Running businesses is hard, thinking about the future is hard, and making changes to already profitable systems is hard, too. It challenges businesses in financial services every day.

Think about it this way: You are the owner of a movie studio and you have $100 million to invest.

Do you make Fast and the Furious 10 or Cinderella 2, extending a franchise so you are guaranteed at least to recover your costs? Or do you invest in three completely new movies and risk everything?

In mathematics, this is referred to as the explore-vs-exploit algorithm: knowing when to exploit known profit pools by continuing to invest in existing practices, and when to invest in exploring new ways of driving profit.

In October every year, CoreData conducts research of dealer group heads to decipher their intentions for the next 12 months.

Last year, the data revealed that businesses were focused on getting systems right. It was the goal of almost every business to make fewer mistakes, to tidy up what they had and to take fewer risks.

The overwhelming data from the research this year is that 2018 will be a year of exploration, as businesses seek ways to drive up the efficiency of their operations and enhance the ability of advisers to get closer to clients and better at anchoring value.

The research also reveals there are three categories of businesses in the advice industry: the top , focused on quickly morphing their businesses into client-centric operations; the middle, which is adopting as fast as it can but is hamstrung by the speed at which it can implement change; and the bottom, which has the intention to change but hasn’t yet enacted its plans.

Generally, the size of the licensee group tends to determine the speed of change, but the latest data shows that some of the biggest – in this case both the CBA- and Westpac-aligned dealer groups – are adapting quickly.

As usual, however, it’s the smaller groups that have been able to make change the fastest, by harnessing group behaviour and aligning actions and outcomes quickly.

Unlocking data

One of the fastest changing is Fortnum Financial Advisers, now headed by Neil Younger following founder Ray Miles’ departure. The firm is unusual in the industry at the moment, because it isn’t going through a change in ownership, management or structure.

Younger says “the focus for Fortnum for the next 12 months is definitely on exploring – particularly about driving value into the advice process”.

He says the goal for Fortnum is to provide its advisers with the digital and process tools to lower the friction in the advice process, to drive down the cost of managing clients, and drive up the value of advice in the eyes of the client.

“Whether we like to admit it or not, advice businesses need to be data-driven, so we are
spending the money on developing infrastructure to build the ecosystems to allow our advisers to get access to new revenue streams and increase the efficiency of their businesses,” Younger says. “It’s our task to create a controlled and flexible environment to allow businesses operating with us to be technology, platform and product agnostic.
It’s our role to help our advisers run profitable and successful businesses.”

As for which profit pools Fortnum might exploit this year, Younger says there are two ways to grow profit: lowering the cost of running the business with systems that cost less and are more flexible and more tailored; and adding new advice revenue streams.

He says the next generation’s advisers are going to look for a world unshackled by old systems and platforms, and seek out services and processes that enable them to capture more of the revenue from the client-facing processes.

Make no mistake, Younger says, 2018 is the year of the client.

Andrew Inwood is the founder and principal of CoreData Research

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