Financial advisors need to become more specialised if they want to increase productivity and revenue, according to advisor Michael Kitces, co-founder of the XY Planning Network.
“Specialization pays,” he said during a presentation at the virtual eMoney Advisor’s Summit on Wednesday.
“The firms that have the biggest numbers around profitability and productivity … don’t just serve more and more clients,” he said. “They offer a premium service for which they charge a premium price, and they command their productivity on the depth of the value, not just trying to make it up out of volume.”
Advisors need to attain credentials beyond CFP certification, he added.
Kitces said advisors seeking a specialty is comparable to doctors and lawyers specializing in the fields of medicine and law.
Advisors with a specialty have clients with 25% more investable assets, can set AUM fees 9% higher, and can generate 20% higher standalone planning fees, according to research conducted by Kitce’s website, Kitces.com. Since a firm’s expenses are still the same, the additional revenue goes toward a firm’s bottom line, Kitces said.
“The firm just gets more profitable and productive because you have deeper expertise that allows you to charge more,” he said.
Specializing places the focus on quality over quantity, Kitces told the virtual audience.
“It is more efficient, if you just know the answer,” he said. “The more educated that advisors are, the more that we invest in our own financial planning education … the more likely it is that we can just answer questions or get to the more meaningful conversations more quickly.”
The biggest ways advisors can make their process more efficient has less to do with new clients and more to do with maintaining the relationships of existing clients, Kitces told the audience.
The best way to do that is by creating an annual service calendar, which lists services that the firm will provide for all its clients on an ongoing basis.
“This helps to move in the direction of systematizing,” Kitces said. “[When you create] tools and templates that your team can do repeatedly … it takes you down the road of systematizing and, in the end, the scalability comes simply from the systems that get created in that process.”
The simplest version of the calendar includes two assignments per year, such as an insurance review in the first half of the first year and an update on retirement projections in the second half of the year, he said. Others taks might be done on a quarterly or even monthly basis, he said.
Bringing in a staff that an advisor can delegate responsibilities to can also increase efficiency, Kitces said. A solo advisor can typically handle about 70 clients, he added.
The core staff should consist of the advisor, an administrative staff member who handles paperwork and an associate advisor who does financial planning analysis work.
At 40 clients or $200,000 in revenue, an advisory firm should hire an administrative support person, he said. A new staff member should be added for every increase of $150,000 to $200,000 in revenue. he said.
Firms should hire another advisor when they reach 75 clients or $400,000 in assets and bring on a new one every $250,000 in revenue, Kitces said.
“We have the same allocations of time more or less, but we can do it for more clients.” he said. “We spend less time per client because our team fills in the [gaps].”