BEST-MANAGED FIRMS: THE BUSINESS OF SERVING CLIENTS...• A high-touch wealth management business can be scalable. • The client experience can be standardized without sacrifi cing

BEST-MANAGED FIRMS:THE BUSINESS OF SERVING CLIENTSProductivity in a high-touch business

About Schwab Market Knowledge Tools® (MKT)Based on Charles Schwab’s leadership position in the registered investment advisor (RIA) marketplace (more than 5,000 advisors and over

20 years), we are in a position to observe and see what works in successful advisory fi rms. Through Schwab’s proprietary benchmarking and

in-depth qualitative research with successful fi rms, we are able to discover and share best practices.

This white paper is part of the Schwab Market Knowledge Tools series, an ongoing program of industry research reports, white papers and

guides from Charles Schwab designed to keep investment advisors on the forefront of trends and competitive challenges facing the industry

today. Offered exclusively to Charles Schwab’s valued clients, the MKT program delivers the kind of relevant and timely information needed for

future business planning.

BEST-MANAGED FIRMS: THE BUSINESS OF SERVING CLIENTS

This report is a comprehensive examination of the key factors

behind the noteworthy performance achieved by the most

successful fi rms in Charles Schwab’s 2007 RIA Benchmarking Study.

The top 20 percent of qualifying RIA fi rms in the study in terms of

productivity, profi tability and revenue growth—what Charles Schwab

calls Best-Managed Firms—are nearly 75 percent more productive

in revenue per professional and enjoy 19 percentage points higher

operating income and 12 percentage points higher annual revenue

growth. In interviews with principals at 30 of these fi rms, we discussed

the circumstances surrounding their fi rms’ results.

Best-Managed Firms report that their ability to provide the high-touch,

high-quality client advisory services inherent to the RIA model is key

to their success, and client loyalty indicators support that claim.

What makes these fi rms stand out is that they deliver this level

of client service while building effi cient, profi table and scalable

businesses. Although some observers may believe these two

objectives are mutually exclusive, Best-Managed Firms demonstrate

that these two goals in fact reinforce each other.

What is their secret? By managing their people, processes and

technology, Best-Managed Firms can focus and leverage their

unique core strengths across the fi rm, centralize functional resources

for effi ciency, and bring to bear their best talents and resources to

benefi t the client.

Contrary to long-held beliefs about the advisory business, this paper

demonstrates that:

A high-touch wealth management business can be scalable.•

The client experience can be standardized without sacrifi cing•

client service.

Principals need not be the sole managers of client relationships.•

A focus on growth can complement a focus on clients.•

Investment in technology and staff functions can add to the•

bottom line.

1

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

1

EXECUTIVE SUMMARY

2

INTRODUCTION AND KEY FINDINGS

5

WHAT MAKES A

BEST-MANAGED FIRM

9

FIVE KEY PRACTICE AREAS

11

FINANCIAL ADVICE AND

INVESTMENT MANAGEMENT

18

RELATIONSHIP MANAGEMENT

24

OPERATIONS AND CLIENT SUPPORT

31

STRATEGY AND PLANNING

37

MARKETING AND

BUSINESS DEVELOPMENT

44

CONCLUSION

46

APPENDICES

We analyzed the benchmarking study data to fi nd the drivers of

this remarkable performance. But numbers tell only part of the

Best-Managed Firms’ story. To get a holistic understanding of

the Best-Managed Firms’ performance, we also conducted extensive

interviews with 30 of those fi rms to uncover what the principals say

accounts for their fi rms’ results.

Strengthening the practice to focus on the client

Most advisory fi rms have two primary objectives: to deliver high levels

of service and to build an enduring, profi table and scalable business.

Yet some advisors may see an inherent confl ict between personalized,

high-touch advisory services and increased levels of automation,

centralization or standardization in the practice.

Best-Managed Firms appear to succeed at both. They tell us that the

primary focus of their business is delivering the best results and

highest level of service for their clients, and, in fact, service levels

appear to be on par with their peers. Their ability to retain clients

and attract new assets from existing clients supports this assertion.

Best-Managed Firms net new asset fl ows from existing clients is

3.1 percent annually compared with –0.8 percent for other fi rms.

They also showed similarly high client retention with both groups at

97 percent annually.

2

Charles Schwab’s examination of the 647 fi rms in the 2007 RIA Benchmarking Study

reveals that, compared with other fi rms, the top 20 percent of qualifying1 RIA fi rms in the

study in terms of productivity, profi tability and revenue growth—what Charles Schwab calls

Best-Managed Firms—demonstrate remarkable performance. These fi rms are nearly 75

percent more productive in terms of revenue per professional and enjoy 19 percentage

points higher operating income and 12 percentage points higher annual revenue growth.

INTRODUCTION ANDKEY FINDINGS


1 Qualifying fi rms had at least $1 million in revenue. See Appendix A for Methodology.

Our analysis of Best-Managed Firms

demonstrates that achieving these two

objectives is the secret to sustaining growth

while keeping clients engaged and loyal. By

building productivity and effi ciency into their

business practices and culture, they bring the

best their fi rm has to offer to each client.

The hospitality industry follows a similar

model. Well-known luxury hotel chains have

built their brand and their business on

delivering outstanding, individualized service,

and they are able to do so on a grand scale.

But only through carefully refi ned processes,

staff training and technology implementations

can these fi rms deliver the consistent, high

level of service their loyal customers have

come to expect.

Drivers of success

Best-Managed Firms represent a range of

business models, levels of assets under

management (AUM) and philosophies.

Despite this diversity, our research reveals

common success factors across all of these

fi rms. Best-Managed Firms:

Align the practice to play to core strengths:•

Best-Managed Firms are crystal clear about

their core competencies and what they do

best. They emphasize these strengths in

running their fi rms and serving their clients.

This self-awareness and understanding

is the beacon that guides their strategic

decisions and planning. By following this

path, Best-Managed Firms are able to play

to the “sweet spot” of their unique core

strengths and competitive advantage.

Make the client relationship firmwide:•

Best-Managed Firms strive to create

a consistent client experience across

different advisors and different teams.

As these fi rms grow, they break the natural

inclination to follow the model that pairs

clients with just one advisor rather than

with a team of professionals. In this way,

many Best-Managed Firms are able to

deliver to clients what one advisor calls a

“fi rmwide experience,” rather than service

that relies strictly on one or two individuals.

As a result, these fi rms told us that they

are better able to set and meet client

expectations, streamline communications,

reinforce fi rm value and increase their

clients’ engagement with the fi rm.

Centralize resources and functions to •

maximize productivity and consistency:

Successful fi rms institutionalize key

functions to make resources available

fi rmwide. In other words, they centralize

the implementation of investment

management, fi nancial advice, and

operations and client support functions,

making them available across different

relationship teams.

Become process dependent:• Best-Managed

Firms carefully defi ne best practices and

engineer processes to drive effi ciency

and consistency across the fi rm. Initial

implementation starts in the back offi ce,

3


as that is where signifi cant time is spent,

but it moves to the middle and front offi ce,

as fi rms grow and mature. Once processes

are well defi ned, fi rms apply technology to

implement and automate them fi rmwide,

reducing costs.

Make growth a priority:• Best-Managed

Firms make a long-term commitment to

planning and business development. By

developing operational effi ciencies, they

can gain the capacity to focus on growth.

By documenting and implementing

workfl ows and centralizing resources,

the time and unique skills of principals

and key staff members are freed up to

engage in new client development.

Commit to long-term planning:• Successful

fi rms take the time to refl ect on their

business, set goals and plan their strategic

programs and marketing efforts. Planning

helps keep fi rms nimble and fl exible,

positioning them to take advantage of

different business and growth opportunities.

In addition, these fi rms take a thoughtful

approach to long-term fi rm strategies such

as new products and services, staffi ng,

ownership transitions, and business

contingency plans, benefi ting clients

by nurturing an enduring relationship.

Maximizing talent, defi ning process and leveraging technology

Best-Managed Firms told us that efforts

designed to improve fi rm productivity do not

detract from the client experience, but rather

can enhance it. They accomplish this by:

People:• Every fi rm we talked to credits their

success to hiring and retaining the best

people, and they structure their organizations

with clear roles and responsibilities to

get maximum value from the talents and

expertise of their principals and key staff.

Process:• Best-Managed Firms defi ne

repeatable, scalable processes that help

standardize execution across the fi rm.

Often these processes incorporate best

practices that streamline workfl ows and

help ensure best-in-class execution.

Technology:• Best-Managed Firms use

technology such as rebalancing tools,

portfolio management and customer

relationship management (CRM) systems

to maximize effi ciencies and automate

processes fi rmwide. By strategically

leveraging technology, fi rms can enhance

even the most personal aspects of the

advisory business.

4


5


WHAT MAKES A BEST-MANAGED FIRM

While interviews and analysis identify how Best-Managed Firms believe they obtained their

remarkable results, this section draws on the benchmarking data to pinpoint performance

differences observed in the data set. A key fi nding from our review is that no one business

model or fi rm size dominated the Best-Managed Firms, suggesting that other factors drive

fi rm performance.

Productivity

Based on revenues per professional, the median Best-Managed Firm

reported $659,000 in productivity versus a median of $380,000

for other fi rms in the benchmarking study—73 percent more.

As we looked more closely at related productivity measures for

Best-Managed Firms, we uncovered the key differentiators that

contributed to their higher revenues. (See Exhibit 1)

More clients per professional

The greatest contributor to productivity is effi cient client

management. The median Best-Managed Firm manages 57

clients per professional (32 per total staff) compared with the

median of 42 clients per professional (23 per total staff) for other

fi rms. This 36 percent accounts for approximately half of the total

revenue productivity difference—equivalent to adding another

two and a half hours to a typical eight-hour workday.

Higher assets per client

Another key driver of revenues that contributes to productivity is

assets per client. The median for Best-Managed Firms is $1.56

million per client versus $1.34 million for other fi rms—16 percent

higher. When higher assets per client and more clients per

professional are combined, the result is a 78 percent higher

assets managed per professional: $103 million per professional

at Best-Managed Firms as opposed to $58 million in others.

This 78 percent difference seems to

account for the entire productivity increase.

Maintained basis points on assets

Interestingly, there is no difference in

revenues expressed as basis points on

assets here: Both groups of fi rms have

a median value of 67 basis points. It is

worth noting Best-Managed Firms are able

to maintain that revenue level with a

16 percent larger client size, counter to

a more typical pattern of declining basis

point revenues as client assets increase.

Profi tability

For Best-Managed Firms, higher productivity

combined with expense control contributes

to greater profi tability. Using standardized

operating income as a comparison, Best-

Managed Firms deliver 45 percent operating

income at the median versus 26 percent

for other fi rms in the benchmarking study.

(See Exhibit 2)

Fewer staff but more clients, assets

and revenues

While median staffi ng of the Best-Managed

Firms is similar to other fi rms, Best-

Managed Firms manage considerably

more clients and assets—evidence of their

higher productivity. At Best-Managed Firms,

a median staff of nine manages 297 clients

with $492 million in AUM as opposed

to other fi rms, where a median staff of

10 manages 264 clients with $354 million

in AUM.

Lower overall expenses

With a similar number of staff handling

more clients, assets and revenues,

fi rm expenses are spread over a much

larger revenue base. Best-Managed

Firms experience similar direct expenses—

typically partner and professional pay—at

an average of 37.4 percent of revenue

6


73% more

78% more

Revenue per Professional2

(Median, $ thousands)

$659$380

36% more

Clients per Professional(Median)

5742

AUM per Professional(Median, $ millions)

$103$58

Best-Managed Firms

Other Firms

EXHIBIT 1: BEST-MANAGED FIRMS PRODUCTIVITY

2 Selection metric for Best-Managed Firms. See Appendix A.

7

WHAT MAKES A BEST-MANAGED FIRM

versus 39.4 percent at other fi rms. While

that is only a two point difference, they save

11 percentage points in overhead expenses

at 27.3 percent of revenue versus 38.6

percent at other fi rms.

Looking at the revenue and profi t equation

another way, Best-Managed Firms generate

25 percent more revenue per client—a

median of $11,414 compared with $9,112

at other fi rms—with more than twice the

profi tability per client—$3,641 compared

with $1,797. This further demonstrates how

both the revenue and productivity work

together to help produce higher profi tability.

Higher principal income

Enhanced profi tability drives greater partner

incomes. We observed median partner

income—defi ned as base, bonus and

profi t per principal—at $793,000 versus

$418,000 at other fi rms. This defi nition of

income includes both profi ts distributed to

partners and those retained and invested in

the business.

Revenue growth

At the same time Best-Managed Firms

produce signifi cant productivity and

profi tability, they also grow fi rm revenues

at a median annual rate of 31 percent

compared with 19 percent for other fi rms

in the benchmarking study. (See Exhibit 3)

Organic growth is the primary driver

Increased organic growth—defi ned as

asset fl ows from new and existing clients—

is the primary driver of overall faster

revenue growth, not market performance.

Best-Managed Firms grew AUM overall at

a median annual rate of 28 percent

compared with 18 percent for all other

fi rms. Looking at organic growth only,

Best-Managed Firms’ AUM grew at a median

of 19 percent annually versus 10 percent

for all other fi rms. Our analysis indicates

that increased organic growth accounts

for 85 percent of the difference in overall

average annual AUM growth between

Best-Managed Firms and other fi rms—

while increased market performance

Standardized Operating Margin3

(Median, percent)

19 points higher

45%26%

EXHIBIT 2: BEST-MANAGED FIRMS PROFITABILITY

Best-Managed Firms

Other Firms

90% more

Income per Principal(Median, $ thousands)

$793$418

3 Selection metric for Best-Managed Firms. See Appendix A.

accounts for only 15 percent of the

difference. (Please see Appendix B for

composite fi nancial and operating data.)


8 4 Selection metric for Best-Managed Firms. See Appendix A.

Annual Revenue Growth4

(Median, 2003–2006)

12 points more

31%19%

Annual AUM Growth(Median, 2003–2006)

10 points more

28%18%

9 points more

Annual Organic AUM Growth(Median, 2003–2006)

19%10%

Best-Managed Firms

Other Firms

EXHIBIT 3: BEST-MANAGED FIRMS REVENUE GROWTH


9

Stages of evolution

No two fi rms are alike in terms of focus, number of employees, style,

management or assets under management, among other factors. This

is certainly the case with the Best-Managed Firms: Each one takes a

unique path to higher profi tability, revenue growth and productivity.

This report describes best practices observed in different phases:

Stage 1 (smaller fi rms typically with fewer than fi ve employees),

Stage 2 (midsize fi rms with between fi ve and 15 employees) and

Stage 3 (larger fi rms with more than 15 employees). These groupings

are an analytical tool we use to help illustrate differences in the

fi rms’ evolutionary progression in terms of sophistication, size,

maturity and ability to scale. (See Exhibit 4)

The stages are not grades or commentary on a fi rm’s model—being

a Best-Managed Firm does not mean a fi rm is Stage 3 in every

category. For example, although a Stage 3 classifi cation for one fi rm

may be right, it may not be appropriate or attainable for other fi rms

that are smaller or have a different business model. In fact, none of

the Best-Managed Firms are Stage 3 in every business area. Rather,

the stages are meant to refl ect the individuality of all fi rms, illustrate

an evolutionary progression in best practices and make the Best-

Managed Firms’ stories relevant to the reader.

This report examines how Best-Managed Firms seek to deliver results for their clients

while maximizing effi ciencies and profi tability in their business. We analyze how these

fi rms leverage best practices in managing people and organizational roles, processes and

technology across key business areas of their practice.


10


Note: Defi nitions of each stage vary by business area.

STAGE 1

Typically a small fi rm with

fewer than 5 employees

STAGE 2

Typically a midsize fi rm

with 5–15 employees

STAGE 3

Typically a large fi rm

with 15+ employees

PEOPLE

PROCESS

TECHNOLOGY

INCREASING

EXHIBIT 4: STAGES OF EVOLUTION THROUGH THE PRACTICE AREAS

EFFICIENCY

SOPHISTICATION

SCALABILITY

MATURITY

FINANCIAL ADVICE FINANCIAL ADVICE

& INVESTMENT & INVESTMENT

MANAGEMENTMANAGEMENT

RELATIONSHIP RELATIONSHIP

MANAGEMENTMANAGEMENT

OPERATIONS & OPERATIONS &

CLIENT SUPPORTCLIENT SUPPORT

STRATEGY & STRATEGY &

PLANNINGPLANNING

MARKETING & MARKETING &

BUSINESS BUSINESS

DEVELOPMENTDEVELOPMENT

11

Best-Managed Firms report that they provide, and even enhance,

high-touch, high-quality advisory services while improving the

productivity, scalability and effi ciency of their operations. They excel

in both areas, and our analysis shows that effi ciency and high-quality

service support each other.

Moreover, all the fi rms we talked to said one thing in particular

was instrumental to their success: outstanding people.

Best-Managed Firms structure their organizations with clear roles

and responsibilities to maximize the time, talents and expertise of

their principals and key staff. All fi rms acknowledge that without a

strategy to maximize their staff—what many in the industry call

“human capital”—delivering the desired level of client service and

optimizing operational effi ciency would be extremely diffi cult.

Financial Advice and Investment Management

The Best-Managed Firms we interviewed achieve a high level of

productivity in the implementation of fi nancial advice and investment

management. For example, they manage nearly twice the AUM per

professional as other fi rms—$103 million AUM versus $58 million

AUM. At the same time, they seek to leverage the best investment

Creating a Scalable, High-Touch Service Business

The practices covered in the next three sections—Financial Advice and Investment

Management, Relationship Management, and Operations and Client Support—form the

core of an advisory fi rm’s business. These areas are particularly important for two reasons.

First, it is in these parts of the business where fi rms execute and deliver fi nancial advisory

services. Second, these areas are where fi rms make the majority of their investments in

staffi ng, basic infrastructure and technology. Improving effi ciency and productivity in these

areas has the most profound impact on a fi rm’s profi tability.

FINANCIAL ADVICE ANDINVESTMENT MANAGEMENT

FINANCIAL ADVICE AND INVESTMENT MANAGEMENT

expertise their fi rm has to offer to

implement—and even customize—their

strategy for every client.

To accomplish this feat, they pool investment

staff with carefully defi ned roles as a

resource for all fi rm investment

management, effectively cutting out

duplication of roles and responsibilities.

They report they are able to roll out

investment strategies to all clients rather

than to a smaller number of clients assigned

to separate, siloed investment teams. In this

example, while investment professionals

make decisions for the fi rm, portfolio

managers implement them across a large

group of clients. To support this strategy,

fi rms use technology such as CRM systems,

trading and portfolio management systems,

model portfolios, and rebalancing tools to

effi ciently deliver and execute advice and

investment management services across

large groups of clients.

Defi ne processes to help free principals’ time

Approaches to portfolio management

vary across the Best-Managed Firms, but

these fi rms all carefully consider how their

principals add value to the fi rm and design

processes to support and leverage their

principals’ strengths.

These fi rms report that core processes are

documented and well understood by those

expected to execute them. As a result,

principals are freed up to focus on parts

of the practice that need their attention,

knowing that their staff can make decisions

in situations that would otherwise have

needed their opinion.

Likewise, investment management can

be accomplished in many different ways

depending upon fi rm style. For example,

some fi rms focus on applying their

individually held investing approach to

create value for clients, so security selection

is central to their process. Other fi rms

choose to leverage the vast array of existing

external research or third-party managers

and focus their value-add on delivering asset

allocation or integrated wealth management.

Best-Managed Firms avoid duplicating

processes. By documenting its investing

processes to make them clear and

repeatable, a fi rm can execute them more

effi ciently. For instance, it is more effi cient

12


“One of the things I think has made us successful is that we’ve

separated investment management from fi nancial consulting. This

tiered approach helps to put a fi rewall between short-term client

emotion and wise long-term investment decisions.”

— Douglas Kreps, Fort Pitt Capital Group

13


for a central investment management

committee to meet and formulate a

comprehensive investment strategy and

then delegate its execution. Additionally,

as we will discuss later, many fi rms use

portfolio rebalancing technologies fi rmwide

to save effort and cost.

As illustrated in the best practices chart

at the end of this section, processes evolve

with the size of the fi rm. We observed that

at around 100 clients, fi rms transition from

simple tracking tools to more comprehensive

technology solutions, and principals start

to group clients with similar risk and goal

profi les. Firms begin to create effi ciencies

by automating the investment process

with model portfolios that are manually

customized, with client-specifi c requirements

and guidelines to meet their unique needs.

As for the time-consuming process of

preparing client fi nancial plans, it is

typically more cost-effective for smaller

fi rms to standardize the process across

all clients, while larger fi rms can focus

on client-specifi c or topical planning.

In the most scalable approaches, wealth

management fi rms align quarterly client

plan reviews with themes such as tax

planning in the fourth quarter or insurance

reviews in the fi rst quarter, making the

intellectual content of these discussions

reusable from client to client.

Specialize key investment management roles

Thoughtful design of organizational structure

across the business is a hallmark of Best-

Managed Firms. These fi rms structure their

investment and advice teams to maximize

effi ciencies and the individual strengths of

their employees.

In general, our analysis reveals that when it

comes to investment management, the larger

the fi rm, the more specialized the roles staff

play. Typically, in smaller fi rms, principals

function as both portfolio manager and

relationship manager. After the security

selections have been made, the most

successful fi rms tend to fi nd ways to relieve

their principals of day-to-day investment

management duties. Midsize fi rms delegate

portfolio management responsibilities

to junior staff and para-planners, often

asking them to recommend trades,

but design a workfl ow that requires the

principals to review and approve their work.

Stage 3 Best-Managed Firms have the

highest degree of specialization, with

dedicated portfolio managers and planning

staff. In these fi rms, there is often complete

separation of portfolio and security analysis

from relationship management roles.

Although relationship managers stay engaged

by functioning as decision-making members

of the investment management committee,

it is rare to fi nd relationship managers still

actively engaged in security analysis unless

that is the core competency they brought to

their fi rm. Our research fi nds that if one

principal has deep security expertise, that

principal tends to spend 80 percent or more

of their time on that function, often becoming

the chief investment offi cer and retaining only

a few personally managed portfolios.

Leverage technology to create plans and portfolios

Technology plays a pivotal role in supporting

portfolio management and investment

planning. When implemented properly,

technology can reduce the time and

cost required to perform basic functions,

enabling fi rms to gain effi ciencies and

scale their fi nancial advice and investment

management processes to serve

multiple clients.

A major issue for all advisory fi rms, including

Best-Managed Firms, is how to manage the

balance between the effi ciencies of model

portfolios and customized portfolios.

Technology helps them deliver portfolios and

plans that can be “mass-customized” to

groups or even individual clients.

Smaller fi rms at the $100 million or

100-client threshold keep their planning

technology simple, often using standard

spreadsheet tools. Larger fi rms go further,

purchasing more advanced planning

technology for more scalability. And Stage

3 fi rms implement their unique approach

with more customized planning applications

that may integrate data from other systems.

An example of custom planning applications

is a tool Vector Wealth Management

developed. Built using Microsoft Excel®,

this tool captures salient facts about a

client’s assets and models projected

income streams given basic assumptions.

Once a baseline income is established, the

data are transferred to another proprietary

tool that specifi es the use of each asset.

The investment policy for these assets is

established according to the amount of

income they must produce in a specifi ed

time frame. These tools make it easy

for the portfolio manager to use the

information to plan how to invest those

assets specifi cally. At quarterly review time,

it is simple to run an analysis of how the

assets are doing compared to the plan

initially established for those assets.

14


“Each of our clients has a customized portfolio, so we spent over a

year and a half building the technology piece. The main benefi t is that

automation allows us to take our best thinking and execute it on behalf

of each client’s customized preferences.”

— John Burns, Burns Advisory Group

15


Use trade order and portfoliomanagement tools

Most Best-Managed Firms we interviewed

use model or core portfolios and are

considering adding an automated portfolio

rebalancing tool if they have not already.

Some fi rms estimate they require only half

the resources that would otherwise have

been needed to recommend and approve

trades, typically saving one or two full-time

staff members. For example, at Burns

Advisory Group, one full-time trader can

do what they have observed usually takes

two or three to accomplish.

Trade order management tools are also used

with rebalancing applications to execute

specifi c instructions automatically, thereby

streamlining the process of aggregating and

submitting trades. The study found that some

Stage 3 fi rms use custom-built, rules-based

add-ons to their trading systems, allowing

them to automate even the special portfolio

customization that other fi rms tackle manually.

For example, one fi rm incorporates

intelligence from relationship managers

about specifi c client needs into the portfolio

tools. Specifi c restrictions or instructions

are entered into their CRM system, which

is integrated with their trade order

management system.

If a client calls with a request to withdraw

$40,000, a notifi cation can be put into the

custom CRM system that feeds the trade

order management system. If any cash is

generated as a result of a position sale

during the month, the cash does not get

reinvested. Instead, it sits in the account

until needed—in effect suspending buy

orders for that account for the rest of the

month. Similarly, exceptions can be managed

by the system. For instance, if a client places

a restriction on selling shares of a security

bequeathed by a family member, a warning

will be generated in the system preventing

the sale of those shares for that account.

Building custom applications is expensive,

sometimes costing hundreds of thousands

of dollars. To justify the expense, a simple

break-even analysis would compare the cost

of the salary and benefi ts of a portfolio

manager against the cost of the investment

in technology. It is important to note that a

high level of automation does not require

customized applications. Many off-the-shelf

applications can deliver automation and

customized capabilities. Either way, a fi rm

can implement a system that optimizes

operations by reducing erroneous trades and

cutting down on the time-consuming process

of constantly keeping the whole team

informed of changing client needs.

16


STAGE 1 STAGE 2 STAGE 3

PEOPLE

Principals serve as •

portfolio manager and

relationship manager

Rely on junior team •

members or para-planners

to assist portfolio

managers

Use principals to review •

and approve trades

Employ dedicated •

portfolio managers and

planning staff

Hire dedicated CIO (may •

be a principal who turns

client responsibilities

over to others)

PROCESS

Financial

Planning

Standardize plans across •

all clients

Focus on client-specifi c •

issues

Plan content themed to •

time of year, e.g., Q4 tax

planning, Q1 insurance

Portfolio

Construction

Customize portfolios •

manually

Create model portfolios •

with manual special-needs

overlay

Produce mass-customized •

portfolios

Automate customization •

by managing client

instructions with

technology

TECHNOLOGY

Financial

Planning

Execute custom plans •

using spreadsheets or

similar tools

May use off-the-shelf •

planning technology

Either use custom •

planning applications or

enterprise versions of

off-the-shelf solutions

Rebalancing/

Trade

Generation

Use portfolio management •

system or spreadsheets

Use trade order •

management tools

Use rebalancing tools•

Implement rules-based •

trading systems

customized to fi t the

fi rm’s needs

EXHIBIT 5: FINANCIAL ADVICE AND INVESTMENT MANAGEMENT

BEST PRACTICES

17

Making investment management scalable

It didn’t take principals Frederick Wright and Tim Agnew long to

realize the extensive amount of work required to construct portfolios

customized to each client’s objectives. They were meeting with clients

and creating portfolios that were customized, in fact, to a desired return

and risk level. Then they began to see trends—10 different clients with

the same time horizon and risk tolerance—and the opportunity to gain

economies of scale in investment management strategies.

That’s when they began to look closely at what they needed to make

a scalable business that could grow without incurring excessive

overhead. Recognizing that the fi rm’s strength was in asset allocation,

they transitioned from monitoring stocks and funds to focusing their

energy on creating the appropriate mix for clients based on their needs

and their appetite for risk. By emphasizing asset allocation, they

decided to outsource research and security selection to other money

managers, mutual funds and ETFs, which was more effi cient for them

and better leveraged their talents.

At fi rst, they were concerned that clients wouldn’t see added value

in just doing asset allocation. But they countered that concern by

establishing an ongoing yearly performance benchmark to show clients

how successful their asset allocation decisions are—a decision that

they report has paid off and differentiated them from other fi rms.

Today, in addition to adding value on the asset allocation decisions

they make, the fi rm also delivers total wealth management services

to clients—including retirement planning, tax planning and estate

planning. With this new focus, Smith & Howard Wealth Management

has revised their marketing materials to emphasize the value they

provide. The principals emphasize that their model doesn’t require

mass customized portfolios and rules-based trading systems, because

they are focused on adding value through comprehensive wealth

management services rather than through pure money management.

“We’ve built our fi rm on the benefi ts of asset allocation versus manager selection. We don’t go

in selling returns or best manager selection. For us, it’s all about asset allocation as the total

package, so we outsource research and security selection to other money managers. That allows

us to focus on asset allocation, which is more effi cient and better leverages our talents.”

— Frederick Wright and Tim Agnew, principals, Smith & Howard Wealth Management

Smith & Howard implement their

investment management strategy by:

Segmenting clients and creating •

model portfolios for each segment

After switching their focus from

security selection to asset

allocation, the fi rm created different

model portfolios with similar

holdings but different weightings.

They determined that most clients

fell into one of four different

models. So, they vary the weighting

of stocks versus bonds and

alternatives across the different

models but hold the same funds

or ETFs for each client. It’s just a

matter of how they mix them.

Smith & Howard knows, for

example, that one client has

5 percent of a particular fund and

another has 8 percent because

they are more aggressive.

Automating portfolio rebalancing •

and creating benchmarks

Smith & Howard automates

portfolio rebalancing and

is currently confi guring it to

differentiate the tax status of

different accounts. They also

established an ongoing yearly

performance benchmark to show

clients the performance of their

asset allocation decisions.

FIRM PROFILE: SMITH & HOWARD WEALTH MANAGEMENT

Consistent service, combined with a strong communications strategy

built on two-way communications, forms the foundation of solid

relationships. These strategies also help improve satisfaction and

generate referrals.

Typically, principals spend the majority of their time on high-touch

relationship management. There are face-to-face meetings to schedule,

phone calls to return and a steady stream of issues to manage. How

can advisors make this high-touch process scalable and effi cient?

The most sophisticated fi rms widen relationship management

responsibilities to include teams or staff resources organized around

designated functions, delivering a fi rmwide experience rather than

specifi c individuals to serve clients. This approach brings in principals

where they add the highest value, freeing up their time for strategic

leadership of the fi rm—all while providing clients the highest levels

of service.

The client can benefi t from service and advice delivered by the combined

resources and knowledge of the fi rm. The fi rm realizes the benefi ts as

well, applying the expertise of its relationship management or support

personnel to every client.

Deliver consistent, appropriate levels of service

Many fi rms we spoke with segment clients into high-touch and lower-

touch groups, depending on the clients’ investment preferences and

profi le. Smaller fi rms told us they tend to schedule annual meetings

18



Best-Managed Firms told us that a superior client experience is extremely important. Clients

look to advisors for counsel on important fi nancial decisions that shape their lives. Trust

and loyalty are paramount, and managing the client relationship is central to keeping them

invested in an enduring partnership with the fi rm.

with clients and principals and follow up

throughout the year with quarterly phone calls

targeted to each client’s unique situation. Our

research indicates that as fi rms grow beyond

100 clients, they start to segment their clients

by both asset level and client preferences,

and they schedule communication at different

intervals based on each segment’s needs and

investment preferences.

Transition to a centralized relationship management function

When it comes to relationship management,

many fi rms struggle with structuring an

organization that emphasizes productivity

and scalability while at the same time

delivering the best service levels. Our study

reveals that in smaller Stage 1 fi rms, the

principals are the primary point of contact.

Larger fi rms start to move the client

relationship management responsibilities

from the principals to other advisors.

In the most scalable models, client

relationships aren’t owned by a principal,

but by a senior advisor who can quarterback

the relationship. This approach allows less

experienced team members to handle

what they can, delegate other tasks to a

centralized operational group, and rely on

the principal and senior professionals only

as needed. This fl exible service model

allows for staff with different skill sets

to be leveraged when appropriate.

The result is that the client receives a fi rm

experience. For example, the fi rm may rotate

principals in client meetings to reinforce that

they are being served by the fi rm rather than

by individual members of the fi rm. Jack

Calhoun of Capital Directions summed it up:

“We want clients to have a fi rm experience

not a Jack experience or a Dennis

experience. So we work very hard to not

have any type of silos.”

Maximize the expertise ofthe principals

Best-Managed Firms know their principals’

time is better spent focusing on the most

important client and fi rm-leadership issues

or on business development. The more

sophisticated the fi rm, the more they

leverage junior staff to handle day-to-day

relationship management issues.

Building effi ciencies by delegating routine

relationship management tasks to junior

staff is important, but even more crucial is

knowing when and how to leverage the

principal. Best-Managed Firms report that

19


“We want lots of expertise spread throughout the organization,

and the appropriate gatekeepers to channel people to

whomever can best handle their issue.”

— Brian Friedman, GHP Investment Advisers

they make sure principals are involved

when money is in transition and at critical

junctures in the life cycle of the client

relationship. In general, principals are

very good at identifying what one study

participant called “moments of truth.”

Whether it is a life event like the death of

a spouse or the sale of a business, these

issues require the counsel of the principal

and should not be left for junior staff.

Best-Managed Firms know when to bring

in the right fi rm personnel to handle them.

Some have used an outside facilitator to

create a common understanding of what

might be the important issues in the service

of their clients.

Use CRM to centralizeclient information

Firms we spoke with cite a range of benefi ts

for using a CRM system in their businesses.

The most common is the centralization of

clients’ vital information, which provides

employees access to client data and helps

them manage different pieces of the

relationship. This enhanced visibility into

client information vastly improves service

levels and data accuracy. Additionally,

automated workfl ows streamline processes

and reduce manual tasks, which can improve

adherence to regulatory and compliance

requirements. Best-Managed Firms report

that leveraging this technology improves

staff effi ciency while strengthening their

competitive position.

Consolidating all client information in

one central location so it is accessible to

everyone in the fi rm requires an integrated

technology infrastructure, and integrating

data from a variety of different sources is no

small feat. Depending on fi rm size, the

solutions Best-Managed Firms use to meet

this challenge range from tracking client

contact information in Microsoft Outlook®

to consolidating client information from

disparate applications in their CRM systems.

Our analysis found that the infl ection point

for deploying a CRM solution designed

specifi cally for fi nancial advisors is

approximately 100 clients. Firms with

fewer than 100 clients can use basic

CRM applications for tracking client

profi le information and leads, but they

do not usually use it to automate workfl ows

or as a central archive of their client

documents or other data.

20


“Making time for relationship management is a priority because it’s

core to who we are. Providing close, consultative relationships means

that our processes and workfl ow have to be automated or handed off

to better-equipped people.”

— Dennis Covington, Capital Directions

Firms with more than 100 clients tend to

use CRM systems to segment their client

base, automate workfl ow processes and

facilitate email communications. At this

stage, many Best-Managed Firms also scan

client documents to make them available to

staff electronically via their CRM or a

document management system.

The most advanced CRM users—typically the

Stage 3 fi rms in our research—rely on the

system as the centralized hub for managing

client relationships and offi ce processes,

increasing their effi ciency and ability to scale

operations. These systems are integrated

with portfolio management systems, trading

systems or other tools. They have been

customized to incorporate performance

reports and optimized workfl ow processes

such as account opening or fund transfers.

21


“CRM technology brings the ability to retain the individuality and

complexity of each client—and retain and manage all the moving parts

of the client relationship.”

— Thomas Fee, Vector Wealth Management

22


EXHIBIT 6: RELATIONSHIP MANAGEMENT BEST PRACTICES


PEOPLE

Principals are the primary point •

of contact

Rely on senior advisors as •

primary points of contact

seeking support from principals

as needed

Rotate principals in client •

meetings to emphasize clients’

fi rmwide relationship

PROCESS

Conduct annual client meetings •

with principals

Follow up with targeted •

quarterly calls

Segment clients and provide •

a different frequency of

interaction for each segment

Increasing sophistication of •

segmentation

TECHNOLOGY

Track basic client contact •

information in desktop contact

software

Use CRM across the fi rm to •

track the client relationship

Use some automated workfl ow •

capabilities

Automate mailings•

Use CRM as the hub for •

managing relationships

Store key client documents •

electronically

Manage relationships with•

CRM workfl ows

Use CRM to manage proactive •

client communications

23

Centralizing relationship management for scale—without sacrifi cing the

personalized client experience

Soon after Thomas Fee founded Vector Wealth Management, a client

asked a question that would turn out to be the catalyst for creating his

fi rm’s relationship management model: “Tom, I love what you’re doing.

But, what would happen if you weren’t around any more?”

That question motivated Fee to create a different kind of fi rm––one that

could be more scalable and break away from the models of the past.

He divided the fi rm into three groups––Advance Planning and Client

Service (APCS), the Portfolio Management Group (PMG) and the

Advisory Group (AG)––making APCS responsible for managing most

client contact, with PMG taking on portfolio implementation.

Now every client has a primary client service (APCS) contact with a

designated backup, but no APCS member works exclusively with any

single advisor, ensuring that processes don’t start to develop in silos.

All processes are standardized and documented in an electronic

manual. This helps accelerate employee training, reduce errors and

ensure consistent service to all clients.

Technology plays a supporting role in making this centralized approach

work. The fi rm’s custom-built application tracks clients’ assets and

helps determine pre- and post-retirement investment policies. By

investing time in the up-front work of getting clients set up in the tool,

the fi rm reduces work later in preparing for client reviews. This tool also

populates their portfolio management database.

PMG follows the guidelines of the investment committee to execute

asset allocation in the client’s portfolios and ongoing review and

rebalancing. The investment policy-level information from the fi rm’s

custom-built planning application provides connectivity between the

client needs as articulated by the advisor and the way portfolio

management team executes against the needs––without having

to continually check back with the advisors.

“This is and always will be a personal services business. The question to me is how do we create

fi rms that hold this belief while creating a relationship that transcends one individual in the fi rm. I see

the silo as the absolute enemy of this objective. We want our processes to be driven from the fi rm, not

from the advisor. Part of this is not allowing an employee to be dedicated to a specifi c advisor.”

— Thomas Fee, principal, managing partner, Vector Wealth Management

Vector Wealth Management implements

their relationship management strategy by:

Enabling scalability through technology•

The fi rm achieves scalability through

systems and technology, whether it is

a customized CRM system, proprietary

applications, rebalancing tools or

accounting software. As Thomas Fee

states, the fi rm leverages these tools

to create “…tremendous effi ciencies

around the wealth management process

without diluting the absolute uniqueness

of our clients’ fi nancial lives. The net

result is that we can concentrate our

time building a deeper understanding

of their personal fi nancial desires.”

Institutionalizing their client experience•

The fi rm centralizes core functional

areas to deliver a consistent client

experience and has put systems in

place, including a repository of

detailed client information and

logged processes. While an advisor

is responsible for a group of clients,

anyone in the fi rm can get rapidly up

to speed on any client and address

most issues as they occur.

Migrating clients to the fi rm’s market view•

When a client comes in, the fi rm evaluates

their holdings to determine whether

anything may run contrary to their

investment policy. Each client’s

individualized investment policy,

segmented by time frame, is detailed by

the Portfolio Management Group for these

clients’ portfolios. Using automated

rebalancing, the fi rm makes adjustments

as needed, does the fi rst review and

presents to the advisor for approval.

FIRM PROFILE: VECTOR WEALTH MANAGEMENT

Not surprisingly, managing human capital also plays a major role in

driving growth while maintaining client service. Best-Managed Firms in

all three stages carefully regulate principals’ time in this functional

area. Support specialists manage much of the day-to-day execution

so principals can focus on other areas of the business. This transition

from a “principal-focused” to a fi rmwide operation, where experiences

are standardized and tasks are proactively transitioned away from

principals, is a critical, if sometimes gradual, evolution.

According to Best-Managed Firms, the fi rmwide approach means

clients receive more accurate, responsive and effi cient service. With

the right processes, organizational structure and technologies in place,

the fi rm as a whole can participate in delivering excellent service.

Create fi rmwide processes

Establishing and documenting processes for back-offi ce operations is

standard for the Best-Managed Firms interviewed, ranging from Stage

1 fi rms that document only core services to Stage 3 fi rms that go so

far as to eliminate one-off exceptions that cannot be managed by their

rules-based systems.

24



The back-offi ce function is critical to any fi nancial advisory business and is important in

unlocking operational effi ciency, scalability and consistency in client service. Our research

reveals that Best-Managed Firms combine technology and the development of standardized

processes across the entire fi rm to drive dramatically improved productivity. In fact, the

benchmarking data shows that in spite of overall stronger growth rates, only half as many

of the Best-Managed Firms (7 percent versus 16 percent of others) reported maintaining

quality client service while growing as a barrier to their fi rm’s growth potential. (See

Exhibit 7)

By documenting processes, fi rms gain

greater control over their operations, setting

standards for staff about how things should

be done and reducing questions that would

otherwise need principal input. This also

enables fi rms to measure and benchmark

performance at a fi rm, group or even

individual staff member level. Some

processes that fi rms typically standardize

include quarter-end processes, reporting,

billing, data reconciliation, setting up new

accounts and handling life events such as a

death or a marriage.

The most scalable models, observed in Stage

3 fi rms, eliminate one-off process variations

across clients or client teams. The best

example of this is billing. For instance, a fi rm

can set up their billing process, a feature

generally found in their portfolio management

system, to automatically calculate a discount

for clients of a certain size. Other examples

include routine client service and new-client

onboarding. In one fi rm, each client service

team is expected to operate according to a

specifi ed procedure so each member can

cover for anyone else on the team when

needed. In another fi rm, there is a 13-step

client onboarding process. This clearly

documented process enables anyone to

pick up where someone else left off without

missing a step.

As processes are documented, variations

can be built in to accommodate different

segments. For example, more profi table

clients can receive higher-touch service

such as more frequent reporting. Another

interesting technique is staging blocks of

major operational work such as statement

preparation throughout the quarter to reduce

quarter end processing time constraints.

For example, one Best-Managed Firm splits

clients into three groups with staggered

quarter ends so activities are spaced out

and staff is not overwhelmed.

Use technology to automate processes

Using technology to streamline internal

processes is essential to achieving scale.

By combining technology with process

25


EXHIBIT 7: PERCEIVED BARRIERS TO GROWTH

Which issues pose a barrier to growth?

Maintaining Quality Client Service(Percent of firms)

7%16%

Best-Managed Firms

Other Firms

less than half

“We customize and document every aspect of our processes and

workfl ow. Everything that happens is in the system—what happened,

who did it—and then check it off when it’s done.”

— John Burns, Burns Advisory Group

improvements, fi rms can standardize how

work gets done and automate routine

functions. Typical software packages

address not only trading, portfolio accounting

and reconciliation, but also client-related

workfl ows through CRM systems.

Best-Managed Firms leverage technology to

make both general service workfl ows and the

labor-intensive reporting processes more

scalable. Firms benefi t from standardized

processes or workfl ows in a number of ways.

Technology, such as CRM systems, serves

to embed a fi rm’s optimized processes––

and the associated effi ciencies––in its

day-to-day operations.

These documented workfl ows and processes

can also aid regulatory compliance. They

create an audit trail that tracks client

communications, stores client documents

and records transactions.

Technology usage typically expands with the

size of the fi rm. Smaller fi rms may rely on

paper fi les, calendar and contact

management programs, and spreadsheets for

tracking tasks, such as meetings, business

development, scheduling trading or even

client birthdays. These fi rms may have a

CRM solution, but they do not use it to track

workfl ows. In our research, we observed that

early Stage 3 fi rms typically start managing

key processes such as account opening with

CRM workfl ow tools. Also, they may begin to

implement a paperless offi ce to facilitate

access to client fi les.

Later, Stage 3 Best-Managed Firms often rely

on CRM as the hub of their business and the

central channel for everyone in the fi rm to

access key client information and supporting

documents. They have invested time and

money in optimizing operational and client

service processes, embedding them in

workfl ow scripts in their CRM solutions.

For instance, RegentAtlantic Capital has

defi ned and automated 18 workfl ow

processes––such as cash withdrawal,

account opening, new client onboarding and

fi nancial independence analysis––and all of

the steps for each of the processes. Also,

CRM solutions can tightly integrate email,

document management and trading systems.

Automate reporting

In most cases, quarterly reporting takes 15

elapsed days past the end of the month to

complete and requires at least three people

each quarter. Industrywide, many fi rms gain

effi ciencies by outsourcing this function.

26


“If we can spend $100,000 on technology and not need an additional

person, the $100,000 has a very high return—we can get 10 percent

more productivity.”

— Wally Obermeyer, Obermeyer Asset Management Company

Best-Managed Firms maximize effi ciency with

automatically generated reports, minimizing

or eliminating one-off statement types.

Firms with fewer than fi ve employees tend to

manage quarter-end report processing using

standard portfolio accounting systems.

Larger fi rms with fi ve to 15 employees often

create customized reports that integrate with

their portfolio accounting systems,

streamlining the process while retaining a

unique fi rm statement. Firms in all stages

report gains in effi ciency by assembling

reporting components electronically, often

including a letter from the principal that

has been personalized via mail merge.

Using a report packaging program to itemize,

store and assemble all these components

allows fi rms to electronically manage the

time-intensive, manual post-printing work.

Going a step further, the most sophisticated

Stage 3 fi rms offer their clients a secure,

Web-based portal for viewing reports, which,

according to some fi rms, is quickly becoming a

preferred method of delivery for their clients. It

also signifi cantly reduces the time and cost of

printing, assembling and mailing reports.

Invest in human capital

Best-Managed Firms are strategic in how

they approach fi nding, hiring and retaining

staff. These fi rms understand that without

the best-qualifi ed people, they would be

handicapped in their efforts to deliver

high-quality advisory services and manage

operational effi ciencies.

Best-Managed Firms recognize the value of

hiring and retaining the best talent available,

so they provide a career path and a highly

competitive compensation model as

incentive. They take a more progressive

view of talent management. As a result,

they are almost half as likely as other fi rms

(14 percent compared with 22 percent) to

view developing, motivating and retaining

professionals as a barrier to growth.

We’ve also found that Best-Managed Firms

often pay their employees in the upper

quartile of the pay scale.5 They believe

that hiring at the high end of the pay scale

attracts more versatile employees who can

accept more responsibility, which in turn

results in employees who want to stay and

grow into new roles at the fi rm. (See Exhibit

8) They also mentioned a side benefi t:

Retaining experienced employees cuts down

on training costs associated with new staff

and maximizes team effi ciency.

27


“We have a very low staff turnover because we’re willing to pay for

great skills. Our staff’s cumulative experience with clients is invaluable.”

— Wally Obermeyer, Obermeyer Asset Management Company

5 Charles Schwab’s Creating an Effective Compensation Plan MKT, 2007

Centralize client service functions as the fi rm grows

All advisory fi rms struggle with the question

of how to provide client support in a way that

best serves client needs while maximizing

productivity, consistency and the ability to

scale. What is better, a silo approach that

assigns clients to a specifi c service team or

a more centralized organization dedicated to

client service management?

Firms with client service teams of two or

three core members are typically led by a

principal whom clients view as their primary

point of contact. This has the value of

continuity for clients and team members,

but may lead to differing processes across

teams, which can erode effi ciencies over time.

This silo approach may also limit

improvements to the bottom line, because

once the team is at capacity, a new team has

to be created to serve more clients, and fi nding

experienced professionals to start a new team

is often diffi cult. One strategy we observed that

avoids this limitation is to have a dedicated

team member who is constantly auditing

different teams to identify best practices that

can be shared with other teams.

Many of the larger Best-Managed Firms create

a centralized service organization with clearly

defi ned roles and responsibilities. As a result,

clients get a consistent level of service while

the organization benefi ts from effi ciency and

potential to build scale. As the fi rm grows,

it creates scale by adapting roles and

progressively delegating to professional or

administrative staff. We observed that principals

are more productive if supported by staff

assigned to key account management tasks.

This model of pooled resources does,

however, require a technology infrastructure

that can take the place of dedicated team

members who, because they are assigned

to specifi c client accounts, have key client

information in their heads—what one adviser

calls the “cranial retention effect.” While it

may take more management time to organize

this larger team, the payoff is higher

productivity per staff member.

28


0

20

40

60

80

100

120

140

160

180

200

Operations &

Administration

Business

Development

Investment

Planner

Relationship

Manager

$ T

housa

nds

48%

62%

30%

EXHIBIT 8: BEST-MANAGED FIRMS EMPLOYEE COMPENSATION6

Best-Managed Firms

Other Firms

24%

6 Median employee compensation includes salary and bonus pay.

29



PEOPLE

Rely on administrative •

staff

Use professional staff to •

support principals for key

account tasks

Share professional staff •

across teams

Use CRM to track service •

details

Centralize specialized •

and scalable tasks, e.g.,

trading, operations

Avoid creating team silos •

with different practices

Delegate specifi c roles to •

dedicated managers with

no client responsibilities

PROCESS

Document core service •

processes

Assign a lead for each •

group of clients

Segment service by client •

type

Spread out tasks to •

reduce workload peaks,

e.g., different quarter-end

reports for different clients

Give all staff access to •

centralized repositories of

client information

Establish and document •

all processes

Eliminate process •

exceptions that cannot be

programmed into

rules-based systems

TECHNOLOGY

Report

Creation

Rely on paper fi les•

May have a CRM, but don’t •

use it to track tasks

Start to track key tasks •

centrally

Create customized reports •

Build on portfolio •

management systems to

streamline the process

Use workfl ow tools to •

track processes

Access key documents•

via CRM

Report

Distribution

Manage quarter-end •

reporting manually

Use standard reports from •

portfolio accounting

system

Electronically assemble •

reporting components

Use Web-based reports for •

most clients

EXHIBIT 9: OPERATIONS AND CLIENT SUPPORT

BEST PRACTICES

30

Optimizing productivity through process improvements and

staff accountability

For the Burns Advisory Group, it’s all about commitment to a process.

“It’s critical to commit to a process, get it on paper, make people

accountable for it and continually improve it. It allows you to grow your

capabilities as well as your ability to do good work,” notes principal

John Burns.

The fi rm plans fi ve years out and strives to behave like a larger fi rm

would. By ramping up technology and delegating portfolio management

activities, the principals can focus on running and planning the

business. The principals realized that if they wanted to grow, they had

to start looking at the fi rm as a business, rather than building it one

client at a time. And that meant having processes in places to develop

their staff’s skills––both technical and people skills––so that clients

experience relationships with everyone across the fi rm, not just with

the principals.

After reviewing their client base, the fi rm broke it down into what they

call tier planning. They identifi ed about 40 clients that generate a very

large percentage of their income as well as second, third and fourth

tiers. After segmenting their client base, they built specifi c service

models for each category of clients and assigned the right staff to

them. This made it much easier for the fi rm to provide the different

levels of service larger clients require compared to smaller ones.

As a result of this segmentation, the fi rm is able to focus its efforts

and expand offerings for higher-service clients, effi ciently scaling what

they do and who they do it for. Burns commented on how his fi rm has

benefi ted from defi ning and deploying processes: “The interesting thing

is that our A-level client has changed dramatically from 2003 to today.

But we’re able to attract and retain a higher level of client. We are better

at articulating everything from process to sales communications pieces.”

“We have a written process for every aspect of our

operations and workfl ow. So, we can provide scale across

the board and accountability from A to Z. And I mean

everything from A to Z. We’re now perfectly positioned

to handle virtually anything that comes our way.”

— John Burns, principal, Burns Advisory Group

The Burns Advisory Group implements

their operations and client support

strategy by:

Segmenting clients and building •

service models for each segment

The fi rm segments clients into

different tiers of service, builds

specifi c service models for each

category of clients, and assigns

the appropriate staff to them.

This process allows them to

decide who does or does not

receive quarterly paper reports.

The fi rm has established multiple

documented processes for all

related core activities.

Using processes to change how •

clients are served

The Burns Advisory Group has refi ned

the client onboarding process to ensure

it is as effi cient as possible. They have

developed a process and technology

platform that elevates their services

from what they term the “lowest

common denominator wirehouse”

approach, thus differentiating their offer

from the competition.

Using technology to automate •

processes across the fi rm

The fi rm has created workfl ows in its

CRM system to automate previously

manual processes. Integration

between their portfolio management

and CRM systems gives advisors

a consolidated view of important

client information, including contact

and account information, as well as

performance data.

Going paperless with•

electronic publishing

In addition to storing all client fi les

electronically, the fi rm now makes

client statements available online.

This trims production time and

printing and mailing costs, and clients

appreciate the convenience of Web

access to their statements, again

distinguishing the fi rm from its peers.

FIRM PROFILE: BURNS ADVISORY GROUP

31



Strategy and Planning

Even when the profi ts and resources of all fi rms are being stretched

thin, Best-Managed Firms continue to push forward with strategic

planning. Just as they counsel their clients, Best-Managed Firms

understand that planning can help sustain the health of their own

fi rm in economic downturns and chaotic market climates.

In our interviews, we observed that Best-Managed Firms develop a

disciplined structure around their planning processes and keep their

staff involved and accountable for results. In this way, they can be

thoughtful about the fi rm’s goals and how to achieve them.

Best-Managed Firms leverage strategy and planning as part of the

business growth engine. Our research shows that they are more likely

than their peers to plan for growth. In our benchmarking data, Best-

Managed Firms say they are half as likely as other fi rms to view

growth-plan development as a barrier to success (10 percent versus

21 percent). Fourteen percent of Best-Managed Firms say following a

strategy for marketing their fi rm is a barrier to success compared with

more than a quarter (26 percent) of other fi rms. (See Exhibit 10)

Investing in the Future of the Firm

The practices covered in the next two sections—Strategy and Planning and Marketing and

Business Development—are important investments in the future of a fi rm. Though not front

of mind in day-to-day operations, strategy, planning and growth are critical to long-term

success. Carving out time is not always easy, and progress in this area requires discipline

in execution. As described in the fi rst section of the paper, Best-Managed Firms are able to

free up principals’ time by streamlining operations and formalizing a fi rmwide approach to

relationship management. As a result, principals are able to invest this time in planning for

the future and business development.

In addition, the fi rms we talked to for

this report stressed the importance of

dedicating time to succession planning to

secure the future of client relationships

and their employees.

Plan on planning

Formulating a business strategy and plan is

the essential fi rst step for any business. For

many fi rms, planning is limited to budgets

and growth projections over a one- to three-

year horizon. Few develop detailed strategies

and write them down. And fewer still plan

more than three years out.

Best-Managed Firms distinguish themselves

by their ability to pause, plan and prioritize.

They have a vision of where they want to be

in three, fi ve or ten years. They align people,

processes and technology to achieve both

strategy development and planning goals.

Because informal processes and

communications are suffi cient to help

coordinate the activities of a small group

of people, smaller fi rms tend to have less

formalized planning processes. In fact, several

smaller fi rms we spoke to said they are

sensitive to making their process too onerous.

They keep their small groups of staff on the

same page with direct communication and

coordinated planning. Remaining fl exible and

opportunistic is more important for some fi rms

than having a thoroughly documented plan.

However, as a fi rm grows, the challenges

of keeping everyone aligned increase, and

processes often need to evolve beyond those

initially established. Some fi rms recognize this

challenge and reach out for the perspectives

of external coaches or facilitators. For

example, one fi rm hired an external coach

who helped them compile a list of milestones

and tactical items on which to focus.

Larger fi rms that want to sustain a high

growth rate typically require more involved

plans and have more sophisticated planning

32




Planning for Growth(Percent of firms)

10%21%

Developing Strategy for Marketing Firm(Percent of firms)

14%

Best-Managed Firms

Other Firms

26%

less than half

about half

“After the success of achieving our vision, we know how important it is

to continually step back and defi ne where we want to be.”

— Colin Higgins, The Golub Group

33


processes. Planning is important for several

reasons: Capital investments need to be

sequenced and prioritized, hiring requires

lead time, and business development takes

thoughtful planning and employee buy-in.

The larger Best-Managed Firms have

carefully planned meetings with pre-work

assigned for many participants. These

fi rms report that as they grow, planning and

formal meetings become more necessary

to ensure consistency of vision, to share

thought processes and to provide a forum

for ideas from those closest to the day-to-day

operations of the fi rm.

Motivate staff to executethe plan

It takes people to make a plan come alive and

succeed. Best-Managed Firms establish a clear

process for governance, assign responsibility

for specifi c tasks and align results with

incentive plans. They keep the plan on track by

monitoring results, evaluating the effi ciency of

the process and recalibrating as necessary.

Again, fi rm size can defi ne the approach to

implementing the strategy. The larger the

fi rm, the more diffi cult it is for the principals

to know who is on point for each initiative.

Having a defi ned methodology for measuring

results and monitoring tasks helps eliminate

uncertainties in managing a larger team and

reinforces individual accountability.

Some fi rms leverage practices found in

larger corporations and adapt them to their

environment. They encourage bottom-up

thinking from the staff and spread

responsibilities across the fi rm by core

area. By giving everyone a say and making

employees responsible, they can establish

key metrics for specifi c goals and reward

achievements in each business area across

the fi rm.

For example, at The Golub Group, all

employees have quarterly goals, and 20

percent of the fi rm’s profi ts are carved out

for bonuses based on achievement of these

goals. Across the fi rm, everyone qualifi es for

a performance bonus based on company

success. Bonuses are also available for

extraordinary individual achievements, and

each individual management group has its

own set of goals. For instance, in their

Private Client group, metrics such as number

of outbound calls, number of referrals from

existing clients and total new assets are

“The only asset this fi rm really has is the people that work for it. So,

if that’s your asset, you grow, protect and guard it by giving people

opportunities, allowing them to take some risks, and potentially getting

some payoff.”

— Chris Cordaro, RegentAtlantic Capital

measured for each person with goals set

according to responsibility.

Smaller fi rms tend to share the strategy

and planning responsibilities among the

principals and reward individuals for

accomplishing the specifi c goals they

have been assigned. The smallest fi rms,

typically with fewer than fi ve employees, offer

incentives based on the overall performance

of the fi rm rather than on meeting specifi c

goals. The goal is to align staff with

a common purpose where roles and

accountabilities often need to be fl exible.

Regardless of size, advisory fi rms

following best practices should clearly

defi ne objectives and establish personal

incentives aligned with specifi c goals.

Use business intelligence strategically

While technology is not central to the

strategy and planning process, the most

sophisticated fi rms integrate different

systems to provide business intelligence

they can leverage to identify issues, develop

solutions and track implementation. By

identifying best practices and areas of

opportunity, fi rms can quickly capture and

share information to drive improvements for

the whole fi rm. The most sophisticated fi rms

harvest information on client profi tability,

retention rates, growth in new assets and

existing clients and portfolio performance.

This gives fi rms visibility and insight into the

operational performance of their fi rm at the

level of the individual client, client segment,

relationship manager or service team.

These fi rms collect the data by integrating

their core systems, such as accounting

software and a CRM system. This enables

calculations such as average client

profi tability or average time spent by

staff member on an account. The data

can be used to make policy decisions on

pricing, staff assignment and training, target

segments, and growth trajectories, to name

a few. In comparison, smaller fi rms often do

not need anything more complex than a

spreadsheet to manage their strategic

development and planning.

34


“We combine revenue data from QuickBooks® with CRM data on how

much clients are utilizing our services to see the true profi tability

of each client. Then we use the data to drive tactical and strategic

decisions on what to change in the business.”

— Chris Cordaro, RegentAtlantic Capital

35



PEOPLE

Communicating

the Plan

Principals collaborate on •

vision, strategy and

decision making

Senior leaders share •

responsibilities

Incorporate bottom-up •

thinking from across the fi rm

Set fi rmwide responsibilities •

Communicate fi nal written •

plan

Incentives Reward everyone for fi rm •

performance

Link individual bonuses to •

individual goals

Set key metrics for bonuses•

Establish bonuses for •

achievement in each

core area

PROCESS

Planning Meet annually on strategy•

May not document their •

strategic plan

Conduct extensive •

strategy review annually

Document a strategic plan•

Schedule quarterly •

meetings to measure

progress

May utilize external •

consultant as facilitator

Schedule all-hands •

retreats for planning

Assign pre-work for •

attendees

Prioritize executive •

committee’s plan

Monitor progress with •

monthly reports

Time Horizon Plan tactics and budget •

annually

Fix short-term problems •

quickly

Plan and set goals for a •

three-year horizon

Focus on components •

critical to strategic success

Think long term and plan •

proactively

TECHNOLOGY

Planning Use spreadsheets to project revenues and set budgets• View technology and •

business intelligence as a

critical part of strategy and

planning

Mine data in fi rm systems •

to help shape fi rm strategy

Use historical performance •

data to support three-year

planning and goal setting

EXHIBIT 11: STRATEGY AND PLANNING BEST PRACTICES

36

Making rigorous, thoughtful planning part of the corporate culture

Careful planning has always been a key focus of The Golub Group.

Even before opening the fi rm, the principals sat down and talked

about what they wanted it to look like in 10 years in terms of revenue,

assets under management, head count, products, market served and

geography. Three years later, they realized everything on their 10-year

plan either had already been or would soon be achieved. That’s when it

crystallized for them: If they hadn’t defi ned their future so clearly, they

wouldn’t have known how to bring it to fruition.

After deciding that tracking business performance metrics was going

to be a key focus for the fi rm, they identifi ed the drivers that lead to

growth and profi tability, making them visible throughout the fi rm. They

held everybody accountable by tying compensation and bonuses to

achieving those goals. In hindsight, they are quick to admit that it’s

easier to do when there are fi ve people in the fi rm rather than 20. It

just means more attention needs to be paid to planning processes.

The fi rm meets annually to set the vision for a rolling fi ve-to-ten-year

horizon. Usually scheduled in Q4, they spend about 10 hours per

person or 30–40 hours per team defi ning what they want the fi rm to

look like in terms of products, people, location, AUM and management

team, just as they did when they started the fi rm.

The management team identifi es the top fi ve issues and sets specifi c

fi rmwide deliverables as quarterly objectives. This plan and associated

goals are set in stone. They maintain a rolling 36-month fi nancial forecast

for AUM, new assets and fee assumptions, which is updated quarterly

and used to set budgets and predict headcount. The team also checks in

regularly at monthly board meetings, leadership team meetings, weekly

manager and team meetings, and monthly all-hands meetings.

As the fi rm grows, so does their commitment to focus on their vision,

mission and goals. As president Colin Higgins puts it, “The key is to

stick to your core strengths––it’s very easy to get distracted, take on

new things and new people.”

“All our decisions along the way were based on three

premises: Where do we want to be, how do we want to

get there, and what steps do we need to take.”

— Colin Higgins, president, The Golub Group

The Golub Group implements their

strategic development and planning by:

Scheduling regular meetings and •

monitoring plan progress

Partners meet annually to set

the vision for a fi ve-to-ten-year

horizon. After the top fi ve issues

are identifi ed, the fi rm establishes

specifi c fi rmwide deliverables as

quarterly objectives. They maintain

the momentum with monthly board

and leadership team meetings,

weekly manager and team meetings,

and monthly all-hands meetings.

Institutionalizing measurement and •

tracking of achievements

One of the fi rm’s most important

decisions was to develop metrics

to track retention rates, growth in

assets from new and existing clients,

and portfolio performance. Using

these metrics, each manager meets

monthly with employees to review

progress toward goals and determine

where help is needed.

Rewarding achievement of goals•

Goals are established, measured

and communicated by senior

management to each group. The

Golub Group dedicates 20 percent

of the fi rm profi ts to employee

incentives to encourage staff to

meet goals:

Firmwide goals for everyone based »

on fi rm success

Group goals designed to motivate »

teams. For example, the Private

Client group is evaluated on the

number of outbound calls, the

number of referrals and additional

assets gathered

Individual, discretionary goals »

designed to reward efforts

above and beyond group goals.

For example, one group leader

redefi ned the client service

experience––turning a good

program into a great one

FIRM PROFILE: THE GOLUB GROUP

37

MARKETING ANDBUSINESS DEVELOPMENT

MARKETING AND BUSINESS DEVELOPMENT

The Best-Managed Firms we talked with make building a culture that

supports new business a priority and specifi cally plan for it. They

structure their organization to allow principals to cultivate new growth

opportunities. Other fi rms are more than twice as likely as Best-

Managed Firms to view insuffi cient time invested in marketing and

business development as a barrier to growth (26 percent versus 54

percent). Best-Managed Firms are about a third as likely than other

fi rms to view accountability for business development as a growth

barrier (12 percent compared with 30 percent). (See Exhibit 12)

Firms successful in attracting new business foster organic

growth through a structured approach to marketing and business

development that centers on referrals. Referrals are the largest, most

reliable and cost-effective source of new clients for fi nancial advisors.

In fact, the benchmarking data shows that referrals account for 88

percent of new client business. What stands out is the fact that

Best-Managed Firms are growing nearly 50 percent faster from

referral sources than other fi rms.

Best-Managed Firms obtain more than half of their 20.6 percent

growth in total assets from existing clients and their referrals.

(See Exhibit 13) These same two categories add up to only about

5 percent for other fi rms. Given the results, it is not surprising that

Best-Managed Firms are far less likely than other fi rms to consider

business development a major barrier.

Interestingly, when asked to cite their fi rms’ top three success factors, Best-Managed Firms

rarely mention business development directly, in spite of their success compared with other

fi rms in generating revenue from referrals. So why are these fi rms so much more successful

at generating new business?

38


Leverage partners’ time effectively

Best-Managed Firms leverage partners’

skills and time effectively. They free up

principals to focus their efforts on business

development by fostering and leveraging

close working relationships. In their eyes,

referrals, or business development, is part

of the role of a principal.

Align organizational structure with business development

There is a lot of discussion today about the

need for dedicated business development

staff. Our key takeaway from studying the

most successful fi rms is that there is no

defi nitive right or wrong answer to this issue.

Some fi rms have dedicated business

development offi cers, while others have

hired them in the past and later determined

there was not a good fi t. Depending on the

style of the fi rm, a dedicated business

development offi cer role may or may not

work. The key is knowing who is best at

business development in the fi rm and

structuring their work so they can allocate

adequate time to this activity.

When it comes to business development, the

benchmarking data did not point to an ideal

organizational structure. As Best-Managed

Firms evolve, they increasingly free up their

principals’ time to focus on big-picture

business development. Our study reveals

that once fi rms reach $75 million to $200

million per principal, they typically start

involving junior staff or external marketing

and business development resources to

help with prospecting and day-to-day tactical

execution of marketing initiatives.

To develop a cohesive marketing plan that

supports the business objectives, our

analysis reveals that some Stage 3

fi rms hire full-time, in-house marketing

professionals. This addition to the team

augments business development and

coordinates prospecting and client

retention activities, thus relieving

principals from this responsibility.



Time Invested in Business Development(Percent of firms)

26%54%

Accountability for Business Development(Percent of firms)

12%30%

Best-Managed Firms

Other Firms

less than half

about a third

Carefully defi ne a prospect-to-close process

Our analysis identifi ed a clear evolution of

the business development process or sales

cycle in Best-Managed Firms. Their

processes encompass strategies from

learning to say no to prospects that

don’t fi t their ideal client profi le model

to implementing a documented business

development process. They also include

developing a centers of infl uence (COI)

strategy with other businesses, and

integrating the fi rm’s vision, values

and core competencies into all marketing

and business development efforts.

The primary lesson from the most successful

fi rms, no matter what their size, is that the

key to effi ciency in business development

rests on clearly defi ned, repeatable business

processes and workfl ows. Having a set

process institutionalizes a fi rm’s ability to

appropriately and effi ciently leverage the

business development offi cer’s or principal’s

time to sell the company’s core strengths to

the right prospect.

39


BEST-MANAGED FIRMS OTHER FIRMS

Asset growth by source:

Existing clients• 3.1% -0.8%

Client referrals• 7.3% 5.9%

Professional referrals• 7.5% 4.2%

All other sources• 2.7% 1.5%

Total 20.6% 10.8%

EXHIBIT 13: BEST-MANAGED FIRMS SOURCES OF ORGANIC GROWTH

Average annual asset growth excluding market performance

“If you don’t document it or have a process for it, then you probably

shouldn’t be doing it. We document everything, and that’s what gives

us the consistency in our business development.”

— Mike Dixon, Dixon Financial Services

40


Use technology strategically to boost business development

Leveraging technology to maximize

effi ciencies across the fi rm is a mantra for

Best-Managed Firms. The marketing and

business development function is no

exception. CRM solutions play a key role

in helping fi rms track communications

and marketing activities, segment clients,

and automate business development

workfl ows and processes.

The top performing fi rms leverage technology

to automate and institutionalize their unique

business development processes fi rmwide.

CRM tools help these fi rms segment and

manage their client base and prospects,

helping yield better-qualifi ed leads. Workfl ow

tools help track processes and assign

responsibilities. Sophisticated systems

can enable accurate, up-to-date

measurement of key metrics, including

tracking which clients or affi liated COI

fi rms provide the best referrals and

monitoring the performance of the

individuals responsible for closing business.

Best-Managed Firms take this data and

adjust course to achieve the best results.

Best-Managed Firms in this study use CRM

tools to manage contacts and prospects in

varying degrees of sophistication. Stage 1

fi rms use their CRM system to manage

contacts and communications, while Stage 2

fi rms, with $75 million to $200 million per

principal, rely on it to manage prospect

workfl ows from initial contact right through

to the close of a deal. They also use

technology to automate other tasks like

generating proposals. Stage 3 fi rms, with

as little as $400 million AUM, implement

custom or proprietary CRM workfl ows that

can integrate with other applications to

measure program success.

It is no surprise that the most sophisticated

fi rms leverage another key technology: a Web

site for clients and prospects. It can be a

very effi cient vehicle to communicate with

current clients, market to prospects and

attract qualifi ed leads.

“It used to be that only I would speak with prospective clients, and

I would return most client calls. Now the team handles at least 90

percent of the client activity, so my time is better spent, and we have a

better distribution of workload.”

— Mike Dixon, Dixon Financial Services

41


EXHIBIT 14: MARKETING AND BUSINESS DEVELOPMENT

BEST PRACTICES


PEOPLE

Principals function as sole •

business development

engine—in addition to

everything else they do

Free up principals for business •

development

May get external marketing help •

Principals supported by •

full-time, in-house marketing

professionals

Junior staff also supports •

business development

PROCESS

Learn to say no to prospects •

that don’t fi t their strategy

Implement a well-documented, •

repeatable process

Document process for client •

referrals includes tracking,

thanking and goals

May have a COI strategy•

Align vision, values and core •

competencies

Incorporate these ideas in •

all marketing materials and

programs

TECHNOLOGY

Use Microsoft Outlook® or CRM •

to keep track of contacts and

prospects, tasks and/or follow

up items

May have a very basic •

template-based fi rm Web site

Manage prospecting workfl ow •

with CRM

Use sales tools, e.g., •

automated proposal generation

Use Web site as marketing tool•

Use custom CRM workfl ows •

that refl ect fi rm-specifi c

processes

Have Web sites tailored for •

prospects and clients

Hiring right: not just for growth, but for productivity and effi ciency

RegentAtlantic Capital was a year and a half into their merger and

acquisition strategy when they hired a CEO to run the process. In the

midst of assessing the situation, the new CEO noted that their

organization consisted of two extremes: high-level professionals and

low-level administrative staff. The fi rm needed mid-level staff to bridge

this gap and free up the principals’ time, so they hired three young,

capable professionals. It soon became clear it was the right decision.

As principal Chris Cordaro put it, “Wow! This is really how we’re going to

best leverage our time and grow.” It wasn’t long before their M&A

strategy was retired and replaced with an organic growth model that

maximized their human capital to leverage the principals.

The fi rm found that the ideal candidate for this key mid-level role has

about fi ve years experience and a CFP™ or other advanced designation—

such as a CPA, MBA or CSA––demonstrating their commitment to

professional growth. The fi rm says it is the hardest position to fi ll since

the individual is tasked with both organizing the client implementation

workfl ow and doing all the hands-on technical work. At the same time,

they’re offered the opportunity to become a wealth manager, so they’re

also tasked with maintaining and developing new client relationships.

Financial advisors become wealth managers when they have

responsibility for enough client relationships to prove themselves.

Cordaro encourages his staff to put him out of a job. “I tell my advisors,

‘Any one of my clients you develop a better relationship with than I have

with them is yours.’ That creates an incentive for them to get to know

my clients well so I can leverage my time as best as possible. Any time

they talk with a client or deliver a service, the better off we all are.”

As a result, the fi rm proactively seeks the best and the brightest.

Sometimes that can mean an aggressive battle for good talent, especially

when the person they’ve targeted is already working for another fi rm. “I

view it as key to our fi rm’s survival. When candidates see how we provide

our people with plenty of opportunities to grow with the fi rm, we get the

high-caliber professionals we’re looking for,” Cordaro says.

RegentAtlantic Capital implements its

business development strategy by:

Hiring and mentoring the best•

RegentAtlantic used headhunters to

recruit top talent from other fi rms,

bringing in mid-level professionals

to free up the principals. New staff

members are tasked with “putting

their boss out of a job”––encouraging

them to think bigger and do more.

Rewarding staff for business •

development results

The fi rm builds targets into bonuses:

75 percent of the bonus is based

on results achieved such as new

client goals, new revenue goals,

new profi t margin goals and client

retention goals. The other 25 percent

is awarded for activities that drive

results, such as number of networking

appointments set, press releases

published and speaking engagements

performed. Staff is rewarded based on

revenue they bring in as opposed to

assets to discourage discounting.

Establishing and monitoring goals•

All goals are set in stone at the

beginning of the year, and payouts

are tied to reaching them. If the goals

aren’t met, neither are the estimated

payouts. Progress is reported during

monthly all-hands meetings, so

everyone knows where the fi rm is

relative to the established goals.

Documenting processes•

Each workfl ow item gets booked in

the fi rm’s CRM system. There are

18 different process workfl ows, and

each one has a number of tasks that

need to be performed before it is

completed. (See Exhibit 15)

FIRM PROFILE: REGENTATLANTIC CAPITAL

“The most important realization we had was the importance of making a commitment to growing

the fi rm at a meaningful, sustainable rate. And the way to do that and continue to provide a very

high-quality service is by getting the best people.”

— Chris Cordaro, principal, RegentAtlantic Capital

42

43

Open opportunity, including estimated close date,

revenue potential, referral source and service

offering desired, e.g., wealth management,

fi nancial consulting.

Establish

“Opportunity”

in CRM

Set next follow-up date in Microsoft Outlook® for

relationship manager outreach and link to CRM record.Set Follow-Up

Review and verify all contact details as a result of the

outreach, including email, newsletter receipt fl ag and

source of referral. Update all professional relationships,

e.g., attorney, CPA.

Update CRM

Contact Record

Record all phone calls and conversations in CRM.

Set appropriate next steps, e.g., meeting in person,

create proposal document.

Schedule Next Steps

Based on information received, code prospect’s tier in

CRM, e.g., “Prospect—Top Tier.”

Designate

Prospect Type

Send invitation to prospect for upcoming events/

seminars and include on mailing list for articles

of interest.

Schedule Follow-Up

Marketing Activities

EXHIBIT 15: REGENTATLANTIC CAPITAL

CREATING A PROSPECT OPPORTUNITY

Best-Managed Firms report that delivering the high-touch, high-quality

advisory services that earn their clients’ trust and loyalty goes hand

in hand with building effi ciencies and productivity in their business.

They demonstrate that an effi cient, well-run practice focused on their

strengths is the foundation for an enduring, productive partnership

between the advisor and the client. It is, in fact, the secret to

sustaining growth. We believe any fi rm, no matter what size, can

learn from the experiences of the Best-Managed Firms in this report.

Every fi rm has a different story to tell. Depending on the culture,

service model and size of a fi rm, some of the measures discussed

here may be more appropriate than others. But for every fi rm, the

fi rst step is for owners to set aside time to work on the business. This

means truly understanding the capacity of the fi rm, the way work gets

done, the productivity of the staff, and the sources of revenues and

expenses. Based on this information, fi rms can identify areas to apply

the practices examined here to improve the processes, organizational

structures and technologies that are the lifeblood of the practice.

For additional reading on Best-Managed Firms or to access other

MKT reports, please visit schwabinstitutional.com/marketing.

We also recommend the following MKT reports:

Best Management Practices of Independent Advisory Firms: The •

Path to Profi table Growth (March 2004)

Best-Managed Firms: It’s About Time, Time Management and •

Organizational Effectiveness (March 2007)

Best-Managed Firms: Recruiting and Retaining Top Talent•

(June 2007)

If you would like to provide feedback on this MKT report, please email

us at [email protected].

44

CONCLUSION


45

This study focused on 647 advisory fi rms that custody their assets

with Charles Schwab, including fi rms of various sizes and business

models, representing more than $256 billion AUM. Of those, 370 fi rms

had at least $100 million in AUM, and 109 fi rms had over $500 million.

As a basis for the research in this paper, Charles Schwab put these

fi rms through a screening based on the following criteria:

Minimum 2006 revenue of $1 million•

Minimum 2006 fee-based revenue of 75 percent•

Minimum of two professional staff•

Full data reported for Best-Managed Firms selection criteria•

After the screening criteria were applied, 208 of the original 647 were

left in the pool of fi rms to be ranked.

Three ranking algorithms––operating income percentage, revenue per

professional and three-year revenue compound annual growth rate

(CAGR)––were individually applied to all 208 fi rms. Firms were ranked

independently on each metric then sorted by the total of the three

ranking scores. We identifi ed the fi rms in the top 20 percent of the

combined performance results as Best-Managed Firms.

46

Charles Schwab’s research into advisory fi rms defi nes a standard of excellence and provides

guidelines for achieving that standard. The starting point for this year’s Best-Managed Firms

MKT is the 2007 RIA Benchmarking Study, a detailed compilation of self-reported fi rm data

on a wide range of relevant topics, including asset and revenue growth, sources of growth

and new clients, products and pricing, organizational structure, and profi t and loss.

APPENDIX A: METHODOLOGY


47

APPENDIX A: METHODOLOGY

A quantitative selection oftop fi rms

The fi rms we selected to interview all

demonstrated success on three

performance metrics:

Productivity

We defi ned productivity by dividing total fi rm

revenue by the number of professional

staff—defi ned as the principals and staff

excluding back-offi ce and administrative staff.

While the total staffi ng of a fi rm contributes

to revenues, we focused on professional

staff, as they are typically a more signifi cant

expense driver, so revenue per professional

would be expected to align more closely with

fi rm profi ts.

Profitability

To form a basis of comparison on profi tability,

we used standardized operating margin.

Our profi tability measure standardized the

level of partner base and bonus expense at

$200,000 per principal, which leveled the

playing fi eld on individual fi rm decisions

about partner compensation as base versus

profi t sharing. The profi t and loss detail

included in the Appendix leaves partner

base and bonus as reported; however, a

line is included for standardized profi tability.

Revenue growth

Rounding out overall fi rm performance, we

measured the compound annual growth rate

from 2003 through 2006. Growth is included

as a counterbalance to profi tability, ensuring

that a fi rm is not only currently profi table, but

also investing in the future.

Once the criteria were applied and Best-

Managed Firms identifi ed, there was

interestingly no bias in business model

or fi rm staffi ng in the top-ranking fi rms

compared with other fi rms. This provides

support for the role of fi rm practices as a

contributing factor in levels of performance

observed. The data on business model and

staffi ng show:

Best-Managed Firms had a median of nine •

total staff while all other fi rms had 10

(average of 14.8 vs. 14.5).

Both groups had the same proportion•

of self-defi ned money manager fi rms

(28 percent) and wealth manager

fi rms (72 percent).

48


Average Common-Sized Income Statement—2006

Best-Managed Firms Other Firms $25–$100MMRevenue

Asset management fees $5,461,135 94.9% $2,958,992 92.0% $392,860 91.6%

Planning and consulting $201,468 3.5% $172,861 5.4% $16,835 3.9%

Securities commissions $4,261 0.1% $21,598 0.7% $4,597 1.1%

Insurance commissions $42,483 0.7% $19,697 0.6% $6,181 1.4%

Other revenues $43,998 0.8% $42,168 1.3% $8,186 1.9%

Total revenue $5,753,346 100.0% $3,215,315 100.0% $428,659 100.0%

Direct expenses

Professional salaries

Owner $1,003,683 17.4% $629,156 19.6% $143,230 33.4%

Nonowner $479,157 8.3% $384,525 12.0% $31,800 7.4%

Professional bonus

Owner $250,670 4.4% $114,484 3.6% $11,485 2.7%

Nonowner $129,971 2.3% $86,014 2.7% $1,818 0.4%

Commissions paid $49,206 0.9% $15,611 0.5% $3,592 0.8%

Fees paid for referred business $237,863 4.1% $36,857 1.1% $1,973 0.5%

Total direct expenses $2,150,551 37.4% $1,266,647 39.4% $193,898 45.2%

Gross profi t $3,602,795 62.6% $1,948,668 60.6% $234,761 54.8%

Overhead expenses

Back-offi ce and admin salary and bonus $431,376 7.5% $342,160 10.6% $36,356 8.5%

Retirement benefi ts

Owner $65,166 1.1% $40,053 1.2% $10,893 2.5%

Nonowner $58,840 1.0% $31,980 1.0% $1,987 0.5%

Health insurance $83,605 1.5% $87,118 2.7% $7,382 1.7%

Payroll taxes $107,522 1.9% $80,932 2.5% $10,880 2.5%

Marketing and business dev. expenses $117,956 2.1% $56,494 1.8% $12,966 3.0%

Offi ce rent $153,548 2.7% $134,335 4.2% $24,159 5.6%

IT (equipment and outsourcing) $84,338 1.5% $57,123 1.8% $7,361 1.7%

Non-IT equipment $24,492 0.4% $15,918 0.5% $2,891 0.7%

Non-IT outsourcing $59,659 1.0% $36,551 1.1% $3,641 0.8%

Offi ce expenses $55,350 1.0% $46,123 1.4% $6,168 1.4%

Utilities $29,040 0.5% $24,505 0.8% $5,993 1.4%

Professional services $58,994 1.0% $42,068 1.3% $6,407 1.5%

Travel and auto $62,275 1.1% $38,447 1.2% $7,171 1.7%

Training and education $21,748 0.4% $24,527 0.8% $3,608 0.8%

Business insurance $36,319 0.6% $29,987 0.9% $4,019 0.9%

Depreciation and amortization $51,147 0.9% $38,718 1.2% $3,164 0.7%

Taxes and licenses $15,662 0.3% $21,759 0.7% $1,900 0.4%

Other overhead $55,053 1.0% $93,128 2.9% $12,448 2.9%

Total overhead expenses $1,572,090 27.3% $1,241,927 38.6% $169,395 39.5%

Operating Income $2,030,705 35.3% $706,742 22.0% $65,367 15.2%

Standardized Operating Income1 $2,461,340 42.8% $785,077 24.4% $64,285 15.0%

Other income or expenses

Other income $41,224 0.7% $8,669 0.3% $1,110 0.3%

Other expenses $38,713 0.7% $27,705 0.9% $2,046 0.5%

Total other income or expenses $2,510 0.0% ($19,036) -0.6% ($936) -0.2%

Profi t before tax $2,033,215 35.3% $687,706 21.4% $64,430 15.0%

Profi t sharing

Profi t sharing, owner $915,762 15.9% $295,087 9.2% $27,564 6.4%

Profi t sharing, nonowner $36,791 0.6% $22,353 0.7% $426 0.1%

Total profi t sharing $952,553 16.6% $317,441 9.9% $27,989 6.5%

1 Standardized Operating Income is based on a single level of per principal base and bonus applied to every fi rm within a group. This level is $100,000 for fi rms in the$25–$100MM group, $150,000 for the $100–$250MM group, and $200,000 for every other group including Best-Managed Firms and Other Firms.

Note: Percent values are the average of the percent of revenues value for each fi rm within the group. Dollar values are this average percent value multiplied by the average revenues for the group.

APPENDIX B: BEST-MANAGED FIRMS INCOME STATEMENTS

49

APPENDIX B: BEST-MANAGED FIRMS INCOME STATEMENTS

Average Common-Sized Income Statement—2006

$100–$250MM $250–$500MM $500MM–$1B $1B +

$1,101,711 93.2% $2,144,045 93.6% $3,598,140 87.8% $9,411,875 87.9%

$34,583 2.9% $60,137 2.6% $250,365 6.1% $1,192,056 11.1%

$9,459 0.8% $37,944 1.7% $23,266 0.6% – 0.0%

$15,640 1.3% $19,406 0.8% $53,665 1.3% $56,381 0.5%

$20,852 1.8% $29,620 1.3% $172,063 4.2% $46,437 0.4%

$1,182,245 100.0% $2,291,153 100.0% $4,097,499 100.0% $10,706,750 100.0%

$284,704 24.1% $515,678 22.5% $797,545 19.5% $1,634,654 15.3%

$121,056 10.2% $248,027 10.8% $507,969 12.4% $1,477,292 13.8%

$33,163 2.8% $53,747 2.3% $216,412 5.3% $641,707 6.0%

$19,364 1.6% $47,179 2.1% $129,378 3.2% $294,316 2.7%

$12,079 1.0% $7,247 0.3% $572 0.0% $744 0.0%

$10,250 0.9% $66,126 2.9% $101,885 2.5% $114,192 1.1%

$480,614 40.7% $938,005 40.9% $1,753,760 42.8% $4,162,905 38.9%

$701,631 59.3% $1,353,148 59.1% $2,343,739 57.2% $6,543,845 61.1%

$98,632 8.3% $242,328 10.6% $390,335 9.5% $1,232,820 11.5%

$23,014 1.9% $36,377 1.6% $21,925 0.5% $124,007 1.2%

$11,011 0.9% $21,554 0.9% $49,284 1.2% $126,392 1.2%

$27,621 2.3% $59,338 2.6% $91,125 2.2% $222,851 2.1%

$29,123 2.5% $52,704 2.3% $105,954 2.6% $280,970 2.6%

$23,202 2.0% $37,763 1.6% $48,037 1.2% $193,548 1.8%

$51,062 4.3% $91,745 4.0% $151,401 3.7% $431,175 4.0%

$18,239 1.5% $47,769 2.1% $57,121 1.4% $207,957 1.9%

$6,195 0.5% $10,115 0.4% $24,412 0.6% $18,574 0.2%

$14,865 1.3% $15,555 0.7% $36,579 0.9% $108,738 1.0%

$14,515 1.2% $32,972 1.4% $51,544 1.3% $143,677 1.3%

$10,101 0.9% $17,909 0.8% $28,270 0.7% $53,505 0.5%

$19,092 1.6% $28,874 1.3% $59,857 1.5% $116,931 1.1%

$16,157 1.4% $25,313 1.1% $47,038 1.1% $117,685 1.1%

$9,362 0.8% $17,420 0.8% $27,695 0.7% $55,423 0.5%

$11,480 1.0% $22,568 1.0% $30,959 0.8% $75,517 0.7%

$8,945 0.8% $29,000 1.3% $39,338 1.0% $155,123 1.4%

$5,926 0.5% $10,662 0.5% $9,747 0.2% $56,926 0.5%

$42,910 3.6% $41,688 1.8% $84,112 2.1% $148,666 1.4%

$441,452 37.3% $841,656 36.7% $1,354,732 33.1% $3,870,485 36.1%

$260,179 22.0% $511,492 22.3% $989,007 24.1% $2,673,360 25.0%

$289,905 24.5% $555,952 24.3% $1,350,998 33.0% $3,575,400 33.4%

$4,404 0.4% $6,170 0.3% $17,288 0.4% $33,229 0.3%

$6,123 0.5% $17,440 0.8% $54,153 1.3% $63,296 0.6%

($1,719) -0.1% ($11,270) -0.5% ($36,866) -0.9% ($30,068) -0.3%

$258,460 21.9% $500,222 21.8% $952,141 23.2% $2,643,292 24.7%

$141,151 11.9% $192,407 8.4% $317,625 7.8% $657,994 6.1%

$3,799 0.3% $20,624 0.9% $15,611 0.4% $24,786 0.2%

$144,949 12.3% $213,031 9.3% $333,236 8.1% $682,780 6.4%

50


Average Performance Ratios—2006

Best-Managed

Firms

Other

Firms

$25–

$100MM

$100–

$250MM

$250–

$500MM

$500MM–

$1B$1B +

Firm overview

AUM ($MM) $956 $563 $58 $164 $363 $687 $2,330

Total revenue ($) $5,753,346 $3,215,315 $428,659 $1,182,245 $2,291,153 $4,097,499 $10,706,750

Clients 533 338 117 177 299 468 750

Gross profi t margin 63% 61% 55% 59% 59% 57% 61%

Operating income 35% 22% 15% 22% 22% 24% 25%

Standardized operating income1 43% 24% 15% 25% 24% 33% 33%

Operating income ($) $2,030,705 $706,742 $65,367 $260,179 $511,492 $989,007 $2,673,360

Pretax income per owner2 $967,632 $517,757 $202,079 $346,996 $540,731 $737,596 $921,454

Staff headcount

Principal 3.4 2.8 1.3 1.6 2.5 3.3 6.2

Relationship manager 1.7 2.0 0.2 0.6 1.4 2.6 4.3

Investment and planning 2.2 2.5 0.4 0.9 1.4 2.9 9.5

Business development 0.5 0.3 0.2 0.2 0.1 0.3 0.4

Total professionals 7.8 7.7 2.1 3.3 5.5 9.1 20.4

Administration and support 7.0 6.8 1.1 2.1 4.6 7.3 18.8

Grand total (all staff) 14.8 14.5 3.2 5.5 10.0 16.4 39.2

Productivity

Clients per professional 78 49 65 56 64 53 39

Clients per staff (total headcount) 40 28 38 33 32 29 20

Revenue per professional ($) $745,082 $425,115 $247,160 $380,802 $462,023 $432,998 $530,247

Revenue per staff (total headcount) ($) $414,138 $230,379 $152,007 $227,226 $241,713 $241,232 $274,220

AUM per professional ($MM) $120 $68 $33 $53 $75 $86 $130

AUM per staff (total headcount) ($MM) $69 $37 $21 $31 $39 $47 $73

Revenue per client ($) $17,451 $11,890 $5,793 $10,305 $10,299 $12,886 $36,163

AUM per client ($) $3,196,408 $2,397,393 $722,682 $1,272,354 $1,974,788 $2,532,104 $8,611,059

Operating profi t per client ($) $5,950 $2,557 $933 $2,267 $2,404 $4,665 $5,591

1 Standardized Operating Income is based on a single level of per principal base and bonus applied to every fi rm within a group. This level is $100,000 for fi rms in the$25–$100MM group, $150,000 for the $100–$250MM group, and $200,000 for every other group including Best-Managed Firms and Other Firms.

2 Pretax Income per Owner is the total of all principal base and bonus pay plus fi rm pretax profi t, divided by the number of principals.

Note: The data shown are calculated for each fi rm independently, and then the median or average of that value taken across all fi rms for each line item.

APPENDIX C: BEST-MANAGED FIRMSPERFORMANCE RATIOS

51

APPENDIX C: BEST-MANAGED FIRMS PERFORMANCE RATIOS

Median Performance Ratios—2006

Best-Managed

Firms

Other

Firms

$25–

$100MM

$100–

$250MM

$250–

$500MM

$500MM–

$1B$1B +

Firm overview

AUM ($MM) $492 $354 $59 $160 $359 $658 $1,833

Total revenue ($) $2,842,288 $2,154,719 $400,600 $1,090,000 $2,199,828 $3,724,326 $8,222,775

Clients 297 264 92 142 272 342 596

Gross profi t margin 67% 61% 55% 60% 59% 59% 65%

Operating income 37% 22% 8% 20% 21% 25% 22%

Standardized operating income1 45% 26% 22% 26% 27% 32% 33%

Operating income ($) $1,005,638 $442,231 $28,572 $179,848 $410,654 $914,153 $2,042,506

Pretax income per owner2 $793,098 $417,766 $184,060 $326,688 $438,268 $525,000 $705,916

Staff headcount

Principal 2.0 2.0 1.0 2.0 2.0 3.0 4.5

Relationship manager 1.0 1.0 0.0 0.0 1.0 2.0 3.5

Investment and planning 1.0 1.0 0.0 1.0 1.0 2.0 5.0

Business development 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total professionals3 4.0 6.0 2.0 3.0 5.0 8.0 13.5

Administration and support 4.0 4.0 1.0 2.0 4.0 7.5 12.5

Grand total (all staff)3 9.0 10.0 3.0 5.0 10.0 15.5 30.5

Productivity

Clients per professional 57 42 52 49 50 41 31

Clients per staff (total headcount) 32 23 30 27 27 23 14

Revenue per professional ($) $658,905 $379,500 $228,000 $345,792 $429,952 $387,260 $522,960

Revenue per staff (total headcount) ($) $360,500 $218,361 $132,500 $204,250 $218,222 $235,294 $268,331

AUM per professional ($MM) $103 $58 $28 $50 $69 $82 $104

AUM per staff (total headcount) ($MM) $50 $32 $17 $28 $33 $43 $54

Revenue per client ($) $11,414 $9,112 $4,416 $8,163 $7,653 $10,336 $16,464

AUM per client ($) $1,557,786 $1,335,425 $587,719 $1,093,074 $1,273,154 $1,900,141 $3,635,739

Operating profi t per client ($) $3,641 $1,797 $456 $1,411 $1,563 $2,351 $4,291

3 Median of Total Professionals and Median of Grand Total (All Staff) does not equal the sum of the medians of each role taken independently.

52


APPENDIX D: FIRMS INTERVIEWED

Thank you to the fi rms listed below for their participation and insight they

shared during interviews for this project.

Firm Name Location

Balasa Dinverno Foltz, LLC Itasca, IL

Bell Investment Advisors, Inc. Oakland, CA

Bingham, Osborn & Scarborough, LLC San Francisco, CA

Burns Advisory Group Oklahoma City, OK

Capital Directions Atlanta, GA

Capital Investment Advisors, Inc. Atlanta, GA

Conway Jarvis, LLC Seattle, WA

Diamond Hill Capital Management Columbus, OH

Dixon Financial Services, Inc. Lafayette, CA

Fort Pitt Capital Group, Inc. Pittsburgh, PA

Foundation Resource Management Little Rock, AR

Geneva Investment Mgmt of Chicago, LLC Chicago, IL

GHP Investment Advisors, Inc. Denver, CO

Highline Wealth Management, LLC Bethesda, MD

HTG Investment Advisors, Inc. New Canaan, CT

Kochis Fitz (now part of Aspiriant) San Francisco, CA

LBMC Investment Advisors, LLC Brentwood, TN

Manchester Capital Management Manchester, VT

Moneta Group Investment Advisors, LLC Clayton, MO

Obermeyer Asset Management Company Aspen, CO

Plancorp, Inc. St. Louis, MO

RegentAtlantic Capital, LLC Morristown, NJ

Schaefer Financial Management Englewood, CO

Smith & Howard Wealth Management Atlanta, GA

St. Denis J Villere & Co., LLC New Orleans, LA

Symons Capital Management, Inc. Pittsburgh, PA

TCI Wealth Management, Inc. Tucson, AZ

The Golub Group San Mateo, CA

Vector Wealth Management, LLC Minneapolis, MN

The Report was produced by Charles Schwab & Co. Inc. (“Schwab”) for general informational purposes only and is intended for independent investment advisory fi rms. It is not intended for use by investors in evaluating or selecting investment advisors. This Report is not a recommendation of, referral to, or solicitation on behalf of any investment advisor, whether or not named or described in the Report. Investment advisory fi rms named and described in this Report are not affi liated with, and their employees and agents are not employees, agents or representatives of Schwab.

This Report is not intended to provide fi nancial, investment or tax advice. The Report relates solely to the business enterprise management practices of the independent investment advisory fi rms that participated in the study and were interviewed for the Report. The study did not measure or assess the participating fi rms’ investment performance, service levels or client satisfaction. The study did not independently verify the survey responses or information conveyed in the interviews. Consequently, Schwab makes no representations about the accuracy of the information in the Report. In addition, the experience and practices of the fi rms discussed in the Report may not be representative of other fi rms.

©2009 Charles Schwab & Co., Inc. All rights reserved. HNW (0209-7524) MKT46070-01 (04/09)

The mention of products created by third-party fi rms is not, and should not be construed as a recommendation, endorsement or sponsorship by Schwab. These fi rms are not affi liated with or an employee of Schwab. You must decide whether to implement these products and their appropriateness for you or your fi rm.

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