Three ways you could be stifling your practice growth

Alex Burke,  Senior Writer,  No More Practice Education

Have you heard of the “hot hand fallacy”? Often applied to sports like basketball, it refers to the idea that if a player scores once, they're more likely to do so on the second attempt.

Debates continue as to whether the concept of a “hot hand” is actually absurd on its face, but it's nonetheless true that when things are going well, people think less about the possibility of failure. But as per a discussion with Forte Asset Solutions managing director Stephen Prendeville, when you're running a business it pays (literally, in some cases) to consider future setbacks.

To illustrate, he highlighted three advice businesses he'd worked with:

The go-getters

The first business was the youngest: in just seven years, with owners in their early-to-mid-30s, it had amassed 470 clients, $72 million in funds under management and $690,000 in recurring revenue (excluding GST).

The majority of clients were in the 25-40 bracket, the business had a fixed fee structure which Prendeville called “the future of the industry” and it was very agile in embracing new technology and platform tools.

The problem? Well, succession was less of an issue because of the youth of the owners, but those same owners were experiencing very high staff turnover. There was, Prendeville said, suggestion they were “tyrannical” in the way they ran the company and created culture issues.

Given the importance of culture in staff retention and business growth, the solution was to appoint an external consultant to manage these issues.

The specialists

The next business was a bit older, having been in operation for a decade. It had 97 clients, $80 million in FUM and over $1.2 million in recurring revenue.

It also had a fairly unique service offering, tailoring mostly to the needs of medical professionals and airline pilots, and operated on a retainer basis with fees based on project management and less so on FUM.

Client retention was strong, age segmentation was ideal and the business itself had a very good compliance history.

There were two key issues, though: the first, which may be unsurprising given the specialist nature of the business, was key person risk. The second, tied intrinsically to the first, was capacity constraints leading to a “significant decline in new clients.”

To manage these issues, the business brought in equity partners, ensured advice was managed by the group rather than individual and focused on growing the client-base by targeting younger medical professionals.

The quiet achievers

The final business targeted mostly high-net-worth clients. It had 92 clients, $148 million in FUM and over $1.2 million in recurring revenue.

The business had a strong referral network from its (mostly wealthy) clients, who also tended to establish long relationships with their advisers. Infrastructure costs were also low due to outsourced paraplanning arrangements.

The problem here, though, was that because the business had no marketing plan and depended mostly on client word-of-mouth, its centre of influence was relatively small. This was particularly concerning given that 22% of clients were over 70 and fees were based on underlying assets rather than fixed.

To mitigate these issues, the business has appointed external consultants to review pricing structures and launched a branded wealth portal.

Always consider the future

If these stories tell us anything, it's that any business, no matter how credentialed, can always have weaknesses. Identifying and working on these early on is paramount to future success.


The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.

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