Put a dozen managers and executives from financial planning firms in the same room, and before too long the conversation is likely to turn to the business issue that concerns them all: profitability. Whether they represent a one-person shop or are part of a large corporate structure, planners are almost universally challenged to serve the needs of their clients at a profit.To achieve that profitability, you must first address two other challenges - those presented by staffing and compensation. Getting the right people in place, giving them the tools to excel, and rewarding them for performance are all critical steps in achieving profitable growth.


To bring the greatest value to your team, you must hire for the future, not just to plug an immediate staffing gap. Make sure that every new employee understands your strategic vision for the future, and knows their role in making it happen.

* Recruiting. Many companies recruit by writing up a job description and then waiting to hear from individuals whose experience matches those duties. This passive strategy yields individuals who meet the bare-minimum requirements; those who apply are likely to buy into your qualifications without really buying into your firm.

Attracting the most talented professionals means creating a career track and an image of your firm as a great place to work. If you just look for an individual with experience and certification in tax planning, insurance, retirement investment or estate planning, that may be all you find. But when you present your firm as a place where those basic qualifications can grow into greater job satisfaction, personal growth, career development and reward, you'll find individuals of greater value.

Larger firms tend to attract candidates with specializations, or the desire to specialize. But specialization is a luxury that most smaller firms don't have - when you have a small staff, the generalist wins the day. Small firms are often looking for a "family fit" with a small group of associates.

* Refinement. You should expect and encourage employees to give you feedback at every possible opportunity. Managers like to think they have all the answers, but the best ideas often come from the bottom up. It goes without saying that if you're going to ask your employees' opinions, you must be willing and prepared to address any issues promptly and effectively.

* Reviews. Formalize the review process so that you have a chance to exchange evaluations every three to six months. Both sides need to look at reviews as a productive use of time, and not another task that needs to get done. Develop a system of metrics that result in an evaluation score that can be compared with others.

* Retention. One of your greatest challenges is holding onto your best employees. If you don't give them reasons to stay, they are easily lured away.

Personal and professional growth are two keys to job satisfaction and performance. Providing growth opportunities - tuition and flexible hours for advanced degree programs, professional certifications, continuing professional education - allows you and your employees to achieve your goals together.


Some firms tend toward industry benchmark studies to begin negotiating salaries, but such studies are rarely a true reflection of the market. Smaller firms may not be able to afford the national average salaries, while larger firms must be prepared to meet or exceed the averages.

One difference between large and small firms is the question of commissions. Those who pay commissions see it as a prime performance motivator, while those who don't find other ways to reward top producers.

Every firm should have a clear, written policy on accepting incentives from financial institutions, investment companies, insurance companies and others whose products and services they sell. Independence and objectivity are much easier to claim and defend when these third-party perks are forbidden or greatly restricted. As an alternative, the firm should develop its own system of bonuses and incentives to motivate and maintain focus on recommending what's best for clients.


All roads lead to the bottom line, but the path takes different turns depending on many factors, from your sources of revenue and expenses, to your fixed overhead costs and profit goals.

Ownership structure is a critical factor, since the single owner of a small firm is likely to have different profit targets than the practice that is part of a larger corporate picture. Several recent financial planning profitability studies suggest that the large ensembles are more profitable. While this may be true on paper, you have to remember that the financial statement may not reflect the true economic picture. A solo practice with a large percentage of rent as overhead may portray a less profitable practice. Further analysis may reveal that the rent is really an economic benefit of the owner, not just high overhead.

Profit margins tend to even the playing field, but even when looking at margins, you must be aware of expenses that should be input as a cost of sales (e.g., a percentage of sole-owner compensation) and expenses that should be normalized out of the cost of sales (e.g., the amount of owner's compensation attributable to managing the practice, which should be overhead).

In general, managing your profit margin requires close monitoring and evaluation of:

* Pricing. How do consulting, research, planning and referral fees break down, and which generate the most revenue?

* Clientele. Should you focus on a smaller target of high-net-worth individuals, or a larger cross-section of your market?

* Product/service mix. This is determined in part by your target market, your capabilities and resources. Services can be bundled or separate.

* Productivity. Whether you measure productivity by assets under management, revenue per person or by some other measure, every individual must contribute to the team effort.

Robert Mathers, JD, CPA, PFS, is the president and chief executive of Clifton Gunderson Financial Services. Michael Goodman, CPA, CFP, PFS, is the president of Wealthstream Advisors Inc.

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