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It's All About the Process

Gary Davis Jr. actually shows you how to spend more time with high-value clients.

David J. Drucker, 10/16/2008

It sounds so simple and yet few of us do it...step back and take stock of how our firm works. That is, do we have written processes outlining all of the key operations of the firm?

That's the question, says Gary Davis Jr. of Beneficial Concepts Group (http://www.beneficialconceptsgroup.com/) in Stockton, N.J.--an operations management consulting firm that will act as both your COO and chief compliance officer). "Whereas most consulting firms focus primarily on the audit part of the work--letting the advisor know what's not working within their business--we go two steps further by implementing solutions and monitoring our implementation."

I asked Davis about his qualifications, his work, and about career paths for new entrants to our industry.

Drucker: Where does the training and experience come from to permit you to act as a financial advisor's operations and compliance manager?

Davis: I've worked in this industry and in operations and compliance my whole career. Before consulting, I spent several years running the day-to-day operations of two RIA firms. I've got a degree in financial planning and a masters in accounting and financial management.

Drucker: Why did you feel a masters in accounting would be beneficial, given what you do?

Davis: The RIA firms I worked for were owned by advisors who were CPAs. I didn't plan it; it just worked out that way. They were using terminology and referencing philosophies I was unaware of because I didn't have a strong background in accounting.

Drucker: So you worked in RIA firms but not as an advisor. Did you ever want to be an advisor?

Davis: I always foresaw myself working in the financial services industry, and I also knew I wasn't going to be a financial advisor. I got the degrees I got in order to build the career I envisioned--that of a resource person to the industry, a role I knew would require a certain background. When I was working at RIA firms, I oversaw all the day-to-day operations, as well as compliance and investment management operations too--performing due diligence on money managers, managing the PMS systems, trading and other, related functions. I did them myself and, later, I managed others doing them. I believe that if you're going to manage anybody, you need to have good feel, yourself, for how the work is to be done.

Drucker: Do you have experience in any other types of financial service firms?

Davis: I've worked on both sides of the fence. In addition to working in RIA firms, I've spent time as the operations manager for a broker-dealer, so I understand how BDs and custodians run their back offices. I was able to bring that experience into the RIA firms I worked for.

Drucker: You talk a lot about "process." What does that mean to you?

Davis: It means workflow--the documentation and management of workflow within a firm. The workflow I was responsible for managing in those firms in which I worked is a big part of who I am and what I do today. In being accountable for the process at these firms, I had to, first, document--in writing--the manner in which the firm's workflow would be proactive, consistent, efficient and accountable. I managed the firm's technology, making sure it was used efficiently, including the use of outsource providers. And it was my job to ensure that the employees' job descriptions mirrored the documented workflow, detailing who would be accountable for what, and deciding whether the firm should hire for or outsource a particular job function.

Drucker: I'm glad to see you consider outsourcing a feasible component of a firm's workflow process. As you know, I've long championed the use of outsource partners, where appropriate.

Davis: Absolutely. But, for outsourcing to work, it's important that the firm's owners and other decision makers be committed to it. If the owner says yes, we're going to outsource, but doesn't empower the staff around it, the outsourcing will fail. Employees will find a reason why it's not working and, eventually, the outsourced work will come back into the firm.

Drucker: So take me through a typical engagement. How would you start and what would you do, exactly?

Davis: I would start with an operations audit based on the forward looking goals of the business. It's important that one conduct his audit on this basis. If the client firm doesn't have documented goals, they must get them down on paper before I can start working.

Drucker: What's next?

Davis: I look at the five key areas of a firm's operations: 1) management efficiency, 2) employee and job description efficiency, 3) workflow process efficiency, 4) technology gaps efficiency, and 5) regulatory compliance efficiency. I conduct my audit on site. I like to say it's very invasive, but it's really just like the initial planning process you would go through with a financial planning client. First, you need to get to know the client. You have to find out how, when and why the firm does what it does, and who does it--the same as you do with an initial financial plan. I also look at a firm's marketing materials. Even though I'm not a marketing consultant, I look to see if they write about "process," such as "We do XYZ" because, if I see this in their marketing material, then I expect to see documented workflow for that service. If the firm doesn't have any, then they may be overpromising and underdelivering. Two to three weeks after my audit, I get together with the client and we review my Operations Action Plan which goes over what's working in the business, what's not working, recommendations to bring all processes up to an efficient level and, at the end of my report, a plan of action I call the Transition and Implementation Plan, which summarizes all my recommendations with the order of attack, start date and due date for each item, and who's accountable for it, which is either going to be a staff person, the owner or me.PAGEBREAK

Drucker: Is that, then, the end of the audit phase?

Davis: Yes, and then we move forward into implementation where the value of what I do really comes into play. I own the plan of action at this stage. The client firm's staff reports to me. I do the leg work and act as a project manager to keep everyone on track implementing our action plan. Again, it's just like implementing a planning client's initial financial plan.

Drucker: So how does monitoring work?

Davis: In the monitoring phase, I'm acting as the firm's outsourced operations officer, freeing up the owners and senior planners' time so they can focus on high-value client relationship activity. And that's the process I follow with all of my clients.

Drucker: Your process is consistent, but does that mean you take the same approach or get similar results in each engagement?

Davis: No. I don't believe in canned or template materials because our industry is a non-standardized industry. Until all advisors get into a room and agree that financial planning and investment management will be done one way, we can't use templates. If I were to use a canned document as a starting point with an advisory firm, there's a high likelihood the owner would look at my report, say "This looks great" and put into place my recommendations. However the recommendations probably wouldn't support the firm's services, target market, or processes, and would blow up and cause problems.

Drucker: So why the strong emphasis on process?

Davis: In my mind, 90%-95% of the problems a financial planning firm may have can be traced back to process and the lack of documented processes. Many firms work in a top-down environment, meaning the staff waits for the owner to push work down to them. But these owners often can't effectively delegate or expect staff to do the work they delegate because they don't have a documented workflow process. You can't effectively delegate anything to anyone unless both you and they know how and when it's going to get done. When both parties are committed as to how it will be done, then you can delegate knowing your need to micro-manage the project will be greatly reduced. When I go into a client firm and hear from the staff that the owner is a "control freak" and won't let the staff own their work, I ask if there's a documented workflow process and, most of time, the answer is "no."

But there are other, obvious benefits to having your workflow process documented. Your firm will become more streamlined and scalable. Having a process cuts down on communication problems wherein employees say things like, "It's not my job," or "I don't know who does it," or "I'm not doing it that way." Also, having a documented workflow process is one of the key determinants of when to add staff and at what level. Firms seek growth and then become overwhelmed when more work comes in the door. That's when two things can occur: 1) growth stops and the firm no longer takes new clients or, more likely, 2) the owner throws bodies at the problem, which is just a band-aid solution. If I bring in a new person when the employees are all stressed and reactionary, six months later the firm will still have same problem. Revenue may be growing fast, but there's a great likelihood expenses will be growing equally or greater, leaving the owner scratching his head.PAGEBREAK

To fix these problems, it's necessary to follow certain rules, such as all action items must have due dates assigned to them--not "We do XYZ once a month," but an exact date, such as, "We do XYZ on the 15th of every month." Every action item must have someone accountable for it. The action items, such as calling the client or sending out necessary paperwork, must be clear. In most cases, the owner shouldn't be accountable for processes if he or she has staff. The owner might be accountable for the initial planning process or rainmaking process, but not administrative processes, because it's not the best use of the owner's time.

Drucker: Can you give us some real-life examples of what a firm's processes might look like before and after the application of these principles?

Davis: Let's say your staff mails out some account paperwork to a new client and then just waits for it to come back; that's what I call "reactionary." The staff isn't proactively reaching out after several days to ask the client did they receive the paperwork and do they have any questions. Preparation for client meetings is another example. In too many firms, the owners or lead planners prepare for meetings on the day of the meeting or even an hour before. They're running around looking for reports and trying to get prepared at the last minute. That's a reactionary, top-down process, whereas a proactive process is bottom-up. For example, every Wednesday from 9 a.m. to 11 a.m., the senior planner or owner meets with his support staff and discusses the preparation for meetings coming up that week. They also debrief about meetings that occurred during the preceding week and discuss follow-up action items. A reactionary process would be one where the advisor gets done with the client's annual meeting, he's taken some notes and, as he runs out to the door to another meeting, he drops the notes on a staff person's desk and says, "Take care of this stuff." The staff person looks at it and what needs to be done isn't at all clear. In the owner's mind, he supported his staff person by giving them the work to do, but later he gets frustrated when the work isn't done. That's a top-down reactionary process.

Drucker: We've talked a lot about processes without even mentioning technology, yet technology must play a critical role.

Davis: Sure. In most cases, we're talking about CRM systems to track workflow but, in my experience, many are flawed for this purpose. Many advisors think that by automating the process, they can put it on auto-pilot. If you outsource a task, you still must monitor it. Your firm is still accountable for the work even though it's outsourced; you're just managing the work rather than doing it in-house. In the quarterly reporting process, for example, many firms regurgitate 15 pages of stuff for each client and then fail to review it for accuracy. Anything sent to a client is marketing material that should accurately tell the firm's story, or philosophy, about financial planning and/or investment management. Quarterly reports tell a story, just like newsletters or any other client communication, so they must be looked at to make sure the story is being told properly.PAGEBREAK

Drucker: And where is the CRM's shortfall in all of this?

Davis: Let's say we give a staff person an action item in the CRM system with a two week deadline, like a standard client intake process. Two weeks comes and goes and the staff person hasn't gotten to the work, so she pushes the action item two weeks ahead. Yet the senior planner or owner is still accountable to the client for the work. The CRM isn't doing its job if it fails to notify me, the owner or senior planner, that my staff member has just caused a bottleneck in my workflow. If it doesn't tell me this, then my firm loses its ability to measure and manage--for example--the decision of when to hire more staff or outsource help. The workflow is non-accountable, in other words. You can have the best processes, but if there's non-accountability, the CRM's worthless.

Now, you can still use the technology even though it's non-accountable if you have a written process to make it accountable. That means someone in the firm looks in the CRM, say the 15th of every month, to see what action items have been pushed back, what's coming up, or what's late. Doing that makes the CRM accountable and the workflow process accountable. There's great room for improvement in this type of reporting in the technology world.

It's also important that the technology one uses allows for multiple people to be part of the process. It's rare that only one person is doing all the work required by a process. Usually several people are working on one action item so your technology must allow assignment of process pieces to multiple planners or staff. If it can't do that and the action item is all assigned to just one person, then he becomes a bottleneck.

Drucker: It's interesting to me that many people I've met over the years--and I'm now one of them, myself--choose to work in financial services but not in an advisory capacity. That's something you hear about from time to time, but not in a formalized way.

Davis: Exactly. These are alternative career paths within the industry. Unfortunately, the industry and its associations, conferences and media focus too much on only having career paths for financial planners. I saw a quote in one of our trade publications recently by an "industry expert" that said something like, "A professional is someone with an education or credential that puts them on a career track to advise clients. Everyone else is an administrator." I think this quote is offensive. According to this definition, a CEO of a financial planning firm with no direct client relationship responsibilities is administrative staff and not a professional. A Chief Compliance Officer with no client contact is administrative staff and not a professional. I am very educated in industry operations and I am a professional, yet too many advisors see people like me as expenses rather than investments. There are many people like me who want to be part of this industry but, rather than directly advising clients, prefer to provide resource support. And we have a discernible impact on the revenues of the companies we work for because of who we are and what we do. We free up the owner/planner's time so they can spend more time on growing the business. If that's the case, then I'm indirectly responsible for revenue growth in a way that has little to do with going out and finding clients. There are plenty of students getting financial planning educations who don't necessarily want to be financial planners.PAGEBREAK

Drucker: So if what you read in the trade publication is a poor definition of a professional, how would you define it?

Davis: My definition of a financial planner is that, if she is a rainmaker--normally the owner--then she's the person accountable for the prospecting and probably the initial financial planning process, as well. If the firm is large enough, it may have a second type of financial planner--someone I call an "internal financial planner" or "relationship financial planner" who has the same education and credentials but isn't directly responsible for growing the business; rather, they're responsible for managing existing client relationships. In doing that, they may cause current clients to bring in more assets because of support they're providing so they, too, are affecting revenue growth. There's a need for both types of planners in this industry. As firms look to grow, they'll look at the different kinds of support that are needed.

Drucker: Let's pursue this line of discussion...what are some of the various professional support positions people can pursue in our industry?

Davis: There are so many... operations, compliance, investment research, technology... just to name a few. One key thing if you're going to go on an alternative career path is the communications issue. Many advisors say that all the universities offering financial planning degrees are helpful because they don't have to start an employee's training from zero. But a comment I also hear frequently is that there's a big gap in communication training at the college level. Students don't learn how to listen for the gaps. Let's say a client calls and is afraid to ask a specific question, so asks an alternative question instead. The client might say, "Oh my gosh, the markets are down today; what's my account worth?" Their real question isn't about the drop in value in their account; it's "Am I going to be OK?" If you listen for this gap, then you'll answer their real question and, in so doing, you reeducate them on and reiterate your process. If you're a student not schooled in listening for the gap, you'll say something like, "Don't worry, we're long term investors."

Drucker: So, you pick an alternative career path...how do you get educated in your support specialty?

Davis: I made my own path and educational process. I knew I wanted to be a chief operations kind of person and, as I learned more about compliance, I knew I wanted to do that too. I like to solve problems; I'm a detail person. But there are few credentials for operations so, if you want to get into industry operations, you can do so by working for an RIA, or a BD or a custodian or even a mutual fund in their operations department.

Drucker: Thanks, Gary, for your perspective on everything we've discussed today.

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