Advisory business owners should apply the productivity ratio to staff so they can identify the best and worst performing advisers, a financial services expert has said.
Once completed, the company can concentrate on the top 20% of the business and cast off the bottom 20%, Brett Davidson, CEO of FP Advance said.
He was speaking during an online management webinar entitled Management Information That Matters.
He said that managers of firms facing difficulties should view advisers in the same way advisers view their client base.
"They should focus energy, support and back office staff on the best performing 20% of advisers and let the bottom 20% go," he said.
He added that information related to performance can be discerned by an "important but often overlooked ratio" - the productivity ratio.
This analyses revenue per adviser, clients per adviser, and net profit per adviser.
Davidson added that one of the problems for managers of financial services firms is that they don't know what good performance looks like.
"Some advisers will be happy with £100k per year, but in my opinion, decent advisers will be bringing in £150-200k per annum and really good advisers will do between £300k and £400k.
"These are the sort of figures you should be looking for," he told delegates.
However, an even more important ratio according to Davidson is profitability based. He said that all firms should be looking to achieve net profit at about 25% of turnover.
"This [25%] is what good looks like," he said. "If net profit is any lower than 25% a firm will run into difficulty."
He argued that direct expenses - that is, advisers' salaries - should comprise no more than 40% of turnover, and indirect costs, such as phones, paraplanners and back office technology should make up no more than 35%.
"Some advisers will say they can get a salary of more than 40% [of the business they write] in the market, and it's true.
"But I would argue that it's unsustainable. If they are well supported they will be able to bring in more money and boost their income that way.
"Managers need to think about their value proposition to good advisers but should not exceed the 40% ratio."
Davidson also identified a third ratio: the client selection ratio, which works out revenue per client; assets per client; gross and net profit per cllient; and annual received income per client.
"Working out these ratios [productivity, profitability and client selection] will give managers a real insight into what's happening within the business.
"People often think business problems can be fixed with more technology or more staff but actually getting the percentages right are best way of resolve inbalances in the business."
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