Not enough financial planning firms embrace benchmarking even though many agree that it’s important.
That’s the view of Rod Bertino, a principal of practice management consultancy Business Health, who notes that benchmarking is rarely seen as urgent and sometimes, other stuff gets in the way.
Benchmarking, he says, allows planners to know how they compare with others. “They shouldn’t make decisions based on the benchmarking results alone, but at least they’ll be able to make some informed business decisions based on how their businesses compare to others,” he tells Professional Planner.
Bertino says most firms operate in in isolation and don’t get to see how other businesses function.
“They may be part of a large licensee – if the licensee provides some benchmarking data, it can only ever be against other firms under that license,” he says.
“They may have a feel for how they compare against other practices in the group, but where does that place them in the marketplace? Top quartile against best in class or are they the best of perhaps a small subset?”
Spotting the gaps
Bertino adds that benchmarking provides insight into what may be possible. Advisers may, for example, be happy with their firm’s profitability percentage, but then see that other firms have much higher figures and that they need to act.
Will Henwood, a director and senior adviser at Perth-based Acumen Wealth Management, agrees, noting that benchmarking shows where there’s potential to make more profits, perk up resource usage or time efficiency or improve in the areas of workplace culture and staff development.
“Many principals and owners are busy giving advice, wearing the practice management hat and feeling close to reality, but they shouldn’t just trust their gut feelings,” Henwood says. “It’s important that data should be driving business decisions.”
He says Acumen Wealth Management introduced benchmarks in 2022 following a merger. It first used high-level benchmarks such as annual EBITDA of 35 per cent or better, the average fee per client for different segments and so on.
It then took the granularity down to measures such as the number of clients an adviser should be managing, client satisfaction and retention rates, the number of client review meetings per month, the amount of client contact points and the number of support staff per adviser.
“This has given us a clear focus on the value drivers within our business and allows us to ‘measure what we treasure’,” Henwood says.
Comparing apples with apples
Henwood says the best benchmarks depend on the lifecycle of your business model.
“If your practice is planning to grow quickly over the coming years, and you intend to do this organically, then benchmarks around lead generation, referral rates, conversion ratios, and marketing spend will be most relevant to you,” he says.
“But for a practice looking to consolidate after a merger or acquisition, benchmarks relating to the use of technology, process and systems outcomes, staff productivity, support ratios, client servicing and retention tend to be more relevant.”
Bertino concurs. “You need to ensure you are comparing apples with apples and understand the life stage you’re at,” he says.
“Your profitability may well be down because you’re investing heavily in infrastructure, people and technology. You should not be comparing yourself to a well-established firm that made its investments many years ago and has much higher profitability.”
Bertino believes that if you want to truly benchmark a practice against high integrity, relevant marketplace data, there needs to be a willingness to pay for it.
“Not a lot, but if you’re getting free benchmarks from a website, I think you should question the quality and the integrity of the data you get,” he says. “Garbage in will give you garbage out every time.”
Because of the broad choice of options to measure your business, Henwood believes there is a danger of “analysis paralysis”.
“We think the ‘less is more’ approach works best. Begin by focusing on a few metrics that are easy to measure and compare,” he says.
