Mark Farris, FCSI, CFP investment advisor, Farris Wealth Management Group, Richardson GMP, Calgary
$200 million; 120 households
Professionals at or near retirement. With the exception of one (who’s in all fixed-income), our clients are in balanced portfolios.
8% insurance and legacy commission- based
The firm takes 50% of every dollar of revenue, which is augmented by equity ownership and an additional performance-based equity program based on annual revenues.
Of the 50% that goes to the firm, I get back 5% in salary support. It’s a dollar figure based on revenue, in multiples of $1 million.
I have four team members: one responsible for wealth planning; two responsible for client administration; and one who assists me with portfolio management. They’re my most important assets, so I make sure they’ve got the best possible compensation packages.
Aside from a competitive base salary, I’ve added on the following:
- Percentage of revenue on a monthly basis
- Shares based on a stock participation plan
- $2,000 professional development budget (conferences, continuing education)
- Matching on group RRSP contributions (firm matches 50% for every dollar; I match another 50%)
- Flex time, an open vacation policy, time off for exam writing, and time off for volunteering
These extras take up 15% of each dollar, over and above the salary support.
Client appreciation events; seminars and workshops; advertising and marketing campaigns; meals and entertainment; and general office expenses take 5%.
So my take-home is about 30% before taxes, aside from other business development activities. It could be 27% to 28% in some years.
The firm also gives back 0.4% of each dollar toward business development costs, which I must match (and can exceed) because that account is based on pretax dollars. I use that money for workshops, marketing, going to conferences, licensing requirement costs—I have no trouble spending every dollar.
How costs translate to fees
I’ve been using a CRM for the last 15 years to review client profitability. I can find out how many calls, action items, and meetings we had with each client. We assign a dollar cost to each of those things based on who does that activity and their compensation level. Using that information, over the last four years, we’ve reduced our households from 250 to 120.
With the remaining 120, we’ve segmented them into different service models and I have a minimum relationship of $1.5 million. The only pricing model that covers all basic costs regardless of client size is a tiered fee schedule. Fees range from 1% to 2% depending on asset levels.
How costs translate to growth
We haven’t had much luck with referrals from centres of influence, and we don’t spend a lot on marketing. Instead, we’ve grown our business two ways. We get referrals from existing clients and we’ve purchased a practice from a like-minded retiring advisor within the firm.
She approached me four years ago, and after two years of working with her and meeting her clients, I bought her practice. It’s now about 25% of our total book.
I’m currently paying her 9% of each dollar over 48 months (with no down payment), so I’m taking home 21 cents for the next while. Managing those files is also partly why I hired my fifth team member.
The opportunity to buy a book doesn’t come around every day, so having a clear understanding of my expenses gave me the confidence to proceed.
How I do it
I track costs through Quickbooks. I’ve been logging business expenses for 10 years. I give the files to my accountant at the end of the year. I could defer it all to my accountant, but I’d rather he focus on my personal tax planning. The cost for his service is less than 1% of every dollar of revenue.
We focus on cost optimization. For example, we did a client satisfaction audit. Turned out they were indifferent to our summertime outdoor client appreciation events, so we dropped them and focused on what they really wanted: education events on estate planning, tax planning, and retirement income.
They cost roughly the same, and I run those activities through my business development fund.
If you know your profit margin, you can build up a cash buffer and divert it toward business development as needed.