Why your financial performance matters now more than ever

Few advisers will state openly that they take a passive approach to managing the financial performance of their business.
They are, in many cases, advisers to their clients first and to their own practices second. On its face, that may seem like the most appropriate focus and alignment of interests — and one that could be the lynchpin of a firm’s long-term success.
But there’s one reason that advisers should be looking at the financial performance of their own businesses with the same level of detail and care as their clients’ portfolios.
Market volatility.
In case you blinked, equity markets dropped roughly 6% in May.
After nearly six consecutive months of gains, in which markets rose more roughly 25% since October lows, investors have been whiplashed again as the value of their portfolios took a significant hit. (If this feels familiar, you were probably having this same conversation with clients in late July and August of last year when world markets tanked on concerns about debts, deficits and downgrades. That, too, occurred after a run-up in markets.)
With your firm’s revenue largely tied to the value of your clients’ portfolios, these types of swings make actively managing a financial advisory business more challenging — and more important — than ever before.
Projecting when and where you can make new investments in your business is no longer something that can be done on the back of a napkin. You need to understand how your firm will perform in different market conditions and scenarios, and you also need to understand how your firm is performing relative to peers.
In short, you need to know the answer to one key question now, more than ever: Are you good, or are you lucky? Understanding this will allow you to have more consistent and steady periods of financial performance.
To measure your firm’s performance and identify your firm’s alpha (or lack of it), there are benchmarking resources that are available to advisers. Here at InvestmentNews, we, of course, offer the IN/Moss Adams Financial Performance Study of Advisory Firms.
We encourage you to participate in the study, which is open until June 14. (Participate here.) Because without benchmarking your business, you’re effectively driving blind — something that few advisers can afford to do in markets that are governed by uncertainty and defined by frequent periods of volatility.
Also a key issue to remember: Benchmarking itself is a tool, not a scorecard, as Pershing Advisor Solutions LLC’s Mark Tibergien noted in this video interview after the results of the last IN/Moss Adams Financial Performance Study were released: