Sustainability Pillar #3: Documentation of key processes

Every Wednesday since the Department of Labor (DOL) released its new “fiduciary” rule on April 6, 2016, we have published a deep dive on one of the four pillars of a sustainable advisory business. Past posts have focused on the importance of having a manageable number of client households and product inventory control. This post focuses on documentation of key processes.

Documentation of key processes

The DOL’s new “fiduciary” rule will require a higher level of documentation of

• the rationale for each client’s portfolio – to reflect the fiduciary best interest of the client
• the ongoing services delivered to the client.

Although some advisors may bristle at having to comply with "mandatory business adjustments," we believe this documentation requirement has the potential to provide advisory firms with operational benefits, and also offer a mechanism to make their practice’s “secret sauce” tangible. Done properly, this exercise can provide tremendous benefits for growth. Broadly speaking, a financial advisor's value to their clients rests on two key components: the portfolio and the relationship. Successful advisors have typically demonstrated flawless execution of both components. Going forward, we believe that relationship depth will become even more important as robo-advisors absorb the traditional elements of "value," forcing traditional advisors to move up the value spectrum to maintain their competitive position. Advisors will find they need to:

1. Know the client. (No, really know the client.)
2. Deliver value through the lens of #1.

Client experience benchmark

Within the financial services industry, the term "benchmark" is typically associated with investment performance measurement. While benchmarks can be helpful in evaluating portfolio performance, many advisors anchor their value proposition and client experience on them. For instance, these advisors typically start meetings with a conversation about the client's statement or portfolio. However, as the industry evolves and financial advisors competitively shift their value proposition away from portfolio construction toward client goals and relationships, the key question becomes: what is the "benchmark" for the client experience? The aggregation of an advisory firm’s key processes represents the "operations manual" that documents the client experience. This implementation blueprint serves as the benchmark for the client experience. As the client experience becomes a growing competitive differentiator, key process documentation is quickly becoming an increasingly strategic area of focus for top advisory firms.

"The Journey"

The ideal journey is the lifecycle advancement of prospect to client and then client into an advocate. In an industry that relies on trust, advocacy serves as the ultimate indication that the advisor is executing on the critical metric of client satisfaction. After all, satisfied clients send referrals. In our work with advisors, we've identified six key areas where the advisor needs to exhibit a high degree of execution while avoiding errors. These milestones reflect the key gates through which many successful advisors achieve above average growth.

The benefits of documenting key processes

Tedious as it may seem, documenting and continually optimizing key processes has several benefits:

1. Reduce the number of errors By identifying areas that are critical for seamless execution, the organization is able to support those areas with methods of accountability (e.g., checklists, up-to-date CRM, etc.).
2. Establish role clarity By identifying the key processes that drive the organization, the business is in a position to align personnel with the processes. Gaps in the client experience are effectively closed while areas of potential personnel overlap are largely remedied.
3. Reduce key personnel risk One of the byproducts of establishing role clarity, in particular is that key personnel risk is reduced in two ways. On the one hand, staff may be less likely to leave the organization because they feel greater job satisfaction knowing their role and the corresponding definition of success. On the other hand, if a key person does decide to leave the firm, the process documentation reflects that individual’s tacit knowledge – thereby decreasing the impact of a team member’s departure.
4. Potential for enhanced enterprise value of the firm. Detailed, written documentation of the key processes that make a firm successful has the potential to enhance the enterprise value of the firm because a new owner could relatively easily continue to deliver on the firm’s commitments to clients on the basis of the operations manual.

How can you implement? Creating and implementing comprehensive workflows involves 3 phases: discovery, documentation, optimization. Below is an example of this process applied to creating the ideal experience in a client’s first year with your firm.

What’s next

Be sure to check back next week for the final installment of our series on the four pillars of a sustainable advisory business:

1. Manageable number of client households
2. Product inventory control
3. Documentation of key processes
4. Optimized client experience and portfolios