Streamlining in pursuit of scale

Warren Buffet famously asked, then famously answered, the following question: “What’s the quickest way to become a millionaire? Make a billion dollars and buy an airline.” The airline industry’s well-documented struggles highlight a legacy of profitability challenges and instability.

Then there’s Southwest Airlines.®

Amidst the troubled aura of the airline industry,1 Southwest Airlines has produced a remarkable 40 years of consecutive profitability. Within that 40-year timeframe, there was a 17-year window where they were profitable every single quarter.2 There are a number of factors that contribute to Southwest’s long-term track record of success, but at the top of the list is their fleet management strategy.3 Southwest flies only one type of plane: Boeing 737. While other airlines maintain multiple plane types,4 the shelf space for Southwest planes has remained at one.

The benefit of flying a single plane can be summed up in one word: scale.

With only one plane type…
Pilots only need to know how to operate one plane.
The company only needs one type of simulator.
Flight attendants, there for your safety, only need to be familiar with one plane.
Maintenance only needs to know how to fix the problems and maintain the parts on one plane.

The decision to fly one type of plane has a trickle down effect on every element of the business, both internally for staff and externally for patrons.

Streamline your practice

As an advisor, you also have an opportunity to apply a similar focus within your business to yield benefits of efficiency and scale. For instance: are you effectively managing your “fleet” of investment solutions? Within Russell Practice Management Coaching,  we have observed that the average advisor holds between 200 and 300 mutual fund positions within their book of business. How many investment products do you have to maintain?

4 Steps


Narrowing a “fleet” of investment products

There are four key steps necessary to build and maintain the investment component of your clients’ portfolios:

  1. Research – Research must be conducted to find a suitable investment solution that aligns the solution with the individual client’s goal and risk appetite.
  2. Trade – The trade puts the research into action….This is the implementation step. Some trades are very simple (e.g. mutual fund trades), while some are more complex (e.g. derivative strategies).
  3. Review – Two elements are constantly in a state of change. The markets and the client’s timeline to goal. The advisor reviews both elements on an ongoing basis.
  4. Rebalance – If the two elements from “Review” step are misaligned, then the advisor rebalances the portfolio back to plan.

While each of these four steps is fairly straightforward in and of itself, they require time and resources. Complexity arises when you consider that every product in every portfolio for every client in your book should go through these four steps. Complexity multiplies exponentially if you’re maintaining 250 mutual fund positions in your business. That implies you’re going through each step at minimum 250 times per year.

So, it’s easy to see how economies of scale are eroded with each additional product you need to maintain because of the time/resource commitment involved with the four steps above. More products require more laps around the circle.


The effort expenditure can decrease with fewer products and more economy of scale. This graph is for illustrative purposes only.

Increasing economies of scale in your business

As you decrease the number of positions in your business, economies of scale increase. This is because you benefit from:

  1. operational efficiencies in terms of the ongoing analysis for quality control. In simple terms, it’s easier to analyze the quarterly data on 20 funds than on over 200 funds.
  2. review efficiencies in terms of the information that you need to master and relay to clients. For example, consider the following scenario:
    You have three client meetings on any given day; the clients all have the same asset allocation, but they each have different solutions for each slice of the asset allocation pie. In this scenario, you would have to dedicate significantly more time and resources to prepare for these three reviews than if you had implemented the same solution for all three clients. This simple step would have enabled you to prepare just once for all three meetings.

“Scale” is a term that is frequently used in our industry and has far-reaching implications within your business. In an effort to truly create capacity in your business, one of the simplest tactics you can deploy is to narrow the number of investment products you use within your business. Strategic decisions don’t always have to be complex in order to yield big results; sometimes they can be as simple as the number of plane types in your fleet – or the investment solutions in your business.

Southwest Airlines® was incorporated in Texas and commenced Customer Service on June 18, 1971, with three Boeing 737 aircraft serving three Texas cities – Houston, Dallas, and San Antonio and grew to become a major airline in 1989 when it exceeded the billion-dollar revenue mark.
1 Harvard Business School, Come Fly with Me: A History of Airline Leadership, November 2009
2, Southwest Turns a Profit for 69th Straight Quarter, July 2008
3 The Economist, The Secrets of Southwest’s Continued Success, June 2012
4 Delta, Aircraft: Know the Planes You Love
RFS 13301
  1. avatar
    christopher boutross
    June 6th, 2013 at 06:58 | #1

    This is a great insight-Sometimes we delude ourselves by thinking have thing has to be complicated. Clients want the “same plane” in their portfolio-we as advisors need to understand that what is good for our clients is great for our business.

  2. avatar
    Sam Ushio
    June 7th, 2013 at 12:58 | #2

    @christopher boutross You raise an excellent point about the correlation between client benefits and business benefits. Thanks for the feedback, Chris!

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