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New Generation Firms – New Business Strategies

In this second blog, we address the ‘2nd Key’ to the New Generation Firms theme, where we point to focussed strategies that will make all the difference for adviser/planner firms in thriving in the post RDR market.

As mentioned in last weeks post on leadership, professional development needs to be at the heart of the business model. Well if that’s the case than at the heart of any business strategy is: reading the market trends. A critical error that can be made is mistaking long-term trends for fads. This creates huge risk for the business.

In our recent market survey we found that many firms actually viewed the RDR as an Y2K issue and its just business as usual (BAU). This for me raises warning signals galore. Why? Well, whatever we think about its principles, the RDR was set out to: 1. Raise professional standards 2. Give control for charging to advisers and banning commissions 3. Bring transparency to the value chain What we then have is a game changer, not BAU.

On deeper interrogation into the survey data there is significantly less confidence that business models are sustainable and have included a rigorous assessment of business opportunity and risk. The following comments from these adviser principals show the pressure firms are feeling:

“We are in the business of helping clients plan their financial future but we are really struggling to plan our own” “We just have to accept we are a real consultancy business now and learn how to do it properly. We have to lose our commission mind-set completely – that old model is broken” “We are really struggling to understand how to value the strength of our client relationships – but it is critical”

Our assessment is that up to half of the firms surveyed actually have significant doubts about the quality of their business strategy itself and its assessment of the opportunities and risks the business faces. A huge concern for them is the unproven nature of a running business model, which relies upon clear and explicit value put upon the advice proposition. We feel many adviser businesses could benefit from a more rigorous process of interrogation of the key success drivers of their new model consultancy businesses – particularly around understanding how assess and build the value of key client and stakeholder relationships.

With this in mind one key strategy we are encouraging business directors and their boards to consider is taking control for existing revenues and building in a blend of explicit and product charging structures and ensuring this covers the costs of the business model with margin for profit.

Diagnostic assessment for the model adopted and the fee revenues will quickly illustrate profitability or not. We still see too much dependence on the product providers to facilitate charging and support the model. We then have the opportunity to bring in strategies that are reflexive in nature. This is a posh way of saying that your business strategy and price for advice has a large impact on the view your clients have for your business services. So clear, consistent service strategies that are built around your client needs are essential. Surveying client objectives and desires is then a crucial strategy for adviser firms. Yet how many actually do it?

Structuring a ‘client board’ to gain client insight into their experience can be of great help in calibrating the business model going forward.

Developing a ‘middle office’ structure that showcases adviser alpha, i.e. all the support, research process and hard work that goes on behind the scenes will strengthen your client service proposition.

So the long-term trends show we are now moving towards a relational economy, where fairness and transparency are key. It then follows that any new business strategy that affects the client needs to enhance their experience dramatically in the positive. If this is the case then you have clients for life and a profitable business.

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