Business Brief

In the May edition of Business Brief, I shared Part 1 of the five principles of building a financial planning business of value. Now, in Part 2, I continue this discussion:

Principle 4: Information is power

You need data to analyse your existing client base to understand the revenues and service costs. Data-led insights improve decision-making accuracy and ensure we do not fall victim to our perceptions and possible biases. Data does not care how you feel; it exposes things as they are and, as a result, provides much-needed clarity for objective decision-making.

The more data we have on our business, the more control we have and the greater our ability to strategically address weaknesses and exploit strengths. Information that can be extremely useful includes:

• Prospect to client to referral conversion rates
• Client base demographics, profiles and interests
• Source of revenue streams
• Product mix (risk/investment/short-term, discretionary or retirement monies)
• Client profitability (per segment)
• Keep in touch with programmes and information on client behaviour
• Engagement record keeping (documentation and electronic communication)
• Centres of influence, referral and networking opportunity identification
• Connected family units
• Retention ratios
• Review rates
• Staff productivity, service levels and turnaround times on transactions and queries
• Quality of advice metrics, best practice advice house views

The research conducted by Business Health indicates that advisory businesses with an effective customer relationship management (CRM) system were 46% more profitable than those without. One can quickly see how attractive this sort of data-led insight and business control would be to a potential suitor.

Principle 5: Leverage resources beyond yourself

Although not necessarily the most overtly obvious of the principles, this one is certainly among the most difficult for us to achieve, not least because financial advisers tend naturally to be “control freaks”. We find it extremely difficult to let go and delegate, often with the idea that if we want it done right, we must do it ourselves.

This approach is acceptable if you want to run a lifestyle practice, and one can generate outstanding income levels from 250 to 300 of the right clients, simply focusing on maintaining that base. If you are considering a succession plan, however, dependence on a single adviser/client relationship is not conducive to optimising a valuation and creating a saleable business. It poses a risk to the acquiring party, who would prefer it if multi-level relationships were established, thus making the client and their business more sticky and less likely to move post-acquisition.

Dependence on you as the financial planner, key individual or owner creates a glass ceiling for growth prospects and limits your ability to expand beyond a certain level. Ultimately, there are only so many hours in the day and we can only do so much alone. After segmentation and differentiated services, this principle represents an additional solution to the time-management dilemma.

Seek to automate what can be automated, freeing up as much time as possible to engage with clients. The right technology is a key enabler here, as we have already discussed from a CRM perspective. Finding a system that does everything perfectly is a holy grail quest, so consider the integration ability of the systems used in your business.

The documentation of processes and procedures is a must if you are to take a step towards separating yourself from your business. Although initially labour intensive, the true value of this exercise is clear when you recruit new staff and do not need to continually repeat what is in your head about the procedures in the business. Convert these thoughts and processes to writing or some other recorded form. One can consider recording a video of yourself speaking through the relevant process and saving it on a shared drive for posterity.

The recruitment, management and leadership of people present their own unique and complex challenges. There are several important considerations here, not least of which relates to ensuring an appropriate skills and passion match to job function. The most successful financial advisers I have worked with are out and out people’s people, usually not at all excited about the admin side of things and, therefore, needing someone to manage that side of the business. This is, however, not always the case, with some advisers preferring to manage the business rather than engaging with clients and doing the financial planning themselves. Understanding where your strengths and preferences lie are critical decision-making factors when recruiting the right people into your business.

Should recruitment be a step too far, given the development stage of the business, consider outsourcing functions such as the processing of transactions, para-planning services etc., to specialists who already have trained and skilled staff fulfilling these functions and with the necessary systems and expertise in place to deal with your product providers.

Lastly, although we spoke about providing a holistic value proposition and solution set while being selective about your target market, this does not mean you need to do everything yourself, or even in-house within the business. Consider professional networks with whom to partner for specialist skills such as fiduciary services, complex estate planning, tax etc. Solid, trusted partnerships with audit firms can prove very lucrative and mutually beneficial to both the audit firm and financial advisory business. Product providers such as PPS offer an extensive range of specialist support services to financial advisers wanting to enhance their advice value proposition to professional clients.

By effectively using available support resources, you can leverage the value you create beyond your ceiling, increase revenues and further dilute the business’s dependence on you as the individual owner thus resulting in a more attractive proposition for a potential buyer enabling an enhanced valuation.

A final thought

As James Clear, the author of Atomic Habits, says, “Think about what you want today, and you will spend your time; Think about what you want in five years, and you will invest your time”. Moving from a financial advisory practice to a financial advisory business, from a lifestyle practice to a saleable asset, is a process and a journey. It takes time. Although there are many things to consider, the best approach to a mountain is to take one step at a time. Prioritise what needs doing, decide on that one thing to focus on, and do that. Get that one thing done and repeat. Like compounding investment returns, compounding small incremental efforts has a significant impact over time.

*Reference: Business Health (Pty) Ltd: Advice Practice Profit Drivers: Stats & Data for Australian Practices, Jan 2022

By Grant Newland-Nell: National Practice Development Manager

PPS is a licensed insurer conducting life insurance business, a licensed controlling company and an authorised FSP.

Disclaimer: Kindly note that this does not constitute financial advice; the information provided is purely informational. In terms of the Financial Advisory and Intermediary Services Act an FSP should not provide advice to investors without an appropriate risk analysis and thorough examination of a client’s particular financial situation. The information, opinions, and communication from the PPS Group or any of its subsidiaries, whether written, oral, or implied are expressed in good faith and not intended as investment advice, neither do they constitute an offer or solicitation in any manner.