Op­er­a­tion Del­e­ga­tion

Fi­nan­cial ad­vi­sors can re­duce dis­trac­tions and in­crease firm prof­its by out­sourc­ing these func­tions.

Financial Planning - - Contents - BY JOHN J. BOWEN JR.

Fi­nan­cial ad­vi­sors can re­duce dis­trac­tions and in­crease their profit by out­sourc­ing these func­tions.

Ad­vi­sors need to ex­cel in two key ar­eas to cre­ate a truly great prac­tice: busi­ness de­vel­op­ment and re­la­tion­ship build­ing.

Of course, find­ing the time to de­vote to those tasks can be a ma­jor chal­lenge. Back-of­fice prob­lems, staff is­sues and client op­por­tu­ni­ties can draw a busi­ness leader in many di­rec­tions, sig­nif­i­cantly im­pact­ing their busi­ness’s progress and prof­itabil­ity.

That said, here’s some good news. Ad­vi­sors can avoid nearly all these dis­trac­tions by ap­ply­ing the rule of Four Ds to ev­ery task, in this or­der:

1. Drop it: If there is no com­pelling busi­ness rea­son to spend time on a task, drop it. When it comes to non-rev­enue ac­tiv­i­ties, you can nearly al­ways drop them.

2. De­fer it: If you are un­sure whether a task will re­sult in a pos­i­tive ben­e­fit for your clients or your prac­tice, de­fer it. Sched­ule a time to re-eval­u­ate it, and de­cide at that time how to pro­ceed.

3. Del­e­gate it: When a task lies clearly out­side of your core skill set, del­e­gate it to a staff per­son or to an out­sourc­ing part­ner.

4. Do it: If a task falls un­der your core strengths, and if none of the pre­vi­ous three Ds are ap­pro­pri­ate, then, and only then, do it.

It’s the third D — del­e­gate — that’s par­tic­u­larly im­por­tant for to­day’s top ad­vi­sors. The most ef­fec­tive ad­vi­sors del­e­gate just about ev­ery func­tion that’s out­side their main tasks of rain­mak­ing and help­ing clients.

Bot­tom line: To op­er­ate at a high level that gets re­sults, you’ll need to out­source at least some of your busi­ness func­tions.

Be clear about ex­pec­ta­tions but don’t mi­cro­man­age. Al­low free­lancers to use their own ex­per­tise and cre­ativ­ity to achieve high-qual­ity re­sults.

Out­sourc­ing is crit­i­cal be­cause it al­lows you to do more of what re­ally mat­ters: build re­la­tion­ships with your ex­ist­ing clients and start re­la­tion­ships with new ones.

Af­ter all, spend­ing time with clients can have a real im­pact on your in­come. Ad­vi­sors who fo­cused on client re­la­tions grew their AUM by an av­er­age of 18% per year, whereas ad­vi­sors who fo­cused more time on in­vest­ment re­search and port­fo­lio re­bal­anc­ing grew their AUM by only 11%, ac­cord­ing to a 2006 to 2016 study by FP Tran­si­tions, pub­lished by the SEI Ad­vi­sor Net­work.

One op­tion is to out­source ev­ery­thing you can to a turnkey as­set man­age­ment pro­gram, cus­to­dian or other fi­nan­cial in­sti­tu­tional part­ner. How­ever, if they can­not meet all your needs, you can turn to a sec­ond op­tion: del­e­gat­ing spe­cific non­core func­tions to in­de­pen­dent providers on an as-needed ba­sis.

In work­ing with free­lancers, the first step is to de­ter­mine what you can call on oth­ers to do. Which busi­ness pro­cesses might be han­dled more ef­fec­tively — or prof­itably — by a third party, as op­posed to an

in-house staffer? We have found that the most suc­cess­ful ad­vi­sors fre­quently del­e­gate du­ties in ad­vanced plan­ning, busi­ness de­vel­op­ment, back-of­fice func­tions, com­pli­ance, tech­nol­ogy, pub­lic re­la­tions and team build­ing to in­de­pen­dent con­trac­tors.

Why these ar­eas? These func­tions aren’t fo­cused di­rectly on client re­la­tion­ship build­ing, and there­fore, they don’t add the high­est value to your prac­tice.

All of that said, in­de­pen­dent con­trac­tors can also present a new set of chal­lenges when it comes to find­ing, hir­ing and man­ag­ing them. With that in mind, here are three tips for suc­cess­ful del­e­ga­tion.

Out­sourc­ing is crit­i­cal be­cause it al­lows you to do more of what re­ally mat­ters — build re­la­tion­ships.

1. Iden­tify your needs: De­cide ex­actly which du­ties you will out­source. Pull to­gether your cur­rent costs of do­ing each func­tion in-house. Be clear on the re­sults you hope to achieve through out­sourc­ing, such as lower costs, im­proved per­for­mance, en­hanced ser­vice or over­all re­spon­sive­ness.

Next, de­fine the spe­cific skills you’ll re­quire of an in­de­pen­dent con­trac­tor be­fore you start search­ing for one. Most in­di­vid­u­als spe­cial­ize, so don’t ex­pect to find a broad range of di­verse skills in any one per­son (and if you do, ex­pect to pay very well for it).

Fi­nally, an­tic­i­pate is­sues. Take a mo­ment to think through the ef­fects on your busi­ness of del­e­gat­ing this par­tic­u­lar func­tion. Try to head off any po­ten­tial is­sues or prob­lems.

2. Se­lect a con­trac­tor: Ask for re­fer­rals. More ad­vi­sors are mov­ing to­ward a vir­tual of­fice busi­ness model char­ac­ter­ized by net­works of in­de­pen­dent con­trac­tors work­ing to­gether. Such ad­vi­sors can be a great source of re­fer­rals for high-qual­ity free­lancers with ex­pe­ri­ence in the fi­nan­cial ser­vices in­dus­try.

Next, iden­tify the most qual­i­fied can­di­dates, in­ter­view them and check their ref­er­ences. Make sure to ask ref­er­ences if they know who else the in­de­pen­dent con­trac­tor is work­ing with — and place a call to those firms as well. Of­ten you can get a more in­sight­ful per­spec­tive from ref­er­ences that have not been pre­s­e­lected by the free­lancer.

Also, make sure to con­sider how the free­lancer will fit in with your ex­ist­ing team. In­de­pen­dent con­trac­tors should com­ple­ment your ex­ist­ing team by bring­ing in new ex­per­tise and tal­ent. They should not dis­place or alien­ate your staff. Do not hire a free­lancer to over­see an in­ter­est­ing project that your cur­rent staff is per­fectly ca­pa­ble of do­ing on their own, for ex­am­ple.

Fi­nally, when choos­ing among two or three fi­nal­ists, be sure to weigh the re­la­tion­ship fac­tor in your fi­nal se­lec­tion. While ex­per­tise is key, re­mem­ber that cred­i­bil­ity and chem­istry are also very im­por­tant.

3. Make the hire: Ne­go­ti­ate a writ­ten con­tract and cre­ate a clear agree­ment that de­fines the project, de­liv­er­ables, dead­lines and bench­marks. It should spell out the billing and pay­ment process and deal with any in­tel­lec­tual prop­erty is­sues and non­com­pete pro­vi­sions.

As you be­gin work­ing with an in­de­pen­dent con­trac­tor, start with bite-size pieces. As­sign a mean­ing­ful project (but not one that is mis­sion­crit­i­cal) to assess the con­trac­tor’s per­for­mance. Hire the con­trac­tor as a con­sul­tant to put to­gether a plan for how he or she would com­plete the project in the as­signed time frame. Have the per­son talk to clients and in­ter­nal staff as ap­pro­pri­ate and then present his or her so­lu­tion to you.

Be clear about ex­pec­ta­tions, but don’t mi­cro­man­age. Al­low free­lancers to use their own ex­per­tise and cre­ativ­ity to achieve high-qual­ity re­sults. Give them ac­cess to in­ter­nal staff and re­sources as needed. Set up a clear chan­nel of com­mu­ni­ca­tion, prefer­ably with a sin­gle point per­son in your firm, so that you can be ap­prised of project progress.

And of course, pay promptly. If in­de­pen­dent con­trac­tors are dili­gent about com­plet­ing their projects in a timely man­ner, they will be jus­ti­fi­ably an­noyed if you take too much time to process their in­voices. Even worse, you might get a rep­u­ta­tion as a slow payer among a net­work of free­lancers, po­ten­tially mak­ing it more dif­fi­cult for you to bring on good tal­ent in the fu­ture.

In the end, ef­fec­tive del­e­ga­tion can free up an enor­mous amount of both time and en­ergy — al­low­ing you and your team to fo­cus on what counts most: Pro­vid­ing world-class client ser­vice.

Stay on track with busi­ness de­vel­op­ment and re­la­tion­ship build­ing. Let oth­ers han­dle the rest.

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