A lean mean advising machine
Let’s pretend for a minute that we had all decided to go into the manufacturing business. Specifically, lets pretend that we had all decided that manufacturing ‘Widgets’ was the way to go, and so we borrowed a shed full of money, built a factory, and got on with making widgets. And specifically, 5 inch widgets.
How would we feel if, on a factory inspection, we discovered that the machines we were using were only capable of making 4 ½ inch widgets? That meant, at the end of the production line, there were a bunch of chaps hand welding ½ inch ‘bits’ onto the widgets?
I think we’d all be very concerned about costs, quality, and the future of our business.
Forgive the analogy, but aren’t we all in the process of ‘Manufacturing’ high quality advice? Isn’t that what our practices should be? A machine that consistently delivers the right advice, to the right client in a profitable manner?
But when we look around, very few practices have been set up to do this in the current regulatory environment. Consistently, we see practices that, in effect, are designed to deliver something to standards of years ago, and then have bits’ welded on’ afterwards!
Some indicators that this may be happening to you include:
- A high rate of ‘Administrative’ failures of client files when monitored. This then requires some form of remedial work. Tell me, why is there never time to do it right, but always time to do it twice?
- Significant inconsistencies between Advisers in:
- Suitability Reports
- New Business Process
- Research
- Products used
- Funds used
- Advisers feeding back that they are too busy to conduct client reviews
- Your back office system holds only the most basic of data. If any!
Let’s go back a step or three. Do you remember the old days – note the absence of the word ‘Good’ on that sentence?
Back then, IFAs, or Brokers, or whoever we were looked a bit like Fig 1
Figure 1
Figure 2
Essentially, we had ‘Hunters’, who ate what they killed. Very little business was on an ongoing trail basis, so new business made up most, if not all of the firms’ income. They were supported by ‘Administrators’, who did what it said on the tin. It was very rare for Administrators to become Hunters – with a few honourable exceptions.
When the firm expanded, it recruited more ‘Hunters’, usually specifying that they needed to bring a client base with them, despite the growing number of clients within the practice itself. Indeed, the usual excuse for not recruiting Graduates / New Entrants was ‘but they have no clients!’
Typically, this model became more and more bogged down with ‘Compliance’. By this, the Hunters meant:
- Writing Reason Why letters from scratch each time
- Researching each client’s needs a different way by each adviser
- Being understaffed by underpaid administrators – because ‘Admin’ was a ‘Cost’.
- Abdicating Compliance to the cheapest outsourced provider
- Spending hours and hours obtaining valuations
- Everything on paper, with no recognisable ‘Back Office system’.
I think we would all agree that this model is unlikely to work in today’s marketplace. So why do we still see them?
But we are seeing more and more Practices that look like Fig 2
Let’s take the roles one at a time.
Finders are the ‘rainmakers’. They are skilled and experienced at opening doors, often using long standing relationships. They understand the strategic direction the practice should be taking, and can design and implement plans to go there.
They often have a small number of valuable, loyal clients, but attract more work than they can deal with.
Whilst IT literate, they are often poor at detail and follow up.
Their role is to create the work for everyone else – Profitably!
Minders keep the Finders’ promises. They are often technically competent, but poor at marketing. They usually have good ‘Account Manager’ skills. In short, they can maintain and service a client base, but struggle to create one.
To be frank, most Advisers should be in this category. They should focus on spending 80% of their time on proper client work. That is, the delivery of advice and maintaining appropriate client reviews, in accordance with the firm’s client proposition.
Support comes in three forms. Clearly, the people bit is critical. These are not simply administrators, but will usually include at least an element of client contact, such as routine client queries etc. This is often where ‘Paraplanners’ start their careers.
The IT / technology part is indispensably. But it has to show at least some signs of being ‘Joined up’. By that, I mean that there is some coherent thought that the systems in place are there to support the particular culture and business model of the practice. At the risk of stating the completely obvious, it also means that everyone uses the same system, and that the internal standards for data entry are robust and thought through.
For many practices, it makes sense to outsource some support. This may be Compliance monitoring, Research or merely IT support. Whatever you outsource, make sure that the process fits in with your other systems, and there is proper accountability.
All very well, you say, but why change?
I can think of a few reasons. The main one is money. I would estimate that for a given level of turnover, firms that look like Fig 2 are worth perhaps 3 or 4 time more than the firms that look like Fig 1. There are a few reasons for this.
- The underlying income is usually a lot higher
- The clients are more often clients of the firm, rather than of the Advisers (Hunters)
- The client data is a lot better organised – you can see what is being bought
- It is a scalable model
- It is more efficient, and so more profitable.
- It is a separate entity to the principle, and so is capable of independent life
So, if we had to start again, and design a practice designed to deliver consistent, high quality advice, and make us a profit in the process, wouldn’t we all choose Fig 2?
All we have to do now is know how to transition across to that model – but that’s a story for another day!