Large Independent Broker-Dealer Firms Support Customized Benchmarking Tool

For Release: October 28, 2008

DENVER, Colo.… Independent multi-adviser practices on average outperform solo practices on the ultimate measure of success – net effective payout per owner. That finding was one of the highlights of the second annual FPA Practice Management Scorecard, provided by McLagan and released recently by McLagan and the Financial Planning Association^® (FPA^®). While results vary greatly by market, successful practices have large clients, a high percentage of fee-based revenues, and tight overhead expense control, the study said.

This year, Fidelity Investments, Ameriprise Financial, LPL Financial and Wachovia FiNet purchased FPA Scorecards for their participating practices, demonstrating their belief that the Scorecard is a valuable resource that advisers may utilize to help them grow and improve profits.

The FPA Practice Management Scorecard provides independent financial advisers with a complete range of local market benchmarks to help them set realistic goals for improving their practice in a customized, easy-to-use report. Measures tracked include practice revenues, assets, return on assets, number of clients, average client size, new assets, compensation, staffing, expenses, and perhaps most importantly, net effective payout per owner. The FPA Scorecard also provides participants with their rank in their market on each performance measure, so that they can know exactly how they are positioned relative to their peers.

"The Scorecard has proven to be a useful strategic planning tool," said Mike McCann, CFP^®, AIF^®, president and founder of Phoenix-based Perspective Financial Services, LLC. "First, simply having the survey land on my desk creates the ideal time for me to stop and evaluate our strategic planning as a firm. Afterward, the published Scorecard serves as a good foundation for initiating ongoing strategic discussions with key personnel."

"The Scorecard enables me to more easily compare our efficiency with other firms in areas such as profit margin and staffing," added McCann. "It also gives me insight in terms of setting our client fees relative to our peers by comparing their assets and revenues." 

Findings from the survey for the year ended Dec. 31, 2007, highlight how practice performance varies by market. For example:

Four markets along the I-95 corridor – New York City, Northern New Jersey, Philadelphia and Washington, D.C. – all ranked near the top on Net Effective Payout (NEP) per Owner. Practices in these markets had NEP per Owner of almost $300,000, compared to just above $200,000 for practices in all other markets. The practices in these four markets have achieved their success at least in part by winning larger clients who enable these practices to achieve the highest practice revenues in the nation and realize economies of scale.

• Median 2007 total revenue for all practices in the survey was $425,000. Practices in the four I-95 corridor markets listed above typically reached total revenue around $700,000 (65 percent larger than the national median). Conversely, practices in smaller markets throughout the Southeast and Northeast in particular had total revenues around $300,000.
  
  
• Average client size, or assets per household, for all practices in the survey was a little over $300,000. The same four markets ranked in the top six, with client size of about $570,000 – almost double the national average. San Francisco also was near the top for client size, and not surprisingly also for NEP per Owner. Smaller markets in the Southeast, Southwest, Northeast and Midwest regions all had very low average client size, near or below $200,000. 

Survey results also showed that practice performance varied by practice type. Multi-adviser practices outperformed sole-adviser practices in 2007. Multis were more effective at winning larger clients – almost double the average client size of solos. This helped push multi-adviser FA productivity 20 percent higher than the productivity of their peers at sole-adviser practices. While multi-adviser practices spent more on overhead as a percentage of revenue to support their larger size, multis still reached almost 40 percent higher NEP per Owner than solos.

Multi-Adviser vs. Solo Practices

The 2007 Scorecard study also found that practices with the highest NEP per Owner typically have large average client size and high fee-based revenue percentage. The linkage between these respective success drivers and NEP per Owner is shown in the tables below:

Average Client Size and NEP per Owner

 Fee-Based Percentage of Revenue and NEP per Owner

"Especially in the current economic environment, identifying potential levers to increase adviser productivity and effectively manage expenses becomes increasingly important," said Peter Keuls, Head of Private Client at McLagan. "Through the Scorecard, financial advisers can benchmark their performance against relevant local peers to identify areas where the practice can improve and help quantify the impact of those opportunities."

"We continue to view the Scorecard as one of the most important benefits FPA has ever launched," said Ian MacKenzie, Managing Director of Business Development and Chief Marketing Officer at FPA. "This tool will ultimately help financial planners turn their practice into a business. With the continued surge in the independent channel, there will be growing need for benchmarking of all kinds."

The FPA Practice Management Scorecard is produced annually to deliver current market trend information and practice performance. For more information on the FPA Practice Management Scorecard, visit https://FPAscorecard.mclagan.com.  

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