There is no question that a few core concepts are fundamental to efficiency in any business:
• Documented processes addressing the most effective sequence of tasks to complete everything a firm does are a logical first reaction when thinking about efficiency. All businesses are made up of processes, whether it's preparing for a client review meeting or the steps to take when a client passes away. The better a firm documents those processes, the more efficient it will be.
• Time management is vital. A to-do list, whether it's manual or automatic, is key to efficiency for every person on the team.
• Defining your ideal client (or the minimum requirement for new clients) is important, and abiding by your definition is critical. After all, trying to be all things to all people interferes with efficiency.
• Scale and capacity refers to the number of households you have and the type of services provided to each household or to each client segment. Ensuring that the cost of the services offered is less than the revenue generated per household/segment is just common sense.
Of course, these are simply the fundamentals; efficiency today is about so much more. Specifically, I'm talking about managing change. In our rapidly evolving industry, significant change happens frequently. Unfortunately, efficiency is often an afterthought rather than a strategic component of decision-making.
One example is the choice to become a registered investment adviser. Clearly, that decision can save time in some areas, but it can cost time in others. Decisions regarding business model, marketing, outsourcing, and external or internal business partners are just a few other examples that may save or cost time and energy for your firm.
Strategic change affects efficiency
Let's take a closer look at a couple of industry shifts through an efficiency lens: the commoditization of investment management and fee compression.
If investment management is outsourced, how can advisers differentiate themselves with new services? One option is the addition of a more formalized financial planning process.
So forget the argument that advisers should have embraced planning from the get-go. The reality is that many firms are formalizing the financial planning process and integrating planning into their service models. The yellow legal pad is not likely to be the dominant financial planning tool of the future; instead, financial planning software will play a bigger role.
A few of the tasks that need to be pursued to make this change include the following:
• Research and analyze the financial planning software available.
• Decide who will gather the data to enter into the software.
• Assign and train staff to enter the data.
• Review the plan document for look, feel, and logic.
• Plan how to use the document so clients perceive genuine value in the review meeting.
• Refine your own modus operandi to smoothly incorporate the plan into review meetings.
• Communicate and collaborate within the firm so everyone involved is on board.
Now, think of the time and energy needed to make this one change! It is likely the shift will feel the opposite of efficient — at least at first. But if the new system is documented, change is communicated, training is offered, tasks are appropriately delegated, and new processes are practiced and perfected, the change will yield a better experience for clients while simultaneously addressing strategic changes your business must make to keep up with industry trends.
We've been through this before. Remember when the industry was beginning to convert from commissions to advisory fees? Initially, that shift was perceived as inefficient for advisers. Over time, however, charging an advisory fee has become the industry norm.
Efficiency is still about how we do our daily work: documented processes, time management, a defined audience of clients, and scale and capacity. But efficiency is equally affected by a firm's ability to manage change.
Looking forward, strategic shifts in the industry are likely to increase, not decrease. Whether it is mergers and acquisitions, the growth of ensembles as a business model, succession planning for tenured advisers, adding personnel with new titles like CEO, or financial plan production, firms would be wise to perfect change management itself as a critical component of business efficiency.
Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network.