Terry Bell

The latest knowITdigital/Business Health Future Ready VII report shows that financial planning practices have improved their revenue and profitability over the past two years, supported by an overall increase in the number of new clients at practice level, however there has been little improvement in areas such as client communication and succession planning.

The Future Ready analysis is undertaken every two years, providing an insight into the health and the Australian financial advice profession and its preparedness for the future. The latest report is based on findings since the start of 2015, and is sponsored by knowITdigital, a software product and services company that specialises in online tools and learning in the financial services industry.

Terry Bell from Business Health said that there are a number of market drivers that have remained stable since the previous report – such as Australian’s aging population (including advisers); a proactive regulator; a challenging political, social and investment environment; and limited understanding of the value of financial advice – that are having an increasing impact on advisers.

“These have been joined by additional drivers impacting the evolving business model of advisory practices, including fragmentation of the large aligned groups leading to the “march to independence”, the emergence of new competitors, and the rise of fintech.

“These challenges aren’t going to go away, and in many cases their impact will only accelerate in coming years.  Financial planning practices that aren’t prepared for this impact are at risk.

“It is concerning that only one in three practices have a longer term strategic plan for their business, and very few practices have adequately addressed what will happen if the principal is no longer involved in the business – either by choice or through illness or death.

“Only 30 percent of firms have some form of documented succession plan, and less than half of these have not yet identified a potential successor, let alone agreed any terms or timeframes.

“Perhaps unsurprisingly, 89 percent of practices with a single principal felt that their business would be unable to grow or develop without them, and 56 percent said that their business could not operate at all without them.

“With this in mind, it is to be hoped that by the time we undertake the next report, more business owners will have put in place sensible strategies to ensure their business’s survival,” Mr Bell said.
Rod Bertino from Business Health said that despite this, business owners were remarkably optimistic about the future.

“The vast majority of principals expect to increase their practice revenue over the next 12 months, primarily through fees, and to see an increase in practice profitability.

“A significant proportion (80 percent) also expect to increase the number of clients they have, and almost half want to add more support staff.

“However in light of the lack of strategic and operational planning, we question whether these are truly realistic goals or simply well-intentioned hopes.”

Another area where advisers are still not making great improvement is in communicating with clients, Mr Bertino said.

“Over the past two years, the number of times that practices communicate with their top clients during the year has fallen, which is of great concern.

“Just over one in three practices communicate with their best clients more than 10 times per year be it by written, electronic, telephone, group functions or face to face interviews. This result is well below our 2014 finding of 43 percent.

“Only 28 percent meet face-to-face with their “A” clients once a year to review their current personal circumstances and their progress to plan. Further, 21 percent of client review meetings last less than 60 minutes.

“Our studies show that there is a direct correlation between client communication and referral business – where clients score the communication they receive from their adviser highly, they are far more likely to have already referred others to the business and they also have a much higher propensity to do so again in the future.”

Wayne Wilson, CEO of knowITdigital, said the report findings that those advisers using technology in their business, were the most profitable, was not surprising.

“Advisers could be making much greater use of technology to help address the kinds of issues they are facing.

“Those practices that are able to effectively utilise the benefits available through the latest client management programs, are generating on average a far higher level of profit per principal than those who are still managing their business on dated technology platforms.

“Practices using paper-based files recorded a profit per principal of $119,300, while those using an automated CRM recorded $268.579.

“It is encouraging that the vast majority – 98 percent – of advisers are using some form of database software to maintain their client information, but the key question is whether it is being used to best effect,” Mr Wilson said.

“Xplan was the most commonly used software system with 81 percent of practices using this package – up from 69 percent. Interestingly, 10 percent of practices reporting using two or more different CRM systems.

“On the whole, the results outlined in this report show some areas of improvement but also a number of areas of decline or stagnation.  The overall message is clear – businesses that invest in their people, technology, and their clients are more likely to deliver a profit to their principals,” concludes Mr Wilson.

The Future Ready report provides a comprehensive insight into the health of Australian financial planning practices and their preparedness for the future, based on data provided through the Business HealthCheck diagnostic tool.  The latest in the series, Future Ready VII, is based on information from 226 firms that have taken the HealthCheck between January 2015 and December 2016.

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Terry Bell

The latest Rubik Financial/Business Health Future Ready VI report* shows an overall improvement over the past two years in the “health” of Australian advisory practices, but there are still some major concerns that need to be addressed.

The Rubik Financial/Business Health Future Ready VI report provides insight into key areas that determine success for financial planners, including profitability, client management, staff levels and turnover, and use of technology.

According to the report, key areas that have improved noticeably since 2012 include:

• Practice revenue (up 29%)
• Funds under management (up 32%)
• Practice profitability (up 15%)

However key issues that need to be addressed remain. They include:

• Key person risk – almost two-thirds (62%) of practices have a single principal in charge, and 43% believe their business could not operate without them. Yet 48% don’t have any key person protection in place?
• Client acquisition – individual client numbers have remained relatively static since the last Report in late 2012, with the average per practice now standing at 863. And while 81% of practices are employing a segmentation strategy, the Report concludes that just 24% are implementing it effectively
• Client communication – regular communication with clients, even ‘A’ list clients, is still sporadic in most cases, while only 30% of practices have sought structured feedback from clients
• Marketing and positioning – 20% of practices still don’t have a website, and only 54% have a social media presence.  Practices report an average marketing spend of less than 1.5% of total revenue.

Terry Bell, partner at Business Health, said that on the whole, financial planning practices have taken steps to improve the way they operate, and have seen the financial benefits of this.

“Nonetheless, some of this improvement can be attributed to the ‘rising tide’ of markets, and practices shouldn’t be tempted to rest on their laurels.

“Issues such as dependency on the principal, and client acquisition and communication, need to be resolved, and practices that don’t get these areas right will find it harder and harder to keep their heads above water.

“For instance, the report shows that practices that seek formal client feedback are, on average, over twice as profitable than those that don’t.

“Likewise, those practices that contact their ‘A’ clients more than 10 times a year are significantly more profitable than those that contact their clients less than five times a year.

“Regular client communication, including maintaining a two-way information flow, is undoubtedly part of the financial success of a practice,” Mr Bell said.

Technology and tailored software provide opportunity for profit

Iain Dunstan, chief executive officer at Rubik Financial, said that financial planning businesses using tailored client management systems and automated workflow management systems are also shown to be more successful and profitable than those that don’t.

“Surprisingly, there are still a small number of practices using paper-based files or spread sheets to maintain client information.  While they may feel that investing in software specifically designed for the industry is expensive, it is clearly a false saving – the report shows that practices that use an automated customer relationship management (CRM) system have experienced a 1179% increase in profit compared to those who are still relying on paper based or Excel spreadsheets.

“Making better use of technology is an area of opportunity for many practices, and can assist them in delivering targeted and scaled advice that meets their clients’ needs,” Mr Dunstan said.

He added that effective use of technology remains the best way to proactively and profitably communicate with client bases, especially larger ones.

“Just over half (51%) of practices reported using personalised mail merges or broadcast emails to communicate with their clients.

“Significantly, 69% of practices state they can set up and track workflows such as making appointments, plan preparation, document signing and business lodgement using an automated workflow management system. However, only 28% reported that their workflow management system is fully integrated, so that their modelling, ongoing management and review processes all ‘talk’ to each other.

“Other surveys undertaken by Business Health show that clients would appreciate more contact from their adviser (assuming its customised and relevant to the client’s specific situation), so there is scope for more practices to take advantage of technology to meet this client need,” Mr Dunstan said.

Other notable findings from Future Ready VI include:

• Over half (55%) of practices are generating at least half their income from fees, compared to 43% two years ago
• While 86% of practices have a regular and documented review process for clients, only 28% provide a differentiated process for the ‘A’ class clients
• A total of 39% of practices have a clearly documented succession plan – while a significant improvement over 2012 results (29%), there is still a long way to go for most Australian principals who, with an average age of around 58 years, can’t really afford the ‘luxury’ of delaying any longer
• On average, each practice has 5.9 permanent people working in the business, up from 4.6 people two years ago.  Interestingly, 41% intend to increase the number of support staff they employ over the next 12 months
• Almost half (42%) of practices have a documented, three-to-five year strategic plan for their business – the highest level recorded since inception of the survey, but still less than ideal.

“This represents a significant opportunity for practices – those that have invested time and effort into building an effective strategic plan are generating, on average, 194% more profit per owner than those with no plan,” Mr Bell said.

“Importantly, those practices that are able to effectively utilise the benefits available through the latest client management programs generate a far higher level of profit per principal, on average, than those who are still managing their business on dated technology platforms.

“The overall conclusion that can be drawn from the report is that the more principals invest in their business – be it time or other resources – the more they will ultimately benefit financially.”

The Future Ready report provides a comprehensive insight into the health of Australian financial planning practices and their preparedness for the future, based on data provided through the Business HealthCheck diagnostic tool.  The latest in the series, Future Ready VI, is based on information from 328 firms that have taken the HealthCheck between December 2012 and December 2014.

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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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