How to Increase NOI In Your Advisory Practice • Financially Simple


As an advisor, you understand that the success of your practice is largely determined by your ability to generate revenue. However, generating revenue is not enough to ensure long-term profitability. You must also manage your time and expenses effectively to increase your net operating income (NOI) and ultimately, your bottom line. In this entry, I’m discussing how to increase NOI in your advisory practice, so you can work toward the eight-figure exit.

Follow Along With The Financially Simple Podcast!

This week on The Financially Simple Podcast:

  • (1:13) The Productivity Paradox

  • (4:27) Define Your Success

  • (6:34) Resources Allocated Per Service

  • (8:34) Concentration Risk

  • (10:05) Lifetime Value for Each Offering

  • (12:11) Average Revenue Per Client

  • (13:11) Direct Cost Per Service

  • (14:52) Time Per Service

  • (23:02) Begin Implementing

Defining Your Services

When we first set out in our firms, we’re often willing to work with anyone who can fog a mirror for the sake of building a book of business. Therefore, many advisors cast a broad net by offering many services. But how are you to grow your NOI if you already don’t have enough time to handle the services you’re currently offering? To provide value to clients and grow your business, it’s essential to define your most profitable services and narrow them down. So, let’s look at some industry data to see if it provides any clues on how to increase NOI in your advisory practice.

It’s no surprise that the 2022 Fidelity RIA Benchmarking Study, revealed that RIAs with less than $1 billion in assets under management (AUM) offer a wide variety of services to their clients. What’s interesting is the number of RIAs who include each service in their overall BPS fees. Here are a few of the most common examples.

  • Financial Planning: Offered by 96% of RIAs with <$1B AUM. (81% include this service in their overall fee). Client usage = 100%
  • Portfolio/Investment Management: This service is offered by every participant in the study, with 94% including it in their overall fee. Client Usage = 80%
  • Risk & Insurance Planning: Just 64% of RIAs surveyed offer this service. Only 43% of them included the service in their overall fee. Client Usage = 75%

While these are the three most common services being offered by the study’s participants, it’s important to note that client participation for each offering saw considerable disengagement from top to bottom. Therefore, you must consider how many of your clients engage in each service and structure your offerings to meet those needs. For example, if the majority of your clients engage in financial planning, allocate more resources to that service.

Allocating Resources

When I first joined WealthSource, they had a financial planning department but it was not profitable. We had to make some major overhauls to get it to a point where it could be profitable. We had a service but the resources required to offer it were eating into the revenue it generated. Quite frankly, it’s not uncommon. I’ve spoken to many advisors about this and I often hear things like, “Well, it’s just our loss leader.” But I don’t agree with this sentiment. Why can’t we be profitable with each offering? If we’re going to make an offering, do we really want it to lose money? Which of your service offerings requires the most resources?

Friends, to optimize profitability, it’s crucial to allocate resources effectively. Start by determining your average revenue per client (ARPC)—topline revenue divided by the total number of clients—and the services they engage in. The same benchmarking study I mentioned before found that firms with less than $1 billion in AUM had an average client size of $1.5 million AUM in 2021. The study also reported that the average annual revenue per advisor for the same size firms was $762,000.

Next, you’ll need to determine what percentage of your annual revenue comes from each service to understand where to allocate resources effectively. Going back to the 2022 Fidelity study, firms between $250 million to $499 million in AUM had a median ARPC of $10,000. By focusing on the services with higher revenue percentages, you could increase your ARPC and improve profitability. Simple, right?

Direct and Indirect Expenses & Time… Your Most Valuable Resource

As the old children’s song says, the hip bone’s connected to the thigh bone. In other words, each time you adjust one area, it’s going to affect another. Therefore, you must also consider your firm’s direct and indirect costs. Direct costs include things like specific technology, licenses, and continuing education courses. In contrast, indirect costs include utilities, website and email hosting, and marketing expenses. In short, you have to spend money to make money. But how do your direct/indirect expenses compare to those of your contemporaries?

The Fidelity Benchmarking Study reveals that independent RIAs with less than $1 billion in AUM spend an average of 30% of revenue on indirect expenses and 49% on direct expenses. Why is this important? Knowing each of the metrics I’ve discussed will provide a clear snapshot of your firm’s financial health. In doing so, you should be able to identify areas that are dispensable or out of alignment. The leaner and more efficient your operation, the greater your potential throughput can be.

With that in mind, you must also realize that your time is an incredibly valuable resource. After all, we began this post by saying you didn’t have enough time to give your clients the attention they deserve. According to industry thought leader, Michael Kitces’ blog, the average advisor spends 46% of their time on middle office tasks like plan and meeting preparation, client servicing, and office administrative tasks. By understanding the percentage of your time spent on each service, you can take action to maximize your time and improve efficiency.

Changing Your Business for Optimal Profitability

To optimize profitability, consider changing aspects of your business. Start by reviewing options to decrease costs, delegate tasks, and limit service offerings.

Decrease Your Costs

Decreasing costs can improve profitability. This may seem like a no-brainer, but it’s easy to lose track of indirect or “overlapping” costs. This is especially true when dealing with multiple tech platforms and licenses. Consider technology alternatives to reduce costs. This could mean conducting an audit of your firm’s current tech stack and removing overlapping technologies.

Conversely, you may find that investing in greater automation cuts operational costs by enabling you and your team to focus more on revenue-driving tasks. The Fidelity report noted that firms that identify as “tech embracers” spent 3.3% of revenue on technology in 2021. The report went on to say, “These firms have maintained higher growth rates in terms of assets under management, overall revenue, and clients.” Embracing technology can help you manage responsibilities effectively and do more with less.

Delegating Tasks

As the financial advisor in your firm, your time is extremely valuable. Perhaps it’s time to delegate some of your workload to your team. Delegating tasks can free up time and improve efficiency. If your team is already at capacity, consider hiring a virtual or part-time assistant to handle administrative tasks or hiring a full-time employee to manage certain aspects of your business. Again, there’s a fine line here, because by delegating tasks, you can focus on revenue-generating activities like meeting with clients and further developing your business, but you will also increase your costs.

Limiting Service Offerings

Going back to the first section on defining your services, use your findings to limit your firm’s service offerings. Focus on your most profitable services and eliminate or reduce the less profitable ones. This strategy allows you to specialize, becoming an expert in certain niche markets. To determine which services to keep and which to cut, review your clients’ engagement with each service and evaluate the revenue generated. You may even think about updating your marketing and sales strategy to direct customers to the services that are most profitable for your firm.

Implementing Changes

Folks, change is hard. Implementing changes to decrease costs, delegate tasks, and limit service offerings requires a plan. You can begin by determining the time and resources you and your team will need to make the changes. For example, if you’re planning to implement new technology, consider the training needed and the capabilities for future efficiencies. Likewise, if you plan to delegate tasks, determine if you need to hire someone, whether it be a virtual or full-time employee, and how you will design a system to ensure they are taking a burden off of you. Finally, if you plan to limit service offerings, determine the best method to do so, such as setting an account minimum or packaging services.

Once you have a plan, put it in writing. I can’t stress this enough. If your plan isn’t written down, it isn’t happening. After you’ve devised and written the plan, communicate the changes to your team and your clients. Make sure everyone understands the changes and how they will benefit the business. Be prepared for some pushback, especially from clients who may be losing a service they enjoy. However, by explaining the reasoning behind the changes, you can help them understand the benefits of the new strategy.

Wrapping Up…

Friends, knowing how to increase NOI in your advisory practice without burning out requires a deep understanding of your business, clients, and services. By reviewing your current offerings and making strategic changes, you can improve profitability, focus on your most profitable services, and become an expert in your field. While change is often difficult, implementing a plan and communicating the benefits can lead to long-term success for your firm.

Look, I know life is hard. Especially when you’re disrupting everything in your firm. But life is good, and growth often comes through disruption. Growing an independent RIA can be frustrating, but it doesn’t have to be. By following the steps on how to increase NOI in your advisory practice, you can make approaching the eight-figure exit at least financially simple. Hey, let’s go out and make it a great day!

Would you like to know more about how you can maximize efficiency and drive growth in your firm? Reach out to our team. We’re here to help!

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