The importance of structures in a family advice business

I became aware quite recently of a family business, thankfully not in the financial advice space, that had failed. Their products were excellent, their target market was big and while there were some competitors, they weren’t a huge threat in reality. This business should have succeeded but didn’t.

I was very fortunate to be given a candid review of why the business failed by one of the leaders of the business. As we peeled away where things went wrong, it became clear that a lack of structure in some key areas sat at the heart of this failure.

Here’s what I learned about what went wrong in this family retail business and how these mistakes can be avoided in family financial advice businesses.

 

Family businesses can be too informal

I see this quite frequently. Usually it’s a father who has been a financial adviser for many years. He is delighted then when his son(s) and/or daughter(s) come into the business. This happens quite informally – it might start with some summer work, in some cases it’s a case of “come in and give it a try and see if you like it” – always very well-intentioned on all sides. This then turns into something permanent and the business motors on, now with a parent and children involved. It all sounds good so far!

However this is where the family retail business started to slip off the rails. In hindsight, the dynamic remained very informal. There were no structures put in place that you would expect to see in a normal shareholder business. The following structures might have helped them succeed, and I think every family financial advice business should consider implementing them in their business.

 

Goal setting is key

This starts with a clear vision for the business. What is it that you want to achieve through your financial advice business? What is your guiding “North Star”, that when some members of the family become uncertain about changes in direction about to be taken, you can all agree that it is (or isn’t) bringing you closer to that ultimate vision?

Once the vision is set, it is important that the values of the business are identified and articulated. These might evolve and change over time – this in itself emphasises the importance of returning and reviewing them periodically. These should be standards for the business on which you’re not willing to compromise – for example, these might be around fairness and delivery standards to customers or how non-family staff are treated. All family members need to to agree them and abide by them.

And then you agree the shorter-term objectives and goals of the business, just as is done in any other shareholder business.

 

Governance keeps you accountable

How this is structured depends on the preferences of each family business. The key is that governance is carefully considered, and a conscious choice made, as opposed to just drifting into some informal governance structure.

For some family businesses, a “family leadership council” might be the best way to proceed. This is a group of some / all of the family who meet regularly, follow a defined agenda and document outputs and actions as to the future strategies of the business.

For other businesses, the family members might acknowledge that external oversight is needed, to properly challenge their own thinking, prevent “group think” and to sometimes act as a referee! There is no weakness in bringing in external people to help reach the right decision – I know that my sisters and I sometimes struggle to agree on something as simple as a restaurant for family dinners… External people can also bring a very useful and different perspective, where family members can sometimes get trapped down in the weeds of the day-to-day running of the business.

 

Clear communication keeps everyone on the same page

The final piece is to ensure everyone is aware of the challenges and issues facing the business and stays on the same page. Structured communication is key. This is particularly important in a family business, where some siblings might be closer than others, and of course some of the family members might be living under the same roof. You must be careful that the important conversations don’t take place at the dinner table, to the exclusion of other family members.

A family business can be the most rewarding experience, one of shared vision, collaboration and growth and shared satisfaction as you achieve your goals. Put the necessary structures in place to ensure these positive outcomes become the reality.

Questions to ask yourself when growing through acquisition.

The last few years have generally been very good times for financial advisers. Many of you have grown significantly through your own efforts and those of your team. However there are many of you who have looked to turbo charge this growth through acquisition, either of a book of business or indeed through buying another advice business – lock, stock and barrel. Done well, this can help you significantly increase your growth potential. However if you don’t think it through carefully, an acquisition can result in many headaches and lower than expected results.

So what are some of the questions you should ask yourself before stepping into the market place and looking to buy?

 

Why?

First of all, be crystal clear about why you are actually in the market to buy a book or another practice. What is the strategic rationale for the acquisition? Are you seriously in growth mode, or have you simply run out of ideas in terms of developing your existing business? Maybe instead of spending your money, it’s time to really unpick your own client value proposition, get crystal clear on the type of business you are and then look at all of the potential means to grow your business. There may be better alternatives to going into the market for an acquisition.

 

What?

What are you actually looking to buy? Have you run out of opportunities in your existing business and need an injection of potential clients? Are you looking to buy a book of clients hoping you will unlock a few nuggets in the belief that your advice approach is superior to that of a selling broker? Or are you looking to buy a very well developed business that is going to lift your own business onto a new level through bringing better processes and opportunities than those that exist within your own business? The challenge in the latter situation here is to ensure you actually extract these opportunities, rather than letting the business you are buying fall back to the levels of your existing business.

Who?

So you’ve decided that the strategic rationale justifies a purchase. The question now is which book or business to actually buy. This is where you need to carry out careful due diligence to really understand what you buying: the quality of the clients, the processes, the client propositions and of course the advice that has been provided to their clients. After all, poor advice given in the past could result in a whole host of headaches for you into the future.

Are the clients that you are buying going to increase your recurring income stream over the long term, or are they going to fall away over the coming years through no relationship and loyalty to you? Are they going to really help you to gain a foothold in your target market? At the end of the day, are they going to be worth more or less than the “sum of the parts”?

The people that will come with a business (if any) will of course also be a tremendous asset or liability going forwards. You need to make clear and educated decisions as to whether they are a good fit for your business or not. Bringing in a strong group of people could really help you to drive your business to the next level.


How?

So you’ve found your purchase target. If you’re simply buying a book of business, the chances are this is going to be a fairly straightforward transaction based on a multiple of the income stream. However if you are actually buying the entire business, there are many other factors to consider.

Are the existing owners remaining involved and if so, in what capacity? Are they going to be part owners of your newly enlarged business, keeping them with “skin in the game”? If they are remaining as shareholders, they are much more likely to stay committed to growing the business. On the other hand, if they are remaining in the business simply to help the transition, you should be looking to build in clear earn-out targets. This will ensure that you reap the rewards of their ongoing involvement, as they will be financially incentivised to help you transition the clients into your business.

You should also examine closely the profitability of the business you are buying. If they were struggling to make meaningful money, how are you now going to do it? Can you see cumbersome administration practices that you can immediately replace with your own well-developed processes, extracting immediate savings? Can you see savings to be made in terms of people – maybe you don’t need all of their staff? And possibly you can see opportunities to broaden the proposition that was offered to their clients, increasing the revenue potential. Any of these factors will help you realise more profit potential.

These are just some of the questions that you should ask yourself before you step into the market to buy another firm. Buying a business is a big step – take your time, ask yourself the hard questions and do careful due diligence in order to seriously enhance your prospects for success.

How do you improve the value of your practice?

We wrote last month about the different ways in which a potential buyer will look to value your business. This is a follow-up piece about how you might increase the value of your business, to ensure you extract the very best price possible. Obviously your recurring income is a crucial starting point. However a good business is about a lot more than a simple multiple of your recurring income. There are a number of ways ways that you can demonstrate additional value in your business, which will allow you drive up the price.

 

Work through all the valuation methods yourself

As set out last month, financial advice businesses can be valued using a number of different methods. The oldest (and simplest) model is the multiple of revenue model. However this is being replaced today in some cases by buyers using a multiple of the profitability of the business (usually excluding the business owner’s earnings) as this takes account of both revenues and costs within the business.

It is really important that you consider all of the potential valuation methods, as a purchaser most likely will do so! If a particular valuation method is proving very difficult in justifying the value of your business, are there changes that you can make that will improve the picture? Doing the calculations yourself and being prepared are really important to achieving the price that you want.

 

Drive up trail & other recurring incomes

Obviously there is no point just a year or two before you want to sell up, to really start trying to make the switch from upfront commissions to the flatter income structures that are far more prevalent today. A purchaser will want to see a steady and increasing recurring income stream over a prolonged period. If a sale of your business is on the horizon at all, now is the time to start making that shift to increase your recurring income stream, so bring this objective through in every area of your business and right across the team.

 

The persistency of business is crucial

Of course the size of your business is a main factor. But so equally is the persistency of your revenue. Lapse rates have become a major issue for life companies and advice firms alike, so obviously persistency will significantly impact the price someone is willing to pay for your business. There is little value in a firm that can’t demonstrate an ability to build up a durable revenue stream.

There are a number of steps that you can take to help address any purchaser concerns in this area. Preparing the ground for an effective “earn-out” period will really increase the confidence of a potential buyer – one of their concerns will be your commitment in this area. Also reducing the reliance of clients who seek to deal exclusively with you will also help. If you can demonstrate that clients deal with your business rather than just you, a buyer will feel more confident about those clients staying with the business.

It is also worth looking at the remaining advisers in your business. Having them tied into solid contracts with clear non-compete clauses should they leave, will again help you in your negotiations with a buyer.

 

Have a winning business proposition

A buyer will want to believe that he or she is getting more than their money’s worth when running the rule over your business. A very compelling business proposition will help to provide this comfort. For example, this may be strengthening the buyer’s position in their chosen market or indeed giving them access to a new market. It may be a unique expertise that your business offers or strength in attracting a particular target group of clients. A strong position within a niche market can be a very attractive proposition! If you own a brand that is really well known in an attractive target market, this is a very valuable asset. However on the other hand, if you’re not clear about what’s unique about your business and be able to demonstrate this, you cannot expect a prospective buyer to see this potential.

A buyer will also want to be purchasing clients who are engaged by and committed to your organisation, and are likely to stay with the firm going forwards. To achieve this, you’ll need to ensure that your processes for ongoing client engagement really stand up to scrutiny.

 

Your service and compliance systems are very important

Potential purchasers also want to minimise the headaches involved in a purchase. They want to buy a well-run business that looks after its clients in a professional and engaging way and is compliant in everything that they do. In fact better still, they want to buy a business with potentially better processes and systems than their own, that they can then leverage for their now expanded business. There’s a real opportunity to make your business more attractive to a buyer through utilising excellent business processes.

 

Your people are the heartbeat…

While your clients are at the core of your business, your own people are the heartbeat of it. They have the strong relationships with your clients, the expert skills that potentially are sought by a buyer and the capability to deliver brilliant service to attract and retain your clients and valuable income stream. A highly skilled, cohesive team is an enormous asset when selling.

 

These are just some of the factors you might think about as you prepare your business for a potential sale. If you have any comments in relation to the above or indeed can identify any other factors, please leave your thoughts below.

What’s the right niche for your business?

As someone who runs a niche business myself, concentrating solely on the financial advice sector, I’m a real believer in the potential to run a niche financial advice business. I’m also aware of lots of financial advice businesses that are pursuing niche strategies.

I’ve written before about how niche strategies can make your life so easy. When you build expertise in a specific target market, you can then market your services to this group with a laser like focus. You have the opportunity to stand apart from the crowd by establishing your credentials as the specialist within that target market. And having that deep knowledge of a client sector and constantly talking directly to that sector enables you to build a deep and valuable connection with them.

One of the biggest challenges that advisers have when going down this route is to identify the best niche for themselves. I personally don’t consider a focus on business owners as a niche strategy as the group is simply too broad to be considered niche.

So how do you identify the best niche for you?

 

Who do you enjoy working with?

This is as good a place to start as any! Working with people you like will result in greater effort from you and it makes your working life so much more enjoyable and rewarding. When I established StepChange, I knew I wanted to work with the financial adviser community. I was fully aware of the value you add to your clients and I wanted to be part of that journey. I can only imagine how difficult it must be to wake up every day and dread conversations with clients that you have no time for….

Of course you need to be confident that the niche you would like to work with is big enough, the chosen target market must be capable of supporting your business at the level you want it to. This requires research and groundwork before you commit to specialising within your chosen sector.

 

Can you add increased value?

Once you know who you want to work with… now how can you stand apart from the crowd? This is typically going to be through deeper and more specialised knowledge of your chosen sector. As an example, let’s assume you have a real passion for the entertainment industry and decide to target freelancers who work within it. To stand apart from other advisers, you need to understand the nuances of this sector better than other advisers – how people in the sector are paid, the nature of contracts, their working environment and unique challenges and what are their specific pain points. When you understand their lives better than other advisers, now you have an opportunity to stand apart from the crowd and become the go-to person for that sector.

 

How can you demonstrate that value?

It’s all well and good knowing who you want to work with and building the expertise in the sector, one of the biggest challenges is establishing your presence as the best adviser for your chosen sector. This is where the hard work really starts, as there is no single silver bullet to demonstrating that value. Instead it’s going to come from many small activities executed well and delivered consistently over time.

Testimonials from existing clients within your chosen target market, case studies of work you completed that demonstrate your specialist knowledge of the sector and an online presence that speaks directly to your target market. These then need to be supported with a regular stream of fresh content that speaks to your target market about their specific challenges – maybe in the form of blogs, videos, podcasts or webinars etc.

 

What’s your route to your target market?

Then you need to build your presence within your target market. Of course, this will include working from the “bottom up”, one client at a time. However, you also should be looking at getting out in front at an industry level too – this might be through partnerships with other sector specific professional firms (accountants who specialise in the sector, agencies etc.), industry bodies, trade associations, sector publications and any centre of influences within the sector. Building links with them takes time, effort and patience, but if done well it will deliver strong dividends over time.

 

Does a niche strategy rule out other clients?

The bottom line is, no it doesn’t. A niche strategy enables you to narrow your focus in terms of the clients that you are going after, but it doesn’t prevent other clients from outside your niche approaching you about your services. From my own experience, people from outside the financial adviser community have approached me over the years to determine if I’d be willing to work with them. You are then in the fortunate position of deciding who you want to work with.

 

I’m a fan of niche businesses. Do you know who you want to work with?

 

Are you pulling the strings for effective partnerships?

Business owners and wealthy individuals today utilise the services of a whole range of professional service providers. They often have relationships with an accountant, a solicitor, a tax adviser and a financial planner. Pulling all these disparate pieces together into a coherent strategy is a tricky business, and I suggest that the person best placed to complete this work is the financial planner.

The financial planner is the only person who tends to have oversight of everything that is going on in a client’s financial life, both within the client’s personal life and their professional life. The other professionals tend to work with clients on a more transactional basis, while the financial planner’s relationship is different. He / she understands the long-term financial objectives of the client, completes a very detailed factfind of the current circumstances and develops a roadmap to achieve those financial objectives. And the financial planner works with the client year after year.

I personally see my financial planner as the hub of my financial affairs because he provides a broader range of value to me. Yes, he has of course developed my financial plan and ensured I have the right investments, retirement planning and protections in place – I’d expect no less. But he also guides me in relation to much broader financial-related issues.

I’ve written on many occasions about the range of value-added services that you can provide, beyond the basic plan and products that you arrange. Just to mention them again, these include supporting your client or referring them to a specialist in the areas of,

  • Budgeting
  • Cashflow planning
  • Tax advice
  • Advice about bank accounts
  • Wills and Enduring Powers of Attorney

All of them are really important to get right for your client. And then there’s also the big opportunity for your business…

 

Build effective collaborations

It’s equally important to carefully manage the relationships with the other professional advisers. Firstly, you want everyone to collaborate effectively in the very best interests of your mutual client. Then with a more self-interested hat on, you also want to really impress these other professionals, with a view to them seeking out your services in the future. In my travels in out of the offices of financial planners across the country, it’s in this second area that I sometimes see planners selling themselves a little short and not driving home their potential future opportunities…

Here are a couple of ideas to help build stronger collaborative relationships with a professional network.

 

Communicate your value time and time again

A goal should be to get in front of the network partners time and time again to remind them of the value that you can add and to get regular client referrals. There are many ways you can do this; here are a few examples;

  • Add the partners to your own communication programme: Connect with the partners on LinkedIn and also get their permission to be added to your newsletter subscriber list. Let them see the expertise and thought leadership that you have to offer.
  • Develop bespoke presentations: These are for the initial meeting with the partners and should focus very much on the role of the accountant and how you can assist them in their own role. Personalise each presentation to the role of the particular partner’s area of specialism – for example the presentation to a tax partner should focus on pension reliefs, tax efficient protection products, tax efficient investing and other tax angles that you can bring to the table. This shows knowledge, understanding and willingness to engage in their areas of challenge with their clients.
  • Case Studies: Prepare a number of case studies of innovative solutions that you’ve implemented and know are relevant to challenges that are typically faced by these professionals. Don’t leave them guessing as to how you can help, join the dots for them…
  • Briefings for partners: Keep your network briefed on issues within the life and pensions industry that they need to be aware of, but may not be that knowledgeable. This can be through email contacts, lunchtime meetings or other such channels.

 

Develop joint marketing activities

And then you need to also promote your network and help their bottom line. First of all, refer clients to them whenever possible. If you give them new clients, they are certainly going to try harder to reciprocate. Then offer them the opportunity to include guest posts in your newsletter. This gives them welcome exposure to your clients. You can then look at hosting joint events to which you both bring clients, take a speaking slot to impress the guests, all of this with a view to both you and your network partner meeting the other’s clients and building new relationships.

 

Prove your value with clients

Of course the biggest barrier to professional network partners referring clients to you is fear. Fear that you will somehow mess up and as a result cause difficulties for them with their client. So when they do take the leap and finally refer a client to you, it’s imperative that you do a good job (as you do) and then make sure your partner is aware of it. How do you do this? You might seek a testimonial from the client, which you then share with them. Alternatively you can email the client a few weeks after the end of your work with a short client satisfaction survey – again you will share the results with your network partner.

These are just a few thoughts on building profitable and lasting relationships with a network of professional partners. Build their trust, remove their fears, align yourself to their proposition and demonstrate your value time and time again. And then you will be well on the way to breaking the back of that search for new clients.

Why your clients leave you.

A previous article that we wrote about when it’s time to fire a client drew a fair bit of comment… It proved to be a situation that many financial advisers have experienced. However, now it’s time to take a look at the flip side of the coin – when clients leave you.

We’ve set out below some of the reasons that clients might leave you, and what you can do to prevent it happening.

 

They lose the feeling of love

You are busy, lots of new clients coming through the front door and business is great! However at the same time, you need to guard against existing, valuable clients quietly slipping out the back door. Have a really clear activity plan for all of your valuable clients, making sure that all of them continue to feel the love every year.

Make sure your ongoing support packages are really clear in the eyes of your clients. Manage their expectations on what they can and should expect, and then deliver a quality service time after time. Should they expect an annual face-to-face meeting or will you meet them remotely? Or should they expect an annual meeting at all?

 

They lose sight of the plan

The development of a financial plan is a big deal for clients. They get a strong sense of direction and can see a pathway to future financial success. If required, this often entails you putting products in place.

It’s so important to recognise that you’ve simply started the client on their financial journey. Your role then becomes one of an ongoing guide; keeping the client on track for future success and ensuring the plan is continually pointing them in the right direction. If you don’t keep the client focused on the plan (and not just the products), they can fall off the path. And this is where you risk losing them.

 

They don’t believe in the plan

This is a trickier one as you may be sailing along blindly, thinking the client is 100% committed to the plan. It is worth getting positive affirmation from the client that they are happy with the plan, that it comprehensively covers all of their aspirations and concerns and that they are fully satisfied with the proposed strategies and solutions to achieve the plan.

Of course this becomes a lot easier with cashflow planning as the client can see before them the progress they are making, the further progress needed and whether they are on track or not. This clarity builds their financial confidence.

As part of this, it’s also important to recognise that you may be unaware at this point of significant changes in their circumstances. These changes may require big changes to the plan. Those check-in review meetings are so important, to ensure the client and you remain on the same page…

 

They don’t understand the plan / and or solutions

People don’t like to feel stupid. Some clients may appear to understand everything you tell them, but in fact may be bamboozled by the language and terminology that you use. Be careful that you talk to them as clients, keeping your language simple. Don’t talk to them with language you use with fellow professionals as your client may not understand you. This will undermine their trust in you and rather than appear stupid, they may prefer to deal with someone who they understand and connect better with.

 

They think the grass is greener elsewhere

Some clients leave because they believe another adviser will get better results for them. If another adviser is developing a better, more comprehensive plan for your client, you’ve got a problem. However if another adviser is promising “better returns”, you need to confront this. Clients can get greedy and blinded when confronted with unrealistic opportunities. You need to constantly remind your clients that you (and other advisers) have no control over markets or timing and that your role is identify a portfolio that reflects their specific needs, and not simply to suggest a portfolio with the highest potential returns (and risk). You need to remind them of the valid expectations they should have and how this relates back to the financial plan.

Some clients will leave anyway. Keep the door open to them – they may return when they recognise the grass was greener elsewhere.

 

These are just some of the reasons clients leave you. Ongoing, open communication with your valued clients is the key to preventing them slipping out the back door. Getting new clients into your business is hard work, keeping them there requires the same level of energy and attention.