Resisting the resistance

25 March 2019

Vincent Holland

Vincent Holland is a lawyer and principal of Forty-Seven and a co-founder of Plutosoft, a comprehensive financial planning software and practice management program for financial planners.

Implementing the right fintech solution can be the key to building a scalable and highly profitable financial planning firm. 

Imagine your firm a few years from now. Your firm runs efficiently, your profit is increasing and your advice documents are prepared in minutes, not days. Those painful administrative tasks, which don’t add any value to your business, are now automated. Suddenly, you have more time to focus on servicing your clients and taking on more clients.

Your clients are ‘wowed’ by the extra attention and service they are receiving, and are now sending more referrals your way. And because your systems work so well, you can take on more clients without increasing your costs.

Sound fanciful?

Well, it’s not actually. At least not if you’ve implemented the right software for your firm. Allow me to explain why.

Every financial planner’s nightmare

I regularly consult with practice principals from leading firms across the country. And the common complaint across the board is technology. Put simply, planners are frustrated with technology (or its shortcomings) to the point where they feel it is inhibiting their capacity to grow.

The practice benchmarking surveys tell a similar story. According to the 2017 Dimensional Annual Benchmarking Survey, planners rated the following problems as some of their most challenging:

– Increasing profit;

– Systemising work flow; and

– Selecting and maintaining technology for their firm.

These problems each rated ahead of the risk posed by the rise of robo advisers – often hyped up to be the great threat to our profession. However, planners felt that the issues in relation to their own technology to be a far greater problem.

So, why do planners find technology, systems and profit to be so challenging?

Why so challenging?

The first point to recognise is that they are all inextricably linked. In other words, to have great systems, you need great technology to run them. To increase profit, you need to be more efficient, which can only be achieved by having great systems.

Great technology is the key to having a highly systemised, scalable and profitable planning practice.

The problem is that, historically, technology has let financial planners down. And, in my view, this has been to the detriment of potential profit growth.

Linear versus exponential growth

Conventional wisdom says that the bigger a firm becomes, the more scale, leverage and efficiency it should achieve. It should therefore be able to better utilise its resources to generate more revenue.

A truly scalable business, such as Google, can achieve exponential profit growth because the rate of its revenue growth far outpaces the rate of its expenditure growth.

But in the case of a financial planning firm, the growth rate typically follows a more linear pattern. A firm grows by gaining new clients, but ultimately, it will reach a capacity wall and will need to hire more staff to service them. In other words, the firm is growing revenue and costs at a similar rate.

Based on Dimensional’ s research, firms tend to reach a capacity wall of approximately $250,000 of revenue per staff member. So, for example, a firm with seven staff, would, on average, have a total revenue generating capacity of $1.75 million. Of course, there will be exceptions to this rule, but it does provide a useful rule of thumb.

But can new technology empower planners to achieve more scale and to significantly increase that capacity wall? What if that same firm of seven staff could double its capacity wall and increase its revenue generating capacity to $3.5 million?

Embrace change

The good news is that technology is advancing at a rapid rate and a new wave of fintech is starting to reshape the profession.

The key for planners is whether they are willing to embrace that change.

Our profession is rapidly changing in a way few other professions are. The very nature of a planner’s role has changed. Today’s planner is less product driven and far more focused on strategy and goals – a trend which is only set to continue.

Older legacy software, which was developed for a different time and age, has perhaps not kept pace with that rate of change, leaving planners with outdated tools that cause much frustration.

Client expectations have also changed. We live in an increasingly digital environment where clients of all demographics – not just millennials – are accustomed to interacting online. Clients book restaurant reservations online and they can access their medical records through digital portals.

The point is, if they can interact with all other aspects of their lives digitally, why shouldn’t technology help create a better experience with their financial planner?

How new fintech helps

New fintech will drive efficiency and engagement in several ways. First, new software can rapidly speed up the process of preparing Statement of Advice documents. We found that our firm spent 14-16 hours on average preparing Statement of Advice documents – a common experience felt by many planners.

After implementing a new custom-built software system for our firm, we were able to cut that time down to 1-2 hours on average, which represented a huge productivity gain for our firm.

That time saved enabled us to mobilise our staff to more value adding roles focusing on business development, client experience and marketing. This opened the door to pursuing new client acquisition opportunities and higher profit growth.

What new initiatives could you implement with so much time saved?

Secondly, new technology will greatly improve client engagement. The ability to conduct real time cash flow modelling directly in front of your clients is the tool of the future.

Clients will see the short and long-term impact of making certain decisions and better understand the trade-offs. Should we fly business class or economy, send our children to private or public schools, salary sacrifice or pay off the mortgage?

After all, these are the questions that matter to clients, and technology can better facilitate these more meaningful conversations.

Finally, better systemisation will enable planners to monitor and track their compliance obligations and to ensure they are compliant in everything they do. Rightly or wrongly, more regulatory change and oversight is inevitable and the importance of having great systems to deal with this has never been greater.

Summing it up

If you are one of the many financial planners who is disgruntled with technology, then you can either sit back and do nothing or be proactive about finding a better solution. It’s your choice.

It’s human nature to resist change, but if you choose wisely, the long-term benefits of having a great system will far outweigh the initial change management investment.

Experience tells us that technology is just too important to ignore.