How do you decide on the best size for your business? Nicola Brittain asks several managing directors for their tips.
There are many different types of advisory firm and the optimum size of each will depend on the infrastructure, client base, turnover and way in which the firm manages its compliance requirements.
Determining which size best suits your business will depend on a variety of internal and external factors. Many advisory firms, like those in other industries, are apt to think, rightly or wrongly, that bigger is better. But how far is this true for firms in financial services?
Wales-based Hedley Asset Management grew the number of its registered individuals (RIs) from five to seven last December. However, managing director Mike Shaw argues that the company, which typically manages clients with approximately £130k in savings, faces difficulties as a result of the growth.
“We face compliance issues now and need to take on a new administrator and a paraplanner to be able to cope effectively,” he says.
How big should your business be?
According to Shaw, the problem is the increased compliance burden resulting from the Retail Distribution Review (RDR). He says managing every piece of business has been “like wading through treacle”.
“In addition, we will probably need to take on new proprietary technology to manage our new size. Our current, home-built solution – which grew out of Microsoft Office – is no longer fit for purpose.
“We are a more profitable and efficient firm as a result of the growth but we would certainly not look to expand any further until we have addressed the current issues,” says Shaw.
At the other end of the scale is Lighthouse Group, an AIM-listed firm turning over £50m per annum and comprising more than 500 advisers. It is made up of three divisions: a national called Lighthouse Financial Advisers (LFA), the network Laser, and the professional services division, LighthouseCarrwood.
The company has ambitious growth plans that include the Project LFA 500, which aims to see an increase in staff in the national division from approximately 300 staff to 500 by 2015.
Malcolm Streatfield, chief executive of Lighthouse, argues that the company is able to grow this way because of economies of scale afforded by the company’s new centralised Fairway technology system. It is a combination of Intelligent Office and Distribution Technology’s Dynamic Planner and cost the company more than £1m.
The technology enables compliance officers to check an adviser’s work in real time, meaning “compliance staff are not caught up in an endless paper chase”, according to Streatfield.
Despite the plans for growth, Streatfield concedes that size is not a determinant of
profitability. “There needs to be a constant stream of activity from these advisers. Although we do not set quotas, we expect firms to be active and to engage in opportunities,” he says.
This article continues…
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation