A runner, a cyclist, a swimmer, or any other athlete, even the weekend warrior, knows about their performance and they’ll have data for you. They’ll have measurements and information about how they track their progress to reach their goals and improve.Any one of them will tell you that knowing which metrics to track and understanding how to adjust their plan when they’re not hitting them is vital to performance. The same is true for your career as an independent financial advisor.
Key performance indicators, or KPIs, are metrics used to measure performance on key initiatives, tasks, or activities. For example, if you set a long term goal of acquiring five new clients in a quarter, you’ll want to be sure you’re measuring your progress on that goal.
In fact, you may need multiple metrics to measure a KPI — that’s how metrics and KPIs differ. So, in the case of the example, you may want to measure several metrics such as contacts, leads, follow-ups, number of touch points, and more to gauge your progress towards the goal to track your progress toward the KPI.
In any results driven career, KPIs matter, but for financial advisors KPIs are essential as you’re measuring not just your own success and performance, but often the success and performance of your client’s assets as well. Furthermore, depending on the structure of your business, you may need to be tracking overall business performance KPIs as well as client specific KPIs.
The simple truth is this: to manage your business, your clients’ assets, and more, you need to be measuring their growth and performance. As your business grows, and as your clients increase in number and value of managed assets, these measurements become an invaluable tool to ensure you’re on the right track, to identify when you’re not, and to help you determine when you need to make adjustments.
Looking at individual metrics may provide some information, but knowing and understanding how they work together to create key performance indicators is vital.
Given the importance of KPIs, knowing what to track can save you time and effort, especially when tracking data that may not be as important or significant as other data. However, it’s worth noting that every independent financial advisor may have different goals, so aligning your KPIs with your goals is essential.
For example, you may be more focused on client retention than client acquisition and so the metrics you follow will be different.
That said, there are a few essential KPIs that, as an independent financial advisor, you want to be tracking.
To be fair, and honest, this KPI could be broken down into several on its own. Your growth rate will be a matter of several things and, depending on your goals, one may be more interested in growth rate among existing clients (a potential KPI on its own) or growth rate with new client acquisition. For both, you’ll most likely be looking at revenue generated by both of those client types.
You may choose to measure growth rate quarter over quarter or year over year, depending on growth history and/or your goals. Further, the independent metrics you use to create a growth rate may go beyond revenue. You may want to factor in the total number of clients, number of financial advisors on your team, new client acquisition (regardless of revenue), or more.
This is essential. As noted above, one of the ways you track revenue is by assessing revenue generated by existing clients. Retention rate can be a great indicator of the strength of your business as well as other factors that will help you continue to grow. Happy customers tell others, so your net promoter score is likely higher if you're retaining more customers.
As with revenue, you can calculate client retention quarter over quarter or year over year. Regardless of how you calculate it, understanding how happy existing clients are or identifying early that they are leaving is a fundamental sign of business health.
This is a great KPI if you’re looking at how to increase overall revenue or to factor client acquisition needs to hit revenue goals. You can also look at the distribution of that revenue to inform business as well as prospecting decisions.
For example, you may note that a significant amount of revenue falls within a specific asset range or you may notice that the distribution is uneven with a few wealthy clients essentially subsidizing the rest of your client base.
Again, these numbers can help you, especially as an independent financial advisor, determine who and where you need to be prospecting and what kind of clients you serve best. From there, you may decide you need to shift strategies or bring on a partner who excels in a different niche.
When it comes to business, understanding how much time you’re spending on clients and what revenue they’re generating is vital. Depending on your fee structure, especially as an independent financial advisor, you may realize you’re undervaluing your expertise and experience. Similarly, you may realize that client acquisition goals need to be higher or other decisions need to be made to boost revenue.
Additionally, this KPI may reveal what clients are being under or over serviced as well as which of your team members or partners needs additional support or more training in specific areas or with specific products or services.
Obviously, you’ll want to be keeping track of revenue and expenses to determine your overall profit margin. There are several aspects of your business you can and should adjust if you’re falling short of profit goals.
You likely have a very clear vision before you went out on your own and a very clear goal of where you wanted to be in terms of the return on your investment. It’d be a mistake to miss tracking a KPI that can be the first sign of success, or a warning that adjustments need to be made.
Operating costs and overhead are compared to revenue here and being able to determine if cost-cutting or client acquisition or growth is the better strategy for your business moving forward.
Finally, knowing what you’re taking in as compared to spending is a key aspect of knowing your business so you can manage it.
Knowing your goals is the first step to determining the KPIs you should be tracking, but tracking and measuring the KPIs is a necessary step to leading your business to success. As an independent financial advisor you have two roles, running the business and helping your clients.
While they’re related, and possibly symbiotic, one can help clients but run a business poorly. For that reason, it’s worth discovering which KPIs need close monitoring to ensure both sides of your business are healthy.
If you are looking to add to your team to help improve client management or assist with business tasks, look no further than FA Match. We understand the financial advising world because we were in it. Our team has significant experience and expertise as well as access to a vast network of advisors. Get in touch today and let’s talk about how we can help you grow.