“The virtual corporation is based on the concept that the most power-ful asset an enterprise can have is intellectual property followed by cash. Everything else can be outsourced”.
“The virtual corporation is based on the concept that the most power-ful asset an enterprise can have is intellectual property followed by cash. Everything else can be outsourced”.
This view was put to the recent Australian Institute of Company Di-rector’s annual conference by economic forecaster and futurist Phil Ruthven.
It reflects a view I have had for some time. Not about virtual cor-porations but about financial planners.
Financial planning businesses are similar to a virtual company in many ways. They depend on the specialist knowledge and experience they have in their area of expertise, as well as their use of tech-nology.
Most financial planning organisations have been successful because the owner, or owners, were very good at client service and developing appropriate financial plans for their clients. They became successful because they were recognised as being good at doing what people wanted from them.
Major influences have changed the way they do business in a more com-plex operating environment where there is also greater expectations from more knowledgeable clients.
As a result, financial planning organisations need to examine their role and the way they will do business in the future. Most are starting to pay attention to their business as a professional prac-tice that needs to be managed.
My view is that the preferred way to fast track the enhancement of professional characteristics for financial planning businesses, is to move back to the future. By this I mean for owners to focus on the factors that made their financial planning firm successful in the first place and ensure that they retain these attributes.
Then, by concentrating on these factors, owners can realign the firm and its relevance to its existing and potential clients. At the same time the value of business can be increased through intelligent ap-plication of practice management systems.
Most advisers in financial planning organisations that I talk to say that these days they must spend less time with their clients (and do-ing what they are good at) because they are a victim of their own success.
Owners also spend less time than they should on business development and strategic issues. They become trapped in administration.
They now have to be a systems analyst, human resources manager, mar-keting guru, compliance expert, quality control manager, general man-ager, and take on the one hundred and one other roles that running a business entails.
I’d love to have a dollar for every time I’ve heard a financial plan-ner talk wistfully about their early days in business when they could spend much more time with their clients, and how they wish they could again spend most of their time servicing client needs and on business development.
Client work is the area that nearly all financial planners enjoy most and are best at. Surely it says something is wrong if business own-ers can’t spend enough time on the things they enjoy doing most?
We all know that good financial planning is much more complex than ever before and the complexity is increasing at a faster rate than ever before, so surely this should add to the argument that the most experienced people should be the ones at the coal face.
Without doubt today’s financial planners need a broader range of ad-vice and assistance skills backing them up in their service delivery than they needed ten years ago. They need to access expertise rang-ing from taxation, accounting, legal, estate planning, risk manage-ment and the like before they can even look at giving investment as-sistance.
But the key word is “access” to these skills and expertise – they don’t necessarily have to be owned. Trying to have sole access, or ownership, to the wide variety of inputs that could possibly be needed for all possible clients is not practical for most planners. While access to expertise is critical, it is not necessarily exclu-sivity that is important, it is how expertise is used.
To be successful in the future the essential and overwhelming attrib-utes needed for financial planners is the ability to give value added advice and be able to continue to win new business. Otherwise they are vulnerable to losing business to the Internet and direct invest-ing, as well as to traditional competitors.
As Phil Ruthven points out, the virtual corporation can focus on in-tellectual property and cash and outsource other needs. I argue this is the approach for all service based businesses – to look at what can then be outsourced and what it is you need to access to give the level of value added service your market place seeks.
I am convinced outsourcing is the key to a successful, cost effective future for financial planners. They must focus on what they are in business to do – advising their clients how to protect and grow their capital.
Most of the support functions needed to help them in their practice management can easily be outsourced so they do not distract planners from their core business.
This approach, a focused core business with appropriate outsourced support, will give planners the platform to display their profes-sional skills to clients so their points of difference and ability to add value can be clearly recognised.
WRAP accounts are a good example of outsourcing. But they should not be a “fifth column” from the service provider which makes the finan-cial planner’s relationship with clients vulnerable.
Instead they should strengthen the relationship between planner and client by allowing the financial planner to provide additional serv-ices and access a greater level of expertise. In other words, plan-ners should consider the WRAP account approach as a way of outsourcing to add value to their own business.
Superior WRAP services should provide not just technological support to support the financial planner, and save them money and worries on their own investment. They should also be a way of gaining other support and services such as custody, compliance support services, business administration, contact management and asset administration.
It is quite proper for financial planners to be concerned about los-ing control through outsourcing and they should take care that they do not. There does not need to be any loss of control. Instead there should be greater support and access to additional business knowledge and expertise.
Nor should outsourcing be dismissed by financial planners out of hand as being only for large financial planning groups. Take the simple examples of audit and accounting and using advertising agents – these are forms of outsourcing that most financial planners have used for years.
Why not identify the other areas that can be outsourced? By examin-ing the ramifications for the business and costing alternative ways of accessing services, you should find that you are forming business partnerships that will help you grow the business.
Wayne Wilson is group executive at Perpetual Private Clients
