Measure twice, cut once

"Measure twice, cut once." My dad was pretty handy growing up and this was something he reiterated to me over and over whenever doing any major project. Applying this to our own business- how often are we measuring once, if even at all, before making serious business decisions? Do we even know what we should be measuring?

Whether we are looking at year-end reports or dashboards quantifying what you've ‘accomplished’, many advisors are measuring the same ‘known’ metrics- revenue growth, asset growth or even something more specific such as net new assets (NNA). However, from time to time in a engagement when we ask to see these results, it is following by the word “BUT…” and more explanation on how those results occurred. When looking at those ‘known’ metrics alone, we know that they are not telling the full story. Are we measuring the right things? If not, we need to be asking ourselves this: how do I measure what matters the most?

There are two types of metrics to consider:

· Lagging indicators (tells you where the business is today)

· Leading indicators (tells you where the business is going)

I like to look at some lagging indicators such as T12 growth, revenue by source, net new assets by age group, and revenue per relationship (T12 divided by total relationships) in addition to a variety of leading indicators which is typically conducted through a practice assessment considering the business foundation, quality of financial planning, business development and client management practices.

Many advisors state that they periodically review assets, revenue, and other lagging metrics. However, after reviewing these lagging metrics, we ask our advisory teams to dig deeper: What activities are impacting these lagging results?

For example, consider a reflecting on a lagging metric like a positive asset growth:

• How did this happen? We had more activity in our pipeline because client referrals increased, and we spent more time on business development activities.

• What specifically generated the activity? We held smaller in-person events and asked our attendees to bring a guest of their choosing. Additionally, we also asked for introductions to potential ideal clients and followed up consistently.

• What ensured you had consistent success in bringing in new assets? We tracked out success with our pipeline in our weekly team meetings.

If asset growth is a lagging metric, then the number of introductions, events, and pipeline activity could all be considered leading indicators! Now which one matters the most? Utilizing the example above, more targeted questions emerge which will allow us to identify how to measure the activity such as: How often do new introductions and events occur? What is the typical time is takes between new connection being generated and client onboarding? How much of activity should we generate to ensure we keep pace with our growth goals?

Start measuring the leading indicators in addition to the lagging indicators to identify trends in meaningful activities that impact lagging results. Every practice has their own set of leading indicators but here are a few primer questions that may help you identify the periodic activities that will likely impact your practice’s overall success.

• What are you doing to ensure meaningful client engagement? How do you know if you are on track?

• What is the quality standard for financial planning services? How do you ensure every client is receiving those services and addressing their needs?

• What ensures your team keeps pace with business and client needs? How do you know your team is operating effectively?

• ·What is your growth strategy (organic & inorganic)? Which activities and tools are utilized to ensure you are on track with your growth plan?

It’s not just what you measure, it’s WHEN you measure it. If you go an entire year without reviewing your metrics, you lost a year in making any desired adjustments. Leading indicators can easily be broken down into shorter term goals to address needs real-time. For example, if an FA has an annual goal of 12M in new assets, it’s beneficial to break the goal down quarterly; 3M every quarter in new assets needed if 12M is desired at year end. If the ideal client is about 1M in AUM typically, then you need acquire at least three ideal clients every per quarter or one ideal client a month. The more frequently leading indicators are measured, the more control you will have over lagging results.