Business Health has revealed the top five ways advice practices can boost their profits, following a review of 300 financial planning firms.
The findings were delivered as part of Business Health’s Future Ready V report, which benchmarks advice businesses against best practice behaviours. As we reported last week, just 24% of firms received a ‘fit’ rating, indicating there is significant room for improvement in the Australian advice market (see: Advice Practice ‘Health’, Profits Falling). To help business owners raise their health scores, and drive up revenue, Business Health has compiled a list of the main factors that contribute to increased profits…
1. Writing and following a business plan
Firms with an effective business plan were 246% more profitable than those with no plan. Business Health classified an ‘effective’ plan as a 3-5 year strategic plan, which was fully documented, reviewed every six months, and included monthly progress to plan reporting. If the plan was written down but not reviewed regularly, practices still reported a 41% increase in profits. Even a partially documented plan had a positive effect on business profit (a 4% increase).
“Developing a business plan costs no money – it just takes time,” said Business Health’s Rod Bertino. “It takes time to think about it, time to conduct the planning meeting, and then time to document it. All of us can do that. There’s not one practice out there that couldn’t do that, and yet only 3% of businesses are doing it effectively.”
2. Maintaining a strong Client Management System
The second most effective way to increase the financial success of an advice business, said Business Health, was by implementing a strong client management system (CMS). 89% of practices reported using an automated CMS, which is up on previous years, but a quarter of those say they only update the information ‘when they get the time to do it’. While this means nearly 3/4 of practices are updating their CMS within 24 hours of each client contact, Business Health said the figure was well down on the 2010 result of 86%.
Another concern, said the consultancy, is that over one in four are using two separate databases – one for current clients and one for prospects.
However, when a CMS was updated regularly, housed details of both current and prospective clients, and the firm utilised automated workflow tracking, profit increased by more than 150%.
3. Treating clients fairly but not equally
According to Business Health, over one third of practices do not currently segment or categorise their client base. “That’s a challenging task when you consider the average practice on our database has around 830 clients,” said the report’s co-author, Terry Bell.
Mr Bell said that for client segmentation to be most beneficial, an objective segmentation criteria should be used, and the adviser alone should not be solely responsible for managing the client ratings.
When segmentation is implemented effectively, the benefits are clear, with practices reporting an increase in profit of 146%.
It’s hard to imagine businesses working effectively without underpinning their administration with good technology
4. Planning for owner transition
Despite many advisers providing succession advice to their small business clients, just 29% of advice practice owners have their own clearly documented buy/sell agreement.
“Many of the business owners we speak to say they expect their paraplanner will take-over the business when they decide to retire. But when we talk to the paraplanners it’s often a very different story. They’re not interested in running a business, but the principal hasn’t bothered to ask them about their future plans,” said Mr Bell.
Business Health’s report found that those practices with an effective succession plan, that is one which was documented, reviewed regularly and had an agreement in place with a nominated successor, achieved a 141% increase in profits.
5. Utilising technology
Despite the majority of practices saying they used some type of CMS software to maintain their client information, only half of those were utilising the database’s automated workflow management system.
Similarly, while personalised communication is becoming increasingly important for businesses looking to build relationships with their clients, just one third of advice practices said they had used personalised mail merges or broadcast emails.
“It’s hard to imagine businesses working effectively without underpinning their administration with good technology. You’ve got 900 clients, FoFA compliance requirements, you need a structured communication program – technology drives all that,” said Mr Bell.
“There’s also a role here for licensees and dealer groups to differentiate themselves through the type of technology support they can offer their practices.”
For more on Business Health’s Future Ready V report, click here.
