Terry Bell is the owner of Business Health, where he helps business owners make informed decisions and implement proven solutions.
Terry Bell outlines five strategic issues impacting planning practices and the profession that were identified in Business Health’s latest Future Ready VII report.
Earlier this year, Business Health released the latest white paper in our Future Ready series, Future Ready VII. This report was based on results of the 226 firms that have taken the Business HealthCheck1 over the past two years. This includes a mix of aligned, small/large, regional and ‘better’ practices that have been participants in various licensee ‘premier practitioner’ programs or were entrants in our Best Practice Competition.
Overall, it was pleasing to note the uplift in overall practice profitability. But as we delved deeper into our analysis, it became clear that practices perhaps aren’t on as solid a foundation as they might first appear to be.
The lack of progress in key areas, such as client feedback, communication, client value propositions, business and succession planning, in our opinion, overshadow what might otherwise be considered a very positive ‘health report’.
I don’t propose to discuss here the significant and fundamental changes currently underway within this marketplace. Suffice to say, ‘the times, they are a-changing’… again.
What I would like to spend a few minutes on though, are what we believe to be the strategically important (and inconvenient) issues emerging from our latest analysis.
An optimistic outlook: Goals or dreams?
Most principals remain optimistic about the outlook for their business over the coming 12 months:
94 per cent of principals expect to increase their practice revenue and 89 per cent will increase the revenue generated by fees.
86 per cent expect to see an increase in practice profitability.
80 per cent will increase the number of clients they service.
61 per cent will build on the number of third party referral partners/centres of influence that support their practice.
42 per cent plan on recruiting more income producers to their business.
46 per cent want to add more support staff.
You get the drift – Australian advisers are, on the whole, very positive. But (there’s always a ‘but’), there’s a huge difference between words and action.
Each of these statements represent a major initiative, which will require significant management time, focus, expertise and resourcing to be devoted to it, to ensure its achieved. Yet Future Ready VII tells us that only one-in-three (35 per cent) practices have a longer-term strategic plan for their business, and just 38 per cent have an operational business plan covering the upcoming 12 months (and many of these are light on content/detail). These findings are considerably poorer than our previous analysis.
Without a carefully thought out plan to implement, we question whether the above are truly realistic goals or are they simply well-intentioned dreams and hopes.
For advisers to remain ‘relevant’ (and therefore valuable) to their clients, they must continue to not only deliver a service that their clients truly appreciate and are happy to pay for, but they also need to continually reinforce that service.
We are therefore at a loss to explain some of the latest communication findings:
Just over one-in-three practices communicate with their best clients 10+ times per year (and in this context, contact can be written, electronic, telephone, group functions or face-to-face meetings). This result is well below our 2014 finding of 43 per cent.
Just 34 per cent of practices actually seek feedback from their clients through a formal survey process. A result which continues to frustrate!
28 per cent only meet face-to-face with their very best (‘A’) clients once a year to review their current personal circumstances and their progress to plan.
Drawing from our CATScan database2, it is instructive to note that of the nine key service areas we survey, ‘communication’ and ‘reviews’ are the lowest rated. With no noticeable improvement in ratings over the years, it appears that advisers’ efforts are still not fully resonating with their clients.
Disappointingly, only one-in-two practices indicate they have a current client value proposition (CVP), a result which is down 6 per cent over the 2014 results.
It seems that to describe a practice as ‘client centric’ is a far easier thing to do, than to actually deliver to the description!
Investment in staff
Are practices deriving maximum return on the investment they are making in their staff? It’s an interesting question.
As the average practice is employing 5.6 permanent staff, it’s no surprise that the biggest expense for almost all practices is their salaries/wages bill. Assuming a notional $100,000 package for each of the working principals/owners, the average practice is investing to the order of $480,000 per annum in salaries – this accounts for 45 cents of every dollar of revenue generated by the firm. And yet:
One-in-three (33 per cent) do not have position descriptions for the majority of their staff. Role clarity could well be an issue in many of these firms.
Almost half (42 per cent) do not have agreed and documented performance objectives for the majority of their staff.
47 per cent have not recently conducted performance reviews/appraisals with their staff (although without an accurate and up-to-date position description and a set of agreed performance goals, conducting reviews could be very difficult).
It is therefore surprising (at least to me) that more is not being done to maximise the return on this investment.
What happens if something happens?
Somewhat ironically, given the role most advisers play for their clients, very few practices have adequately addressed what will happen if the principal is no longer involved in the business, either by retirement or through a forced exit due to death or disability.
Only 30 per cent of the firms have any form of documented succession plan or buy/sell agreement and a quarter of these do not cover all of the four major trigger events (death, disability, retirement and resignation). Forty-one per cent of the principals with a succession plan have not yet identified a potential successor, let alone agreed to any terms or timeframes.
Two-thirds of these practices are single principal/sole owner businesses, and while it is perhaps not surprising that just 11 per cent of them advised that their business would continue to grow and develop without them (in fact, 56 per cent stated their practice could not operate at all if they were not there), this situation clearly represents a significant business risk. Especially so, given that 63 per cent of the clients who have completed the Business Health CATScan client survey have stated that they “would not be comfortable dealing with anyone else from the practice other than their current adviser”.
This situation is further exacerbated by our finding that 44 per cent of these principals have no key person protection plan in place; 68 per cent have not documented all of their systems and processes; and in 73 per cent of the practices, the adviser alone conducts all of the client reviews.
The risk is clear and without a proper transition plan in place, these practices remain at risk of not optimising the capital value inherent in their practice.
The disconnect is growing
Clients are ageing. When you consider the current state of play for many Australian practices, more focus and attention will be needed over the next few years to successfully address the greying client demographic. Consider:
53 per cent of clients are aged 60+.
44 per cent are already retired.
34 per cent don’t have a Will.
‘Range of services’ is now one of the lowest indicators rated by clients through our CATScan tool.
And yet, we’re informed from our latest analysis, that 67 per cent of business owners won’t be looking to expand their service range over the next 12+ months. While many of today’s clients have moved on from superannuation and protection, I can’t help but wonder if their adviser has.
Is there a risk that clients and their advisers could very well become disengaged or disconnected over the next few years?
So, there you have it – our top five inconvenient facts.
As to what to do about them, well, that ball rests in your court. And while to do nothing may be a valid response for some, it won’t be for most. As Bob Dylan wrote all those years ago, “For the times, they are a-changin”.
The HealthCheck is a web based diagnostic tool designed to allow practice principals to effectively and efficiently gauge the health of their businesses.
The CATScan is an independent, confidential, anonymous client survey facility, conducted by Business Health on behalf of the practice.
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