Tuesday, August 26, 2014

How many new financial plans and clients can a financial planner take care of in a year?

I’ve always had a rather altruistic view concerning the role and purpose of financial planning. In my opinion, a financial plan is a tool to determine the most prudent course of action. Just as a physician orders various tests to assist in the diagnosis, I consider the plan as the instrument which directs my recommendations. Therefore, I rarely render advice before I review the results of the plan.

I would hope that the majority of financial planners share this paradigm. I would also contend that there are several who do not and use the “financial plan” as a tool to increase product sales. The difference depends on the focus of the individual advisor. Either they are sales driven or advice driven. You cannot act in one fashion and profess another, although many do.

The issue becomes capacity. How many new comprehensive financial plans can one advisor generate in a year while still taking care of his existing clients? Remember, the more comprehensive the plan is, the lower the number will be. The general consensus at JP Morgan seems to be somewhere between 20 and 24 per year, according to an article in Investment Advisor magazine, written by Mike Patton. I would personally be hard pressed to do over 3 completely comprehensive financial plans per year and still be able to take proper care of my current clients.

Another relevant question is this. How often will you update a client’s plan? It took me several years to settle this issue, but a few years ago I decided that updating each part of a client’s financial plan every 2 to 3 years, during periodic reviews, works best.  However, this can often get preempted during periods of time like the 2008 market meltdown, when a client’s needs are much different than during good times. I inform clients of this at the beginning of our relationship so they will know what to expect.

Here’s the challenge. As the number of planning clients increase, so do the number of plan updates, after a few years it can become problematic. For example, let’s assume I have 64 clients and gain 3 new planning clients each year over the next three years. In year two you have 70 updates and 3 new plans to prepare. In year three, you have 73 plans to update and 3 new plans to prepare. Each year the task becomes increasingly difficult. I am beginning to sense this so I have been trying to streamline our processes, but at what point does the ability to take new clients or keep smaller less productive clients collide?

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