Is a Porsche 911 fast? Compared to a Yugo, yes, but not next to a Ferrari Enzo.

The same applies to your wealth advisory business. How do you know if you’re building a successful firm? Compared to what? Whom? What’s your benchmark?

Portfolio management benchmarks have been a hotly contested area for years. What’s the right benchmark? The S&P 500? A composite index? Returns vs. Style-based? Time-weighted? Dollar-weighted? Goal-based? Monte Carlo on a go-forward basis? Risk-adjusted? VAR?
The answer is not always clear and, more importantly, it depends on the objective. Are you trying to measure the alpha of an investment portfolio (we know the probability of that endeavor)? Or are you trying to measure the progress your client is making towards his or her goals?
The wealth advisory sector has struggled with this question as well. Does it make sense to solely benchmark RIAs to other RIAs? What about hybrid business models? Or firms within independent broker-dealers? What are the right measures of business health?
About 12 months ago we decided there was a better way for us. Instead of taking an accounting style approach (e.g. EBITDA, EBOC, and CAGR-centric), we asked ourselves: What do advisors need to know to make better business decisions? What are the questions they’re asking? Questions such as:

  • What are the fastest growing firms doing that I’m not doing?
  • What should I stop doing?
  • What are the levers in my business that make the biggest impact on my clients?
  • How can I continue to grow/scale my business while enhancing the service I provide?

We also wanted an apples-to-apples comparison. Comparisons shouldn’t be based on random GICS-based sectors. Instead, like-minded advisors who share a client-centric service model, asset class investment philosophy, and a desire to delegate non-client-facing activities are a natural community in which to draw some comparisons. So we launched our own benchmarking study using DFA’s foundation as a start.
What did we find? Well… you’re going to hate this. The answer is, “it depends.” And that’s the point. Depending on your “benchmark” the answer is going to be different. For the 90 or so participants, they each received a customized report comparing their firms against their peers—the more relevant benchmark.
We did identify a few themes that transcended various cuts—specifically around growth. It’s not surprising that the vast majority of firms—from sole proprietors to established multi-advisor ensembles—all see the imperative of growth. I call it the Baby Boomerang effect. As your clients retire and draw down assets, you need to replenish those to have a sustainable business.
So as we think about growth, here are a few key findings across business models, AUM segments and service offerings:

  • Help more people: Where does growth come from? No surprise—referrals. About 50% from existing clients and another 20% from COIs. And yet only one out of every four advisors has a referral program in place. For those working with us, 100% should now have a referral strategy in place based on our recently-launched client-centric referral program. And if you want to achieve growth at levels of top-quartile firms in our Benchmarking Study, our referral program should be an integral part of your growth plans.
  • Define revenue goals: We tell our clients to have SMART goals. But as an industry, we’re the classic cobbler’s kids. In our study, the top quartile firms realized 143% of revenue growth vs. the bottom quartile if they had quantifiable revenue goals. After all, you can’t manage what you don’t measure.
  • Get out there: Over 50% of the top-growing quartile participates in community-based (philanthropic, fraternal, industry) organizations vs. 18% for the lowest quartile.

Our next benchmarking study will kick off in the fall. If you work with Loring Ward and you’d like to participate in the 2014 study, email me and we’ll setup a time to ensure you’re tracking what’s important.


Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission and is unaffiliated with LWI Financial Inc.
LWI Financial Inc. (“Loring Ward”) is an investment adviser registered with the Securities and Exchange Commission. Securities transactions are offered through its affiliate, Loring Ward Securities Inc., member FINRA/SIPC. IRN R 14-198 (Exp 3/16)