Are Firms Measuring the Right Things?

If you are the head of advice or financial planning at a firm, imagine that you get a call one morning from your CEO and they ask you the question: “Our client’s number one concern is retirement. What percentage of our clients are on track for their retirement goals?”

Whether this call is realistic today, it is not a big leap to say that it could happen in the near future, as more clients start to measure their own goal achievement to decide on whether to stay with their advisor. In a recent survey we conducted with heads of financial planning at 25 firms, slightly more than half the firms are tracking progress to goal at the individual client level, but only a few had the capability to answer fully the hypothetical question we posed from the CEO.

It seems reasonable that as a firm’s strategic priorities change, their performance measurements need to change.

But the bigger question for firms is “are we measuring the right things?” We know that almost all financial services firms have dashboards and use key performance indicators (KPIs) to assess is the progress being made in meeting firm-established objectives. But we also know that there have been tectonic shifts taking place in the marketplace. Many firms and advisors are moving towards more holistic advice. Cerulli estimated that 43% of advisors in 2020 were planning to offer more comprehensive plans to more of their clients. Firms, however, still have metrics tied mostly around assets under management or revenue. It seems reasonable that as a firm’s strategic priorities change, their performance measurements need to change.

Scorecards by Stakeholders

Metrics, of course, have to be aligned with the audience. Senior leadership looks broadly across the business, so revenue, expenses, net new assets, new households are all measurements that have been used at the C-Suite to assess performance and what is driving business results. But increasingly advice is now becoming the most important “product” of the firm. About a third of the large firms surveyed have senior leadership now tracking advisor adoption of financial planning. A litmus test for firm leadership today is whether they have financial planning metrics on their dashboards.

For heads of financial planning, metrics are tied to goals around planning adoption, the financial impact overall, and other non-financial measures such as customer satisfaction, net promoter score or client retention. Our survey revealed that tracking of financial plans, household progress-to-goals and satisfaction (including net promoter score) continue to be the top gauges on dashboards of heads of advice and planning.

Our survey revealed that tracking of financial plans, household progress-to-goals and satisfaction (including net promoter score) continue to be the top gauges on dashboards of heads of advice and planning.

Advisors that have adopted financial planning in his or her practice are asking for more data to improve the efficiency and management of their financial planning clients. About half the firms surveyed are providing data to advisors on which clients likely need a plan. Slightly fewer firms provide tracking for advisors on which clients have already had a plan developed for them.

And of course, the client needs a dashboard to help interpret and assess their plan. Based on our survey, firms have made big improvements in the client interface, allowing them to see how they are progressing toward their financial goals, with scorecards and also a reminder that they need to update their plan. Only about a third of firms, though, provide a summary of the changes or recommendations that have been implemented in the plan. This is an opportunity for firms to reinforce the value of planning, and make sure the client is reminded of the improvements in their financial situation resulting from the financial planning process.

Measuring Outcomes

As noted at the start of this article, there seems to be the beginnings of a trend towards more firms moving towards more outcome-based metrics and goals. Delivering more value to customers is taught in every business school. For financial services firms, we are seeing this concept take hold now in the shape of what firms are measuring and how they are setting goals. Net Promoter Score and other satisfaction measures may hint at achievement of outcomes, but they may not answer the question “how well are our clients doing?” In addition to Net New Assets or Households, we might start to see “What percentage of our clients are on track for their goals?” or “What percentage of our clients implemented their plans?”

This may also be an area for more research. If more clients are on track for their goals, does that translate into more satisfaction, better retention and more referrals? If a client has reached a goal (e.g. retirement, college education) or is consistently funding their goals, does that also have the same effect? If research indicates a link, then this may indicate that new metrics are needed.

Persistent and Predictive

How should firms be thinking about financial planning metrics to better align value (advice) with behaviors and performance of their advisors? According to a recent Harvard Business Review article, a good place to start is to make sure what you are measuring reflects the goals of the firm. If the goal is to determine whether clients receiving a plan are more profitable for the firm, then the next step is to make sure your metrics are persistent and predictive. Persistence refers to the skilled activities that your advisors are conducting when developing and delivering plans to their clients. What are you counting as a financial plan? Do a certain number of goals need to be covered to qualify? Is this happening often enough that you can draw conclusions from the data?

The metrics also need to be predictive. This means that if it works with a small group of advisors, it should work with a larger group of advisors using the same activity.

The metrics also need to be predictive. This means that if it works with a small group of advisors, it should work with a larger group of advisors using the same activity. An example of a potentially bad predictor is comparing assets under management for clients with financial plans. This number may be higher than other clients simply because advisors are only delivering plans to clients with large portfolios. In this case, this metric may overestimate the effect that financial plans have on acquiring assets. A better predictive measure may be satisfaction, retention, or propensity to implement the advisor’s recommendations.

An Opportunity to Reset

How should firms start to re-evaluate their dashboards to align with their financial planning strategy? Start with the principle that what needs to be measured should be the same as what will have the most business impact. Firms should begin with a comprehensive review of their existing metrics using a small team representing the key functional areas for the firm. Typically that will include heads of financial planning/advice, product platforms, finance, branch management, training/development, and strategy. Include some on the team that can provide a fresh “set of eyes” to ensure that there is alignment and no blind spots have been missed. An outside consultant may also be beneficial to this process.

Next, the firm needs to avoid the gravitational pull of using time-honored metrics and explore other measures. Some questions to begin with might be:

• What are the key outcomes (or business results) we are seeking from our financial planning and advice offering?
• What is the relationship of advice/planning to key outcomes (e.g. less client complaints, better client outcomes, better client retention/satisfaction)?
• If unsure, what data and/or research is needed to better understand how financial planning is linked with our desired outcomes?
• What persistent and predictive measures of financial planning/advice offerings can we say with confidence will drive business results?
• Do we have the ability to accurately capture this data? If not what systems need to be developed and put in place?
• What processes or oversight do we need to periodically review these measures to ensure they will drive business results?

As major shifts take place with more and more firms expanding their advice offerings, firms need to seize the opportunity to align their dashboards with this new reality. This may mean discarding or putting less weight on existing measurements such as Net New Assets or new Households, and adding new metrics around financial planning adoption by advisors and financial plans received by clients. What we know is that many firms are already adding these new measures to help them survive and thrive in a world where the quality of advice is paramount to clients. Firms need to re-evaluate their metrics for persistency and predictability. They need to make sure they align with the firm’s goals. And most importantly, they need to make the changes to their internal dashboards, to put their firms on a course for success.

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