Financial planning practitioners face several decisions about the type of business that they are going to run in the future and the evolution of accounting practices may provide some clues.
This is the view of Seaview Consulting directors, Bob Neill and David Fotheringham, who believe that these should be deliberated decisions that cannot be taken lightly.
“It is inevitable that financial services is moving into an environment in which much closer attention will be paid to the price that clients pay for the services that are delivered,” said Neill.
“If a financial services practice cannot ensure that it can economically deliver those services, it will struggle to maintain a sustainable future. By building scale and taking advantage of the economies available through scale, practices will be able to meet the client expectations of value for money.”
Fotheringham added that the professional advice business of the future will increasingly need to encompass investment, risk management and debt advice, together with accounting services and estate planning.
Professional demands: from suburbia to complexity
This will undoubtedly be a challenge for business owners, and the Seaview directors have observed a number of parallels and implications for financial advice practices from the experience of accounting practices.
“Not so long ago the majority of accounting services were delivered by suburban partnerships, consisting of sole practitioners or two or three partner practices, run by general practitioners,” said Fotheringham.
“There was an evolutionary change driven by the tax and legislative amendments of the early and mid-1980s that introduced a raft of complexities for business owners at the same time that they were growing their expectations of the advice that was being offered to them by their accountants.”
This gave rise to the emergence of the “second tier’’ of accounting practices which consisted of firms large enough to deliver a depth of capability in each of the areas that their clients required advice, this being tax, audit, corporate advisory, insolvency, business services and related activity.
Big business comes to town
The need for scale was evident in this drive to deliver the full range of services to clients with a high level of expertise in each advice channel.
According to Fotheringham, this emergence is now well and truly complete and this sector dominates the accounting market to the detriment of the small general practitioner, who faces a constant battle to remain relevant to his or her client base.
“It is our view that financial advisory businesses will go the same way and, in fact, it has already commenced, with the emergence of a number of ‘merged’ accounting and financial planning practices delivering their clients a one-stop-shop experience,” he said.
“This is only in its formative stages, but will gather momentum quickly and the choice will be forced on business owners to adopt this scale push or prepare to compete against it.”
Increasingly this will see practices considering the need for specialist management skills, often in the guise of a general manager with broader operational skills in technology, process design, training and supplier management including outsourcing.
“It is recognition that the core skills on which many of these businesses were built, namely sales and relationship or technical competence, will not be sufficient to steer the business to its next stage of evolution. It is a sound business decision, but one that carries an economic risk if not carefully planned,” said Neill.
“Quite simply, the management role will generally be the first time a non-revenue-generating senior person will be employed. The business must be robust enough to cover the cost of this management level and that can only be achieved by investing in the staff, integrated processes and infrastructure to make it work, in other words build economic scale.”
