I sit on a number of ‘boards of advice’ of financial advisory firms.
These ‘boards’ review business performance, formulate business plans, provide accountability to plans, and assist with the unique implementation challenges of change and development for each firm.
To assist with your own planning for the 2010 year, here are the top four business challenges for which these boards of advice are formulating plans to ensure their future growth and success.
#1 Challenge – Sourcing great team members
Finding quality players is always the biggest challenge for good advice firms, and it’s particularly tough at the moment.
Due to tight economic conditions, unpredictable legislative developments, and consumer resentment towards the excesses within financial services, many of our most talented are seeking validation that they’ve chosen the right career. They don’t want to repeat the careers of those that go before them, but to understand how they will achieve success in less time than the employers they are joining.
In 2010, advisory firms seeking growth must stand out as an employer of choice.
Tactics include offering equity options within weeks of commencing that mature in two to three years, with appropriate performance and team hurdles which recognise that three nights of kissing don’t make a long term successful marriage.
Advice firms have to demonstrate that forward growth isn’t planned as simply getting bigger while repeating everything they have always done. New talent recognise that their careers won’t be built upon many of foundations that built the firms they are joining. Regulation is increasing, amalgamations of the big players will make pricing more competitive and transparent, and consumers are more connected and aware, making it harder for advisers to win and keep their trust.
The talent search isn’t confined to finding new and upcoming advisers. In fact, the biggest challenge here is finding small business management talent for advisory firms, finding someone who can bring order to the day-to-day mayhem of growing a small business, and hold all team members – including ego-strong owners – accountable to the execution of the agreed business plan.
Thanks to an ever-growing library of system thinking (started possibly by Michael Gerber’s E-Myth), and the last decade of practice development management roles, most advisory firms can access methods to effectively systemise their firms (i.e. job descriptions, client segmentation models, product platforms, compliance procedures, financial reporting, performance appraisal systems etc). Unfortunately, most are failing miserably at prioritising daily tasks to best align with the strategic goals.
In 2010, most firms will lack – and need – small business management talent more than ever before.
#2 Challenge – Finding great referral sources
Ideally, 50% of your firm’s prospective new business in 2010 should come from external centres of influence and strategic alliances, and another 25% from referrals from satisfied clients.
Current reality, according to our Dashboard® Reports, is that only 25% of new business enquiry comes from strategic alliances, centres of influence, and existing clients. The remainder is new business opportunities coming from a long tail of clients who ‘sit’ dormant on aged client bases.
Referrals always have been and always will be the business driver of advice firms. Referral solicitation can be done the old-fashioned way (i.e. wait for it), or it can be done with the assistance of current clients. Getting referrals is not just about getting more prospects or potential strategic alliances to talk to, but getting the right opportunities to talk to.
According to our Dashboard Reports, firms that have effectively partnered with their ideal clients to support the introduction of prospective new clients and strategic alliances grow three to four times quicker than firms which allow their clients to volunteer prospective new clients who may or may not fit the firm’s value proposition.
#3 Challenge – Finding time
The perennial favourite of us management consultants is challenging our clients as to how they will find time to implement the changes necessary to achieve their desired outcomes. Time pressures elevate hope to be the number one strategy for most businesses. Unfortunately hope is not a strategy.
Time can usually be found in a firm’s existing client base. Whilst many so-called advice firms have been overpaid for doing very little for too many clients for too long, most of our advice clients are still doing too much for too many clients for too little.
As advice becomes commoditised (and I predict that in 2010, we’ll see significantly increased large merger and acquisition activity, driven purely by the desire for scale in product manufacturing and distribution), advisory firms have to examine existing client bases to determine which clients represent the firm’s future, and which, the firm’s past.
Surprisingly, there are still more buyers than sellers in the market for client bases. Forward-thinking advice firms are taking advantage of this and selling client bases that don’t align with the firm’s future to free up time (and raise capital) to support the implementation of change.
The cynics constantly retort that people like me have been saying for years that inflated client base valuations can’t be sustained. Unfortunately for them, the gradual shift to realistic valuations (more akin to the accounting industry’s one dollar in value for one dollar in ongoing revenue) is taking place in small invisible increments. They will be left high and dry with their own long term financial welfare far too dependent on a decaying valuation of their aging client base. Ironically, far too many financial planners aren’t planning for their own financial future.
#4 Challenge – Getting your 2010 price and proposition right
The biggest lesson I learned in 2009 came from the release of my book – What Price Advice.
We sold the first 500 in the month after release (and no, they weren’t all bought by my mum and her bridge club), but I was surprised by the people who were buying them. I thought the book’s market would be owners of boutique advice firms. Instead, the books were being bought by employed advisers within large institutions, by clients of advisers, and by ‘junior’ advisers within larger non-boutique practices. They weren’t being bought in packs, but one by one.
On enquiry, these purchasers said they wanted guidance on how to price, and on what the value proposition is. They weren’t getting this from their employers.
2010 will inevitably see more compliance thanks to Ripoll, Henry and Cooper reviews. Expect more shadow shopping exercises and associated headlines from fake clients assessing ‘financial safety’ for consumers.
There will be more restructuring within the industry as major institutions experiment with new distribution methods that purportedly support fiduciary and non-fiduciary product distribution. There will be more choice of financial products confusing our already confused clients.
But, 2010 will also be the greatest year ever of opportunity for firms that want to build valuable advice businesses.
I’m looking forward to it.