Here Are Advisor Firms' Go-To Business Metrics -- Barrons.com

By Steve Garmhausen A growing asset base can make a wealth management business look healthy. But are clients staying? Are new assets generating meaningful revenue? And do advisors have enough time to serve the clients they're bringing in?

For this week's Barron's Advisor Big Q, we asked wealth management leaders: What business metrics do you watch most closely, and what do they tell you? Abby Salameh, managing partner, Mercer Advisors: Every day I look at two metrics. The most important is our net retention scores. Are our clients staying, are we delivering on our promises?

We look at the net retention rates for every advisor in the market -- I serve New Jersey, Delaware and Pennsylvania -- making sure our clients are happy and we are delivering on what we said we are going to deliver. If you think about it, advisors typically get most of their new clients from their existing clients. So if we are doing the greatest job, then our client advocacy is going to be huge, and that will be a great measure of success. I then look at growth from a net-new asset perspective.

I look at it in a disciplined way: new assets from existing clients and new assets from new client relationships, but I pay close attention to advisor capacity as well. We bifurcate sales and service, so the advisors are only focused on service. We have a commitment on our sales team to find the right-fit advisor for every client. So if the right fit for a prospect is advisor A, I want to make sure advisor A has the capacity to actually serve that client so that we can continue to have awesome net retention scores.

So one hand almost meets the other in those two numbers that I look at daily. We are really disciplined in our approach to growth. We want it to be intentional. We want it to be measured so that we are not depleting advisor capacity and decreasing our service.

Phil Fiore, CEO, Procyon: Net organic growth is one, two, and three. It does two things. Number one, it measures what's happening from the door opening: are clients coming in and are we gaining wallet share? Are FAs being productive?

Are they complacent? All that stuff. And I use the word "net" because you have to measure not just the front door -- like, "Wow, we brought in $10 million this month," -- but what's happening at the back door. The reason that's so impactful is that the back door measures the service.

By looking at organic growth coming in the front door, you're saying, OK, my gang is productive, the sales machine's working, the marketing's working, the lead affiliate program's working. But if you're not paying attention to what's happening at the back door, then you don't know if you have a broken gasket in the engine. Are the clients being serviced the way they expect and the way that we want? So measuring the net basis of organic growth paints a really nice picture as to whether we're succeeding in the marketplace and succeeding at home, and making sure our clients are content and fulfilled relative to the services we are bringing to the table.

Net organic growth measures the totality of the firm in a very simple way. We measure those numbers every month. Jeff Gonyo, head of wealth management, Steward Partners: At the end of the day, the thing that's going to drive most of your metrics and your valuation is net new advisory assets. I started in the business in 1993, and I've learned that if you can bring in a certain amount of assets, you'll eventually get to a certain level of production.

But one of the things that scales up in concert with net new advisory assets, and that's just as important, is net new revenue. The term net new revenue is becoming more prevalent in the industry. Gauging net new advisory assets is just one element of it. But where's the pricing around it?

If you bring in a $10 million household, and you have very little revenue because it's a cash account or something along those lines, that's not as productive. And you're excluding the market impact, interest and dividends. The net new revenue is going to be a measure of the pricing of the assets. We get quite granular with the numbers.

We'll look at quartile rankings of organic growth with those two primary factors. Then we can get into segmentation. Why is it happening? Where is it happening?

What does it mean? We dissect that business for our advisors. That doesn't mean we're going to go beat them over the head -- it's about understanding where their business is and helping uncover the opportunities to grow. Jay Coulter, CEO, chief strategist, Titleist Asset Management: Revenue and AUM are the two most important numbers for the bottom line.

When I'm speaking with an advisor, we hone in on the households that we manage with our platform. So today we manage just over 2,500 households and the reason that's important is with technology today, it's going to make it easier to serve more households. But we still need to make sure that those households get served. So watching that metric is important to make sure we're not creating any stress inside of our system.

On the advisor level, there are two numbers an advisor should look at. One you can count, and one has a lot more subjectivity to it, but it's just as important. The first is to rank your clients by revenue and find that group that produces the first half of your total revenue. It's usually a surprisingly small group, 15 to 20 households in most books of business.

Then take the average revenue in that group, and that becomes the target revenue for a new client. That's the number that should be measured, because advisors can't control the markets, or control people passing away, but they can control the target revenue they're looking for. It's just as important to look at the next generation, because as Cerulli has told us, 70% of heirs are likely to change advisors once they inherit the money. If the advisor is really only dealing with one person in that household, they're going to end up losing that business.

That's how you can tell if you're building a business that's built to last. Claire Alexander, president, Brookwood Investment Group: We look at AUM revenue, organic growth, net new assets, and margin. But as an operator, I spend a lot of time looking at the metrics underneath those numbers that help us understand where the business is going. For me, the best metrics show us how we're performing today and help us lead toward where the business is going next.

Capacity is one of the most important things I look at. I've spent a significant part of my career studying how advisory firms grow operationally, and I'm interested in how growth translates into greater capability across the organization as a whole. I also look at technology, specifically AI implementation and adoption. I'm interested in the human capacity we are creating with that investment.

If we give an advisor five hours back, I want to understand what we're able to do with those five hours. Maybe it's more time with clients, maybe it's developing another advisor or creating room for additional growth. Time saved is the efficiency metric. What we do with that time is the return.

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