In today's highly competitive, complex and continually evolving financial services marketplace, retirement-plan-focused financial advisers often find themselves in a balancing act of serving clients, finding new prospects and managing a profitable practice.
Because building a strong retirement practice is a major goal for many advisers, scaling expenses and designing operations to increase assets under management becomes the No. 1 challenge. The juggling can distract from growing in the most efficient and gainful way.
The conclusion drawn from thousands of conversations with advisers is clear: No matter the size of the firm, many advisers could benefit from a better understanding of the factors that drive a successful practice and the risks that inhibit growth.
This has prompted the development of a “practice operations field guide” for advisers seeking to foster strong, profitable retirement practices. The guide provides directions for how to assess the status of a retirement practice and create an effective plan to increase the bottom line.
For example, advisers should ask themselves the following question, among others:
How big is your business? To see the big picture, advisers must first define the total value of their books of business or practice size. Many advisers that specialize in retirement offer a total consulting solution covering plan design, compliance, oversight, vendor management, investments, committee governance and participant support.
Evaluate a practice based on staff size, automation and technology, productivity, client service programs and communications the firm offers.
It is also important to think about factors that inhibit growth, and how to manage them better. Are advisers spending too much time on non-revenue-producing activities or are they manually completing tasks that could be automated?
It is important to know who the most profitable clients are and what advisers could be doing to ensure high margins. Every retirement plan should have a dedicated contact person within its practice, regardless of the size and profitability of the plan. An adviser needs to look at strategies from all angles to ensure that the business is growing efficiently.
Where do you want your business to be? Once advisers have an idea about where they are, it is time to think about how far they have to go, the signs that mark their progress and the changes that will have to be made. Advisers need to know what their expenses are, who their most profitable clients are and which ones are draining resources. Can profitability be measured? What is the hourly recovery rate? In the retirement marketplace, average hourly rates typically range from $250 to $300 per hour. How do advisers increase assets under management and realize economies of scale?
What is your strategy to reach your goal? A business plan that defines where and how an adviser plans to grow is a great place to start. It focuses the efforts of the team, engages each of the individuals on it and makes it clear to them what their role should be.
At every stage of growth, it is essential to optimize available resources:
• Take advantage of opportunities with investment partners and providers.
• Broaden the scope of services beyond the 401(k) to include defined-benefit, non-qualified and equity/stock plans. Not all services are equally valuable. Therefore, determine which should be considered core services and which trends and tools can differentiate a practice from the crowd.
• Try to remove redundancies and outsource unique or noncore work.
• Formalize client communications and get credit for the value the firm delivers. It is more important than ever to communicate fees along with outcomes achieved.
Demonstrating value to clients is essential.
Finally, segment clients and then define the scope of service by segment. Many retirement practices provide the same offerings to all clients, regardless of profitability. Decide which of your clients are appropriate for retirement income adequacy studies, pre-retiree workshops or retirement gap analysis.
These ideas are merely a few of the tips in the field guide designed to provide advisers with a formal growth path to remodeling practice operations, increasing productivity and efficiency, and bolstering the bottom line.
Matt Coldren is the executive vice president of the retirement strategy group at Natixis Global Associates.