Planners seeking to understand the value of their business.

Seaview Consulting Directors Bob Neill and David Fotheringham have confirmed that the impact of FoFA and the release of numerous reports and findings over the past six months is the source of a growing number of enquiries they are receiving by financial planning practice owners seeking to understand the impact on the value of their most valuable asset, their business.

“It is my view that in the short term the trend for values will continue to be down across the board. It is important to understand that value is a measure at a point of time and it is based on a view of what is going to be delivered in the future,” said Bob Neill.

“The more certain the outcome, in other words, the lower the risk, then the greater the price someone may be willing to pay for the future results. Inversely the less certain or greater the risk then the less someone will pay. This is a fundamental that simply does not change and should be kept in mind when determining what the impacts of change are going to be”.

Both Neill and Fotheringham are of the view that the industry is in a period of quite significant and unprecedented uncertainty about what the future holds for financial planning businesses; and although there are a raft of changes being proposed, some will come to fruition, some will not and almost certainly some new ones will emerge over the next couple of years.

This creates a landscape which warrants practice owners to take great care in setting their business direction. Seaview Consulting expects to see more certainty emerge over time and this will continue to influence values in the medium term.

David Fotheringham added, “I am highly positive of long term values of financial planning businesses with a couple of provisos. They will have to be businesses which are positioned to deal with change and have an efficient operational framework in place”.

“Furthermore, the financial practices will need to have control over their revenue sources, a robust client value proposition and engagement model together with a strong governance culture and be economically strong”.

“If the above description sounds just like a good business regardless of the industry or profession you are right. They are sound business principles which some business owners have ignored and been carried along on past values the industry sector delivered in the past”.

In particular, Seaview Consulting has observed a ‘polarisation’ of values with the ’strong’ business as described above attracting good prices matched to reasonable liquidity whilst the ’poor’ businesses languish behind.

Some of the short term decline in value will be driven in part by an outstripping of supply over demand, quite the reverse from what the industry has experienced over the past six or seven years. A large part of this supply will come from practice owners choosing to put their businesses on the market rather than to go through the changes required to be effective in a new regime.

It will also come from business owners looking to rationalise their client base and to sell off the section that does not fit their target client profile.

What then should the financial planning business owner do over the next year or so to maximise value?

It is Seaview Consulting’s opinion that it is critical that time is invested in setting very clear and specific strategic plans with an implementation timetable.

The successful business will be one that sets and executes its direction most effectively in a period of change. Running the business with adherence to sound business principles sounds straightforward but it does not happen by chance so the reporting and management regime must be vigorous and appropriate skills applied to its execution.

Ensuring that the service offering is appropriate and effectively delivered will be crucial in an environment where clients are given a range of choice hitherto unseen in the financial advice industry.

Above all maintain a focus on profitable growth, repeatable systems, and sound management. If practice owners do this effectively they will reap the maximum reward in what will be a vibrant industry in the future.

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FoFA seen as an opportunity for positive evolution

Seaview Consulting Directors Bob Neill and David Fotheringham are of the opinion that contrary to much of the angst amongst dealer groups and advisers, FoFA is in reality a catalyst for long term business transformation that will actually improve operational efficiency and customer service.

According to Neill and Fotheringham, practice owners are falling into one of two distinct groups – the first regards FoFA as an opportunity and are utilising the changes to review all their activities and implement strategies to build long term, sustainable and ‘leverageable’ businesses of the future.

The second group are addressing how best to meet the regulatory requirements forced upon them and generally making the appropriate adjustments required to meet the minimum of those obligations. Seaview Consulting is of the view that the next 5 years are going to reward the advice ’innovators’ – those who acknowledge that the models of the past are not the solutions for the future.

“The one certainty in what is a rapidly changing financial services landscape is that business is going to get more challenging and more competitive for the participants and those that adapt to meet the change will have greater prospects of success,” said Bob Neill.

For those financial services businesses with growth aspirations Seaview Consulting maintains that they will be faced with three choices to achieve their goals:

• More from More,
• More from the Same, or
• More from Less

Historically businesses seeking to expand focus on building value through the generation of more revenue and putting in place the resources to manage the activity created. David Fotheringham added, “Traditionally 75% of the costs in an advice business are staff related expenses, and consequently as the needs grew so did staffing levels, i.e. the More from More approach.”

“These resources incurred large initial costs and utilisation grew until the business hit the next ‘step’ again requiring further investment and so the cycle repeated. The business constantly collides against the glass ceiling.”

Efficiency (More from the Same) is an approach which looks to create more from the resources that the business has available to it by working smarter, adopting more efficient practices and utilising technology better.

Effectiveness (More from Less) is an approach which looks to bring innovation to the business and change the nature of some of the things it does.

Opportunities exist in all businesses to take advantage of efficiency gains, and it is important to note that a dollar of expense saved is far more valuable than a dollar of revenue gained as the saved dollar goes to the bottom line whilst only the margin from the dollar earned makes it there! While there is a limit to the amount a business can save, the journey to implement savings results in efficiencies and savings that can be re-invested into larger more innovative change.

The gains from efficiency are incremental but cumulative and the benefit to the business is the ability to increase capacity and to stretch the glass ceiling higher whilst creating more profit and more value.

David Fotheringham said, “Innovation will be rewarded but the real challenge for business is to look at the cost of implementing change as an investment and not an expense, focus on identifying ways to be more effective and to commit to making the required changes. There exists today opportunities to utilise support such as outsourced solutions, technology interfaces and alternate communication mediums in redefining how owners conduct their business.”

“The willingness to embrace change and at times radical change may well be the catalyst that transforms the business in the new paradigm and delivers significant out performance in a new environment. Achieving change requires business owners to acknowledge the need to seek and utilise experts in communications, marketing, technology, process design and other specialist disciplines.

Managing experts and continuing to maintain a client focus requires faith in their own ability to generate new business and the skills of the expert.”

In order to obtain More from Less through improved effectiveness, radical change and business transformation is necessary, this will only be achieved by business owners displaying real courage to address challenges that may well require – halving the client base; integrating some direct channels to their offering, changing the service proposition; and so on.

Bob Neill concluded, “Initially, we expect only a small number of financial services businesses will take advantage of the opportunity FoFA will provide to implement lasting business change and transformation.”

“Ultimately, the willingness and commitment to embrace the effort involved in implementing the necessary changes will be paramount to utilising FoFA as the catalyst for business transformation and long term business viability and success.

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