The Value of Benchmarking for RIAs and Financial Advisors

When you’re focused on your firm’s long-term growth, it’s important to have a process in place for monitoring your progress. Benchmarking, which is the practice of comparing your firm’s practices or performance standards against a set reference point, can offer a snapshot of overall business health. For financial advisors, benchmarking is an opportunity to draw comparisons between firms or against the financial services industry as a whole. Knowing what to measure and how to do so can help you assess whether you’re on pace to reach your goals.

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Understanding Financial Advisor Benchmarking

Benchmarking measures an advisory firm against its competitors to gain insights that can be used to influence business decision-making. Advisors determine which metrics or key performance indicators to measure, and compare how things are done in their firm against other practices and/or industry standards.

There are several types of benchmarking standards or frameworks that financial advisors may apply:

Benchmarking Method	What It Measures
Performance	Business health and profitability
Competitive	Performance and operational efficiency
Internal	Performance and processes within the firm
Strategic	Long-term growth and market positioning

These methods serve different purposes and can complement one another. Performance benchmarking, for example, may involve comparing your firm’s revenue growth or profit margins against industry averages. Competitive benchmarking looks more closely at how your firm stacks up against similar practices, including differences in fees, services and client acquisition strategies.

Internal benchmarking focuses on your own operations, such as comparing productivity or client retention rates across advisors or offices. Strategic benchmarking takes a broader view, examining how other firms structure their businesses, attract clients and pursue long-term growth.

In a broader sense, benchmarking studies measure performance for a group of advisory firms and interpret the data collected to draw conclusions. Schwab, for instance, regularly publishes an RIA benchmarking study that analyzes the performance of top-performing firms to determine how these advisors drive growth.

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Benefits of Benchmarking for Financial Advisors

A group of advisors uses benchmarking to track their firm's growth.

Benchmarking can be beneficial for financial advisors in growth mode or advisors who simply want to understand what they could be doing better.

Developing benchmarks for your firm can allow you to establish goals that are realistic, tangible and trackable. You may gain a deeper understanding of your competitors and what drives their success, while pinpointing service gaps at your firm that could be filled with a new service offering.

Benchmarking could help with identifying inefficiencies and developing strategies to correct them. You may take a closer look at overhead costs to determine where you might be able to reduce spending. Regular benchmarking can also help you pinpoint where your firm excels and establish best practice standards for core tasks and activities.

It’s natural to make comparisons in business, which could be detrimental if you’re focused solely on surface-level differences. Benchmarking ensures that any comparisons you make are done through a constructive lens that motivates and inspires you to action.

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Financial Advisor Benchmarking Checklist

Benchmarking is easier to do when you have a checklist to follow. Here are some tips to keep in mind as you get started:

Select an Approach

You’ll first need to decide what type of benchmark to use. For example, you may choose to focus on internal processes, competitor practices or your firm’s products and services initially.

If you’ve never done any benchmarking in your business before, it may be easier to begin with a narrower scope. As you grow more comfortable with the benchmarking process, you can branch out to evaluate more areas of your business.

Identify Your Competitors

If you don’t know who your competitors are, it’s a good idea to spend some time researching them. Take stock of the range of products and services they offer, who they serve and how they operate internally. Consider how they structure their fees and which marketing strategies are working well for them.

Compare their niche to yours, the demographics of the clientele they serve and the firm’s total AUM. Gather information about their business structures and the number of employees they have to make your comparison as detailed as possible.

Your competitor list may be larger or smaller, depending on how you’ve niched down. You don’t need a lengthy list to get started with benchmarking; choose competitors that most closely align with your business. A comparison of just 5 to 10 businesses, for instance, may produce more meaningful insights than a comparison of 500 if the handful of firms you choose mirror how your firm operates.

Choose Your Metrics

The type of benchmarking you’re doing determines the metrics that you track. For instance, if you’re evaluating your firm’s social media marketing strategy, then you might look at things like engagement rates or email opt-ins. If you’re focused exclusively on performance, you’d track AUM, net profit margin, average revenue per client and client acquisition cost, among other metrics.

Any metrics or indicators you choose should be measurable and support your overall objective. Establish baselines for each metric you choose, based on historical data or industry standards so you have a framework for understanding your firm’s data.

Track and Analyze Results

Once you have your metrics down, you can begin collecting and organizing data. Analytics tools can make it easier to break the information down to identify positive or negative trends. You may also use AI-powered tools to assist with data collection and organization. Keep in mind that any AI tools you use still require human oversight to ensure the data being collected is accurate and verifiable.

As you analyze the results, identify areas that may require an actionable plan for improvement. For example, if you learn that your social media campaigns aren’t going viral the way that your competitors are, the next step is figuring out why. When you understand what’s driving key trends in your business, it becomes easier to formulate solutions for moving them in your favor.

Frequently Asked Questions (FAQs)

What Is Benchmarking in Financial Services?

Financial advisor benchmarking is the process of comparing your firm against your competitors to identify areas for improvement. Financial advisors can use benchmarking to analyze internal processes, products and services, or compare their practices to the best practices of competitor firms.

What Are Key Performance Indicators for Benchmarking?

Key performance indicators are metrics related to your business’s overall health. In benchmarking, performance indicators may be tailored to a specific area of analysis. For example, if you’re looking at how well your email marketing campaigns perform, you might use open rates or click rates as performance indicators.

Is Benchmarking for Financial Advisors Important?

Benchmarking isn’t required to run your business, but it can prove helpful if you’re interested in creating a strategic growth plan. Establishing benchmarks gives you a standard to measure your firm by, which in turn allows you to determine what changes you may need to implement.

Bottom Line

Two advisors review benchmarking metrics for their firm.

Financial advisor benchmarking can be a valuable tool for setting and refining your business goals. You can decide which area of your business to focus on first, and then adjust your strategy as you expand your benchmarking scope.

Tips for Growing Your Advisory Business

Marketing is one area you might focus on with benchmarking, particularly if you’ve been testing different tactics but aren’t seeing the results that you want. You may consider working with an advisor marketing platform to realize your goals once you refine them. SmartAsset AMP helps you connect with leads while giving you the tools you need to follow up. Schedule a demo to learn how you can use it to grow your business.
Creating written policies and procedures for benchmarking can ensure that everyone in your firm is on the same page. You may also find it helpful to establish a timeline for completing benchmarking processes so that each project has a clear start and end date. Having a written document of policies and procedures in general can help your financial advisor firm remain in compliance with all necessary rules and guidelines, as well.