Greater Profitability Through Policies And Procedures • Financially Simple


Improving your Registered Investment Adviser’s (RIA’s) profitability requires a strategic approach that extends well beyond investment strategies. In fact, one often overlooked avenue lies in the realm of governing documents. Although they might not be sexy, these seemingly mundane documents hold the potential to transform your RIA’s profitability, shape its culture, and even influence your 8-figure exit strategy. In this entry, I’m going to explore how harnessing the power of policies and procedures could steer your RIA toward success.

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Policies and Procedures: Your RIA’s Governing Documents

We all want our companies to be as profitable as possible. I’ve yet to meet anyone who balked at the idea of earning more money. Yet so many business owners overlook the very areas in their firms that can drive more revenue to the bottom line. One of these areas is your RIA’s policies and procedures. Think about it… When is the last time you really gave any thought to these documents? If you’re like most, you threw them together at some point in the life of your business and haven’t touched them since (outside of mandated regulatory updates).

Of course, I know that terms like “policies and procedures,” or “governing documents” can be vague. So, what am I referring to when I use these terms? Let’s take a closer look!

Employee Handbook: Guiding New Beginnings

First, we have the employee handbook. Imagine stepping into a world where everyone speaks a different language and you’re trying to find your way. The employee handbook is your RIA’s guidebook, for all new team members. In fact, Betterteam says, “An employee handbook helps new employees learn about the company rules, policies, culture, and values. It will also help protect the company from legal issues.” Friends, this invaluable resource not only fosters a seamless integration for new employees but also safeguards your company against potential legal pitfalls.

Compliance Manual: Navigating Legal Waters

Next, we have the compliance manual. In the intricate landscape of federal and state securities laws and regulations, a compliance manual acts as your RIA’s compass. Law Insider defines it as “a compilation of compliance policies and procedures developed by the company in accordance with federal and state securities laws and regulations.” This “compilation” doesn’t just ensure compliance but also plays a pivotal role in creating a culture of compliance while protecting your RIA’s reputation and client trust.

Company Policy Manual: Beyond Employee Handbooks

Finally, we have the company policy manual. Some of you are thinking, “Justin, we’ve already covered the employee handbook.” Well, although there are similarities, there are also some key differences. You see, the company policy manual is your RIA’s comprehensive reference text. According to the Society for Human Resource Managers (SHRM), the company policy manual is “a comprehensive text that details every aspect of company policy, the procedures for following those policies, and the forms needed to complete each process.” In short, this manual is your managerial toolkit, ensuring consistency and efficiency in decision-making.

Influencing Profitability: Connecting the Dots with Clear Expectations

Now that we understand the policies and procedures that make up your RIA’s governing documents, Let’s take a closer look at how they benefit your organization.

Profitability: Laying the Foundation

Efficiency is the heart of profitability. Your governing documents set the stage for efficiency by establishing clear expectations. These documents should be your employees’ go-to resource, helping them navigate their roles and responsibilities. Instead of feeling adrift without guidance, they should confidently refer to the manual. This sets the groundwork for streamlined operations.

Your 8-Figure Exit: Beyond the Horizon

Remember, friends, the entire purpose of this series is to provide you with a pathway to the eight-figure exit. The intrinsic value of your RIA plays a pivotal role. One key factor? Profitability. When your RIA operates efficiently, your profitability margin increases. This enhanced profitability can significantly boost the value of your RIA, making your exit strategy all the more enticing.

Ensuring Efficiency: Reinforcing Key Policies and Procedures

Efficiency hinges on proper communication and implementation. As a financial advisory owner, you play a pivotal role in this process. Continuous reinforcement of key policies and procedures is paramount. It’s not just about handing over a manual to new hires; it’s about embedding its principles into your RIA’s DNA.

Crafting Expectations: It’s More Than Just Words

Setting expectations is the bedrock of success. As Luanne Tierney, CMO of Betterworks, aptly puts it, “Setting expectations for your employees is vitally important. Without set expectations, employees may be left to wonder where their impact lies and therefore fall behind.” Detailed job descriptions, values, and outcomes create a roadmap for achievement. Values, in particular, cultivate a transparent, motivated, and communicative culture.

Strategies for Success: A Proactive Approach

Getting your employees to read the manual might be a challenge. In fact, a 2020 study by XpertHR revealed that 60% of employees avoid reading the employee handbook. Similarly, the study found that 57% of employers find it difficult to train managers to enforce the reading of the handbook. So, what can you do to ensure that your team reads and understands your policies and procedures?

Host group reading sessions during onboarding, offer incentives, or incorporate quizzes to engage them. Additionally, you could utilize annual review meetings as an opportunity to review governing documents. This reinforces compliance, aligns your team, and keeps your RIA on a steady course.

Risk Management and Compliance: The Critical Connection

Rule 206(4)-7 of the Investment Advisers Act underscores the importance of formal compliance policies. Integrating compliance and operations minimizes risk and strengthens internal controls. Highlighting this point is a statement by Chris Winn of Advisor Assist.

According to Chris, “Compliance is not just about the rules and regulations, but rather enterprise risk management. There is an inherent intersection between compliance and operations. Effective firms integrate operations and compliance in various ways to enhance internal controls and weave risk management into the routine functions of the firm.” You see, regularly engaging your team with the compliance manual instills a culture of regulatory compliance, ensuring tasks are performed as expected.

Keeping Up to Date: Staying Ahead of the Curve

Regular reviews of your governing documents aren’t just about compliance; they’re about adaptability. But don’t take my word for it. Check out these statistics on the subject…

  • 69% of executives are not confident that their current policies are enough to meet future needs.
  • Only 27% of CCOs believe the compliance function has a change management process in place to identify changes in laws and regulations and to incorporate those changes into their policies.
  • And, 63% of organizations say their policy management program helps reduce legal costs and resolution time of regulatory issues and fines.

Friends, updating policies based on changes in laws and regulations is a strategic move that mitigates risk and augments your RIA’s intrinsic value.

Wrapping Up…

There you have it, folks. In the grand scheme of things, comprehensive governing documents wield a multifaceted influence on your RIA’s bottom line. They fortify risk management, enhance employee engagement, and boost efficiency, which translates to increased profitability. Moreover, their impact isn’t confined to day-to-day operations; they also shape your RIA’s value for a potential 8-figure exit.

Look, friends, I know life is hard. But life is good. Trying to make your RIA more profitable can be frustrating, but it doesn’t have to be. By recognizing your policies and procedures as the foundation upon which your RIA’s success is built, and by fostering a culture of clarity, transparency, and compliance, you can make improving your RIA’s profitability at least financially simple. Hey, let’s go out and make it a great day!

Are you ready to take a closer look at your firm’s policies and procedures? Do you need help positioning these governing documents to drive greater efficiency and profitability in your RIA? Reach out to our team to learn more about how we could help!


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