In last week’s blog I looked at the threat to ongoing revenues and how this may polarise firms into high value and low value. What do I mean by that?
High value firms are those that have a client offering that consumers are willing to pay handsomely for, but most importantly are happy to keep paying for. Behind the offering sits a range of solid business processes and a team of people that can deliver on the business’s promises (without stress or fuss) year in and year out. If your clients pay you a premium price and keep paying it year after year, you will be able to sell your business for highest value.
High value firms are not concerned about threats to their ongoing revenue at all because they have a robust and bullet proof offering for their clients that will continue to justify a premium price (1% of AUM, or large annual retainer fees). Their fees are not for managing money for clients, but for providing a complete lifestyle financial planning service that delivers clients an outcome (living life with confidence and security in an uncertain world).
Low value businesses on the other hand will be those that survive, but without a comprehensive and bullet proof offering. When the time comes to sell such a business it will be very difficult to command a premium price for sale of the client bank because the business itself is worthless. Yet buyers of this type of client bank (the high value businesses) will be able to extract significant arbitrage value from some of the clients within it and will be able to secure bargains around the industry for years to come.
With clients being able to turn off ongoing adviser remuneration so easily, advisers who have previously shunned the financial planning model are moving rapidly into that space, adopting tools such as cashflow modelling to show clients the impact of their choices and decisions going forward.
Keeping the clients you already have whilst gaining new clients is key. You don’t want to end up loading new clients in the front end of your business (which is hellishly expensive) only to find they are disappearing out the back end a year or two later.
Let me know what changes you have made to improve your proposition this year.
By Brett Davidson