Productivity Analysis - Business Management for Financial Advisers

For the purists in the financial-advisory business, “productivity” has a negative connotation because it conjures up images of the old brokerage environment. But regardless of how one views sales organizations, such as big brokerage and insurance companies, there is an indisputable economic logic to maintaining and increasing productivity. When an advisory firm does not maintain and build a reasonable level of productivity, its profitability will be undermined. With declining profitability, the firm has less to reinvest in the business, which it needs to do to maintain quality service for clients.

Ultimately, productivity isn’t just about money; it’s about enhancing client service and the firm’s reputation as a business. Indeed, evaluating productivity is an essential part of a firm’s financial management, and there are a number of ways to assess it:

  • Revenue per client
  • Gross profit per client
  • Operating profit per client
  • Revenue per total staff
  • Revenue per professional staff
  • Operating profit per total staff
  • Operating profit per professional staff
  • Clients per total staff
  • Clients per professional staff

In isolation the ratios don’t tell you much, but by evaluating the trend over a period of three or more years in each of these categories, you can observe what’s happening to the business. For example, there is a point at which continuing to serve certain clients no longer makes economic sense.

An adviser may decide—perhaps for altruistic reasons—to accept clients with assets below a minimum threshold, but that should be the exception, not the rule. To be effective in delivering services to the core client base, the core client relationships must be profitable and productive.

The productivity ratios should increase over time. A firm is likely to experience temporary aberrations in which the ratios decline, but by and large, owners should be able to rely on these ratios as indicators for when to add either professional or administrative staff. Such indicators are also useful in negotiating goals with staff and giving clarity to when staff should be added.

As a general guideline, in an up market, it’s prudent to add staff before you are at full capacity; in a flat or down market, it’s best to wait until you’re at or over capacity before adding staff. Of course, one of the other factors driving this decision will be how the additions to staff are paid—either variable amounts (commission) or fixed amounts (salary).


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