Terry Bell provides some tips around business profitability and the ‘not-so-common’ denominator for advice practices.

At the IMAP Adviser Roadshow, Business Health will be presenting its latest findings on the topic of business profitability, with specific reference to the emergence of managed accounts over recent times.

Over the course of the last two years, almost 300 Australian practices* have utilised Business Health’s unique practice assessment tool, the HealthCheck**, to reality check the ‘health’ of their business, benchmarking it against peers and colleagues. And, from our consolidated analysis of their results, we can state with some confidence that the biggest drivers of profitability within advice practices are the ones outlined in Table 1.

Out of the 20 business areas we assess, these are the top drivers of profitability in advisory practices today. Unfortunately, as Table 1 also clearly shows, a significant number of Australian practices have yet to take full advantage of these profit drivers.

As to the reasons behind why some businesses do take full advantage of these profit drivers (the most profitable) and some businesses don’t, well, in our experience, there is one not-so-common denominator for those practices that do, and that is… strong and committed leadership from a principal who invariably has:

• Developed a clear view of what he/she wants their business to look like in, say, 3-5 years.

• Clearly and consistently communicates this view to staff, clients and business partners alike.

• Takes positive actions to implement the vision – ‘doing the do’ as our US clients say.

• Are prepared to spend time, money and resources – investing especially in their people and their technology base.

• Embraces change whenever it occurs and ‘got on with it’ – it will be particularly interesting to see how this plays out with the emergence of ‘managed account’ solutions.

If the above profit stats have encouraged you to think again about these areas (for example, how do you compare?), here are five tips to help you:

1. Business planning

• Open a good bottle of red and consider: What do you want your business to look like in, say, 3-5 years? What will be your role in this business? And on the personnel front?

• Objectively assess where your business stands today. Benchmark it against similarly positioned practices,

and seek feedback from staff and clients (warts and all!).

• Invest time in putting together a plan for your business on two levels:

– For the longer term (3-5 years) – to flesh out your view (vision).

– For this year. Include your clearly defined goals, strategies, accountability and timeframes.

– Make sure both plans complement each other, are documented and shared with your key people.

– Work with someone you respect over the course of the year to measure progress against your plan and to hold you accountable.

2. Client review process

• Recognise that this is the perfect opportunity for you to demonstrate the value you’re delivering to your clients (for the fees they’re paying you).

• Schedule meetings in advance and don’t let them be postponed.

• Prepare beforehand and seek the client’s input into the meeting agenda.

• Wherever possible, conduct these meetings in your office and look to involve other personnel in the ‘experience’ – for example, client service manager and junior adviser.

3. Personalised client communications

• This is an absolute must for client-centric businesses – no one likes to be addressed as ‘Dear valued client’ (if I was so ‘valued’, surely you’d know my name!).

• And, of course, ensure all names are spelled correctly.

• Finally, all communication must be relevant to the client. For example, wealth accumulators don’t really want to know about retirement income streams just yet. And the only way to guarantee this is through a CRM that holds the key relationship building data needed to build out and maintain the relationship.

4. People management

• Appreciate your staff for who they are – one of your most valuable assets.

• Respect staff by ensuring they have up-to-date job descriptions, co-written by the person currently doing the role. After all, they are the person best placed to draft and review.

• Ensure they have at least one formal review of their performance each year – surely, that’s not a big ask!

• Invest in your people – not just with a competitive remuneration package but also by recognising their career plans, professional development goals and perhaps even their equity aspirations.

5. Client segmentation

• While every client deserves to be treated fairly and with respect, not every client is equal. Evaluate your clients based on the contribution (how ever you define it) they make to your business.

• Differentiate your service offering to each segment.

• Segmentation is not a ‘set and forget’ exercise – review client allocation, the services offered, as well as the cost of service delivery, at least once a year.

• Seek feedback from your clients as to their level of satisfaction on a regular basis (say every 18–24 months).    

As we enter the end of the first quarter of 2018, I hope you’ll find the time to reflect on the above and commit to at least one specific profit driver for the next quarter. We’re sure that your efforts will be rewarded.

Terry Bell is a Partner of Business Health. For more information, go to www.businesshealth.com.au

*A mix of aligned and non-aligned, city and regional, small and large practices, as well as a portion of ‘better’ practices that have been participants in various licensee premier practitioner programs or were entrants in several Best Practice competition initiatives.

**The HealthCheck is a web-based business assessment and benchmarking tool specifically designed for advisory businesses. Its comprehensive report provides the perfect platform for business planning.