Advisers: How to make your bottom line a top priority

Cheryl Holland didn’t worry about the bottom line during the first 10 years at her financial advisory firm, Abacus Planning Group Inc.

But when she sought investors three years ago, she realized that she needed to get a handle on profitability and prospects for its improvement.

“Historically, the firm was owned by me, and I treated it as my big sandbox; I didn’t give much thought to short- or long-term profitability,” she said. “I realized when I brought in shareholders that this would have to change.”

Abacus, which manages about $700 million in assets, is like many other advisory firms that have grown into thriving businesses even though there was no focus on profits. At some point, though, after growing to a comfortable size, firms often seek strategies to help them squeeze more profits from their existing client roster. That’s when they turn to outside consultants, hire someone with business management expertise or assign a staff member to focus on profit improvement.

Ms. Holland hired an accountant to serve as her firm’s chief financial officer and made him responsible for analyzing profits, setting budget and income goals, and meeting industry profitability targets.

Most of the profitability strategies that the company has implemented so far, such as time sheeting, which tracks each employee’s time spent on serving particular clients, has been based on available industry literature, Ms. Holland said. In the future, Abacus may hire a consultant to help develop a detailed plan for further profit gains.

Consultants who help advisers increase profitability said their clients often don’t understand the time-consuming process they’re getting into, and some don’t want to spend the time or money on the effort.

“We found that advisers take a bit of a simplistic view of “profitability,’” said Julie Littlechild, president of consultant Advisor Impact Inc. “If an adviser wants to improve profitability, they need to start with the facts, and getting to those facts may require quite a bit of analysis, down to individual client profitability.”

Understanding where profits are coming from is the first huge step, she said. Then, the biggest challenge is determining the cost of delivering service for different client segments. It really requires thinking about how many hours advisers are putting into those relationships, Ms. Littlechild said.

After that, advisers can implement a slew of different tactics, including greater delegation and using new technologies, Ms. Little-child said.

“But you have to figure out where you are before you can apply those tactics in any kind of meaningful way,” she said.

“Profitability rarely happens by accident,” said consultant Suzanne Muusers, owner of Prosperity Coaching LLC. “Most advisers are really not entrepreneurs, so they come into it not realizing that this is a business. To be successful, they need to be the entrepreneur.”

Ms. Muusers asks advisers where they want their business to be in five to 10 years. That kicks off a six- to 12-month process of putting procedures in place to reach the goal. Typically, her clients have at least $30 million in assets under management.

Some advisers want to start with new marketing strategies right away, but Ms. Muusers re-quires them to commit to a long-term process of evaluation and planning.

“You must step back and look at your business with different eyes,” she said. “If you jump into the marketing, it’s not going to be authentic and it’s not going to work.”

After assessing current profitability and working on the foundation of the business — such things as setting up or reviewing organizational charts and standard operational procedures — the focus turns to branding and then marketing, Ms. Muusers said.

“There are so many advisers all saying the same thing. You want to figure out what makes you different and build a brand around that,” she said.

This step also takes development of a target client profile.

“It’s very important to have the right customers,” Ms. Muusers said. “Everyone’s profile of an ideal client is a little different.”

After implementing a plan for boosting profitability, advisers need to monitor whether those things are being done, consultants said.

John Waldron, founder of Waldron Wealth Management LLC, a 16-year-old firm, said it is looking at profitability “all the time.”

The firm’s chief operating officer prepares deep management reports for Mr. Waldron each quarter that include statistics about the firm’s client base. Many of the ways Mr. Waldron has boosted profitability include technological improvements, but some flow from common sense.

“One way we became more profitable is by not doing presentations by the pound,” he said.

By taking more time with a client upfront and figuring out what he or she wants to know, the firm can prepare a customized two-page wealth management summary that addresses the key concerns.

“It makes meetings — and preparing for meetings — extremely efficient,” Mr. Waldron said.

[email protected]