Characteristics of 50 leading advice practices

5 min.  
Date: 28 April 2017

Over the past two years, consultancy and implementation firm Peloton Partners has worked with over 50 advice practices to help them extract the full value from their businesses.

Common to many of these practices, albeit at varying degrees, are business characteristics which left untreated, leaves latent value in a practice that is unable to therefore reach its full potential and unable to deliver on its value proposition.

At a recent webinar hosted by Netwealth titled ‘Unlocking the value in your financial planning business’, Peloton Partners Principal Rob Jones explained the impact these characteristics have on productivity and efficiency.

One of the most common characteristics are groups of clients that are unprofitable for a variety of reasons. Peloton Partners estimates up to 50% of clients in some of the 50 practices it has worked with over the past two years fall into this category.

“Some are more profitable, some are less profitable, but when we properly analyse these clients, there is a huge portion that are costing the practice more to service than the revenue they generate,” said Jones.

A driver of this mismatch is often legacy fees, often a by-product of changes in fee structures, regulation and systems which add a further layer of complexity and inefficiency to a business.

“Many firms are still operating a legacy model that I know [was] put in place several years ago and may have changed but they may not have gone back through all of their clients and addressed the issue” said Jones.

One of the constant challenges of the advice industry is change, and our ability to adapt to change can be a real test on productivity and efficiency.

Unfortunately, Jones said if we don’t adapt and rather remain in ‘maintenance mode’ or doing what we have always done, we are not giving our businesses the best chance to stay competitive.

“A lot of firms are pretty much just doing what they were doing the year before or the year before that,” said Jones.

When in this mode, Jones said practices are running on ‘blind inertia’ and taking a ‘fingers’ crossed, we’ll be ok’ approach’.

“Hope is not a strategy,” he said. “There is a little bit of ignorance, if I can use that. Hoping that everything will just go up.”

Lack of planning is also a drain on productivity. Planning for the ‘what if’s’ in business is crucial. These include planning for regulatory change or key man risk. Jones said while many advice practices do have business plans, there is large disparity in the length and content of these documents.

The good news Jones said, is there are corporatisation steps or building blocks all practices can put in place that give their business a solid structure and reduce the risk of unproductive and inefficient characteristics creeping into your business.

According to Peloton, there are four key areas a planning business needs to nail. These include:

  1. Getting your identity right – This means understanding your growth model, your point of difference, and the strengths of your business.

    For example, is your business an organic or an acquisition growth model? “They are very different,” said Jones. “We’ve been on the side of 25 mergers and acquisitions either as buyer or seller and I can tell you that growing the business organically and doing an acquisition are two very different skill sets in my view, and not always easy.”

    Jones encouraged businesses to back themselves if they have a business niche that works. “If you do, then remove all the distractions. It may sound a little bit too disciplined or a little bit too direct, but when you’re focused and you enjoy it, it’s amazing what you can do.”

  2. Who are your clients? – Peloton estimates a 20-40% increase in efficiencies can be made by eliminating time wastage in your business. This particularly relates to servicing clients that are best suited to your value proposition.

    “Clients are not born equal,” said Jones. “There is a temptation to service clients of all types including a wide variance in complexity and needs – ideally being able to identify the type of clients you work best with, ensures your value to them is maximised allowing you to find more of this client type and become more profitable as a result.”

  3. Your team – Jones said 25% of a business’s time is lost on the wrong people working in the business. Selecting people that match and suit the culture, goals and objectives of your business, and playing to the strengths they bring to the business is vital for its profitability.

  4. Know the numbers – A big fan of numbers, Jones said having the tools and the ability to scrutinise your client base and understand who your most profitable clients are, what they value and how they tick, is a must.

To hear the full presentation, ‘Unlocking the value in your financial planning business’ click here or if you would like to speak to one of our technical services team, contact your BDM or email us.