Love them or hate them, performance benchmarks are how financial industry firms evaluate themselves against each other. It's also how they compare you to your co-workers.
The reliance on benchmarked data varies within the industry. The big four tend to generate the most detail in their rankings, and they attach more consequence to the outcomes. They measure not only production and assets, but also percentage fee-based growth, growth of large accounts, participation in favored products and so on. The quintiles for each category are then broken down into subgroups so you can be judged against your colleagues who have a similar number of years in the industry.
Thanks to powerful technology and information management capabilities at advisory firms, management can now slice and dice performance data in more ways than you can imagine. As ludicrous as some of these slices seem, in the final analysis, your rankings are important because firm assets are frequently shared based on one's standing in those benchmark reports. Workers who rank in the first quintile in significant categories such as production and assets often get preference on account distribution, sales support, syndicate allocation and other factors.
Meanwhile, benchmarking at boutique, regional and independent firms is often less fraught with consequences. Advisors know their standing, but these organizations tend to be less enamored with the process and don't peg their advisors' treatment or promotions to them as frequently.
Regardless of the approach your firm takes, benchmarking is intended to fuel the competitive spirit by letting you know how much more you must do to move to the next level. It evokes that old corporate axiom that if you want to improve behavior, you must first measure it. So, if you want to improve and move to the next level within your company, those reports provide a statistical view of best practices. The more competitive advisors tend to use these reports as marching orders. They are the same folks who always know their asset count. The advisors who don't perform as well against benchmarks, not surprisingly, tend not to like benchmarking very much.
As effective as benchmarking is in fueling a competitive spirit, it does have several drawbacks. Firms have a very difficult time assessing how advisors are performing with their individual clients. It's easy to measure the quantity of one's work, but how could firms benchmark quality? Some would say that investment performance should be the ultimate benchmark, but many factors cloud this reading. The returns most advisors generate in customer accounts are greatly influenced by the unique profiles and demands of their clients. It is inappropriate to measure and compare specific account rates of return. Many firms attempt to assess investor satisfaction through customer surveys, but that method tends to measure popularity more than performance. This is an area where even the biggest firms still struggle to find a suitable measurement metric and accompanying benchmarking tools.
Benchmarking also falls short because firms normally only give their advisors benchmarking data that compares the performance metrics of advisors who work for the same firm. You'll be able to see how you compare to everyone you work with, but you'll have no idea what the industry-wide standards are or how your performance would compare.
The truth is that most firms have this information. They just aren't sharing it with you. Firms often employ outside vendors to benchmark themselves against their competitors. They hire companies like McLagan, a management consulting firm, which produces performance-benchmarking studies comparing financial firms to their peers all the way down to local markets. However, firms rarely share this treasure-trove of industry information with advisors.
Why the mystery? Perhaps firms are reluctant to make their advisors aware of inter-firm comparisons. They want advisors like you focused on how you are doing relative to others at the firm, not compared with the entire industry. But advisors need this information. If for no other reason, you need this data so that you can properly evaluate your worth in the marketplace as a whole and make the changes needed to keep yourself marketable and attractive to prospective suitors (which may also be another reason your management doesn't want you to see it).
Searching for Data
With that in mind, Carlos Skertchly and his partner Scott Barnett founded CareerNumbers.com, an on-line benchmarking service that lets financial advisors anonymously compare their career numbers to those of groups of colleagues from many firms. Both men have backgrounds in financial services and founded the company to "empower professionals with better information and more transparency," Skertchly says.
Skertchly, who formerly worked in analytics at Sanford C. Bernstein, points out that most of us have no trouble finding all sorts of relevant data when buying a car or even a book. However, "when it comes to one of the most important components of my life, my career, I have consistently struggled to find the information I needed to make an informed decision," he says. His mission is to solve this problem for others by sharing data.
The site started out offering performance benchmarking data from the insurance and legal professions, and has now expanded into the financial advisor space. There is no cost to join other than submitting your own numbers. The site lets you compare your results to a community representing a cross section of firms and locations. You will see where you stack up in all the familiar categories, but will also have the opportunity to analyze your payout.
Once it reaches critical mass (the site has gained around 4,000 advisors since it launched in November 2012), advisors in cities small and large will be able to access the missing crucial piece of performance benchmark information that their management has been keeping for themselves. With increased transparency, you will be able to manage your career across the entire industry-not just within your current firm. It will be a welcome change for advisors, but one maybe not so welcomed by firm management.
Bill Willis is founder and president of Willis Consulting Inc.,
a financial services recruiting firm based in Palos Verdes Estates, Calif.