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Using The Pareto Principle to Maximize Advisor Efficacy

Terry Mullen
Apr 29, 2018

Recent years have seen a renewed interest in time and motion studies to evaluate advisor performance. Many wealth management firms now measure the type and volume of work undertaken by advisors to ensure they are prioritizing day to day activities, eliminating wasted time, and providing more personalized service to top-tier clients.

However, while it's essential to ensure advisors are focusing on productive activities, those activities must contribute to firm profitability. There is one principle that practice managers should keep in mind when applying performance metrics: the Pareto Principle.

Also known as the 80/20 rule, the principle was developed in Italy by Vilfredo Pareto in 1896. Pareto realized that 20 percent of the population owned 80 percent of the land. Through further research, he found that this also applied to wealth, as well as other areas of study. For example, Pareto was amazed to discover that 20 percent of pea-pods were responsible for 80 percent of pea production!

This universal principle can be extrapolated to the field of practice management to maximize advisor efficacy. Practice managers should understand that 20 percent of an advisor's activities contribute to 80 percent of results. However, this fact remains under-appreciated by many wealth management firms, to the detriment of organizational performance.

In one case study, highlighted an article titled "Managing Your Priorities" in WealthManagement.com, a North American wealth management firm was concerned about how advisors and staff were prioritizing their time. They conducted a two-week time and motion study to "Determine the clients who are requiring the most time and attention on a frequent basis and compare the time required to the revenue generated."

At the end of the study, they discovered that smaller clients, who had no influence or potential, usurped approximately 70 percent of their time. Within a month, a majority of those smaller clients were jettisoned, and the firm started to revise it's client segmentation and service models to focus their energy on clients who are generating the most revenue and profitability.

In another example, a large British insurance company applied time and motion metrics to its customer service employees. Any work performed by administrative staff got logged automatically, and any time spent on non-core work activities (such as meetings) recorded as "unmeasured." Crucially, time spent dealing with employee complaints contributed positively towards these performance metrics.

With employees under pressure to achieve stringent productivity targets, it made sense for them to concentrate on unmeasured tasks to account for as much of their working day as possible.

Employees were scored primarily on the volume of work completed rather than accuracy, so inevitably, work quality decreased dramatically. Because employees focused on quick, easy tasks, their performance metrics rose at the expense of priority work.

This working method inevitably led to an increase in customer complaints. However, with these cases contributing to an employee's performance rating, there was no motivation for staff to consider customer satisfaction.

A vicious cycle developed where the time spent on complaint cases reduced the time available for crucial work, further damaging the customer experience. As a result, the company in question was voted in polls as the fourth worst regarding customer satisfaction in the UK.

So where did it go wrong? The company measured the wrong thing, placing the onus on the employees' busy-ness instead of ensuring that their work was contributing to a positive outcome.

Had the managers applied the Pareto Principle, they would have used the metrics to establish which 20 percent of activities contributed to 80 percent of positive customer experiences. Rather than being punitive, the parameters should have helped employees to prioritize their tasks efficiently, placing quality over volume.

The Pareto Principle is universal. It is impossible to remove the 80 percent of tasks that don't make a real difference; the filing still needs to get done, after all. However, merely being aware of the principle can help practice managers to encourage advisors to prioritize the work that makes the difference. Managers should ask themselves specific questions: Is another long meeting necessary or productive? What are the tasks that contribute to the success of the firm? Are advisors being forced to undertake pointless busywork at the expense of work that matters? Is volume or quality a priority here?

The Pareto Principle shows that a critical assumption of management may have always been wrong. It isn't hard work that gets the results, but the right work, at the right time, in the right place. A more enlightened approach to practice management should re-evaluate the nature of work and the relative value of each task to the organization's aims. Performance metrics should incentivize advisors to focus on results and the functions that contribute towards success.

Make Your Life and Your Business More Efficient with the 80-20 Rule

Via Salesforce

More articles related to: Practice Management

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