These are the four most important questions for owners of advisory businesses planning for beyond this recession:
Question 1: How are you going to structure your business for forward prosperity?
There is little doubt the industry will have to do more with less.
The era of the independent small (i.e. less than $450,000 turnover) business is ending. I don’t believe there will be sufficient margin in the industry for a one-adviser advisory firm. They’ll be forced to amalgamate, or ‘work in close partnership with’ (i.e. be dictated to by) institution-owned dealer groups. Possible exceptions are recognised ‘subject matter experts’, and regionally-based businesses with little competition and strong local connections.
Firms which have been ‘stuck’ for a number of years in the $450,000 to $1,600,000 turnover range will need to get far more productive. On average, these 2-3 adviser firms will need to double their “face time” with clients, centres of influences (i.e. external members of their deliverables team), prospects, or strategic alliances (i.e. those firms with whom they share revenue on client work). Current industry averages for face-to-face time are in the order of 30% and will need to rise to nearly 60%.
Firms turning over more than $1,600,000 will need to bring in full time professional management or risk losing their talent (who will take ‘their’ clients as they go).
Whilst last year’s employee market has turned into an employer market this year, the longer term fundamentals are also changing. Up and coming younger business-minded advisers are the ones in short supply. Over the next couple of years, they’ll have many opportunities for personal prosperity working in new business models very different from today’s product-based business models.
Question 2: How are you going to price your services?
If you plan to price your services as you always have, you’re not paying enough attention to the changing marketplace.
Since the recent Financial Planning Association’s consultative document proposed new client pricing principles, a number of advisers have told me it won’t affect them because they’re already complying. I reply that they’re thinking like an adviser, not a business person – the ramifications will be far-reaching.
Whichever position you take in this debate, the word “commissions” is on the way out. It’s all about sentiment. The issue is similar to climate change or smoke-free restaurants – whether you agree with the logic or not, it comes down to a question of sentiment. If “commissions” are going to survive, some good “sentiment” needs to get behind it. I doubt it will.
The fact that the vast majority of Australia’s advisers have taken a 30% average revenue drop exposes the undeniable fact that fee-based advisers are still pricing on product, not on advice.
Being fee-based isn’t your antidote or silver bullet for the future. It’s only the ticket to the future game. It just means you might survive. Your prosperity needs smarter strategies than just being ‘fee-based’.
Question 3: How are you going to industrialise your front-office proposition?
Since Financial Services Reform, the industry has worked hard to industrialise its back office – indeed, too hard. It’s focused more on compliance management than client management.
As an industry, we now have to put even greater effort into what I would call “Financial Services Reform Mark II”. We have to get a robust, repeatable, adviser-independent client management process in our businesses.
The notion that relationships can be established and maintained, independent of which adviser, is impossible for some advisers to consider.
We are seeing a new era of client engagement where client conversations are being taped and recorded, for:
- team members who aren’t in the client meeting;
- our clients, for future review; and
- our training purposes.
This idea of taping client appointments is taboo for many of today’s advisers, who believe it’s all about their rapport chemistry and their years of experience. They’re ignorant about how to build great advisers.
We’re seeing client appointments following well-rehearsed scripts and processes, which – for many of today’s advisers – is an anathema for the adviser-client relationship. On the contrary, advice firms are using these scripts seeking only one thing – the best possible connection between adviser and client, not to deceive, pervert, or achieve outcomes that don’t serve the client.
Any strategy for building the advice skills of future advisers won’t have the privileged environment of the past, where margins were big and the competition wasn’t running ads during the Sunday night movies.
New advisers do not want to repeat the careers of those that went before them. Up and coming advisers want to get to where their ‘elders’ got to in a fraction of the time. This won’t be possible without a more disciplined, studied, and skilled approach to proposing, pitching, pricing, and delivering value, as determined by the client. A less rigorous approach will have to rely upon luck to build your front office ability.
Our industry has developed inherently inefficient models such as ‘hunters and farmers’, where the former have the selling skills, and the latter, the processing/administrative skills. I look forward to discarding these terms to the garbage bin where they belong. These terms arose in an environment where front office skills were thought to be more aligned with your ‘personality’ than your skilling.
Front office skills haven’t been a focus for over fifteen years, and that will soon change. An adviser’s natural personable skills are a good foundation, but the industry has wasted too many potential resources because we haven’t developed the road map for building front office advisory skills. As an industry, we have to nurture front office skills, and leave back office duties to the institutions of your choice, who can provide scale.
Question 4: Why are you working so hard?
This is the most important question for your consideration. As advisers, we’ve been asking this question of our clients for years, but we haven’t properly asked ourselves this essential question before crafting strategies for our own future prosperity.
Only you can answer it, and answer it you – and your partners – should.
If the advisory future excites you, these are the best of times to be building your future for prosperity independent of legislation and markets.
If the advisory future doesn’t excite you, join up with someone who is excited, or get out before you get too sick and tired of doing what you are doing today for probably less money.
These are the best of times to be building a great advice firm.