In this, the second of a series of articles, 1st Software explains advisers may not be able to solve revenue issues by simply increasing the amount of business conducted but by reassessing what information is needed and how to handle it.
Doing a 'few sums', or more accurately a cost-benefit analysis, it is not surprising that many advisers in this situation adopt the ostrich approach – burying themselves in the sand and waiting for the dust to settle. Fortunately, there is a better way.
The trick to sound business management, whether you operate as a sole-trader or a multi-million pound organisation, is data or more accurately, management information (MI). By understanding your firm's costs, both fixed and variable, the flexibility of your resources (both human and mechanical) and the return on investment (ROI) of your services, clients and daily activities, you are two-thirds of the way to success.
While it is easy to succumb to the big 'R' word, revenue is often part of the distraction that causes firms to get a misguided view of their overall position. To illustrate this, we will begin with a closer examination of costs.
While typically these would be broken down into fixed and variable costs, financial services is a 'people business' and despite the increased use of technology, it is the 'people cost' aspect that needs closer investigation.
Within a typical IFA practice there are administrators, perhaps para planners and certainly advisers. Each has their own skills, levels of experience and expertise and, of course, remuneration packages. But which employees and (importantly) which clients actually produce real ROI or 'value for money'?
Step 1 - The objective is to understand the cost of client servicing, perhaps in client segments broken down by profile e.g. 'mass affluent' (needing holistic financial planning) or 'occasional investors' (maybe happy with an online service).
If the clients can be categorised into generic groups with similar servicing characteristics then a sample group will deliver the necessary results.
Servicing in this respect has to include the new business activities as well as the existing contract servicing activities.
Step 2 - Break your client-related resource tasks down into their component parts.
The level of detail is a matter of choice, but each task should not really span the activity of more than one person.
While each client will need the usual fact-find and regulatory background tasks completed, the level of face-to-face professional advice, with a 'high cost' RI staff member, is likely to vary and the categorisation needs to reflect this.
Step 3 – Each task undertaken by each person has a cost attached to it and has to be itemised at an hourly rate. The adviser's time is usually more costly than the administrator's but the objective is to establish the detail.
If you are charging a fee for the activity then record the cost, not the revenue – this will come later.
Step 4 – Select a period of time that is long enough to generate a representative set of figures, say a month or two.
Each task undertaken needs to be recorded, including the time taken on it, and allocated to the relevant client. As you will realise this is a considerable undertaking and the use of technology to help with this is highly recommended. Most good back-office systems already contain a time management element, often integrated with standard office diaries and e-mail software, Microsoft Office and Outlook being the best examples.
AND Step 5 – At the end of the 'test period', calculate the costs of all the activities for each of the clients by reference to the hourly rates. Analysis can then be undertaken to establish (a) the cost of a particular client, (b) the cost of each task across the business as a whole and (c) cost per employee per chargeable function. Against all this is the revenue generated in the period for the selected clients or groups, based on commission, fees or a combination of both.
From this, you will be able to make better judgements on the types of clients you seek out and keep and those that may be more profitably transferred to a lower cost method of servicing, perhaps via your website and email updates.
Equally, while any revenue may be better than none you can now refocus your efforts into areas that are less labour intensive or have potential for automation.
The allocation of tasks to people in the business can also be reviewed and this may cause you to rethink the training requirements, recruitment strategy and skills mix.
Finally, this exercise should provide you with a critical analysis of what your technology priorities should be, since automation can be a great way to derive efficiencies. This will determine whether you really need what you have got; what any future solutions must be able to achieve and ultimately narrow down your 'wish-list' of potential technology suppliers and most useful online services.
Six hours for a client report
700,000 transfers in 12 months
104 delegates attended
'Benefit from healthy cash levels'
Could be two months to complete payment