The Choices That Predict Future Performance

Thursday, December 20th, 2012

by Dan Richards, Cli​entIn​sights​.ca

In the Oscar win­ning film Mon­ey­ball, base­ball Gen­eral Man­ager Billy Beane (played by Brad Pitt) chal­lenged con­ven­tional wis­dom by tak­ing a data dri­ven approach to acquir­ing play­ers for the Oak­land As. Cen­tral to his suc­cess was employ­ing sta­tis­ti­cal analy­sis to iden­tify the fac­tors that con­tribute to win­ning teams and the play­ers whose value was under­rated based on those fac­tors, replac­ing intuition.

Recently, Toronto soft­ware firm PriceMetrix released a report Mon­ey­ball for Advi­sors. Using its detailed data­base of per­for­mance by 35,000 advi­sors at a cross sec­tion of Cana­dian and US firms, PriceMetrix first looked at pro­duc­tion in 2006 for advi­sors who’d been in the busi­ness for between 5 and 20 years. It then looked at pro­duc­tion in 2011 for these same advi­sors – with a view to iden­ti­fy­ing advi­sors’ behav­iour in 2006 that pre­dicted pro­duc­tion five years later.

Designed as a resource for head offices when recruit­ing advi­sors at com­pet­ing firms, the report is also use­ful for advi­sors look­ing to max­i­mize their future pro­duc­tion. PriceMetrix looked at dozens of vari­ables, before hom­ing in on three that cor­re­lated with future production:

1.The source of revenue

It’s no sur­prise that pro­duc­tion in 2006 was strongly cor­re­lated with pro­duc­tion five years later, but PriceMetrix found that when it came to pre­dict­ing future pro­duc­tion, all income was not equal. Of the three forms of income – trans­ac­tional, trailer and fee-based – fee rev­enue was far and away the most pre­dic­tive of pro­duc­tion in 2011.

2.The pro­file of client households

The sec­ond fac­tor that pre­dicted future pro­duc­tion was the com­po­si­tion of books and the num­ber of large vs small house­holds. You could have two advi­sors with the same level of pro­duc­tion but dif­fer­ent house­hold com­po­si­tion led to sig­nif­i­cantly dif­fer­ent lev­els of future pro­duc­tion. An above-average num­ber of larger house­holds (those with assets over $250,000) led to higher future pro­duc­tion, an over­weight of smaller house­holds with assets under $250,000 led to lower future production.

3.The depth of relationships

The final vari­able that cor­re­lated with future pro­duc­tion was the depth of client rela­tion­ships; PriceMetrix used hav­ing the client’s retire­ment account and the num­ber of accounts per house­hold as the proxy for depth of rela­tion­ships. The more fre­quently that an advi­sor held clients’ retire­ment accounts and had mul­ti­ple accounts, the greater the pro­duc­tion in five years time.

As you think about your own plans for 2013, con­sider how to fac­tor the three vari­ables of fee rev­enue, focus on larger house­holds and mul­ti­ple accounts into your pri­or­i­ties for next year. To read the full report on Mon­ey­ball for Advi­sors, go to  http://​www​.pricemetrix​.com/​m​o​n​e​y​b​a​l​l​-​f​o​r​-​a​d​v​i​s​o​rs/

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Tags: Assets, Baseball, Billy Beane, Books, Brad Pitt, Choices, Conventional Wisdom, Cross Section, Dozens, Driven Approach, Household Composition, Households, Intuition, Moneyball, Profile, Software Firm, Statistical Analysis, Surprise, Variables
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Wealth Management – A Time for Change. Part 1 – Time to Play “Moneyball”

Tuesday, January 24th, 2012

If you have seen the movie or read the book Mon­ey­ball, you know the story of how Billy Beane, GM of the Oak­land A’s, who fol­low­ing a loss in the post sea­son, the loss of three star play­ers and the inabil­ity to com­plete with the “big boys” pay­rolls, hires Peter Brand, a Yale eco­nom­ics grad­u­ate to rev­o­lu­tion­ize the way tal­ent is eval­u­ated using sta­tis­ti­cal analy­sis rather than rely­ing on the “gut feel” of his scout­ing staff.

Billy Beane’s new approach helped the A’s to be a play­off con­tender and win a record 20 con­sec­u­tive games in 2002 with one of the low­est pay­rolls in base­ball. More impor­tantly, it changed baseball.

Beane took the Wall Street con­cept of value invest­ing and applied it to find­ing under­val­ued play­ers. If you watch the 2-minute clip below, you will hear Brad Pitt say “What these guys decided was we’ve got to look for new knowl­edge and we’ve got to ques­tion every­thing. They found great effi­cien­cies in the way they were valu­ing players.”

The finan­cial ser­vices indus­try has changed a lot since I became involved in 1981. It is a rel­a­tively new indus­try and strate­gies and tac­tics employed by advi­sors have changed numer­ous times over the past thirty years. Today is an inter­est­ing time to take the Mon­ey­ball approach to your busi­ness. It is time to look for new knowl­edge, ques­tion every­thing and find the inef­fi­cien­cies in your prac­tice and your industry.

Fail­ure to change may result in con­sumers look­ing for alter­nate and more tech­no­log­i­cal ways to sat­isfy their wealth plan­ning and invest­ment needs.

One clip that addresses one of the prob­lems in the indus­try is a meet­ing between Billy Beane, assis­tant GM Peter Brand and man­ager Art Howe. It is a great exam­ple of some of the road­blocks that inno­v­a­tive thinkers encounter in mov­ing for­ward with their ideas. In this scene, Billy Beane con­fronts man­ager Art Howe, who fought him and refused to imple­ment his new strate­gies by play­ing Car­los Pena at first over Beane’s choice of Scott Hatteburg.

Beane had to take dras­tic steps to “encour­age” man­ager Howe to play Hatteberg.

One prob­lem that will slow the nec­es­sary changes is the anti­quated think­ing of senior man­agers in finan­cial ser­vices. Many of these indi­vid­u­als have been advi­sors but have not been on the front lines for many years. As a result, their poli­cies reflect their expe­ri­ences dur­ing the 80’s and 90’s and mak­ing the polit­i­cally cor­rect deci­sions. Com­bine that with com­pli­ance restric­tions that dis­cour­age new approaches and tech­nol­ogy that can increase col­lab­o­ra­tion and trans­parency and improve client rela­tion­ships and the abil­ity to change becomes increas­ingly difficult.

Spend a minute or so and lis­ten to the lyrics of a song from Mon­ey­ball. As an advi­sor, you may see the neces­sity of changes but you’re “just a lit­tle bit caught in the mid­dle” and in some cases you’re “so scared but” you “don’t show it.”

It is time for change. – Time to play Mon­ey­ball. Time for a new way of thinking.

This is the first in a series of arti­cle writ­ten by Bob Simp­son, Pres­i­dent of Syn­chronic­ity Per­for­mance Con­sul­tants. Future arti­cles will address strate­gies and tac­tics to make pos­i­tive changes to your busi­ness model so you can thrive in a world of change.

About Bob Simpson

Syn­chronic­ity Per­for­mance Con­sult­ing has been coach­ing finan­cial advi­sors since 1998.

Bob Simp­son, pres­i­dent and founder of Syn­chronic­ity has been involved, directly or indi­rectly in the finan­cial ser­vices indus­try since 1981. He has been a very suc­cess­ful finan­cial advi­sor with Nes­bitt Thom­son Inc., a major Cana­dian finan­cial insti­tu­tion. Between 1981 and 1989, he built a busi­ness with more than $120 mil­lion in assets under man­age­ment and was one of the first Cana­dian advi­sors to build a team.

You can fol­low Bob Simp­son via:

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Tags: Assistant Gm, Big Boys, Billy Beane, Brad Pitt, Consecutive Games, Efficiencies, Gm, Inefficiencies, Knowledge Question, Manager Art Howe, New Approach, Playoff Contender, Roadblocks, Star Players, Statistical Analysis, Thinkers, Thirty Years, Value Investing, Wealth Management, Wealth Planning
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