The FPA and Fidelity sponsor McLagan survey of firms' revenues, pay levels. Independent advisors looking for local benchmarking information to help them set performance goals for their practices might be interested in the Financial Planning Association's (FPA) Practice Management Scorecard. The tool -- based on a study by McLagan Partners, a business-consulting division of Chicago-based Aon, and sponsored by Fidelity Investments -- identifies opportunities for improvement based on local competitor benchmarks.

"As the independent advisor industry continues to experience tremendous growth and with it an increasing level of competition, advisors are demanding access to insights that will help them grow," says Jim Dario, head of relationship management at Fidelity Institutional Wealth Services (formerly Fidelity RIA Group). "By allowing advisers to see a clearer and more relevant picture of the competitive landscape, at the local level, they can more effectively manage their practices to maximize growth and profitability."

The FPA, a Denver-based association of financial planners, says its Practice Management Scorecard goes beyond national benchmarks to provide specific local information on profit margins for independent advisories. In this way the scorecard's creator and sponsors hope to help advisors avoid the dangers of comparing their businesses to others in markets with limited correlations to their own. For example, an advisory in a fast-growing market that relies on national benchmarks may end up setting goals that, even if met, could result in the firm falling behind its local-market rivals. Similarly, firms in markets with high compensation standards that use national benchmarks to set wages could end up having to cope with unusually high levels of attrition.

For example

The report tracks statistics such as practice revenues, assets, number of clients, average client size, new assets, profitability, compensation, staffing and expenses. Participants in the study also receive their market rank on every one of these measures, to gauge their relative standing with respect to their peers.

The Scorecard finds that total practice revenue hovers around $800,000 in and around New York, but under $300,000 in smaller markets in the northeastern U.S. Nationally, net effective payouts vary from 68% in New York to 45% in the Dallas-Ft. Worth market.

There is a high correlation between high net effective payout and high productivity levels, low overhead rates and low professional compensation costs. In the New York area, high productivity can generate scale economies; in Virginia and North Carolina, high effective payout rates with only moderate productivity are the result of relatively low professional compensation costs.

On the other hand, the high overheads of southern California, the District of Columbia, and San Francisco lead to comparatively low net effective payouts. As it happens though, two of these markets -- D.C. and San Francisco -- offer up enough potential for growth to make up for high local operating costs.

In fact, of the markets surveyed by McLagan Partners, D.C. had the second highest new assets per financial adviser of the markets surveyed with over $9 million of new assets per financial adviser. New York took first place with $9.3 million in new assets per financial advisor. St. Louis -- though it's a high-margin market -- records only $3.7 million in new assets per financial advisor.

"These results demonstrate how important it is for financial advisers to benchmark their practice against relevant local peers and the limited value of national benchmarks," says Peter Keuls, head of Stamford, Conn.-based McLagan Partners' private-client practice. "Using data that is too generic can lead to erroneous conclusions and disastrous business decisions."

You can find out more about the FPA Practice Management Scorecard here. -FWR

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