Top tips: How to grow your business

Brett Davidson, chief executive of FP Advance, looks at how small adviser firms can create scaleable businesses.

There is a lot of activity in the consolidation space at present, with the wagons starting to circle again after the temporary hiatus brought on by the credit crunch. The RDR is often cited as the reason for consolidation, with the consensus view emerging that small firms must consolidate or die. I don’t accept this.

High-quality small firms with ambition can also look to scale the boutique business they create, but only if the right pre-conditions are established. The most important of these is that a ‘house’ way of doing business is created. It is no good having ten advisers, who all have their own way of doing business. It might get you so far, but it will not allow you to build a great, scaleable, financial advice business. There needs to be one advice process, one review process and a consistent use of technology throughout the business. The investment management process needs to be agreed by all. Without these things in place it is almost impossible to market the business safely, because inconsistency destroys the marketing message quicker than anything else.

This does not mean that every client gets exactly the same advice, but it does mean they all go through exactly the same process, something that seems to cause some advisers real mental anguish.

Five-star treatment

Consider your own service experiences in, say, a hotel. Which organisation has the better systems and processes: a two-star hotel or a five-star one? The five-star one, of course, and yet this is the one that feels as if it delivers the bespoke experience. This is achieved by systemising 90% and customising 10%. In most adviser businesses the opposite is true, and it does not lend itself to consistency of delivery, high profitability or a great client experience. It is only when the basics get taken care of easily and systematically that advisers have time to relax and listen to their clients needs so they can deliver the customised 10% that makes all the difference.

Take a look at Table 1, the standard adviser value proposition that exists in most firms. In these businesses there is no ‘house’ way and advisers tend to do everything except some admin. themselves.

However, Table 2 shows the adviser value proposition provided by good-quality firms with the potential to scale up (should they wish to do so).

Core processes to success

In a financial advice business there are three core processes that need to work for the business to function effectively: the new client engagement process, the ongoing review process and the implementation process.

If you get these things organised with everyone following the process the same way your efficiencies go through the roof. Look at these profitability figures from the FP Advance Business Fitness Report.

• 12 per cent of firms report profitability of 50 per cent plus, where: profitability = 100 per cent x Gross Revenue: Total Expenses/Gross Revenue (including a notional £60,000 package for each principal)
• More than half of firms have profitability of less than 20 per cent
• 24% of firms could not profitably support a salary of £60,000 per principal (ie, they have negative profitability after the notional salary package is applied).

Interestingly, none of the high-profit businesses does it the old way: all of them are scaleable operations regardless of whether they intend to grow larger or not.

If you do have ambition and want to grow your business, you must first create a solid working prototype that can form the base for your growth. If you decide to grow by acquisition, which is still an option, each new firm has to either fit closely to your model or be prepared to learn your existing approach. If this cannot be done, you are wasting your time.

Once the prototype is created you have options, and building a scaleable business is possible. Without it you have no chance.