Business valuations for the majority of financial planning practices have been battered over the past few years with the possible exception of risk practices and some full fee for service businesses with very unique client propositions. Some of the reasons for the resilience of risk books include the fact that insurance commissions are carved out of FoFA and that the income from these books are effectively decoupled from the stock market.
However, some risk advisers have found a way to supercharge their business valuations even further by writing some or all of their new business on hybrid or level commission. Although every adviser understands the economics of this not so new strategy, I often hear the comment that they just can’t afford to reduce their cash flow because of the cost of actually getting new clients through the underwriting process and on the books. And whilst this is a totally understandable response and very valid, there are some changes advice businesses can make to reduce their costs and create more efficient businesses thus enabling them to transition to hybrid structures.
My first suggestion when discussing this with advisers looking to improve efficiency is to ask them to do a quick audit of all the processes undertaken by themselves or their staff in providing advice to their clients. One of the common tasks that take considerable time is the SOA. An idea for any advice business looking for efficiency gains is to explore outsourcing this function. Many dealer groups provide this service to their advisers and some even offer it at a discount or free. I know this doesn’t suit every adviser but it is worth considering and just may make a significant difference to your bottom line.
Another area to look at is the use of technology and how processes can be automated. No planning software I have seen is perfect. However most of the major players have reasonable CRM functionality and can be used to create more efficient advice processes. Another advantage to using a good quality planning software package is that they will allow you to communicate with your clients more efficiently thus enabling advisers to be better able to transition through the FoFA changes.
With this in mind, here are five tips to accelerate the value of your risk business:
Move to a hybrid commission structure: In many situations this move will double the amount of ongoing revenue that you will receive per client. Being able to demonstrate a high level of ongoing remuneration is important as it lessens the reliance on having to generate new business in order to hit your profit targets.
Outsourcing isn’t just for big business: By outsourcing non-revenue producing activities, you and your staff will be able to spend more time in front of clients and referral partners in order to generate more profit. A classic example of this is outsourcing the SOA production process.
Partner with a like-minded licensee: The needs of a risk focussed adviser are very different to that of a retirement specialist adviser. Consider whether your goals and areas of speciality are linked to those of your licensee. If this is not the case, it may be time to consider your licensee arrangements.
Embrace technology: Used correctly, technology can be your best friend. In a post FOFA world where administration and communication become more important, technology, if used effectively can reduce the burden on you and your staff via automation. Ask yourself if you are currently using your existing CRM and financial planning software to its full capacity.
Formalise your client communication and review process: Any practice that can demonstrate a formal, repeatable client communication and review process will attract a higher value to potential buyers. High quality, ongoing communication can demonstrate the value of your advice and ongoing service to new and existing clients making for more loyal clients. More loyal clients means more predictable cash flow and profitability.
