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New Generation Firms – 5 Keys to success

In this suite of blogs I’ll focus on 5 keys to building a robust business model that will ensure planners and advisers will leverage their existing skills and ensure any pitfalls are flagged and solutions built to meet the new challenges the RDR has brought.

The first key is Leadership. The reason this is my number one is because the RDR has meant that firms need to be developed and led in a very different way. The FCA themselves have admitted adviser firms will no longer be regulated as distributers but as standalone professional firms.

Professional development then needs to be at the heart of the business model. The FCA has just introduced business model into their higher-level conduct threshold conditions. This means that professional standards and best practice now need to be embedded in the firms DNA.

How can this be done? Well the first point to make is to ensure that complacency and inertia are addressed. I’ve come across many firms who have thought they had this key sorted. Yet on deeper scrutiny there is always more that can be done.

In a recent survey we conducted there were a significant number of issues emerging. The following comments by advisers were quite telling:

“We are running a very different sort of firm now – and I am not sure everyone here has realised that” “We need to develop the way our board works – who is on it and what it does” The place to start in addressing such challenges is the business plan. This is the foundation to which the business must be benchmarked not only for on-going development but the regulator will be very interested in this to see how the firm’s culture and behaviour has been developed.

So the business plan can show leadership in the firm addressing the risks and opportunities in the on-going market trends. Issues such as: • How new clients are attracted to the firm • What are the target or niche markets • What are the demographics of the target market • What are the needs of these clients • What is the charging structure and is there a good balance for explicit and product facilitated charging • How is the firm data monitored and managed to strengthen its culture

We see more enlightened firms proactively managing some of these issues. Some of the firms who score much better on our diagnostic assessment have done the following:

• Completely reviewed the leadership team capabilities and addressed key issues of board and leadership team composition – particularly in the balance between sales expertise and broader governance roles such as compliance and risk • Put the raising of professional standards centre stage in the firm and not leaving it as just a necessary “ticket to trade” compliance issue • Have achieved a clear statement of the culture of the firm they want and are actively addressing the development of it with staff and clients. • Produced a framework for assessing the firm strengths and weaknesses Many others (large and small) are at an earlier stage of development – but given the focus from the regulator on the need for clear evidence of the quality of leadership of firms and the culture they create this will be a major issue for firms in 2014 and beyond. In this context constructive leadership will mean professional development plans and best practice monitoring systems will be at the heart of successful businesses growth.

Next week we tackle the second key: New business strategies

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