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Financial planning practices need to properly analyse profitability before they can come up with a fee-for-service remuneration solution.
Evolve Logic, an XPLAN customisation service, recently conducted an online survey and found that 70 per cent of the 190 financial planners who responded admitted that they did not know who their most profitable clients were. It also revealed that 50 per cent of businesses were concerned about productivity levels, while just 13 per cent of planners actually monitored productivity levels as a matter of course.
“The majority of financial planning practices just look at the profit and loss statement — they are not drilling down to the per client level or even per category level,” said Evolve Logic principal strategist Stephen Bell.
“The business might be profitable overall, but what if 10 or 20 clients weren’t actually profitable in their own right? If planners have a whole client category or handful of clients that are not profitable, obviously taking those clients away from the business frees up the resources they can use for their profitable clients.”
Bell suggested that financial planners who are preoccupied with moving to a fee-for-service model should first analyse profitability properly.
“For them to come up with a [fee-for-service] solution, they need to know what the services they are providing actually cost them,” Bell said. “That is an area that I don’t think many people have actually analysed within their own business.”
He said with a fully systemised business, the client will know exactly what the different services they provide are costing them, and they can track the time each individual team member or adviser uses in that process.
“Those practices that haven’t gone to the extent of systemising everything will find it hard to calculate what those service costs are going to be,” he asserted.
Bell suggested that practice principals would have to take a top down approach if this is the case.
“The first step is probably determining what are services they are going to be offering to their clients. Once they have determined those services, they can go on to systemising their practices and building the technology to be able to deliver those services. Once they have done that they can cost it out to see exactly what those services are going to cost, the margin they want to put on top of that, and thereafter what they will charge the client.”
