on the right path or need to correct the course? Who are you bouncing business planning ideas off of? Who is holding you accountable for actually achieving your goals? What happens if you don’t achieve your goals – spoiler alert the answer is the worst possible one that I can think of – you stay comfortable and complacent! Gross. A life without growth and living up to our fullest potential as we were created to do so passes!

Push your HP12c over and grab your pen. Jot down how you define success?

Did the letters “AUM” make the list? WHY!!! The answer is simple, we don’t know how else to gauge our success as a financial advisor than by using assets under management as the benchmark.

  • 50M – you’re just getting starting
  • 51M – 100M – well established
  • 100M-200M – top of their game
  • 200M+ – how did they do it!?

There has to be a better measuring tool. These metrics didn’t tell you one single thing about whether or not they are running a RockStar practice, only how many assets they have under management. Is that really the only number you want to use to define your success? Sad. Don’t get me wrong. I use AUM as a measurement just as much as every other Financial advisor out there, and I am not likely to stop, but it is not the only metric for defining success.

In fact, I challenge you to ask yourself, “what is the consequence of relying on my AUM as the only metric of my success?” There may be unintended consequences you hadn’t thought of yet.

AUM doesn’t reveal how efficient or profitable your practice is. AUM also doesn’t reveal if you are delivering massive value to your clients or taking enough time off throughout the year to be with the people you love the most – you know, the people you claim to be doing all of this for, yep, those ones.

Let’s just take a look at an example using two different practices.

What-Metrics-Should-Matter

Practice ONE, or as we will continue to call it – the workaholic wealth, has $100M in assets and 200 clients.

Practice TWO – the lifestyle advisor, also has $100M in assets and 200 clients. All there, displayed within their ADVs. At first glance, identical, but are they really?!

Let’s dig deeper. The workaholic wealth has 5 employees; all of the advisors are working 50 hours per week on average and have two weeks of vacation. The lifestyle one, though, has only 2 employees, and the advisors get to spend even 16 weeks out of the office.

What is the first thought going through your mind? Let me guess “If they are out of the office for 16 weeks, they are not serving their clients as effectively as they should”. Wrong! This is one of the biggest myths we always tend to disclose and elaborate on. But more on that on another occasion.

Here are the 3 main benchmarks we follow within our respective practices (and AUM is not one of those):

The client experience

The number one benchmark any firm should follow is their client service. We all agree that this is a bit tricky to measure. Yet, there are ways to do so.

  • Do your clients give you referrals? Satisfied clients will not hesitate to recommend you. They will be glad to respond to your invitation to share referrals with you.
  • What is your client retention rate in down markets? When your clients stay with you during tough times, that is proof of excellent client service too.
  • Do you often get clients’ thank you notes? We keep a record of that.
  • How about the fees? How often do you have clients complaining that your fee is too high?

All of the above summarize your client satisfaction benchmark. If you haven’t started tracking it yet, make sure you start asap.

Revenue

Let’s go back to the workaholic wealth and the lifestyle practice examples again, and let’s calculate their revenue.

The workaholic wealth lead advisor works approx. 2,500 hours per week. If we divide the $100M by the hours spent at work, we get $400 as a result. That means that, on average, the advisor working for the workaholic wealth makes $400 per hour – which is a very good result.

However, if we apply the same math to the lifestyle practice, considering that they work only 1,200 hours per year, we get a result that shows us that these advisors earn more than a double amount per hour, or to be more precise, $830 per hour. So what this comparison tells you in terms of success?

(Here, I would not even mention family time, professional development time, or time for themselves for the workaholic wealth advisors cause playing office is all they do).

Profitability

Last but not least, a benchmark a lot of advisors get confused about. Why? Because time in the office is not necessarily a productive time.

Let’s use our example again, but let’s assume that the entire profit from both practices in this example goes to the lead advisor only. Since the workaholic wealth has 5 employees, their profit margin is by default lower than the lifestyle practice one. This means that if the workaholic wealth has a 30% profit margin, the lifestyle practice will have around 45%. Do you want to know how much is that in USD? It is $375 profit per hour for the lifestyle one and only $120 profit per hour for the workaholic wealth.

So, who is more successful and on the right path to be even more successful and grow in the upcoming years?

Does the workaholic wealth have the profitability to hire someone to do business development? Do they have the time to meet with anyone to work on the business development considering their time spent in the office?

What about selling the practice when getting ready to retire?

Lifestyle is definitely worth more money to be purchased because of the efficiencies that the advisor has already built in the practice.

Action item #01

Start measuring your success by following benchmarks like the ones we just talked about. Do not rely only on the AUM.

Action item #02

Find out more on the topic by joining us on our #XYPNLive 2022 Pre-con this fall, October 8th, 2022.

The Panel of Success is named “HOW I DOUBLED MY INCOME WHILE WORKING LESS”.

Learn more HERE

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