What Is Progress?

The first benchmark of significance to me was a number of flip-flaps.

When I could do ten flip-flaps at one time, I’d make the school’s gymnastic team.

Gary Kurtz from my class did it.

But I could never get to 10.

I have slowly moved on from my missed benchmark of 1971, but I can still clearly see 10-year-old Gary spinning backwards again and again.

I wanted to fly as he could.

Benchmarks come and go in our lives.

Particularly business lives.

CLIENTS PER ADVISER

At my recent September workshop, a comment from one attendee grabbed everyone’s attention when he mentioned that his client/adviser ratio was about 350/1.

What the…?

The questions came quickly, wanting to know how the firm delivered on such a ‘high’ ratio. Had he found a technology or compliance solution that had evaded others?

Thirty years ago, when I started coaching advisory firms, advisers proudly showed me their rows of filing cabinets containing paper files of thousands of their ‘clients’. Back in those sales days, a solid and large client base with a high ratio of clients per adviser was a measure of excellence and good times.

Thanks to compliance and primarily technology, it is different today.

I love the clients per adviser benchmark.

It is a quick tell-tale quickly identifying a firm’s proposition.

Low numbers (e.g. less than 100/1) suggest broad propositions, deeper use of niches and possibly bigger advisory teams.

Higher numbers suggest shallower propositions, broader geographic client bases often in regional areas, and possibly greater use of pod structures rather than pools.

As the off-shore talent improves in performance and integration, assuming responsibilities for more of the tasks less than $100/hour, the client/adviser ratio will change.

More client support team members will assume the non-technical client advisory functions of strategic and project management roles propelling these roles into new and career-changing advisory roles.

Something unimaginable for those with a mindset that only technical advisers can be advisers, but being achieved today for those understanding the importance and value of comprehensive advisers.

Some advisers believe their advice/client ratios are out of their control as they try to deliver on promises to every client.

They lament the easier days when time was not as scarce and paperwork not as onerous while still driven by their concern as to who will advise the middle and low end of the client bases who are being forced out of today’s advice discussions.

While the advice will never be as good, the majority of consumers seeking over-the-counter financial product advice will find the financial product advice services offered by the financial mega-suppliers (e.g. banks, super funds, IT groups) just as helpful and effective as today’s mega-hardware groups with adviser/client ratios similar to the adviser/client ratios in the aisles at the local Bunnings store.

This is partially the view of the current Quality of Advice Review driven by Michelle Levy’s focus on ‘good advice’ and a change of bureaucratic regulatory focus on process onto outcomes. Provided the implementation appreciates the difference between financial advice and financial product advice, she might be onto something.

The future ‘over-the-counter’ advice is not what many would perceive to be advice today, but the distribution of financial product advice will be effective for the majority of over-the-counter product needs for the majority of consumers.

Today’s house builders are as busy as the local Bunning stores, as will future financial advisory firms.

Today’s financial advice providers, however will not compete or thrive in the over-the-counter (i.e. low complexity solutions for low complexity client situations) financial product advice market which will support adviser/client ratios of 350/1 and above.

Most of today’s financial advice firms will service lower ratios.

They will also need to monitor my favourite benchmark of financial advice firms – returns per full-time-equivalent advice team member.

REVENUE PER TEAM MEMBER

There are three things I love about this benchmark.

The first is how well it measures capacity.

In the early days of most comprehensive advice firms when most days start with a check of the bank balance, the daily priority is revenue.

The minority of advice firm start-ups that manage to reach their second or third birthday generally find their revenue focus shift to become a capacity focus around the $250,000 revenue for the founders.

This number – $250,000 – has for years been a consistent benchmark of capacity.

Growing passed this point, regardless of the client proposition, even in these days of smarter outsourcing, generally needs new talent to be added to the team.

Growing significantly passed $250,000 per full-time equivalent, however, highlights the second thing I love about this ratio.

Dependency.

For some advisory teams, dependency is as central to their proposition as it is for rock-stars. Provided the rock-stars parading on the stage of these firms can kick on like the Rolling Stones, the show will go on.

However, the rest of the mortals growing advisory firms and not seeking a proposition dependent upon the founders, high revenues per full-time-equivalent team members significantly greater than $250,000 means that too much of too many tasks become dependent not only upon the founders but also the long-serving team members.

When the dependency is high on long-serving team members, there is less tension to absorb the inevitable and uncontrollable influences such as the recent pandemic and regulatory changes, greater reliance on the long-serving team members and therefore greater adaptation of the firm’s potential to align with the team’s ability rather the firm’s opportunities.

The growing firms over the coming decade will embrace the coming client skills revolution.

If teams are too ‘tight’ due to high dependency, they will be less able to find the time, focus and energy to re-invent themselves and their propositions.

The greatest challenge for every established advisory team in the coming decade is not finding clients, but finding, training and building the talent of their advisory teams.

This is where the third aspect of this great benchmark comes into play.

Its ability to predict strategic shifts.

One of the first things we do for any comprehensive advisory firm that seek our advice on their best ‘next steps’ is assess their revenue per team member.

Firms with revenue per team member less than $200,000 usually do not need more team members.

They usually need to reconsider their propositions, pricing, and engagement skills.

Putting on more people will reduce productivity, increase demands on their management, increase their cost to serve, and increase the already high dependency and pressure on founders to fund the needed growth.

All visible thanks to my favourite ratio – revenue per full-time-equivalent team member.

A word of caution about benchmarks though.

They can become targets of destruction.

WHAT IS PROGRESS?

Two things about benchmarks and progress.

The first I learned over twenty years ago at a career-changing program when I attended with Dan Sullivan’s Strategic Coach.

He believes in never measuring forwards, only backwards.

For Sullivan, measuring forwards is for perfectionists.

Sullivan’s theory applies to benchmarks.

This means that managing a benchmark like $250,000 per team member is more about the progress made towards the desired benchmark rather than focusing on the gap that may still exist towards achieving it.

If the focus is totally on achieving just the benchmark, the vital lessons of the journey may be smothered.

It is too common for firms to be so focused on building a multi-million dollar firm, that upon arriving at their target they discover they had more ‘fun’ or ‘returns’ running a smaller firm.

The focus on ‘what-still-needs-to-be-achieved’ or ‘the-gap-where-we-are-today-and-where-we-want-to-be’ cannot override the lessons and insights the journey provides.

Sullivan suggests that a celebration of progress from the previous performance of say, $180,000 revenue per person to, say, $220,000 needs to review the lessons of that progress to ensure the culture, enjoyment, profits, valuations, team support and client satisfaction are all ‘in check’ before further advancement is confirmed.

Goals are important for reasons to advance, particularly in the moments when doubts overwhelm plans, but goals don’t serve as measures of progress or advancement, for there will always be another further goal to achieve, and they may dim the crucial insights and lessons that progress may be trying to teach.

The second danger of benchmarks is having too many of them.

If every benchmark or key performance indicator is a priority, then little will be achieved despite the intent, energy, costs, planning and investments in systems or people.

Once firms grow beyond founders, they can really only expect one major strategic advance every quarter, with ideally one significant benchmark measuring each quarter’s strategic progress.

This is also true for careers.

In times of regulatory upheaval, pandemics or inevitable shocks that affect small teams, even one strategy per quarter is possibly asking too much.

Progress means different things to different people and firms at different times. But fundamentally, progress is not given to anyone ready-made but only achieved at some great cost.

I never did ten flip-flaps or make the school’s gym team.

But regardless of the outcome, the measure was my first experience of the power of progress that I was capable of.

For me, that’s progress – the lessons and insights from a journey more so than the attainment of preconceived benchmarks.

What do you reckon?