In our last post we helped you determine if it was time to hire an AFA. As many practice leaders know, the right AFA can help you achieve significant growth in your practice. Yet the AFA arrangement is one of the most often misunderstood, abused, and poorly used roles in a practice. However, if approached with a clear understanding of your goals for the AFA and the impact the position can have on the practice, an AFA can be a tool for growth.
Developing a proper compensation package, defining expectations, and drafting clear agreements help ensure a mutually beneficial arrangement for both the Advisor and the AFA. When those are in place, an AFA can bring value to your practice in three key ways.
Direct Value
The best and most ideal way an AFA brings value to your firm is by generating new business, either by bringing a book of business with them or by acquiring new clients for the practice. In reality, all AFAs should be producers and should help not only increase the number of clients but also the value of each client.
Indirect Value
An AFA also creates value by freeing up your time so you can focus on bringing in new clients and better serving existing clients. This can happen through them helping manage existing client relationships and/or by serving in support roles. As we mentioned in our previous post, this does not add value to your firm if you plan for your AFA to manage low-value clients, as the cost of the AFA is not covered by the GDC produced by low-value clients.
Support Value
AFAs also generate value by in-sourcing tasks such as financial plans or other support tasks that were previously outsourced to external providers. However, an AFA is often a very expensive resource, and so having them solely focused on support tasks is not the best use of their time or your investment.
Of course, the wrong AFA arrangement can detract value from your firm in a number of ways. The most expensive is if they are servicing existing clients. If the AFA is solely serving existing clients, or worse, only low-value clients, then they are purely a new expense and are not generating revenue to the firm. They only create value if they are increasing GDC. If they are servicing existing GDC and not directly or indirectly helping generate new GDC, then they are detracting from the overall value of the practice.
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