Close Call
If I may be so bold, “What is your close ratio?”
Assuming that “new account growth” is a component of every financial adviser’s strategic plan, one question that you should be well prepared for is, “What is your close ratio?” A response to that question other than a number is an indictment. It can be translated to mean either:
“It is right where it is supposed to be”—with a clearer translation being, “Back off!”; or “That number is not important to me!” (When either a or b from above is the non-numeric answer given, the financial adviser is stating clearly, in specific terms, “I do not know my close ratio.”)
On the other hand, a financial adviser who responds with a specific quantifiable number or ratio is confirming, “I have given this some thought; it is important and I know it!”
What does my close ratio reveal?
Advisers who comprehend the power of gathering data, formatting data into information, and, in this example, establishing growth expectations (based upon historical outcomes) are actively reducing uncertainty around achieving their goals. A close ratio rarely conveys the whole story. It should be considered on-par with Modern Portfolio Theory terms such as Beta or R-squared, since the close ratio is neither a single indicator whereby it can explain the past in its entirety, nor can it serve to predict the future.
Business ratios serve as excellent starting points and support for gauging what activities will be required of a financial adviser (or the adviser’s team) to successfully achieve a quarterly or annual growth goal.
There are a variety of data points that one can use in the calculation of close ratios. Simplistically, you should select those points that work for your business. A frequently used ratio is the number of new accounts divided by the number of face-to-face finals presentations.
As an example: If, during the prior year, you met with 41 unique prospects (who were in a purchasing mode) and 12 of them became new clients, you would have closed 29.3% of prospects. Sometimes this same scenario is expressed differently: as 1:3.4, meaning that a financial adviser has gained one new account for every 3.4 prospects he pitches (12 new accounts from 41 prospects).
How do I maximize my utilization of a close ratio?
As one might surmise, the construction of a close ratio is at best an inexact science. In the close-ratio scenario example presented above, the denominator could just as easily represent initial telephone contacts, written proposals delivered, or A-level prospects. Each of those denominator adjustments would result in dramatically different close-ratio percentages for any adviser. Financial advisers can maximize the benefit of close ratios by isolating specific functions of their account acquisition process, calculating percentages around the identified functions, and modifying the behavior to result in a favorable impact on the ratio.
Is one business ratio (measure) better than another? Absolutely. The business ratio that furnishes a financial adviser with accurate information, which can be used to improve efficiency in the office or organization, is substantially more important than a ratio that “looks good, sounds good, or feels good’ when compared to a peer group. Relative performance is something to strive for in investment portfolios, but relative performance among the lower two-thirds of financial advisers can be an adviser’s escort to extinction.
Steff C. Chalk is Founder and President of CHALK 401(k) Advisory Board, with a client list that includes corporations, nonprofits, and governmental units. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of thePLANSPONSORInstitute, he is also the co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.