In this episode of the Trusted Advisor podcast, Rob speaks with Dean Lombardo, Founder and Principal of Effortless Engagement, to discuss the concept of the profit gap, which refers to the disparity between reported profitability and the potential profitability of financial advice firms. He explores the systemic issues that lead to profit leakage, including misalignment within organizations, ineffective remuneration models, and the complexities introduced by advisor variance. Lombardo emphasizes the importance of leadership alignment, capacity planning, and the role of client services in driving efficiency. The conversation highlights actionable insights for business owners looking to close the profit gap and enhance their firm’s performance.

LISTEN

SHOW NOTES

Topics Discussed

What the “profit gap” actually measures in advice firms
Why revenue growth masks structural inefficiency
Organisational misalignment as a root cause of profit leakage
Judgment based decisions versus disciplined execution
The importance of leadership alignment and sequencing priorities
Why half finished initiatives destroy commercial outcomes
How leadership operating rhythm affects execution quality
Performance linked remuneration versus effort based pay
Why effort based incentives feel like deferred salary
Workflow complexity as a silent profit killer
Advisor variance and its impact on scale
The cost of excessive handoffs in advice delivery
The role of advice philosophy in workflow efficiency
Why advisors spend too much time on back office work
Capacity myths inside growing advice firms
When forward resourcing becomes profit leakage
What good capacity planning actually looks like
Why removing waste can be better than hiring

Episode Highlights

(Timestamps are approximate)

[00:00] – Episode introduction and guest context.
[01:10] – Dean’s background and exposure to advice firm profitability.
[02:45] – Defining the profit gap in financial advice businesses.
[04:10] – Why strong revenue often hides weak margins.
[05:55] – The illusion of growth without structural efficiency.
[07:20] – Leadership misalignment as a root cause of profit leakage.
[09:05] – Why firms agree on goals but not priorities.
[11:10] – The cost of running too many initiatives at once.
[13:00] – Half finished projects as a commercial risk.
[14:50] – Execution discipline versus judgment based decisions.
[16:40] – Leadership operating rhythm and cadence.
[18:35] – Why accountability fails without clarity.
[20:10] – Performance linked remuneration challenges.
[22:15] – Why effort based pay feels safe but performs poorly.
[24:30] – Transparency as the foundation of incentive models.
[26:40] – Workflow complexity as a hidden profit killer.
[28:55] – Advisor variance and its impact on scale.
[31:10] – Why bespoke advice delivery destroys efficiency.
[33:20] – The cost of excessive handoffs in advice workflows.
[35:40] – Advisors spending time in the wrong parts of the business.
[38:05] – Meeting data as a capacity signal.
[40:10] – Why perceived capacity shortages are often false.
[42:00] – Forward hiring as a form of profit leakage.
[44:15] – What effective capacity planning looks like.
[46:25] – Removing waste instead of adding headcount.
[48:10] – Structural fixes versus tactical fixes.
[50:05] – What firms should diagnose before scaling.
[52:10] – Common warning signs leadership should not ignore.
[54:00] – Final advice for principals focused on profitability.
[56:00] – Episode wrap up and closing remarks.

Quotes

“Profit leakage is rarely obvious. It hides in plain sight.”

“Effort-based remuneration creates expectations, not outcomes.”

“You cannot scale a business built on variation.”

“Judgment-based decisions replace discipline when alignment is missing.”

“Excess capacity feels safe until it becomes embedded inefficiency.”

“Predictability is what builds trust with clients.”

Key Takeaways

The profit gap is a systemic issue affecting many firms.
Misalignment within organizations leads to significant profit leakage.
Leadership alignment is crucial for effective execution and strategy.
Remuneration models often fail to incentivize desired outcomes.
Advisor variance creates unnecessary complexity in workflows.
Effective capacity planning is essential for scaling businesses.
Client services play a vital role in maintaining consistency and efficiency.
A clear business way helps reduce operational complexity.
Closing the profit gap can revitalize a firm’s performance.
Regular leadership meetings enhance alignment and accountability.

Resources & Links

The Trusted Adviser: https://thetrustedadviser.com.au/
Effortless Engagement: https://www.effortlessengagement.com.au/
The Profit Gap Whitepaper
Connect with Rob Pyne on LinkedIn
Connect with Dean Lombardo on LinkedIn
Follow The Trusted Adviser Podcast

TRANSCRIPT

Rob (00:00.908)

Welcome Dean Lombardo to the Trusted Adviser podcast.

Dean Lombardo (00:04.47)

Great to be here. Thanks, Rob.

Rob (00:06.392)

Great to have you on this morning, Dean. It’s bright and early for me, and still morning for you just. Being over in sunny Melbourne, you’ve had a particularly hot week last week. We did a pre-chat, and you were saying it was 45 in Melbourne last week. So it was an unusual experience, I’m sure, for Melburnians.

Dean Lombardo (00:27.818)

It was apparently, we were the hottest place in the world, and no surprise, on the weekend I had a jumper on. So that’s living in Melbourne.

Rob (00:34.322)

Yeah, that sounds like Melbourne to me. Yeah, so we’ve only recently met. I was introduced to you. We’ve both been around a long time, which seems crazy; we’ve only just met, but our mutual acquaintance, Jonathan Elliott, down at Collins SBA introduced me to you. You’ve been doing some work with the Collins SBA team. And Jonathan has been very happy with what you’ve done with them. And we were chatting, and he said, you should talk to Dean. And so here we are. So again, thanks for joining me. I’m gonna start by referencing something you’ve just published. You’ve just put out a white paper you’ve called the profit gap, and it’s got some great content in there. I’ve had a read, obviously, and we’ve talked about it. So there’s some really great insight in there, and I think a lot of people listening today who are avid listeners of the show will take a lot away from this chat. let’s get into it. You introduced this idea of the profit gap as the difference between reported profitability and what a business should be capable of. What first prompted you to explore this so deeply across financial advice firms?

Dean Lombardo (01:40.502)

Great question. think, look, as a consulting business, we’ve been seeing a consistent trend, really, across advice firms for some time now. Top-line revenue has been really strong for most firms; in some cases, I guess, at record levels, with incredible opportunities sitting within those client bases. Yet, despite all that, when we really look under the bonnet, profit margins appear to have been stuck in neutral.

Once you see that pattern across enough businesses, you start to realise it’s not a firm-by-firm issue, it’s a systemic one. And it was one that we were able to codify into what we call the profit gap, as you mentioned, and it was a way to explain and ultimately help businesses close that hidden distance, really between where they are today, but ultimately true business potential.

Rob (02:29.078)

Yeah, for sure. And many business owners are feeling busy, as you say. There’s a lot of work out there at the moment, and everyone’s feeling a bit stretched at times because of the demand for our services. And they’re feeling commercially disciplined, and yet your research suggests profit leakage is still widespread, as you just said. Why is the profit gap so hard for leaders to see while they’re inside their own business?

Dean Lombardo (02:53.578)

I think in some ways, it’s like many things in life, the closer you are to the work and in the business, it is to step away from it and really see the picture in its entirety. Certainly, from our perspective, we’re engaging with business owners in particular, most will have a sense that the business isn’t fully optimised in terms of their current position, but actually being able to solve the problem and step away from the fragmented issues that exist in the business, it can be challenging for business owners. So I think Rob, more so than anything, it’s just the ability to actually step away and see the business in its entirety.

Rob (03:35.276)

Yeah, I guess that’s what you do there, to help them from an outside perspective. That objective observer is a powerful lens to put on a business, isn’t it? Because when you’re in it, you are in the fog of war. Often, there’s so much going on it’s hard to see what someone who’s been consulting to many other businesses can see quite plainly. And you’ve really articulated that well in this latest white paper. You identify in that white paper, organisational misalignment as a foundational source of profit leakage. What does misalignment typically look like in a practice, know, inside advice firms, even the real well-run ones.

Dean Lombardo (04:09.526)

Yeah, it’s interesting when you have the privilege of actually going in and seeing the business operate. Look, fundamentally, organisational misalignment, it exists where, let’s say, leadership intent is not consistently embedded into the structures, the roles, the incentive plans, performance mechanisms, all those sorts of things that actually govern day-to-day behaviour. And what we see is that without it, individuals, and that can include the leaders, Rob. They can default to judgment-based behaviours rather than disciplined execution. I mean, we’ll see a whole host of things in practice. So let’s say there’s no defined or up-to-date strategy and roadmap. That’ll mean that KPIs don’t correctly cascade into individual, say, PDPs and even the REM model itself. There may be no organisational capacity plan in place, and that means that hiring the right roles at the right time becomes very, very difficult. And equally, the sequencing of initiatives can be challenging. And certainly, we see an effort-based approach to solving reactive problems rather than having a dedicated strategy that’s in place. So while they’re just a few examples, what we find with organisational misalignment is that ambiguity that ultimately results in inconsistent execution and fundamentally suboptimal decision-making.

Rob (05:36.492)

Yeah, I can certainly relate to what you’re describing. I mean, it’s about having a systematic way of doing things. Everyone understands that, as you say, it cascades into PDPs, but also into that, as you say, the REM model. So having everyone being clear of what’s expected and when is a huge one. And having that consistency too, isn’t it, that we’re, as you say, rather than just being effort-based or judgment-based, it’s actually based on a system everyone understands that everyone can follow.

Dean Lombardo (06:07.256)

Yeah, and when you’re multiple leaders, no one goes out of their way to do the wrong thing. That doesn’t happen. But what we have is a difference in viewpoint with regard to where priorities are in the business, where we should be focusing our attention. We’ve only got in all businesses, irrespective of size, there’s a limited amount of resources available, and where those resources should be deployed. So that ambiguity, it leads to, well, it leads to profit leakage, but largely it leads to that leakage because we’ve got individuals who again are making judgment-based decisions, and those judgments can be different.

Rob (06:45.1)

Yeah, yeah, you argue that leadership teams often agree on goals, but here’s the point about the judgment you’re making, but not on the priorities and sequencing of those priorities, or they’re not negotiable. Why is that distinction so commercially important for business?

Dean Lombardo (07:01.464)

What you find in practice, of course, is that if we commence a program of work in a journey, and we’ve got different viewpoints on priorities, we can start a particular program of work, or businesses can start that invest a lot of time, a lot of money and a lot of resources and get part of the way there before a distraction occurs and we move into another area where we perceive that we’ve got another issue we need to solve for. And the lack of continuity and the lack of alignment in terms of where that resourcing is invested, and potentially if we haven’t got the right plan and strategy in place, the connectivity between those areas, what we find when we actually again see the businesses themselves is that and execution don’t necessarily align to an outcome-based result that the business was expecting if you haven’t got your priorities in order, if we haven’t got alignment in terms of sequencing of execution, you tend to find that the problem that’s sitting in the background starts to surface, and the distraction moves across to that area. So businesses get lots of half-things done, and that normally leads to other problems.

Rob (08:15.916)

Yeah, how often do you see great firms meet as a leadership group? What’s typical in your experience of seeing firms that seem to get that alignment thing done pretty well at leadership level, which is so important, starts there and then cascades down through the organisation. How often are they meeting in a structured way?

Dean Lombardo (08:34.23)

Well, it depends on the size of the business. I don’t think there’s a one-size-fits-all approach to it. There’s the formal aspects of leadership teams coming together, and then there are obviously informal aspects. Typically, depending on again the size of the firm, we may find that leadership meetings take place, for example, on a fortnightly basis, which is really almost BAU type mechanics associated with the business itself, leading into more quarterly business-type planning, where it’s a review of the quarter itself to that particular point. And it’s also the formalising of the next quarter. In our world, as we work with businesses, we tend to work in an environment where we encourage 90-day plans that link back to a more robust, longer-term plan. It’s the prioritisation of that plan, it’s the agreed accountability towards the effort associated with that plan that’s really important, and that’s a combination of again having an operating rhythm where we’re obviously tracking to that plan, but also an operating rhythm where the leaders are moving through issues that occur within the business in an orderly way. Again, typically again, depending on the size of the business, it may even be weekly, but certainly at the minimum, it’s fortnightly, the leaders are getting together and working through things again, right through to quarterly. So I’d say the size of the business probably dictates a little bit of that, Rob, but there’s certainly an operating rhythm which is transparent, and there’s a purpose behind when the leaders get together. So they’re not just getting together and having a chat, how are we going? There’s actually a framework that those particular meetings involve and accountability measures associated with it.

Rob (10:21.42)

Yeah, I can say that I’ve got this theory, I’m keen to hear your thoughts on it. Staying aligned as a leadership group is about getting your reps up. Like at the gym, know, just train strength in anything. It’s about repetitions, basically. So if you’re meeting only monthly as a leadership group and then quarterly, you’re doing a more formal board meeting, perhaps, you’re not getting your reps up in terms of staying aligned. And so you mentioned fortnightly, we in fact meet weekly. We do it on a lunch break, so to speak. People bring their lunch in and so on, but we’re covering things on a weekly basis. But it’s about just keeping our reps up always and making maintain leadership strength, which is keeping everyone connected to what’s happening, everyone informed, and making sure we’re all aligned on the things that are most pressing in the business. So yeah, I can really relate to that. I do relate it to that sort of reps model and think that you don’t want to let that drift and go month to month to the gym. It just doesn’t quite get you the results.

Dean Lombardo (11:18.232)

I and I think that’s great what you’re doing in your business. Again, I think the size of the business and the operating rhythm need to work for that business. So a smaller business, for example, will have a combination, we’ll call it a workflow meetings and leadership meetings that sort of morph, not morph together, but they form part of a similar cycle in that weekly cycle that you described. But equally, as you get larger, when you have distinct leaders in the business, ensuring that those reps, as you describe it, are in place is important and making sure that there’s alignment to both purpose, that there are clear KPIs and accountable goals that are being tracked and measured, because it’s great to have a feel in terms of what’s occurring, but you do need data to actually support decision making and that data needs to align to agreed standards and expectations in the business.

Rob (12:13.752)

For sure. My next question is a favorite one, I think, because performance-linked remuneration models do feature heavily in your findings. This is a most vexing issue for many firms. Why do so many advice businesses struggle to design rem structures that genuinely reinforce profitable behavior?

Dean Lombardo (12:34.104)

A great question. And it’s a great question when you consider that we’re coming from the financial planning or financial services industry. You think it’d be one that we would have solved for in a way that makes sense from an industry standpoint, going back a long time ago. I think that’s a historical reason why some firms struggle with it. And most definitely in, I’d say, the majority of businesses when we first look under the bonnet. Most have at best effort-based remuneration structures rather than performance-based structures. In fact, there’s a good percentage who don’t have any structured approach to having a REM model. But I think most businesses struggle with it because there are so many options and there are so many models. And at times, a reward they may embark on a particular model which rewards effort, but it isn’t producing the result that the business owners expect. Well, they may move down a performance-based model, but actually struggle with the difficult conversations that can come from actually holding people accountable to performance-based measures. So it’s a combination of things,

Rob (13:43.798)

Yeah, I would agree, I think. Everyone listening to that one thinks there’s a lot of people that would be, and I’ve been in study groups and participate regularly in forums of advisors talking about this one comes up a lot because people don’t have one way. just there’s so many different variations and models out there. And as you say, a lot of them are effort-based, and that doesn’t always lead to the right outcomes because performance-based results is obviously what drives the business forward. It’s what helps pay the extra remuneration that may go with that performance. So getting that right is so critical and yet so difficult. So I think a lot of people can relate to that question and have struggled. And we did for many years, I must confess, the same scenario, struggled to get that right. Feel like we’ve got that pretty well nailed down now, thankfully, because it does, I would say, if you said to me what’s the one thing that’s made the biggest difference in our business, it would be this. And I think if anyone would focus on one thing alone, getting this part right, how to actually do performance-based remuneration, it makes the most profound difference to your business performance. It gives people clarity as to what’s expected of them. And it means they therefore have that clarity, which they want. They want to know what’s expected of me, so they know if they’re doing well or not. So they’re not going into their performance review meeting really unclear as to what’s going to happen, what’s going to be said about me in here. So I would say if people are thinking about one thing to focus on to make the business better, this would be one for sure. Do you want to add anything further there before I kick off the next question?

Dean Lombardo (15:21.1)

I think you said it really well, like it’s a massive item. In fact, in our work, it almost forms part of the top two or three action items or priority action items for many businesses. The solution to solving the REM-based model and having a performance-linked does go back to the organisational misalignment component we spoke about earlier on in having clarity and a clear roadmap in terms of what success looks like from the business perspective, and cascading those metrics through to the REM model as well. So everyone’s working towards a common goal. But undoubtedly, when you have a transparent model in terms of how you’re remunerating your people, when you have a clear line of sight in terms of what success looks like, you’re actually able to work towards common goals. And I find the best models when we move towards implementation are those that are transparent, where you can actually sit down with a team member and almost get them to create their own plan in terms of what their financial future looks like, because understand the levers and they can most definitely be in control of helping to drive the success that will ultimately lead to a benefit for them and importantly the business. So, critically important and the effort-based models. The last piece I’ll say is when we walk into a business, and we’re doing a particularly deep diagnostic, we don’t just look at business data or talk to the business owners. We’ll talk between the different members of my team to every single person in the organisation, which can be a big job when there’s a lot of people in the organisation. But we do ask questions about how they feel about REM, and do they understand how they’re rewarded. And what I can say is that effort-based remuneration models normally lead to team members seeing any form of incentive associated with it as really deferred salary. And the issue of course, with deferred salary is that it’s an expectation. People expect to be paid irrespective of the outcome.

Rob (17:25.526)

Yeah, for sure. Yeah, no, that one is a, as you say, in your work, and you do deep diagnostics in firms, and you sit down, talk to everyone, I’m sure you would find that one comes up as a priority item for the people in it. Mean, everyone’s a bit afraid of this idea of having KPIs, but in fact, having clarity of what’s expected of you is actually a really, it’s a gift. And you say, if they’ve got the levers, there’s a mechanism in place to understand how the system works, they then feel more in control of what performs looks like for them. So, yeah, I couldn’t endorse that issue more as being one that makes a massive difference. Let’s move on to workflow complexity because this doesn’t usually show up as failure in a business, but work still gets done, clients are still being served. But what are the early warning signs that you see that complexity is quietly eroding profitability?

Dean Lombardo (18:23.938)

Yeah, it’s an incredible area, and it’s one that we start to see quite early when we start looking at two key elements. One will be particularly advisor variance. So, where we see similar work, not just advisor variance, but where we see variance across similar roles in terms of their execution of similar duties. But advisor variance is often the biggest component because advisors drive workflow. Okay, so if advices are operating differently, setting different expectations, if workflow is moving differently throughout the organisation, the complexity associated with delivery can be enormous. So that’s absolutely one component. And sort of what goes hand in glove with it are the number of handoffs associated with doing routine tasks and routine work. So handoffs are most definitely one of the quickest ways that we see profitability eroded in terms of workflow because every time you do a handoff, there needs to be a transfer of knowledge, but alongside that, people are stopping work to pick up work and that creates complexity in itself.

Rob (19:38.594)

Yeah, I can absolutely say this one is an area of attention for us about advisor variance as you get grow your team. It’s not as you say, you said earlier on in the chat here that people aren’t trying to do the wrong thing, they’re trying to do the right thing. But what they do in trying to do the right thing for every client, they may build in habits and practices they think work well for their client group, but that starts to bring in variation. And then when you’ve got your client services team looking at this, advisor wants it this way, this advisor wants it that way, you introduce a great deal of workflow complexity and no doubt there’s a profit leakage there. You describe it as probably one of the biggest structural drains on efficiency, that advisor variance. Why does advisor discretion become such a scaling problem? I think we’ve kind of alluded to it, but do you have anything further to add specifically to that? Because every business is trying to grow, but scaling as everyone, I guess, aspires to if they are looking to grow, advisor variance sort of creeps in pretty much doesn’t it?

Dean Lombardo (20:42.776)

Well, you can’t build effective systems with variance. So if we’ve got 10 advisors in an organisation and 10 different ways in which common work is carried out, it’s pretty hard to build a system of work. And when you’re seeing that variation unfold, typically the service roles take the lead from the advisors. And so you described it just a moment ago. You may have, let’s say, a client services person who has two different advisors producing or wanting outcomes in two different ways makes it really difficult for them to both prioritise their work and execute their work efficiently. So it’s an incredibly big problem. But back to what you described earlier on as well, if you take a single advisor in an organisation of which there are 10 advisors, just for illustration, generally speaking, that single advisor we’ll have a broadly consistent way in which they operate within their client base. So they’ll generally operate reasonably consistently. The issue is if we’ve got 10 different consistent approaches. What is the business’s way? What are we building towards? When we bring in our 11th advisor, which of those models or which of those approaches are we actually building towards? So when we talk about advisor variance and the erosion of both efficiency and value, it’s because we can’t scale that up. can’t materially build a system that has that much variation built into the model.

Rob (22:18.956)

Yeah, you said something there I want to dig into. You said there that a lot of businesses they’re running effectively top down. The advisory is determining what’s required and what’s expected of the client services team ever supporting them. But in fact, I think what you’re alluding to there is if it’s a bottom-up approach, instead, the client services team knows what’s expected from the advisor, and they in fact hold the advisors accountable for adhering to that. That’s actually a much more effective way of getting consistency and getting the advice to align because then the client services team almost becomes the engine room of how things are done. And I can relate to a story in our practice where we have one advisor who can be, he’s great, charismatic individual and can be at times a little bit… That’s the word I would like to use here, chaotic perhaps at times. But we’ve empowered his support person, because he’s a great advisor and super well-intentioned and very values aligned to us, but needs a clear structure. And we’ve empowered his client services team member to be very clear, as she’s really driving the agenda as to what’s expected. And that’s making a tremendous difference for her and ultimately will make a great difference for him as well, because he’ll then be able to follow a structure which is not his natural inclination. I can relate to that. Do you see firms do it that way, essentially, where the client services team are effectively driving the way things should be done because they know what the standard is?

Dean Lombardo (23:55.596)

Yeah, it’s simple answer is yes, but the extension element it’s actually having a business way of operating, which transfers through all roles. So if we’ve got a common way in which we’re, so we’re preparing for our meetings, a common way in which we’re doing work post meetings, the advisor variance component is almost eliminated because we’re the expectation of how work flows through is defined in its repeatable. And it’s that repetition that creates predictability in the business. It’s actually where we give the greatest value back to our clients because that predictability, you can ultimately build trust through that mechanism. So, advice philosophies, Rob, are most undoubtedly the gateway to workflow efficiency. So when we talk about our client services managers in that example, sort of driving the work upstream, there’s a connecting piece between advice and the execution that may lead to an administrator or client services manager performing that work. When we’ve got clear advice philosophies, our best ideas, and they’re repeatable in execution, we can actually upskill everyone in the business to be ready to cater for that client demand and the demand that flows through from advice. But ultimately, with a shared philosophy, we’re actually able to enhance the client experience. So it’s top down, it’s bottom up, but ultimately it’s the business way that’s what governs and defines how we can remove workflow complexity.

Rob (25:32.406)

Yeah, because as you say, I think most businesses would have a vast majority of things are done one way. Like there might be, it might be 80%, 85 %, even, but it’s that last 15 to 20 % where there’s variation that creeps in that creates the problems. And as you say, having a business way, a clearly defined business way that everyone understands and can expect, that is how you can train the next team member. Because in reality, there’s one way everyone knows it. So anyone can support the development of that new team member coming in. So you can really grow effectively because there’s an unknown way that everyone can support the next person’s development following the agreed approach, because without it, yeah, it depends on who trains them as to what they decide to do.

Dean Lombardo (26:16.28)

The other part that lead sort of as you move from the business way into the next component of business growth is that when we do have a common business way of operating, it doesn’t mean it’s static. In fact, life is dynamic; nothing stays still. But when we have a common framework in which we’re operating, we can have new ideas, we can have potentially better ways of working, but when we uncover those better ways, it translates through the entire business. Everyone benefits. Whereas when we’re running, you know, siloed approaches or when we’re running approaches which have high variation, I know we’re talking about advisor variants, but you can see variants across different roles as well. Rob, you can see different variants across associate advisors, paraplanners, and even client services people book clients in differently, or they might keep clients up to date in different ways. So, when we’ve got a common way in which we’re operating, we can actually always look to build on that and streamline those learnings through the entire organisation. And so we can have rapid iteration in businesses that are well structured and have a common framework in which they operate, versus those that are fragmented or have greater degrees of variance; it’s a much more complex component, changing just about anything. So it’s actually not adding value to the client, and it’s most definitely not adding value to the business. And we certainly see at the end of the day reasonable leakage, certainly from a profit perspective associated with those particular models.

Rob (27:51.276)

Yeah, and I think that anyone that’s thinking too that would hear that that’s a very obvious profit leak. think everyone, even the business owners who are flat out know that there’s too much variation here, and that’s actually causing us some grief when we’re trying to get the job done. I wanna now move on to the next point that you’ve made in your white paper, and I wanna start by just sharing something that I read, and you may have read this too. Michael Kitsis in the US does research, and he developed this advisor productivity research piece and came up with a top four things, and there’s more than four, but he said the top four things that actually lead to higher advisor productivity.

The first one was implementing the right team structure. In his view, a triangle is the best, essentially a lead advisor, an associate supporting them, and one client service associate. Any more than that, you start to lose some of gains of having to manage more people that come without having just the two to support you if you’re an advisor. That’s the first one, and so that sort of triangle structure is what he proposes, and this is available on his website, and I’ll put a link in the show notes for those that want to read it. The second one’s about client affluence, which is about serving more affluent clients increases revenue per client, and essentially you don’t spend twice as long on a fee on a client with a fee that’s twice as much, so you do get some gain there in terms of the return. The fourth one, and I’ll come to the third one in a second because it’s the one we’re going to talk about, the fourth one was pricing confidence, which is having clear fee minimums and aligning price with value delivered, so pricing confidence, a lot of people could relate to that. But then this third one resonates with your findings as well, which is about optimizing face time with clients. Now, you’ve said in your research, advisors spend over 60 % of their time on back office activity and less than 10 % on new business. Why does this imbalance persist, Dean? Even in growth-oriented firms, why are so many advisors spending so much time on back-office duties?

Dean Lombardo (29:52.044)

There’s a combination of reasons for it. And as much as we’re talking about the different elements of profit leakage as codified in our paper, there’s an integration between all of these areas. So when we’ve got organisational misalignment, for example, and we’ve got workflow complexity, it normally starts to give rise to advisors needing to spend more time in areas that are, well, they office orientated, right? So they might feel like they need to spend more time doing checks, or they might be spending more time doing administrative things that are not necessarily of high value relative to the role. But there are other reasons that are associated with it. Guess if you think about why advisors spend potentially less time with new business activity, some just don’t have confidence in that space. We’re going to know, the fourth lever of the, in terms of our paper, is conversion friction. We’re still struggling with advisors actually building networks, going out there, and seeking organic growth opportunities. So it’s not an area of comfort for a lot of advisors as well, who are for opportunities as opposed to being proactive and seeking opportunities. But what’s really, really interesting when you connect sort of findings, and you piece it all together, is that the average number of meetings, Rob, that an advisor has, it’s sort of circa around 125, 126 review meetings per annum. These are the structured meetings that we would expect an advisor to have based on the data that was presented. Now again, that’s the average. So you’ll have, even in your business, Rob, there might be extremes. Some advisors could be quite weighted in that area, and some lighter. But if you think about an average of 126 meetings a year, that’s about three meetings a week, close enough to it over about a 40-week year. So what it’s really pointing towards is that many advice businesses have capacity opportunities that aren’t being fully utilized, and because of that, we’re creating poor work habits, and those poor work habits are also one of the mitigating factors that are translating to advisors spending more time in back office required functions.

Rob (32:19.372)

Yeah, yeah, it’s, I think it may be most listening, so just give me more support, and I can do more, but it’s actually more than that, isn’t it? And as you said, you’ve identified how interconnected the issues are inside business. It’s not one issue on its own. It’s actually how those things all relate. You mentioned conversion friction, which we’ll come to in a moment, organizational misalignment. Yeah, there’s, it’s having to have a look at a business holistically and not identifying just one thing and saying, well, advisors, I just need more support, and I’ll be able to grow more. Well, in fact, let’s make sure we’re doing things one way, one business way. Let’s make sure we’re aligned as to what’s expected. And then we think about doing the capacity building. But let’s talk about capacity. You talk about excess capacity that is often carried in anticipation of growth of firms. When does forward resourcing, and you talked about this bit earlier about making sure you’ve got a forward capacity plan, if you like, as to how you should add staff and when, when does it become a strategic investment, and when is it quietly becoming sort of more profit leakage?

Dean Lombardo (33:22.808)

Yeah, that’s a great question. And when you look at the average numbers, it implies that at the highest level, we have capacity within advice businesses. And for advisors that are really under pressure and so on, do you think, how is that the case? How is that possible? There’s not a one-dimensional answer to the issue, but when businesses are growing, you need to have capacity. Not all businesses are fully optimised with every minute of every day accounted for. That’s not possible, and we need to have the capacity to grow. In fact, the one guarantee if you’re a growing advisor and you’re a growing business is you can’t plan for growth, as being on a particular day, we’re going to get a particular new client. So we need capacity every day, every week, every month to be able to deal with the onboarding of new clients. But what we tend to find when we again, when we go beneath the surface, and we start to look at the operating models that are in place, is that many businesses carry, as you described, excess capacity in anticipation of this future growth that we’re expecting, or potentially internal client transitions into the future. So potentially, you know, we might be thinking we’ve got advisors entering the next stage of their careers, and therefore we’re going to need to have an opportunity to have that transferability of relationship. And so while it can be critically important to have excess capacity, if you’ve got too much of it, it can actually result in blurred lines of accountability. So what that means is you start getting advisors with capacity drifting towards lower value activity, and that sort of goes back into that back office component. So they’ve got to fill their time, and what they’ll do is they’ll start filling their time on really lower value activities, and those inefficiencies ultimately become embedded in day-to-day operations. So the expectations become that advisors will perform more of those lower-level activities, and we’re not actually extending ourselves moving forward. The other part that’s really important from a profit leakage perspective is while we see that there’s capacity, typically what occurs is that the advisors who have the greatest capacity. potentially the less experienced advisors who might be coming through often lack the capability to drive external growth. And so what happens is again, you get this vicious cycle that’s occurring in the business. Cost bases actually go up in terms of the expense line, and that places pressure on profitability. So there’s a balancing act and the truth of the answer to how we solve for that is by actually having a capacity plan in place for the business to know when we recruit, having defined, again, KPIs, responsibilities, having a competency framework associated with showing our advisors, all those younger advisors in particular, how to move forward in the business by having a transition plan that makes sense and not hoping that capacity is going to be filled, but actually planning for it. Because without it, and we say this often in our work, we start seeing limiting beliefs and organisations in terms of what is a busy day, what is capacity, and that sort of then starts to perpetuate through, we’ll call it average, an average working day being seen as an excessive work day.

Rob (36:55.35)

Yeah, just dig a bit deeper on that one for me, Dean. What does good capacity planning actually look like in a firm? Because, as you said, you raised a couple of issues there as to what business should be thinking about. I think this is a challenging one for a lot of firms because they’re not knowing, haven’t really got a structured way of thinking about when to add the next person, who should be the next person that’s added, because they may be in fact, adding the wrong people in terms of what the team probably most requires. So, what in your experience, and when you’re consulting to firms and giving them guides in this area, what does good capacity planning actually look like?

Dean Lombardo (37:31.073)

Yeah, so the good capacity planning starts with a lens in terms of what the business is actually trying to achieve. This is that integration piece coming through in our conversation again, and not trying to solve one issue without a lens in terms of how all the pieces are going to come together. So if we’re to create a really solid capacity plan, we need to have a lens in terms of where the business is heading and what our operating model actually looks like. Embedded within there, needs to be a view of the client experience, what the expectation is in terms of service standards, what if you sort flow that back through to the business’s way, the clearer we are on the business’s way, the greater the ability to actually, again, have a viewpoint with regards to expected time of different roles associated for the common work that we expect to see. And it’s fair to say, Rob, that the one part of the work that we should have the greatest ability to be pretty confident that we’re going to know what’s going to occur in the future is work associated with our existing clients. Okay, because most of that work is structured. Yes, I know there are some unforeseen things that take shape, but it’s not unforeseen with every client all the time. So we can be quite structured and diligent in terms of being prepared for what is within our offer. If we’ve got a really solid cash flow philosophy and things of that nature in place, we can have really solid planning in terms of minimizing things, for example, like ad hoc withdrawals and things like that. Again, they just add waste into the operating channel and actually dilute client value. So having a really solid capacity model means knowing those ingredients and what we tend to do when we’re starting to mold that into a viewpoint of the business, and this is why it’s dynamic, not static, is really when you’re starting to see a business or roles reach about 70 % capacity, you know you’re needing to get ready to recruit or you know you’re getting ready to needing to bring in or have other avenues of releasing capacity. Importantly, it’s not always Rob about recruiting. Sometimes it’s about re-exploring the system to remove waste to create capacity as well. That’s why you can’t let things drift in an organization because all systems will slowly have friction, and that will lead to profit leakage as well. So there are levers that we need to pull. You need to have a clear view of the operating model, but ultimately, as I said, 70 % sort of leaning into that 80 % mark. If you’re a growing business, you don’t really want to get too far beyond that before we’ve got more capacity levers being pulled to actually make sure that we’re not going to upset organic growth and then go backwards to go forwards.

Rob (40:24.738)

Yeah, and something as you were just saying that you’re aware of something you said last week as well, which is around, you’ve got some favourite metrics that you use to determine how business is performing. Can you just recount those for me? The direct costs were one of those. You want to capture those KPIs, you like a business level KPIs, which really helps people understand how you think and look at a business in terms of its, where is it at in terms of the projected position.

Dean Lombardo (40:42.71)

Yep. Yep.

Dean Lombardo (40:53.772)

Yeah, absolutely. think first and foremost, if we’re actually looking at optimising business performance, the first thing we’re going to want to look at, and it’s a standard metric in all organisations, it’s actually revenue per advisor. So you won’t be able to achieve high-performing profit results if we’re not actually able to maximise revenue per advisor. So this goes back to the component, Rob, around capacity misuse and potentially having too much capacity within your organisation, because your averages are going to be constrained if that’s the case. So we certainly want to maximise advisor revenue. And that evolves all the things we’ve already talked about, both in terms of reducing workflow complexity to free up advisor time, to spend less time in the back office, and ultimately have a great framework around organic growth in particular and have new business activity. But if we can see that component, obviously, we can look at some sublenses. Direct costs is one of the next things that we’ll consider and it aligns back to revenue per advisor. So, typically, when we look at direct costs, we’re looking at primarily wages, but it can extend a little bit beyond that in terms of what’s the effort that goes into servicing those existing clients. So, typically, it’s obviously the advisor’s salary and incentive plans, might be the associate advisor’s if applicable, client services managers. And if we can understand gross margin and we can get to a really solid number there, that again provides us a really good indication of what we can expect or what we would anticipate would flow through to the end profit result, to the EBITDA level. What’s a really good number for businesses to target? It’s a number. It’s a number south of 40%.

Rob (43:04.226)

That was my next question. Yep.

Dean Lombardo (43:09.848)

So if we can see a number that’s somewhere between 35 and 40 percent, that’s a pretty good result. Because remember, we’ve got to pay our people really well in a model that’s growing and rewarding performance. So if we’re getting performers, we’re going to obviously fund that. But if we’re able to get to a gross margin of 60 percent plus. That’s going to give us a pretty good sum if we’ve got a decent operating model that’s going to flow through to shareholders. So that’s one example, Rob, of one of the things that we’ll consider. But understanding that direct cost number or that percentage, you’ve got to go to the number above it and actually have a look at the revenue per advisor because you can be pretty sharp in terms of our servicing costs, but if we’re not managing significant or decent revenue, you’re going to end up with a pretty low gross margin.

Rob (44:06.86)

Yeah, great. Okay, so let’s get to that one you mentioned earlier, because one of these issues you’ve identified as responsible for profit leakage in firms is conversion friction. And it goes to perhaps this revenue per advisor issue because obviously revenue per advisor is a function of how well you are actually servicing supporting clients but also onboarding new clients. People will often blame market conditions or client hesitation. Your research suggests it’s actually structural. What are firms doing or not doing that slows down revenue growth, and what do you describe as conversion friction?

Dean Lombardo (44:42.316)

Yeah, so firstly, organic growth, and appreciate that can mean different things to different people, but we’re talking about non-acquisition revenue growth, should be at the cornerstone of all business plans. It’s the safest, easiest, most reliable method of increasing both top-line revenue and then seeing that flow through to the bottom line, again, if we’ve got a pretty solid operating model. So what do we tend to find? Again, all these factors link together. So we saw earlier on that, you know, the average advisor in the industry spending less than 10 % of their time on new business activity, to put that into context. We’re talking about less than half a day a week spent on new business activity. That could be onboarding new clients through to obviously going out there and prospecting and building relationships. so the first thing that we see, and this is evidenced in the data, and it’s been evidenced in our data for a long period of time, is most businesses actually lack a defined strategy around organic growth. If we look at the numbers, it’s something like less than 20 % of advice businesses actually have any form of plan, a documented plan, around cultivating centres of influence. So what that basically means is we’re waiting for centres of influence to hopefully give us clients as opposed to building an operating rhythm where we’re going to extract value from our referral partners to better serve their clients. Equally speaking, only about 30 % of advice firms actually have a documented organic growth strategy and that translates back to advisors, particularly less experienced advisors who just don’t know how to build those relationships and be proactive in actually fostering organic growth opportunities. So yeah, it’s structural, it’s systemic. You’ve got to have a system, and you’ve got to have a mechanism of both skilling your people to be able to deliver, and obviously, then rewarding people will help guide the behaviours that we’re expecting to see. That is an absolutely critical component. But what also creates conversion fiction, Rob, and it’s one that I’m sure all advisors listening in will have an appreciation of, is that the harder it is to onboard a client. If we find that it’s difficult on boarding clients, it starts getting less attractive for advisors to actually want to go out there and bring on clients. And I often say it’s really interesting when we go in and do our work, I might be talking to roles other than the business owners or the equity owners, it’s interesting to see whether they’re excited or not in other roles when we’re bringing on clients. Like, is it something that we’re enthused about, or is it, oh my goodness, know, more work? If that’s the attitude in your organisation,

Rob (47:24.15)

Yeah.

Dean Lombardo (47:46.426)

You’ve got a pretty, you’re not going to have a high performing culture, most definitely, but also you’re going to see advisors, even those who do want to go out there and bring on clients, start to feel for the people in the organisation who may be under pressure or perceive pressure and not wanting to bring clients on. So it’s not one-dimensional once again, it’s all integrated, but most, if you haven’t got a plan to grow, if you’re not incentivising people to grow, and you’re making it difficult to bring clients on, you’re probably gonna find you’ve got a fair degree of conversion friction in your organisation.

Rob (48:20.354)

Yeah, I think you’re absolutely right. In fact, I’m surprised when you said 30 % of firms have an organic growth plan documented. I’m surprised it’s that high for starters. But also, that’s a real telltale sign, that one you just mentioned, isn’t it? When a new client is being added to the group of clients we have, is the response is, God, another client, we’re just so busy already. And if there’s a reluctance to add new clients and there’s not a real joy of adding someone else that we can actually support and make a difference in their life, then that’s the litmus test, isn’t it? You’ve got to think, well, there’s something wrong with how do you actually bring on those new clients to the onboarding process because people are not enjoying the fact that we’re actually growing and helping more families.

Dean Lombardo (49:06.956)

I think that’s right. You probably mentioned earlier on, and I don’t know why I also in our discussion, that having a REM model that makes sense to the organisation and aligns the strategy, the direction, and commits people to the behaviours that will achieve success is a great gateway into it. So step one is having all of those components aligned and having accountability measures in place. But we also need a plan of execution. And that comes back to advisors having their own individual growth plans that plug into the mechanisms that we build into our organization. But let’s not forget, one of the other really important levers of driving organic growth is pricing. And it’s really interesting when we have a look at businesses, and we understand conversion friction, the more difficult we make pricing, the more we tend to see leakage from a profitability perspective. So this might be of interest to you, Rob, and those listening in, but when we see pricing models that are quite complex, like as in very complex, and have multiple inputs to work out a desired pricing model for a client. It’s the one that we often find if there isn’t a disciplined pricing control around it, advisors potentially will actually offer proxy discounting as part of it. So what they’ll do is they’ll, in their own mind, work out what they think they’re comfortable with in positioning to the client. So before positioning it is what they’re comfortable with. And if that pricing calculator comes up with a bigger number than what they’re comfortable with, they may start to potentially offer a reduction in services or things or worse still, provide the service and remove it from the pricing calculator just to get a number that they’re comfortable with. That’s all part of conversion friction as well. We need to make it easy for our advisors to understand pricing, but also need to an avenue of having discipline controls around it. But an education stream, a continual education stream, in aligning client value and pricing, and helping people actually articulate that value in front of clients.

Rob (51:33.954)

Yeah, I hear you loud and clear on that one. I imagine a scenario where if the pricing calculator is clear and people know what the inputs are, but they might kind of fudge the inputs a bit to kind of not get necessarily the price that they think they wouldn’t accept. I imagine a scenario where the client’s starter is already in the database and that will typically lead to the inputs and that little AI engines in there saying based on this client’s profile, this is what the price will be and if anyone wants to vary it, can vary it but you’ve then got to explain why you’re varying it which we do that already now but I think that day’s not far away and certainly something we’re working on too. But for business owners that are business owner listening to this who suspect they have a profit gap but they don’t know where to start, Dean, what’s the first diagnostic question they should be asking themselves.

Dean Lombardo (52:29.72)

A wonderful question. think firstly, I’ve been saying this for a long time, right? All progression starts with the truth. Fundamentally, it’s the ability to actually put the mirror back to you in terms of what’s occurring in the business. So what’s the first thing I would be asking myself as a business owner is have I actually had a deep look at all areas of the business to understand the interconnectivity of how things are working. Okay, because if we’re actually able to understand the interconnectivity of our business and bring our people into this as well, right, you can’t just do it superficially. You actually have to go into the business, as in into all areas, and have a look at it. But once you’ve actually been able to do that, it really is all progression starts with the truth, Rob, because once you’ve seen it, you can’t unsee it. And that’s normally a gateway to making positive decisions.

Rob (53:34.2)

Sounds like a great approach to an off-site for a team to start with. Look at it, as you say, every team member would have a view because they’re all involved and connected to the process. So yeah, that’d be a good way to begin an offsite or at least one of the core sessions for having a team get together, wouldn’t it? I’m curious about this one. This is my final question to you, Dina. Thanks again for your time today. I’ve got one more question for you. If advice businesses successfully close their profit gap, what’s the most surprising result? What tends to be the most surprising result you’ve seen for business owners?

Dean Lombardo (54:08.642)

Yeah, when the profit gap begins to be closed, what you find is it’s actually a stress valve that actually is released with business owners. So the embedded stress associated with potentially walking around feeling like things aren’t working as well as we should starts to give way to optimism for the future. Because solving the profit gap, for all that we’ve talked about today, profit is a result; we’re actually solving the inputs that drive the results. So when we’re solving those inputs, when we’ve got a business way of operating, that makes sense. When we’ve got alignment of resources towards a common outcome, when we’ve got accountability measures that are agreed and are transparent, when we’ve got a capacity plan that helps our people see where their future is in the organisation and one that aligns to growth, you start seeing that stress removed and it And what I tend to find, which is probably the most surprising part, is the entrepreneurial spirit starts to really re-emerge. What gets lost with complexity starts to give way to the fact that we can do more. There’s a bigger future. There’s positive things on the horizon that may be at a point in time that we stop believing in because… or we gave not stop believing in but we just thought we We’re just not going to get past where we are at the moment in the roadblock So so the mind opens up and the future starts to become bigger than the past And that’s the part that I really enjoy saying and for the people in the organization There’s no coincidence that a business that’s growing and performing well Again, again when I say performing well, it’s got all the right levers in place Normally has people that are pretty happy and committed and wanting to be part of the future of that business as well. So it’s not one or the other; everyone wins in that particular equation.

Rob (56:03.63)

Yeah, for those listening, just imagine that scenario where those gaps have been closed and the day to day goes from feeling like, God, we just got so much potential here, but we just feel like we’re just walking through mud, to feeling all of a sudden optimistic and as you say, really entrepreneurial spirit starts to creep back in because things are working and things are really firing and people feel that real energy around it. I can…That’s a great way to finish our conversation, Dean. think that people will, knowing and your white paper will be linked in the show notes, people to read it, really does hit on those key points. It says so much about how to make a business great. And I can relate to what you’re describing. Because when you solve some of these most core and vexing challenges for businesses. You’re saying things that people know often when you read this white paper, but they know their problems, but they just haven’t been able to solve them. And clearly that’s the work that you do. So I know that just from our own experience, feeling like when things are solved, and we’re moving forward, and that optimism really permeates the whole organisation, it’s quite a wonderful place to be. It’s engaging and exciting for everyone involved. So I really appreciate the work you’ve put into that white paper, and for joining today Dean Lombardo on the Trust Adviser podcast. Thanks, Dean.

Dean Lombardo (57:22.776)

Thank you very much.