4th January 2013

Thinking on your feet

Thinking on your feet

Let’s imagine that the doors of the lift have just opened.  Inside stands your perfect, prospective business investor.  It's the chance of a lifetime. You have though, a mere sixty seconds to convince them of your proposition – the opportunity to buy into your advisory firm.  So what will make your story compelling? 

By definition your ‘elevator pitch’ has to be short.  It must be succinct.  The hook however, will be the clarity with which you explain what you do and your firm’s actual achievements, rather than an outline of your aspirations.  Arguably, the same approach will be equally effective in attracting new clients – and of course clients represent the life blood of any business. Providing them with appropriate products and services to meet their varying and specific needs, not just today but in the future, is fundamental to their requirements and to the growth and development of any advisory firm.

Having carefully analysed your client data base and segmented it according to requirements, decisions have to be reached as to how you will take your business forward.  In a nutshell, what does your investment proposition look like and how do your chosen resources underpin the implementation of the service?

The investment route you select: advisory; discretionary; or a hybrid; in-house; in-sourced; or outsourced, inevitably has a significant impact on productivity, profitability and ultimately, the value of the business. 

Improving technology is resolving many of the time-consuming issues that have historically beset the ‘advisory’ route.  However, whilst this approach lends itself to greater control over the investment proposition, the ongoing need for client authority can act as a sheet anchor on efficient implementation.  It can also disrupt efforts to create and maintain aligned models or portfolios. 

The discretionary proposition on the other hand has the potential to be more efficient.  Nor does it necessarily mean losing control of the investment solution by outsourcing to a discretionary fund manager, DFM.  The advisory firm can gain discretionary permission itself, although currently less than 5% of the IFA market has opted for this solution.  Alternatively, some businesses work with companies that provide them with the discretionary authority, supervision and infrastructure to develop their own proposition, albeit employing third party managers as appropriate.

Whether you are a traditional IFA deriving initial and ongoing income from financial planning and product selection, with limited use of discretionary investment management services, a DFM firm or part of an IFA firm with discretionary permissions, generating income from advice to establish portfolios, investment management and client relationship management, or a hybrid in which the client relationship is managed by the IFA with investment management provided by DFM firms, the starting point is to be crystal clear about what you do.

Finally, let’s not forget that valuations vary. For advisory firms a multiple of one per cent of funds under administration generating recurring income tends to be used, whilst for discretionary management, analysis of recent history suggests something based on multiples of funds under management, with a range around three per cent.  

Rebecca Murphy

Director

North Investment Partners Ltd

*first published in Professional Adviser October 2012

RDR