One of the central themes I teach in my Finance course is the need for companies to be as efficient as possible. Some industries have the luxury of easily defining and measuring their efficiency, while others do not. For example, car manufacturers will examine how long it takes to build the car and how long it takes to sell the vehicle (production vs. distribution). Home Depot wants to sell as many screwdrivers as possible, as quickly as possible, and they constantly gauge their inventory turnover.
So how do we measure efficiency in the Financial Service industry? As mentioned earlier, there are two facets to any business – production and distribution. Many threads exist from each of these, but any business is basically broken into these two activities (creating inventory and selling inventory).
In the Asset Management business, the creation of a product is often reliant on regulatory issues. An idea of a product comes about, the Board approves it, then it goes to the SEC for their approval, and eventually, it strikes a NAV. It is challenging to create efficiency when any government agency gets involved, given you are dealing with their rules and regulations. After production is complete, the distribution activity is needed. How quickly and efficiently can we raise assets based on our inventory?
I recently gave a speech where we discussed efficiency among sales teams, and here is one observation: On average, it takes approximately 10 “touches” before an FA commits to doing business. For clarification, a “touch” is defined as a personalized interaction between the wholesaler/internal and the Financial Advisor. These touches do not include mass emails sent by your firm. On average, these 10 touches are broken down into 6 by the wholesaler and 4 by the internal (yes, we got that granular). Another clarification is that we defined “doing business” as a commitment of more than $100,000 invested in the underlying investment. Then we started to look at this model through an efficiency lens. Specifically, why we’re the most successful wholesalers able to generate new business in 8 touches, or even 6 touches. I can pretty much guarantee you that the most successful wholesalers within any organization operate with this type of efficiency.
When you look at the characteristics of these uber-efficient sales individuals, you tend to notice some of the same qualities.
- They are meticulous in their scheduling/rotation.
- The internal and external are in constant communication (what was said at each meeting, what is the follow-up, etc.)
- They keep a pipeline report to gauge future success which helps determine future activities.
- There is consistency in their messaging. They rally around one product trying to create a “beachhead” because they know it will be contagious as interest grows.
- They realize that this is a game of frequency and do not spend time wasting their activities on people that are not going to be included in their pipeline report.
- They ask for the order and constantly ask for referrals.
While these activities might seem easy, they have to be perfected and operated with precision. If you have ever watched a Formula 1 race, you understand this concept. Every racer basically has the same car, but the winner is the one that operates most efficiently by racing each lap as quickly as possible. I would encourage everyone to track/measure their efficiency and become more self-aware of how they are conducting their activities in an effort to shorten the sales cycle.