Time is money

The global financial crisis has increased the face-to-face time planners are spending with clients, as clients seek advice and guidance around what the global turmoil means for them.


Time is money, so for fee-based financial plan ners, this should result in increased profitability. Unfortunately though, many planners are not being properly remunerated for their time, because they fail to appropriately determine how much to charge for their services.
 
Raffi Pailagian, authorised representative of Holistic Advisory Services, says the first step is to determine a true charge-out rate, or hourly rate, by considering operating expenses, desired profit margin, and “utilisation” – the proportion of time committed to client work, and therefore billable.
 
“Most advisers wouldn’t have calculated what their true charge-out rate would be,” Pailagian says.
 
“If they do, they’ll look at: how much do I want to earn in the year? How many hours am I going to work if I take holidays out? They don’t factor in how much they spend and how much they’ll be billing clients. You have to say, ‘How much of my time am I servicing clients?’, and you have to look at your utilisation in that respect.”
 
It is particularly important for planners to consider utilisation, given the extra resources most planners are committing to communicating with clients about the financial markets. Effective com munication means regular client seminars, newslet ters and email updates, which all require time and effort to get right.
 
When calculating utilisation, Pailagian says operating expenses are often the forgotten part of the equation.
 
“[Most planners] would be factoring in how much they want to earn in terms of total revenue, which is the life insurance model,” he says.
 
“It was helpful at that stage, but if we’re going to value a practice on EBIT [earnings before inter est and tax] and not ongoing revenue then we have to start looking at our cost and the only way we’ll do that is by looking at our charge-out rates. The only thing we’re selling is time.”
 
In this tougher global environment, the conse quences of getting utilisation wrong are arguably even greater than in more normal market condi tions. With fewer new clients walking through the door, planners can’t afford to lose money on those they’ve already got.
 
“At the end of the day, the adviser won’t be get ting remunerated appropriately for the time they’re spending with clients if they’ve got their utilisation wrong,” Pailagian says.
 
“At the same time, you want to allocate low value work to people in the business on a lower hourly rate. By using utilisation you can start al locating that way.
 
“We’re talking about really simple logic, trying to come up with a simple way to factor it in. What are the operating expenses, for example, staff sala ries? What is the profit margin? Then we’ve got our total outgoings plus profit we need to generate per person in the business – how much of the time will that person be using on a day-to-day basis? How much of the time can be billed to get an appropri­ate charge-out rate?”
 
Pailagian says paraplanning and administration staff, as well as client managers, should be spending at least 90 per cent of their time on billable items. For financial planners and practice principals, the billable time is likely to be slightly less.
Calculating charge-out rates based on 100 per cent utilisation is a mistake commonly made by planners, he adds.
 
“If I’m a partner in a firm and it’s going well, I want to spend half my time networking and mar keting to bring in the business,” Pailagian says.
 
“But on average most good firms would charge 60 to 70 per cent billable time.”