Advice firms need to turn attention to growing scale

fortnum private wealth Fortnum Neil Younger business growth

21 October 2021
| By Jassmyn |
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Most financial advice businesses are not scalable and lack a clear strategy to get to scale despite having a compelling value proposition and robust systems sand processes, according to Fortnum Private Wealth.

Fortnum’s latest whitepaper on advisory firms said advisers needed to turn their attention to driving organic and inorganic growth if they wanted to create a material asset.

The firm’s group chief executive and managing director, Neil Younger, said many advice businesses struggled to grow past $2 million to $3 million in revenue.

“While some advisers are happy to run smaller businesses and simply take home a decent salary, as the industry advances towards a bona fide profession, we’re starting to see more ambitious, visionary entrepreneurs,” he said.

“They are not content to run a good business. They understand the macro themes driving long-term demand for professional advice, they want to be leaders in the emerging advice profession and, when they ultimately retire, they want to have a material asset to sell.”

Younger said the one-stop-shop “experiment” had “failed” as most businesses were too small.

“To develop and execute a strategy that will drive efficiencies, scale and capital value, advisers don’t need to do everything themselves. More than likely, they will need to leverage the expertise of experienced business partners,” he said.

Fortnum’s whitepaper pointed to three features advice businesses needed to expand their value proposition.

The features were:

  • Customised advice and solutions;
  • An efficient execution model; and
  • Requisite scale or the potential to achieve requisite scale.

Fortnum said given practice profitability was under increasing pressure, many advisers had been forced to increase fees but in a post-Royal Commission world, increasing fees required advisers to justify their fees and demonstrate a commensurate increase in value.

“A business with scale is in a stronger position to manage costs, meet their compliance obligations and keep fees steady than a small practice,” it said.

“To secure these three critical elements, advisers need not reinvent the wheel. A licensee with the requisite capability and capacity can assist advisers to establish, articulate and execute investment advice services for the benefit of clients.”

It said the quickest way to achieve scale was through mergers and acquisitions but noted most businesses did not have the internal capability and capacity to identify a suitable target, secure capital, negotiate price and terms, and integrate a business to maximise synergies and drive capital value.

“To develop and execute a scale strategy, advisers need to leverage the expertise of experienced business partners, be they a licensee, capital partner or consultant,” the whitepaper said.

“Even those with no intention of selling or participating in mergers and acquisitions should look to build capital value and scale because they reduce a business’ vulnerability to shocks.”

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