For very many advisers the prospect of speaking about fees with a new or existing client is something they would rather avoid if it were possible.  This is particularly so for advisers who have been paid by a third party for many years and not directly by the client. While ultimately in such situations the client was the payer – either through a deduction from their capital at the point of investment or via a higher Management Expense Ration (MER) to fund a trail commission – it wasn’t as confronting as having to ask the client to pay directly.

In a similar vein to how the GST onset saw many ‘shoe box’ businesses fold because of the perceived complexity of Business Activity Statements and the like, I suspect with the advent of FOFA and the abolition of commissions save for existing investments, many advisers are thinking it’s all too hard to ask the client to pay directly.

However, it really is possible to learn how to discuss fees with clients in such a way that it becomes a very natural part of a client meeting.  It is largely in the mindset that needs to be adopted and the words and tone of discussion used when speaking about fees with clients.

Setting the Scene
Having a successful fees discussion with clients is not just about the verbal conversation.  There is a lot that you can do to ‘set the scene’ for clients so that they automatically expect fees to be the way you do business. It’s about non-verbal messaging – from business logos, signage; from stationery to websites and brochures to your reception area to the way in which you written word is formed in all your correspondence with clients.

Getting such messaging right helps to prepare a potential client that, as professional advice firm, you will charge professional fees.  The key point is that setting the scene makes it so much easier for you when the conversation needs to focus on how the client is going to pay for your services.

The ‘F Bomb’
While Financial Services Guides (FSG) must detail how an adviser is paid, at some point in a new client meeting you have to drop the ‘Fees Bomb’.  For many it remains a stumbling block when they begin to utter the word ‘fees’ however the key point here is that there is no set point in every new client meeting where fees must be discussed.

Real life is never as prescriptive as that and so it’s important for advisers to sense when it is most appropriate to speak about fees during the meeting.  That said, it must happen and you will look far more professional if you do so near the beginning and it certainly not be tacked on to the end of the discussion.

Some suggested wording:

Adviser: “… and so the process usually takes around three weeks from today before we meet again to discuss your written recommendations which will be in a document known as a Statement of Advice.  That said I need to walk you through our fees for each step of the advice process and portfolio management.  You might have noticed that our fees are recorded in the Financial Services Guide but I just want to go over them with you now so you can raise any questions you might have.”

The next client you meet with will be different and the way in which the meeting unfolds will be different to the last.

Client: “Before we go any further can you tell me how much this is going to cost me?”

Adviser: “Yes certainly. For today we do not charge as per the information in our Financial Services Guide.  If you would like us to prepare a Statement of Advice for you, our fee is a minimum $X. This fee is in recognition of our time costs in analysing your situation and your objectives and then developing a strategy to take you forward. We will present our advice to you in writing in the Statement of Advice at the next meeting.”

Client: “But what other charges will I have if I become a client?”

Adviser: “Well – if our advice includes investment recommendations – we will invite you to engage us under our portfolio management services. At this point I can’t say what that will cost however we levy our fees as follows…This means that on a $100,000 portfolio it would cost $X per year for us to manage it.”

Of course, if you operate on hourly fees or flat fees your example fee will need to be relevant.

At first, telling new and existing clients can be daunting for some however, like many things in life, the more often you do it the easier and more natural it becomes. Interestingly, the more often you do it the more relaxed your delivery will be and the more a ‘it’s the way we do business’ air of confidence will permeate every such discussion.

Remember – you will not be the first person your client deals with who charges them a fee and you won’t be the last.  If you are providing professional advice you have every right to charge a fee for services rendered.

Do you charge a fee for the first appointment?

Anecdotally at least, I sense that more advisers are charging for the initial meeting with a client. There will be various reasons for this however they could include:

• Wanting to place a value on the time that is otherwise given away with free first appointments in the hope that a potential client goes on to seek formal advice and perhaps engage the firm or
• Wanting to reduce the propensity for free appointments attracting ‘advice shoppers’ – people who ‘shop around’ for advice with little or no intention of engaging any financial planning firm

In the arena of fee charging, for some advisers, this will be a bridge too far just yet however, for those who are thinking about heading down this path, there are some key steps to have in place before charging for initial appointments.

Firstly, of course, there is the question of how much you will charge and that’s purely a matter for you and your colleagues. However, there is a delicate balance to be achieved here – you might want the fee to achieve, for example, some measure of cost recovery for your time, however equally you would not want to set the fee at such a level that it deterred most potential new clients from making a first appointment.

Secondly, you need to think about how the person wanting to make a first appointment is going to be told that there is a fee to be paid for it.  Naturally, it needs to be in your Financial Services Guide but it could be that the first opportunity for them to find out about the fee is when they telephone to make the appointment.

The question for you here is who will tell them?

• Your receptionist?
• Your assistant?
• Or you?

Regardless of who it is, that person needs to have a, for want of a better word, ‘banter’ which politely, professionally, notifies the caller of the fee. So, consider this type of dialogue:

You: “Thank you for calling Mrs Smith, we have an appointment available on Xth of September at 10am if that would suit you?”

You: “Oh that’s good – it works well then. Mrs Smith I just need to let you know that we do charge a fee for the appointment and it is at $X including/excluding GST.”

Client: “Oh I see – do I pay that on the day or do you send me an account?”

You: “You’re welcome to pay it on the day or we can send you an account, whichever you prefer.”

Or

Client: “I see – gee I wasn’t expecting there to be a fee. What’s that for?”

You: “Well the fee covers the time we will spend with you at that appointment which is typically going to be at least an hour – sometimes an hour and a half or so.”

Client: “OK – so will you advise me what I need to do at that appointment?”

You: “We will be able to have a general discussion about your situation however we are not able to give you specific advice at that meeting.  The reason for this is we need time to develop a very detailed understanding of your current situation and what you are trying to achieve. In addition, it’s likely we will need some additional information about your situation before can decide on the most appropriate way forward for you.”

Client: “So what are the costs for getting the actual advice, then?”

And on the discussion would go.

This is the next fee challenge for financial advisers/planners – reaching a point of being sufficiently, professionally, confident to charge for the time which could otherwise be devoted to people who are already clients and who are already paying fees. Charging for a first appointment might not be for every adviser however, that new client who you didn’t charge for the first appointment will likely handover several hundred dollars for their next consultation with their medical specialist.

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes. 

The post Dropping the ‘F Bomb’ appeared first on AdviserVoice.

In part 2 of this CPD mini-series, Ray looks much more closely at how to model your business budget in the real world – not ‘fairyland’ as he calls it.

OK so it’s the start of a new financial year and you’re thinking about the year ahead for your business. With so much uncertainty on many fronts for all forms of business, you probably had your heart in your mouth when you developed your forecast budget for the 2013 financial year (you did prepare a budget, didn’t you?). After all, once you commit a budget to ‘paper’ it’s just a set of numbers the realisation of which you have limited control over.  So how can you begin to take a set of numbers and make them really count in your business over the next twelve months?

The starting point has to be an honest, realistic, approach to the numbers you load into your budget spreadsheet.  The truth is that you can get a spreadsheet to give you any answer you want it to – it’s just a matter of the assumptions you use in your forward estimates.  But impressive numbers count for not a lot if they’re just nice to look at with little prospect of being achieved in the real world.

One thing is for certain: the vast majority of business failures have one common ingredient: unrealistic assumptions.

Start with what you know

Budgets are almost ‘living and breathing’ in that the Actuals can have swings and variances that at times won’t bear much similarity to the ‘Forecast/Budget’. So, the place to start with budgeting is where you will have the least likelihood of variances and that’s almost always in the Expense component of the budget.

In this regard you will know what your Fixed Costs are: salaries and superannuation, office rental and associated costs, utilities, research, software, insurances, cleaning and so on. These you know, within reason, will be relatively stable throughout the year.

Of course Variable Costs like marketing, postage/freight and the like are where you have less certainty but also have more control. For example, you’ll most likely have a hard time convincing your landlord to reduce your office rent whereas you can make a decision to reduce your advertising and other forms of marketing if your cash flow starts to look threatened during the year.

Once you have completed your expense budget you know how much revenue you need to generate in order to just break even.  This then gives you the information with which to understand if you have priced your services correctly.

Recurring fees

This ‘line item’ can be classified as both a ‘known’ and ‘unknown’ in your budgeting. To a reasonable extent, you can forecast what your recurring fee revenue will be regardless of whether it’s asset based or fixed/hourly rates.

Of course, the greater variance in recurring revenue could arise in asset based fees businesses and for that reason alone, arguably, recurring revenue might also be regarded treated as ‘unknown’. However, for the sake of this discussion we’ll regard it as a ‘known’ but come back to it later to account for the possibility of it being unknown.
What don’t you know?

Over the years I’ve seen enough budgets in various organisations to know that it’s the revenue budget that most often is where budget forecasts come unstuck.  While, as per the above, within reason you can forecast your existing revenue as it recurs over the coming financial year, it’s the growth of new client numbers and related revenue which is most problematic.

It might be intellectually stimulating to forecast impressive numbers of new clients based on average fees per new client and the subsequent average recurring fees from such clients, but the real world is often very different and there is absolutely no sense in budgeting with unrealistic revenue expectations.

Yes – you’re right – that should be budgeting ‘101’ but it happens far too often in all forms of business. Financial advisers are not immune from ‘living in fairyland’ when it comes to revenue expectations.

The indisputable truth is that you really don’t know how many new clients will actually engage you next month let alone in the last month of a financial year so what’s the point in deluding yourself and others with unrealistic forecasts?

It might be tempting to ‘fatten’ the forecast new client revenue to keep a lender happy, for example, but that only makes for difficult discussions down the track. Be realistic and conservative in what you forecast.

By maintaining a realistic approach to budgeting you create a business planning culture that is less stressful when the ‘Actuals’ don’t resemble your forecast budget. By making allowances for the real world to be different to the spreadsheet, you’re giving yourself more control of your business destiny.

What if?

So, if the future is somewhat unknown, save for fixed costs and a reasonable assumption on recurring revenue, what if:

• No new clients engage your firm in the budget year?
• Your assets based recurring revenue declines by 10% or 20% or more?
• You lose clients due to markets; perceptions of service; perceptions of value for money – you name it, what if you lost clients?
• Your variable costs rose above what you anticipated; above inflation, say?
• New legislative imposts simply added to the cost of being in business?
• You don’t have the capacity to increase your fees in response to higher costs (read: existing/new clients won’t accept higher fees)
• You have underpriced your services, but can’t increase your fees to clients?

Sensitivity? Analyse it!

If you are now unnerved by anything on the above list then you need to do some planning around such scenarios and possibly others not listed.  One key problem with budgets is that it’s too easy to get lulled into a false sense of security with numbers that give you the answer you want to see rather than giving you a set of truly meaningful numbers. The success of budgeting is partly dependent on testing the veracity of the numbers in your forecasts; in other words you need to analyse the sensitivity of the forecast outcomes showing up in your ‘bottom line’.

The ‘What if?’ scenarios referred to above need to be tested and that can be done with relative ease through a so-called Sensitivity Analysis – it really is quite straight forward. Simply copy the budget data to either a new spreadsheet or paste alongside the existing numbers. Then, apply equations in cells to reduce income by, for example, 10%, 20%, 25% – it’s entirely your call on what level decline in income you analyse.

The results should just filter through to the literal bottom line – the profit/loss line – in your spreadsheet give you much greater insight into where your business will be at under certain scenarios.  Of course, if you’re ever the ‘glass half-full’ type of person, you can model the upside as well in terms of revenue increases.

In reality

A ‘real world’ approach to budgeting is far more beneficial to you, your employees and your clients than a dreamy set of numbers that look nice but lack substance. By making provision for the real world to be different to the spreadsheet, you’re giving yourself more control of your business destiny by giving you much greater insight into what actions are available to you in order to keep the doors open. It’s all well and good to plan for success, but you need to keep your planning real.

At the end of the day, this is simply one form of business risk management and that’s a component of each and every well-constructed financial plan.

Keep it real, man!

18 July 2012
 

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes. 

The post Budgeting in the real world appeared first on AdviserVoice.

In this article, the next in Ray Griffin’s CPD series, Ray asks to you to get up close and personal with your business expenses and revenue budgets. He’ll ask you the tough questions to ensure you develop an almost instinctive understanding of your cash flow behaves.

Have you ever heard the expression: “Like a plumber with a leaky tap”?

As a financial adviser, do you ever wish you had more hours in the day just so you could keep in top of the financial issues affecting your business?  Like the expert plumber who never seems to get around to fixing the tap that’s leaking at his own home, sometimes advisers are prone to lose sight of what’s really going on, financially, in their own business.

It shouldn’t take a Global Financial Crisis for financial advisers to look closely at how their business is performing in the present and into the future.  The depth of the market downturns resultant of the GFC directly impacted the revenue streams of any advisers charging fees on an asset basis or earning trailing commissions.  Of course, it also saw decreased numbers of new clients.

If you’re an employed adviser, most often you won’t have to be concerned about how the employer’s business is actually performing, but there’s something in this for you too.  For those who run their own business either as a representative of a licensee or if they have (or are thinking of applying for) their own Australian Financial Services licence, being on top of your cash flow really is ‘101’.

The bare minimum – ‘Break-Even’
Before reading on – please stop and answer this – in ‘round’ numbers, do you know what your businesses break-even point is?

In other words, do you know what the minimum amount of revenue the business must generate to simply cover all current expenses?  How well do you know your business’ expense budget? Have you deduced the total amount of annual expenses down to, for example, the average required revenue per week, per month, per quarter and so on?

If you charge fees on an asset basis, do you know what the impact of say a 10% fall in the Australian share market would be on the business’ income? What about a 25% decline? If not, you should. Break-even calculations are the first step in understanding your business’ cash flow and you need to model a range of scenarios on the downside at varying levels of, for example, declining markets.

For those who levy fees on an hourly rate you need to model the impact of, for example, lost clients. How many clients with average per year fees could you afford to lose before you approach break-even?

Regardless of charging methods, is your business exposed (read: overly dependent) on fees from one or a small number of ‘larger’ clients? Do you know what the impact of losing that client(s) would be to the business?  If not you should.

Where will your cash flow be in 3 months from now?

Do you know, within reason, what your business cash flow position will be like in three months from now?  As a condition of their licence, holders of Australian Financial Services Licenses must forward calculate their business cash flow on a rolling three months forecast.  If it’s a requirement for a licensee to have to do that, then it would seem sensible for all representative financial advisers/planners who operate their own business to do the same.  While a three month forecast is part of an AFSL condition, there’s no reason why you couldn’t run your forecasts over say six months and beyond.

Cash flow instinct
This is about getting your mind across the ‘headline’ numbers such that over time you develop an almost instinctive sense of where the business is at; where it’s heading in a cash flow sense and what the risk points and triggers are.  Anything else is to simply ‘fly blind’ and hope for the best.

While I’m not suggesting that you yourself should be loading the expense and income data into the spreadsheet, you do need to be looking at those numbers on a regular basis. If you employ someone to do your bookkeeping, you should not abrogate your duties entirely to that person.  You shouldn’t be getting cash flow warnings from your bookkeeper – you should be across the issues well before a crisis develops.

While your bookkeeper/accountant is responsible for data entry and reporting, it’s you (and your business partners if relevant) who must be ‘across’ the final numbers and it’s you who needs to be looking for cash flow trends which are developing in a deleterious manner and instinctively know what a, for example, 10% market downturn does to your business.

What’s your plan when things don’t go to plan?
Imagine for a few moments that your business’ revenue declined by 10% (or more).  Do you know if the business would remain profitable in that situation? Could it break-even?  If it doesn’t remain profitable or if the reduced profit result is too low for you, what actions might you take to address the situation?

• Would you cut costs?
• Would you leave costs alone and look to increase revenue by trying to attract new clients through, say, an advertising campaign?
• Can the business afford the advertising campaign?
• How long will it take for such a campaign to deliver new revenue to the business?
• Can you wait that long?
• What costs would you cut and when?
• What are the downsides of cutting the costs you have identified?
• Would you retrench staff – reduce hours? If so which staff? Who can you most afford to lose?

A suggested course of action if your ‘tap is leaking’
If you’re unable to answer any or all of the preceding questions, then there is some work for you to undertake so let’s look at a straightforward course of action to get you closer to an ‘instinctive’ understanding of your business cash flow.

Develop a spreadsheet which details your FUM in each sector and the fees receivable against those sectors. Then, simply model – say to the left of the FUM sectors on the spreadsheet – various levels of sector declines and the impact on fees. For example, given that in recent times domestic and international markets tend to move in-step with each other, you can model a 10% decline in Australian and international equities and examine the impact on fees. The same might be said for other listed assets such as property funds and the like.  Calculate higher levels of decline and note the impact on fees all the way to the ‘bottom line’.

Build in your break-even point as part of the analysis so you can at a glance know where that point is in terms of market declines.  A well constructed spreadsheet of this type can become a permanent tool to help you understand how your business will behave under certain market conditions. If it really is well constructed, in terms of cell calculations, you need only enter the ‘Current’ FUM data on say a monthly basis.

The key thing about building your business’ cash flow ‘barometer’ on a spreadsheet is to have an understanding of what you want it to tell you.  With almost twenty years in professional practice I can attest that this is one of the best business management tools you can have at your side.  It really does give you much greater confidence in knowing what impact markets will have on your business.

With thanks to a former US Secretary of State (Rumsfeld, D.), from a financial planning business perspective, there should not be ‘unknown unknowns’.  There should not be unforeseen market movements or at least you shouldn’t get caught asleep at the cash flow wheel when they arrive.  We all know markets go up and down and it’s the downside that you must know about in terms of its impact on your business’ cash flow.

By building a quality spreadsheet analysis of your present and forecast cash flow which models the impact of market declines, you will only ever have ‘known unknowns’.

Happy spreadsheeting!

The post Running your business part 1 appeared first on AdviserVoice.

At least that’s what you might conclude if you happened upon any article on the Future of Financial Advice Reform legislation. Scan the headlines and it’s rare to find positive commentary much less commentary which tells the story of what’s really happening out there ‘in the trenches’ as licensees and advisers prepare for a FoFA future.

In our first article on FoFA readiness we spoke with small to medium licensees and in this our second in our mini-series on FoFA readiness, we hear from two very large licensees about how they’re readying their representatives for a fully disclosed, clients come first, world.  Ray Griffin spoke with AMP’s Steve Helmich and Securitor’s Adrian De Silva about the FoFA preparedness of their organisations.

With around 460 representatives Securitor, like any large licensee, is charged with getting big numbers of advisers ready for what stills remains an uncertain ‘final cut’ of the legislation which is yet to pass through the Senate.

“We took the view that we needed to run a ‘Pricing Advice Program’ for our advisers which gets them to understand, very clearly, the cost of providing service. While advisers do an amazing amount of good work they don’t always articulate it well the client.”

National Manager, Distribution Adrian De Silva pointed out. “So to date we’ve taken 81 practices through a very intense two day workshop to get them to understand the actual cost to serve and for some you can see the ‘light bulb’ go on with the realisation they’ve been significantly undervaluing their services.”

De Silva says the feedback has been tremendous. “We’ve got advisers saying things like: ‘We now better value who we are and what we do for clients and some are saying that they’re getting better staff ‘buy-in’ and stronger advocacy of the firm by staff.”

Securitor has insisted that the workshop be a ‘whole of firm’ process – not just advisers.  “You need to be sure everyone is on the same page because that’s what creates efficiency.”

Adrian De Silva points out that it has given advisers the confidence to differentiate the various services they provide and how those services should be billed.  On first glance at least, it seems Securitor’s FoFA readiness is paying off with revenue increases of around 54% and 64% average increases of post workshop fees for initial and ongoing advice respectively.

With around 1200 representatives across Australia AMP has been planning for a FoFA type environment since 2009. Director of Financial Planning, Advice and Services, Steve Helmich notes: “We always try to look ahead and predict what’s happening with consumers and in 2009 we felt we had a real opportunity to take a leadership position in the financial planning profession by moving all our financial planners to fee based advice. And so we made the decision that from 1 July 2010 we would only deal with new financial planning clients on a fee basis with the only exceptions being risk cover and mortgages.”

With reference to the possible so-called ‘opt-in’ outcomes of FoFA, Helmich points out that clients are at liberty to ‘turn off the advice fee at any time. “The power is in the hands of the consumer.”

The uncertainty of the final version of FoFA remains a concern for the two licensees. With the Bill having passed through the lower house its passage through the Senate remains unclear. Into that mix sits the clearly stated view of the opposition FoFA spokesman, Mathias Cormann, that he remains unhappy with the Bill and would look to make significant changes to it should there be a change of government. The opposition appears to hold strong views against the Opt-In aspects of FoFA.  However, while AMP and Securitor both readily admit that knowing exactly what FoFA will eventually dictate is difficult, they nevertheless seem to be getting on with business despite the uncertainty.

AMP’s Helmich noted: “We don’t know what the final form will be – because there’s uncertainty around ‘the Code’ it’s difficult to speculate on that.  But what I would say is we know what the FPA’s Code is now and we’re very well aligned to it. So we will look at the situation and understand what comes out of the Code [of Practice] and then make our decisions around that.  We’re very consumer focused and we want the clients of our planners to understand what they’re paying for.”   Steve Helmich also noted that AMP representatives receive no remuneration incentives for recommending AMP products. “They get no extra kudos for using AMP over Asgard or BT over AMP – or whatever it is – they will pick the products with which the clients are most comfortable and which also suits the clients’ needs.” He also points out that AMP products do not pay commission to any advisers regardless of their licensee.

De Silva claims that resultant of the Securitor’s advice pricing workshops and 12 week coaching program post the workshop, their advisers are not as concerned about FoFA because they are better prepared for some of the key elements. “We’ve gone to our advisers and discussed the potential FoFA impacts on their businesses and overlaid their current situations with FoFA requirements so they can see the financial impact on revenue.” Securitor then digs deeper via a 24 question survey which focuses on their advisers’ ongoing fee obligations; their ‘best interest’ obligations and their conflicted remuneration. “Then we prepare them for the potential ‘hot spots’ when the legislation eventually comes out so they can say: ‘My business is FoFA proof’” Adrian De Silva notes.

Both AMP and Securitor are going to be impacted to some extent by the conflicts of remuneration components of FoFA.  However, Steve Helmich believes AMP advisers will be able to accommodate the requirements. “We always make sure we disclose any interests or potential conflicts of interest on each and every bit of advice we give which unfortunately this makes advice documents a bit longer than they should be but we do want people to understand [the interests and conflicts]. But the truth is people are dealing with an AMP financial planner and there is some expectation that they may get an AMP product as part of the solutions for their advice.”  Securitor’s De Silva seems to sum it up when he states: “At the end of the day ’best interest’ is always what good financial planning has been about.”

A common thread has interwoven the comments made by all the licensees we interviewed for these articles and that is the need for their advisers to be able to articulate the advice Value Proposition to both new and existing clients. It’s no surprise that it all comes down to what do clients receive in return for the fees they pay and do clients see it as value for money?  My observation has been that even before FoFA, well run financial advice businesses from both the large and small licensee settings were already operating in a quasi FoFA format.  Best Interests, full disclosure of any conflicts and costs were key differentiators in such businesses.  In a post FoFA world the rest of the Australian financial advice scene is being brought up to that standard and that’s a very good thing for all stakeholders.

The post FoFA readiness – how are large licensees approaching it? appeared first on AdviserVoice.

In this edition, Ray discusses the benefits and ‘how to’ of conducting a SWOT analysis on your business (or your planned business) as a means of getting a deeper insight into what’s working in the business and what’s not.

SWOT Analysis
One business tool often used to assist both with initially going into business and post-establishment is the so-called ‘SWOT’ analysis which has been used to varying degrees in both large and small businesses since the 1960s.  The process of understanding your business Strengths – Weaknesses – Opportunities and Threats is designed to get business owners and managers closer to the truth about the status of their business be it already operational, or in planning mode.

While other, sometimes more complex, businesses measurement tools have been developed since the SWOT process first appeared, it remains a very useful aid for a hundreds of thousands of businesses around the world.

In its simplest form, a SWOT analysis is a one page chart laid out as follows:

Broadly speaking, there are two environments which affect businesses and they are Internal and External.  Strengths and Weaknesses fall under the Internal environment whereas Opportunities and Threats are External to the business.

In every respect this is an exercise in honesty – an exercise in being honest with yourself about what you are good at in business, or at least what you think you will be good at (your strengths), along with admitting your weaknesses.  Next is to open your mind to what opportunities might there be outside of the business.

A successful SWOT usually reveals new services or ideas to enhance existing services which can help grow the business.  Finally, it’s important to identify what threats are emerging or have already emerged externally which could impact on your business planning and we’ll look at each of these in more detail shortly.

If you are already in business, ideally, a SWOT analysis should be conducted away from the business premises.  You need to free your mind of ringing telephones, staff questions and chatter, emails and all other day to day work related matters.  You need clear thinking time which is uncluttered in order to get the best, most honest, outcomes from such an analysis.

For existing business owners, a SWOT is often a good way to start a review of where the business is and where you would like to take it over the next one, two and five years.  But to get the best results from the process you need to be free of distraction with an open mind.

One more point for existing business owners about to embark on a SWOT analysis is to ensure that your employees are part of the process.  You should require your staff to attend such processes and impress upon them the need to be open and honest about their views on, among other things, what’s ‘right’ and what’s ‘wrong’ with the business.

As a business owner, you can be sure that your employees will see things in the business that you cannot and there should be a workplace atmosphere in which everyone feels free to openly express their views.

It could be confronting but you might well be surprised what you cannot see.  This requires your leadership skills to ensure the meeting environment is conducive to open discussion.

Existing business owners might also wish to consider arranging for a specialist consultant to lead the SWOT analysis as part of a strategic planning exercise which, again, should involve all employees. This allows the business owner(s) to participate without the need to ‘chair’ the discussion.
If you’re not already in business, it’s a good idea to sit down at the ‘kitchen table’ at a time when you can be free of interruptions and just ‘white board’ your honest assessment of the various components of your business planning at this point in time.

If you are able to, you should ask your spouse or an experienced and trusted colleague to review what you have compiled in your analysis and ask them to critique it from his/her perspective.  Again, this person is likely to see things that you cannot.

Strengths
Your strengths should be both intangible (personal) and tangible.  That is to say, an intangible strength might be that you are a good communicator – someone who is a ‘good with people’ as the expression goes.  Note that, among other traits, many successful business people are good at understanding people; ideally you need to be that type of person.

While financial planning businesses are intensely focussed on financial matters they are equally, intensely, businesses which are very much about people.  Other strengths might include that you are a good public speaker and/or a good writer.  Note that both of these are also ‘communication’ skills.

If you don’t already know, you need to find out about your personal strengths and the personal/behavioural profiling discussed in the first edition of our Mini-Series of CPD is an ideal way to acquire a science based, unbiased, assessment of yourself.  It will reveal all that which is strong in your personality type along with other areas where you perhaps are not so strong.

Another strength which is not necessarily a personal strength but is nevertheless a tangible strength is that you could be well capitalised in your business planning, be that for a start-up or expansionary phase.  This could mean, for example, that you have sufficient capital to pay for all business expenses for say the first six months.

Or you have enough capital available to cover the office costs for a new branch of your business for the first twelve months.  Note however that, in this example the strength is also a weakness because unless sufficient income can be generated within the first six months, the cash will simply run out and your business journey could come to an abrupt end.

Yet another strength might be that in the suburb or town you are going to establish your business, there is very little competition from other financial planning businesses although it must be said that this not such a high probability.  However, you could be a specialist at what you do against which other financial planning businesses cannot compete.  An example could be that you are a specialist Self Managed Superannuation Fund planner whereas your competitors might not be. This gives rise to marketing ‘opportunities’ – see later.

Weaknesses
This is where you really need to be honest with yourself.  What aren’t you good at and/or what is the business (business planning) not strong on?  By having an understanding of these issues – and be certain in the knowledge that you/the business does have weaknesses – you are able to identify what additional skills you might need to acquire personally, or resources such as staffing for the business generally.

A personal weakness could be that you, as intelligent as you otherwise are, are not good on administrative detail or good on following through on such detail.  It might simply be that you don’t enjoy such tasks and find your job satisfaction in other aspects of business.  This is nothing to be ashamed of but it is important to be aware of it so that your business planning can take account of it.  Again, if you don’t already have such self-awareness, a good way to find out is via a personal profiling exercise.

A business weakness for a start-up is likely to be that you have no clients or very few.  If you’re a relatively new financial planner you probably won’t have many, if any, clients.  If you’re already in business and looking to expand, a weakness could be that you don’t yet have systems established to cope with processing administrative matters which would arrive in opening/acquiring an external office.

Or you could be exposed to compliance issues which cannot be properly managed from a distance.  Again, for existing business, you could be understaffed and you need to be aware of the effects on work-flow and efficiency along with the often quite deleterious human effects of overworked employees.

All such weaknesses need to be addressed and actions planned and implemented to ameliorate the situation.  While not all weakness can be turned into strengths the vital issue is to become aware of and fully accept that you/your business will have weaknesses.  And recognise that every – every – business has weaknesses at every stage of the business life cycle from start-up to maturity and beyond.

Opportunities
In some respects this the time in the SWOT analysis where more creative thinking can take place.  It’s the section where ideas and thoughts on how to establish and/or grow the business can bubble to surface.  It’s the time when – to some extent – you can unshackle your thinking from the day to day planning or management and contemplate what could be in the business.

An opportunity could be to, for example, approach your local community radio station to suggest you could comment on financial news items (we’ll have more information on this in a later edition).  For those still planning the establishment of their business, an opportunity might be to use the very fact that you are establishing your own business as a reason to send a short letter to that effect to other professionals in your suburb or town. (note that this will likely have little initial impact for you however it’s an important step in announcing your business).

Another opportunity could be that a change to retirement income legislation has just been announced which will affect all retirees. This gives you the opportunity to plan a communications programme to a target audience be that potential clients or existing clients and other professionals.

Threats
Firstly on threats, please note that they are not weaknesses.  Threats are external to the business and are issues or aspects which could damage your business. Such a threat in a financial planning business could be the onset of new regulation which increases the cost of providing financial advice. The recent concern regarding the impact of the Future of Financial Advice (FOFA) legislation is a perfect example.

In this regard, in the very early years of the first decade of this century, the looming threat of the Financial Services Reform Act (2001) related to a more imposing legal compliance environment for financial planning businesses commencing March 2004, and was cited by many financial planning business owners as a very large threat.  Another recent legislative threat which remains prominent for those yet to make changes in their financial advice business banning of commission payments to financial planners.  In such an environment, business owners should have been conducting a SWOT analyses as a first step in understanding how to deal with the threat.

Another threat could be declining levels of consumer confidence such as those that beset the Australian economy at the height of the global financial crisis in early 2009 and which in many respect continue to this day.  This has generally resulted in decreased numbers of new clients for financial planning business plus the loss of existing clients.

The preceding examples in the discussion on SWOT give rise to a table as follows in Table 1:

Typically in a SWOT process each column will initially have quite a few entries or items listed however a reality check should tell you that you cannot work on every item.  Ideally, you need to refine the lists to perhaps a maximum four – no more than six – items of the highest priority or importance in each segment.  The overriding emphasis in a SWOT analysis should be to reveal the most important issues that relate to the primary business objective.

SWOT – it’s not the end of the story
A SWOT is really only a tool to look at what’s happening and what’s not happening in/to your business.  It alone cannot action changes and improvements in a business.  That falls to you as the business owner and you have to convert the revelations from the SWOT into actions – otherwise you’ve wasted your time if nothing changes in the business.

In actioning the decisions which arise from the SWOT findings you will need to develop a timeline of – What (has to be actioned)– When (must it be started and completed) – Who (will action it and who has primary responsibility) and How (will the action be taken – what resources required).  This is the actual planning which will put the changes in place to improve the business.

As the business owner, you will need to monitor and review the implementation of agreed actions from the SWOT process and we’ll look at this in the next edition of AdviserVoice CPD Mini-series.

This is not set and forget
With your first SWOT analysis done you might be tempted to let things rest for a while however I suggest you conduct a SWOT analysis at least once a year.  You can be sure Strengths can weaken over time – some Weaknesses can get even weaker – Opportunities will not be actioned and new ones will arise – and new Threats will emerge while this year’s threats might become less of an issue.

Take some time now to plan your first SWOT analysis even if it’s just you sitting down with a pen and paper on a Sunday morning at home, thinking deeply about your business.  Better still think about holding a formal business planning event, which kicks off with a SWOT analysis, as part of your annual calendar.

To see the first article in this series, click here.

The post Swotting up appeared first on AdviserVoice.

This is the first of two articles on how licensees are coping with the potential impact of the Future of Financial Advice Reforms that have been postponed to 1 July 2013. In this article, three principals of independently owned small-to-medium advice businesses discuss what they’re doing to get FoFA ready. The second article in this series will look at how much larger advice businesses, including a product manufacturer, are getting set for FoFA.

In speaking with the heads of three independently owned financial advice firms about the proposed Future of Financial Advice (FoFA) reforms, one thing is abundantly evident…despite the uncertainty of where FoFA will eventually end up, on the whole, they seem to be just getting on with business.

That’s because there are common aspects of the businesses that are allowing them to cope with FoFA – no in-house products, fee for service and good disclosure systems in place. That said, they all have issues with potential costs associated with an opt-in regime and some see issues getting much needed cost effective advice to clients in areas such as corporate super.

Dr Tony Virtue, of Virtue and Partners Sydney, argues that advice for corporate super and intra-fund advice is where the real problems with FoFA lie.

“There’s not a lot of issue with SMSFs because we bill annually, but corporate super is an area that is still far from settled. How that will work with My Super and intra-fund advice, and whether adviser fees are implicit or explicit and so on? To be frank there is still both uncertainty and different interpretations of the legislation as it stands which is still not through the Reps.”

Virtue and Partners provides advice on a range of financial services but primarily in the areas of risk, retail superannuation (using wraps and SMSFs), a non-super investment service along with a mortgage brokerage. Dr Virtue believes that larger portfolio clients are already paying for services on a FoFA type basis but that it’s the smaller portfolio clients where it’s going to be difficult.

“For the larger clients there is no change where there is an invoiced fee. We already send them an invoice and they pay it. I think the real issue is in the ‘mid-market’ – the twenty to fifty thousand type small accounts where we need to get some scale. That’s the area which we’re finding difficult in how to reorganise ourselves in a way that is still relevant to the public.”

Melbourne-based Hewison Private Wealth CEO John Hewison is a little more at ease about what FoFA could mean for his firm. With several hundred million dollars under management via direct investment portfolios, Hewison is very comfortable where the firm sits for an eventual FoFA implementation:

“Really it doesn’t worry us at all. We’re fee-based and we’re transparent. The clients know what they pay because we already issue them with an invoice and for us to send have to send them an annual statement [opt-in] – well, it’s annoying but it’s not a big deal.”

Similarly Orange-based Roan Financial Group head Peter Roan is also ready for FoFA.

“We’ve always adopted the approach that you have to be providing service for clients and a value proposition, and your client needs to be able to connect with you on that and vice versa. So for us, regardless of whichever way FoFA ends up, it’s always going to revolve around a value proposition; the client knowing what they’re paying for – what they’re paying and where it [the payment] is coming from, and did it represent true value for what the work being carried out?”

All three principals are agreed that if an opt-in requirement were to be put back into the Bill, it would add costs to their operations. Tony Virtue argues:

“A lot will depend on if there is any retrospective annual fee disclosure. If ASIC will accept fee disclosure via the quarterly statements that clients receive on a wrap account, for example, then that won’t have an impact, but if we have to write separately to clients historically on my letterhead as opposed to the wrap account, then really that’s just pure duplication for duplication sake. The point is there is no need for there to be a separate piece of paper to what is currently being provided [for fee disclosure].”

Looking more broadly at financial advice businesses, John Hewison claims:

“The real issue is when not if FoFA will actually go through. The big question is how on earth can a product manufacturer comply with fiduciary duty?”

We’ll look at that issue in the next FoFA article.

There are key aspects of these businesses which can well serve licensees looking to set their businesses for an eventual FoFA regime. Each of the businesses has:

• dedicated client service systems already in place
• fee for service charged in a way that ensures clients know how much they’re paying and what for
• strong ongoing relationships with their clients.

Regardless of FoFA, these attributes are already serving these businesses well.

The post Businesses get FoFA ready appeared first on AdviserVoice.

In the first in the series, former financial planning business owner Ray Griffin, who built and sold a successful advice  business, discusses some of the more fundamental issues which advisers who are either thinking of setting up their own business or who are in the early years of getting established in business, will face.

You and your business decision
A decision to go into any form of business is a major decision and if your business of choice is in the financial advice arena it has the added complexity of layers of compliance laden risk.  It’s not a decision to make lightly and the reality is that some people are just not suited to being in a business of their own.  Indeed, some people set up their own business only to discover that it’s not really their skill set.

So in this first edition in our mini-series on Financial Advice Business Management CPD we’re going to look at how to gain a deeper understanding of you and how you might function in business along with helping you refine why you want to go/stay into business.

Win or lose – it’s all down to people!
Businesses either succeed or fail due to people and the decisions (or lack thereof) they make.  While external forces are constantly at play in business outcomes, it is people who make decisions which either protect or expose the business to the effects – positive and negative – of the external forces.  And it is people who sometimes avoid making decisions which might otherwise make a business successful.

Understanding people is a vital skill in any business; the capacity to understand and relate to your clients, your employees, your business partners and other stakeholders is an essential component in the skill set of a successful business owner.  It really isn’t an optional extra.
However, understanding you – how you: think, process information, make decisions, act in certain situations along with a substantial range of other behavioural traits – is a good first step in deciding whether or not to go into business and indeed, in making subsequent business planning decisions if you do take the big step into your own business.

Myers Briggs Type Indicator® (MBTI) and DISC® behavioural profiling systems are but two services which could aid you in better understanding your behavioural preferences or tendencies.   Gaining a deeper insight into you might assist you in, for example, critiquing decisions you are about to make or implement.

Sometimes businesses fail due to, for example, overly ambitious income forecasts which are not achieved. In such a situation, it could be that the personal preferences or behavioural style of the business owner sees that person have a bias to always see things in a positive light – to not take proper account of data or information which might otherwise see them develop an alternate – perhaps more realistic – income expectation.  In contrast, it could be that an overly cautious or conservative behavioural profile might see a business owner fail to take advantage of opportunities that might arise during their business career.

Behavioural profiling can also aid existing business owners who might be considering going into partnership with another person(s). Understanding yourself and the person(s) you might be about to enter into business with could be one of the best investments you make.  It should equip you and the other person(s) with deeper insight into yourselves and each other and help you better understand or interpret particular behaviours in business partners which will at some stage inevitably be on show.  It might also be that such profiling might suggest that the people planning to join forces in business might be better off not doing so.

Personality or behavioural profiling is usually conducted by completing a questionnaire which is then analysed by the service provider.  The questionnaire can be completed in hard copy or on-line.

Please note that there is no suggestion that any particular behavioural or personality profile is superior to another in business.  Indeed, the world is full of successful business people who exhibit a range of behavioural profiles.  However, it is reasonable to suggest that a common factor in almost every business success – save perhaps for the one-off technological discoveries sold for vast sums – is that the business owners have really understood people and some of those would have had a deep insight into their own behavioural preferences. Such people knew what they were good at and knew what skills they lacked and as they grew their businesses ensured that they filled skills gaps with suitably skilled people.

If you wish to explore this issue further, an internet search will reveal several service providers who can provide professional assessment and guidance on understanding your profile.  There are even smartphone ‘apps’ which can be downloaded however if you do wish to find about your personal behavioural profile, it is strongly recommended that you subscribe to a service which provides you with personal service, even if this is only in the form of a follow-up consultation after completing an on-line questionnaire.  There are numerous ‘free’ profiling services available however it is unlikely that a personalised follow-up consultation will be provided through the free sites.

Business Vision – what does your business look like?
When you’re in business or planning to go into business, it’s quite easy to become immersed in business jargon and terminology and to think that the answer to success lies in knowing and applying academic rules and procedures.  For decades now, business schools and business leaders have developed terminologies which are attempts at identifying key aspects of business planning and operations which can give businesses a competitive advantage.  Among the plethora of terms are: Capital Expenditure, Cash Flow Forecasting, Marketing and Public Relations, Customer Service, Strategic Planning and on the list goes.  These terms are of course readily used each and every day in large, well established businesses but what about a brand new financial advice practice?

The reality of the early weeks, months and years of small businesses – which most financial planning businesses are – is that survival is the first objective.  Just making it through the first few years of operation is, for many people, the objective.  If they survive in business and can then take some time to think more deeply about what they are really trying to achieve – then the more academic aspects of business become quite important.

That said however, as you set out to build your financial planning business, you need to have a vision of what your end goal is; how you see the business at a certain time in the future.

Vision statement
Large organisations develop quite formal Vision Statements and they do provide some value; they are something which internal stakeholders can refer to from time to time to check how the business is going in pursuing its goal.  Such vision statements can appear in some business documents, form themes for staff meetings and the like as well as appearing in annual reports.  However, for small businesses where in the early years the principal(s) and perhaps one or two employees are the business, a formal vision statement might not be so necessary and might not be so beneficial.

That said every business owner or person planning to go into business should have a vision – a view in their so-called ‘mind’s eye’ – of what they are trying to achieve with the business. A vision statement (or ‘mind’s eye’ view) is not a panacea for bad business decisions however it can act to be regular reminder of what you are trying to achieve in business over the longer term and help maintain the required focus during difficult times.

What’s your vision?
There are varied views on what a vision statement should be based on.  Yours could be something quite simple and nebulous such as “Providing advice to 100 clients by 20XX” or something much more definitive.  If you choose the latter, much more precise, option you could chose to base it on three perspectives: personal – professional – financial.

In its simplest form the personal component of a vision statement is how you see – how you envision – yourself and your lifestyle to be in say five years time. How long might you want to work each week? Where might you want to live? How do you spend your leisure time and a range of other possible ‘visions’ of how you would like to be living out your life at that future point in time. One further suggestion to consider is: How much work pressure to do you want to be under in business?

The professional perspective could address:

• What type of clients would you like to be working with? So-called young ‘accumulators’ or the generation of their retiring parents/grandparents? Or combinations of both perhaps?
• Will you, personally, still be seeing clients in five years from now?
• What might typify a satisfied client in your business?

The financial perspective will deal with ‘bottom line’ matters:

• How many clients do you want to be caring for?
• What level of funds under management do you want to be charged with managing?
• What level of business income would you like to be generating – and what profit might you be seeking?
• What personal salary package might you be earning in five years?

Of course it will be difficult to encapsulate these three aspects into a succinct vision statement however it should help you form a view as to what your business will ‘look like’ at your chosen point in the future and how you fit into it.

It’s likely that some people reading this might want to go straight to the numbers – straight to the financial perspectives.  For some it will be a natural attraction.  However, I can only encourage you to start thinking about your visions from the personal perspective.  As former Eagles drummer Don Henley wrote in his 1990 song ‘Gimme what you got’ – a comment the greed culture that enveloped ‘Wall Street’ in the late 1980s and which remains relevant today in the post Global Financial Crisis era:
You spend your whole life
Just pilin’ it up there
You got stacks and stacks and stacks
Then, Gabriel comes and taps you on the shoulder
But you don’t see no hearses with luggage racks

That verse confronts the human instinct to get more and more of many of the ‘physical’ things that can be accumulated in life – given sufficient income.  In business, having more of everything – more clients – more funds under management – more staff – more technology – more money, will not be a panacea to a life only half lived.  As you go about your business career, perhaps occasionally take some time out to check that you’re in the business to live, not living to be in business.

Competencies
In business you need various core competencies some of which are unchanging over time while others, often more technical based skills, by necessity need to change and adapt to changing conditions.  A primary example of the latter in the financial advice profession is the constant changes to superannuation and taxation laws.

A prime example of a competency which, generally speaking, does not change over time is the need to manage the business cash flow – income and expenditure.  No matter what increase in client numbers and fees occurs in a financial advice business, managing cash flow – as in any business – is a constant function; a constant pressure.  It is vital that you become skilled in managing cash flow certain in the knowledge that there will be times in your business career when cash flow will be tight – that is to say there will be times when income reduces through myriad reasons; loss of clients, investment market downturns (this particularly affects asset fee based businesses), loss of investor/consumer confidence and so on.  Or it could be that your business expenses grow too rapidly and the prevailing income is either insufficient or, at best, a break-even position from which no profit arises in the business.

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes. 

We’ll have more on cash flow management later in this mini CPD series, in the meantime stay tuned for the second in our series which is about how to carry out a SWOT analysis on you and/or your business.

The post Behavioural profiling & business vision appeared first on AdviserVoice.