Advice firms need to turn attention to growing scale

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.

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“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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I'm a bit tired of reading this rubbish about needing to constantly grow and 'build scale'. There's way too much focus on building a huge saleable asset to fulfill some fantasy of sailing offset into the sunset when you hit 65. History shows that Govt legislation can wipe out the value of your business in a flash. There's nothing wrong with having a small, highly profitable business that provides great income right now.

The bigger you get the more pressure you're under to continue to generate new business, hit targets, and the harder it is to ensure all staff are ticking every compliance box.

Agreed Brett. Dealer groups want a smaller number of larger practices because it's easier for them to manage and control. But dealer groups shouldn't even exist in an appropriately licensed and regulated profession. Most practice owners will be far better off running businesses of an easily manageable size and scope, than aspiring to "scale".

I'm with you. Who cares about having a business of scale, churning clients through some mechanical marvel just to increase profits. Sooner or later, the government will think we're earning some obscene amount of money and change the law so it's outlawed anyway. Personally, I think I'll service a boutique client set until the day I die, and enjoy looking after them as friends.

Love Ben's comment. I'm also sure he wanted to use even more choice words.
But we also must remember, licensee's need advisers to create scale more than the advisers themselves which is why they make such comments....they don't care about the quality of an adviser's business (as long as it ticks all the compliance boxes), they generate their income by having more and more advisers feeding them! They don't care if you are happy with how your business is evolving unless it is getting bigger. Happier clients? Wonderful but I don't care...just create more of them so you can add more advisers so we can jack up what you pay us! That's their model guys.

I happen to agree with the article, particularly the reasoning given. Ben Dover, I think you need to take a Bex and a lay down. It's way too early in the morning to be so aggressive. By all means, voice your opinion but do it respectfully.

Respect for intentional big bank theft ?
Respect for these bank managers that got off scot-free ?
Go away please, is that respectful enough.
The sooner the likes of these Banky management type leave the advice profession the far better it will be.

Read up on Standard 12 Ben. Your comments are not befitting of a professional adviser.

Well the fact is the banks are repaying billions due to the advice or lack thereof - so there is some admittance to their actions surely? As to the individuals names, I agree that was not required, but it's hard to disagree with the argument being made, individuals aside. You could also argue that none of the bank executives, to my knowledge, whomever they are, paid an overly high price for the behaviours when compared to the damage done to either investors or the remaining professional advisers. Many did and have moved on to similar games either within or to other industries.

True Bozo and it would be a great topic to discuss. At some point the adviser has to stand up and take responsibility don't you think? I'd argue in the current environment that time is now. CBI, safe harbour, along with FASEA, DDO, TMD, sole purpose etc etc all sits with the adviser giving personal advice and recommending products. Not the AFSL employees. Not the AFSL owners. We can make the same mistake as look-back is doing and try to argue the merits of he said, she said, shoulda, coulda, woulda, it's the way it was always done. Times times have changed. I'd prefer we all start acting professionally (which includes respectfully) rather than just wearing the badge. Ben Dover should not make slanderous comments to others when trying to make a point.

A lot has changed, but then again as I've been arguing elsewhere not a lot has changed. Vertical integration, AFSL's running Managed Accounts for a clip, Banks re-entering advice arguing for watered down advice processes - seems to be me it will all occur again! I prefer the no afsl model - we are direct with a regulator/professional body- but don't expect to see it in my advice lifetime. Yes, no room for playing the man, but hard to do sometimes when emotional and/or you have some direct experience with people who have done you wrong.

Good conversation Bozo. All should be explored. However when some hides behind a pseudonym to call someone else a criminal in public I'd argue the only reason they are so brave is because of anonymity. MM have our email addresses so not hard to find if the recipient takes (emotional) offence to the comment. The feeling of having been "done wrong" by a person is not an excuse to defame that person. That is my only point. I love a respectful debate.

no argument there

I guess the truth hurts.
Thanks MM for deleting my comment.
Threats to not advertise hey ?

I would suggest that Ben Dover should properly attribute his real name given the slanderous nature of his comments. Poor form for Money Management for printing such rubbish.

Various licensee's that want to charge more, love complexity and telling you to create scale. The ideal business is 3-5 or more partners because they're arguing amongst themselves, they hate each other, the staff are arguing, they need office managers, can't find a good one, they have "under performing" employees they can't get rid of, and they need systems and processes. So you have the licensee with the value proposition of solving this.. Add a couple of firms together, create some problems. Get the licensee business coach in to solve problem. No thanks.

Yogi, sadly that is true! I've even had my dealer manager who is an honest guy, and we went through a series of numbers, add an adviser, extra AFSL and oncosts, extra admin, extra software etc etc - and the erosion of margin for the risk just doesn't add up. Hence, small practices tightly and well run should have very sustainable profit margins and earnings to the owner. The problem is only if your ego wants you to get bigger - but if you're happy running 100-150 clients, you'll make more money than most AFSL managers!

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