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Standardization Can Boost Profitability of Advisory Firms: Report

By Ming Li September 29, 2020

With challenges brought on by the Covid-19 pandemic and the ensuing economic downturn, standardized service for clients by advisory firms can help with profitability, according to a recent report.

“The possibility of a prolonged economic slowdown heightens the importance of identifying more efficient ways to deliver service and thereby lower costs and maintain profitability,” TD Ameritrade Institutional writes in the report.

“Standardization around clients and services is often one of the more effective ways for firms to improve efficiency … The more a firm can limit exceptions to client and service standards, the greater the prospect of efficiency and productivity,” TD adds.

The report contains findings from a survey of 345 advisory firms TD conducted from February to April. The survey respondents have been in business for at least 12 months and generate a minimum of $100,000 in annual gross revenue and serve individuals or households as primary clients.

Most, or 78%, of the respondents are RIAs. The rest are primarily RIAs with other business activities (13%), independent broker-dealers with financial planning RIAs (3%), IBDs with insurance firms (2%), pure IBDs (2%) and other firms.

While more standardized service delivery can lead to greater efficiency and profitability, advisory firms are most concerned about keeping clients happy, the report notes.

Only a few of the survey respondents see efficiency or profitability as the primary factors to decide the way they provide services. Client satisfaction is the primary driver for this in more than four out of every five firms, the survey shows.

About 49% of the respondents said their main motivation for client servicing is to adequately meet client needs. Another 33% said they are driven by upholding the quality of the client experience.

TD points out that standardization would not necessarily hurt client satisfaction. Standardization can also be achieved by having a defined clientele target market, TD notes.

"With a defined target market, a firm’s client base becomes relatively homogeneous with most clients having similar needs,” TD writes in the report. “Focusing on one client type allows the firm to better standardize service delivery across all clients and benefit from accompanying efficiencies as a result.”

Each client who meets the target profile receives a suite of services that is uniquely tailored to their needs, according to the report.

“The situation can often be a win-win for both the clients and the firm,” TD notes.

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Tags:  Client retention , Portfolio management , TD Ameritrade Institutional

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