To truly achieve profitability and scale, advisors must accept standardization. Just mentioning the word "standardization" will cause some advisors to react with instant reluctance. Merely suggesting standardizing models and investment choices conjures up the image of a "cookbook" approach to portfolio management. I don't advocate a "one size fits all" approach. Rather, the goal is an approach that will allow implementation of the advisor's strategies in a consistent manner over time and over his or her entire client base. (Hence, the necessity for the advisor to be willing to revisit some pre-conceived ideas.)
The simple acronym "SCALE" will help in remembering how to apply a standardized approach to an investment management practice:
The primary areas requiring standardization are:
In this current posting, I'll address how to begin standardizing your client process. It is important to use the same process for all clients. Advisors should not "wing it" or create a new plan for each client. A documented process will help insure consistency. Using a checklist with clients helps to define tasks and responsibilities.
Financial plans need to be prepared and documented carefully. Many clients have the same financial needs: Saving for retirement while helping their kids through college, paying off their house, and living comfortably in retirement. Creating a basic template that includes common explanatory passages and tables will help enormously when preparing financial plans. Of course, financial planning software can be a great help!
Consistency must also be established in the area of investment expectations. A risk tolerance questionnaire should be used with every client. An Investment Policy Statement (IPS) is also critical to documenting clients' expectations as well as providing written parameters for ongoing management.
Standardizing your client process can set the stage prior to moving forward with standardizing models and investment strategy, portfolio management procedures and billing and reporting.