When you’re focused on your firm’s long-term growth, it’s important to have a process in place for monitoring your progress. Financial advisor benchmarking allows you to draw comparisons between your firm and your competitors, 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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What Is Benchmarking?
A benchmark is a guide for what to do (or what to avoid) to further your business growth. Benchmarking is a practice that can be applied to virtually any industry, but it can be particularly helpful for financial advisors.
The practice of benchmarking, particularly for financial advisors, involves comparing your firm’s practices or standards of performance against a set reference point. You decide which metrics or indicators to measure, and compare how things are done in your firm versus industry standards or the best practices of other firms.
There are several types of benchmarking standards or frameworks that financial advisors may apply:
- Performance benchmarking. This type of benchmarking uses key performance indicators to measure your firm’s health against itself or the industry as a whole.
- Competitive benchmarking. With competitive benchmarking, you’re looking externally and comparing your firm with your direct competitors.
- Internal benchmarking. Internal benchmarking looks within to compare performance or other metrics from different areas of the company that perform similar functions.
- Strategic benchmarking. Strategic benchmarking is external and turns the focus once again to your competitors. Here, you’re analyzing your competitor’s strategies to determine what’s proving most effective.
You might concentrate on one area of benchmarking, or take a more comprehensive approach that encompasses all of them. The type of data you plan to collect can influence what benchmarking looks like for your firm.
Benefits of Benchmarking for Financial Advisors
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:
- More clearly establish goals that are realistic, tangible and trackable
- Gain a deeper understanding of your competitors and what makes them successful
- Identify inefficient practices and procedures, and develop strategies for streamlining them
- Pinpoint new areas of opportunity or unmet needs that your firm is capable of filling
- Look critically at overhead costs to determine where you may be able to reduce spending
- Determine which growth tasks or activities are most likely to produce the biggest ROI
- Pinpoint areas in which your firm excels and set the standard for best practices
It’s natural to make comparisons in business, but there’s a right way and a wrong way to do it. Benchmarking ensures that any comparisons you make are done through a constructive lens that motivates and inspires you to action.
Financial Advisor Benchmarking Tips and Strategies
Benchmarking is easier to do when you have a checklist to follow. Here are some tips to keep in mind as you get started:
- Decide what to benchmark. You’ll first need to decide what type of benchmark to use. For example, you may choose to evaluate internal processes, competitor practices, or your firm’s products and services.
- Identify your competitors. If you don’t know who your competitors are, it’s a good idea to spend some time researching them. Look at the range of products and services they offer, who they serve and how they operate internally.
- 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.
- 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’ll need to decide what action to take, if any, as you establish benchmarks for your firm. For example, if you see that your social media campaigns aren’t going viral the way that your competitors are, you’ll need to figure out why that is and where you can improve.
Benchmarking is a teaching tool. It’s meant to help you identify your firm’s strengths and any weaknesses that may be holding you back from the level of growth you desire.
Frequently Asked Questions (FAQs)
What Is Benchmarking in Financial Services?
Benchmarking is a tool for identifying areas where your business can improve. 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.
Do Financial Advisors Need to Do Benchmarking?
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
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.
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