Key-person risk is when a singular person has all the knowledge of a practice, potentially leading to severe business disruption if they leave.
Tangelo Advice Consulting principal consultant Conrad Travers tells Professional Planner most of the small businesses his firm works with have a ‘key person’, and this danger has become quite common for advice firms.
“The risk is if something happens to them or they change roles, then people just don’t know what to do or how to do it,” Travers says.
Travers recommends documenting processes not only in PDF documents but also online for greater access and people within the business to ask questions.
“It’s also important to make sure that your processes aren’t just documented and sit on a shelf. They’ve got to be live and reflective of the businesses and constantly changing.”
Comprehensive and detailed process documentation can educate the whole team within a firm about how to understand the different policies and processes.
Travers recommends taking the time to ensure every member understands how processes work in order to increase efficiency within the firm and says there are options on how to achieve this.
To take it a step further, Travers says it’s worth documenting their operating procedures in more detail to explain “the why and the how”.
Only ‘10 per cent’ on top of process documentation
Travers estimates about 10 per cent of advice businesses have policies and processes in place and only 5 per cent are fully on top of process documentation. A reason for this percentage being so low is because small self-licensed businesses do not have the capacity to implement these processes.
“[It’s] really that low because what you’re dealing with now the big firms out of financial planning is a lot of small business, self-licensed groups who are operating autonomously and trying to do the best they can, but they often don’t have the right skills and steps to be able to do it,” Travers says.
While most businesses have some policies in place, the vast majority of these processes are out of date and don’t reflect the actual operation of the business.
Travers says most advisers are aware of the fact but simply do not have the time, capacity or skills to update the processes and so implement a template that is not fully suited to the business.
For example, “there’s a lot of tick a box kind of stuff out there where people have just adopted a template and customised it, but it doesn’t really reflect what goes on the business”.
The 10 per cent of businesses who have implemented policies and procedures have done so in order to inspire “future growth”.
“Most people have something in place, it’s just not adding any value,” Travers says.
AI a ‘silver bullet solution’
Travers warns against choosing artificial intelligence as a “silver bullet solution” before fixing the foundations of the business, which is the consequence of the financial planning process being so complicated and disruptive.
Travers emphasises the importance of core foundations and ensuring a suitable foundation is in place before turning to AI or new technologies.
“It’s about getting your data right, getting your processes right, and getting everyone clear on their roles and responsibilities,” Travers says.
“Once you have that in place, then you can look at the tech stack or the AI opportunities.”
He says some people are trying to make AI solve all the problems for the business but instead it should be used “opportunistically where it actually saves time and doesn’t breach any privacy issues”.
