There are three factors that are holding advice firms back from meeting their full potential when it comes to profitability.
In an M&A market report from Forte Asset Solutions, it discussed the growth in self-licensed firms and their potential for growth.
Reflecting on what held firms back from greater profits and scale, founder and director Stephen Prendeville said he regularly encounters three factors at advice practices.
These are:
- Fear
- Comfort
- Knowledge
Regarding fear, this is caused by advisers being tired and burnt out from changes following the Hayne royal commission and reluctant to make changes to the business proactively. In the case of comfort, business owners may opt to stick with what is stable and predictable for them, especially having already gone through the royal commission upheaval.
Finally, in the case of knowledge, this reflects advisers being overwhelmed with the potential choices and options available to them and being unsure which is best to pick for their business.
“If there is an appetite to test the status quo and you are not financially or mentally inhibited, a hurdle can be a simple choice. There has been a proliferation of technological advancements. You can investigate the market but often analysis can lead to paralysis,” Prendeville wrote.
“The answer is talk to peers – ask what they have done, seek external consultants who specialise in our field, attend professional conferences. It is not so much as where you end up – it will be better than where you started.
“It does not need to be a perfect solution – to date that does not exist, it just needs to be a commitment to improve. The starting point is how can I make the client experience better and from that quest comes consideration of technology and/or people, cost and pricing, and how to manage the change.”
Also commenting on problems they see at firms, Vital Business Partners general manager of consulting, Sue Viskovic, said she often sees “subscale” advice practices that lack the time or skill set to improve their business.
“They’ve got one or two advisers, and quite often they’ll be coming to us wanting help because they’re just at their wits end and they don’t have time to down tools and fix their business,” she told in a Netwealth podcast.
“A lot of them are actually, they’re doing it because they love client work and they don’t have the energy or the headspace to be able to completely refashion their business to be scaleable.”
In this scenario, Viskovic recommended a merger with a second firm could allow the firms to divide up the needs and skill set to enable both businesses to thrive.
“So their best solution is actually finding a partner, finding another business that’s wanting to merge firms that already have that infrastructure and that scale to be able to build out best-of-breed technology and so forth. And then they merge in, and then they often find that they’re doing the things that they love and somebody else is running the operations.”
