This may well be the toughest year of your career. At Financial Planning, we have heard from many of you about the strains you’re under, and how you’re reaching out to clients and staff. But as the economy continues to slow and markets continue to gyrate, life is getting tougher. This downturn doesn’t look like it will be brief—and to get through it with your business intact will likely require more from you than proactive communication. Now is the time to look inward and study your business ruthlessly—to analyze your structure, workflow, technology and staff—and figure out how to get the most out of the business you’ve got. Then, on our pages, we’ll outline steps you can take to strengthen your business, many of which cost little to no money.

Our Special Report on Practice Management (March 2009 cover story) couldn’t come at a more opportune moment. And to start you off, we have a special, exclusive sneak peek at a powerful analysis of the most successful firms in the elite ranks of wealth management practices: Schwab Institutional’s “Best-Managed Firms: The Business of Serving Clients.”  In addition, Trish Cox, Schwab Institutional’s chief operations officer, discussed the report with me in a podcast.

To create the report, Schwab studied 647 firms that custody assets with Schwab Institutional, then ranked them in three categories: operating income percentage, revenue per professional and 3-year revenue compound annual growth rate (CAGR). The firms whose combined rankings were in the top 20% joined the ranks of Best-Managed. Schwab then went on to interview principals at 30 of these top-performing companies to get more qualitative insights about their businesses.

Interestingly enough, these were not all big firms. Some had fewer than five employees; others had 15 or more. They don’t share a structure or a philosophy about wealth management. Some outsourced money management while others considered it a specialty. What they do share: attention to their processes. This is the basic element that distinguishes a successful business from an also-ran. Process means that a business is well organized, with specific roles and rules. It’s what makes it possible to manage, to scale, to grow and to be resilient. What’s more, Best-Managed Firms document their processes so new staffers can learn their jobs quickly and well.

To make these processes work, Best-Managed Firms harness technology. They use it to create workflows that make them more scalable and productive, and better able to integrate the activities of all their staff. For instance, if all staffers have access to a client’s information through a CRM, they can coordinate investment management, planning and communication. As a result, best-managed firms serve a median of 57 clients per professional, while other firms serve a median of 42. At the same time, best-managed firms kept costs in check: Their overhead expenses amounted to 27.3% of revenues, compared to 38.6% of all other firms in the study.

What’s more, the efficiencies enabled by technology give these firms the ability to provide better, more fine-tuned service than their competitors, even as they work with larger groups of people. As a result, their rate of organic growth outstrips other firms: 19% annually versus 10%. These best-managed firms seem to have the best of all possible worlds: They’re more efficient, more profitable and ready to grow by attracting more assets from existing clients while garnering plentiful referrals. In fact, Best-Managed Firms grow 50% faster from referral sources than other firms do. Here are some of their secrets.

FOCUS ON STAFF

“All the firms we talked to said one thing in particular was instrumental to their success: outstanding people,” says the report. Hiring right was only the beginning, though. Most important was to develop clear roles and processes so firms could deploy staff appropriately. Take, for instance, the delivery of investment advice. Best-Managed Firms tend to pool their investment staff, rather than having each principal run a team that takes responsibility for his or her accounts. As a result, the firm is able to maintain a uniform approach and can delegate implementation to staffers.

But to do this effectively in-house requires a documented process that embraces technology. To execute the firm’s investment strategies and customize them for individual clients most efficiently, for example, staffers need the support of a customer relationship management system in which they can see each client’s preferences and requirements; model portfolios and trading tools; and perhaps rebalancing tools. They can then keep track of all their actions within the software.

Of course you already know that your staffers’ ability to maintain good relationships with clients is essential. But Best-Managed Firms take that one step farther, and delegate responsibility for maintaining client relationships to staffers for all but the most important occasions, such as annual meetings or to discuss major life events and transitions (for example, the sale of a business or a marriage). The result is that the firm, not the principal, is responsible for the relationship—placing more people on tap to provide quality service. Principals then become free to concentrate on strategic and leadership issues as well as business development.

Building a high-performing staff that is service oriented, willing to accept responsibility and comfortable with technology is an ongoing job. Best-Managed Firms are willing to pay for the best, and typically offer salaries in the top quartile of the pay scale. This enables them to attract and retain top talent.

PLANNING FOR THEMSELVES

In addition to working at their business, principals at Best-Managed Firms take time to work on their business. “Just as they counsel their clients, Best-Managed Firms understand that planning can help sustain the health of their own firms in economic downturns and chaotic market climates,” the report says.

How do they do it? They formulate and agree on a business strategy and share a vision of what their firm should be, as far as 10 years in the future. That way, they “align processes, people and technology to achieve both strategy development and planning goals,” the report continues. They also help keep staff accountable for results.

These firms have written growth plans, marketing plans and succession plans. Although the smallest firms may develop these plans rather informally, large firms may go so far as to hire a facilitator or coach, and even go off-site to focus completely on their mission. They track their progress carefully, with the help of technology.

Of course, the best-laid plan may come to naught if the staff that must execute it hasn’t been brought on board. Best-Managed Firms give employees specific tasks and goals and tie them to compensation. In addition, almost all the firms, even the smallest, awarded bonuses based on the firm’s overall performance.

EVOLVE STRUCTURE

The Schwab report divides the Best-Managed Firms into three stages of development, depending on size. Stage One firms typically have fewer than five employees. Stage Two firms tend to have five to 15 employees and Stage Three firms have at least 15 employees and at least $500 million under management. As firms gain in maturity and complexity, their various operations move along a continuum from Stage One to Stage Three as well (though not necessarily at a uniform pace). Processes, staffing and technology all become more sophisticated and, therefore, more efficient.

For instance, a Stage One firm may offer a standard planning procedure to all its clients. The firms’ principals may be the primary client contact and may also manage investments and construct one-off portfolios using Excel or similar tools. A Stage Two firm might use a more software-driven planning process and modify those plans periodically, and work with model portfolios that are customized when clients have special needs. This firm would assign portfolio-management tasks to junior team members, and principals would review and approve them. It will segment clients and service based on a client’s profitability and other factors, such as referrals.

A Level Three firm would use technology more extensively, and might invest in sophisticated planning and portfolio-management software with rules-based rebalancing and the like. Such a firm might produce mass-customized portfolios with special instructions for each client that are tracked via CRM software. The firm might hire dedicated portfolio managers and even a full-time CIO (who might be a principal).

At this level, an effective CRM system becomes essential. Although all the firms in the Schwab report share the goal of consolidating client information in a way that everyone in the firm can access, that task is more easily accomplished when a firm is small—you can even keep records in Outlook and paper files. As a firm develops, however, integrated software becomes necessary.