This article originally appeared on the SEI Practically Speaking site.
If you are a financial services business owner, you juggle multiple tasks everyday – from marketing, investments, planning and more. I believe success really comes down to how we manage our time and resources. Every day we have to ask ourselves, “what is the best way for me to spend my time?”
Everybody has their “go to” stories. I’ve told the story of the purchase of my home for over 14 years: the long months of fruitless searching and the nightmare closing on our home after a move from Chicago to Philly. I remember finally pulling into the driveway of a house that was like nothing that we had pictured or discussed to our real estate agent. I distinctly remember uttering these three sentences in this order:
- I love it
- We don’t even have to go inside
- I am never mowing that lawn
Recently, I was boring yet another houseguest with that story, and it occurred to me that I’m actually practicing something with my lawn care that I preach to my advisors; the value of outsourcing and the best use of their professional time. It works in daily life as well as well as in our businesses.
Outsourcing the mowing of that yard gives me more time to spend enjoying the home and my family. Most of us can mow our own lawns. The question is, should we? I think this is absolutely relative to an advisor’s business. Just because you can do something, doesn’t mean it serves you to do it.
What’s your time worth to your business?
As a financial services business owner, you are chief marketing, operations, investments, planning and service officers rolled into one. Larger firms may have more people, but the owner(s) of the firm still has the ultimate responsibility for the delivery and the brand.
If we have staff, we have to allocate their time to maximize their value to our business. Do we do the same for ourselves? I look at study after study on how advisors really do allocate their time, and I wonder how many of them think about it like that.
The true cost of doing it yourself
One survey, “Advisor Metrics 2014: Capitalizing on Transitions and Consolidation” by Cerulli*, suggested that advisors spent almost 20% of their time dealing with back office/operations, trading and asset management, research and due diligence. That is 7 hours in a 35 hour work week (based on my experience, I believe that number is a bit low, but let’s go with that number). What does that mean for my business? For a firm with $500K in revenue, that is an opportunity cost of $2,002 per week base on your hourly rate of $286 per hour or $96,096 per year!
If I am spending almost 20% of my gross revenue doing something, I’d better be doing a phenomenal job—better than anyone else— and my clients must truly value it above almost anything that I do.
When the lawn service comes to mow the lawn, I know that I could do just as good of a job but the key for me isn’t that they do it better. They only have to do it as well as me to make outsourcing worthwhile. I would spend three hours doing what they will do in one. Based on my hourly rate, the cost is only a small fraction of what it would cost me to do myself. I can direct those resources elsewhere.
That $96K can change your business
Think about the key functions that you offer in your business. Are there things that you have to do, even though the client doesn’t place the same value on them that you do? Things that a qualified outsource provider could do just as well for less cost? One obvious answer is investment management. As we have discussed in the past, the value hub of an advisor’s office is in the planning and the consultation, not the products.
What else could you do with $96,000 a year in savings? Could you:
- Give yourself more time with your clients? Managing portfolios and operations take time. If you got rid some of the day-to-day non-revenue generating tasks, could you free your time and capacity to service more of your clients (and service them better)? Could you build a service model that will “wow” them?
- Build a more scalable (and sellable) business? Without a doubt, the more your business is dependent on key people, and focused on investments, the lower the multiple will be when it’s time to monetize your practice. Outsourcing allows a new buyer to step into your shoes with limited client disruption in philosophy or implementation.
- Build a deeper bench—without paying for it? Today the world is more complicated and confusing than ever. You can’t be an expert in everything, so choose to be an expert in the client. When the clients come to you for advice, you can leverage a platform provider’s greater resources and tools to communicate and educate.
- Grow? That same Cerulli study suggested that advisors only spend 15% of their time focused on growth related activities. What would your business look like if you spent double that meeting with prospects?
Robert (our lawn care guy) does a great job in his business. He can do it cheaper, and every Friday it looks just as good as if I would do it.
When you think about your business, some investments and operational functions are the same type of task. They have to get done. Can those tasks be commoditized?
If you could re-direct $96K a year in your business, how would you invest it? By putting it into an area that everyone already provides the clients? Or would you create something unique that sets your firm apart from the competition: Your service and advice.
That is where I would invest.
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