For many advisers, the term ‘estate planning‘ conjures up thoughts of complex, highly technical advice solutions such as wills and testamentary trusts. Whilst some aspects of a comprehensive estate planning process can indeed be complicated, advisers are ideally placed to act as a ‘facilitator’ of such a process, bringing in highly qualified specialists as required.

Background

With more than 45% of Australians not having a valid will, an ageing population and the amount of household wealth available for transfer by bequest in 2030 is set to surpass $70billion, there is a clear and significant disconnect between the need for estate planning solutions and the current usage of those solutions.

The 2006-07 Family Characteristics and Transitions Survey (FCTS) highlighted the stark realties facing families in modern Australia with a specific focus on the impact of divorce:

Of the 4.8 million children aged 0 to 17 years in 2006- 07, just over 1 million (22%) had a natural parent living elsewhere.

Indeed, considering that around one third of all marriages end in divorce, and half of all divorces involved children under the age of 18, the increasing prevalence of ‘blended families’ and the resultant complications in estate plans reinforce the need for an advice solution that is accessible.

Add to this the life risks that insurers like Zurich know all too well:

• Over 60,000 Australians will have a stroke this year (that’s one every 10 minutes)
• 684,000 Australians are estimated to have chronic heart disease.
• 1 in 2 men and 1 in 3 women will be diagnosed with cancer before they turn age 85
• More than 110 Australians will die of cancer every day
• There are estimated to be over 800,000 diabetics in Australia. Diabetics are 5 times more likely to have a stroke and 10 times more likely to have a heart attack.

And there are – indeed overwhelming – cultural, social and economic factors driving an increased need for estate planning advice, representing a fantastic opportunity for financial advisers to provide meaningful assistance to their clients and the community at large.

Aside from the significant demographic trends which are driving growth in demand for estate planning solutions, there are 4 major benefits of applying an estate planning methodology across your business (rather than thinking of it as a service relevant only to your older clients):

• It can uncover new opportunities for advice with your active clients
• Insurance
• Business succession
• SMSF advice
• Intergenerational advice
• It can be a cost effective way of re-engaging with inactive clients
• It can be an easy to articulate, high value-add proposition to take to your referral partners
• It can add significant flesh to your proposition and can be reflected in your Fee Disclosure Statement

Why build capabilities around estate planning advice

To succeed in reatining and capturing assets during the coming intergenerational wealth transfer, advisers should develop end-to-end strategies rather than disconnected solutions, focusing on the following key areas:

Estate Planning

Family estate planning is critical during the wealth transfer period and will be an effective tool in attracting and retaining clients. The more an adviser knows about the Boomers’ and their heirs’ plans, the more they can do to proactively retain their assets. Advisers have been investing in advancing their wealth planning tools and customer relationship management (CRM) systems. While the primary focus of these systems is to support the proposal process and improve the depth of current relationships, some of the same information can be leveraged to increase client engagement on topics related to estate planning.

Make deliberate plans to help clients navigate their inheritances

A Canadian study[1] shows 39 percent of Canadians whose parents have a will have not explicitly reviewed it with their parents, and 61 percent who have deceased parents stated they never discussed it with their parents before they passed away.

By supporting the heirs during the difficult experience of a death in the family and making the process less stressful, advisers can solidify existing relationships or establish new ones with the heirs.

Advisers may consider establishing client-facing operational groups that specialize in the transfer process and support their clients in navigating this unfamiliar and unpleasant exercise.

The richness of the client interactions can be improved by investing in capabilities that increase the convenience to the client.

Whether it is led by an adviser or a specialized service, the experience should be a high-touch, branded, and personalized service that wows the clients, generates trust and makes them want to continue a relationship with the firm – regardless of the value proposition they prefer.

Establish go-to-market strategies to “catch” heirs now

Matching the heirs with their offerings of choice and “wowing” them is an important step towards retaining assets transferred across generations. According to research[2] done by Phoenix Marketing International and Cerulli Associates, dissatisfaction with current and previous provider relationships is the main reason investors left their providers, and only one out of every two wealth management clients in the 30-49 age group, which stands to inherit from the Boomers, is satisfied with their primary wealth provider. This suggests many advisers are at risk of losing these clients right at the point where their value is about to increase significantly.

To strengthen the relationships with the heirs, advisers can consider multiple approaches in tailoring their offerings including creating collective allocation models that enable managing self-directed assets alongside managed assets, bundling products around life stages, and expanding the product set to include cash management, debt management, and insurance.

Typical estate planning instruments

• Wills
• Advanced Care Directives (sometimes called ‘living wills’)
• Testamentary trusts
• Business Succession Plans
• Insurance solutions
• Power of Attorney
• Superannuation beneficiary nominations

Be prepared to ask the difficult questions

As with most aspects of the advice process, doing the job properly often involves questions which can be uncomfortable for the adviser and confronting for the client:

• What is the state of your marriage?
• Do you have any other descendants?
• Do you have any health issues?
• Who will bring up your children if you and your partner died
• Are your adult children in stable relationships?
• Do you have any children with financial, health or legal issues?

Increasingly advisers are able to access a variety of online tools that can make the discovery process more comfortable for both parties, thus encouraging more honest and comprehensive answers. These tools range from simple online self assessments to comprehensive report producing tools.

Be the facilitator, rather than the subject matter expert

The most successful advisers recognise their strengths, and which services are more suitable for outsourcing. Just like a surgeon needing a specialist anaesthetist, outsourcing a service does not have to mean ceding control or oversight of that process, and estate planning solutions are a perfect example of how a financial adviser can still facilitate the components of the process and co-ordinate them into a cohesive all-encompassing solution.

Being seen as an expert willing to bring in external specialists can also strengthen your own brand and elevate your standing as a professional.

Every adviser should aim to have a network of lawyers and accountants they work with, not just as referral sources but as true members of a virtual team, all focussed on same end goal for your clients.

When seeking a partner – for example a lawyer – to work in a field such as estate planning, remember that just like surgeons, they too tend to specialise, so make sure you find one who is genuinely experience in testamentary trusts, or wills, or buy sell agreements.

Resources to get you started

The following process is a good starting point, and involves working with Centres of Influence to identify clients who may benefit from estate planning advice and solutions.

One of the key tools in this process is a self assessment questionnaire. It’s’ designed to get someone thinking about issues they may have overlooked in terms of estate planning and their personal, financial and business situation. It allows them to consider sensitive questions in their own environment. We have attached a sample for your reference. You can use this as is, or tailor to your needs or that of the client. It’s initially intended as a thought provoker which makes them more receptive to your call when you follow it up (because they will have already self identified areas where they have no plans). This means it doesn’t matter if they send it back to you. (Once you get to the stage of an appointment you will go though a comprehensive fact find anyway.)

Notes

1. Investors Group Survey Feb 2012 ‘Trillion Dollar Wealth Transfer – Myth or reality?’
2. Cerulli Associates: Cerulli Quantitative Update-Retail Investor Provider Relationships 2011 (based on data from Phoenix Marketing International, Cerulli Associates)

Other sources

a. Australian Bureau of Statistics, 2004, ‘Household and Family Projections, 2001 to 2026’.
b. Australian Bureau of Statistics, 2008, ‘Family Characteristics and Transitions’.
c. Accenture, 2012, ‘The Greater Wealth Transfer: Capitalising on the Intergenerational Shift in Wealth’.
d. AMP.NATSEM, 2003, ‘Income and Wealth Report’, Issue 5.
e. National Seniors Australia, Productive Ageing Centre, 2012, ‘It’s not just about the money : intergenerational transfers of time and money to and from mature Australians’.

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Advisers who survey their clients experience greater profitability.

It may seem self evident that you care about what your clients think, and yet – according to Rod Bertino from Business Health – only 15% of practices formally seek feedback from their clients.

The same survey – of around 2,000 advisers – found that those who do formally seek feedback from clients are on average 73% more profitable than those who don’t.

And the key to that staggering statistic is that surveying your clients is not a pure academic exercise, nor something that should be attempted in a tokenistic fashion; rather it’s about building a stronger business by understanding what your clients want and value (and what they don’t), and being prepared to deliver to their wishes. In other words, if you are serious about asking your clients for feedback, you need to be serious about acting on that feedback.

Surveying your clients is something that can be done easily and inexpensively, using mechanisms such as a written survey, an online questionnaire you can email them (visit surveymonkey.com to set one up free), or even a telephone survey.

Advisers wishing to make the process even more robust will often consider seeking outside assistance, either to administer the methods described above or to facilitate focus groups, which are more indepth discussions with clients on a range of topics, and are often used by large companies to test everything from new product design to advertising concepts and logos.

The advantage of seeking external help is that the process can be much more independent and your clients may feel more comfortable in opening up about their thoughts; additionally external researchers may be able to help you benchmark your scores – a satisfaction rating in itself may not be helpful unless you have a point of comparison.

Each approach has pros and cons, and you need to balance time and cost versus the depth of feedback needed.

Whichever approach you take, it’s fair to say that any feedback is better than none.

—————

This is an extract from a collection of business improvement tips for advisers, launched at Zurich’s Trax2Success national roadshow, featuring the 2013 AFA Adviser of the year Jenny Brown.

Click here to read Hot business tip number 1: Look after yourself and your staff

Click here to read Hot business tip number 3: Place a higher value on your time

Click here to read Hot business tip number 4: Review your client onboarding process

Click here to read Hot business tip number 5: Adopt an estate planning methodology across your business

Click here to read Hot business tip number 6: Tailor your communication strategy by client generation

Click here to read Hot business tip no number 7: Change your approach to review meetings

Click here to read Hot business tip number 8: Create a differentiated service offering (segment your client base)

Click here to read Hot business tip number 9: Set up a Board of Advice

Click here to read Hot business tip number10: Develop a client retention strategy

Click here to read Hot business tip number 11: Run a program where staff drive improvements

Click here to read Hot business tip number. 12: Build your emotional intelligence

Click here to read Hot business tip number. 13: Go Social

Click here to read Hot business tip number. 14: Get better at handling objections

Click here to read Hot business tip number. 15: Create stronger referral sources

Click here to read Hot business tip number. 16: Set up a Google account

Click here to read Hot business tip number. 17: Learn from leading advisers

Click here to read Hot business tip number. 18: Make better use of technology in your business

Click here to read Hot business tip number 19: Improve your office environment

Click here to read Hot business tip number 20: Develop a great value proposition

Click here to read Hot business tip number 21: Make more use of video in your business

Click here to read Hot business tip number 22: Optimise your website for mobile

Click here to read Hot business tip number 23: Have a marketing plan

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Brad Fox – CEO – AFA

What financial advice clients really want from their advisers is a strong professional relationship.

This is one of the findings of New Frontiers, a white paper which assessed the views of over 12,000 financial advice clients over a period of four years, conducted on behalf of the Association of Financial Advisers (AFA) by Business Health, sponsored by AIA Australia.

Speaking at the launch of the white paper in Sydney today, AFA CEO Brad Fox said the research reveals that clients rate the relationship aspects of the financial advice process most highly. “Relationship aspects include the business relationship, the professionalism and the support staff of the advice practice,” he said.

“And in these areas, it is very encouraging to discover that the difficult job advisers have, of creating relationships and trust, is being done very well in the eyes of clients.”

Mr Fox said clients who believe they have a close business relationship with their adviser are far more satisfied across all areas. “Most people surveyed – 73% – feel they have close business contact with their adviser and these clients, on average, rate their adviser significantly higher across all areas than those who do not,” he said.

The white paper also uncovered some great opportunities for the financial advice profession.

“Clients were far less satisfied with many of the process driven areas of the practices, including reviews, communication and implementation,” Mr Fox said. “This presents advisers with a great opportunity to improve on these aspects of their service delivery.”

Clients want personalised, proactive, regular communication that talks specifically to them and a review process that covers their specific life goals, not just their investments and/or policies.

“It is clear that the review and communication gaps across the industry need to be
addressed,” Mr Fox said. “The opt-in and fee disclosure statement requirements of FoFA make it even more compelling to act now to address these gaps.”
 
Mr Fox said the white paper provides evidence to support many of the long held assumptions about what contributes to superior practice performance. These are:

• The value of seeking client feedback
• The importance of segmentation
• The outstanding difference regular, personalised and targeted communication has on profitability
• The gender impact
• The value of being referable.
 
Pina Sciarrone, AIA Australia’s Head of Retail Distribution said the white paper identified a number of areas where advisers could use practical support to implement change. “AIA Australia’s Client Development Managers have found advisers are very receptive to any support  which will assist them to grow and develop their businesses,” she said. “This white paper gives us the opportunity to bring empirical evidence to the advice market on how structured service improvements not only help strengthen adviser/client relationships but also improve advice practice profitability.”
 
The white paper was produced following a detailed analysis of the level of client satisfaction based on 12,000+ active clients who completed the Business Health CATScan survey since 2008. The Business Health CATScan allows clients to rate their adviser’s performance in nine Key Performance Index (KPI) service delivery areas.

Terry Bell, Business Health, said, “It’s rare for research across a number of years and 12,000 respondents to be available, but the Business Health CATScan results are irrefutable proof that advisers can dramatically improve practice profitability through increasing client satisfaction from methods as simple as an effective communication strategy.”

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The Premium Safety Net provides Premium advisory firms with an immediate solution to preserve the value of the business and removestress for families in the event of unexpected illness or death of key advisors.

Premium CEO, Paul Harding-Davis said Premium has already developed a comprehensive succession planning strategy and that this addition will be of particular value for small advice firms and those dependent on one or two key advisors. “This solution was developed after we consulted with one of practices that relies upon a sole principal.

He was concerned about the interests of his partner, should something unexpected happen to him,” he said.

“And he was right to worry; I know of one instance where the principal of a small firm passed away unexpectedly and his wife could not even access the business accounts.”

“If the lead or co-lead of an advice firm becomes ill or passes away, this can leave the family, the firm and clients in tenuous and difficult position.  The familywill be under considerable stress and the value of the business can quicklydiminish as clients look for another group to handle their affairs. We believe the Safety Net will create some comfort for for the family in a difficult time and will help ensure the value of the business is preserved.”

Under the plan, Premium can take immediate charge of the business to help ensure client needs are met and value is preserved.

“More importantly, we will also rapidly deliver a payment to the family, which can help ease the pressure at what will be a difficult time,” Mr Harding-Davis said.

“Over the next 12 months to two years, we will work with the family tor estate administrators to identify the best exit strategy for the firm and maximize sale value.”

Terry Bell of Business Health said he thought theinitiative was an innovative solution to a far-reaching problem.

“For 12 years I have been providing a range of diagnostic and support tools for advice firms on viability and profitability. I think the solution developed by Premium is innovative and creates a win-win for the family, the estate and the business. I also think it clearly demonstrates Premium’s commitment to its members and their clients.”

Mr Bell helped Premium develop its original Success Ready program. Mr Harding-Davis said he believed these programs were a strong differentiator for Premium.

“We know that taking care of the ongoing needs of our members and their clients, is just as important as solving any current issues.  Therefore, at Premium we aim to develop solutions that preserve and protect current and future value and relationships.”

25 July 2012

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Even then, asking the wrong questions, or the right questions the wrong way, may produce unreliable results, and surveying satisfaction, comparing results with industry norms and setting measurable objectives and plans for continuous improvement, all require expertise.

In particular, as the following table indicates, out of the nine key performance areas covered by CATScan, the key area of client communication ranks relatively poorly. And it’s not only the ratings that suggest improvement is very much needed in this area – the written comments that clients make support this conclusion. Clients expect to receive more meaningful information about their advisers and their practices, and they want that information communicated to them in a meaningful and timely way.

Meaningful and timely communication
Your clients have entrusted their financial well being to you and your practice, so it’s likely that they have confidence in your technical ability and expertise. Otherwise they would not be your client! So they certainly expect you to communicate issues that affect their financial plan – changes to regulation, the investment market and so on.

But CATScan feedback also tells us that they’re looking for their trusted adviser to provide constant reassurance of the relationship. They’re interested in being kept informed as to what else is happening within their adviser’s business; what changes are occurring and why.

A sale or merger of one practice to another is a key trigger we’ve noted that can result in negative client feedback. Even something as simple as a change of name (without any change whatsoever to the practice itself) can still create bad vibes, while a change in personnel (especially a key client relationship person) can certainly set off alarm bells in the client’s mind.

As to the issue of timeliness… it will be commonsense to all of us, that the client should be told of any change before they hear of it elsewhere. There is nothing worse for a client than to ring their adviser’s office and be informed after the event that there has been a change of company name or, worse still, that their favorite client service person has left the practice! Yet it is not uncommon for a CATScan report to contain a number of such comments from clients when these changes have occurred.

With modern technology, surely it isn’t too difficult to send an email advising of a change – it’s quick, efficient and cost effective. And with over 80% of clients using the internet, email has fast become an acceptable form of communication for most. Further, why wouldn’t you place a change communication on your website for all to see?

Finally, your very best (“A” class) clients merit a phone call, if not from their adviser directly, then at least from the practice, advising of a change. What a great opportunity to further build on the relationship!

By communicating in a timely (proactive) fashion, you should be able to turn any potentially negative situation into a positive. And, as the following table indicates, the more points of client contact, the better the commercial result!

Regularly seeking feedback from your clients is always desirable, but it is particularly important to check client attitudes before and after changes of ownership and at times of extreme market volatility.

Mergers and acquisitions
Recent announcements by several major institutions indicate that the appetite of the past several years’ for acquisition, merger and consolidation is set to continue unabated. And while we’ve no doubt that such initiatives are always intended to be in the best interests of the shareholders, feedback from client satisfaction surveys (CATScan*) would suggest that the change process could often be handled more effectively from the client’s perspective.

It’s important to appreciate the golden rule of client services – the client’s perception is your reality! At the end of the day, it’s what the client thinks that matters ……professional relationships are developed and maintained on trust. Your technical expertise is expected and, in our view, is the “ticket to the game”.

Volatile markets
Good communications are vital in times of increased market volatility and poor investment returns. So, if your clients truly are your most valuable asset, why is it that over two thirds of all Australian advisory practices have no structured approach to actively seeking feedback, in good times or bad, but approach the job in an ad hoc and frequently amateurish way?

Given the tumultuous investment markets of late, why haven’t the 70% of practices taken any action? Could it be that:

• principals don’t know how to construct and implement a survey capability (or don’t know who can help them do it)?
• it simply doesn’t rate as highly as other pressing work priorities?
• it all gets down to cost at the end of the day – can a practice afford the cost of implementing a client survey?
• principals assume they already know what their clients think?
• “ignorance is bliss” and some principals just don’t want to know?

These are all commonly expressed reasons and (except for the last one) and all have some degree of validity. However the following table clearly demonstrates that the practices that invest the time, effort and money to find out what their clients are thinking, not only strengthen their relationships, but also generate (on average) a 74% increase in bottom line profit.

Methods of discovering client attitudes
There are a number of different ways to seek feedback from your clients, each with its pros and cons. The main ones are summarised below.

Tips and traps when surveying clients

Regardless of the survey method adopted, here are 10 rules that will help to maximise the benefit of your survey.

1. Don’t embark on this process unless you are serious about doing something with the results – client feedback that is ignored or discounted can do more harm than good.
2. Only include clients whose opinion you value – then you will be compelled to act on the findings.
3. Ensure you are able differentiate your “A” class (or very best) client responses from the others – these are your most valuable clients and it is vital to know how satisfied they are.
4. Adopt a structured approach – it is hard for a client to give you an objective assessment (good or bad) when you have just bought them a drink at a Christmas function!
5. Guarantee your clients confidentiality and anonymity – this will ensure completely honest (and sometimes brutally frank) feedback.
6. Don’t just consider your findings in isolation – benchmark your results against your peers and colleagues, past results and, best of all, best in class practices.
7. Ensure you thank your clients for taking the time to provide you with their feedback – no-one likes to think their efforts have been taken for granted. A little thank you goes a long way.
8. Share your results with your clients, prospects, referral partners and of course your staff – post selected extracts to your website, include a summary in your next newsletter. Incorporate testimonials into your marketing/promotional material, but seek permission first!
9. It is not set and forget – your first survey will create a baseline from which you will be able to measure your progress over time. We recommend that you conduct client surveys at least on an 18 month to two year cycle.
10. When you act on the key findings always remind your clients that the changes are a direct result of their feedback.

Conclusion
Many business leaders have commented on the importance of putting customers first, and of really understanding what they like and how they think. The retailer Marshall Field said “Give the lady what she wants”, and the way to find out “what she wants” is not to assume, but to ask.

Rod Bertino is a partner and director of Business Health Pty Ltd, a consulting firm specialising in the financial services industry. Business Health develop and market a suite of unique and exclusive business diagnostic tools, including CATscan customised client surveys. To date, over 40,000 Australian financial planning clients have completed a CATScan survey.

Rod can be contacted at rod@businesshealth.com

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

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While there is no doubt that measuring your practice against the best of your peers can add enormous value, external benchmarking should only be one of the inputs into your decision making process. Building your business strategy solely around a comparative industry standing is fraught with danger. To help put your results in the right context, you may like to consider these top five benchmarking tips.

1. Quality of information

Traditionally in the financial services profession, many practices have struggled to produce an accurate, timely and detailed set of “real” numbers for their business. The outcome of some benchmarking processes can at times best be described as “dodgy”. Does the phrase, “Garbage in equals garbage out” ring any bells?

The key learning here may be the more detailed or complicated the financial benchmark, the more cautious you need to be in analysing the results. In our view, information or data should primarily be used as a guide. For example, information gained from a website which provides “free” analysis with little scrutiny of the data being entered or of the business actually providing it, might sound alarm bells for some.

2. Benchmarking in isolation

One of the major problems with benchmarking is looking at any metric in isolation – numbers in a vacuum are very dangerous! Drawing accurate conclusions purely from financial benchmarking can sometimes be very difficult.

For example, a practice gearing for significant growth and keen to employ the best available talent may well be investing significantly more in staff salaries than the marketplace average. In this case, the fact that they have fallen outside of the industry benchmark is probably a positive.

3. Qualitative versus the quantitative

While they are extremely important, in most business the numbers are “lag” indicators – they are the result of your strategies and actions. To get the best possible picture, your benchmarking analysis should include both qualitative and quantitative information.

Consider the areas of your practice that drive financial output, not just the results themselves. Client interaction, business planning, risk management, IT and staff development (to name just a few) are all critical drivers of success.

4. Long term or short term

To decide on the most appropriate benchmarks for your practice, you must first determine where your firm sits within the “business life cycle” – what are your time frames?

There are always trade-offs to be made between short term results and long term plans – short term profits can be maximised by carefully managing expenditure but by not investing in practice infrastructure, you may be jeopardising sustainable long term success.

It is unlikely a practice looking to sell in the immediate future would be investing heavily in new hardware and software and as such, an industry benchmark based around the average IT spend per staff member will be of little relevance and provide limited insight.

5. Fit with your strategy

Avoid the disconnect between measurement and strategy – make sure you are measuring “apples with apples”. If you have built your practice to attract and retain high net worth investors and you operate a deep relationship/high touch model, ensure you are comparing yourself against other similar firms in this space (or better still, the best in class providers in this market).

Specific target markets require unique value propositions and tailored business models. The key benchmarks will vary significantly between practices specialising in a narrow client demographic or offering a select service offer.

Conclusion

The benchmarking of a business will almost always produce interesting results. We all like to know how we stack up against others in our profession. Nevertheless, the time and effort involved can only be justified commercially if the insights that arise translate into real plans to improve the business and a commitment to steadily work towards improving scores over time.

The experience at Business Health shows that the firms that consistently score well on the hard numbers like revenues and profits share a number of attributes that can be hard to measure, but which seem to be critical for success. It will be in these areas that underperforming practices may need to be ruthlessly self-critical, and to concentrate their efforts to reform and improve. Here are five of these common attributes of great advisory firms.
1. Great leadership

All of the successful advice practices we have worked with are headed by a great leader. This person usually has an incredibly clear vision for the business and is able to articulate this vision and lead others on the journey into the future.

They welcome and embrace change and while they may also be talented financial advisers, they think like successful business owners. Without exception, they have a documented plan for their business and this plan provides the strategic blueprint for sustained success and a focus for all operational activities.

2. Talented & committed staff

With the competition for good people so intense, the successful firms are able to attract and retain the best available talent. They invest heavily in the development of their team and offer not just a competitive remuneration package, but also flexible incentive plans and innovative equity programs.

To ensure they maximise their return on this investment, the best practices have sound performance management processes in place and continually encourage greater involvement in all aspects of the business.

3. Truly client centric

While the term “client centric” has become somewhat of a cliché, the best advisory practices truly do put their clients at the centre of everything they do. They have a compelling value proposition built around a thorough understanding of what their ideal clients want.

They treat every client fairly and with respect, but not equally – while no-one receives poor service, they fully appreciate that their best clients deserve their best service. They also are in constant contact with their clients (through all stages of the investment cycle) and proactively seek feedback on how they could further improve their offer.

4. Willingness to invest in the business

To deliver sustained results in any business, the owners must continually review and enhance their operational infrastructure. The most successful principals understand this and are always willing to make prudent investments for the future.

They also know that it is almost impossible to make quality business decisions without accurate and timely business information – the best firms really do know their numbers.

5. Readiness to actively seek help

And finally, the most successful practice principals surround themselves with people smarter than themselves and they are not afraid to ask for help. They are always willing to listen and learn and they consult widely, and not just from within the financial services profession.

They usually meet regularly with a mentor or coach (or in many cases an advisory board) for objective advice and guidance about their business and most importantly, this external input also provides an additional layer of accountability for the owners.

Average Practice Dimensions
Derived from the Business Health HealthCheck database which contains detailed information collected from over 2,000 Australian advisory practices in 2009 – 2011.

* The above results have been calculated using the averages at an individual practice level and then averaging these across the data group. This approach produces a far more meaningful result and explains the apparent “discrepancy” if some of the key practice attributes are simply multiplied or subtracted from each other.

# All of the “notional” profit and salary calculations contained in this report assume a notional $100,000 salary for each principal working in the practice.

Summary

Benchmarking provides a very useful comparison of any business with its peers, but if the time and effort spent is to be worthwhile, it will be important to ensure that the right information is collected in the right way, that the correct lessons are drawn from the analysis of the results, and that a program of continuous improvement is undertaken to ensure that the firm’s performance relative to its peers grows over time.

Rod Bertino is a partner and director of Business Health Pty Ltd. Business Health is a consulting firm specialising in the financial services industry. Business Health develop and market a suite of unique and exclusive business diagnostic tools which are supported by a range of specialised consultancy services. Rod can be contacted at rod@businesshealth.com.

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

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ASIC’s Senior Executive Leader of the Insolvency Practitioners team, Adrian Brown, said that despite a decrease in external administration appointments in May compared to the same time last year, these latest figures show the number of court liquidations and director initiated creditors voluntary liquidations have risen.

‘Statistics collated by ASIC up to and including May 2011, show court liquidations in Australia rose 8.6% and director initiated creditors voluntary liquidations rose 7.6%. Western Australia is also seeing its fair share of corporate insolvencies, despite suggestions that it’s in the fast lane of a two speed economy,’ Mr Brown said.

‘Interestingly, receivership and voluntary administration appointments, Australia-wide, have fallen,’ Mr Brown added.
x
ASIC publishes monthly insolvency statistics detailing the number and type of corporate insolvency appointments. External administrators, (liquidators, receivers and managers and voluntary administrators) are obliged by law to advise ASIC of their appointments.

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However, while it is always wise to have one eye on the forces shaping the environment of tomorrow, it is also prudent to understand where the marketplace is today and how well Australian advice practices are managing their current operational compliance obligations. It is here that the key findings from the recent Business Health Future Ready IV* research paper provides real insight.

*     Since 2002, Business Health has released a series of white papers providing a comprehensive insight into the health of the Australian advisory industry and its preparedness for the future. These papers have become known as the Future Ready analysis. The fourth in this series, Future Ready IV, has recently been released and is based on the consolidated analysis from Business Health’s HealthCheck data warehouse which now contains information on over a 2,000 Australian advisory practices.

As can be seen from the following graph, there has been very little movement in the “health” of Australian advisory firms in this critical area over the period 2007-2010.

One in three practices were assessed to be less than Fit (albeit against a quite stringent judging criteria) and 19% were rated as Poor or Average Health.

So what is contributing to these results? Of course it is always dangerous to generalise, and each business is unique and hence the challenges and solutions will vary between practices, we were able to identify the following flaws in many operational compliance regimes.

• 74% of practice principals stated they document/note all of their discussions with their clients (somewhat surprisingly, this down from 85% in our previous Future Ready III analysis).

In the case of a dispute (and if a client’s recollection is different to the adviser’s), the quality of the file notes can bolster or destroy a case – let’s hope this does not become an expensive problem for the one in four advisers who are not currently file noting all of their client interations.

And, while such action is thankfully quite unlikely, in the situation where the original adviser has subsequently left the business, thorough files notes will allow someone else within the practice to deal confidently and competently with the client.

• 87% of principals indicated that compliance is a specific responsibility of a director or senior manager of the practice. While compliance should be everybody’s responsibility, ASIC has indicated that a director or senior manager should be allocated the responsibility for overseeing compliance measures, and (in the case of larger organisations) to report to the governing body.
• Less than half (43%) of the practices who employ contractors to perform some of their business functions (eg: information technology, paraplanning, compliance, etc.) have a written agreement in place with their outsource service provider.

While outsourcing certain operations can be a prudent and cost effective business model, the practice principals still remain ultimately responsible for what their outsource partners do. They need to ensure that they can demonstrate that they have in place appropriate measures and processes to select suitable providers; monitor their performance and deal with any actions which may lead to a service breach. It becomes incredibly difficult (if not impossible) to do this if the relationship is not underpinned by a signed agreement.

• One in three (30%) of practices stated they do not have a key person plan in place – with principal dependency alive and well in many smaller practices, this poses a very real business risk and is perhaps indicative of “plumbers with leaky taps”?
• Given the recent media interest in our profession shows no real signs of abating, it also remains a concern that less than one in four practices (24%) stated they have a written plan in place to manage unforseen problems with the media (such as major market downturn or public criticism of their licensee or firm) and only 32% of principals stated they always proactively communicate with their clients when bad news is reported about the industry or the markets in general.

Regardless of the FoFA reforms that are eventually passed into law, every licensee and advisory practice in the country will need to review their business systems and process and ensure they are operating within the requirements of the new framework. This may also present the ideal opportunity for them to address these issues.

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The financial services marketplace has been changed irrevocably in our view – there can be no going back to the way it was. Clients will continue to regularly review the value they are receiving from their adviser, the regulator will remain as diligent in its efforts to protect the clients’ interests, product manufacturers will continue to look to increase sales of its products in the most efficient manner while licensees will still need to consider how they can help their advisers address all of these issues …profitably.

Of course sitting right in the middle of this is the adviser and his/her practice. While every adviser should review their current position vis a vis each of the areas mentioned above and decide the most appropriate course of action, it’s our experience that too few will. This is not to say that they will be sitting on their hands and taking it easy – far from this, we’re sure most advisers will find themselves working at least as hard this year, as they did last year – many will have to work even harder. But the  question really is – ON WHAT will they spend their time and effort? For whatever reason, it seems to us that most will do what they’ve done for most of their working life – they’ll again focus on the ‘stuff’ – responding to those enquiries which could probably be better handled by someone else within the practice, preparing plans which a paraplanner could better put together, checking on those commission reports, reading every email which comes into the practice and so it goes on …while all this type of work is important, the real question is – is it the best use of the adviser/principal’s time (and we already know the answer, right!)?

We’ve set out following a few of our favourite ‘not to do’ tasks in 2011. Whether you are a practice principal, adviser, licensee or product manufacturer we hope they’re helpful to you in achieving your goals in the year ahead.

Unless specifically stated otherwise, all of the “Stats & facts” used in this newsletter have been derived from  2010 analysis of our HealthCheck and CATScan databases.

Not-To-Do List for 2011

1. Don’t do ‘the stuff’ – stay away from it (refer earlier comments), principals and advisers alike should focus on the activities that bring greatest benefit to the practice (client acquisition, going to an even deeper level of relationship with their ‘A’ clients and building productive centres of influence).
   Stats & facts: Average no; of alliances per adviser: 1.8
   Stats & facts: Average no; of client-facing meetings per week (excl salaried advisers): 5.8

2. Don’t assume a quiet client is a satisfied one. There is only one way to be certain you know how your clients feel about you and your offer. Nothing else to say.
   Stats & facts: Practices who proactively seek feedback from their clients are achieving a 74% increase in profit (over those who don’t). Yet only 29% of Australian practices pay their clients the respect they deserve and actually seek their feedback in a properly structured manner.
   
3. Don’t run your practice with your adviser’s ‘hat’ on. If you want to truly maximize the value of your practice it has to be conducted as a business. If you’re unable to or simply don’t want to adopt this role, then perhaps it should be allocated to someone else?
4. Don’t take your staff for granted. Did you notice increasing commentary towards the end of 2010 about the lack of good quality people (the talent pool is shallow – to paraphrase several recent industry magazines).
   Stats & facts: In 79% of practices, the majority of staff have clearly written job descriptions.
5. Don’t try and navigate the challenges ahead, without a well thought out plan of action (a simple one-page with clearly defined goals, actions to achieve and timeframes is a great start) …it’s too hard, and you’re likely to miss some of the big industry issues coming your way.
   Stats & facts: Those practices with effective business planning are achieving 165% uplift in profitability.

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This will undoubtedly place the adviser in a most challenging position – on the one hand, yes, their services are desperately needed. On the other hand, the adviser has been under seemingly continual scrutiny, change and indeed challenge for the last few years. While the pace and magnitude of change in the advisory profession shows no real signs of abating, the anecdotal feedback we are receiving continues to confirm that market sentiment is slowly improving and confidence is on the rise.

Given all of this, it appears to us that Australian principals are now faced with an interesting dilemma. How do they react to such a market? However, perhaps an even more fundamental question should be – how well placed are they to do what they have to do, to look after their clients as well as their own practice?

Of course, there won’t be a ‘one size fits all’ answer to these questions. And while it is always wise to have one eye on the forces shaping the environment of tomorrow, it also prudent to understand where the marketplace is today and how it is changing over the short term. It is here that the key findings from the recently released Business Health Future Ready IV* research paper provides real insight.

• Since 2002, Business Health has released a series of white papers providing a comprehensive insight into the health of the Australian advisory industry and its preparedness for the future. These papers have become known as the Future Ready analysis. The fourth in this series, Future Ready IV, was released earlier this year and is based on the consolidated analysis from Business Health’s HealthCheck data warehouse which now contains information on over 2,000 Australian practices.

As can be seen from the following graph, when comparing the ‘health’ of practices today to the position in 2007, we have seen incremental improvements in some areas, but at a high level, there seems to have been little progress.

While the stronger practices seem to have gotten stronger (the number of firms adjudged in the elite Super Fit category was up from 16% of the marketplace to 20%), the number of firms rated Healthy or better dropped from 82% to 75%. On the other hand, the number of Poor and Average Health practices has actually increased over the past two years – they now stand at 25% of our data set, up from 18% in 2007.

Although in many regards this still represents a strong result (the Business Health best practice benchmarks are unapologetically set quite high), and Australian firms remain at the forefront of global practice management, the fact remains that one in four of the better firms in this country are still in need of a stronger “health” plan.

While each practice is unique and the challenges (and hence solutions) vary from firm to firm, without doubt, the tumultuous market conditions of late, have had an enormous impact. Many principals have (in most cases quite rightly) had to divert much of their management focus and attention into addressing other more immediate concerns, causing a lot of the practice management initiatives to stall.

In future issues we will take a look at various aspects of running a practice – the key profit drivers; what’s working, what isn’t. And to help AdviserVoice readers monitor the changes occurring within the advisory profession, we are delighted to announce that Business Health has compiled the first ever Australian Practice Health Index. We will be releasing the Index in the next issue of AdviserVoice and will thereafter look to explore any changes occurring to it in future issues.

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