The growth of licensee businesses is rapidly becoming less dependent on the simple metric of how many advisers or practices they can attract to their networks, and more dependent on a complex interplay of factors that define the growth prospects of individual practices.
CoreData Research founder and global CEO Andrew Inwood told the Professional Planner Licensee Summit in June that licensees which recognise the support and services needed by the practices with the greatest growth potential will prosper.
A growing recognition the sustainability of a licensee is linked to the growth potential of advice practices, not to the number of advisers per se, is one of the reasons more licensees are seeking to participate in the advice margin by acquiring equity stakes in advice businesses or are moving to variable fees linked to the growth of the business.
Inwood said issues such as revenue payments and compliance support remain high on the list of the services all advice practices need, but an indicator of likely future growth is emerging in the form of technology adoption.
This is a finding emerging from CoreData’s annual Licensee Research, which remains open for advisers to complete and to contribute their insights and experiences with licensee services.
Inwood said the message for licensees is clear. “If you can lead on compliance and tech, you’re going to attract the growth partners,” he said.
“And if you want to be serious about the future of this, then you have to be really strong in this space.
He added for licensees have to be serious about the future of compliance and tech to be strong in this space.
“This is the conversation about growth: tech is going to be about taking the work away and making the systems better,” he said.
“There is a strong belief inside Australia at the moment that we have under-invested in tech, that people around the world, particularly in the US and the UK, are further down that line than us and there is some evidence that that is true.”
Coredata’s research shows that about half of financial advisers have experienced an increase in the fees they pay to their licensees over the past 12 months. In three in 10 cases they’re paying more simply because the licensee has jacked up its fee.
But in about roughly half of those cases (14 per cent), the amount paid by advisers has increased because the core licensee fee has been raised and they’re also paying for additional services.
In roughly half as many cases again (6 per cent), the amount paid has gone up because advisers are paying for additional services, even though the core licensee fee hasn’t changed.
Inwood said that irrespective of whether a licensee is large or small, institutionally owned or not, “the question now isn’t how many people you’ve got in your business, but of those who actually have growth plans?”
“How can you help them grow their businesses so that they can succeed with you? The act of growth, and planning for growth, starts to leave clues.”
Tech adoption is a growth indicator
One factor which is “a very clear indicator for growth plans and growth intentions” is how a practice adopts technology, Inwood said.
“Around the world we’re watching the great businesses adopt tech,” Inwood said.
“We know what they’ve done in the US and the UK, and how much they’ve adopted tech. A lot of the systems that exist there for those businesses [are not] in Australia yet, but it will only be a matter of time before they started importing those.”
Inwood said it is clear that technology adoption drives scale at a practice level. Scale at a practice level can be measured by how many clients each adviser can effectively generate fees from, and the more clients each adviser can service the higher the profitability of the firm.
“The businesses which adopt tech quickly are the ones that are getting scale quickly,” he said.
“The reality is that people who are growing value support more. One of the things that is going to happen inside your networks in the future is that you’re going to start to differentially put resources around people who are going to grow – they are going to get more support. They’re going to actually be more interesting people and they’re going to be more valuable.”
Low tech-take up equals low growth
Inwood said low-tech take-up practices are “absolutely only concerned with ‘take my compliance away and pay me’ – it’s a really interesting integer”.
“They’re not interested in growth; they’re interested in de-risking their business and getting their revenue payments more effectively,” he said.
But practices switched-on to growth are looking to tech to support that expansion, as revealed in CoreData research by the increasing importance ascribed to it by advisers, and licensees need to recognise that.
“All of a sudden advice tech, which has bubbled around the 30 per cent [mark] in importance for the last little while, has now bubbled up to very important,” Inwood said.
“Everyone understands what’s going to drive growth. Now it’s tech; this is a tech business. Making sure that people are satisfied with the way in which their tech has been brought on is going to be hard and complicated.”
Inwood said the future for licensees is clear: If advice practices are adopting technology and are well supported to do it “they’re going to be the growth businesses”.
“We ought to do everything we can to support those businesses,” he said. “And then, help the businesses that aren’t [adopting technology] to find a buyer and say [to them]: This isn’t for you.”
Advisers who would like to complete the CoreData Licensee Research can do so by clicking here.
Thank you Simon for reporting on an important aspect of growing a business. We beleive however, that the real revolution required in Australia is the transformation from being a practice owner to becoming a business manager. That is, building a Business System that strives to find efficiencies (better use of existing technology) that gives back the time required for owners to build deeper client relationships and to grow their businesses. We assist practice owners to physically build this system so that each month they are working ON the business as well as IN the business. This entails ensuring data is clean and complete, further use of their CRM, outsourcing repeatable tasks, measuring their metrics to assist decision making and building a mindset that they cannot deal with every Australian just clients that fit their ideal client definition. A business owners asks “what does my business require to be more efficient”. Sadly Small Business Management topics are few and far between at most PD Days and conferences and few owners are evaluated on these skills. The revolution would see licensees offering planners skills around using clean data, measuring metrics, outsourcing menial non-core tasks, annually auditing the procedures manual and completing an annual Information Memorandum. The Business System sets out who completes and in what month these activities are completed. Licensees would then witness a drop in compliance issues and an increase in each practices profitability. The Business Systems revolution would therefore be a win/win for the practice and the Licensee, but a win for the client as each financial planner has more time to spend on clients. Long live the revolution!
Andrew has hit the right button with this analysis.
There will always be the good, the bad, the ugly dressed up as good.
Advice practices, Advisers and their staff, just want to be able to get on with their jobs in an easy to use, compliant and workable manner that makes the provision of Advice and administrative tasks, clear and concise for clients and everyone who has input in how the Business works and progresses.
The Golden chalice is an end to end process.
What we have today is a collection of technology solutions that each look to fix a certain part of the process, though in truth, can add to the complexity and time it takes trying to put it all together.
There is a solution coming in the risk space.
Right on, Jeremy. Will be great to have the end-to-end complete fix/solution, rather than a tech stack that can’t possibly deliver the same result because the nature of a stack creates Inherent complexity.