Traditionally the advice profession has been met by very different professionals –advice on investments, tax, insurance and mortgages could be provided by at least three different professionals to the end consumer.

However, just because this is how it was always done, do you believe it is how it will be in the future? Already we are seeing fast growing practices take a different path, where a merger of tax, investment,  insurance and mortgage advice are all under one roof. These new hybrid advice firms are able to cross service their clients with an end-to-end solution that is ‘whole of life’.

While this ‘whole of life’ model may seem inappropriate for many of you practice owners out there who pride yourselves as on being specialists, you may find that your existing and prospective clients are attracted to this model for convenience and efficiency – especially when generation X start to look at their increasingly higher super balances and wonder if an SMSF is right for them, particularly to buy property through.

I believe the time is right for advice professionals to start exploring their options – just how can the evolution of advice benefit your practice?

If you are not sure, or have been thinking about this for a while, I invite you to join me at our No More Practice Live Event  conference in Sydney on Friday August 23^rd. It is here we will hear from leaders from each of these advice professions, as well as CEO’s of some of the leading businesses in their field, including your peers, to explore the future of advice. (LINK TO AGENDA)

Without conversation, debate, challenges and risk taking, the advice industry will not move forward into the new world order – and we have designed this day to be all about the future – a place where the only agenda is that of a prosperous advice industry.

No matter what stage  your practice is at, whether you are a broker, adviser or accountant, I look forward to exploring with you what the future can hold for your business potential – see you there!

Join the conversation with Vanessa on Twitter @ceovanessa

One of the big issues advisers talk to me about is how to become a more productive adviser and run a more efficient business.

Advisers are increasingly seeking new ways to ensure they have enough time for client engagement, while still meeting all of the advice requirements that the FOFA legislation requires.

Practice principals in particular face the tough juggling act of heading up their own business, combined with the pressures of also wearing the hat of director of sales, marketing, HR, operations and accounting.

However, the ability to be the jack of all trades while servicing your existing business, and attracting new business, is not viable in the long run.

FOFA’s start date of 1 July, 2013 is only two months away, so this is an opportune time for principals to review their strategy to raise their business efficiency.

Outsourcing can free business-owners to make the customer the focus of their work, which therefore increases the effectiveness and sustainability of their practice.

But before outsourcing anything, advisers need to gauge whether an external professional can do the job better, faster or more cheaply than in-house staff. The sensible approach is to retain control of your primary functions which define your core business or your differentiator, then consider outsourcing operations that are not strategic to you.

So where does it make sense for advisers to outsource?

Back office support:

To ensure advisers spend more time with their clients, principals need to consider outsourcing non-core functions to agencies who deliver specialised services in their field that an advice business cannot handle themselves, such as: website development, digital media production, additional support from a para-planning or SOA services team, outsourcing to a technical services team, or research team for products and strategic asset allocation.

Technology:

A key business enabler which facilitates more robust compliance is technology automation to improve advice processes, and also social media technologies. However, technology presents a quagmire of headaches in managing that infrastructure reliably 24/7, so to drive more efficiencies into your business, look at using experts who can, for example, can take care of your software implementation and customisation needs, and also manage your social media channels which support your marketing communication strategy.

Shared services such as reception (leased concierge services or virtual phone answering services), shared office space and printing services can be shared with other businesses to help you achieve scale benefits and also lower your overheads.

This is just a handful of ideas on how outsourcing can help you tap into more economical pricing and a better quality end result from a service provider.

I’d love to hear from you about the challenges and questions you have about running your business better. Please contact me by email at: sharris@guardianadvice.com.au.

Simon Harris is Executive Manager of Guardian Advice.

Financial planning took a big step forward when the Regulatory Guideline 146 (RG146) on the training of financial product advisers was introduced as part of the Financial Services Reform Act that came into effect in 2002.

Under the umbrella of the Australian Securities and Investments Commission (ASIC), it set out the training required by individuals to provide financial advice, including Self Managed Superannuation Funds. For all stakeholders, it finally gave a standard by which training providers could base their programs upon.

It is widely recognised that RG146 has its shortcomings. It was devised for financial planning and advice across the broad spectrum of financial products.  From the perspective of the SMSF Professionals’ Association of Australia (SPAA) it lacked the comprehensive detail about SMSFs that professionals require in order to provide quality and robust advice.

SPAA, with the help of its members, took on the challenge to build an education curriculum that outlines the desired content of SMSF courses.  This in turn provided professionals seeking to specialise in this complex and dynamic sector with a much richer supply of education solutions.

Around the same time, professionals were also seeking recognition of their specialisation in SMSFs so that they could provide trustees with evidence of their “well beyond the minimum” knowledge and skills.

SPAA was the first to offer a comprehensive accreditation program that provides individuals with certification that their SMSF skillset has been judged at a much higher level than the regulator’s “compliance” requirement – this accreditation program is called SPAA’s SMSF Specialist Advisor™ (SSA™) .

Today, a person achieving the SSA™ is recognised by the industry as having comprehensive specialist SMSF skills and knowledge.

This independent certification of a SMSF professionals’ competence provides trustees with confidence in an adviser’s SMSF expertise and assists in assessing whether to give their adviser the role of guiding them in the quest to build a quality retirement nest egg.

Liz Ward is Head of Education Services at SPAA. Contact Liz: lizward@spaa.asn.au  

Managing the equities component of your clients SMSF needn’t be time consuming.

Investing in a business listed on the stock market is complicated. There are a wide range of companies with numerous commentators all adding their spin on the stock; from analysts, the companies own Investor Relations advisers, corporate PR people, as well as comments from your own friends; it seems everyone has a different story.

The true financial story of a company listed on the ASX is often a detailed history of P&Ls, cash flow statements, earnings, dividends, equity, debt, and announcements – all told in different ways by different CEOs.

We developed Skaffold as a new way of researching companies and selecting shares; it’s designed to tell a simpler story for every ASX listed business.

It’s designed to save you time on research, and I believe it simplifies how advisers can serve clients for equity-market investing.

So, what’s the key benefit of Skaffold for advisers? It’s an online stock-research application that interprets key historical financials and broker forecasts and displays the results in image-rich visuals.

Every stock is rated by us, and graded from A1 to C5. It’s entirely automated and updated daily using information sourced from top-tier financial institutions.

With Skaffold, you can see the story of every ASX-listed business and easily answer the key share-evaluation questions. Understanding the stock, its performance and future growth prospects allows you to advise your clients on the best stocks and avoid those with doubtful fundamentals.

Skaffold is like a Google for equities advice – it quickly gives you the accurate answers you’re searching for.

With low interest rates, many clients will be seeking your advice on stocks with good yields; hence a renewed interest in ASX equities with high (and sustainable) dividend yields.

Here’s where Skaffold can help.

With the goal of finding top quality ASX listed businesses that can actually afford to pay a dividend, we used the Skaffold software and ran a filter for the very best companies. Using our filter criteria, the entire ASX was immediately reduced to 131 contenders.

Next, I narrowed the list to those companies that, at their last reporting date, produced a return on their equity of more than 25% AND had a net debt-to-equity ratio of less than 40%.

That left 53 stocks.

Companies that missed out because of their high debt ratio include; Seek, Brambles, Coca-Cola Amatil, Tabcorp, Dulux Group and Telstra.

Of those 50 stocks, I believe only 12 are forecast to yield at least 5% over the next 12 months!

If your clients are looking for high yield ASX listed equities, email me and I’ll send you the list of these 12 companies (with details of how you can use Skaffold yourself).

Email Chris team@skaffold.com

Data accurate as at 9 May 2013 close of trade.

Important Information: All figures are proprietary estimates calculated by Skaffold. Estimates are recalculated daily and can change at any time. Skaffold contains general financial advice that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting upon any of the information provided by Skaffold, you should always consider its appropriateness in light of your objectives, financial situation and needs and seek professional financial advice. You should also read Skaffold’s Financial Services Guide before making any investment decision. You should not make decisions to buy or sell shares based solely on the information in Skaffold. Investing involves the risk of capital loss. Not all investments are appropriate for all people.

One of the most important questions your business needs to answer is “what does your client value?”

Clients need to be crystal clear on the answer to this question before they will be prepared to put their hand in their pocket. Yet, there are many great advisers out there who are still not convincing when it comes to both understanding and articulating value. If used properly, ‘value’ can be one of your greatest weapons for sustainable growth, now and in the future.

I am not talking about a Client Value Proposition (CVP).  So many advisers have a CVP yet are still unable to clearly explain why a client should work with them, stay with them, pay them and refer them.

To be able to do this effectively, you need a compelling ‘value story’.  A value story provides the content for all client conversations, queries and objections. It explains the value a client will experience through a relationship with you and your business, now and in the future. It is a framework for shaping your communications and it equips you to ensure ‘value’ is the focus of everything you say and do.

A strong value story comes to the rescue when you get thrown a curly question, a tough objection or to avoid being star struck when you meet an ideal client. It is your ‘get out of jail free card’ to ensure you always use value to your advantage.

Here are 10 strategies to help develop your value story to “catch and keep” more of the clients your business needs:

1. Focus on the outcomes and benefits clients will experience first, then how they will be delivered. For example, people don’t buy drill bits …….they buy holes. The drill is how it is delivered.
2. Always answer the question “what’s in it for me?” from the client’s point of view.
3. Tell stories, use facts, case studies, and offer analogies to highlight your point and help people better relate to you. Mix them up and make sure they have impact, emotion and a moral to the story.
4. Build your own library of words that capture a client’s position and promotes the outcomes. Weave them into a conversation where appropriate
   

   Client	You add
   Emotional decisionsMinimal experienceLack of time Decisions in isolation Indecisiveness	ObjectivityExpertise / knowledgeDiscipline / accountability Big picture perspective Coach / sounding board

5. Use powerful words such as “you” and “your”. We help YOU to XYZ by aligning the advice to YOUR needs and what’s important to YOU. 
6. ‘Sleep’ (so to speak) with your clients. Understand what keeps them up at night and identify the ‘pain’ points in their life so well that they feel like you’re reading their mind.
7. Convert industry speak to client speak. For example:
   

   Industry speak	Client speak
   Debt Management Risk Management Wealth Creation EstatePlanning	Using borrowed money to your advantage Protecting what’s important and the people you love Making your money work harder and grow Make sure the things you own go to the right people

8. Leverage your favourite word from childhood – why? and always answer it.
9. Watch your language.  If you need to use a technical term or jargon, such as ‘fee for advice’ explain it by saying; “what I mean is…” This is your license to use it again.
10. Communicate your value story with your business partners and referral sources. Don’t keep your secret weapon hidden from the hand that feeds you.

Practice ‘till this is habit. Under pressure, in role plays, in front of a mirror, video yourself, talk to yourself. Whatever works, just do it.

When it comes to focusing on value, you need to be ‘obsessed’ or ‘cult like’. It really helps!

Join the conversation on Twitter @_9rok

There are a number of steps practice owners can take to maximise staff retention through the sale process

Staff retention is critical during the sale of a practice, because the motivation of the business owner in selling is going to be very different to the staff that are left in the business. When they joined the business it was run a certain way, but the decision to sell is now potentially changing the value proposition as an employer of choice for that individual.

In the first instance, it is important that you communicate your decision about going and communicate it sincerely. Tell them the truth about your decision and what it actually means to you – but also how you’re going to benefit from it.

Usually what happens in this process is that staff will sit back and think there’s a payout and you’re walking away from the business. However, most often practice owners have invested a lot into building the business and looking after staff, so they are usually thinking about this and the opportunities for them with their careers under a different owner.

It also helps to get staff engaged with the new owners of the business as soon and as early as possible. If the business owner talks about the future of the business with staff this will help them as they’re wondering what their job will look like and whether it will exist with a new structure under a new owner. So the minute you can give staff that clarity, they will be on board much sooner and can also help be an advocate for you through the sale process.

So the three keys to motivating staff through a sale are engagement, communication and honesty. To be honest you can never communicate enough, and even if you think you’re communicating the same message, keep communicating because the minute that you stop communicating people can get nervous.

There are a number of ways financial planning practices can generate more business through cross-selling

Financial planning businesses can establish new lines of advice or referral arrangements with other firms to improve cross-selling opportunities, increase share of wallet from existing clients as well as retain clients by helping look after a broader set of needs.

Many financial planning businesses now provide risk advice, and this has become more popular as it is increasingly difficult to get new business in the door. So whether you establish a risk department within your business or establish a referral relationship with another risk adviser set on commercial terms, there are a number of ways practices can move into this space.

Another way practices can cross-sell is to offer other services, so it could be mortgage broking, accounting work or even legal services that practices can expand into in a bit to create cross-selling opportunities. While the financial planner is the best person at advising clients on their financial affairs, they might not necessarily be great at providing advice on accounting and are most likely not even qualified to do so.

Creating a referral-type arrangement on any of these fronts can be a positive step for a financial advice business in terms of servicing a client’s broader needs. By providing a holistic range of services to clients, this reduces the likelihood that they will approach potential competitors.

Your client might use another accounting firm which happens to have a wealth arm in their business, and when that firm is talking to your client about their tax returns or building their business up over a period of time, they might start to talk to them about wealth and that actually puts your client in jeopardy of leaving.

By either establishing new lines of advice or referral arrangements with other firms, you not only improve the chance to cross-sell but ensure client retention and longevity of the relationships which are crucial to your profitability.

If there is one thing we know for sure at No More Practice, it is the SMSF opportunity is of critical interest to planners, accountants and brokers alike. In fact, in our last survey, over 800 of you indicated it is number one on your “must have” education list this year.

Whether or not you intend to offer SMSF services and advice in your business, I believe it is necessary to get a thorough understanding of both the business opportunity and the sector itself. Because you will have clients who ask for it, and you will have referral partners who ask you to give them your clients if you don’t go there yourself.

For accountants going down the transition to licencing route, there are some serious decisions to make for you, your business and your clients. And if you don’t understand the implications of these decisions, it will cost you time and money.

We are finding the transition to licencing is not smooth or straightforward; that’s why we are working with some key education partners to build out some plain speaking and practical advice courses on this subject.

For advisers looking to move into the space, Sam Henderson in Series 4 is a perfect example of someone who is doing it well. Sam, however, is grappling with how he is going to achieve scale in his business when the advice for SMSF is so personalised.

Then there are the brokers out there that find a whole new market of potential property purchasers through their SMSF. For these brokers understanding the best way forward in this relatively new opportunity with new regulation and licencing to consider.

While SMSF is a potential gold mine for many practices, it also has the potential to derail practices who are not getting the best education and information to make sure they not only comply with ASIC regulations, but also that they are giving the best advice to clients.

By mid-June we should be able to launch our first guidelines module to get testing the business case for SMSF and how it would apply to your practice. For those of you who have already made up your minds, we will have a step-by-step course available by the third quarter this year.

Knowledge is power, and doing your homework this year on the SMSF opportunity, and all it entails, will definitely help you realise your practice potential.

Join the conversation on Twitter; I’m @ceovanessa

Culture is one of the key elements helping people decide where they want to work and dictates if and when they stay or go.

Any business owner that thinks they can put their head in the sand and successfully catch and keep the best people without focusing on culture, are facing a challenging time ahead.

Culture is the ‘soul’ or the life blood of a business.  It is how people behave when no one is watching. The right culture for one business may not be right for another, however in their book “Built to Last”, Jim Collins and Jerry Porras noted “companies that consistently focused on building strong corporate cultures over a period of several decades outperformed companies that did not by a factor of six”.

To make sure the culture in your business supports your future success, here are my top 10 tips for creating a great workplace culture

1. It starts from the top: Great mangers who lead by example are the linchpin of a productive culture. They can extract at least two times more capability from their people than poor leaders. The challenge is that not all advisers specialise in people management and therefore need to be even more diligent about walking the walk and behaving as you want others to. It’s a culture deal breaker.
2. Do a culture stocktake: To be aware of what is really going on you need to understand (and influence) the ‘unwritten ground rules’ and make sure they are used to your advantage.
3. Know your Employee Value Proposition: Most financial advisers have a client value proposition. This is the exactly the same, just for your people.
4. Preserve your core: Know your core values and purpose. Be clear on the actions and behaviours required to support them.
5. Grow a culture DNA: Make cultural fit and alignment with your business values a key component of your hiring, firing and retention processes.
6. Intangible’s trump: Making people feel appreciated, valued and supported can have the biggest impact. When it comes to impacting culture, “employees rank intangible elements such as regular and candid communications (50%), and access to management/leadership (47%) highest”, found Deloitte’s Core Beliefs and Culture, chairman’s survey.
7. Less is more: It is as important to work out what you should stop doing as much as the things you should start doing or do differently.
8. Avoid being a ‘gunna’: Going to do this, going to do that, yet nothing gets done. Rather, narrow your focus and take on fewer more meaningful initiatives than touch on hundreds that never happen. After a conference or PD Day when you return full of excitement and ideas, share them with your team and together prioritise what realistically can be done and by when.
9. Recognition is gold: People need more frequent recognition, not just for the job done, also for their behaviours and contribution to the bigger picture. In the Workforce Mood Tracker 2011 Report they found “69% of employees would work harder if they were better recognised”. Sometimes a simple ‘thank you’ does the job
10. Think extremely different: Embed ‘nowadays’ initiatives across the business. For example:

• Flexibility around when, where and how people work. That’s what technology, clouds, virtual solutions and 24 hours are designed for;
• Schedule time out to encourage creative thinking and innovation. Sometimes called ‘FedEx’ days because after 24 hours employees need to deliver their findings;
• Find mentors in younger generations. Use them as thought leaders around IT, technology and social media.

An inspiring and healthy culture is critical to long term sustainable business success.

It can also be your biggest competitive advantage!

Join the conversation with Kim on Twitter @_9rok  

The most critical document for a self-managed superannuation fund (SMSF) is the trust deed. However there is another article that is just as critical in the running of a fund but receives a lot less attention – the investment strategy.

Every SMSF is required to have a written investment strategy that provides the trustees with a framework as to how the investment decisions for the fund will be made. Naturally the strategy has to comply with the Superannuation Industry Supervision (SIS) Act.

Often trustees have had a bit of a set and forget attitude toward the investment strategy much to the regulator’s frustration.

But not anymore because another recent amendment to the SIS Regulations has rendered this approach a thing of the past.

SIS Regulation 4.09(2), being the investment strategy operating standard, has incorporated a few new clauses dictating SMSF trustees must now not only formulate an investment strategy but also review it regularly.

The Australian Taxation Office has not defined the term “regularly” but industry commentators have interpreted it to mean a review has to take place at least annually.

In addition when examining this area trustees will have to take into account the whole of the circumstances of the fund.

In making the operating standard amendments the regulator wanted to tackle another area of concern and that is the issue of under insurance.

Unlike other forms of superannuation SMSFs don’t have readymade risk cover options for their members and as such traditionally the trustees have had to consciously put these facilities in place.

It meant the less vigilant trustees in the past could, deliberately or not, overlook this facet of super without consequence from a compliance perspective.

But SIS Regulation 4.09(2)(e), a new inclusion, means SMSF trustees must consider if the fund should provide risk insurance coverage for one or more of its members.

This doesn’t mean insurance must be provided, just considered, but the individual circumstances of each member must be taken into account.

These changes took effect from August last year and advisers assisting SMSF trustees to formulate the investment strategy need to be wary of the insurance requirement so as to make certain they have the requisite skills and the proper licence to provide risk advice as well as broader investment advice.

Darin Tyson-Chan is the 2012 SPAA Trade Media Journalist of the Year. He is the editor of self managed super, a new publication dedicated to the SMSF practitioner.

If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au

Any remuneration or other benefit paid by a product provider that could influence the financial advice or product (other than most risk insurances) that an adviser recommends to retail clients, is likely to be banned under the FOFA reforms.

Advisers who believe that commissions don’t influence which product they recommend or whether they recommend a product, will need to be able to back this up with the facts.  Because any volume based benefit paid by a fund manager or platform, such as a fixed percentage of funds invested, will be presumed to be conflicted going forward. You can only accept these if you can demonstrate that they could not reasonably influence your advice. And you need the evidence to support it.

Here’s a quick snapshot of what’s in and what’s out…..

What’s out?

• Upfront and trailing commissions paid by funds managers or platforms to AFS licensees or advisers.
• Volume based bonuses paid by funds managers or platforms which depend on the number or value of financial products acquired by clients.
• Asset based fees on borrowed amounts.
• Marketing fees paid by fund managers or platforms to AFS licensees for preferred access to their advisers.
• Discounts on or waivers of fees payable to their AFS licensee by an authorised representative the amount of which depends on the amount of client funds held in a product or platform.
• Payments by AFS licensees to their advisers for the cost of business equipment or other expenses which are contingent on the content of the advice provided by the adviser, how clients act or the value or number of products acquired by clients. Happily, genuine reimbursement of these expenses is acceptable.
• Business assistance, business services, hospitality – other than in extremely limited circumstances.
• Financial support such as shares in a product issuer or loans on preferential terms.
• Equity arrangements in an AFS licensee business that enable shareholders to receive dividends or profit shares if they could influence the advice provided by the shareholders or their advisers.
• Buyer of last resort arrangements if the amount paid is related to the number or value of the buyer’s products recommended by the adviser.

What’s in?

• Benefits received on condition that they’re passed on to the client in full, provided they’re passed on as soon as reasonably practicable and within 3 months of receipt.
• Benefits paid to an AFS licensee (and not passed on to their advisers) which are used to pay for the licensee’s operating expenses. Alternatively, the benefit can be passed on to an authorised representative to help pay for their operating expenses but the authorised representative can’t pass on the benefit to any individual client advisers. But there’s a catch. The AFS licensee need to be able to show that it has robust policies for platform and product selection, a diverse range of platforms and extensive list of products that advisers can potentially recommend to clients and that the advisers do not select these based on the potential value of the benefit to the group.
• Infrequent benefits worth than $300 in total from anyone provider – and you need to keep a register of any benefits exceeding $100.
• Training and education where at least 75% of the time is spent on training and the adviser pays for their own travel, accommodation and meals.
• IT software and support that’s related to a provider’s products.

Although there’s no grandfathering for investments made under arrangements entered into after 1 July 2013 with product providers and platforms that are, the good news is that there’s still plenty of time to reorganise arrangements that are put in place up that date .

Here’s  how grandfathering works with those….

*Limited switching means moving between generic investment risk options, e.g. from ‘growth’ to ‘balanced’,

There’re 2 exceptions to this:

• There’s no grandfathering to any benefits given after 1 July 2013  where the amount or entitlement to the benefit  is at the discretion of the platform or product provider– it doesn’t matter when the arrangement for the benefit started – it’s conflicted.
•  And asset based fees on borrowed amounts can’t be charged on borrowings used to purchase financial products after 1 July 2013.

See The Fold’s White Paper: Everything You Need to Know About…. Conflicted Remuneration  for a complete guide to the ins and outs of this complex area.

There are a number of common traps practice owners fall into when implementing their exit strategy

One of the most common traps for practice owners in planning their succession is that they don’t actually plan for life post-sale when they are out of the business. So the minute they sell the business they often operate as if they are still the owner of the business.

Mentally, you have to really focus on the day that that business is sold and understand that you’re not the business owner. The decisions that you made were great for where you got the business to today, but now there’s a new owner, you have to respect that you’re not part of the decisions of the new owner. So planning for how you will emotionally deal with that is critical.

Once you have got yourself prepared for this, it is important to work with the successor and maintain the relationship so you can teach them all the great things about why the business has been successful and help instill in them confidence that they’ve bought a great practice.

Another common pitfall in transitioning a business relates to client relationships. Sometimes when an owner sells their practice, they, or their staff, think clients are just going to accept the new owner. However, you still have a role and responsibility in being an advocate for the business going forward and supporting the changes that are going to happen. While you may or may not agree with these changes, you have to understand it’s actually not your role to agree or disagree – because you’ve made the decision to sell.

So mentally preparing yourself for this is probably the biggest challenge, and it is very difficult to do. If it was easy we wouldn’t have a lot of the issues that happen post-acquisition.

But most importantly, think about the great job you’ve done to-date and that the business is now moving forward and anything else you need to do to train staff or educate clients on keeping them happy in the new environment.

You might need to start sending Fee Disclosure Statements to new and existing retail clients with whom you have an ongoing fee arrangement as early as 1 July 2013 – unless you’re one of the brave hearted few who elected to start earlier!

Ongoing fee arrangements are engagements for more than 12 months to provide personal advice for which you charge a fee. Not all your relationships will fall into this category.

The date you first provided personal advice determines whether the client is “existing” or “new”. If it was provided before 1 July 2013, they’re an existing client, even if your ongoing fee arrangement started after that date. Otherwise, they’re a new client.

Why the distinction between existing and new? It impacts on when the FDS first needs to be provided. But for practical purposes, you can assume that it needs to be provided within 30 days of the anniversary of entering into the ongoing fee arrangement. For existing clients, it can be provided any time between 1 July 2013 and that date, effectively resetting the disclosure day.

Here’s 6 key tips for getting ready…. 

1. List – Identify all clients with whom you have an ongoing fee arrangement.  If your advice software can’t do it for you, use an excel spreadsheet to capture their name, address, services offered and provided, date of ongoing fee arrangement and fees charged in the past 12 months.
2. Sort  - Sort the clients by:

• The date on which the arrangement started. and
• For ease of administration, the services provided. This will be easier if you have defined packages of services e.g. “gold”, “silver”, “bronze”.

3. Template – Prepare or purchase a template Fee Disclosure Statement. Customise it for your business. Code it into your advice software if you can, or set up a word merge document.
4. Allocate – Decide when your Disclosure Day/s will be. Think about whether to bring it forward for some clients to “smooth” the work load. Allocate the clients into the intervals at which that you want to provide Fee Disclosure Statements, e.g. monthly, quarterly.
5. Publish – Prepare your first batch of Fee Disclosure Statements.  Check and double check them before sending.
6. Analyse – What was hard? What didn’t work? Use the errors you find as a guide to simplifying and improving your process

A few more tips….

If you reset the Disclosure Day:

• The Fee Disclosure Statement still has to cover the past 12 months.
• Be clear that the ongoing fee arrangement only existed for part of that period and the fees and services only relate to that period.

When buying a portfolio:

• Ensure your due diligence checks that the seller properly provided Fee Disclosure Statements to ongoing clients.
• Include a warranty to this effect in the Purchase Agreement.
• Require the seller to provide you with the information you’ll need to prepare the next Fee Disclosure Statement

The latest No More Practice survey discovered 40% of advisers are considering moving dealer groups in the next 12 months.  Here is some advice to those of you that are about to take the plunge.

1.  Take a long hard look in the mirror.  Be honest about the real reason why you want to move dealer groups. Is the dealer group really the problem or is it something deeper within the business.  When advisers come to me looking for a new dealer group the starting point is generally always a superficial complaint about their existing licensee such as frustrations with SoAs or APLs which may be valid, however, without fail when I delve deeper there is always something bigger driving the desire to move dealer groups.  Many advisers view a dealer group move as silver bullet to a problem in their business, be it a lack of a value proposition, struggling with client acquisition or a business owner trapped without a succession plan.   Do a value based questioning process on yourself.  Keep asking ‘why’ until you know the real answer.  It will save you and everyone else a lot of time and effort.

2.  Tell your key staff how you feel.  Many an adviser wanting to move dealer groups only tells their staff once they’ve made the decision to go and are then shocked to find that their team are not on board.  They wonder why the paraplanner is meditating in the corner at the prospect of writing a full SoA for every client upon review and why the CSO is so agitated and resentful whilst on the phone with IT support about the challenges of the client data transfer.  Let me put it plainly, moving to a new dealer group is hard work and you need your team to make it happen as smoothly as possible.  Get their opinion on how you are feeling before you go any further.

3.  Tell your current dealer group how you feel.  They might be able to fix the problem.  How easy is that!

4.  Make a list of “non-negotiables” and then build a short list of prospective dealer groups to meet with.  If you do this properly you only need a shortlist of 3 to consider.   Remember that in life we can’t have it all.  The same applies with dealer groups.  You can’t have a full service dealer that is independently owned and that competes on price.  Something has to give.  Decide what you can live without and go from there.

5.  Set a deadline.  It shouldn’t take more than 2 months once you are at shortlist stage to make a decision if you’ve followed these steps.  If it is taking longer than this to choose a new dealer group then go back to step 1 and start again.  Too many advisers become distracted by this decision and it impacts morale and the bottom line.

Finding, hiring and retaining good employees is critical to the strong performance of any financial planning practice 

Motivating staff to perform to their best is a common challenge that some practice owners face. In particular, dealing with employees can actually be quite a tough task for many practice owners as they grow their businesses. Often owners start out as a one-man operation and don’t have to manage staff, but as they develop their business over time they take on the responsibility of hiring and managing staff.

One of the keys to hiring right people into practices is ensuring a good cultural fit. This not only helps with retention and cohesion within an office, but also helps a practice in realise a common vision for client service and practice growth.

Some practices who value cultural fit conduct psychometric testing when they are looking to employ a specific kind of team member, while others, for example, conduct panel interviews to ensure there is a cohesive understanding and agreement around potential new hires. So the first step in getting the most out of staff is to ensure you have the right type of people in the business, so they want to come to work, like working with the people in the business and want to help the business realise its goals.

Once you have good staff on board and performing to the best of their ability, it is important to retain them. If you’ve trained someone up there is also a danger that they may leave and use that training for the next potential business opportunity they might have an eye on.

There are a number of ways to retain good staff. If there is an employee who you think is particularly good, there’s an opportunity potentially to offer them some equity or to purchase some equity in the business.

Another way go incentivise them is through growth targets. So if they’re bringing on clients and doing really well, it’s a good idea to have some sort of bonus structure in place which gives them both an incentive to perform for the benefit of the business as well as a personal reward in the form of extra remuneration – which is often a key factor in employees’ decisions to stay (or go).

The season for acquisitions is upon us again and there is a notable increased level of activity in client base acquisitions over 2012.

You may have been successful in your negotiations with a vendor, however, don’t celebrate just yet as one of the main reasons that acquisitions are failing at the moment is that buyers are experiencing some surprises when they approach a lender for funding.

With more stock on the market to work your way through to find the right acquisition opportunity it becomes important that you get yourself “acquisition ready” prior to entering into negotiations on a potential acquisition.

There are three key issues when looking to acquire:

1. Capacity to acquire
2. How will your existing business be impacted
3. Getting your house in order

CAPACITY

If you have started negotiating with a vendor on an acquisition, do you understand your capacity to fund this potential acquisition?

Do you know what a potential funder will lend against your business as well as the acquisition target?

If not, then you need to find out prior to submitting an indicative offer as being a qualified buyer can add weight to your indicative offer over that of an unqualified buyer.

All lenders provide funding to financial planners and accountants using different metrics and your existing bank may not even be in the market for lending to financial planners and accountants!

IMPACT

When you make an acquisition you will be bringing in clients and possibly staff that do not know how you do business or the culture in your business.

How will your existing business infrastructure cope with an acquisition?

• Will you need to move premises to accommodate any additional staff?
• Will your IT infrastructure cope with the merging of client database?
•  Will you need to change your staffing mix and job descriptions?

This can have a severe impact on your existing business if you get it wrong. Plan ahead to eliminate this risk.

HOUSE IN ORDER

Do you have your house in order?

For funding from a bank to potentially be available for an acquisition you need to have your house in order.

• Are your statutory liabilities (GST, Super, PAYG obligations) up to date? Not just the current quarter but also for the previous 9-12 months
• Account conduct – it will be checked for a minimum of the last 6 months and needs to be clean with no dishonours or excesses
• Is your client base segmented and can you provide this data easily?
• Do you know your numbers?

Tis the season to be acquiring. Best of luck with your acquisition plans.

Part of any growth strategy is “the bird in the hand” – growing your existing client base is lower cost and can deliver higher returns than acquiring and bedding in new clients.

One way to create a growth strategy around your existing client base it to identify conversations and issues that matter across your client base, and create an intelligent strategy around generating a conversation. Not just between you and your clients, but allowing conversations between clients as well.

There are low cost, off the shelf blogs you can add to your website, and with regular communications via email and social media, you can create a community that over time contributes around key issues that are linked to advice.

What do I mean by that? Well, No More Practice is an example. Our conversations around business growth have evolved over the past 4 years into a community of over 20,000 subscribers. We cover issues from estate planning to SMSF, but always with the underlying theme and exploration around growing your practice value. We talk via TV, social media, email and even live events.

You can begin by finding a universal issue or conversation that matters to many, then you can start to create meaning around your offering as being more than just a service provider.

If you already have an existing marketing or advertising spend, I suggest you assess what you really think is working, and what could go. That way this new initiative need not have more cost attached from your bottom line – rather a redirection of existing spend to something that could be more effective.

So where to start? Pick a topic that resonates. I recently met an adviser who bases his whole proposition around ‘creating passive income’ for his clients. every conversation he has through social media and client communications has a focus on creating passive income. This is an excellent platform because it has universal appeal no matter what age group or walk of life.

Whether you start by telling client stories, or finding great research, it is not hard to start and keep participating in a meaningful conversation. The benefits that will come out of it over time will include client engagement, loyalty, referrals and additional take up of services. A win/win for all involved.

So start your conversation today.

Join the conversation on Twitter; I’m @ceovanessa

There are a number of steps practice owners can take to maximise staff retention through the sale process

Staff retention is critical during the sale of a practice, because the motivation of the business owner in selling is going to be very different to the staff that are left in the business. When they joined the business it was operated a certain way, but the decision to sell is now potentially changing the value proposition as an employer of choice for that individual.

In the first instance, it is important that you communicate your decision about going, and communicate it sincerely. Tell staff the truth about your decision and what it actually means to you – but also how you’re going to benefit from it.

Usually what happens in this process is that staff will sit back and think there’s a payout and you’re walking away from the business. However, most often practice owners have invested a lot into building the business and looking after staff, so they are usually thinking about this, and the opportunities for their careers under a different owner.

It also helps to get staff engaged with the new owners of the business as soon and as early as possible. If the business owner talks about the future of the business with staff this will help them as they’re wondering what their job will look like and whether it will exist with a new structure under a new owner. So the minute you can give staff that clarity, they will be on board much sooner and can also help be an advocate for you through the sale process.

So the three keys to motivating staff through a sale are engagement, communication and honesty. To be honest you can never communicate enough, and even if you think you’re communicating the same message, keep communicating because the minute that you stop communicating, people can get nervous.

Key steps to leading – motivating and engaging staff in growing your financial advice practice

There are three key steps to staff engagement and building a highly motivated, high performance team. Leadership is critical to each of these three steps as a business owner, a CEO and for yourself.

The first step in this process is recognizing “why”.

Why you started your own business, and why you do what you do. Was it to fund a certain lifestyle? Or to trigger a liquidity event sometime in the future? Perhaps it was to build a legacy and now you are at the point where you need to ensure that this legacy is protected as it is passed on.

Whatever the reason, the understanding of “why” relies on self leadership, a clear view of the future and the courage to make a bold move. Bold moves attract bold people.

Once you understand that, share it with your team. Practice real and radical transparency. Share with them your compelling vision about where you’re taking the business, and having done so, allow them to choose to join you in that process, or help them move on to another role which they might be better suited to, or is more aligned with their values and aspirations.

Having taken these two steps, the best next step, is just to get out of the way. You have understood and communicated your own compelling “why”, shared it with your team and allowed them to join you on the journey, so let your team figure out how to execute that plan as they share that vision with your clients and the community.

Reducing principal dependency, motivating staff and retaining clients are three keys to ensuring the successful sale of your practice

In No More Practice 4, Jim Taggart is on a journey to maximise his earn out following the sale of his practice to Austbrokers. A key part of my role in the show involves brokering the deal and advising Jim along the way as he seeks to maximise his earn out.

This is a common challenge that many practice owners face in selling their practice. Both buyer and seller want to maximise the value that they both receive from a transaction, and there are a number of steps that owners can take to ensure the successful sale of their practice.

1. Reduce principal dependency. The process of reducing key person dependency is something that can only be achieved over a number of years, but it is an essential step in increasing the sale value of a practice. The main way to reduce principal dependency risk is to transfer some of the client relationships to other advisers within the business.

Systems and processes also play an important role in reducing key person dependency. This also helps commercialise advice within a business and ensure that it is synonymous with the provision of advice, rather than the individuals within it. So ideally, the less interface and client connection there is with a principal, the better.

Even a small business can adopt a corporatised model, and reporting in particular has to be strong in the case of smaller practices as this helps the owner stay in the business a little bit longer in doing a handover.

2. Motivating staff in a sale. Communication is critical for business owners to maintain staff morale during a transaction. Communication should start as you start the sales process to keep everyone on the same page, and it becomes particularly important when you’re looking at final candidates, and you may have two or three key staff entering a heads of agreement so everyone shares the same vision for the sale.

Communication is important because it also helps reduce fear of change. As soon as you nominate that there’s going to be a change of ownership, this means change and with change comes fear as part of the human condition. The only way you can combat fear is by having a real clear vision as to what the business is going to be like in the future and what the opportunities are for everyone involved, and you have to keep on articulating the outcomes and benefits for both the clients and for the staff.

3. Maximising client retention during a sale. Business owners can maximise client retention through a transaction simply by being very close to the business. By working your top 20 per cent to generate that 80 per cent of revenue, for example, only helps in communicating the value proposition the purchaser has before them.

In the current market environment, there is an art in getting the best possible buyer, and having both them and the seller genuinely believe in the value proposition, so this can be confidently and honestly communicated to clients and staff. So if both the buyer and seller know client service is not going to be compromised and this can be leveraged throughout the transaction, this is where you get full client retention.

Practices need to have a number of systems and processes in place in order to position themselves for high growth

Financial advice practices looking to plot a path of high growth need to have a number of important systems and processes in place. These systems and processes need to be able to work together in order to bring clients onboard in the most profitable way.

What does that mean in practice?

Firstly, you’ve got to have everything documented in a manual so anyone coming into the business is “singing from the same hymn sheet”. So for example, a new employee who’s just joined will know exactly what needs to be done from the moment a new client walks into the door.

Secondly, you also need to have a systemised process for handing out statements of advice (SOAs) as well as an effective system to monitor the profitability and the revenue that each individual client generates for you.

Thirdly, it’s also important that you understand how each individual employee within your business is performing, because there is often capacity within the business for individual employees to make on more work. However, practices often don’t know how much more capacity they can actually take on so they don’t perform to their optimal capacity as a result.

In this, you’re really seeking to understand an employee’s capacity to take on more work over a period of time – without taking of a “big brother” view on the individual employee. You want to work with them to ultimately bring on more clients and then use your other systems and processes to help them achieve the goal of growth. This is ultimately a goal that’s great for the business and great for employees if you reward them correctly.

If you’ve got these foundational systems and processes in place then they are a great springboard to helping you grow a business quite effectively.

Best interests duty starts on 1 July 2013. There’s more to it than appears at a first glance. Here’s some guidance on getting ready….

It’s tempting to think that there’s not much to do, because after all you already act in your client’s best interests, when giving personal advice don’t you? You also provide appropriate advice, prioritise the client’s interests and warn the client if the advice is based on incomplete or inadequate information.

Do you?

But here’s 7 things you’ll need to do – especially if you’re an AFS licensee:

1. Fact Find – could it benefit from a rework to remind advisers of the safe harbour steps when collecting information and scoping the client’s needs?
2. Advice Process – you’ll need to add guidance on and a requirement to act in the client’s best interests, including how advisers can navigate their way into the ‘safe harbour’.
3. APL – is it broad enough? And review your procedures for advising on products that aren’t on the APL. Advisers are now expected to do this, and you’ll need to control it.
4. SoA – amend your template to include information about why the client will be in a better position as a result of the advice.
5. Train – train your advisers on all of the above – don’t just send it out to them and expect them to understand and comply!
6. Monitoring – update your monitoring and supervision checklists to add the obligation to act in the client’s best interests.
7. PI Insurance –­ check your PI to see what cover it provides for products that aren’t on your APL. You might need to renegotiate with your insurer.

Here’s some other things to think about:

• One-size-fits all - Does your advice model lead to one-size-fits all outcomes for clients? If it does, even if you genuinely believe this is in the clients’ interests, ASIC is likely to come looking for you.
• Switching – going forward, switching will only be acceptable if it’s reasonable to conclude that the net benefits likely to result from the new product are better than the existing product. Remember overall cost savings can override the loss of other benefits – but you must take into account switching and adviser’s fees.
• Priority – think carefully about whether your advice process prefers your interests to your clients. You may not be the best person to judge this. Get a second opinion.
• Over servicing – don’t recommend a product or over service the client to create extra revenue. ASIC will see through this one too. And your clients won’t thank you for it. Good clients know value when they see it.

Whenever our offices need advice on technology, we call ‘Ken’ because he’s earned the right to be our preferred provider.

In financial services, ‘preferred provider’ status brings significant rewards; clients of this élite group say they receive service levels that exceed those delivered to friends and colleagues.

When informally comparing notes, one party will often say to another, “We don’t get that … who is your planner?” The response generates high quality referrals.

Other benefits include higher revenues, a higher profile, and the opportunity to introduce new, fee-driven services to an audience that welcomes them.

In the process to becoming a preferred provider, the initial step is to seriously stake a claim to that territory; tell all in your practice that: “Today we start the journey to preferred provider status”.

Next, understand the three most important words in all of marketing: ‘Perception governs behavior’. Absolutely everything your practice does creates impressions. Make them count.

When people perceive unfailing punctuality, promises that are kept, rapid responses to queries, and ‘We get it’ presentations, they ‘engage’ and become more ‘receptive’.

Preferred providers know ‘We are not required to do extraordinary things, but need to do ordinary things extraordinarily well’.

Here are key pointers to examine on the journey:

• When anybody calls your office and is put on hold, use easy listening instead of raucous rock ‘n roll.
•  Make sure the first voice anybody hears when calling your office is pleasant, warm and welcoming. Test this and if there’s the slightest hint it’s not as it should be, start ‘preferability’ training.
• Audit all your communication materials, including the most basic; test to see if:

1. your ‘story’ is well positioned
   (would a client/prospect know what’s special about your services in an instant?);
2. you are easy to do business with
   (clients/prospects would identify that you bring convenience and ease-of-dealing to their table);
3. your range of services comes across as ‘must have’ instead of ‘nice to have’
   (what are the compelling reasons clients/prospects should want to do business with you?).

What might seem disarmingly simple initially may deliver challenges that you aren’t expecting. No matter, stick to your plan. As a preferred provider, you will find the referrals, revenues and enhanced profile will significantly improve your practice.

To summarise: ‘perception governs behavior’ are the three golden words in successful marketing; we are not called upon to do extraordinary things, only ordinary things done extraordinarily well; starting with the basics is best because they will provide a sound foundation for the rest of the journey.

We’re’ are all seeking business growth. Our role at No More Practice is about providing you with the best industry experts to accomplish that growth.

However, I thought it worth reminding you, that you are the best source of business growth. No doubt you already have strategies in place, but sometimes we overlook the simplest of things.  An incredibly simple but effective tool is to pick up the phone and cold call one person a day that can help grow your business. Seems obvious I know, but many of us don’t and the act of doing so can drastically change the nature of your business.

By reaching out to one person you have identified each day, you are taking a solid step toward changing your current reality. This phone call can be to a new supplier, a potential client or simply someone you know you can learn from. So start the conversation –any conversation.

By not just thinking, but rather acting, you are creating opportunities that may not exist today but could tomorrow. Often the difference between a business that is thriving and one that is surviving, is the ability to create multiple opportunities by pushing the boundaries.

You’re not alone if you dread that ‘cold call’ feeling . No one wants to open themselves to having their  sales pitch rejected or being perceived as wasting people’s time. However, if you truly believe in your business, and know that anyone that forms a relationship with your business will benefit, then what you offer is always going to be opportunity. This is certainly worth offering and chasing.

Rather than just believe me, test yourself. Identify three people you should talk to, find their number and allocate 15 minutes tomorrow to make those calls. You may very well be surprised with the outcome. After all, nothing ventured, nothing gained.

Good luck!

You can follow Vanessa on Twitter: @ceovanessa

In my last column I detailed a new Superannuation Industry Supervision (SIS) Regulation, 4.09A, dictating that personal assets must now be kept separate from the assets of a self-managed super fund (SMSF).

This however was not the only new regulation to have been introduced recently. SIS Regulation 8.02B has also appeared for the first time and deals with the subject of SMSF asset valuation.

The new regulation stipulates that from the 2012/13 financial year, and in any subsequent years of income, assets of an SMSF must be valued at their market value.

The issue of SMSF asset valuation came to prominence during Jeremy Cooper’s Stronger Super review however he’d recommended the use of net market value as the standard measure.

Net market value is effectively the value that would be assigned to the assets of the fund if the fund was to be wound up.

Until now SMSF trustees had in the main used either net market value or market value to measure the worth of their investment portfolios. Consistence of methodology was obviously sadly lacking in this environment as was the potential meaningful comparison of performance.

As with a lot of other regulatory changes valuing SMSF assets at their market value is not without its problems.

Net market value is a popular operational method because it takes into account any costs incurred upon the disposal of fund assets.

Suffice to say implementing the market value will mean significant expenses associated with the sale of fund assets will now have to be accounted for separately.

However market value was chosen as the preferred approach because it is used in most other areas meaning it would not have made much sense to use net market value just for the preparation of an SMSF’s financial statements.

The new regulation also gives accountants and auditors of SMSFs a further item to think about at year end.

In order to comply with the change a direct property that makes up a significant portion of an SMSF portfolio may dictate the need to have a provision for asset disposal costs in the fund’s set of accounts to ensure the value of the fund is not too high.

Adopting this precaution would also trigger the need to disclose this approach in the notes of the SMSF’s financial statements.

Darin Tyson-Chan was recently awarded the 2012 SPAA Trade Media Journalist of the Year. He is the editor of self managed super, a new publication dedicated to the SMSF practitioner.

If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au

There is greater optimism around future revenue and new business generation than at any time in the past four years, which is good news for buyers and sellers

With the Heads of Agreement or Term Sheets entered into at the end of 2012 and in the first couple of months of 2013, prices seem to be holding firm for practices.

The price for “C and D” clients has dropped and I believe this is due to more recognition of the risk to revenue from passive clients when fee disclosure statements are mandatory from July 2013. However there is still substantial demand from institutions for these types of assets as well as from small practices wanting “tuck ins”.

At this stage there is no price differential for fee for service or FOFA compliant businesses and those that are commission only, again we believe this to be due to scarcity and demand and this likely to change with downward pressure in the future.

More emphasis is being placed on the closeness of the relationship or perceived stickiness of revenue and all principles should be focused on ensuring clients are fully engaged to maintain practice value.

We will continue to see institutional M&A activity within the independent dealer space but there are signs the open war we witnessed is quieting down and cheque books are not as obvious at the end of the year as they were at the start. Of course a carelessly thrown match could easily restart the fire that once burned at such intensity.

We will continue to see further institutional M&A activity as the desire for distribution increases with fewer opportunities available.

Mid-tier dealer groups will continue to struggle and we will see further consolidation in this space as we experience the polarisation of the industry, diminishing returns and increased compliance cost.

Overall, there is greater optimism being expressed in regards to future revenue and new business generation than at any time in the past four years.

Buyers see opportunities and sellers feel confident about maintaining revenue levels for the next 12 months and whilst the spectre of FOFA is still ever present it is not as ominous as first felt and is deemed by most as manageable and little change is required to accommodate the new legislation.

There is significant interest and activity in the accounting industry as change is about to come and many are forming new relationships or looking at new business models to capture the opportunities in this market.

Many have deferred their succession strategies due to the “business interruption’ of the GFC but we expect to see more businesses coming to market in the next 12 months.

Succession is a huge issue for the future of the industry and supply will increase but at this stage it is unlikely it will be greater than current demand, even with organic growth returning – the drive for size and scale will continue as margin pressures continue to contract.

It appears we may be returning to more normal market trading conditions – or at least there appears to be some light on the horizon and as we move past the All Ords mark of 5000, and see the next stage of cautious optimism return – at least here’s hoping. It has been dark and gloomy for too long.

For more information, see Forte Asset Solutions’ latest market commentary.

Do your clients really understand your client value proposition (CVP) and know what they are buying from you? 

CVP is an acronym readily used by advisers, but do your clients get it? A university marketing lecturer once said to me that you know when you have a client value proposition that works if you get the same answer from ten different clients to this question: “What are you buying from me?” What type of response do you think ten of your clients would give for your business?

I pose to you, that with the level of underinsurance and under saving in Australia, more financial advisers need to master the art of communicating and promoting their CVP. When you are selling the future (for example, trauma insurance and if you may or may not have stroke, or enough savings to fund the lifestyle you’re accustomed to in retirement) this is often more art than science.

Often it is easier to get tied up around what features, benefits and price of platform or product have over another, or whether you should move from product X to product Y because you are convinced it will outperform the other in the future or your portfolio has or will outperform a certain benchmark. Do your clients think this is what you are providing?

I challenge you to think about the why you are selling.

Is your why value-driven, eg “I’m the cheapest”? Or is it about practicality, eg “I take away the paperwork and frustration”? Or is it about quality (“I’m an expert in”) or maybe it’s emotional, eg “I’ll help you achieve financial freedom”? If these were cars they might be a 71 Kingswood, a Hyundai Getz, a Mercedes Benz or a Lamborghini.

Remember, a good client value proposition needs to be supported by a good business model. Value is a two-way street: value in the eye of the client and value (profit) to your business.

Whoever said “selling” was a dirty word was so wrong. If you can ensure someone’s wealth is protected in the event of death, trauma or the inability to work, or that someone can self-fund their retirement and sleep comfortably at night, knowing their time on this planet will run out before their money does, then more Australians are going to be better off for acting than less Australian not acting.

With only one in four Australians holding an adviser relationship, are you getting the support you need to help more Australians protect and grow their wealth?

Many of the 20,000 No More Practice subscribers have large, established advice businesses – whether accountant, adviser or broker. While we are always working on showing you new ways to grow your business, whether by product line, JV or acquisition, there is another option we have not explored in detail.

That is, to appoint a board to your business. If you are at the right stage of maturity and development, an experienced board could be the thing that takes you to the next level. Through our work making the program The Bottom Line, I have had the pleasure of spending time with some of the most experienced board members in Australia, including David Gonski, Ann Sherry and Don Argus.

There are many characteristics of an experienced board that if you are in the right stage of development, can really assist your business.

Firstly – their connections. An experienced board member will be an advocate for your business at the highest levels. This will open up opportunities that have been previously unavailable if your board believes in you and your proposition.

Secondly – their wisdom. You don’t get to be on a board without having been there yourself – a CEO or high level executive who has some battle scars and life learning. This kind of experience can be invaluable in helping you navigate business growth and differentiating your business from the rest.

Lastly – their mix of skillsets. Usually, boards are comprised of Directors from different specialisations.  If your board represents the gamut from HR, marketing, finance, and technology you have the pillars of business growth represented and can tap into a wealth of specialised knowledge.

One thing that boards of large companies have in common is that they pay their board members. I strongly believe that any position you are asking people to put their time, energy and reputation into needs to be remunerated – it is a business transaction first and foremost. There have been situations where board members are paid with equity in the business, which is also a viable option if you have a sale horizon and are working toward a liquidity event.

Either way, appointing a paid board can be an excellent strategy for growth and business success.

If you have appointed a board we would love to hear from you to understand the benefits your business has experienced. Please contact me by email at enquiries@nomorepractice.com.au

As always, may you realise your practice potential.

Join the conversation on Twitter; I’m @ceovanessa

There are a number of typical loan covenants that are applied to businesses operating in the financial planning industry

In my discussions with advisers around the country there appears to be a common misunderstanding about the purpose of loan covenants. This also includes the reasons why banks put them in place for lending arrangements whereby the primary security and repayment source for the borrowings is the cash flows of the business.

So why are covenants important and why do banks require them?

Covenants, if set appropriately and monitored regularly by both the business and the bank, can be an effective tool in highlighting early warning signs of increasing risk, but also in demonstrating the effect of management decisions on the business cash flows.

Covenants are also important when the security offered to the bank has a relatively fluid and dynamic business value such as a financial planning business. This value needs to be able to be monitored and measured on a regular basis to assess the ongoing risk profile.

For business owners, being aware of movements in key ratios at an early stage allows them to address the concerns before they escalate, which will help preserve and build long term business value. In a financial planning practice, business value can diminish quickly if matters concerning diminishing revenues or increasing expenses are not highlighted and fixed at an early stage.

It is important to note that you can have either negative or positive covenants. A negative covenant limits or prohibits actions that the borrower may take without prior written consent of the bank, such as limitations on the amount of dividends a company may pay. A positive covenant specifies an action that the borrower agrees to take or a condition that they must abide by, such as providing periodic financial statements to the financier.

A few of the typical covenants that are applied to businesses operating in the financial planning industry include, but are not limited to:

Interest cover – defined as the ability of the business to meet its interest expense from the Earnings Before Interest and Tax (EBIT). Measured as dividing EBIT by total interest expense. This is applicable where interest only debt is proposed.

Note that the EBIT figure should always be “normalised” to include a nominal figure for principal/s remuneration. This figure can vary dependent on the size and complexity of the practice. This is also referred to EBITAPR, Earnings Before Interest and Tax After Principals Remuneration. Businesses should be targeting interest cover in excess of two times, which then supports the ability to amortise debts. If businesses are only achieving one times or less then there are no surplus earnings to put towards debt reduction and often additional funds are required to be injected into the business to meet its commitments. This position was not uncommon during the GFC.

Debt Service Cover – defined as the ability of the business to meet its principal and interest payments from EBIT. Measured as dividing EBIT by total principal and interest (P&I) payments. This is applicable where debts are on a P&I basis.

EBITAPR should also be used in this calculation. Businesses should be targeting debt service cover in excess of 1.50 times, which then illustrates an ability to meet all P&I commitments and also allows for other payments such as taxation.

Setting of a minimum recurring revenue figure by which it must not fall below. This is to protect the secondary position being the asset value and to ensure that the loan to value ratio does not increase beyond acceptable levels.

Reporting covenants requiring the provision of regular financial statements to assess business performance and measure against expectations.

For a financier, covenants, if managed and monitored effectively, can be an early warning sign where a deteriorating trend is evident. If a breach is found to have occurred, a “right of review” is triggered to determine the extent of the breach, which allows the client and the bank the opportunity to discuss the reasons behind the breach and if corrective actions are required to address the issue.

Covenants are designed to provide triggers that highlight potential problems well before the issues get to the point where they cannot be resolved and the business is left with little or no alternatives.

Take for example the events of the GFC and its resultant impacts on both new and recurring revenue streams. Few, if any, financial planning practices were completely immune to the effects of the GFC on their revenue streams and as a result breached a number of loan covenants.

It is critical for the financier in these instances to have an understanding of the impacts such an event has on businesses operating in the financial planning industry and acts appropriately in a collaborative manner.

At NAB, we take the opportunity to discuss the impacts on the business and also if there are any other flow on affects as a result such as taxation and superannuation guarantee arrears. It is best for business owners to be open and honest and discuss with their banker immediately a breach is determined. The bank genuinely wants to work with the business to get the best outcome for all parties.
As business owners it is important to understand the impact of management decisions when exploring appropriate gearing positions for the business. Gearing covenants are effective in providing ongoing measurements for this purpose and also assist with understanding effective gearing levels that achieve the required return on investment by the business principal/s.

You clearly expect a minimum overall longer term return for clients when creating investment strategies, it is therefore prudent to articulate the minimum return on your investment in the business that you expect and monitor this regularly.

In summary, your financier wants to understand your business and its drivers better. Covenants are an effective tool in providing an ongoing measurement around some key areas that then present an opportunity for the business owners and the bank to regularly discuss how the business is performing, both the not so good and the success stories.

Potential sellers of financial planning practices who had deferred their retirement dates are currently reassessing their positions

Sellers who had a pre-GFC target price in their minds and corresponding retirement plans built around the expected capitalisation of their business started to see the return in value and the ability to achieve their previously deferred goals.

The market has been starved of the supply of businesses for sale, and the reason for this was deferment of retirement due to reduced superannuation balances and enterprise value in line with revenue declines.

Revenue for many businesses was inhibited due to the defensive cash allocation policy the majority of the industry took. The average business held a total allocation to cash or fixed interest of 30 per cent or greater and most did not receive revenue on this asset class. Over the 4-5 year period there was a significant shift in revenue generation. More practices adopted a fee for service offer covering all asset classes as reliance on manufacturers diminished and the relationship was a lot more direct with the client and based on strategy.

Buyers see the cash allocation as an opportunity to deliver service and enhance revenue as asset allocation returns to more normal market ranges or benchmarks.

While the industry treaded water, principals have not been idle focusing on improving their business model, information systems, service offer, personnel and cost structures. Therefore we are seeing better businesses coming to market with greater client segmentation and management reporting in place.

FOFA has been a contributing factor with some advisers saying this is all getting too hard and after a personal audit nominating they don’t have energy to change their business model. We hasten to add these are a minority and not the expected exodus that some commentators predicted.

We recognise the increase of supply may not be solely due to the exogenous factors nominated above but also due to Forte’s rising brand recognition. The exponential growth experienced has likely been assisted by the departure of a key competitor and Forte is now solely recognised as the most experienced facilitator of transactions in the Australian market.

For more information, see Forte Asset Solutions’ latest market commentary.

Legislative changes to the SMSF advice space present an opportunity for accountants and advisers to review their overall partnership arrangements

The impending changes to licensing for accountants in the Self-Managed Super Fund (SMSF) advice space present an ideal time for accountants and financial planners to review their overall partnership arrangements.

Advising on SMSFs is a specialised field, combining advice for an individual’s personal affairs with advice to the fund itself to ensure it remains compliant.

This combination of advice has meant that there is a real mix of both accountants and financial planners who have chosen to specialise in this area. As not every accountant or financial planner wants to go down this path, there is an opportunity for specialist advisers to partner with more general advisers.

Accountants specialising in SMSF advice work really well with more generalist financial planners not looking to take on this role. Alternatively, specialist planners would be better suited to partnering with more generalist accountants not looking to specialise in this space, but wanting to ensure they can refer their clients to someone they trust for this advice.

If you are an accountant looking to specialise in SMSFs, one thing you will need to deal with is licensing. The easiest way to do this is to follow three simple steps:

1. Understand what level of licensing you need to be able to provide the advice you give. This will determine your ‘scope of advice’ or level of authority. It’s really important not to get too caught up in the names of the different authorities available in the marketplace. Look at the underlying scope and if that matches the advice you want to give.
2. Determine what form of licensing suits you best – should you take out some form of licensing direct with ASIC, or would an authority from an existing license suit you better? If you are looking at giving strategic SMSF advice to clients, the new ‘limited licence’ being offered by ASIC from 1 July 2016 will allow you to hold their license directly. However, there are many authority options with existing licensing holders which may suit you better as they remove the need to personally manage both the licence and the advice obligations.
3. Finally, determine what sort of support you are going to need beyond licensing, particularly if you want to grow your practice in this area. This could include the support to partner with advisers, managing your dual obligations as an accountant and a licensed adviser, or more general practice development support to grow your practice.

Want to know more about the impacts of licensing on SMSF advice? Attend one of AMP’s SMSF strategy & licensing Roadshows in 30plus locations around the country. For more information, visit http://smsfadvicelimited.com.au/workshopinformation-2/

Now that the dust seems to be settling on FOFA, and markets look they are moving for the better, it is the right time for many advisers and accountants to be thinking – what next?

What is the one thing you could implement in your practice that could grow both revenue and client base?

The two big service lines that most practices are considering are SMSF and mortgage broking. With super balances reaching the mark where more Australians are considering SMSF, it is obvious that SMSF is going to play a big part in the future of wealth advice businesses.

Mortgage broking however, has always been there – but now more than ever represents the opportunity to offer clients the complete financial service – wealth advice, accounting and property and loans under one roof.

So, if you are considering expanding your service line, which one is right for you? Many of you are already making investigations via our education section, pre-registering for our SMSF course we are set to release with SPAA – which give both advisers and accountants the SMSF overview of what you will need to consider taking on SMSF advice in your practice.

Others are making alliances with mortgage brokers or looking into bringing a specialist into your practice. Figuring out whether to make it the lead in a new client relationship or an add-on to existing clients, is part of the overall challenge in incorporating this service into your offering.

Either way, offering clients more than you have in the past, or attracting new clients by giving them more services under one roof, are both smart strategies that will ensure you reach your practice potential.

If you believe that your future will include SMSF or mortgage broking, we would love to hear from you – we will be filming our new show around this theme, and it will also be the topic of our annual event this August.

We will also be bringing some of the best and brightest experts to the fore to help you with the top tips and avoid the pitfalls in growing your business via these two very different services.

Interesting times ahead, and remember, fortune favours the bold.

You can follow Vanessa on Twitter: @ceovanessa

There are a number of ways you can leverage professional development to ensure a growing, robust practice 

Professional development is a non-negotiable for me. As a professional financial adviser I have a duty and responsibility to stay up to date. As part of my job description I need to keep on top of legislative changes, economic conditions, investment market trends, product innovation, financial planning strategies – and that’s just the beginning.

When it comes to professional development and lifelong learning, it’s something I embrace rather than fear because it keeps me up-to-date and engaged with my profession. It gives me the confidence to know that the advice I am providing to my clients is first-rate and it also satisfies my inquisitive nature.

So, rather than thinking: “Oh god, not another PD Day! I don’t have the time, I already know all that stuff, there’s no value add …” why don’t you look at PD in a different light? Here are a few tips on how I get the most out of PD:

1. Filling a knowledge gap: Like you, I’ve attended countless PD days over the years, read hundreds of technical articles and listened for hours to investment and economic experts and I never stop learning. The more I know, the more I realise I don’t know. When planning PD and training for me and my team I identify the areas which need to be worked on and develop the training program accordingly.

2. Career building: I remember my first PD day. I was sitting in the large auditorium, furiously taking notes and wondering how any one person could ever know so much about RBLs, Centrelink and income streams. Things have changed over the years and my technical and business knowledge has increased significantly. Continuous studying both formally and informally has been the key to my career advancement.

3. Team building: Attending an external PD event gives me and my team the opportunity to learn from different people in different settings. It’s a great opportunity for the newer members of the team to get exposure to other professionals in a non-threatening environment. By encouraging my team to participate in PD events it also sends the message that I support them and value ongoing learning and career development. A happy team is a happy practice – and that makes for happy clients.

4. Storytelling: At PD days, I catch up with colleagues and we exchange war stories. I learn a lot from listening to the experiences of fellow planners and business owners and hopefully they learn from my experiences as well. The stories I tell relate to anything from the running of my practice to new strategies I’ve used for a client. They can also be stories about what to avoid and lessons learned from mistakes. What a great way to learn!

5. Thinking of my clients: A lot of PD training I do is very deliberate and focused, specifically targeted at providing advice to a particular client segment. I am able to learn from people who are leaders in their field and then apply that knowledge to enhance my clients’ situations and develop various service offerings. When my clients know they are getting advice based on best practice they not only feel satisfied and confident in me, they will tell their friends.

6. Remaining compliant: There is no doubt that the need for PD for non-technical training has increased and this is due in no small part to the constant legislative changes. Along with most good practices, we are FoFA ready and this has been achieved by putting time and effort into learning what will be required under the new regime. As time-consuming as this has been, I believe that having a “best practice” approach to compliance will ensure my practice will be around for a long time to come. That’s good news for me, my clients and my team.

7. Delivery options: Not all PD is delivered in a formal setting at PD days. I take advantage of different delivery styles to make sure I am learning in ways that make the best use of my time and financial resources. Webinars, online training, distance education and teleconferences are all flexible and cost-effective modes of delivery.

Ongoing professional development has been essential for me as a business owner and professional adviser. It has been instrumental in my career advancement, it has enabled me to build a cohesive and knowledgeable team and it has without doubt improved my clients’ welfare. All of this is critical in ensuring I have a growing and robust practice.

Good client service and expanding the range of services offered to existing clients are key to organic practice growth

A key part of my role in No More Practice 4 involves helping advise Jim Taggart on the process of maximising his earn-out in selling his practice. Jim has built his business over up over many years to become a well-established practice, and organic growth has been a key part of this process.

Good client service is the foundation of organic growth within any practice. Once you have the basics of good client service in place and are servicing the most pressing needs of your clients, then you have an opportunity to expand on the range of advice and other services you provide. For example, a risk adviser may be able to expand upon basic insurance advice into financial planning, mortgage advice or other services.

In the institutional world, they work on the premise of wanting “three claws” in a client. In other words, they would want to provide a client with a term deposit, their life insurance and their home loan. The more “claws” an institution has in a client, the more likely that client is to be loyal to them.

Another example is those TV ads you see for comparing car or health insurance providers are a great example of how to go about organically growing services. So once a consumer takes out one product with a company, they will be looking to upsell by offering the next product and the next. That’s the way the commercial world works.

So you can adopt the same approach and proactively communicate with your client base in a number of ways and encourage them to look at the different services you provide – and if you don’t offer other services, the first step you probably need to look at is how you offer an expanded range of services going forward.

Business owners need to get the basics right in plotting a strategic path for their practice

A key part of my role in No More Practice 4 involves advising Sam Henderson on the best growth strategies for his successful SMSF advice practice. Developing a sound business plan is integral to the successful growth of any practice, and business owners need to get the basics right in plotting a strategic path for their practice

There are a number of key operational elements of a successful business plan. Firstly, you have to get your back office and underlying support structure of the business right – this is a fundamentally important element of a good business.

Secondly, you’ve got to find a niche. When we established Count, for example, we went down a route that no one else had pursued at the time. I was a banker and I knew I could never compete against the sales skills of life agents and others. I believed accountants should be involved in the advice business so we worked with accounting firms, and in doing this we carved out a niche where there was less competition.

Thirdly, nothing will happen unless somebody pushes the wheel and is out there generating business. So you need to be out there getting new clients, recruiting good advisers and whatever else is required to build your business. If you don’t have good “finders and grinders” in your business then you won’t be able to grow your practice. This is a whole exercise in its own right.

Fourthly, you’ve got to be out there identifying opportunities for growth. In building Count and working with accounting firms, for example, we went to a lot of tax discussion groups, we went to accounting conferences and we produced newsletters and helpful columns in suburban newspapers. People generally just don’t come and knock on your door for business – you’ve got to be out there getting in front of your market segment and you’ve got to show and prove that you’re a caring, expert professional.

Lastly, once you get the clients in the front door, you need to retain them and avoid losing them out the back door. So you need to provide great service to clients once they are in, and ideally become their preferred source of all sorts of advice – so that in their eyes you become so valuable they won’t go anywhere else. Not only will you retain your clients, but this is an important key to organic growth in providing existing clients with more of your services.

In the final episode of this season of No More Practice, Sam and Jim both had a chance to have a deep and meaningful with Barry and Robbie, together. This joint mentoring session was designed to report back the learning’s from all the experts they had been assigned and to check in with their progress.

What did Sam learn?

It was interesting to see that Sam had realised there was a layer of compliance complexity in franchising that he had not really explored before his No More Practice journey. Sam has built a very successful business by being able to control all his risks with meticulous planning and hard work. He realised after his expert meetings that the franchise model would mean him losing that control and allowing risk to creep in.

Barry assured Sam that the risk would be taken on by the new franchisees and that he should not give up the idea of franchising his business model, particularly due to his growing media profile and the ability to drive leads from that on a big scale.

It will be interesting to see what Sam decides to do with his business by Judgement Day, which you will get to see later on in the year. Both Barry and Robbie agreed that Sam was an excellent operator and that he was sure to be a strong contender on Judgement Day – whichever strategy he reveals.

What did Jim learn?

When Jim had his turn he really focussed on what parts of the journey he had learned from that he had not expected. Robbie had been concerned that Jim would lose his staff, and that this may decrease his earn out potential. Jim assured Robbie that he had put even more focus on the staff component of the sale and was more mindful of what could happen if not nurtured correctly.

Jim was really pleased to announce that he had made some plans for the next phase of his life – and both Barry and Robbie were very happy to hear that Jim had new opportunities on this horizon – both of them knowing how important it was for a business owner to have a new focus after sale.

The mentors were really impressed with Jim’s progress and both agreed that Judgement Day was sure to be a good one for Jim.

With Sam well on the way to accelerated growth and Jim moving closer to earn out time, Judgement Day will be worth waiting for.

Thanks for joining us on the journey so far. There’s lots more to come as No More Practice continues to seek out the best ideas to help you realise your practice potential.

You can follow Vanessa on Twitter: @ceovanessa

While financial services has always been heavily regulated; with FOFA and new the licencing regime, it seems compliance will play a much larger, and critical, part of decision making around business strategy and growth in the future.

In this week’s episode of No More Practice, Sam Henderson has a deep and meaningful conversation with compliance and legal expert, Christina Kalantzis.

With Barry Lambert urging Sam to franchise his business, Sam puts a real focus on finding out what would be involved for him in going down this route.

The biggest message he takes from these conversations is around the importance of managing risk. If he is to franchise his business, and have other advisers and accountants giving advice to clients in this franchise model, then Sam would be legally responsible for every piece of advice given.

This responsibility may well see Sam put the brakes on a franchising strategy due to the potential burden of compliance risk versus the possible return.

I have to wonder if this increased level of complexity will see a ‘flight to safety’ to the big brands, who will take the ultimate responsibility for education, licencing and compliance. At the very least it will force practice owners to pick their strategy and stick to it – and in Sam’s case, franchising will mean much more of his time working in the business making sure everyone else is meeting the compliance rules to manage his risk.

However, the increased focus on legislation and compliance will present opportunities for many service providers and partners to bring new ideas to the market. In fact, this is one of the reasons No More Practice is really resonating in the market. There are growth opportunities available right now – and those who move quickly will capitalise first. In upcoming episodes, Sam is coached through the new licencing regime for accountants and advisers in SMSF, and he learns what this could mean for his business growth.

While all this change can be complex, we aim to bring you more clarity around your business growth by showing you the options available and profile real live business owners making decisions based on these options.

If you have a strategic decision to make around your business we would love to hear from you – sometimes sharing with your peers can give you new ideas, and help others who may be in the same situation. Write to us via the website and we can point you in the direction of the right tools and resources that may help make up your mind.

Finally, I hope you are enjoying the show – make sure you tune into Sky Business this weekend at 9am Saturday or 9.30am or 5.00pm Sunday to see Sam deliberate on his choices and the compliance implications of growth.

In No More Practice 4, Jim Taggart is on a journey to maximise his earn out following the sale of his practice to Austbrokers. A key part of my role in the show involves advising Jim about the process as well as key considerations and potential options along the way.

One issue that Jim faces in selling his practice is engaging and retaining key staff and maintaining morale – a common challenge that many practice owners face in selling their businesses.

My advice for retaining staff and maintaining staff morale is quite simple:

1.         Be respectful

2.         Let people know they’re appreciated

3.         Communicate from the get-go about what’s happening

4.         Communicate as honestly and as transparently as you can

5.         If possible, incentivise staff commercially to be part of that journey

In some practice sales, I have seen staff who have been expected to manage the transition and who have no sense of control, buy-in or reward – and that creates disharmony. So if sellers can provide staff with buy-in and give them a commercial reward along the way this will help improve the experience.

When a business owner decides they want to sell their practice, they should ideally speak to their staff as the first point of call or very early in the process as they will inevitably find out via an email or a phone call – and that’s when unhappiness can potentially set in around not being included or adequately communicated with.

In communicating with staff, practice owners should discuss why they’re selling the business, the outcomes they’re expecting and what role they expect the staff to play – so everyone should have a good experience along the way.

If you treat people with courtesy and respect, include them in the decision and explain the strategy around the sale, this helps staff retain a sense of ownership and buy-in – and this helps ensure a good experience for all.

Practice owners need to think about potential buyers when planning their business strategy

There is a lot of talk around succession planning for accounting and advice firms. Our first round of results from our business valuation tool demonstrate that valuation results are changing as business models change in line with FOFA reform.

As everyone reviews their strategy and looks at the way forward in the new regime, it is more important than ever to have the end in sight – no matter whether that end is five or 20 years away. Why? Because without knowing your desired outcome, you can’t build your strategy path to get there.

There are so many choices to make in owning a business today. We have watched Sam making decisions around his business – should he franchise, specialise, or offer key staff equity? All these decisions can change the nature of his business, and his final result. Stay tuned for judgement day to see which way he goes.

One thing I have learned from working with so many practice owners is that it is good to be honest with yourself and ask – what is the key driver for you in planning your succession?

Many wealth businesses are family owned, and are built to hand down to the next generation. Some are partnerships where one partner will buy the other out, while others are counting on their licensee becoming their buyer of last resort.

It is worthwhile asking yourself what is the best way for you to build a succession strategy. Does it involve leaving behind key staff to run your business, or like Jim Taggart, integrating into a larger business? You will have seen Jim go through mentoring advice around making a plan for himself even post-sale – as it is always better to be looking forward and striving for a goal and destination.

Business buyers like Barry Lambert believe that the best business owners identify their potential purchasers very early on, and then go about making their business just the thing that potential purchaser needs.

So as you go about making decisions on your business strategy post-FOFA, perhaps the biggest question you should ask yourself is: who is my buyer if I put this strategy in place?
It could just be the question that gives you the clarity and direction to realise your practice potential.

As always, we love hearing your thoughts and challenges – please let us know what you are working on and how we can help.

You can follow Vanessa on Twitter: @ceovanessa

Practices that want a comprehensive and sustainable SMSF offering can build scale in a number of ways

I see so many practices, both accounting and financial planning, that have dabbled in self-managed super funds (SMSFs) as a reaction to client needs, but who now want to build a more comprehensive and sustainable offer in this space. To do this successfully, you will need to build scale around your SMSF offering.

The key to success is investing in the right areas to ensure you capitalise on your skills and expertise. Let’s look at all the elements of an SMSF offering. Essentially, these can be broken down into the following three broad areas:

• Advice: advice around establishment of a SMSF, advice on the investments within the fund and advice on the fund itself
• Compliance and administration: managing ongoing transactions and ensuring no compliance breaches (particularly in relation to contributions and withdrawals, preparing minutes, letters etcetera)
• Accounting and audit: preparing the annual accounts and audit.

Appropriate compliance and administration is crucial, and there are an increasing number of outsourcing options available for these and other areas of the SMSF offering. By focusing on the advice side of things, and outsourcing the lower value work, you can build scale without having to employ costly resources in-house so your skills and expertise are put to maximum use.

To build a successful practice, the area I would be investing my time and expertise in is in the advice space. Advising on SMSFs is a specialised area as it involves not only advising the individual, but also the fund itself.

Advice needs to be customised to the client and the fund.  This is where the real value-add is for you as an adviser. Let’s look at an example of a 50-year-old male client, who has an SMSF and is considering his insurance needs. His SMSF has a balance of $1 million.

Assessing the client’s insurance requirements requires a deep understanding of their needs and aspirations. The person’s overall position, including investments, life insurance (internal and external to their SMSF), personal relationships and estate planning should all be considered.

Let’s assume the client needs further insurance of $1 million. To determine if this policy should be held within the SMSF or outside it, the adviser needs to understand the dependency status of the beneficiaries. If the client is married his wife will be a tax dependant so, in addition, his death could create a $1.2 million tax deduction to the fund.  This could be used to offset contribution and earnings tax for his wife and, more importantly, their children (a potential saving of $180,000). If he is single with his benefits passing to his independent children they will pay an extra $330,000 in tax on the death benefit they receive. All in all, this is a dramatically different result for what seemed like a relatively minor consideration at the time.

For accountants, making the shift from compliance to advice will probably mean that you need to consider licensing. There is a cost involved with licensing and meeting your ongoing compliance obligations, but if you get the model right and can achieve scale through better use of your existing resources, the benefit of licensing will far outweigh any costs involved.

Want to know more about the impacts of licensing on SMSF advice? Attend one of AMP’s SMSF strategy & licensing Roadshows in 30plus locations around the country. For more information, visit http://smsfadvicelimited.com.au/workshopinformation-2/

Demand for good financial advice practices has been strong for a number of reasons

Demand for good financial advice practices has been strong in recent times, and in the absence of organic growth larger businesses have looked to inorganic strategies such as acquisition. In addition, it has now become self-evident that size and scale is required to be successful, robust and ensure free cash flow.

However, the level of activity in the practice to practice acquisition space has been significant. This has been largely due to the “growth” programs instigated by the major institutions. Institutions will acquire and then on-sell at discounts to acquisition price to ensure retention or attraction of advisers, as well as giving themselves overall FUM growth. These programs have been very successful, with one institution nominating that they have conducted in excess of 200 transactions over the last few years.

Success has been primarily in the acquisition of C&D clients and not in the acquisition of total books, and the reason for this is vendors of a total client base are extremely focused on who is going to care for their clients and staff, and won’t sell unless they are comfortable around these key selection criteria. Therefore they will only sell when the adviser can be clearly identified and value proposition known.

Lower interest rates will also continue to stimulate acquisitions as the economics continue to improve between revenue, debt repayment and free cash flow.

The impact of FoFA

FoFA had a significant impact on buyer confidence immediately following the release of the Ripoll Report on 23 November 2009, and overshadowed the marketplace until proposed legislation was known. It would be fair to say that the fear factor substantially evaporated with the introduction of grandfathering and clarification of treatment of conflicted revenue.

The biggest factor coming from the reforms is the risk to ongoing revenue due to the regulatory Guide 245 that requires annual distribution of fee disclosure statements nominating what fees have been paid, what services delivered or were entitled to be received. Advisers will be required to request their retail clients’ opt-in, or renew their advice agreements every two years if clients are paying ongoing fees.

From a buyer’s perspective, new agreements would be entered into as they see each client they review in the acquired business. As an alternative, the Australian Securities and Investments Commission (ASIC) has been given the power to exempt advisers from the opt-in provisions where they are bound by a code of conduct, approved by ASIC, which achieves the same outcome.

Association and dealer codes of conduct have yet to be released for review.

ASIC has taken a facilitative approach for the first 12 months of the FOFA reforms until 1 July 2014. This is recognition of the difficulties the industry faces as new software and processes that maps individual revenue and overlays activity delivery needs to be created, including the difficulty of identifying start or anniversary dates to new and existing clients.

FoFA and business values

The real risk posed to business values was the treatment of volume overrides as conflicted revenue, but comfort was given that all arrangements prior to the 30 June 2012 would be honoured so the revenue that is generated by clients from master funds and wraps will continue and will migrate to buyers. However, new clients or clients who receive new advice and any new FUM are not eligible to volume overrides.

Overrides have been the lifeblood of dealer groups, but have also underpinned individual practice enterprise value as overrides/volume bonus create the real scale and cost benefits buyers seek.

There is also an emerging group of buyers who have in-house products that deliver cost savings to the consumer, but also enhance business profitably with greater levels of participation across the value chain.

There is also an emergence of new buyers looking for scale and synergies, and while listed groups are still passive this will change with growing P/E’s and the opportunity for future capital raisings. In summary buyers are comfortable with their value proposition and they ability to engage all clients.

For more information, see Forte Asset Solutions’ latest market commentary.

There are a number of key elements that contribute to and drive value within financial planning practices

In No More Practice 4, Sam Henderson is on a journey to grow his SMSF practice. A key part of my role in the show involves advising Sam on this process from a financial perspective as well as different options for funding his plans for expansion.

To assist in attaining funding for growth or expansion plans, one of the most important things any good financial advice practice needs to have a handle on is key drivers of value within the business.

1. One of the most common drivers of practice value revolves around having a client value proposition – whether it be for a standalone practice or for each individual business within a larger, diversified financial services firm.

So you really need to know the type of client that you’re looking to talk to and ultimately service. In this process it is good to segment clients into A, B, C and D categories, so the clients that earn you the most revenue could perhaps be in the A category. You might even want to segment them in terms of a particular niche area that you’re focusing on, and have individual advisers within your business focus on those key areas. Businesses that have a significant focus on particular niche areas generally run at premiums compared to other practices that don’t.

2. Another important driver of practice value is having great systems in place that allow you as the practice owner to transition clients over a period of time to a new owner if need be. Businesses that have systems in place to help monitor and effectively manage clients as they come in the door and through the lifecycle of the client journey are in a much more advantageous position with regards to client engagement and retention.

Good systems will not only help maximising the potential value of clients to a practice, but also assist in running a cost-efficient practice. If you have good reporting systems that talk to each other and minimise double handling of work, for example, then this can contribute to the productivity and overall profitability of a practice.

3. A key practice value driver from a buyer’s perspective relates to how a business is run to minimise principal dependency. If a practice is based on a corporatised model in which the business as a whole is seen the key provider of financial advice, rather than the practice owner themselves, then this will help in transitioning client relationships in an easy and seamless manner – which will be a key concern of any potential buyer of your practice.

4. Key to the above point is servicing clients. Apart from the obvious importance of provision of good advice, it’s often the little things that count here that will see clients stay for the long-term – and ultimately drive revenue and profitability. For example, you could have a client’s name tag on their parking space when they come into visit, you can wait for them at the door and also have a coffee waiting for them when they do come in; it’s the little simple things that help them feel like important individuals.

5. Get the basics right. Any potential buyer of your business will want to understand the P&L financials of your practice in a simple and transparent manner to better quantify its value. So practice owners need to be able to track how their business is performing and also demonstrate they are running a cost-efficient operation.

One thing that a lot of business owners neglect to do well is when they’re setting a budget at the beginning of the financial year, is to review this on a monthly basis and revise the budget in light of cost overruns or revenue downgrades. This process also helps in understanding where potential savings lie within the business.

There are many issues the Australian Taxation Office (ATO) grapples with when regulating self-managed superannuation funds (SMSFs) and one is the proper treatment of assets.

To be a little more specific, it’s really all about keeping personal assets complete separate from the assets of the fund. Sounds simple in theory, but in practice it has not proven to be the case and while it has always been a requirement for SMSF trustees the ATO has never had the power to enforce this rule. That is until now.

A recent change to the Superannuation Industry Supervision (SIS) Regulations has now provided the ATO the ability to administer this requirement. SIS Regulation 4.09A was recently inserted and has actually been operative since 7 August 2012 to take care of this anomaly.

The new regulation stipulates a trustee of an SMSF (or any other regulated superannuation fund for that matter) must keep the money and other assets of the fund separate from and money and assets that are held by the trustee personally or that are money or assets of a standard employer or an associate of a standard employer of the fund.

While this has been recognised as a sensible change by sector commentators, as this was one of the most problematic issues the regulator has been dealing with, there is one element that seems to be missing.

The new regulation addresses the problem in regard to individual trustees but has not made any allowances for corporate trustees of SMSFs. This perceived oversight aside the ATO has adopted a very proactive stance in assisting trustees to comply with the new regulation. To this end it will be issuing guidelines that will help trustee comply with the formal requirement.

Some of the items to be contained in this release will be emphasising the importance of making sure the assets are registered in the name of the trustee, the use of declarations in the trust, as well as situations where it is not possible to register assets in the name of the trustees.

The last point will deal with limited recourse borrowing arrangements which themselves are up for review by the ATO in the coming months.

Darin Tyson-Chan was recently awarded the 2012 SPAA Trade Media Journalist of the Year. He is the editor of self managed super, a new publication dedicated to the SMSF practitioner. If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au

In No More Practice 4, Jim Taggart is on a journey to maximise his earn out following the sale of his practice to Austbrokers. A key part of my role in the show involves brokering the deal and advising Jim along the way as he seeks to maximise his earn out.

This is a common challenge that many practice owners face in selling their practice. Both buyer and seller want to maximise the value that they both receive from a transaction, and there are a number of steps that owners can take to ensure the successful sale of their practice.

1. Reduce principal dependency. The process of reducing key person dependency is something that can only be achieved over a number of years, but it is an essential step in increasing the sale value of a practice. The main way to reduce principal dependency risk is to transfer some of the client relationships to other advisers within the business.

Systems and processes also play an important role in reducing key person dependency. This also helps commercialise advice within a business and ensure that it is synonymous with the provision of advice, rather than the individuals within it. So ideally, the less interface and client connection there is with a principal, the better.

Even a small business can adopt a corporatised model, and reporting in particular has to be strong in the case of smaller practices as this helps the owner stay in the business a little bit longer in doing a handover.

2. Motivating staff in a sale. Communication is critical for business owners to maintain staff morale during a transaction. Communication should start as you start the sales process to keep everyone on the same page, and it becomes particularly important when you’re looking at final candidates and you may have two or three key staff entering a heads of agreement so everyone shares the same vision for the sale.

Communication is important because it also helps reduce fear of change. As soon as you nominate that there’s going to be a change of ownership, this means change and with change comes fear as part of the human condition. The only way you can combat fear is by having a real clear vision as to what the business is going to be like in the future and what the opportunities are for everyone involved, and you have to keep on articulating the outcomes and benefits for both the clients and for the staff.

3. Maximising client retention during a sale. Business owners can maximise client retention through a transaction simply by being very close to the business. By working your top 20 per cent to generate that 80 per cent of revenue, for example, only helps in communicating the value proposition the purchaser has before them.

In the current market environment, there is an art in getting the best possible buyer and having both them and the seller genuinely believe in the value proposition, so this can be confidently and honestly communicated that to clients and staff. So if both the buyer and seller know client service is not going to be compromised and this can be leveraged throughout the transaction, this is where you get full client retention.

In No More Practice 4, Sam Henderson is on a journey to grow his SMSF practice. A key part of my role in the show involves advising Sam about the compliance aspect of this process as well as the changing landscape of SMSF advice and what this might mean for his business.

Regulatory change is a constant in the field of financial advice and especially in the SMSF space. As such, developing a culture of compliance is something that will assist practice owners in staying ahead of these changes and there are a number of steps that will assist in developing true compliance cultures within financial advice businesses.

From a licensee perspective, building a culture of compliance must come from the top down. I would encourage all licensees to make sure that every single staff member is aware of their policies and procedures. They don’t need to know the ins and outs of how to manage a breach – but they should be aware that there are policies on breach management, complaint management and ideally a whistleblowing policy – and they should understand where to go should they require any information on these policies.

In terms of finding out what’s going on in a practice from a compliance perspective, the best area to look is the paraplanning unit. This is where the strategic advice is written off the back of the fact finding that advisers conduct with clients, and as such the paraplanning unit is usually the first to see what’s going on as to whether or not advice is suited for the client.

Ongoing communication with both administrative staff as well as clients also plays an important role in addressing any concerns, and whether these should be elevated for discussion at higher levels.

If practice owners are struggling to cope with compliance obligations, outsourcing the process can help reduce administrative burdens. In particular, it is a good idea for new businesses when they first acquire their AFSL to outsource their first one or two years’ worth of compliance work, so they understand patterns of behaviour as well as requirements that an external provider needs to meet. In addition to this, it is a good idea for practices to conduct monthly or quarterly compliance meetings to keep everyone in the business on the same page with regards to expectations, potential issues as well as regulatory changes.

After this period of outsourcing compliance work, practice owners may choose to continue along this route, or take it upon themselves to either employ someone internally for the work or actually run the business from a compliance perspective as well.

Practice owners need to think about potential buyers when planning their business strategy

There is a lot of talk around succession planning for accounting and advice firms. Our first round of results from our business valuation tool demonstrate that valuation results are changing as business models change in line with FOFA reform.

As everyone reviews their strategy and looks at the way forward in the new regime, it is more important than ever to have the end in sight – no matter whether that end is five or 20 years away. Why? Because without knowing your desired outcome, you can’t build your strategy path to get there.

There are so many choices to make in owning a business today. We have watched Sam making decisions around his business – should he franchise, specialise, or offer key staff equity? All these decisions can change the nature of his business, and his final result. Stay tuned for judgement day to see which way he goes.

One thing I have learned from working with so many practice owners is that it is good to be honest with yourself and ask – what is the key driver for you in planning your succession?

Many wealth businesses are family owned, and are built to hand down to the next generation. Some are partnerships where one partner will buy the other out, while others are counting on their licensee becoming their buyer of last resort.

It is worthwhile asking yourself what is the best way for you to build a succession strategy. Does it involve leaving behind key staff to run your business, or like Jim Taggart, integrating into a larger business? You will have seen Jim go through mentoring advice around making a plan for himself even post-sale – as it is always better to be looking forward and striving for a goal and destination.

Business buyers like Barry Lambert believe that the best business owners identify their potential purchasers very early on, and then go about making their business just the thing that potential purchaser needs.

So as you go about making decisions on your business strategy post-FOFA, perhaps the biggest question you should ask yourself is: who is my buyer if I put this strategy in place?
It could just be the question that gives you the clarity and direction to realise your practice potential.

As always, we love hearing your thoughts and challenges – please let us know what you are working on and how we can help.

You can follow Vanessa on Twitter: @ceovanessa

There are a number of key elements that contribute to and drive value within financial planning practices

In No More Practice 4, Sam Henderson is on a journey to grow his SMSF practice. A key part of my role in the show involves advising Sam on this process from a financial perspective as well as different options for funding his plans for expansion.

To assist in attaining funding for growth or expansion plans, one of the most important things any good financial advice practice needs to have a handle on is key drivers of value within the business.

1. One of the most common drivers of practice value revolves around having a client value proposition – whether it be for a standalone practice or for each individual business within a larger, diversified financial services firm.

So you really need to know the type of client that you’re looking to talk to and ultimately service. In this process it is good to segment clients into A, B, C and D categories, so the clients that earn you the most revenue could perhaps be in the A category. You might even want to segment them in terms of a particular niche area that you’re focusing on, and have individual advisers within your business focus on those key areas. Businesses that have a significant focus on particular niche areas generally run at premiums compared to other practices that don’t.

2. Another important driver of practice value is having great systems in place that allow you as the practice owner to transition clients over a period of time to a new owner if need be. Businesses that have systems in place to help monitor and effectively manage clients as they come in the door and through the lifecycle of the client journey are in a much more advantageous position with regards to client engagement and retention.

Good systems will not only help maximising the potential value of clients to a practice, but also assist in running a cost-efficient practice. If you have good reporting systems that talk to each other and minimise double handling of work, for example, then this can contribute to the productivity and overall profitability of a practice.

3. A key practice value driver from a buyer’s perspective relates to how a business is run to minimise principal dependency. If a practice is based on a corporatised model in which the business as a whole is seen the key provider of financial advice, rather than the practice owner themselves, then this will help in transitioning client relationships in an easy and seamless manner – which will be a key concern of any potential buyer of your practice.

4. Key to the above point is servicing clients. Apart from the obvious importance of provision of good advice, it’s often the little things that count here that will see clients stay for the long-term – and ultimately drive revenue and profitability. For example, you could have a client’s name tag on their parking space when they come into visit, you can wait for them at the door and also have a coffee waiting for them when they do come in; it’s the little simple things that help them feel like important individuals.

5. Get the basics right. Any potential buyer of your business will want to understand the P&L financials of your practice in a simple and transparent manner to better quantify its value. So practice owners need to be able to track how their business is performing and also demonstrate they are running a cost-efficient operation.

One thing that a lot of business owners neglect to do well is when they’re setting a budget at the beginning of the financial year, is to review this on a monthly basis and revise the budget in light of cost overruns or revenue downgrades. This process also helps in understanding where potential savings lie within the business.

A recent change to SIS regulations has given the ATO enforcement powers over administering proper treatment of assets in regulating SMSFs

There are many issues the Australian Taxation Office (ATO) grapples with when regulating self-managed superannuation funds (SMSFs) and one is the proper treatment of assets.

To be a little more specific, it’s really all about keeping personal assets complete separate from the assets of the fund. Sounds simple in theory, but in practice it has not proven to be the case and while it has always been a requirement for SMSF trustees the ATO has never had the power to enforce this rule. That is until now.

A recent change to the Superannuation Industry Supervision (SIS) Regulations has now provided the ATO the ability to administer this requirement. SIS Regulation 4.09A was recently inserted and has actually been operative since 7 August 2012 to take care of this anomaly.

The new regulation stipulates a trustee of an SMSF (or any other regulated superannuation fund for that matter) must keep the money and other assets of the fund separate from and money and assets that are held by the trustee personally or that are money or assets of a standard employer or an associate of a standard employer of the fund.

While this has been recognised as a sensible change by sector commentators, as this was one of the most problematic issues the regulator has been dealing with, there is one element that seems to be missing.

The new regulation addresses the problem in regard to individual trustees but has not made any allowances for corporate trustees of SMSFs. This perceived oversight aside the ATO has adopted a very proactive stance in assisting trustees to comply with the new regulation. To this end it will be issuing guidelines that will help trustee comply with the formal requirement.

Some of the items to be contained in this release will be emphasising the importance of making sure the assets are registered in the name of the trustee, the use of declarations in the trust, as well as situations where it is not possible to register assets in the name of the trustees.

The last point will deal with limited recourse borrowing arrangements which themselves are up for review by the ATO in the coming months.

Darin Tyson-Chan was recently awarded the 2012 SPAA Trade Media Journalist of the Year. He is the editor of self managed super, a new publication dedicated to the SMSF practitioner. If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au

Practices that want a comprehensive and sustainable SMSF offering can build scale in a number of ways

I see so many practices, both accounting and financial planning, that have dabbled in self-managed super funds (SMSFs) as a reaction to client needs, but who now want to build a more comprehensive and sustainable offer in this space. To do this successfully, you will need to build scale around your SMSF offering.

The key to success is investing in the right areas to ensure you capitalise on your skills and expertise. Let’s look at all the elements of an SMSF offering. Essentially, these can be broken down into the following three broad areas:

• Advice: advice around establishment of a SMSF, advice on the investments within the fund and advice on the fund itself
• Compliance and administration: managing ongoing transactions and ensuring no compliance breaches (particularly in relation to contributions and withdrawals, preparing minutes, letters etcetera)
• Accounting and audit: preparing the annual accounts and audit.

Appropriate compliance and administration is crucial, and there are an increasing number of outsourcing options available for these and other areas of the SMSF offering. By focusing on the advice side of things, and outsourcing the lower value work, you can build scale without having to employ costly resources in-house so your skills and expertise are put to maximum use.

To build a successful practice, the area I would be investing my time and expertise in is in the advice space. Advising on SMSFs is a specialised area as it involves not only advising the individual, but also the fund itself.

Advice needs to be customised to the client and the fund.  This is where the real value-add is for you as an adviser. Let’s look at an example of a 50-year-old male client, who has an SMSF and is considering his insurance needs. His SMSF has a balance of $1 million.

Assessing the client’s insurance requirements requires a deep understanding of their needs and aspirations. The person’s overall position, including investments, life insurance (internal and external to their SMSF), personal relationships and estate planning should all be considered.

Let’s assume the client needs further insurance of $1 million. To determine if this policy should be held within the SMSF or outside it, the adviser needs to understand the dependency status of the beneficiaries. If the client is married his wife will be a tax dependant so, in addition, his death could create a $1.2 million tax deduction to the fund.  This could be used to offset contribution and earnings tax for his wife and, more importantly, their children (a potential saving of $180,000). If he is single with his benefits passing to his independent children they will pay an extra $330,000 in tax on the death benefit they receive. All in all, this is a dramatically different result for what seemed like a relatively minor consideration at the time.

For accountants, making the shift from compliance to advice will probably mean that you need to consider licensing. There is a cost involved with licensing and meeting your ongoing compliance obligations, but if you get the model right and can achieve scale through better use of your existing resources, the benefit of licensing will far outweigh any costs involved.

Want to know more about the impacts of licensing on SMSF advice? Attend one of AMP’s SMSF strategy & licensing Roadshows in 30plus locations around the country. For more information, visit http://smsfadvicelimited.com.au/workshopinformation-2/

Financial services businesses should not underestimate how helpful it can be in working with ASIC after a breach

If you’ve been served with an ASIC notice, first, take a deep breath. Working with ASIC after a breach, rather than against it, may be a better, quicker way for financial services businesses to get back on track than ‘lawyering up”. Don’t underestimate how helpful it can be when approached the right way.

Keeping a calm perspective will help you to assess your position and form a strategy that takes all the facts into consideration. Fighting allegations at any cost will not suit every circumstance, or even many. So don’t bolt off to instruct lawyers to litigate until you have considered your position and strategy carefully.

Here’s what we recommend you do:

• Find out who you’re dealing with. Different sections of ASIC each have their own approach. Stakeholder teams are usually interested in a collaborative approach. If it’s already in enforcement, a different strategy will be needed.
• Know your business strategy. Remind yourself of your goals, objectives and your client’s needs – is a quick resolution important to you?
• Review the facts. Is ASIC alleging that you are in breach of one of the laws it administers? Do a triage – look at the conduct or product at issue. Can it be remedied easily, eg, by putting together a robust compliance plan that includes communicating with clients? The impact on consumers and your proposed remediation are always going to be at the forefront of ASIC’s thinking.
• Get advice. Put together a plan to get you and your clients the best possible long-term outcome. Try to contain the issues of concern to the narrowest possible scope. This is both a science and an art. Lawyers or compliance professionals can be very helpful in identifying all the issues (some of which may be technical or not obvious), to prioritise the issues and assist with your strategy.

At this point you can make a decision. To hold or to fold?

You may have no option but to oppose ASIC action where the allegations are completely unsubstantiated. But if there’s any merit in their concerns, don’t underestimate the cost, stress and distraction that fighting will cause to your business.

On the other hand, immediate full cooperation can minimise fines and result in a (relatively) positive press release. Recently here have been a number of high profile examples of the opposite, where little or no cooperation or inadequate action to address ASIC’s concerns, resulted in extensive enforceable undertakings or even full bans, and a punitive tone in the media release.

When deciding, put yourself in ASIC’s shoes. How are they likely to view your conduct? Consider:

• Was your conduct inadvertent or deliberate and reckless?
• Was the breach an isolated incident?
• What was the impact on the market and/or your clients? Was it minimal or considerable?
• Did you gain a benefit?
• What was the damage to third parties?
• Do you have a record of non-compliance?

Once you have decided, then choose your weapon. Litigators excel at being aggressive and adversarial; but will this inexorably lead to a tougher outcome? Commercial lawyers who seek common ground upon which to forge a deal that both parties can live with may be better-suited for a frank discussion with the regulator. Decide which you need and check your lawyer’s natural style before appointing them.

Remember, regulation is a two way street. If you want to avoid ASIC scrutiny, be proactive. Develop an approach of partnering with the regulator. Yes, you read that correctly! Don’t underestimate how helpful the regulator can be to your business.

If you have developed a service or product that is a bit ‘out there’ and novel, then don’t be afraid to contact ASIC to discuss potential regulatory issues. This is an opportunity for you to educate ASIC and help them stay ahead of the innovation curve of products, technology and distribution methods. Policy is only as effective and as relevant as the information and knowledge that the regulator has. It can position you as the industry leader.

Experience counts in the financial advice and accounting industries, and there is much that viewers can learn from Barry Lambert and Robbie Bennetts

While the advice industry is undergoing the most significant legislative change in many years and the roles of accountant and adviser continue to merge closer together, one aspect remains the same – experience – and there is much we can learn from those who have gone before us in our industry.

Adding mentors to the No More Practice experience for our players has been a valuable exercise. Not only can they act as a sounding board for ideas, but they are not backward in coming forward with what they see as things to avoid and situations to rectify.

This season Barry Lambert returns to advise Sam Henderson, whose thriving SMSF practice is at a point where Sam has major decisions to make. For Barry to suggest to Sam that he could successfully franchise his business is more than encouraging for Sam. Barry, of course, has gone through one of the most successful franchising exercises in our industry, and he does not advise for anyone else to go down that track lightly.

His view that Sam had a real differentiator in his media profile is an interesting one. Can Sam ramp up his media presence and gather like-minded businesses into a franchise, driving new clients via the media? The challenge for Sam is to drive the right sort of client with a high balance suitable for SMSF advice.

In the upcoming episodes of No More Practice, Barry sends Sam to a number of experts to make sure he scopes out his options carefully – it will be fascinating to see what Sam decides to do; check out SKY Business every Saturday at 9am.

Robbie Bennetts also shares invaluable insights with Jim Taggart, about the sale and extraction of him out of the business over his earn out period. Robbie was very helpful to Jim in advising him about what it takes to walk away from a business that has been built over more than 20 years. He also points out to Jim that having a personal plan for “life after sale” is very important – as many people are defined by being an adviser – and what comes next can be more daunting than expected.

One of the biggest factors Jim is coming to realise is that his staff are vital for his business legacy to continue, and for Jim to access the remaining 30 per cent of his “rise and fall” earn out clause. He is seeing that formal training and handover are crucial, and it will be interesting to see what he puts in place after his meetings with the experts Robbie is sending him to.

As Sam and Jim continue their individual journeys, one thing is clear – experience counts. Barry and Robbie have been more than generous with their wisdom and advice. I also encourage other experienced advisers and accountants to share their wisdom with the No More Practice community – to help move our industry forward, without forgetting the lessons of the past.

You can follow Vanessa on Twitter: @ceovanessa

There are four key considerations for practice owners in preparing their businesses for sale and making them attractive to potential buyers

A key part of my role in No More Practice 4 involves helping advise Jim Taggart on the process of maximising his earn-out in selling his practice. Jim has built his business over up over many years to become a well-established practice, and there were a number of things that made his business attractive to Austbrokers.

Potential is the first key. If I was looking at buying into a business, the first thing I’d look for is the potential; I would be asking myself: “Has this business got the potential to provide growth and deliver what I’d be looking for in terms of the value of this asset?” If your business has no potential, why would anyone buy it?

Once you can see a business has potential, then it’s important to have a look at the business itself. Again, Jim had a sound business in this regard. So the systems, the processes and everything that it takes to run that business need to be solid, strong and sustainable. A business without systems and processes is going to be nightmare for any buyer to run.

The third key is the staff. Jim is a people person with both clients and staff, and some of his key advisers have been with him a very long time. So if I was looking at buying a business I would want to look at the staff, understand their roles and be clear on their ongoing commitment and engagement in terms of keeping that business and its client base going.

The fourth and final point is the financials. If the above three points check out, then obviously you need to check out the financials and conduct a due diligence to make sure the figures stack up and match what a seller is presenting you with. Again, Jim was able to demonstrate he had a solid and financially healthy practice to Austbrokers.

These are the four main bases any potential buyer of your business will cover off, and it is essential that you are able to demonstrate transparently and robustly that your practice meets a potential buyer’s expectations in each of these areas.

Organic growth is one of the soundest growth strategies practices can pursue as a practice owner, adviser or accountant

A key part of my role in No More Practice 4 involves advising Sam Henderson on the best growth strategies for his successful SMSF advice practice. Organic growth is one of the soundest growth strategies practices can pursue as a practice owner, adviser or accountant. The best way to generate organic growth is to make sure you have happy clients as they will refer other people to you and build your new advisory client base.

Generally you have to ask people if they would like to refer you on to friends, family or others who might benefit as a result of your services, but you’re not going to get those referrals unless you are providing your existing clients with good service.

Another way of generating organic growth for your practice is through providing more services to existing clients. For example, most people in the market just provided investment advice when we started Count. We were probably one of the first firms that incorporated loans into our advice, because we saw the need to look after both sides of the balance sheet you might say.

Not everybody has money to invest, but most people start with a loan so this was a natural area to expand into for us in looking after this service for clients. There are many other services you can provide for clients to make sure you become the “one stop shop” for your clients. We call this entanglement, so the more good services you are able to provide to clients, the less likely they are to leave you and the more revenue you generate from existing clients.

For example, in the accounting space, you can look after clients’ tax returns, their accounts, self-managed superannuation, their home loan, business loans, insurance and so on. Even if you’re under the pump at a busy time of the year and a bit slow in getting their accounts done, the more services that you provide to a client makes it harder for them to leave you. So entanglement is not only a great organic growth strategy but also assists significantly in client retention.

Now of course you have to be competent and professional in delivering those services in the first place if you are to succeed in providing clients with a greater range of advice. So the one important caveat here is that you can’t abuse this and provide clients with poor service once you have increased the number of services you provide to them. But if you do a good job you’ll never lose that client because it will be too hard for them to find anybody else like you – when you put your clients out of reach of your competition you have a great business others will want to buy.

Successful practices of the future will adopt one of two business models and need to be very clear about what it is they do

I believe the practices of the future will have business models that are corporatised and multi-disciplined, or niche specialised and very fully priced. In both instances practices need to be very clear about what it is they do.

In No More Practice 4, Sam Henderson is on a journey to grow his SMSF practice in the most effective, efficient way possible. A key part of my advice to him is to consider corporatising his business model – something that many practices can benefit from with the right advice and support.

When corporatising a business model, the number one thing a practice principal needs to understand is the role that they play. At Securitor, we believe that we have relationships with four key individuals within a firm: the adviser, the CEO, the business owner and for those who run their own AFSL, the responsible manager.

For the practice principal, there are a number of key considerations. They need to determine whether they are operating as a:

• Adviser, in which case they have the technical competence and expertise and are face-to-face with clients and prospects every day
• CEO, in which case they’re focused on the people, systems and processes, clients and financials
• Business owner, in which case they’re concerned with return on capital invested – either to grow their business now, or to trigger a liquidity event sometime in the future and also risk management;
• Responsible manager, in which case they are focused on the responsibility of ensuring the organisational competence of their business and managing the associated risks with running their own licence.

It is important that the practice principal be clear on their role, so they can decide where to focus and allocate their time to each of these roles as required in going about their day. In doing so, this will improve the outcomes for the business through clarifying each of these individual areas and also make the processes in your business much more efficient.

Finding your niche

The second business model for successful practices of the future is to be niche specialised and very fully priced. I actually don’t think that it’s all that difficult to find a niche. You can be geographically specific, specific around education type, or specific around demographic split in your business.

For example, we’ve got a number of practices that focus mainly on legal medicos, while we have other practices which focus mainly on opportunities in the accounting space and the small to medium enterprise businesses that service that sector.

The reason for establishing these particular niches is not necessarily because people go looking for these sorts of clients, but rather advisers naturally gravitate towards people who they are familiar and comfortable with – and better able to build rapport with and service.

So if there’s one tip around finding a niche I would say it’s actually to trust your gut instincts about the people that you gravitate to in your personal life. Trust your instincts about the people that you find you connect with early in your career, and build a business out of this. Whether it be based on geography, age, demographics or a specific piece of advice, if you trust your instincts you will intuitively know how to find your niche.

Fully delivering on your client value proposition to your existing client base can be a very fruitful exercise for both the adviser and client

While competition for good clients is on the increase, there is still plenty of scope for advisers to communicate and further reinforce the true product they are selling: the product of their advice. This concept still does not resonate with some clients, so it comes down to making sure your client value proposition is clear.

Once a client really understands what they’re buying, which is a relationship that can help them with specific financial strategies to meet certain lifestyle and other needs – whether it be buying a first house, paying off the mortgage, protecting assets with insurance or maximising superannuation installments – we need to do more to not only sell the benefits of advice, but also work out which products meet the sweeter services that underpin those strategies an adviser delivers.

Too often, advisers in the current market are all too focused on trying to attract high net worth clients because they are a good target market. But more often than not, many advice businesses started out by meeting a particular client need.

The client has a specific itch in that they want something solved, so they want to build a relationship with an adviser and trust them before they take up a full financial service offering from an adviser. It could be just making sure their general insurance is in place, or ensuring that their home loan is correct before moving into a full strategic plan around what strategies are available for their wealth maximisation.

So make sure your client value proposition is clear and that you are fully delivering on this your existing client base. This should be your first point of call in increasing the share of wallet from clients and is often a very fruitful exercise for both the adviser and client.

While the accountants’ exemption in relation to SMSFs will formally be removed in June 2016, accountants can apply for their own license from June 2013. This license allows for advice in relation to SMSFs as well as broader class of product advice or strategic advice around other financial products, such as equities, managed funds and insurance.

In terms of class of product or strategic advice, this means accountants can advise clients, for example, on how much insurance they need, whether this needs to be held inside or outside the super fund, or different types of insurance. However, they are not able to talk about specific financial products.

Effectively the license accountants can apply for is an Australian Financial Services Licensee (AFSL), but it is limited in terms of scope of advice that can actually be provided. There are some concessions to a traditional license, including; recognition of organizational competence when holding a public certificate and no financial audit requirement when not holding client funds. The alternative to getting a license is to become an authorised representative of another licensee.

The implementation timeframe runs from July 2013 through to 2016, and this lengthy transition period has been given for a reason as there are a number of things accountants will need to do in order to comply with the new regime. We believe there is a three stage process that should be followed that allows accountants implement the changes while continuing to run their existing business.

Firstly, accountants need to get themselves ready; specifically this involves undertaking any necessary education. Secondly, they need to get their businesses ready. This means implementing the right advice process within their practices, including the training of the relevant staff. Finally, they need to start delivering financial advice to their clients, including providing recommendations in an appropriate Statement of Advice.

In my next blog, I will discuss the pros and cons of becoming the holder of a limited AFSL or authorised representative.

Practice owners will need to re-examine their revenue models and point of differentiation in a post-FoFA world

The Future of Financial Advice (FoFA) reforms present the advice profession with a significant number of challenges. One of the most obvious challenges for the advice industry relates to traditional revenue models.

Post FOFA, financial advice needs to position itself as the product. Unfortunately we have grown up in a world where the goal is to put clients into an investment product or put them into a platform. The real leap for the industry will be to start costing and pricing advice without this goal in mind. Can you put a cost on specialist or differentiated advice that you can deliver to clients, so that they will pay for it?

This is going to be a challenge, because obviously customers aren’t used to paying for nonsubsidised advice, and it does cost money to actually produce this kind of advice.

If the industry really wants to change, it needs to progress its advice models and the subsequent revenue models that underpin these. Investment strategies need to be practical, from retaining Centrelink benefits through to helping with self-managed super funds – strategies that can actually help people not just save money with tax benefits but also accumulate wealth quicker. There’s a price for that and certainly that’s where advice needs to focus as those are legitimate revenue streams.

There are other opportunities in the post-retirement world as well as possible solutions for consumers en masse around savings and superannuation, and I think managed funds can still play a valuable role in helping accumulate wealth here.

The important thing for business owners here is to think about what it is that you can deliver that’s different. In a post-FoFA world, clients will look for something different. If you service high end clients then think about what it is that you can offer that is different as far as service, but if you want to stay in the mass market then you need to deliver advice in the most cost-effective way.

This season of No More Practice presents potential sellers and buyers with a number of practical and valuable lessons

Filming this season of No More Practice has been a fascinating process. Having two very different characters to follow in Jim Taggart and Sam Henderson has meant we have been exposed to the assessment of three of the biggest dealer groups when looking at growth strategies for practices as well as sales and earn outs.

Interestingly enough, while numbers are always important, it has been the emotional and people side of business that has garnered much comment and questioning from our judges.

In this episode will you will see CBA Wealth Management Advice’s Marianne Perkovic, Securitor & Licensee Select’s Matt Englund and Genesys Wealth Advisers’ Steve Davison question firstly Sam about his growth plans, and then Jim around his sale.

For Sam, the judges were extremely interested in his lifestyle aspirations and what role he wanted to play in the business moving forward. It seems that what most concerned the judging panel was the role Sam as the head of the business was to play, and he how he intended to drive growth in this role.

Strategy for Sam is incredibly important moving forward to capitalise on the strong growth his business is already experiencing. It seems the old adage is true that you buy people when you buy a business, and our judges questioning really demonstrated the importance of the role of the owner in the future of the business.

The judges also questioned Sam’s pricing strategy and whether or not an ambitious EBIT of 60 per cent was sustainable or even achievable. It seems the external environment and sensitivity to the broader market on fees is another factor when the big end of town assesses strategy and pricing.

For Jim the judges were questioning two things in particular – his communication and training of staff to get them ready for life post-sale; and what Jim had plans for next.

Obviously in any earn out situation, keeping staff is extremely important to maintain the value and continuity of the business. The judges wanted to know what training Jim was giving them, and to get an understanding of whether or not Jim was stepping back in the 15 months to earn out, and letting the staff take the primary responsibility for clients.

The judges emphasised to Jim how important a succession training plan is when a practice is changing hands in order to minimise key person dependency.

They also questioned Jim around his plans after his earn out period, and asked him what the next phase of his life involved after the sale had been achieved. It seems the judges believed this mindset shift would help Jim successfully make the transition.

For anyone in growth or sale/transition mode, it is fascinating to be part of the judging session for Sam and Jim – because at some point it will be you who is being judged. I hope the lessons learned from No More Practice help you on that day.

If you are looking at expanding into SMSFs, take the No More Practice poll on the right to have your say about who should own SMSF advice: accountants, advisers, specialists or integrated firms.

You can follow Vanessa on Twitter: @ceovanessa

Sam Henderson is on a journey to grow an already thriving SMSF practice, and there are many lessons that advisers can learn from his journey through No More Practice

With the rollout of No More Practice 4 starting this week, you will get to meet Sam Henderson – a Sydney-based advisor who has a financial advice practice predominately focused on high net worth SMSF clients.

Sam has an excellent business, and with more than $3 million in turnover and a goal of 20 per cent growth each year, he is well on the way to being able to capitalise on the continued growth of the SMSF market.

His dilemma, however, as you will find out, is exactly how to grow this opportunity. It seems Sam is at a crossroads as to how to accomplish this. Does he acquire more clients via acquisition? Does he franchise his existing offering? Does he grow organically? These are the major choices facing Sam, and you get to experience his learning and decision-making process by following the show.

We are hearing from many of you at the moment about SMSFs – advisers, accountants and even brokers. While many of you already have SMSFs incorporated in your practices, there is a significant portion that have not. This is why we are working with SPAA to create an educational program to help you make the decision as to whether SMSFs are the right opportunity for you.

Not all practices should go into SMSFs. It is not the only growth option available, and requires a certain type of client with a higher balance to really make SMSFs a viable option. However there are many practices that already have clients who could go into an SMSF, who are just not aware of the opportunity they present.

For those of you who are considering a move into SMSFs, look out for our course with SPAA launching in April to help you assess whether SMSFs are for you.

In the meantime, watch Sam Henderson closely in his journey through No More Practice. He is in the crucial phase of further growing an already successful practice: where he goes from here and the choices he makes will be fascinating live education for us all.

You can follow Vanessa on Twitter: @ceovanessa

There are a number of steps for advisers in selling a parcel of clients and ultimately realising the best price from a buyer

A key part of my journey in No More Practice involves selling a parcel of clients so I can consolidate operations, focus on key clients and ultimately improve the value of my business.

The first step in selling a parcel of clients is having a clear understanding of client segmentation and being able to provide the right service to the right clients at the right time. The clients that are paying you more obviously deserve better service because they’re contributing more to your business and profitability.

We hear a lot about the 80/20 rule when it comes to clients and revenues. However, I don’t believe in this principle because if 20 per cent of your clients are providing you with 80 per cent of your revenue, then you should be getting rid of 80 per cent of your client base and focusing on that 20 per cent.

So if you have a segment of clients that do not fit your value proposition, one option is to sell that book of clients. If you are part of a large dealer group, they should be your first port of call when it comes to selling a parcel of clients. After advising them that you are looking to sell a parcel of clients, they will have a network of other practices that could come forward and take that book off your hands, particularly if those clients are on a similar platform, which makes the process much easier for those buyers.

However, if you are not part of a large dealer group, I would strongly encourage advisers to use a broker that specialises in financial planning. Such brokers will have a database of existing businesses looking to buy practices or books of clients.

In either case, if you want to get the best price for that parcel, buyers want continuity. They want to make sure that there’s a service offering in place in relation to those clients. They want to make sure that the clients are engaged, profitable and understand the transition process as well. So generally, they’d want the key advisers as part of the deal. They want to maintain that relationship because that’s what they’re buying – they’re buying a relationship and it can be a really tricky thing to sell.

You can’t just sell a relationship. I still get clients who have been sold in previous deals who are ringing me and saying: “Hey Sam, we signed up with you, not with the people that you’ve sold to?” That remains your challenge because clients sometimes want the adviser that they signed up with, not necessarily someone who you might sell them off to. If you love being engaged with clients as I do, then selling a relationship is probably the toughest thing you might go through in this process.

There are a number of things practice owners should do to ensure their clients are looked after through the process of selling their practice

A key part of my journey in No More Practice involves maximising my earn-out in the process of selling my practice. Having built the business over many years and established close relationships with many clients, one of the most challenging aspects of this journey for me to-date has been communicating the sale to these clients and keeping them engaged. However, I have found there are a number of things that practice owners should do to ensure their clients are looked after through the process of selling their practice.

For those who will continue to stay in the business after the sale, the most important thing you can do is position your clients for life post-sale. So stay in regular contact with them and ask them how they’re going.

Phone is the best way to do this; I certainly wouldn’t do it initially by emails. I think emails can be a cop out in terms of communication – they justify you attempting to do something but they really won’t give you the best solution that you’re looking for, especially when it comes to meaningful client communication. We live in a world that still requires us to eyeball people. In my mind, this is critical to the success of any ongoing client relationships, and if there’s something wrong you should let the client tell you that.

Depending on the relationship, it’s critical that you communicate a change of ownership to your clients face-to-face. So organise a time to drop in and ask them how they’re going and how things are in their life – these are the important things that helped you build the relationship in the first place. So you need to cushion the impact of the change for your clients.

Another key to sustaining client engagement through a sale is your staff. You need to maintain staff morale and communicate with them through the sale for them to be engaged with the business and its clients.

One thing that has helped us is that we have been genuine in the decisions that we’ve made. The decision to tell staff that the practice was being sold was not an easy one, but it was a necessary discussion and I explained the rationale for selling the business and I also asked them for their blessing and support. I asked them if they would please continue to support me over the coming months and years in their own way, and I think we have been fortunate in that our people really love coming to work and in personally helping our clients. So this has not only contributed to client retention but also staff retention.

There are four key soft skills which are critical to engaging clients and adding value to your business

Like many advisers, I entered the profession with the desire to help people. I thought that my supreme technical skills would be the most important piece of the puzzle however I was wrong. Experience has taught me that the main value I add to my clients and my business is the ability to engage with clients.

A recent client survey conducted by our practice proved without doubt that they most valued our approachability; communication; accessibility and honesty. Whilst technical competence is a given and has helped me build a successful business, the soft skills required to engage with clients (and therefore acquire and retain them) are critical.

Here are four tips for successful client engagement:

1. Be a real person. I remember the first meeting I had with a client. I was so nervous it was ridiculous. I knew he was thinking about retirement so I made sure I was up to date with the latest super rules, Centrelink thresholds, tax rates and so on. I walked into the meeting armed with reference materials, text books and a calculator, prepared to impress with my superior knowledge. Needless to say, the meeting was a disaster as I was too busy trying to prove my worth and impress with my knowledge. Nowadays, there is rarely a calculator in sight, let alone a text book. I find it much easier to be a real person when I’m listening and interacting with my client (or potential client). My best clients are those who don’t mind having a laugh with me and don’t mind if I make a mistake here and there. That’s what real people do.
2. Be a communicator. Apart from being the most effective way of communicating, speaking to my clients in person or over the phone is also how I am able to understand their needs better. Email can be quick and efficient and to the point, but I don’t get to hear or see what is really going on in my client’s life. If I can understand my clients better, I can provide them with better advice and further build the client relationship.
3. Be accessible. My practice has a clear value proposition that if a client needs to speak to me I am available. If not immediately, then I or my staff will be in touch that day. Quick response to emails is also a priority. I may not be able to answer the question or solve the problem but what my clients value is the fact I’ve acknowledged their concern and will have it resolved within a known timeframe. I’ve had this approach from the very beginning and very rarely has it been abused.
4. Be honest – hard truths. One of the most difficult tasks in my role as an adviser is telling a client that they will not be able to achieve their goals. As hard as it is, this is what I am being paid to do and it is appreciated by my clients (eventually). When the situation is known, it allows them and me to re-evaluate strategies, timeframes and goals and get back on track. It also shows them that I am working for them all the time and not only when things are easy.

Our profession and my business is built around people and by showing my clients that I care about their situation and their lives, they are more engaged with me and my practice. This has been a core element in the growth of my business and why my clients have remained with me and continue to refer.

In working with Business Health to bring the new Business Valuator to market, and speaking to our arena of experts, one thing has become abundantly clear; while you can get an indicative value of what your practice may be worth based on current revenue and profit, that value may not translate into a sale that matches your desired outcome.

The reasons for this can be varied, but usually can be traced down to one area of the business – the back office.

While it seems common sense to say you should keep your business ‘ready for sale’ at all times, reality can often be very different. Looking after clients, recruiting and keeping staff, managing compliance risk and keeping up to date with legislation means the average wealth advice professional does not have a whole lot of time for the business of being in business.

This means things like database management, detailed records on each client, and legal agreements or the way partnerships or equity arrangements are made are often left for ‘later’.

However, this later can have an effect of between 20 and 40% of the value of your practice, depending on what things have been left in what state.

Often by the time a practice owner gets around to selling, these problems are so compounded it can put a sale back for years, or mean the price that the practice could have attracted could never be achieved.

Rod Bertino, the principal of Business Health has said they have ‘seen it all’ over the years. He often fields phone calls from practice owners who are disappointed with the realistic value Business Health puts on their practice after doing a thorough review.

“Everyone thinks their business is worth top dollar’ says Rod, who goes onto explain that key value drivers in the business are often ignored as practice owners go about the day to day business of keeping the doors open.

Expert broker Steve Prendeville, who advises Jim Taggart in series 4 of No More Practice, says the best prepared businesses sell for the best prices. And it is never too early to start.

Even if you have no intention of selling for the next 10 years, having a health check for your practice can make you money. Understanding what your weaknesses are can end up becoming your biggest strength.

We are happy to get you on the first part of your journey, by offering you the valuator for free.

May the information help you prosper.

You can follow Vanessa on Twitter: @ceovanessa

Practice owners can improve the value of their businesses by following 10 steps to reduce principal dependency

In my last blog, I looked at why clients rate the business relationship they have with their adviser above all else. While this depth of relationship is a true business asset, it can be a two-edged sword in that it increases principal dependency when it comes to selling a practice.

While such key person dependencies can never be eliminated, there are some practical steps that can be taken to manage and mitigate this business risk:

1. Ensure you introduce all of your key staff to your clients. If your team is one of your greatest assets, make sure they are not your practice’s best kept secret.

2. Continually promote your support team. Publish their names and photos on your website, arm them with business cards, have them speak at your client seminars and develop a “who’s who in the zoo” contact flyer that you can include in your client induction material.

3. Make sure you are not the problem. Be disciplined and immediately delegate all administration calls/queries to the appropriate member of your team. Don’t get involved unless there is a problem and delegate the $20 an hour tasks to someone else – your time is better invested elsewhere.

4. Wherever possible, conduct all your client facing appointments on your premises. Make a point of involving your key support staff in these meetings and take clients and prospects on a “guided tour” of your office to showcase the capacity of your team.

5. Be mindful of the terminology you use. Refer to your business, your practice, your firm and your team. Always “we” and never “I”.

6. Proactively manage any personnel changes. While it is a fact of life that people move on, don’t let the first your clients hear about it be when they ring and ask to speak to someone who is no longer with you. Make sure you put a plan in place to proactively manage the transfer of client relationships.

7. Find reasons for your key support staff to regularly speak with your clients. Supplement your face-to-face contact with a proactive client communication program that includes all of the key members of your team. All communication/contact does not have to come from you.

8. Channel all initial client enquiries through your support team. Encourage them not to put calls straight through to you and always ask “can I help” or “may I ask what it was regarding?”

9. While reducing principal dependency delivers obvious upside for your practice, in all your discussions with your clients, reinforce the benefits for them. Continually explain to me why I am better off dealing with your team and not solely you.

10. Don’t forget your referral partners and centres of influence. While you will need to handle these relationships a little differently, it is just as important that your alliance partners are comfortable and confident dealing with anyone in your practice.

And finally, while we are very mindful of the old adage “lies, damned lies and statistics”, perhaps the last word should go to the numbers themselves. While it is now universally acknowledged that principal dependent businesses have a much lower capital value, our HealthCheck data also shows that those practices that have an effective succession plan (which of course includes identifying and addressing any key person dependencies) deliver 141 per cent more profit per principal than those who have don’t. A return worth the investment on your time and effort?

There is a guaranteed way to help uncover client needs and deliver innovative new ways of solving client problems

Expanding into new markets is a common way in which practices can generate new lines of revenue and diversify their client base. Whether you are aiming to provide new services to existing clients, or existing services to new clients, I have found that there is a three-step process can assist you in developing new markets:

1. Solve a problem (‘find a need and fill it’). You probably use velcro – it’s the great invention that resolves issues with laces, buttons and similar annoyances. Your handheld phone and electronic notepad elegantly simplify issues that clutter daily life. All clients for financial services have issues that need to be fixed, solved, made good; in some instances they can articulate exactly what they need and in others they don’t yet know. So how do you find out? We’ll come to that in a moment.

2. Define the pleasure your solution brings (clarify and emphasise the benefit). Once you have created a solution to a problem, define it by giving it a name. When most people vacuum their carpets, they Hoover them. When you look something up on the web, you Google it. In short, a named solution has value – not just to the clients who use it, but also to the practitioner who creates it.

3. Make a promise about your solution (and how you deliver it). Make all clients aware that you stand behind the solution you bring and the pleasure it delivers. The Queensland Tourist board promises ‘Beautiful one day. Perfect the next.’ One of marketing’s best promises – and its most effective – is ‘Satisfaction guaranteed, or your money back’. When you see the word ‘guarantee’, you tend to feel confident about the service.

Innovative ways of solving client problems takes you into a new zone of business and, notwithstanding the initial stages of acclimatising, it doesn’t take long to become comfortable in servicing it, especially when clients express their pleasure and then pay you for delivering it.

If you feel inclined to follow these ideas up, here’s a guaranteed way to uncover client needs. I’m giving you two questions to ask that never appear on any standard fact-find (I checked). The first is this: “If you had a magic wand, and you wanted to fix a niggling issue in relation to your overall financial situation, what would you wish for?” And the second question is: “Is there anything in relation to your financial or family affairs that keeps you awake at night?”

Ask enough clients, and you listen very carefully to the answers you receive, and you’ll hear so many ideas for problems to solve, you won’t be able to keep up. Judicious pruning will lead to at least one new market within which you will feel so comfortable you’ll wonder why you never thought of doing this before.

Try it. I guarantee (that word again) it will work for you.

Trustees should get ready for the possibility of more hip pocket pain with a new administrative penalty regime for SMSFs under the Stronger Super amendments

Recently the Australian Taxation Office (ATO) had shown a slight softening in its stance towards some SMSF trustee errors mainly focusing on breaches of the contributions caps.

But just as in life regulation of the sector has to have a balance meaning one concession will lead to a hardening up of procedure somewhere else. In this instance the adverse item has manifested itself in the form of harsher administrative penalties.

To be fair the tougher regime has not been sprung upon the sector overnight. The birth of the new parameters came from the exposure draft Tax Laws Amendment (Stronger Super SMSF) Bill 2012 which has had the required feedback from interested parties.

Administrative penalties have been referred to as “traffic cop” penalties by recognised industry professionals and it’s a pretty good description of what they really are. Just like general members of the public get allocated demerit points on their driver’s licenses for certain traffic infringements SMSF trustees get slugged with penalty units by the ATO for administrative contraventions under the Superannuation Industry Supervision (SIS) Act.

In total there are 17 administrative penalties the new legislation has proposed covering a range of SIS Act breaches. An example would be the contravention of an operating standard such as paying a pension inappropriately, accepting contributions incorrectly, and not preparing the fund’s annual accounts. If a trustee falls foul of these regulations the ATO can issue them with a 20 penalty unit fine straight away.

Another example would be breaching the rules governing financial assistance to fund members or relatives. In these instances the ATO can issue a 60 penalty unit fine.

As you probably suspected the penalty units have no significance in isolation but have a monetary amount attached to them and it is here where the government decided to up the ante in its 2012 Mid-Year Economic and Fiscal Outlook. Previously one penalty unit was worth $110 for an individual and $550 for a corporation.

The new laws will see these bumped up to $170 per unit for an individual and $850 per unit for a corporation. It translates to a 55 and 35 per cent increase respectively which is pretty steep in anyone’s language. Consequently an individual trustee who breaches an operating standard under the amended rules will soon face a fine of $3400 and a corporation in the same predicament will receive a fine of $17,000.

About the only positive note is the dollar amounts associated with the penalty units will not be indexed to the consumer price index (CPI).

A final imposition is these fines cannot be paid via the fund’s assets and instead have to be paid from the personal resources of the trustee. Apart from issuing penalty units under the new bill the ATO also has the ability to instruct trustees to fix The contraventions in question or direct trustees to undertake a formal education process that will clarify their legal obligations.

So trustees should get ready for more hip pocket pain in the event of SIS Act and SIS Regulation contraventions come 1 July 2013, the proposed start date of the changes.

Darin Tyson-Chan is editor of self managed super, a new publication dedicated to the SMSF practitioner. If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au

FOFA means the traditional emphasis on placing institutional financial products is about to go. It will be replaced by something better and more meaningful: a successful fee for service financial planning practice. One more profitable and more valuable than before, one more interesting and satisfying for you and your team, and one that positively improves your clients’ lives.

The key to developing this successful fee-for-service financial planning practice is to first provide the services. Don’t just refer your clients off to big institutions. Provide the services yourself. You will be your clients’ primary adviser. You will be their go-to person, their first port of call on money matters, their trusted adviser.

Your statements of advice will be concept based. They will cover business plans, long-term retirement strategies, tax planning, legal structures, asset protection techniques and inter-generational financial planning principles. They will include business advice, property advice, estate planning, SMSFs, direct shares, accounting services, and risk management advice (a much wider concept than risk insurances).

Your statements of advice will recommend different types of investments. Commissions are gone, so why would you only recommend managed funds? Managed funds shift profit away from you to big institutions. Why would you do that? Why wouldn’t you instead survey the broader range of investments and recommend industry super funds? Index funds? Direct property? Direct shares? SMSFs? Cheap life insurance via industry funds? Businesses as investments? Non-deductible debt reduction as an investment?

Your approved product list will be the investments your clients want, not the investments big institutions want.

Your statements of advice will be real client advices not product sales pitches. Your statements of advice will be concise, effective and to the point. No more than five or six pages, in line with ASIC’s SOA recommendations. Plain English writing will rule the day. Disclaimers and disclosures will be provided via links, and detail will be disclosed in separate documents.

The days of 80-page SOAs filled with of defensive drafting and compliance overkill will be gone forever. They aren’t needed any more. Your statements of advice will now be in your clients’ best interests.

Your statements of advice will be prepared in just an hour or two, making them affordable for your clients and profitable for you. Your statements of advice will be understood by your clients. Your clients will use your statements of advice to make informed decisions based on the information you provide to them. Your clients will value your advice.

Your statements of advice will be supported by regular client meetings and constant contact via websites, newsletters, blogs and social media. You will be in constant touch, letting clients know about trends and developments. Your goal will be to create and maintain a thriving long term practice, not maximise next month’s commission cheque. To do this you need happy and satisfied clients who value your services, who want to keep using you and want to refer their friends to you. Their timeframe will be thirty years, not thirty days, and your’s should be too.

The new cash flows from your new services will lift your profit, limit your business risk and create new value in your practice.

The demand for quality financial advice will increase dramatically as the population grows, becomes wealthier and ages. If you build it they will come. Your problem will be how to handle all the work.

A fee for service practice is a real financial planning practice. It will establish you as a true professional, more important to your clients than their solicitors and accountants. It will reward you intellectually, socially and financially and make a real difference to your clients’ lives.

Step one: start providing the services.

Out of the nine key service delivery areas covered in the Business Health CATScan survey, clients rate the business relationship they have with their adviser above all else. We  fully appreciate that, by the very nature of the work they do, extremely strong bonds develop between great advisers their clients. This depth of relationship is a true business asset and while such key person dependencies can never be eliminated, there are some practical steps that can be taken to manage and mitigate this business risk.

The recent Future Ready IV whitepaper, sponsored by Securitor and researched by Business Health, clearly highlights the perilous state of succession planning among practice principals. It found that less than one in three has adequately prepared their business for the transfer of ownership.

This risk becomes further magnified when we overlay the feedback from the 40,000 plus clients that have recently completed our CATScan client satisfaction survey. It found that 65 per cent of all clients would not be comfortable dealing with anyone else in the practice other than their current adviser. Given, in many firms, the practice owner is also the adviser to the key clients, it would appear principal dependency is very much alive and well in our profession.

While this may not have been a huge issue in the past, remember, the average age of practice principals is now 57. Many owners are starting to seriously consider how and when they will exit their business or perhaps wind back their day-to-day client facing activities and take on more of a strategic management/mentoring role within their practice.

If you feel that your practice may not thrive (or perhaps even struggle to survive) without you at the wheel, next week I will outline 10 suggestions on how to reduce principal dependency and improve the value of your practice.

Ahead of the launch of the fourth season of No More Practice, we will also be launching an innovative tool that can you help determine the value of your practice. Watch this space!

Risk insurances are an essential part of every financial planner’s skillset – or should be.

But they should only be a part of the skillset, not the whole skillset.

Many older financial planners started off working as risk advisers in the old AMP National Mutual days, and became very skilled at installing income continuance, life and trauma insurance policies with the largest possible sums insured and the largest possible premiums payable. Thankfully we have come a long way since then. There is more to financial planning than just selling risk insurance products.

These days, mitigating risk is less about selling product and more about making informed and sensible recommendations across a range of financial planning products and strategies. The client’s overall strategy is critical: and risk insurances are just a small part of this overall strategy.

Take the idea of encouraging a client’s partner back into the workforce to create a secure second family income, and using the extra cash flow to reduce non-deductible debt as a preferred investment strategy. Both strategies reduce risk, but neither get a mention in the traditionalist risk insurance training school.

I cannot see why they don’t: both ideas are a more effective long-term risk management strategy than forever upping the sums insured and upping the premiums.

The big risk in the risk insurance space is underinsurance. Most clients are underinsured. They know they are. But competing family budgets mean they cannot afford the higher premiums. Advisers slavishly recommend the sum insured figure generated by a computer model without appreciating the real world demands placed on mum and dad’s weekly budget. Mum and dad know they need more insurance. But where will the money come from?

The Dover SOA solution is simple: take the bull by the horns and tell the client they are underinsured. Explain that in a perfect world they would have more cover, but their budget means they cannot afford it. Write something like: “This underinsurance position has been discussed and, in summary, a compromise position has been adopted where you have chosen a reasonable sum insured but not the full amount we originally recommended.”

This simple SOA clause moves the risk of under-insurance from you back to your client.

It’s important to get the tax planning side of things right: life insurance inside a super fund normally makes the most sense and gets your clients the most after tax insurance bang for their after tax premium buck.

Why look only at traditional life office offerings? The cheapest way to get life insurance cover is via industry superannuation funds. It’s remarkably cheap, quick and simple and may be a godsend for a client who cannot otherwise arrange cover.

Why obsess about commissions? Why not rebate most or even all commissions back to your client and charge a simple time based fee instead? Put your clients’ best interests first and get them bigger and cheaper cover.

The clients who know you have reduced their risk exposure through these smart planning strategies, (ie cheap industry fund life insurance, a sensible “compromise” sum insured, tax efficacy and low, or even no, commissions) will also know you put their best interests first.

Your will have a client for 30 years, not just 30 days. Your clients will love it. They will know you are with them, and on their team as their trusted primary adviser – and not just someone selling insurance.

Time and again you hear the story of the plumber with the leaking tap, the accountant with tax problems – and, regrettably, I see firsthand the story of the financial planner who doesn’t plan.

Don’t get me wrong, these planners are marvellous at looking after their clients. The problem is that they are so busy planning for everyone else that the plan for their business never sees the light of day.

Now, I am not going to lecture about the virtues of business planning God forbid. What I will point out though is that financial planners often need to change dealer groups because of a lack of a plan.

However, as sure as the sun will come up tomorrow I will get at least one phone call a week from a financial planner wanting to change dealer groups because a business event has happened and it requires urgent action. It is most commonly a succession planning problem they’ve been ignoring and is now no longer ignorable or the lack of new clients to talk to is now at tipping point.

Business development managers for dealer groups out in the marketplace are able to position their expertise in issues such as these and presto, solutions are found, decisions are made and the move is on. Now, I am not criticising the fact that dealer groups offer this support as it is excellent and much needed. My concern is that a dealer group should be viewed as a service provider, a business enabler, even a business partner – but certainly not a business saviour.

I encourage all financial planners to review the aspect of their business which is keeping them awake at night, and look to resolve it before it becomes critical and drastic decisions need to be made.

Start by putting numero uno on the priority list and focus on planning for you and your business. Sometimes moving dealer groups will be the only viable option, however, in forward planning you can make sure you know what the other options are and give them proper consideration. In an ideal world you should only look to move dealer groups if you fall out of love, are not getting the attention you deserve or no longer share the same vision of the future.

As discussed last week, APES 230 is a proposed standard developed by The Accounting Professional and Ethical Standards Board (APESB). While the APESB recently announced that it will postpone the introduction of APES 230 to 1 July 2014, accountants and advisers impacted by the standard need to understand its far-reaching implications for how they conduct business.

Presuming everything has been pushed back a year, other things like asset-based fees and commissions on debt and insurance will all change based on progressive time periods. The point here is there are critical elements that you need to start thinking about now.

These critical elements are important for two key areas of accounting and advice. The first is if you have an integrated accounting and financial planning practice – and I would say that integrated practices include accountants and planners that are in joint ventures. The second is if you have accounting and planning centre of influence (COI) or referral arrangements.

For integrated practices and those in joint ventures, they need to: review the customer service proposition and fee structures to move away from asset-based fees; and implement an appropriate consent form in relation to insurance and debt. It should be noted that this also includes financial planning practices where an accountant has a controlling interest.

Accountants in referral arrangements will need to:

• undertake an appropriate due diligence process on their referral parties;
• assess the professional competence of their referral partner and assess their objectivity in relation to the advice;
• implement an appropriate referral agreement and maintain an ongoing monitoring process in relation to the agreement; and
• review the fee arrangements under this agreement.

Financial planners in referral arrangements with accountants will need to understand and deal with these issues to ensure that they can maintain the referral partnership.

In my next blog, I will discuss what the licensing arrangements that accountants and advisers need to be aware of.  

I have been lucky enough to get to know Barry Lambert as he plays the role of mentor in No More Practice – and his appearance in series 4 (starting in two weeks!) is more classic Barry giving great advice.

One of the biggest techniques for practice growth he talks about in the upcoming series is something he calls “entanglement”. The first rule of entanglement, according to Barry, is to conduct an assessment of the service you offer your client base today. In doing this assessment think from the perspective of your client’s ‘financial life’. What percentage of this are you are taking care of? Their insurance needs, or tax and accounting?

Barry believes that the way to build a long-term sustainable practice is to take care of the majority of your client’s financial life. Can you take care of their mortgage? Financing? Can you add accounting into your offering as an advice practice, and vice versa for accountants?

This more complete service offering to your clients is true entanglement – meaning a client gets so many of their financial needs met by you, it becomes impossible for them to think about leaving. It also means if your client is not happy, you are more likely to hear about it before it is too late to do anything to salvage the relationship.

The same principle has worked for banks – the more accounts, credit cards, mortgages, loans and other services the bank provides for you, the harder it is for you move to another bank. So why not learn from industry success stories like Barry Lambert? How you can make it impossible for clients to leave?

While a strategy like this cannot be implemented overnight, you can start the entanglement process immediately. Assess your product and service range. Then list the services that would be easiest to implement. Can you align with a mortgage broker? Move into SMSF advice?

No More Practice will be bringing you the best ideas and opportunities for business growth in 2013. We will be launching our master class interview series alongside the new show so you can learn what a range of experts say about building a practice via entanglement that has long-term, sustainable value.

Let me know what growth opportunities work best for you. Along the way, you could end up being the next star of our show!

You can follow Vanessa on Twitter: @ceovanessa

Few things are sure things in life they say – except perhaps, for death and taxes.

And in this case, for accountants and advisers, this one sure thing in life can actually be good news. Estate planning represents perhaps the biggest opportunity for accountants and advisers who already have an established client book.

Over the past few months we have been exploring the latest tools and techniques in the industry to make the process of estate planning more relevant to a younger audience; convenient to undertake for the advice professional and the end client, and more technology savvy. I am happy to say that for the first time in 40 years after undertaking this exercise, I am actually interested and engaged in my own estate planning.

There are apps, calculators and guides to get the consumer thinking actively about the importance of estate planning. The magic number here of course, is around 40, when many people have kids, mortgages and insurance.
But perhaps the biggest opportunity lies with baby boomers. For the first time ever, this cashed up generation has to think about wealth transfer to the next generation – and how they want their kids to engage with this.

In talking to advisers like Mark Bineham, managing director of Noall & Co, we discovered that much of the time it is the detail around this wealth transfer that is keeping the baby boomers awake at night. For example, parents may want to leave their wealth to their daughter, but make sure her new boyfriend – who they don’t approve of – does not see any of it. The new tools and technology around complex estate planning can help make this process easier for all involved.

I am happy to say No More Practice will be launching a dedicated education platform for our 16,000-strong community of accountants, advisers and brokers. We will be showcasing the best products in growth and succession planning for your practices. A big part of this will be estate planning and the latest tools and technology that go with it.

If you have an estate planning tool or other product that you think will help practices grow in this space, please contact us to tell us about it. We will also bring expert bloggers and storylines into No More Practice this year to help you capitalise on new approaches to estate planning and how it can significantly grow your business.

When you assess estate planning in your business, think about the age groups and how you would approach baby boomers versus generation X, and also assess the tools and pricing in your practice at present. I am confident the new tools to market can increase your revenue via efficiency and technology. A new way of thinking about an age-old problem might just be the growth strategy you need.

You can follow Vanessa on Twitter: @ceovanessa

Who do you love the most? Your children or AMP? Your spouse or BT?

Then why let big institutions get the profit from providing services to your clients? Why not provide these services yourself and let your family enjoy the extra profit and goodwill?

The key to developing a post-FOFA fee for service financial planning practice is to actually provide the services yourself and not refer them to a third party. One great way to do this is to recommend direct shares and not recommend managed funds.

Financial planners are trained to analyse investments. There is no reason why a competent financial planner cannot develop the knowledge to analyse direct shares. They are just another investment.

1. The Australian share market is heavily skewed to just a handful of large companies: if you are conversant with the top 50 Australian companies then you are conversant with most of the Australian share market.

How well do you know the top 50 Australian managed funds? It’s easier to be across the top 50 Australian shares than it is to be across the top 50 Australian managed funds. The information is more available and more current. Expert reports are easy to access and don’t cost much. And there are no boring managed fund PD days.

2. The company names mean something to your clients. BHP Billiton. Fosters. Telstra. Westpac. ANZ. NAB. Wesfarmers. Brambles. They resonate. They have meaning. They have familiarity. They connote stability, trust and reliability. Your clients know these companies. They have confidence in them. They know what they are invested in at any time. The digital age means your clients can track performance by the hour or even the minute.

3. Your clients can form their own views and opinions with your guidance and assistance. Let your clients control the portfolio. Don’t micromanage it. Meet regularly, at least half-yearly, with reports on each company, and any tweaks that may be needed, and make sure your advice is followed up promptly with a short-form SOA.

4. Don’t do managed discretionary accounts: they are an accident waiting to happen. Let your clients handle the specific transactions, don’t do it for them.

5. Integrate your advice with a tax efficient SMSF strategy, and handle the compliance and back office functions for your client. This creates new revenue sources and extra goodwill.

6. Perhaps consider a family trust, or even a private company: the company tax rules and the franking credit rules can combine to provide an even better tax planning result than a SMSF.

7. Limit the portfolio to no more than 12 companies, to make sure you do not revert to the mean.

8. There is no need for an expensive wrap service: E*Trade or CommSec provide all the service your clients need for just $19.95 a transaction (conditions apply). Your clients win again. Transparent and low costs go down well with clients.

9. Invest, don’t trade. Recommend shares be held for ten years or more. That’s how long it takes for real value to be achieved and it protects you from unexpected market drops and complaints.

10. Gain international exposure by including companies with overseas operations or significant export businesses. Gain industry exposure by concentrating on resource companies, or banks, or whatever suits your client best. Gain tax efficiency by selecting companies with high dividend yields and high franking credits.

Have fun in this interesting and rewarding space. And remember that if you don’t offer direct share advice to your clients someone else will.

The trouble with law is that there’s just too damn much of it. And lawyers are – often justifiably – criticised for making it even more complicated (and costly).

Start by owning the fact that you need to be well informed about financial services regulation so you can understand the implications of the advice you receive and what you need to do to implement it. And so you can be in charge – ideally to direct your lawyers as to what you want – and don’t want.

And, second, choose a lawyer who’ll serve you well.

What does such a lawyer look like?

• They’ll give you a fee estimate up front – and either stick to it or keep you informed along the way if they can’t.
• They’ll understand how you operate in practice and take your business and operational imperatives and constraints into account coming up with solutions.
• They’ll provide concise advice using words you can understand – not confuse you with legal jargon or quote meaningless case and legislation extracts.
• They’ll understand and know when to apply the spirit of the law as well as its technicalities – but know when a technical point is worth pursuing (and when it is not).
• They’ll always, always, always provide a conclusive opinion – if they can’t, they’ll clearly identify what needs to happen or what else they need to know to enable them to do so.
• And finally, their key objective will be answering your questions: “how does it apply to me” and “what do I need to do. They’ll give you a to-do list or tell you what practical, operational steps you need to take.

We like to call this approach “applied law”. Is that what you’re getting?

Here are five types to avoid …

1. Loophole lawyer: the loophole lawyer’s objective first and foremost will be to find a way to avoid the need to comply or to maintain the status quo even when change is inevitable. With scant regard to how risky this might be in practice, especially if you’ll be relying on a technicality or an obscure legal point.
2. Golden egg lawyer: their need to make an inhuman budget sees them spending your valuable dollars investigating every possible issue regardless of the level of risk to your business or the likelihood of occurrence, They’re also known as “rabbit lawyer” because of their habit of going down burrows – which as we all know, usually have dead ends.
3. Headmistress lawyers: they provide strict opinions on the application of the law, regardless of practicality or of your business, financial or operational complexity or constraints. They’ll find problems, not solutions – scaremongering!
4. Journalist lawyer: they believe their job is to tell you what the law says and let you work out how it applies. Not helpful.
5. Fence sitting lawyer: this species writes pages and pages of beautiful prose which they deliver to the client with pride, but do not reach a concluded view. You’re left to decide. You’ll know you’ve found one if you see the words “it’s a commercial decision for you”.

Hopefully this doesn’t remind you of any one you know …

2012 was a very successful year for females in our industry, with many women recognised for not only their skills as advisers but also as business owners. This was most evident through my experience as a finalist in the AFA Female in Advice Award for 2012 where I had the privilege of meeting many of these outstanding females.

While it is great to reflect on the year that was, it is now time to work hard and smart to pave the way for the year ahead. As a director and founder of a mature business, I know the key to having a great business and making it in the industry is exactly that … working hard and smart! So what are some of the key areas that we should all focus on at this time of year?

1. Firstly, in order to prepare and plan for the year we need to understand the existing and proposed regulatory framework that we will all operate within. Licensees will be in the process of fine-tuning their backroom and compliance support and we need to prepare our business for these changes too.

2. If you have a client value proposition, ask yourself is it still relevant moving forward? If you don’t have one, why not? The business next door may have one! It is a powerful business tool that paves the foundation of your business and clearly and concisely declares what you and your business are all about.

3. Service agreements should be reviewed to ensure they are appropriate in the new FOFA world, and part of this review should encompass whether or not there are services that you should remove or add to your offering. Are they easily manageable and reportable for opt-in?

4. With your client review process, are there areas or processes that could be refined and streamlined? Having a simple, solid and reliable review process will not only assist in creating a consistent client experience, but make it easier to track reviews and record the work you do for your clients as well as your annual fee disclosure statements that will be required.

5. When was the last time you reviewed your fees and fee structure? Do they remain appropriate, profitable and will your clients still see value moving forward? Transitioning existing clients to a new fee structure has its challenges, and takes time to plan and implement.

6. How engaged are your clients? When was the last time you surveyed them and asked their opinion of you, your business and your services? You might be surprised, and FoFA may expose your clients to move elsewhere if they aren’t satisfied.

7. Do you have the right team members for your practice to grow and for the changes ahead? Is the culture of the business where you want it to be? In my opinion, your biggest asset in your business is your team. They are the cogs and gears that work together to make the business work. Have you recently undertaken staff reviews? Is everyone happy, willing and motivated personally and business-wise? The momentum train starts within.

8. What marketing are you going to do? What has worked and what hasn’t in the past? What makes you different from other businesses? Take advantage of it!

9. When was the last time you reviewed your business plan? Do you have an operational plan? Documenting your plans, no matter on what level, makes it so much easier to measure the progress of your business, review your business and plan for the future.

10. If all of this sounds too hard or you are time-poor, have you considered a business coach or putting together an advisory board for your business? These can make a huge difference in developing and engineering your business for growth and change.

These are sound practices that all businesses should be doing now to stay relevant in the future.

The AFA is launching a new ‘Women in Business’ initiative this year which I have the pleasure and honor of heading this up and working with a group of professionals to develop a wonderful program that will support and assist women in our industry to grow their business, be relevant and become award winning and professional advice businesses.

At its simplest, the best interests’ duty prevents advisers furthering their own interests over those of the client when giving advice.

What does this mean in practice? Quite a lot. For example, according to the new RG 175:

• Clients must be given non-product-related solutions where appropriate, even if that means the client is less likely to need future advice, for example advice on debt reduction or Centrelink benefits.

• Advisers mustn’t recommend a product or a service to create revenue for themselves unless they can demonstrate additional benefits to the client. This applies to strategies or products and even to the services themselves. For example, they can’t recommend an unduly complex strategy that will require ongoing advice if the client is unlikely to seek ongoing advice or be able to afford it.

• Advisers can’t accept remuneration that would reasonably influence the financial product advice you give (unless it’s grandfathered).

• But even if the remuneration is grandfathered, the advice isn’t. For example if an adviser recommends a client continue to use a platform when other better solutions (which would not be grandfathered) are available for the client, this would be a breach of the best interests duty.

Almost all the examples in the new RG 175 use a scenario where advice other than a product recommendation is most suitable for the client. Surely this is ASIC sending very clear message that a pure product focus needs to be a thing of the past?

So what does this mean for asset-based fees? ASIC takes the view that asset-based fees incentivise advisers to recommend strategies and products that maximise the assets they manage for the client.

It feels a bit like the anti-smoking legislation. Smoking is not actually banned, but it’s becoming increasingly difficult to smoke anywhere. Just recently NSW banned smoking in places like transport stops and entrances to public buildings.

Advisers aren’t specifically banned from charging asset-based fees either – but if this is the only charging model you have, you’ll risk either falling foul of the Conflicts Priority Rule or not being adequately remunerated for your work.

If you’re not actually managing a client’s assets or you’re only managing small amount of them, an asset-based fee may not adequately remunerate you. You’ll need a fee structure that remunerates you for the work you do. So we think there’ll be a trend away from 100 per cent asset-based fee structures.

Of course, you can – and most advisers will – use asset based fees where they are appropriate. For example where you provide an ongoing service and manage the clients’ assets, asset based fees will be suitable and easier to administer.

But if the advice the client needs is not product-related – and ASIC has made it clear that the best interests’ duty requires advisers to provide non-product-related solutions where appropriate – other forms of charging will be required. It’s likely that advisers will have a menu of options. Many advisers do this already – indeed some have moved completely away from asset based fees.

So what should advisers be doing to prepare for the new world order?

1. Identify the conflicts inherent in the way you currently advise clients. You’re probably not the best person to do this as you’re likely to be confident that there aren’t any. So get some advice from someone outside your business who can shed new light on things – and who understands the way ASIC is approaching best interests.
2. Reconsider your fee structure. How will you charge clients who need advice but don’t want or need you to manage their assets?
3. Develop an engagement process and engagement letters that makes your service proposition and the client’s fee commitment clear from the minute the client walks in the door. You’ll be amazed at how much easier it will be to manage the financial aspects of your client relationships

This year is a momentous one for me. This is the year I turn 40. While typically images of midlife crisis might spring to mind, for me it is one of revelation. This is the year I realise my super balance is big enough to most likely have my own SMSF.

I don’t think I am alone in the realisation. All over Australia there are professionals in their 40s realising that they their super balances are significant. What many are not recognising is just what they can do with that.

With all the talk of SMSF being the next big opportunity for the industry, there are many issues that are being addressed with the current SMSF landscape. The costs of administering the fund; sufficient diversification of assets for the investor; and compliance are just a few.

However, one of the biggest challenges for SMSFs – the incredibly low awareness among the public of SMSFs and how to effectively use them – is also the biggest opportunity.

Our industry still has a way to go in being able to communicate effectively, simply and engagingly on products and services that are complex and technical in nature. And the best chance of increased awareness of and successful SMSF implementation strategies is going to come from advisers, accountants and to some extent brokers, who understand how to effectively use the vehicle and know how to identify which clients are right for this type of strategy.

If you already offer SMSF, I am sure you know how much a client needs to have in super before this becomes viable, and what it takes to administer the fund. But how much do you really know about your client’s needs?

Could it be that a fact finding session might give you a better picture of what clients who are currently in corporate or industry super plans, could become SMSF clients? As a business owner I find the advantages of buying your business premises, through a vehicle like an SMSF, extremely attractive. And the capital gains advantages of selling that property in retirement or pension phases are advantageous to say the least.

How many business owners are in your client base at the moment? Would they want to own their own building in the future? Could this fit with their wealth creation strategy?

It has never been more important to ask these types of questions, as Gen X becomes the first generation to have sizeable superannuation balances and another 20-30 years in the workforce.

This will most likely be the generation that see SMSF funds thrive. Now is the time for you to get ready to capitalise on this.

You can follow Vanessa on Twitter: @ceovanessa

Which one of your clients will not die?

So why aren’t you advising on estate planning? Estate planning and financial planners are a natural fit. The primacy theory requires you to become your client’s primary adviser, and one great way to get there is to guide your clients through the estate planning process to make ensure all is in order if they die prematurely.

Life insurance plays a part here: it’s the “instant estate”, and the sum insured is partly determined by how much wealth your client does not otherwise have. Your knowledge of your client’s financial profile, life story, and world view play a part too.

Estate planning is usually not that hard. Most clients’ needs are not complex, and the key lies more in being a good listener, and thinker, than a technical guru. You need your clients to open up, to let you know their most personal thoughts, and to trust you with all aspects of their financial planning including financial planning for death.

You need a sound relationship with a solicitor who will work with you on the documents and not compete to advise your client. Fees are important. If a solicitor wants $1,500 plus GST for a will creating a testamentary trust, then there is not much left for you. You need a solicitor with better prices. This solicitor will see you as the client, want a continuing relationship with you and charge a fee that leaves most of the profit with you, the primary adviser.

Dover advisers are charged $375 for a will creating a testamentary trust. This seems to be about the right price, and is acceptable to most clients.

Like most things, you need to know what you do not know, and when to refer your client to someone who does know. Never be afraid to refer a complex matter to someone who knows more about it than you do. Clients see it as a sign of competence and confidence, not a cop out. A referral shows you place their interests ahead of your own, which means they will trust you more than ever.

Some signals are second marriages, same sex relationships, disabled children, divorce or bankrupt prone children, complex business or investment arrangements, unusually large amounts of wealth, SMSFs, trusts or companies, or imminent death.

Business clients need business succession planning, or estate planning on steroids. Succession planning is more than buy/sell insurance arrangements. It needs a competent and trusted business adviser able to take the client through a complex process involving competing claims and competing agendas. You need skill, commonsense and diplomacy to take a client through a process like this and stay friends afterwards, and many financial planners thrive on the challenge.

Estate planning lends itself to fee for service payment arrangements, and is a beautiful fit for financial planners wanting to move from commission sales to a real adviser’s practice. You can learn more about estate planning for financial planners by downloading The Financial Planner as an Estate Planner from the Dover website.

And if you are not advising your clients on estate planning, who is?

When I start the year by telling you that the founder of Microsoft wants you to access reality PD, you may wonder where I am going with this one. I am however, telling you about the future of education and how you are going to be part of it.

The New York Times reported last year that the Bill & Melinda Gates Foundation had funded almost a million dollars for an education program called “reality professional development”. It was for the teaching industry in Boston, and was a nod to the changes in standards to the education system there where teachers are being graded on their students’ results.

Many teachers were finding they were isolated inside their own classrooms, and wanted to see what ‘best practice’ teaching looked like. Enter reality TV. By filming entertaining and high production value episodes of the best performing teachers discussing their techniques, all teachers can access the highest level of professional development training in their own time, after hours.

Sound familiar? All too often as a financial adviser, accountant, mortgage broker or business owner, we are so busy running things on a day-to-day basis: looking after our clients’ needs; making sure that compliance, HR and sales are being looked after; that we don’t have the time to improve our own skills; and examining and learning from others in the same profession.

This is why we created No More Practice – so you can see firsthand, in your own time, how practitioners face and deal with the challenges we all face in business today. From growing a business, franchising and offering new products, to succession planning, selling and staffing, this upcoming season of No More Practice is going to teach you a lot – by watching two incredibly dedicated business owners undertake their own journey.

Jim Taggart is a career financial adviser who has been in the industry for more than 25 years. No More Practice will follow Jim in the journey of selling his practice and maximising his earn-out.

Sam Henderson runs a successful practice in Sydney with a turnover of around $3 million. You will watch Sam face challenges in growing his business and expanding his SMSF client base while managing the demands of a young family.

We will be delivering these to your inbox on a Monday, while you will still receive your regular Reality Check email on a Thursday. Or, if you prefer, watch the show on Sky Business on the weekend in the comfort of your own home.

Either way, reality professional development is the future, and we are proud to be leading the charge for the financial services sector.

Happy learning!

All the best
Vanessa

You can follow Vanessa on Twitter: @ceovanessa

Since when was financial planning about financial products?

I recall a meeting with Steve some years ago. Steve was a 40-something surgeon whose oldest son was about to play his first game of under nines basketball. Steve lamented that he would probably never see him play a game: they were scheduled for just after school each Thursday, so how could he get ever get there?

Steve needed some serious reframing. What is really important? What is the purpose of work? What is the purpose of wealth? Time is too short to tell the full story so, in summary, Steve experienced his work-life-balance epiphany, got out his big red pen and booked his son into his diary, and his life, from that Thursday afternoon on. Steve never misses a game. Even better, he is now the coach, firmly locked into his growing son’s memory bank and the envy of every mother at the game.

I see Steve twice a year and he always reminds me of our first meeting, and proudly displays the latest team photo. He values the advice. It was worth more than money. And it showed I was on his team and was putting his interests first. I expect to one day be his son’s adviser too. I feel great because I have made a real difference to two lives.

Financial products are just a small part of what a financial planner does. Clients want to know how they are going. Clients want to know if they can do it better. Clients want to know if they are doing something wrong – in life, not just in finance.

Obviously your input has a financial orientation: financial planners are not psychologists. But financial advice should be leavened with life experience and common sense. I don’t believe a 35-year-old plumber client with a growing family is obsessed with superannuation retirement options, TRISSs and ETPs. I do believe he wants more family time, to save tax, to increase his income, to pay for the new bedroom, to upgrade the car and to get the family away to Surfers Paradise for two weeks at Christmas.

The pressure can be overwhelming. Your client needs someone with grey hair and life experience to guide him on his way. He is concerned about the here and now of today, not the then and if of a retirement half a lifetime away.

So, your role is to coach him, to show him how to achieve his life goals and make a better life for his family. Encourage your client to start his own business, to create and execute a great business plan to increase and diversify income, to install better tax planning, to make the new car more tax efficient, to grow the business with deductible debt and to manage cash flow to pay off the non-deductible home loan as fast as possible.

It’s easier to take time off if you know your business is doing well. Keep your client away from traps: make sure he has a good accountant and keeps his records impeccably. Make sure he does not have too much insurance, but is covered nicely if tragedy strikes. Encourage him into a SMSF, and use debt to buy a factory to grow the business even more. Make sure everything is as cost-efficient as possible, and control as many risks as possible.

Meet regularly to review progress. The most important question is “Are you happy?” Make sure your clients never miss a basketball game.

Since the government decided to slash the superannuation concessional contributions caps to $25,000 per year, numerous superannuation fund members have been in breach of this limit prompting the Australian Taxation Office (ATO) to issue them an excess contributions tax (ECT) liability notice.

And as a result of breaching the concessional cap some really unlucky souls have also breached the non-concession cap putting them in the firing line of a hefty ECT penalty as high as 93 per cent. And from the anecdotal evidence I’ve heard self-managed superannuation fund (SMSF) members have been hardest hit.

Faced with the disproportionate magnitude of this punishment many members have taken their case to the Administrative Appeals Tribunal (AAT) to have the ATO’s original assessment overturned.

In doing so, most have relied on having their predicament seen as “special circumstances” to allow the ATO the use of its discretionary powers to reallocate the contributions to be recognised in other relevant financial years. Unfortunately just about every one of these appeals has fallen on deaf ears.

But just when all looked lost, one significant development surfaced last year suggesting perhaps there has been and will be in future a slight softening in the ATO’s treatment of these matters.

This victory came via the AAT’s decision in Bornstein v Commissioner of Taxation.

In this case the member, who was a retail fund member, was a sole director of a company that made regular superannuation contributions in June of each year. However in 2007 the member was going to be overseas in late June and early July.

To clarify his situation as to when he had to make his company’s super contributions he referred to the ATO website to find there was a 28-day grace period for contributions to be accepted in relation to the 2006/07 financial year.

The member also tried to confirm with his accountant if the 28-day grace period applied or if the contribution had to be made before 1 July, 2007, a query to which it is unknown if he received a satisfactory reply.

The contribution was eventually made on 10 July, 2007 and a further contribution was made in June 2008. The ATO treated both contributions as being made in the 2007/08 year placing the member in breach of the contributions cap and up for an ECT liability.

The member subsequently appealed he had special circumstances as neither his accountant nor the ATO website had indicated the 28-day grace period only applied to SG contributions and not cases of ECT. As such he argued the ATO should for ECT purposes treat the 10 July contribution as pertaining to the previous financial year.

While the AAT ruled neither the advice from the member’s accountant nor the information on the ATO website constituted “special circumstances” the circumstances assessed together were enough to constitute “special circumstances”.

Furthermore in light of the “special circumstances” and the history the company had of making contributions in June of each year, the ATO should exercise its discretion and reallocate the contribution to the 2006/07 year.

While the decision flies in the face of previous rulings it represents a small glimmer of hope for SMSF members in particular, but all other superannuants as well that proper recourse against such harsh penalties may now be more readily attainable.

Darin Tyson-Chan is editor of self managed super, a new publication dedicated to the SMSF practitioner. If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au.

In our final edition of Reality Check for the year, I thought it good to reflect on what I learned from you, our community.

Every good business runs on analytics, and when I look at the numbers on No More Practice, from the show to the newsletter, they tell me a story.

Firstly, you are interested in growth for your business – no matter what the market conditions. Every time we have run a blog on an opportunity to grow through product innovation, building relationships with like-minded professionals or capitalising on new ways to increase your business value, you engage – in the thousands.

Feedback we have from the show is that you want even more examples of practice professionals growing their business – you want to see inside your peers’ business models and understand their challenges. I can’t wait until you meet Sam Henderson in series 4 next year.

You also want to hear it from the experts – mentors like Barry Lambert, judges such as Matt Englund and experts like Anne Fuchs all have a big following. You respect those who have an opinion, even if you don’t agree with it. You loved getting to know Barry Lambert better at our live event – his story was very inspirational. To see the recording, click here .

You also want more conversations around independence – what does it really mean, and what are the pros and cons of independence, in terms of licencing and dealer groups. You want to see our industry bodies working more closely together – this rated very highly at the live event and it was good to see a conversation was started between advice, super and SMSF (click here to view this)

Next year we are going to bring you more stories, case studies and even online learning from SMSF for accountants, advisors and brokers. Our most recent survey told me more than 30% of you believe SMSF is the biggest growth opportunity in the next five years and you want to know more.

You may have noticed SPAA have joined our marketplace and we will be joining forces with them to bring more content to life around SMSF and the opportunities it holds for your business.

We will also be bringing mortgage broking into the No More Practice community next year – with the MFAA mandating all brokers are to be licenced and newly titled ‘credit advisers’ the line between who is servicing the end client is blurring even further. We believe by bringing this important industry into the conversation we can help facilitate further growth for many of you.

Finally, I learned how our industry embraces new initiatives if they add value. Thank you so much for embracing us and making No More Practice part of your professional development. I promise we will keep delivering for you in 2013 and beyond.

Have a wonderful Christmas; see you again in the New Year.

Best wishes,

Vanessa

You can follow Vanessa on Twitter: @ceovanessa

There has been a general increase in the number of accountants getting into financial advice because it represents a natural extension of their service offering to clients.  Future regulatory changes, particularly the removal of the accountants’ licensing exemption, are likely to see this trend increase further.  I believe regulatory developments are a reflection of the blurring of lines between traditional accounting services and the provision of financial advisory services, leading to a convergence of the two industries in many ways.  The Future of Financial Advice (FoFA) amendments are moving advisers towards a model that is in many ways more closely aligned to the way in which accountants have traditionally engaged with their clients.  At the same time the removal of the accountants’ exemption, and the requirement for accountants providing SMSF advice to operate within a licensing regime, will bring accountants’ within the same regime as traditional financial advisers.

It makes sense for accountants to move into advice. It’s hard to think of anyone who doesn’t implicitly trust their accountant who is provided with all their financial information. A common scenario is that accountants will provide their small business clients, for example, with accounting and audit services. It is often the client who requests financial advice services as the next natural extension of these services.

Even though accounting firms may initially baulk at the idea of expanding their client offering to the provision of financial advice, it is the value they place on their client relationships, and the concern that they may go elsewhere for their advice needs, that prompts them into action. That’s often why businesses come to Count. What we find is that when accounting firms start up an advice business, a substantial number of financial advice clients come from the accounting side of the business. In other words, it’s an easy way for accountants to generate additional business from existing clients and provide a service that clients are really calling out for.

One area of opportunity is in relation to advice on SMSFs.  Under the new licensing regime that will replace the accountants’ exemption, accountants will be able to provide a wider range of advice than is currently allowed under the exemption – that is, they will be able to provide clients with advice on which product classes may be appropriate.  The most obvious question a client is likely to ask after receiving class of product advice is ‘what product should I invest in?’.  This is where having an ability to provide clients with a full financial advice offering becomes particularly valuable to both the accounting firm and their clients.

Anyone that has been close to the medico world will be familiar with the RACGP, RACS, RACPs and the list goes on.

These organisations are responsible for maintaining quality standards for clinical practice, education, training and research in Australia for medical professionals. They are also the conduit and aggregator for relevant product and service suppliers. For their members they are the ‘go to’ point for everything they need to deliver best possible patient outcomes in their own practice.

In a way, they are kind of like dealer groups. Say what? Well, everyone in the broader industry wants to see financial planning viewed as a profession, just like doctors. We have quite a way to go on this one however what we need to start doing is look to the medical profession and identify structural and cultural gaps that exist between us and start making changes to what we do and how we do it because we all know actions speak louder than words.

One good place to start would be dealer groups. The concept of specialising started in the medical profession and I have noticed that in the last 12 months there is a strong trend towards this operating model in the financial advice profession – retirement planning specialist, wealth protection specialist, SME specialist, SMSF specialist to name a few. Those advisers that have chosen this path of specialisation believe that in doing so they will be better placed to deliver on their promise to their client, that being to always deliver what is in their best interest.

As the inevitable shrinking of dealer group businesses happens as FoFA becomes reality, wouldn’t it make sense for dealer groups to take a leadership position and look to the medical professional bodies that play a similar role to them to see what they can emulate? These organisations supervise, educate and aggregate – just like dealer groups do.

In my opinion, moving to a dealer group specialisation model like the medical profession would be a great place to start. It would increase the likelihood that they deliver innovative, relevant and best-of-breed education, training, advice tools, software, products and services to advisers operating in that segment of the market (I would have thought it would be a powerful recruitment tool as well).

I mean when you sit down, reflect and read the tea leaves how can best of breed dealer groups survive post FoFA any other way? The new operating environment will validate believers in Darwinist theory and to survive the next three years and beyond trying to be everything to everyone will become too hard, too expensive and not nearly professional or smart enough.

The first step in creating a fee-for-service financial planning practice is to provide the service. Don’t refer your clients off to competing institutions. Control the service provision function yourself.

Why give profit away? Why give goodwill away? SMSFs are a beautiful practice development opportunity. They are the perfect client-adviser integration tool, and they suit most clients if you understand them and the opportunities they create.

Clients want SMSFs. They want the control and security of their names on their investments, and knowing exactly where their money is all the time. Clients remember what happened to their superannuation balances in the GFC and they want to make sure it does not happen again. They want a conservative and safe way to invest their superannuation and to make sure it is there when needed in retirement.

SMSF suit most clients, from young couples just starting out to older, wealthier individuals with millions to invest.

Consider the strategy of a $100,000 SMSF 100 per cent invested in a CBA deposit. This has arguably the lowest risk of any superannuation strategy. Does it get any more conservative than a CBA deposit? The administration cost is well below 1 per cent, even 0.5 per cent, if the accountant is efficient: it takes less than two hours to prepare the accounts, tax returns and related documents for a SMSF invested in a bank deposit. The net return of about 3.5 per cent to 4 per cent beats the “capital stable” option for nearly every other superannuation alternative.

If you recommend a SMSF you have a client for the next 30 years, not just the next 30 days. This means you earn income for the next 30 years, not just the next 30 days, and your practice’s CGT free goodwill increases accordingly.

SMSFs create recurring annual business for financial planners. They are not one-off sales events. The financial planner advises on the set up of the fund, and the role it plays in the client’s on-going financial plans. Risk insurances are needed. As the SMSF grows and the investments diversify more regular and detailed investment advice is needed. The SMSFs are asset protected, and are an integral part of the long term retirement planning and estate planning processes.

The real beauty of an SMSF practice lies in bringing the SMSF administration and audit process under your roof. I know one financial planner who administers more than 200 SMSFs, at an average profit of $1,500 per SMSF per year. He charges each SMSF a fixed fee of $2,500 a year, and sub-contracts the accounting/audit/tax function at a fixed fee of $1,000 a year. That’s $300,000 extra net cash flow a year, and about $1,000,000 of CGT free goodwill.

What’s better, previously the 200 SMSFs had their own accountants, and each of them was competing with him for the advice work. Now his clients have a much better (ie lower price) service and he is the primary adviser, the person his clients trust with all aspects of their retirement planning and other financial planning needs.

He is the primary adviser. He provides the services, not some institution or other potential competitor, and he gets the fees and the associated goodwill. He has the personal satisfaction of being truly involved in his clients’ affairs and knowing he is providing excellent value and service.

This is what creating a real fee for service practice is all about.

In a step towards consumers having greater choice of advice, the new draft accountants’ licence has now been released by Bill Shorten Minister for Financial Services, open for consultation until 21 December.

Shorten is on a roll; only recently he enshrined the terms ‘financial adviser’ and ‘financial planner’ to only be used by qualified persons – a great step forward for the industry.

If the legislation goes though in its current form, accountants will be allowed to discuss with clients a limited range of financial services solutions. This includes self-managed super funds (like this has stopped them in the past), superannuation, securities (also standard practice), general insurance, simple managed investment schemes, basic deposit products and life insurance.

This last one will be interesting in light of APES 230, however, let’s stay with the program. All this means is that this new license is limited to advising a general background and limits the accountant from making a specific product solution.

This is a bit like a travel agent that can tell you travel broadens the mind, but stops short of suggesting where to go, or a motor mechanic telling you the internal workings of an internal combustible engine and the importance of oil, yet stops short of advising where to get it fixed if it’s broken.

Now this is a big step up from the current arrangement that has exempted accountants from even having the discussion, but like all draft legislation, the detail is required before any of us can make an informed decision as to “what does it mean to me?” and “what does it mean to my relationship with a panel of accountants to whom I have been advising their clients?”

Now is the time to revisit those accountants and review relationships, now that the accountant can have a more robust conversation with the client. It is logical that the client may say “well that all makes common sense to me; who do you recommend I talk to implement this advice?”

Does anyone else see a commercial opportunity here? Some accountants will seek to provide a service in house – mindful of APES230 of course – while some will seek to outsource to a firm of trusted advisers. So have you positioned yourself as the trusted adviser in your community? CPA Australia together with the Institute of Chartered Accountant have described the draft licence as “a good step forward.”

Use this time over the Christmas break to consider how you will use this information to your advantage. Please contact us should you wish to discuss a marketing plan.

Originally published by Leading Minds Academy.

If you read my blog last week, I explored the Mark Bouris model of ‘wealth agents’ giving advice in addition to providing mortgages at times and locations suitable to potential clients.

No big surprise this week that Mortgage Choice has announced it is aiming to test its systems and processes with ten advisory practices before rolling out its offering in July 2013.

While mortgage brokers have long been the distant cousins of advisers and accountants, the distribution and access to clients they have is extremely advantageous in growing an advice business.

While there has been lots of talk about further encouraging advisers and accountants to work together and create referral networks, the other big contender in growing the Australian advice offering is of course mortgage brokers.

While many advisers and accounting practices have mortgages as part of their product offering, not all do. Unless there is an existing strong referral network in place with a mortgage provider, this could lead to a client relationship going elsewhere to service this need.

According to our No More Practice star mentor Barry Lambert, one of the best strategies for growing a practice is ‘entanglement’, ie. providing a client with so many services that it becomes impossible for that client to disengage. It seems like the business of the future will offer accounting, advice and mortgages under one roof, or at least in one seemingly seamless network.

Add SMSFs into the mix, and according to Andrea Slattery at SPAA (welcome to the marketplace and the show SPAA!) legal services are also part of that ‘dream team’.

So now is the time to start building your networks – what products can you offer, and how you can provide a full service offering to a client in an integrated way.

Networking, joint ventures, partnerships and acquisitions are going to be something we see a lot more of in the advice space as FOFA-ready professionals see the opportunity to provide clients with the ultimate, full lifecycle of financial advice, services and product.

It would be a natural move for accountants and advisers to reach out to mortgage brokers now and create new ways to work together to create profitable and successful broader businesses.

With new networks like YBR and Mortgage Choice becoming advice groups, advice businesses need to broaden either their network or product range to compete on an even playing field.

Competition is positive and growing demand and use of advice is positive for the industry and consumers as a whole. Working in cooperation with different members of the value chain in advice, accounting and mortgages will see the practices of the future thrive.

You can follow Vanessa on Twitter: @ceovanessa

Most have heard of the concept of a client value proposition (CVP). Unfortunately, it’s often presented in fluffy terms, without guidance on how to implement it properly. Hence, it’s become misrepresented and poorly explained to the point of becoming humdrum.

This is a shame, because nailing your CVP produces particularly powerful outcomes. After all, in the simplest terms, it’s about delivering a strong message about your value as an adviser, giving clients compelling reasons to do business with you, rather than your competition or detractors. When businesses get clear on the value they provide, I see two things happen.

First, when advisers understand their value, they become more confident about what they do.

Second, when they understand it better and become more confident, they can explain better to clients the real benefit of engaging in professional advice year after year after year. Creating a compelling CVP is often seen as something difficult by many advisers. But it needn’t be if you follow the right process. The following is what has worked well for me.

1. Client survey – These results are the best information you can have when running a CVP session. If you’ve not done one, perhaps it’s time?

2. Get a facilitator – Get someone else to run your session for you. Don’t try and do it yourself. You’ll want to focus all your attention.

3. Get away from the office – Book a room offsite and invite your whole team to join you. Bring lots of post-it notes.

4. Personal values – Ask everyone to write down three personal values they feel are important to them. Stick them on a board. Group them into similar values.

5. Business values – Then do the same with three values they think represent the business. Again, group them into similar values.6. Client feedback – Either write on post-it notes what clients have actually said or ask your staff to write on the notes what they believe clients would say if asked. Again, group.

7. Circle the common words – Cross-reference the answers, looking for things common across staff values, business values and client feedback. These will be your core truths – things your staff believe in, your business embodies and your clients see you for. When these words are used in your CVP, they will resonate most strongly.

8. Write your statement – Keeping those concepts in mind, walk the team through developing the CVP statement in three steps:

a) “This is who we work with and the problems they have OR why we do it” translates into “ABC Financial Planning believes in the importance of entrepreneurialism. We work with IT entrepreneurs who are time poor, concerned about the future security of their families and don’t understand many of the financial aspects of their lives to ensure they will be rewarded for their efforts long term.”

b) “This is the type of work we do for them/relationships we have” translates into “We work with them to put in place a plan that provides focus and clarity, keep them informed over time of the things they need to do to reach their goals and provide someone on the other end of the phone to help them make smart decisions.”

c) “These are the outcomes they have as a result of working with us” translates into “Our clients typically achieve better financial outcomes for their businesses and families, experience far less financial stress in their lives and reach their life objectives faster.”

9. Test it – Work on your CVP statement until you’re 80 per cent happy with it. Then stop. Give it to a professional wordsmith, run it past some ideal clients or referral partners, or share it with friends and family to see if you can fine tune the wording. Then put it in a drawer. After three weeks, share it again with the team and confirm that it represents the flavour of the business. Test it against three key questions:

a) Are there any words that might not be meaningful to clients?
b) Does it talk about things that are important to clients?
(c) Does it talk about things that are really worth paying for?

10. Brainstorm how to implement it – Ask everyone to provide suggestions as to how the CVP could be communicated to clients and centres of influence. Think outside the box on this one; communicated can mean verbally, written word and via marketing channels.

However, it can also relate to the way people are greeted when they enter the business or even the pictures on your wall. Remember, it’s often the seemingly small details people remember the most about the personality of your business.

The 2012 mid-year economic and fiscal outlook statement announced changed to the rules for financial planners providing tax advice from 1 July 2013.

In summary, financial planners who are not otherwise qualified to provide tax advice (ie who are not tax agents or solicitors) and who want to provide tax advice will be subject to the Tax Agents Services Act, and must satisfy education and experience tests and follow an industry code of practice.

Tax law is one of the most technically difficult areas of the law. I have practiced it for nearly 30 years now, and as each year goes by I realise there is even more that I do not know.

Tax law is getting harder every year. Tax law has many traps for young players – bear traps, things can easily go wrong.

Yet tax law permeates financial planning principles, and must be considered in every SOA if the SOA is to be effective. An ineffective SOA is an offence under the Corporations Act.

There is nothing worse than an SOA that sets out a strategy with clear, but unarticulated, tax implications, that meekly ends with “and we recommend you seek tax advice before relying on this advice.” Guess what? The client does not seek the advice of a tax professional, nothing happens and the strategy falls into another heap. Or the client does seek the advice of a tax professional, and suddenly someone else is advising your client. You are no longer the primary adviser.

What should a financial planner do?
If you want to be your clients’ primary adviser, and not be limited to a secondary role, you have to be able to provide competent (and “clear, concise and effective”) tax advice in your SOAs.

The obvious option is to complete the training to satisfy the new requirements. You can’t beat them, so you should join them. Put the time and energy into your practice so you can offer bigger and better services to your clients. Then find an AFSL that allows you to provide tax advice and is competent to monitor your compliance with the tax law, and is insured for tax advice. There are not many, but they are there.

A second option is to find an AFSL that can actually write the tax advice for you, and become responsible for it. The AFSL needs to be a solicitor or a tax agent itself, and needs to have the years of tax experience and training needed to operate competently in the tax space. It’s an elegant solution: your write the non-tax part of the SOA, and the AFSL writes the tax part of the SOA, with full credit, and responsibility, attributed to the AFSL. If necessary the AFSL should co-sign the SOA.

Clients love the second option. It shows competence and integrity. It shows you are part of a bigger and better team. It shows you have the skills and resources to provide an efficient and comprehensive service. It shows you can get better results for them, and validates their decision to have you as their primary adviser.

And it means someone else is not advising your clients.

I watched with interest as Mark Bouris’ Yellow Brick Road announced this week their new concept of ‘wealth agents’. As you would know, Mark was a judge on series 1 of No More Practice, and always is one to watch (pardon the pun!).

While it does seem to be an extension of mortgage broking services with a new name, there are some key attributes that were different and interesting, and worth exploring further as we make inroads into increasing the number of Australians seeking financial advice.

The key factors that made the announcement around wealth agents were around access and talent.

YBR wealth agents will be able to visit clients in their homes, and on the weekends out of business hours. This is definitely an advantage over the traditional advice model, where meetings are traditionally run in business hours only. It personalises the relationship and quickly gets the wealth agent in the mindset, lifestyle and circumstance of the client.

While this can be seen as an advantage, our judge from the last series Financial Wisdom’s Mark Ballantyne pointed out to me that people are in a different mindset when securing a mortgage, whether it be for the first time or investment purposes. This time in people’s lives is all-consuming and they are usually not in the right mindset to talk bigger picture financial goals and complex investment choices. So the wealth agent may have to separate out work around a mortgage from the overall advice process.

It remains to be seen how effective that will be, but it does suggest that with changing work patterns and the low take-up of advice in Australia, maybe advisers and accountants need to be prepared to adjust the ways they engage with clients.

The other key factor around the YBR wealth agent model is around attracting new talent to the advice network – mothers returning to work, those disenfranchised with their current employers, and those that could complete an RG146.

If being a wealth agent is a true alternative, it seems that flexibility of working hours and the ability to recommend products of choice are two key drivers behind this strategy. It may be that this model can have an influence on the middle and lower income segments of the market. These have been traditionally held by banks via mortgages and credit cards. It may well end up being bigger competition to the industry fund movement if superannuation is on the table to be moved.

It seems to be that the move for our industry towards education and qualifications means that complex advice solutions are probably not going to come from this kind of service. While there is definitely room in the market for innovation, new approaches and putting the consumer first, we all know that advice needs can vary greatly from person to person.

The YBR model may well yield lessons for the broader industry on how to grow the advice market in Australia, but it will probably service a particular segment of consumer. It would be great to see the industry working together (both accounting and advice) to design solutions for all segments of the market. For surely the more Australians that receive sound financial advice, the better off we all become.

What it does tell me, is that perhaps advisers and accountants need to offer some flexibility to clients.

You can follow Vanessa on Twitter: @ceovanessa

There are a number of ways in which advisers can best generate good revenue streams. The key here is your definition of good – as not all business is good business – an old adage I know but a pitfall for many advisory firms

Good revenue streams for me means, repeatable, enduring and increasing income flow, and I feel the only way to guarantee this for your business is to run a true relationship model that fully contracts your clients on an ongoing basis.

Your fees have to relate to your offer and the complexity of the work being undertaken – not the amount of time or dollar base of funds under advice.

Know your business model
Be clear on your model: are you a generalist or a specialist? It’s possible to have a general advisory firm with an individual adviser specialty focus ie financial planning plus aged care, but you will need scale in your business to deliver this model, as a broader offer brings greater diversity across your client segments.

If you are a specialist make sure your depth of competency is very deep as your expertise will be your price gatherer. Pick your niche based on your skill set rather than chasing a certain market segment. The payoff will be better for you and your clients.

Deliver on your promise and then some … and then some more. There are many definitions of value. Mine is simple – it’s when I receive “something” (a service or offer) that I wasn’t expecting and that’s relevant to me, but more importantly, it enhances my position (ie: a tangible benefit).

We all know that clients will pay when they see or perceive there is value for them, so you should be continually delivering beyond expectations. Move beyond newsletters, seminars, investment briefings etc and make it personal.

Think about all the generic email you receive; sure it’s personalised with your name, but is the message relevant to you? I’m sure you just scan it and delete it, so be sure your clients are not doing the same with your service offer.

Plugging revenue gaps
Not all business is good business, and similarly, not all revenue is good revenue. Advisory firms – not just financial planning firms – are renowned for under-pricing their offer.

Make sure you know your cost base across your advice delivery model and spend time refining your efficiencies. Technology is a good enabler here, then leverage up using profit margins as a base indicator.

Your focus should be on both sides of the ledger, so turn your revenue focus into a profit focus and then re-segment your client base. You’ll be surprised by the results.

Separating advice from service
There are many differing views on this, so make sure you are clear on your position. My position is that advice is an investment of doing business and it should never be free, whereas a service offer is all about enduring value.

Clients expect to pay for advice when they visit a professional adviser, so make sure your initial pricing model is profitable. There should be no loss leaders and base your pricing on advice complexity, not dollars to be invested – it opens up the opportunity for you to more prospective clients.

You should be able to articulate your offer and value are critical. Don’t let glossy brochures do it for you; do business on a personal level, make it relevant and be passionate about the value you deliver. After all, our businesses are all about relationships and not documents, aren’t they?

Remember that language is the software of the brain so choose your words wisely. Be concise and clear – engagement is valuable and should be priced into your ongoing service model.

In an increasingly tough and competitive market, practices need to be at the top of their game to succeed. While there is no silver bullet for practices owners in making their business successful, good practices have a number of elements in common. These elements are core drivers of long-term, sustainable practice value and can mean the difference between success and failure in business.

Good people
Without doubt, better practices have good people working in them. The most expensive cost in running an advice business is the people, so having good people in your business drives value for it a number of ways. A more engaged and stable workforce can make a significant different to your client base.

Clear job descriptions are important in businesses that are able to maintain good people, so employees are clear on their role and expectations. Similarly, remuneration has to be closely linked to businesses objectives and goals, and many of the more successful practices also offer long-term incentive arrangements such as equity in the practice.

Having good people in bigger practices can also assist in eliminating key person dependence so that clients will come to a practice to obtain advice and will not necessarily be tied to an individual in the business. This can also assist in driving a lot of value.

Strong planning
In good practices, business owners tend to spend as much time working on the business as they do in the business. While some practice owners who have been in the game a long time tend to be the rainmakers and key salespeople who see important clients, the highly successful ones are very strong on business strategising and planning as well. In those cases where the owner may be the true rainmaker in the business and best placed to continue seeing clients you will often find they acknowledge the need to still spend time on planning and as such will employ appropriate people to manage the business and help formulate the strategy.

These owners spend a lot of time making sure they are clear on business strategy, client segmentation and have a very clear and targeted client value proposition. This is also clearly communicated and understood in the business, so anyone right down the receptionist at the front desk can clearly articulate in a very short conversation the target market for the practice and what it can achieve for clients.

Long-term planning is also important. Rather than just looking at the next six to 12 months, good practices take a longer-term view and plan a long way into the future over two, five or even ten-year horizons.

Capital
Another common hallmark of better businesses is that they are appropriately capitalised.

When a business is highly geared with lots of external debt, this can leave them vulnerable to having less control and flexibility because they have to pay back interest on an external loan. Being highly geared leaves you with less flexibility in being able to take the business where you want it to go.

It is better to be in a position of managing growth in your own way. As soon as things turn in the market or there are other hiccups, being appropriately capitalised will leave you and your business less vulnerable to external conditions.

Access to information
Good businesses have access to good information and a lot of it. If asked, they are able to provide detailed information in a timely way while less well-run businesses can sometimes take months to provide data and when this data is provided often it is not accurate.

Good businesses can quickly assess their client base and know who their key clients are. They are also able to analyse trends in their revenue streams, work out how these might impact key clients and understand the key offerings that drive the majority of their activity. This in turn translates into being able to better understand and manage cash flows in order to drive growth.

So regardless of whether you are someone looking to buy the practice, acquire part of it, a licensee or an external consultant, good practices have their finger on the pulse and are able to provide you with stronger and more accurate information in a timely manner.

Businesses are the best investments. Ultimately all wealth derives from businesses.

Every day private businesses change hands for multiples of two, three or even four times’ maintainable profits. That’s the equivalent of a return on investment of between 25 per cent and 50 per cent per annum. There is no better investment.

Yes, some businesses are risky. But risk can be managed. A good business with a competent operator almost always produces returns well ahead of any other investment.

A business client is worth ten employee clients. There is more for you to do, and more that can be done. Business clients need more services than your employee clients: tax, superannuation, estate and succession planning, risk insurances, property, investments, legal structures and business plans all feature in the model SOA for the model business client.

“Services” means “fees” in a post-FoFA world. If you do not provide business advice to your clients someone else will.

How much do you need to know and how do you know it? The good news is business advice is not hard. You already run your own business so you have the basics down already. Most business clients will know their main game, ie the technical skill or product they supply. It’s the non-main game things they need your help with.

Let’s assume next Monday young John comes to see you. John is 26, and has been in the plumbing game for ten years now. He is still with his first boss and he knows he stuff. And he knows lots of people too. He is friendly, personable and reliable. People like John. He has just become a dad for the second time, and his wife Betty is now a full-time mum, flat out 24/7 caring for their young family. What should you say to John?

You should tell John its time he set up his own business and started making profits for himself, not his boss. Ask him who he loves the most, his babies or his boss? John, hang up that shingle and start your own show. You will never regret it.

John takes your advice. He trusts you. And you show him how to do it.

John cuts out the middleman to double his income overnight. He can now make $120,000 a year. He can claim better tax deductions for cars and similar costs. The ATO allows him to form a “mum and dad” partnership with Betty, so he can split his (bigger) income with Betty. That makes for more deductible super contributions, and even more tax savings. John is delighted with you.

John leaves CBUS and sets up his own self-managed fund and invests in direct equities. You do it for him. John needs more income continuance, life and trauma insurance. You do it for him. John needs finance for his new ute, and help buying and funding a (CGT free) factory for his equipment (and caravan and boat). You do it for him.

The business gets better and better. Soon John is off the tools and supervising a team of ten maintenance plumbers and running a very tight and profitable show.

You introduce John to an allied accountant who will not compete with you and respects your role as a primary adviser. The accountant refers you clients in return. You reciprocate, and respect the accountant’s role as the primary adviser to those clients. Your alliance works. You are a team.

As John’s wealth builds he needs your help buying and funding a new home.

John’s estate planning becomes more complex. You take him and Betty through the labyrinth of wills, powers of attorney and SMSF binding death benefit nominations.

You are John’s guide, mentor and trusted advisor. It’s a 30-year relationship, and over that time, John refers his business associates, friends and family to you.

This is a case study in why businesses are the best investments.

Most clients have the majority of their wealth in property.

This is not a bad thing: well-located property has historically been a good investment. It’s fair to say that without the forced savings of a long-term mortgage loan and the long-term capital appreciation of the typical home, many clients would not accumulate much wealth at all.

What do you say when your clients express an interest in property? When they want to buy business premises? When they want to upsize? When they want to downsize? When they want to extend? When they want a new kitchen?

Do you provide the service your client wants, and help your client achieve their financial plans? Or do you decline and say, “I am sorry I cannot advise on property. You need to speak to someone else.”

A financial planner not advising on property is like a doctor not advising on the right side of the body. The result is poor advice. The financial planner has only half the picture, and only half the business opportunities.

To be a true adviser you must advise your clients on property, and be able to guide your clients through this critical part of their financial plan. True, there are restrictions on what you can do. Each state is a little different, but the common bottom line is no-one can purchase, sell, negotiate, bid or rent a property on behalf of another person unless they are a licensed agent, advocate or solicitor.

These are not significant restrictions. The financial planner, as the primary adviser, still has a dominant role.

It includes:

1. General advice on property, its investment characteristics, its tax advantages, its risks, and the role it plays in the financial planning process
2. Affordability analysis for homes, and cash flow/tax analysis for property investments
3. Arranging appropriate pre-property inspections and reports
4. Engaging a real estate agent, advocate or a solicitor to represent the client in the purchase negotiations (ie to do the things that strictly speaking only an agent, advocate or solicitor can do), based on a sensible time-based fee and not an exorbitant percentage fee
5. Making sure the agent, advocate or solicitor is competent and acts in your client’s best interests
6. Advising on who should own the property (ie your client personally, or a company, trust or SMSF connected to your client)
7. Instructing a conveyance or solicitor to handle the purchase transaction
8. Dealing with banks and insurance companies
9. Arranging a quantity surveyor’s depreciation/building amortisation report, and
10. Handing the ongoing rental management over to a real estate agent

This is before you even look at the wider opportunities. Questions like, ‘How can older clients help their children buy more homes quicker than otherwise?’ As most first home buyers receive significant parental assistance, this is a growth area for financial planners.

Property advice is well within the skill-base of most financial planners. Remember, if you don’t provide property advice to your clients someone else will.

One practical tip: make sure your consulting real estate agent or solicitor refers you some clients too. Make it clear that, within the parameters of professional probity and propriety, you expect referrals back. That way you are doing what you are best at and they are doing what they are best at, and everyone wins – particularly your client, who will remember who helped them with this critical life decision.

In attending a recent luncheon hosted by the FSC, Former Prime Ministers Bob Hawke and John Howard talked about key achievements in their terms as Prime Minister.

There was the obvious old political rivalry and witty banter, along with some insight into how the political landscape can change on a dime. It was a charming exchange and I have to say I was not alone in the 900-strong room getting nostalgic about the ‘good old days’.

At 39, I have yet to curse my staff or children with anecdotes starting with “in my day”. However, in reliving those key political achievements of those two iconic Australian men, I started to think about how the world has changed since their time.

Not only is there a very different political landscape, the business one has changed significantly. The days of the long lunch and the handshake deal are long gone. Is this a bad thing? Sometimes, when the speed of everything becomes overwhelming, I tend to think so. But then I reflect on the innovation that necessity brings.

Financial services is one of the few industries that has been accused of being afraid to change – from revenue models to product distribution, things have been shaken up in the past few years for good reason.

And from that shakeup, some excellent businesses have emerged. In the advice and accounting space we are seeing some incredible businesses that are using technology to communicate with their clients on a weekly basis, scaled advice offerings being developed that will reach more Australians than ever before and customised practices serving niche markets and professions.

In the SMSF arena we are seeing unprecedented growth, with a world-class regulatory system backing this industry. The opportunities for accountants, advisers, lawyers and property brokers are only just starting to become clear. You will see more of this when we release our next series of No More Practice in February next year.

While we are in the crux of change, and opportunities are still emerging, I do believe that tougher times lead to innovation, and ultimately a better deal for all Australians. After all, if I would have said five years ago that more than 16,000 advisers and accountants would be part of a reality TV show for the advice industry, would you have believed me?

So while I salute the past and those great leaders who saw us through it, I embrace the future and all it holds – for surely the best days are yet to come.

You can follow Vanessa on Twitter: @ceovanessa

$25,000, $80,000, $100,000 – these figures are not small change. You would think saving that amount of money on dealer fees would be the game changer. What I have learnt though since launching My Dealer Group is that money isn’t the be all and end all, and that in fact many advisory firms out there are seeking a business partnership with a dealer group that will short circuit a problem holding back their business. To put it plainly, they are searching for a dealer group with the X factor that strikes a chord with them.

Dealer groups I see prospering all have their own unique X factors. Some are brilliant at providing growth and succession planning support. Others attract advisers because they have established centres of influence that generate referrals for their network and others are brilliant at building innovative and customer-centric product solutions that enhance the adviser’s proposition to their client base. There are some advisory firms searching for a culture they identify with and of course many are only attracted to saving money on dealer fees.

In saying all of that, in my experience it takes a lot of navel gazing and research for an adviser to find the X factor that they are looking for. Usually the seeds of dissatisfaction stem from little hiccups or misunderstandings and then snowball out of control to the point the adviser has psychologically checked out. Like an unhappy marriage, they go through the motions at home but are secretly out in the market looking for Mr or Mrs Right. To demonstrate my point here are two stories where it took months of searching for these advisers to find the dealer group with the X factor they needed:

So what is the lesson from these two stories? My advice to dealer groups is to remember why your network joined in the first place. What has been your unique X factor in the marketplace and are you still delivering on this promise? If there is the slightest hint that this could be failing then this is when advisers start shopping around and calling me for advice or researching options on the No More Practice Marketplace.

On a lighter note, I often wonder what the financial services version of X factor (Simon Cowell’s hit TV show) would look like. Who would the talent line up be? I certainly have some opinions on that … Vanessa, how about a new TV show?

For many owners, a business is more than just a business. It’s often a labour of love, a nest egg, an investment of time, a social life, a series of personal achievements, an expression of personality and even a small part of ourselves. It’s only natural to want to others to place a high value on that.

One of top ten questions Elixir coaches get asked relates to businesses valuations. There are numerous reports and regular market commentaries freely available on average multiples and general trends. However, it’s a subjective topic which often simply comes down to what others believe it’s worth to them. However, there are some core factors that even the most subjective valuation model can be generally relied upon to recognise.

Ready?
Before we start talking specifics, we need to first assume you’re at the stage where it’s “right” to worry about business value. By that I mean your business is financially self-sufficient, you can afford to pay yourself a market salary and the days of worrying about income are behind you.

However, simply being financially stable isn’t necessary enough. Achieving maximum valuation also means that you’ve ‘cracked’ a business model that enables you to deliver a consistent service that clients will buy and you make a significant margin on.

Many businesses confuse longevity with maturity. Sometimes when we look inside an established firm, we can discover there is no “core formula” to their success. Many produce highly inconsistent margins across their service proposition and are purely reactive to whatever opportunities arise. Often, they grew before they’d thought about how to sustain that growth. These businesses are valuable, but there is another level.

Model first, growth second
Conversely, businesses that cracked their business model first (usually through five or six incarnations) then put the foot to the floor are far more likely to be in the sweet spot for achieving top dollar.

In which case, having demonstrated the ability of your model to achieve consistent historical returns, it boils down to one over-arching consideration. Ultimately, the value of your business is most likely to be dictated by how much it will make an incoming investor in the future, and how predictable that figure is.

Seven key factors
In which case, there are seven key factors that can maximise your chances of pulling a big number.

1. Continually increasing profit – this is not just about the number, it’s also about upside. Nothing brings down a valuation faster than a principal who is clearly over the business and ready to get out. Conversely, if the outlook for your business is strength-to-strength, the valuation is logically more likely to be heading north.
2. Defensibility and differentiation – how easily could another business replicate what you have done? Positioning yourself in specialist niches, offering a distinctive range of services, diversifying your revenue in a smart fashion, using technology well or developing a signature “way” can show it makes more sense to pay a premium to buy your model than try to replicate it. It also serves to protect your business from competitors.
3. Great governance and reporting – the easier it is to understand and run a business once inside, the more attractive it is. Information is power in this regard. It’s a well-worn saying not to invest in anything you don’t understand. Company accounts might confirm a story, but great data that delves beneath the numbers and confirms a structured business model is what people pay big bucks for. As a minimum, you want to have ready-to-go at a moment’s notice your last three years financials, any relevant legal documentation (leases, loans etc), adjusted income to account for full cost of your services, history of the business, employee files, important attributes about the business and surrounding area, what you would recommend to a new buyer to increase business once they take over, the competition and all client contact info – ideally including an up-to-date CRM showing service levels and dates of contact.
4. Brand and reputation – the greatest fear of most incoming investors is that the success of the business they are buying is based upon some secret ingredient that exists only in the DNA of the former owners. Whilst it’s unrealistic to believe that key person dependency can ever be completely offset in a relationship-based business, having a brand that isn’t individual-dependent will make the world of difference in offsetting that concern.
5. Systems and processes – they may not be sexy concepts, but its ‘boring old fundamentals’ like these that give solace to investors and add value to the business.
6. Formal contracts with clients and suppliers – “No man is an island,” says the phrase. The same is true of businesses. Formalised agreements relating to suppliers’ part in making your business an ongoing success is important. A structured service offer, formal client service agreements, proof of regular client engagement and client feedback results show an ability to sustainably manage client expectations, regardless of whatever legislation does.
7. A great management team – ask any M&A person what dictates corporate value and very early on in the conversation the topic of management will come up. Advice businesses are not that different. Experienced, capable, performing individuals, who are invested in the future success of the business, will demonstrate a stable, ongoing concern that will withstand the loss of the founding principals. In contrast, a roll call of former junior staff that left nothing but footprints and old payslips can be an indicator that the business is dependent on key senior people who don’t know how to delegate.

FOFA is drawing closer. Strategies to create a fee-for-service practice are essential. Step one is to first provide the services. And to provide the services you must first establish yourself as your clients’ primary adviser, ie the primary service provider.

Your competition is strong and varied: it includes banks, solicitors, accountants and, of course, other financial planners. Unless you control the advice process, that is, unless you are your clients’ primary adviser, the advice role will be taken from you, and you will lose your client.

To control the advice process you have to control two things. You have to control your client’s advice decision and you have to control your client’s relationship with the other advisers, ie the banks, solicitors and accountants.

To control your client’s advice decision you have to present as competent in at least nine core disciplines. These core competencies are:

1. risk insurances
2. superannuation
3. tax planning strategies
4. business advice
5. finance and debt management
6. property
7. tax compliance services
8. shares and other direct investments, and
9. estate planning

You need a working knowledge of each competency, or a relationship with a trusted associate. You do not need to be an expert yourself. Most client presentations are simple, and basic advice on each of these competencies will be within your skill set, or able to be contracted in.

Part of being a good financial planner is knowing your limits and when to contract in complementary or additional skills. A good medical GP knows when to call in a specialist. And for the GP-specialist relationship to work the specialist must respect the primacy of the GP-patient relationship, adopt a support role, and not subsequently compete for the patient’s custom.

Exactly the same principles apply to your referrals.

I can recall an acquaintance, let’s call him Joe, gleefully telling me he about his 10% referral fee from a local accountant. Money for jam, he thought. I counseled caution, and a protective contract. He pushed on regardless. Two years later glee turned to grief as the accountant employed an in-house financial planner to take over the financial planning process. Joe lost half his practice.

Joe’s mistake was to cede primacy to the accountant. He let a crocodile into his pool.

The message is simple: you have to be the primary adviser in the nine core competencies. You must be the go to person, the guy your client trusts the most. You have to present as being across all relevant issues, all nine core competencies. If you do not have the competency you have to control the referral process, ie control the other service provider.

Joe should have insisted on a “no-advice” role for the accountant. The accountant’s function should have been restricted to accounts and tax returns, with no advice, and no other contact with the client. If the accountant advised on, say, a tax matter, that advice should have been channeled through Joe as the client interface.

The accountant should have been prevented from advising on “overlap” areas of advice, such as SMSFs, business advice and debt management.

The same principle applies to each of the other core competencies. For example, if you refer your client to a buyer’s advocate you should remain responsible for the general advice, including cash flow estimates, finance, tax planning and long term strategy. You should limit the advocate’s role to the specific purchase transaction, and nothing else. You should handle the post-purchase functions, such as instructing a conveyancer, arranging finance, selecting the purchase entity, arranging tax depreciation reports and liaising with a rental manager.

In short, you should provide the overall client service and only contract out specific tasks, and nothing more.

Remember, step 1 in creating a fee for service practice is to first provide the service. You have to provide the service to get the fee.

If there is one thing I have learned from No More Practice over the past three years, is that you should always act like your business is for sale.

That is, get the business in the kind of shape that could be sold at any point. You may not want to sell, need to sell or even intend to sell – however, the very nature of business is to drive commercial outcomes. If you can’t open your cupboards up and show the inside then you have some improving to do.

According to experienced dealmaker Steve Prendeville, practice owners should focus on client segmentation and the opportunities that lie within your existing database. If you are intending on selling in the next three to five years, what could the next owner do with the business? Could they see those opportunities at a glance?

While it feels like we never have time to do everything we need to in a day, it is worth spending some time mapping out the potential in your business. What could it do with more resources? More capital?

If you can demonstrate the answer to these questions, then you are not only set to be able to grow over the long term with strategic intent, you are also proving long term value of the company outside the current owners.

This is an exercise that may not encourage you to sell but may provide you with an opportunity to talk to partners around you – licensees, other advisors or accountants and your internal team.

It is obvious from all those who have been on the No More Practice that the practice owner that can see the potential are those that are thriving in this post GFC market.

Chris Browne from series 2 and 3 showed us that segmenting clients and parting with those that did not fit his future model allowed him to grow by acquisition and organically.

Brett Abikhair and Ian Jordon from the same series demonstrated that realising a vision sometimes meant taking risks – in their case a calculated risk to raise a million dollars in working capital.

And Zoe Shacklady from series 1 demonstrated that her by demonstrating to potential buyers where the potential to grow was in her existing client base, she could drive a higher sale price.

Identifying and exploring potential, and running a business like you are selling it can and will change the way you think about your business.

You can follow Vanessa on Twitter: @ceovanessa

I have always lived by the ethos that if you want something badly enough, you keep trying until you get it.

The same can be applied to landing the clients and partners your business needs. Sometimes good old fashioned stalking can get you a result. By stalking I mean a relentless persistence in demonstrating your value (and not in a way that makes your desired client or partners take out an AVO, of course). Rather, initiatives that are inventive, varied and measured over a reasonable timeframe are needed to remind your prospects why they need you.

There are two variables to this tactic: working to a deadline (ie, a deal only works if a timeframe is met) and your connections.

With a deadline is looming to get a client in the door, I have always found the direct approach to be best. State your case in multiple ways: via email, through a phone call, and also via anyone you know that knows that client. So work your connections. No matter how tenuous it is, some connection is better than going in cold. If there are seven degrees of separation between us and Kevin Bacon, then surely there are even less to the client or partner you desire. A common hairdresser? Maybe your child’s school? Or even a sporting team? Once you find a connection, work it.

I always loved the movie Wall Street – yes, I am a product of the 80s. Budd Fox wanted to get to know Gordon Gekko – so he called his office every day for a year, and bought his favourite Cuban cigars on his birthday. He also had the good sense to butter up his EA

We can all take a lesson from Budd Fox on this. Getting to know our potential clients or partners and make an effort that is about them – not what we want. Sometimes it seems like everyone is so focused on their outcome and what they want, that we forget to stop and think what interests and motivates those around us.

Once you have stated your case, shown interest in them, and gotten to know stakeholders around them, you can stop the stalking. Sit back and wait, and reap the benefit of your inventiveness.

If of course you do not get the desired response, it is time put them in the ‘later’ file (known as your database). Don’t give up. Just wait – an opportunity will come at a later date. Remember, this is a long-term game, and persistence and patience pays off.

You can follow Vanessa on Twitter: @ceovanessa

Under the FOFA reforms, AFS licensees and authorised representatives will be prohibited from accepting “conflicted remuneration” such as volume bonuses or volume-based shelf space fees.

Under the transitional provisions, AFS licensees will also be entitled to “elect to comply” with the FOFA reforms from 1 July 2012. However, we expect that most AFS licensees will not do so and will wait until the final date of 1 July 2013. On that date, compliance will become compulsory.

The reforms grandfather future payments to AFS licensees and their authorised representatives in respect of conflicted remuneration where the contractual arrangements for that remuneration were put in place prior to the earlier of: the date upon which the AFS licensee elects to comply with FOFA; and 1 July 2013.

However, even though grandfathering should apply to current investments, FOFA will prohibit future payments to licensees (or their representatives) in respect of new post-FOFA investments. This means that the level of volume payments from product providers to dealer groups will crystallise and should not increase in size after 1 July 2013 (or such earlier date as the relevant dealer group elects to comply) except to the extent that there is reinvestment in a product previously acquired.

Earn outs: FOFA issues for sellers
Most financial planning businesses and client registers are sold on an “earn out” basis. This means that part of the sale price is deferred and paid at a later date based on the post-sale performance of the business. Generally, the amount of the earn out is calculated by reference to the post-sale recurring revenue.

If you are selling your financial planning business, the FOFA reforms may create a risk in respect of your earn out payment if your business derives revenue from volume bonuses or volume-based shelf space fees. The risk is, of course, that FOFA will apply to eliminate or cap that element to the recurring revenue of your business following the sale, and therefore reduce the anticipated amount of your earn out.

4 steps to selling post-FoFA
In this context, our key hints and tips for you as a seller are as follows:

1. Pay close attention to the definition of Recurring Revenue or Annual Ongoing Revenue in your sale agreement. For the purpose of calculating your earn out payment, does this definition capture all elements of revenue that you would expect? In particular, if you expect to receive the benefit of “conflicted remuneration” arrangements as part of the earn out calculation, is this made clear in the definition?

2. If you expect the benefit of “conflicted remuneration” arrangements to be factored into your earn-out calculation, do your due diligence to find out whether those arrangements will be grandfathered. Grandfathering should occur through the arrangements being appropriately “locked in” contractually by the buyer (or their dealer group) before 1 July 2013 or such earlier date that they elect to comply with FOFA.

As part of this due diligence process, you will of course also need to find out whether or not the buyer intends to elect to comply (and if so, when). You should also be mindful that FOFA’s anti-avoidance provisions will prohibit AFS licensees from entering into artificial schemes to avoid their obligations under FOFA.

3. Be aware that “new money”, ie. post-FOFA investments, will not attract the benefit of grandfathering. So, on and from 1 July 2013 (or the earlier date upon which an AFS licensee opts in to FOFA), switching money from one platform or product to another may mean losing any benefit of grandfathering in respect of that money and transferring that money into a non-grandfathered environment. Of course, in this situation the best interests of the client are paramount and must be the key factor in determining which product or platform is chosen. However, sellers should nonetheless be aware of the potential financial impact of these choices before signing the sale agreement. Again, due diligence and understanding your buyer’s philosophy on these matters and preferred products is the key.

4. Opt-in requirements for clients will only apply to new fee arrangements entered into after the FOFA legislation applies. However, if a transfer of business results in the arrangement with clients changing character to such a degree that it essentially becomes a new arrangement, opt-in may apply to that new arrangement. Under opt-in requirements, the licensee will be required to give clients a renewal notice every 24 months, under which the client must opt-in to continue to receive the ongoing financial services, or they will not be liable for ongoing fees. Advisers will not be required to comply with the opt-in requirements if they are a member of a professional body such as the FPA that requires compliance with an ASIC-approved code of conduct that achieves the same outcome as the opt-in requirements.

Cast your mind back to your last major purchasing experience. What was it that made that experience a success or a failure for you?

Very often we consider the greatest trait of a sales person as being someone who is able to “talk”, but in reality the evidence is that the most successful salespeople are those that can listen and respond. So are we confusing outstanding “speaking” ability with outstanding “communication” ability?

Most people hate being sold to, but we all love to buy – so how do we turn a selling opportunity into a buying experience?

Let’s go back to our question and thinking about our last major purchase experience. If the transaction was successful for both you and for them, the chances are that the following three things occurred:

1. The salesperson clearly established your ‘buying criteria’, let’s call that ‘B’;
2. The salesperson was able to clearly enunciate their ‘value proposition’, let’s call that ‘V’;
3. The salesperson was able to provide evidence or substantiation from others about their experience with the seller, let’s call that ‘S’.

So there we have it, the ‘BVS’ approach to selling and guess what, we’re no longer talking about selling, we’re talking now about buying! If we look a little deeper into ‘BVS’, we can see how this actually works and how a selling opportunity becomes a very natural opportunity to meet the buying needs of the person that is sitting in front of you.

Let’s break these down a little further.

1. The sales person clearly established your ‘Buying Criteria’, let’s call that ‘B’. Buying criteria is the information that establishes the need for the delivery of value:

• What is the pain you want your client to feel?
• What emotional connection do you want to make?
• What information can you provide that establishes the need for the delivery of your value?

Asking the right questions initially positions you as a leader and an educator, not a product flogger. This builds credibility and a position of authority which is the ultimate position to commence the presentation of your offer.

2. The sales person was able to clearly enunciate their ‘Value Proposition’, let’s call that ‘V’. Customers don’t want you to sell them things:

• Don’t sell me clothes, sell me neat appearance, style and attractiveness;
• Don’t sell me furniture, sell me a home that has comfort, style and contentment;
• Don’t sell me candy, sell me happiness and pleasure of taste;
• Don’t sell me books, sell me pleasant hours and the promise and prospect of knowledge;
• Don’t sell me toys, sell me play things to make my children happy.

Don’t sell me things, sell me ideas, time, feelings, safety, confidence, security, home life, satisfaction, happiness, savings. The markets may have moved, but people’s long-term objectives have not … minimise taxes, raise kids, enjoy holidays, fund a happy retirement, feel secure.

3. The salesperson was able to provide evidence or substantiation from others about their experience with the seller, let’s call that ‘S’.

Substantiation is the evidence that your proposition has value. Talking about yourself is boasting, getting someone else to talk about you is endorsement – that is why client testimonies and referral business are so powerful, particularly if that testimony or endorsement is by someone of high profile and/or known to your prospective client.

So next time you have the opportunity to add value to a prospective client, think ‘BVS’!

Check out www.gitomer.com for more tips.

We built a bar/night club on the roof of our office block. It’s a lunchroom by day, with table tennis and the 18th hole of our round-the-office 18 hole putting course. But we also use this facility for networking events. Such as local business association sundowners, breakfast meetings for networking groups, not-for-profit organisation Christmas parties, joint seminars with other businesses (with a dietician for health, migrant agents on migration law changes, IT firms, advertising agencies and business coaches).

We belong to a Real Logic breakfast networking group which is more relaxed and more referral focused than a Business Network International (BNI) group. About 14 or so other businesses in our group refer us business, built on years of networking and as a trusted professional.

It is important to allocate time in developing a networking marketing strategy. You can’t achieve your business or career goals on your own, so join with like-minded people and network. There is an advantage in engaging in activities you enjoy with people, it makes conversation easier. Networking through your cycling club or book club is much easier than with people you don’t know.

Don’t forget to ask for leads from your clients and your established networks. Make it part of your client review process, for instance – something like: “We have built our business on word of mouth referrals from our clients, we do not advertise. Do you know any who we can help like we have helped you?”

If you find networking difficult, explore existing networks first. The golf club, footy club or an association you belong to and start networking with people you know. When in unfamiliar territory and a room full of people, pick the faces you do know. A series of successful conversations will make you more confident and easier for you to approach people you don’t know.

We have gone from 0 to 40 staff in our accounting and financial planning practice in 15 years. And we hope to double this again in the next five or so years, if we can keep our current rate of growth up. We owe this practice growth to word of mouth referrals, from clients and referral sources. Our referral sources generally come from our networking within local business associations, breakfast networking groups, local sporting clubs and social groups.

13 rules to successful networking
1. Get out of the office and network, talk to people and you will bump into opportunities. Sitting at your desk won’t bring you referrals
2. Allocate a minimum five hours a week for face-to-face networking, more if you can spare the time
3. Focus on what you can give to them, rather than your immediate gain, as this builds great referral sources
4. Networking relationships take many months to build – be patient and stick with it
5. Find something in common with the people you network with and the relationship will be more productive for both parties
6. Have the right intent to help people and build their businesses. Offer a little free advice and find them referrals – rather trying to make a sale – and referrals will start to come your way
7. Networking without giving people value in some way is schmoozing, and there is no value in that
8. Be prepared. Think of ice breaker questions (business pickup lines if you like): “You look like you have had a great day; how’s business?”
9. Have your personal pitch ready: “We are …, we do … and we help people …”
10. Follow up. Why go to all that trouble of going to a networking event, meeting people and collecting business cards, if you do not foster that relationship and get business or referrals?
11. Stay in touch – provide value, something for nothing, share information, an article or a contact.
12. Networking improves with practice.
13. The key is to smile and take an interest in other people – be more interested rather than interesting.

1. The key to success in a fee-for-service model is to first provide the service. To provide service you must integrate yourself into your client’s affairs, nicely, and in a way that demonstrably adds value. Some advisers have been doing this successfully for years. For others it is new and unknown ground.

One strategy is to create a series of set plays that can be used over and over again for recurring client presentations. Each set play relies on a standard and simple limited scope SOA that can be produced quickly, and at low cost, looks professional and works as a client communication.

Each set play must recommend an ongoing role for you, as the adviser, the service provider. And the set plays must contemplate ongoing fees for your ongoing role. Think 30 years, not 30 days.

2. SMSFs are perfectly positioned for these ongoing 30-year integration service strategies. Clients love the idea of being in control of their own money, and are well disposed to SMSFs. The SMSF boom should not be a surprise, and it’s not something that’s going to stop any time soon. Expect SMSF numbers and FUM to increase significantly.

SMSFs are terrific for fee-for-service financial planners because they require ongoing financial planning services. Think about it. You have to initially advise on the set up, and the interplay between the SMSF strategy and the client’s wider financial planning strategy: think 30 days. But then you have to advise on the ongoing situation: think 30 years.

The 30-year plan has to be monitored and this includes:

• estate planning, particularly for older clients;
• risk insurances, and the advantages and complications created by SMSFs owning insurances;
• the ongoing annual SMSF compliance function (yes, you should provide this, as the CRM, and subcontract it out to a low cost provider)
• regular meetings to review the underlying investments, (which should be direct investments, ie bank deposits and similar, shares and properties, because this is what your SMSF clients will want) and recalibration as needed.

3. Low ball the fee: never make cost an obstacle to keeping in touch with your client. Dover encourages regular adviser SMSF meetings. Your meeting should focus on the immediate issue of what the SMSF is invested in, and whether this needs to change, and also discuss the client’s wider affairs and concerns. It’s likely your client will ask you do something else at the meeting, and, being happy with your services, they will recommend you to friends and family.

Dover has advisers with more than 100 SMSFs set up on this basis. Dover provides the SMSF back office at a fixed fee of $800 a SMSF, including audit. The advisers charge $2,500 a year (plus consulting fees, insurance commissions and other fees) creating a guaranteed profit of at least $1,700 for acting basically as a SMSF CRM.

100 SMSFs at $1,700 a year is $170,000 a year of extra cash flow, and perhaps $500,000 of extra CGT free goodwill – just for adding in the SMSF administration function. That’s how you create a great fee-for-service practice.

1. Timing and planning. Before selling, it is important to plan ahead and understand what timeframes might be involved. Many planners do not realise how long it can take and how much work is required to get a transaction across the line.

From initial discussions, drafting memorandums of understanding and taking a book to market, through to identifying a suitable buyer and negotiating and executing the transaction, a realistic timeframe is normally six months. In some cases, however, it can take more time, so it is best to be prepared for this.

2. Good client information. One factor that can impact the valuation of a client book and its ultimate sale is quality of client data. It is important to be clear about exactly which clients you are selling and have accurate, readily accessible client records available for a potential buyer.

This is not just about identifying revenue streams and information about the client who sits behind those streams – their full contact details and client history (detailing when you last contacted them) – also needs to be recorded. In addition to having soft copies of client information, there is still a demand for hard copies of files for potential purchases, so it helps to be prepared for this as well.

The ability to provide accurate meaningful data about the clients you are looking to sell can not only improve the turnaround time for transacting a sale but also significantly improve the value of the asset.

3. Allow for transition times. When you transact the sale of a client book, quite often it will be done on a basis where you might receive a payment up to 70 per cent, followed by a period over three, six or even 12 months where some adjustments are made to the final price. This is required to accommodate the drop-off of clients who cannot be contacted by the purchaser or who may choose not to transition across. It is not uncommon to see adjustments of 10 per cent or 20 per cent in these subsequent payments.

As such, sellers need to consider what protection they have in place to cover the subsequent payment from the purchasing adviser. There are many different arrangements that can be employed here.

If you are looking to exit the industry by selling all of your clients and business, it is important to develop a contingency plan for those clients who do not wish to make the transition and instead remain with you.

For planners on the buy side, sometimes it does take some time for revenue to flow through from the acquisition of a client book. This means buyers need to carefully manage their cash flow and will potentially need access to capital to assist in the transition of the revenue streams.

4. Cultural alignment. In selling a client book, finding a buyer who is culturally aligned in terms of value and service proposition for that specific group of clients can make a big difference to the end result.

It is important to make sure your clients will be looked after in an appropriate manner, so finding a buyer that culturally aligns to your way of doing business will minimise opt-out risk for the new owner and also help maximise the sale price for you.

5. Restraint of trade. If you are looking to sell a client base, then contracts will normally include a restraint of trade clause, which will ban you from providing financial advice to the client who has been sold on to a new owner.

If you want to maintain that client for any different services in the future then this needs to be made clear in any deal.. It can get messy if your plans for continued relationships are not made clear up front, so it will help both parties to the sale of a client book to ensure this is sorted out prior to any transaction taking place.

Segmentation and specialisation ideally go hand-in-hand. Well-segmented businesses are typically more specialised in both their nature and the service or product they provide. There are a number of other professions that clearly demonstrate how effective segmentation can lead to improved results, the most obvious of which lies in the world of professional sport.

In the most recent London Olympics, for example, the specialist sprinter Husain Bolt performed nearly 10 per cent better than the generalist decathlete in the same 100 metre sprint. In the discus event the improvement was even greater with the individual gold medallist performing nearly 40 per cent better than the best decathlete in the same event There is in fact compelling data over many Olympic Games that the specialist consistently outperforms the generalist by on average about 20 per cent.

For advisers, this specialist argument is potentially no different. Specialist advice businesses with well segmented client bases tend to know both their business and their clients better. Such businesses are better able to predict their client’s future needs and, for the owners, they more clearly understand exactly where revenue is coming from and exactly how valuable individual clients are to the practice. As a result, these businesses are not only better positioned to drive greater value for their clients but at the same time are able to create a more valuable business model for themselves.

Segmenting for value
When it comes to segmenting your clients, segmenting by client type should be viewed as the greatest driver of business value. You want to identify like clients who are most likely to have similar needs. This is much more powerful than segmenting by product, which can often be a dangerous strategy because you leave yourself vulnerable to attack from competitors who may be providing other services to your clients that you may have chosen not to deliver

Well segmented businesses will potentially be more specialised and provide niche offerings that lead to greater client engagement due to the more targeted delivery of advice. Not only will the end client be potentially more satisfied with the advice they receive but you will build yourself a potentially more attractive and valuable business.

All good stuff, and seemingly simple to explain and implement.

She said she has to put it in writing; sounds good. Couldn’t be more than a few pages, couldn’t take more than an hour or two and couldn’t cost that much. It’s just garden variety, financial common sense advice. She does it every day.

Imagine how your client feels when, two weeks later, your 50 page tome is delivered, including its two page index, three page executive summary, four pages of mandatory disclaimers and disclosures, three bulky appendices and lots of long words in long sentences in long paragraphs telling her things she really does not need to know. It’s obviously 95 per cent generic, and sounds nothing like you.

Deep down you know it’s nonsense. Your AFSL has a compliance team bigger than Ben Hur. They all pitched in to create a big model Statement of Advice (SOA) that only a big compliance team could create. And you have to use it no matter what your client wants, no matter what your client needs and no matter what your client can afford.

You are right. It is nonsense – and the exact opposite of what ASIC wants.

ASIC wants to see shorter SOAs. ASIC wants to want to see SOAs that use words your client can understand, do not include irrelevant material, and tell your story in your own words. Voluminous materials can be provided separately, perhaps via a hypertext link, and incorporated by reference. FSGs and PDSs can also be provided separately, again via a hypertext link, and incorporated by reference.

SOAs should be short and to the point, use simple language and, to use ASIC’s words in RG 175, be “clear, concise and effective”. Obviously plain English drafting principles apply.

The switching rules are important, and can be dealt with clearly, concisely and effectively by following the format set out in RG 175.164. This should include the simple sentence that you believe the new product will provide a better net return than the old product. It’s not hard, and takes less than half a page.

ASIC’s sample SOAs are as short as two pages, and ASIC is doing its best to bring these short sample SOAs to the profession’s attention. My own view is two pages is a little too short, but it shows where ASIC sits on this critical issue. Less than ten pages, and closer to five pages, is a sensible target for most SOAs.

Most financial planning advice is actually quite simple and straightforward. Why aren’t SOAs simple and straight forward? Why make a simple thing complex? Why not provide your client with something meaningful that they can make a decision on? And why not do it in less than two hours, and at a price your client can afford?

Don’t you want to keep your client?

SOAs and the seven Cs of plain English
Good SOAs can be summed up with the seven Cs of plain English. SOAs should be:

• Concise
• Coherent
• Comprehensive
• Consistent
• Clear
• Careful
• Competent

Advisers take all of the risk and receive very little of the rewards. Who designed toxic products? Who did the lending to Storm clients? Who released them to the market? Who has been regulated almost out of existence?

If the planning community is waiting for a Kerry Packer to save them they will be waiting a very long time! When will we stand up and fight?

As I sat and watched a recent television drama, HOWZAT – the story of how Kerry Packer took on the cricket institution, challenged the norm and won – it occurred to me that even with FoFA, we really have not seen anybody challenging the norm. World Series cricket, as we all know, went on to become a fantastic success.

The original standard of the game was for both teams to wear white, which of course would not convey competition, hence the introduction of colour. Another change that needed to be made for televised coverage of the sport was to see the ball in play, replacing the red ball with white.

For more than a hundred years the game was played during the day, but Packer introduced night cricket under bright lights. Until his intervention, international cricketers were poorly paid. Today they are highly paid sportsmen as a result of World Series cricket.

The rules of the game stayed the same, and the cricket boards continue to administer and govern the sport.

Using this analogy, will future financial reform bring about change to challenge the current vertical integration model, or can we expect more of the same? How will an adviser acting in the best interests of the client be interpreted in the courts in the event of potential litigation? Will there need to be a test case to understand what ‘best interest’ means?

How will conflicts of interests be managed, will house brand stay prominent on APLs?
What will risk profiling look like in the future? More balanced funds anyone?

No thanks I’ve had quite enough.

Originally published by Leading Minds Academy.

Much of the future of the financial services industry is highly dependent on a new wave of talent entering the industry. The best graduates have opportunities both locally and internationally, and the advice industry is competing with other sectors to recruit the best and brightest minds.

Education, attraction and recruitment initiatives need to begin at university level, and the advice industry needs to make a concerted effort to raise awareness at tertiary levels.

We are partnering with some of the best industry associations and corporate organisations in the country to meet the 10-year challenge for the advice industry in Australia. In addition to No More Practice and Your Best Interests, we are working with CPA Australia to produce The Naked CEO, which is targeted as business students in the first year of their degree.

Delivered via multimedia (with a focus on mobile) The Naked CEO provides real insights into working and leading in the corporate sector. Decision-making is demystified and key themes are demonstrated in a practical and educational format – as opposed to theory, which most university courses are based on.

Engagement levels with The Naked CEO are very strong, and university lecturers have even started to use the content as part of their syllabus during semesters. This virtual mentoring is also supported via questions that are personally answered on a dedicated site for the program as well as on-campus events.

To successfully increase recruitment of the best and brightest talent into the advice sector, more needs to be done in the medium used by Generation Y and beyond, in a way that both engages and delivers value.

This is another example of how we can collaborate, educate consumers about the value of financial planning and increase the uptake of advice among Australians. By changing the way we educate and communicate, and by collaborating across the broad spectrum of the industry, we can all truly prosper and serve Australia and take our services to across the globe.

You can follow Vanessa on Twitter: @ceovanessa

At the heart of it, many advisers are starting to wonder how the Future of Financial Advice (FoFA) reforms will impact the value of their business. With the mandatory introduction of opt-in come 1 July 2013, questions remain as to how valuable inactive client books will be after FoFA, particularly if advisers aren’t able to service them. Now may be a good time to consider whether you should keep these clients or look to realise their value and better use the capital elsewhere in your business. There are a couple of key considerations advisers need to make around the decision to hold or sell.

First and foremost advisers need to consider whether or not their inactive clients fit the target market and the profile of their business going forward. It very much becomes a segmentation issue and advisers need to question the value any misaligned clients generate versus the value they might generate if they can be sold.
Your inactive C&D clients may well better fit the value proposition of other advisers and be an attractive buying opportunity. We see quite a few practices buying client books that may have characteristics which are highly suited to their particular business and offering. Drivers of alignment for buyers can be very broad and, outside of cultural alignment between the buying and selling businesses, may also include other factors around geographic location, client age and/or products sold.

We see a large majority of inactive C&D client books being bought by young advisers who in many cases may be new to the industry. While an established practice might not have the capacity to service all their clients, these advisers often more readily have the time to get in touch with these customers, reactivate them and potentially uncover new needs that were previously unmet. The inactive C&D clients in your business may be a small fish in a big pond that a new enthusiastic young adviser is able to convert to a big fish in a small pond in their new and emerging business.

If you are holding onto your inactive C&D clients and haven’t got the time nor the resources to service them, it may well make sense to consider transacting the sale of these clients in the current market while demand is still strong. In the end, this may allow you some more time with those clients that are the best fit for your business. Regulatory changes in the industry are trending towards the need to more actively service all your clients and for existing business owners your C&D clients may be much better served by a new adviser who has both the time and resources to properly look after them.

However, some risk advisers have found a way to supercharge their business valuations even further by writing some or all of their new business on hybrid or level commission. Although every adviser understands the economics of this not so new strategy, I often hear the comment that they just can’t afford to reduce their cash flow because of the cost of actually getting new clients through the underwriting process and on the books. And whilst this is a totally understandable response and very valid, there are some changes advice businesses can make to reduce their costs and create more efficient businesses thus enabling them to transition to hybrid structures.

My first suggestion when discussing this with advisers looking to improve efficiency is to ask them to do a quick audit of all the processes undertaken by themselves or their staff in providing advice to their clients. One of the common tasks that take considerable time is the SOA. An idea for any advice business looking for efficiency gains is to explore outsourcing this function. Many dealer groups provide this service to their advisers and some even offer it at a discount or free. I know this doesn’t suit every adviser but it is worth considering and just may make a significant difference to your bottom line.

Another area to look at is the use of technology and how processes can be automated. No planning software I have seen is perfect. However most of the major players have reasonable CRM functionality and can be used to create more efficient advice processes. Another advantage to using a good quality planning software package is that they will allow you to communicate with your clients more efficiently thus enabling advisers to be better able to transition through the FoFA changes.

With this in mind, here are five tips to accelerate the value of your risk business:

Move to a hybrid commission structure: In many situations this move will double the amount of ongoing revenue that you will receive per client. Being able to demonstrate a high level of ongoing remuneration is important as it lessens the reliance on having to generate new business in order to hit your profit targets.

Outsourcing isn’t just for big business: By outsourcing non-revenue producing activities, you and your staff will be able to spend more time in front of clients and referral partners in order to generate more profit. A classic example of this is outsourcing the SOA production process.

Partner with a like-minded licensee: The needs of a risk focussed adviser are very different to that of a retirement specialist adviser. Consider whether your goals and areas of speciality are linked to those of your licensee. If this is not the case, it may be time to consider your licensee arrangements.

Embrace technology: Used correctly, technology can be your best friend. In a post FOFA world where administration and communication become more important, technology, if used effectively can reduce the burden on you and your staff via automation. Ask yourself if you are currently using your existing CRM and financial planning software to its full capacity.

Formalise your client communication and review process: Any practice that can demonstrate a formal, repeatable client communication and review process will attract a higher value to potential buyers. High quality, ongoing communication can demonstrate the value of your advice and ongoing service to new and existing clients making for more loyal clients. More loyal clients means more predictable cash flow and profitability.

I’d think the last thing we’d all want to do with our precious time is continually look for good staff, retrain them in “this is how we do business here” – only to lose them shortly after and then repeat the same process, most likely for the same outcome. The old adage “time is money” is no truer than when it comes to people management and especially so at the front end of the process with recruitment and induction.

Improving recruitment
Like any area of expertise, it pays to know your limits. Be prepared to use reputable recruitment and selection firms and make sure your needs and people offer are clearly articulated. Don’t just advertise a job; advertise a career. If you haven’t had experience in interviewing prospective employees, go and get some, because they will judge you by how well you preform, as much if not more than you are judging their suitability for your business.

Most of the prospective employees I meet with are looking for a “home” where they can make a difference, so make sure your offer provides scope for those who want to achieve, and that you are readily prepared to reward those who do.

Improving retention
Once you’ve located a “star”, do all you can to retain them. You don’t want to become the training house for their next job, as this can be an expensive exercise.

You need to ensure reward and recognition delivers to each individual’s need; for some, money, although important, is not always the answer. Being prepared to have different offers for different staff is okay, and I have long made sure that I play favourites. Socialising of bonuses only disengages your best performers, because you need to make sure you reward the right behaviours as well as the right people; it’s not always about hitting the sales number target.

Lastly, make sure any initiatives are simple to understand, fully transparent and reported regularly. It is pointless making an employee work towards a target or offer they feel they can never achieve; the outcome is counterproductive for everyone, with bad client outcomes, disengaged employees and HR headaches for business owners.

Think about collaborative targets for your staff and bonuses that are paid from profits. This way everyone contributes to the end goal and then enjoys the benefits.

The role of practice principals
You can’t change or develop a culture without the right people, and if you want to change the culture within your business be prepared that you may need to change your people.

The path you take will depend on your view – is talent innate or can it be developed? Employees on their own won’t develop a culture, or they may even contribute to the wrong culture.

Leadership is the key to attracting and retaining talent, and ensuring everyone has the focus your business may require.

Ask yourself: when was the last time you showed real leadership in your business? If the answer is later than yesterday, then you are already too late. As a business owner you need to demonstrate leadership to your team each and every day. After all, don’t you expect each of them to deliver exceptional outcomes for your clients?

We can probably name our best and worst managers we’ve each worked for over our own careers, so learn from your own experiences, communicate clearly and often with your team and lead them to your combined success. Achieving success through others is a wonderful experience; after all, I’m sure if your current and/or past staff do talk about you, you’d want to make sure it’s positive.

While bodies like the FPA have responded with the likes of their ‘professionalism’ campaign on TV, there has yet to be a real groundswell to consumers understanding the value of and actively seeking advice. This will only change if a concerted effort is made by the entire industry, rather than individual stakeholders and separate brands all promoting their own product.

A recent SPAA survey indicated that consumers see advice on their self-managed super funds as coming from three main sources: their adviser, accountant and lawyer. They did not differentiate who gave what kind of advice.

A collective effort to educate consumers would greatly increase the uptake of good financial advice, and ultimately the financial products that often lie behind advice.

We have joined forces with the AFA to create “Your Best Interests”. This is an above-the-line media property with high entertainment values that follows the lives of real Australians in various financial and life scenarios. In each of these stories, a trusted adviser enters their lives and proceeds to make an enormous difference – not only to their finances but to their overall happiness levels.

This show (which has completed pilot phase) is to be aired on network TV, and will be supported by an information-rich site which will also provide access to advisers in locations around Australia. The content will be regularly updated, and encourage communication and conversations between consumers and advisers in an open and transparent environment.

As I noted in last week’s blog, we are partnering with some of the best industry associations and corporate organisations in the country to meet the 10-year challenge for the advice industry in Australia. Your Best Interests is just one example of how we can collaborate, educate consumers about the value of financial planning and increase the uptake of advice among Australians.

You can follow Vanessa on Twitter: @ceovanessa

While Australia’s performance during the GFC has been stellar compared to our Western compatriots, the financial advice industry, however, has not been without challenges.

The attack by Australian industry funds on retail advisers charging commissions, along with well-publicised collapses such as Storm and Trio, have created a lack of trust and confidence in the Australian financial advice sector.

While the industry is preparing for new regulation, improved education standards and tougher recruitment policies, there is a general feeling of negativity and defensiveness from advisers themselves.

We believe the industry has a job to do in five key areas to build faith in and demand for our services. The success of these five key areas will create more demand from consumers, draw more talent into the industry, help advice businesses achieve a greater level of prosperity and see an overall prosperous financial services community across the board.

Over the coming weeks I will outline these five challenges facing the financial advice industry, discuss potential solutions and look at how the industry can lift its game.

The first key challenge for the advice industry is the provision of education to the industry itself. With the burden of increased regulation via in FOFA and a move by industry bodies like the FPA to standardise certification, advisers and accountants are looking for ways to increase their practice value by growing their client base and revenue streams, while meeting additional compliance requirements.

We have created No More Practice as an educational franchise where the industry can share peer-to-peer learning experiences, in mediums that are easily accessible and even enjoyable. By being able to access content via a reality TV format on network television, combined with email newsletter and blogs from leading experts and live events for networking and learning, industry education and learning is being redefined and repackaged to fit in with the time-poor and experience-hungry lives of advisers.

You will note the work we are undertaking is not in isolation. We have partnered with some of the best industry associations and corporate organisations in the country to meet the 10-year challenge for the advice industry in Australia

By changing the way we educate and communicate, and by collaborating across the broad spectrum of the industry, we can all truly prosper and serve Australia and take our services to across the globe.

You can follow Vanessa on Twitter: @ceovanessa

There are many working parts involved in a succession plan from identifying the right time to go, identifying the right successor (ie, whether that be someone in your business or a trade sale), matching of the motivations and drivers of the vendor and successor, how to structure the succession to ensure you have addressed any tax planning issues as well as the funding requirements of the succession. Getting these parts all lined up should lead to receiving a fair cash value for the business you have built.

Based on experience in assisting with the funding of succession plans for financial planning and accounting firms it is important to get the structure right in order for the funding mechanism to be effective.

A succession plan can take anywhere from one year to beyond five years depending on the timeframe the vendor has stipulated they wish to exit over and the funding capacity of the successor. The financial constraints of the typical successor mean that successions are being stretched out over longer periods.

In structuring the succession it is important for the parties to understand each other’s motivations and time lines. This enables the structuring of a gradual sell down over a prescribed timeframe. It is also important for the vendor to understand that the successor, whilst buying into the business, is buying EBIT (earnings before interest and tax) which will be used to fund the principal and interest repayments to the bank to allow further equity to be acquired by the successor over time. Vendors need to maximise the business EBIT to make it attractive for a successor to acquire equity in the business.

The succession should be structured so that all parties have some ‘hurt’ in the succession. Hurt in the succession could be in the form of the vendor providing equity in the business as security for bank funding provided for the succession, cash equity provided by the successor towards the succession or the successor pledging personal assets in support of bank funding provided for the succession.

When providing funding for succession typically banks are looking for the following as a minimum
• Security over the whole business including the vendors remaining equity share
• Security over the entity the successor is using to acquire equity from the vendor
• Guarantee from the successor
• Tripartite Deed with the financial planning practice’s Dealer Group (not applicable for own AFSL practices or accounting practices)

In summary succession structuring can be complex however for all parties involved there can be great rewards if done right. Typically it pays to engage your trusted advisors and succession experts at an early stage.

Let’s break these down a little further.

1. ‘When the going gets tough, the tough get going.’ We’re operating in unprecedented economic conditions. We’ve never experienced so many simultaneous fundamental changes – great uncertainty and volatility are constants. So what do sporting teams do when the momentum is against them and everything seems a challenge? Go back to the fundamentals.
It is our individual networks that play an undervalued part in the outcomes that we’re looking for and like anything else they need to be attended to, to ensure that we’re getting the most from them.

2. ‘People don’t care about how much you know until they know how much you care.’ Good networking is more about giving than receiving. If the mindset is around number of leads or contacts, you’re on the wrong track. If the mindset is about how you can help, assist or be of value to your network instead of being someone people run from, you’ll be someone that people seek out.

3. ‘It’s who you know rather than what you know that matters.’ We all operate with limited time and resources so limit your networking to where you are going to be able to give (and receive) the greatest value and reward for your efforts. Trust and relationships are so important to business connections and these take time so it is better to do one or two things well rather than be spread across too many activities that create superficial contacts and connections rather than the deep bonds of trust. Stick with a peer group of people who are positive, creative and you like to be with. Go where your clients go. Go where your prospects might be.

4. ‘When you fail to plan, you plan to fail.’ You wouldn’t go into an important meeting, presentation or negotiation without preparation and yet very few people take the time to prepare for the immense opportunities that come from productive networking events. Do you have cards? Are you able to clearly and succinctly explain what you do? Are you friendly and approachable? Have you considered who will be present? Is your mindset ready for meeting new people? What questions will you ask when you meet them? What will your follow up be?

5. ‘The more you put into something, the more you’ll get out of it.’ The best value from your networking comes when you are a presenter, organiser or take a leadership position within the group or organisation. Sure it is an investment of time and effort and you need to give a lot – but guess what? Typically the more you put into the organisation, the greater your ability to connect, bond and interact with the very people that will be bringing you opportunities down the track.

Happy networking!

Legal advice is fundamental to this process. However, if you can arrive at the key terms of your agreement before you engage a lawyer, this can save you a lot of time as well as legal costs.

In developing a formal agreement, key terms that should be covered off relate to revenue sharing arrangements, key performance measures for both parties, restraint provisions and communication procedures.

It is worth spending time on getting the restraint provisions right. For example, if the accountant doesn’t want the provision of any other accounting services to a client when they are referred to planner, the planner needs to commit to that. Similarly, an agreement should include appropriate details around communication and who the right contact person is, particularly where there are multiple parties and planners involved in an arrangement.

One particularly important term in any formal arrangement is how it will be unwound if necessary. Often the basis of referral agreements are struck over a beer between two parties, but the hard questions – such as how do you unwind an agreement – need to be asked when everything is all good, either at the outset or during the trial period.

If there is not enough detail around this term, both parties could incur a lot of legal costs in unwinding the arrangement should the relationship break-down. Lawyers will typically document everything that forms the basis of an agreement, but often they will not include details about how an agreement should be unwound, or not provide enough detail around this process.

Key elements to consider in unwinding any agreement include what will happen with existing revenues, who owns the client servicing rights and details of any restraint provisions around clients that have already been referred across. Should an arrangement come undone, it is important that the clients are still looked after.

The key to managing a referral relationship in the first instance is making sure you set, agree upon and then meet expectations. One of the key considerations in this process is in understanding what type of clients will be referred to ensure that there is a match between the clients and their relevant needs.

The planner and the accountant need to have a good discussion about the realities how many clients will be referred. For example, if an accountant has 1000 clients but only 30 meet the client service proposition of the planner, it’s unlikely that you will meet the expectations of the financial planner.

This is also important for managing the expectations of the accountant. If they refer clients onto the planner with the expectation that they will be looked after, but the planner isn’t interested in them because they’re not an ideal client, then this potentially reflects badly on the accountant. So expectations need to be managed on both sides.

In setting expectations, both the planner and accountant also need to agree on levels of service. For example, if an accountant refers a mid-size client who is after an insurance policy, but the planner wants clients who are seeking holistic advice, then it is unlikely the referral will be a successful one. Given an accountant will usually start out by referring smaller clients to gauge how well the relationship might work, this is another important reason to set expectations around service levels.

Both parties also need to agree on how regular referrals will be provided. If the accountant is thinking about providing just a couple of leads per month to start off with, but the planner is expecting five a week this could see a relationship off to a rocky start.

Communication is also an important part of the process. So through the client engagement process, establish how often both parties will communicate, what sort of things will be communicated about the client and what the outcomes of the client engagement process were. Post-referral, it is important that the accountant knows what the experience was like for a client so they can talk about any outcomes as well.

Depending on how serious the referral relationship is, both parties should establish how frequently they catch-up to discuss workflows and clients, whether it be monthly or fortnightly. More significant relationships may require a more formalised system to ensure that both parties to the relationship are kept up-to-date with any developments and outcomes as a result of a client referral.

In my next blog, I will discuss how financial planners and accountants can establish more formal referral relationships.

In our business, we discussed the consequences of a leadership void, and our response has been to: understand where the market opportunities are; set a very clear strategic view of the future; and build a relevant, dynamic and commercial proposition to support our clients. We decided it was time to lead.

Lead yourself
In order to be effective in business, you need to lead yourself. As a business owner, you are responsible for the vision, strategic direction, culture and professionalism of your business. To do this with any measure of success, it is important to inspire those around you. This requires you to bring commitment, integrity and authenticity in your values to work every day.

People want to follow authentic leaders that have a clear vision of the future, and who understand that the only way to succeed is to set a goal and accomplish it. If you believe, you will be believed and followed.

Leading your team
Great business leaders do not work alone, and a clear vision will inspire creativity and innovation in others. Your team will want be part of the success and will take responsibility to help your business achieve the strategy and objectives to deliver results. The environment and culture of your business becomes dynamic and infectious in a positive way.

Clear vision and great leadership attracts talent, and talented people also move on when leadership is lacking. So, as a leader in your business, when you hire great people be sure to create an environment and culture that has clear measures of success and a sense of purpose. Your team engagement will be incredible, and your clients will benefit from it.

Leading your clients
In tough regulatory and market times, your clients are seeking your leadership to help them navigate their course with appropriate investment choices and options. Your leadership gives them the comfort that you are focusing on their goals and aspirations, and that you will help them make effective decisions in times of change and uncertainty.

You may not always have the answers, and that’s okay. It’s not okay to stay silent and it doesn’t align to putting your client first; it doesn’t demonstrate leadership.

Community leadership
We are fortunate to work in an industry that provides great rewards in many ways, so it’s important that we give back. Leadership within your community makes a real difference in the world, and in today’s environment, transferring knowledge is powerful. A colleague shares this very simple philosophy: see one, do one, teach one.

Put simply, it means you are taught something (see one), you implement that knowledge (do one) and you pass on that knowledge (teach one). If we all did that in our profession we would improve our own qualifications, empower others and create a community that takes responsibility for its actions.

Your behaviour, your actions and your decisions will define the measure of your leadership. Leadership of self, team, clients and your community will help you leave a legacy of true value.

Establishing, building and maintaining a good reputation is one of the first and best things you can do. This gives you something to promote and will help you in many other ways when it comes to client acquisition and engagement.

Second, you need to position yourself as a professional expert, so that clients and potential clients will want to do business with you. Whether this is through newsletters, websites, newspaper columns or magazine articles, you can talk about tax changes, investment changes or trends as well as any other relevant, useful information that will help set you apart in the mind of a client or potential client.

Seminars are a particularly good way to help position yourself as an expert and local identity in your community. The good thing about seminars is that potential clients can come along, listen to you, get to know you and assess whether (or not) they would like to avail themselves of your services – without having to pay upfront for this process.

Third, be persistent. It takes time to position yourself as an expert and build your business, and it also takes time for potential clients to work out if they want to do business with you. It doesn’t happen overnight, so if potential clients see you are a long-established expert they know you’re not a fly by the night adviser who comes and goes.

Fourth, if you are part of a broader financial services business or an accounting-based group, make sure the rest of your business is supporting your financial planning business. If you have captive clients within other areas of the business that could be referred onto you with a bit of selling and promotion from the relevant parties in the broader business, take advantage of that. This is about entanglement, so the more existing services a client has with you, the more likely they are to do all their business with you.

Fifth, look to your inactive client base. They are your best prospects as future clients, because the devil they know is better than the devil they don’t. Sometimes you lose a client and they might think the grass is always greener on the other side – but often it’s browner. These clients are often very willing to come back to you, so you should continue to market to them as well as any relevant inactive clients if you’re part of a bigger organisation.

The media is here to serve the public – to expose the truth, educate and entertain – not to make personal and cruel comments about anyone – let alone the person who is running our country.

It strengthens my resolve to make sure No More Practice is here to serve you – to show you via the program how to increase the value of your practice – by following the lives of those who are doing it.

Today we start to shoot season 4, and our new players are going to share a lot of insights around growing EBIT, working toward decreasing working hours and spending more time with family as well as maximising earn outs.

We will also be providing you with free tools to help you value your business today, and then the guideposts on how to increase that by at least 20 per cent over the next three years.

We will also be giving you access to all the contacts you need to maximise value via our marketplace. Your viewing patterns are telling us that many of you are reaching out for new opportunities and we will keep them coming.

We are not here criticise the industry or point out what is wrong, but rather to work together to make it even better – for advisers and accountants, the businesses that support them and ultimately the consumer. This is something Alan Jones could learn from: trying to find a practical solution to problems rather than just offering criticism and rhetoric.

No More Practice will continue to focus on positive outcomes for your business, staff and clients with new ways to help grow your bottom line.

That’s a promise.

The best way for us to do this is through your feedback. If you haven’t already please complete our survey, as we’d love to hear from you.

All the best
Vanessa

You can follow Vanessa on Twitter: @ceovanessa

I see many people enter into these relationships as a result of a discussion over beer, and it all sounds great at the time, but in the process they often skip over the fundamentals of establishing such relationships.

The first step is to develop a clear understanding of the reasons why the accountant and planner are looking to establish a relationship. In some instances it’s potentially for revenue sharing, in others it’s about growing the number of clients they have (especially for advisers) while accountants might be looking to establish relationships with planners they know they can trust to refer their clients onto in a controlled manner.

The next step is to understand the type of relationship they are looking to establish, whether it be a centre of influence relationship, a more formalised joint venture or potentially for merger purposes down the track.

The third step is in understanding the type of business partner they want. So if you’re a planner, I need to understand what kind of business you have, your client base and a number of other points in order to identify the type of accountant that would be relevant to your need. This helps in narrowing down the list of potential matches for both parties.

One of the challenges at this stage of the process is establishing the right personality match. So before making introductions, we put three or four options on the table for both parties. While these options might meet the criteria of both the accountant and planner, it’s important to establish a personality match as they obviously have to work together and get along with each other.

We usually recommend shortlisted parties initially meet over a coffee, and you usually get a good sense of whether the conversation is an easy one or not from there. Out of this, both the planner and accountant will ideally identify one party they are happy to proceed with.

Following this, we always recommend having a trial arrangement in place, in which maybe a half a dozen clients are referred over a three or six month period. Assuming it all goes well, both parties then enter into an appropriate ongoing relationship, with the most common being a typical referral arrangement, potentially with income sharing or a more formal joint venture arrangement.

In my next blog, I will talk about the importance of communication, managing expectations and how to make referral relationships work in the long-term.

Professional development for advisers
Over the past ten years, the industry has focused strongly on the skills and capabilities advisers need to deliver good quality, technical advice to clients. This approach to professional development really came into focus following the introduction of the financial services reforms of 2003. Prior to this, the industry as a whole had a much stronger focus on client engagement.

We believe that financial advisers need a mix of skills and capabilities to provide them with everything clients expect in terms of deep technical competence, as well as strong client engagement skills. A combination of these will lead ultimately help lead to great outcomes for the client.

Advisers also need to recognise when they are out of their depth with clients, and seek external assistance and support from their dealer group when necessary.

By taking a very deliberate and structured approach to development, what we have found is that advisers who have an intuitive sense of what is right for the client are better placed to serve them as it puts a robust, repeatable framework in place for such advisers.

Similarly, advisers who are might be technically competent but less skilled in client engagement are provided with a process and framework to assist them with becoming more skilled in applying their technical competence to get to the heart of the matter more quickly and effectively for clients.

Professional development for CEOs
The concept of leadership is also important in the financial advice industry, and CEOs of small to medium enterprises need to believe in themselves, their teams, their clients and communities.
There are a different set of professional development skills and capabilities for leaders of these firms. If you think about the role of CEOs, key areas of consideration for them are people, processes and financials.

Some CEOs are good at financials, but being a true people leader is sometimes not intuitive for leaders. So there are ways you can help CEOs lead and develop their people, and this involves a very specific development plan to assist them in building and sharing their vision and capabilities with their team to help drive better client engagement and outcomes.

The same goes for some leaders who are naturally good people leaders, but maybe not so strong on the financials, so the focus for them becomes a better understanding of the numbers and the drivers behind these to help change the business.

CEOs also need a solid understanding of the processes that help underpin a strong business. Frameworks and processes around risk management and governance are critical to helping CEOs understand the risks they take in their businesses and make decisions.

So a leader who has strong processes to support them, who leads their team from the front and understand and actively drives the financials of an advice business is ideally placed to best serve their firm’s clients and their wider communities.

As the name suggests, the only tangible asset that you’re likely to receive in a book buy is the “book” (or “list”) containing information in the client list, along with the relevant files and supporting documentation associated with those clients. This doesn’t mean that the asset is not valuable, although realising its full potential requires you to invest time into the relationship with the clients who are the subject of that information. This is because even though you may have purchased the “list” and their former adviser has agreed not to contact them (under a restraint), ultimately clients are free to terminate their relationship with their adviser at will. To this end, you do not “own” the relationship.

What you do own is the confidential information in the client list, including detailed knowledge about financial circumstances, investment history and risk profiles. Of itself, this is an extremely valuable asset as it provides the basic tools necessary to continue servicing the clients in a seamless manner. If you supplement this information with regular personal interaction and quality service, you will increase the likelihood of forming a genuine professional relationship with that client and increase the chance that they will actually stick with you.

Here are some key tips for maximising the value of your client book-buy:

1. Do your due diligence – make sure the information you’re buying is current, accurate and comprehensive (including a detailed claims history);
2. Get quality transition assistance (a personal introduction for key clients, rather than just a bulk letter mail out);
3. Ensure adequate restraints are in place to prevent the seller (and their associates) from contacting the clients;
4. Consider the vendor’s obligations under the Privacy Act and whether client consent to the transfer is required before the transition; and
5. If the clients are located in a state where stamp duty is payable, get advice on the implications for allocating the price between information in the list and goodwill.

Around and around the circle we go, and what a fabulous circle it is. Apple is so good at this that they have perfected the art of guessing what we want next before we have even realised it.

This should be our benchmark in financial services. Unlike a technology company such as Apple, we are in a blessed position. The three most important things to all of us are consistent: they are family/friends, health and money (in no particular order). Consumers need us to help them, but then why do only two out of 10 seek this help? I would suggest that, because of the good times we have had in financial markets over a long period of time, we haven’t really had to innovate to attract big dollars and healthy profits.

However, we must be cautious about what the future holds because the consumer of the future will be savvier, more sceptical and empowered via the capabilities the internet affords them. We no longer have that luxury of looking forward to the good times returning via improved market conditions to see the money rolling back in.

For advisers and financial services companies, to attract consumers in the future we need to think differently about what we can give them. It must be something unique, something they can’t find via a Google search or a scaled advice website with their super fund. We need to think differently about how we can tap into their desires and opinions about what defines financial success, whether that be money in the bank for a rainy day, money for investing in shares (via whatever medium) or the passion close to most Aussies’ hearts – direct property.

If we erased the past, ignored the vested interest we all have in existing products and models, if we pretended they didn’t exist and we had to start from scratch, what would we create? Apple launched the iPod in October 2001 with such a mindset, and look where it took them. Any Steve Jobs out there?

By talking to service providers who are entering our marketplace, I have come across some good ideas that you can choose from, that will improve your bottom line. I have always found the only way to change things is to change the way I am thinking – so this may get you started on thinking differently about your business. Maybe an extra phone call can lead to a conversation about helping you improve your bottom line.

For example, try talking to a non-banker to talk to your bank. If you are trying to buy a new book of clients or another practice, you need the bank onside. This means you need a good advocate for you to the bank, who understands banking requirements, which can significantly increase your chances of obtaining finance.

Check out Lexington Advocates on our marketplace, as they work with advisers and accountants to get your bank onside. Or talk to Daniel Lowinger at NAB Financial Planner Banking, who you will see appearing on No More Practice 4 in November.

Using social media can expand your reach and help you find you new clients. Yes, everyone has been talking about this for a while, but there are people who can actually do this for you. I am not sure if you heard Robbie Bennetts speak at our live event, but his new business is right into social media and it is worth taking a look at if you are looking to find new clients.

Try offering new services; mortgages are an obvious one while another option might be high interest cash accounts. These kinds of services may not mean dollars through the door for you, but your great advice to clients in this area can lead to other opportunities, and more importantly, referrals. Check out the guys at State Custodians on how they work with advisers and accountants on mortgages.

I will keep connecting you with new ideas as our marketplace expands – remember, things only change when you do.

You can follow Vanessa on Twitter: @ceovanessa

The war
It’s funny that when you’re in the thick of it that even common sense isn’t that common. Brett and I had been running pretty hard at our business for three years and had grown new revenue fivefold in that period. One of the things that we had lacked was an external perspective. Our BDM at our dealer group was excellent in providing a sounding board, however the No More Practice series allowed us to meet numerous people from different vantage points that gave us fairly frank advice.

Most of that frank advice when we heard it wasn’t ground breaking; it was stuff that we knew and maybe we weren’t doing and I think that was the really great thing. Most of us have been in business quite a while and we take our eye off the basics. So one great lesson I would suggest that you do is to take time out of your business (ie, get the hell away from your normal stomping grounds) and talk to people about your business. Tell them the warts and all and be open with the feedback (trust me, your baby looks beautiful to you, but maybe not to others).

More than you can chew
As you’ve heard, we grew our new revenue more than fivefold in three years. When you’re growing that fast, you need staff and systems, but you also need cash. We burnt through a lot of cash growing that upfront revenue and as a result we started to create alliances and joint ventures that took us away from our core. This put pressure on our team, distracted us from what we should have been doing and ultimately ate profitability.

I’ve heard it referred to as mining and given the heat in that sector, I’ll repeat the analogy. A small business is a drill rig. You only have one and it takes time to set up, get the drill down and look for ore. In our business (and I think many others), we would set the rig up, start drilling and then pull the drill up, relocate to some other wonderful rich vein and start drilling again and then pull it up, and so on. What we didn’t realise was had we stuck to the original hole, had we continued to exploit that, we would likely have been in a better place.

I’m not beating myself up here – there were reasons we did what we did, however with the beauty of hindsight, we would not have gone down those paths. Although I have a habit of biting off more than I can chew and chewing like hell, I think that you’re better doing it one small bite at a time.

Understand your offering and your niche and mine it, mine it, mine it (by the way, your niche is not “I’m a financial planner”).

Who are your clients?
Another great thing that we got out of the series was learning more about who we wanted to do business with and how we were going to do it. We painted very specific pictures of who our ideal client was and what we wanted to do with them. We then started to meet and talk with those people so that we better understood their language and the types of things that they wanted help with.

We also conducted the nerve wracking exercise of surveying our clients – something that I was very concerned with because we didn’t know what they were going to say about us. Luckily we did well – I say luckily because we didn’t really have an ongoing review process in place. I’m not talking about the “12-month do you want a review” call. I’m talking about giving them a call randomly to see how they’re going, sending them unexpected email on something that they might like; again all common sense stuff, but we were running so hard that we had to a degree ignored it.

For me, this and staff are the areas that you can’t spend enough time. The more time you spend doing things for your customers, the more they will love you and the more they will refer to you. This helps small businesses and gives an unfair competitive advantage over the big guys. Maybe it’s our only one, but if we’re not using it, then we may as well pack up shop.

Under FoFA, accountants will need to hold a licence to continue to provide advice to their SMSF clients. This in its own right creates a great opportunity for financial planners and accountants to work together. In the first instance, planners might see this as a bit of a threat in that there could be a lot of accountants coming into the market to provide advice.

There are between 35,000 and 40,000 public practicing accountants in Australia, and 90 per cent of them will be affected by FoFA and the removal of the SMSF accountant’s exemption. However, the professional accounting bodies estimate that only about 10,000 of that number will go down the licensing path. Importantly, these accountants will only be providing strategic financial advice, and not financial product advice, to their client.

This creates a gap in the market, in that where a client is not self-directed they will be looking for actual product recommendations from an adviser. This provides an opportunity for planners to work with accountants, who look after the provision of strategic advice, while the planner provides product or investment recommendations. We estimate that about half of the SMSF market in Australia is self-directed with clients who run their own share portfolio, while the other half will be in need of advice. However, the type of advice they will seek is more along the lines of ‘coaching advice’ as opposed to a holistic advice proposition.

The 25,000 odd accountants that don’t go down the licensing path also present a great opportunity for planners. While some of these accountants are likely to refer to specialise SMSF providers, it is also likely that they will provide referrals to financial planners to deliver SMSF and other associated recommendations.

Financial planners should be using the removal of the accountant’s exemption as a conversation starter with accountants, who will be looking to establish referral arrangements in order to service their clients moving forward.

In my next blog I will discuss how advisers and accountants can establish and build mutually beneficial referral relationships.

The first fundamental step is to ‘know your why’ as a business. Be explicitly clear about what it is you do and why you’re in business, and then share that across your team so everyone in your business knows why you are in business.

Second, be very clear on your client value proposition, what kind of advice you offer and the specific kind of clients you deliver that advice to. Revisiting this process can help you understand what inactive clients you are going to target for re-engagement.

Third, establish contact with these inactive clients through a simple phone call. Our research tells us that these clients welcome the opportunity to re-engage with a view to discussing their financial future. While there will be some that choose not to do so, the vast majority are only too happy to come back in and rebuild that trusted advice relationship.

Fourth, as you bring these clients in and discuss their financial circumstances, avoid taking the approach of a practice that might rely on assets under advice. Instead, talk to the client about them and ask them to do one of a couple of things.

A simple but very effective approach is to ask them to draw a family tree. Whether it’s on a piece of paper or whiteboard, they should draw a map of the people who are important in their lives, and simply talk to you about these people. What comes from that is extraordinarily powerful, which is an understanding of what keeps clients up at night, what they’re stressed about or what makes them happy – this is what really matters in their lives. This provides you with a great insight into how you can re-engage with clients and then understand the services they might seek from your business.

The other way of re-engaging with the client is to ask them some simple questions about what success looks like in their lives now, and what it looks like five years from now across five areas: home life, friends, health, personal development and their community. If they can rate how things are in each of these areas in their lives now and talk to you about where they would like to be in the future, this is another great conversation starter about what is important to the client.

So these two approaches address the same issue, which is getting to know the real needs of the client. We have seen examples where our practices re-engage clients and have these conversations with them, and they lead to lead to extraordinary outcomes for both the client in getting their advice needs met, and extraordinary outcomes for the business in re-engaging inactive clients. For very little marketing cost and very little expenditure in terms of time, effort and energy, re-engaging inactive clients through these approaches is a great way to improve your business and its profitability.

The second reason is that it makes economic sense. It costs maybe 90 cents in the dollar to buy an accounting practice, compared to buying a planning firm for maybe 2.5 times recurring revenue. This starts to make even more sense given the profitability of the two businesses can be very similar.

However, buying an accounting practice is not a cut and dried process, and there are some key issues that advice practices face in getting the maximum value out of such an acquisition.

The first key issue relates to the ongoing management of the accounting business and the handover of their clients. Structured correctly, this process works exceptionally well when the acquisition relates to the retirement strategy for the accounting practice principal.

The second and just as important issue, is that there needs to be someone in the merged practice who is capable of continuing to provide the accounting services and operating as a registered tax agent. If the accounting practice principal is exiting as part of the deal, someone in the remaining practice needs to continue to operate the license and hold that designation.

The third potential issue that an advice practice faces in such an acquisition is ensuring that client proposition of the accounting practice matches the advice proposition of the financial planning business. For example, there is no point in a financial planning practice that serves high net worth individuals buying or partnering with an accounting practice that specialises in doing mum and dad tax returns.

Referral and partnership arrangements between accountants and planners are only going to continue to grow. With the accounting profession facing similar demographic challenges to the advice industry, the trend towards financial planning firms buying accounting practices makes a lot of sense, as long as they can address key issues.

In creating practice value, you need to be able to clearly articulate the ‘why’ of you are in business. The passion, the vision and the values that you bring to work every day are fundamental to the success of your practice. If clearly lived, understood and articulated, this vision will not only help create a successful business, but live on long beyond your tenure as the practice principal.

It is also important that you surround yourself with a team that has bought into this ‘why’ you are in business, so they can espouse these values to clients and the broader community. A clear values-based culture can be a great positive for a practice by attracting both clients as well as potential buyers.

It is also important to take a long-term view in growing your practice. We like to talk about what the 50 or 100 year view is, and this raises a number of questions for the practice principal. For example, how will the decisions you are making today with regards to how you run your business set it up for the future? How would those decisions be different if you are planning for the business to be around for the next 50-100 years? What does this mean in terms of exit strategies, succession planning and the way practice principals rotate through the business? How will individuals within the business think about the experience that clients have, and what does this mean in terms of what people are prepared to accept in terms of short- and long-term value as you go about succession planning?

This is a much broader conversation about value, and extends beyond the practice principal to the value that is created for the community as a whole. It is not just about this year’s or next year’s sales, and requires a change in mindset in terms of how the financial advice profession currently approaches value creation and succession planning.

Many of you may have attended our Live Event in August, and seen Barry and I have an onstage conversation about his 40 years of experience in business. (click here if you missed it). Two of the biggest tips Barry gave me really stuck with me and I thought them worth sharing with you.

Barry’s tip number 1: Look after the cents and the dollars will look after themselves. Now this sounds like the ultimate in common sense, but sometimes when you are running a business, it is hard to see the forest for the trees. The interesting thing about this piece of advice is that it actually applies to your whole life, not just your business life.

Since Barry imparted this piece of wisdom, which his grandmother actually passed to him, I have been analysing every area of my life, and where I could trim the sails so to speak. I was honestly surprised at how many ways I could look after the cents, and how this has cut overheads in both our business and personal life.

Barry’s tip number 2: Create a business that is perceived to be unique. According to Barry there are two words that really matter here: perceived and unique. While this may seem hard advice to follow in a world that is crowded with offerings, Barry believes that it can be done in any industry.

Now the interesting thing about this is you could have a business in advice (or content like us), or any other service business. The real knack is to create your value proposition in a way that makes it seem like you could not get this service anywhere else. If your customers have lots to compare you to, then you will never keep your clients, as they have too much choice.
You need to create a business where people truly believe there is no other choice – as you are the only one that can offer what they need.

When Barry saw our recently launched marketplace, he observed that we had created a unique offering in our market, and that this was smart going. A compliment of this nature from Barry was music to my ears, as it had passed the test of perceived uniqueness.

I am sure there are many other gems to come – Barry has signed up for the next series of No More Practice as a mentor, so stay tuned for many more insights from one of the greats.

You can follow Vanessa on Twitter: @ceovanessa

My mentor, Robbie Bennetts, told me that if you’re selling an asset worth a lot of money, it’s a huge risk and investment for another party. Therefore, the more transparent you are about the numbers, the greater the chance of success.

I have changed my approach to business as a result and implemented a number of changes in my practice. The first thing I focus on is hiring the best emerging talent, as they help build a great culture and inevitably improve all facets of the business. The second factor I focus on is systemised processes, and the two objectives of any new process introduced at Financial Design for Life are to make our clients’ financial planning journey better and/or create greater efficiency, thus improving our ‘bottom line’. The third change in our business is to ‘know your path and walk it.’ Everyone in our team knows exactly where we are heading and what the destination looks like.

However, there have been some challenges in growing our practice. One of the major barriers to growth has been funding. I think banks are putting up barriers to entry, making it more difficult for new entrants to get into the advice market. Therefore, if there are fewer buyers (less competition) it is more difficult to get your desired purchase price. It’s not impossible, but just harder work.

Another challenge has been uncertainty. I think FOFA created enormous uncertainty for financial planning businesses due to the clumsy way it was handled. At one stage it was unclear what the future financial planning landscape would look like, so it was difficult to figure out a precise valuation for our business.

To make things easier, I would advise other practice owners to get help. Talk to experts who are specialists in this area because they can quickly help you avoid basic mistakes and potentially help you maximise your practice value. Furthermore, talk to advisers who have been through the experience. It can be easy to commentate when it’s not your money, so it’s important to talk to blokes like me who have bought and sold financial planning businesses. It’s a cliché, but it’s true: you can’t buy experience.

Vertical integration is compounding the problem of subsidised, conflicted advice. The truth is that there are lots of good advisers who want to do the right thing by their clients. But many advisers are repulsed by what’s going on in the industry, and the poor consumer is the one who gets caught in the middle of this. Where does a client go to get unconflicted advice, and if they can find such an adviser – how does their business remain competitive and make any money?

Very few people understand the true cost of vertical integration. As institutions control about 85 per cent of the market, they play in their own space and have a lot of lobbying power – so the problem will never get fixed by the institutions – and they have no vested interest in doing so anyway.

Future of Financial Advice (FoFA) reforms are also unlikely to solve the problem. In reality, the Australian Securities and Investments Commission (ASIC) has done very little to help the industry and really weed out the advisers who give bad advice. There are problems at the licensing level, and it’s actually cheaper to get your license through a poorly functioning dealer group that will actually subsidise the provision of conflicted, bad advice for you. In reality, ASIC and Treasury are just following the lead of Bill Shorten following the lead of industry funds to try and destroy the advice industry.

So the industry is unlikely to fix itself. It is the consumer who will drive change, as they are becoming smarter, going online and driving competition. The advice industry as we know it today will have to change its business model completely to adapt to consumer demand. In the future, platforms will either be free or charged at 10-15 basis points, and dealer groups will have to strip out a lot of products with shelf space to be competitive.

The consumers of middle Australia who can’t get advice at the moment will be able to get good financial advice at an affordable rate online. Advisers would do better to follow the lead of the consumer of the future and innovate, rather than stick with outdated advice and business models that have in reality changed very little over the past decade.

First and foremost, they need to know the numbers and run their business as a business. We believe that a client-centric business that is commercially focused and driven will always have more opportunities in successfully finding a buyer. This is critical to maximising the sale price of your practice.

Second, know the kind of clients you serve and the kind of value you deliver to those clients. Be clear about the way in which you go packaging those services as well as the level of value above and beyond the cost associated with the delivery of those services.

Third, be very clear at a whole-of-business level as to how you go about articulating that value to your internal stakeholders, your external stakeholders, your clients and your community.

The fourth and last point is that you need to make sure that the client market you are targeting is large enough to meet your aspirations. Your financial planning practice is not going to grow if your market penetration is 20, 30 or 40 of even up to 100 per cent – if your unique market is so small that it can’t sustain itself.

So make sure you run a client- centric, commercially driven business, be very clear about the types of clients you serve and understand what your customer value proposition (CVP) is, make sure that your whole business can articulate this, and in identifying and targeting your ideal customer, make sure the potential client base is large enough to grow your business.

In my next blog, I will discuss how to clearly articulate the ‘why’ of being in business and how to help clients buy into this.

There are a number of reasons you should consider an integrated business model. First and foremost, it helps your clients get the advice that they are looking for. Time-poor consumers are increasingly looking for a one-stop-shop solution for their tax and financial advice needs. The increasing sophistication of many clients, coupled with the rising complexity of the advice required means that specialist skills are becoming more highly valued than ever. And with the continued rise of SMSFs – a key area of overlap between tax and financial planning advice – more clients need advice covering both aspects.

From a business perspective, depending on the nature of your practice and clients, there is an opportunity to substantially grow and diversify your business, enhancing its profitability and value. For example, if you provide succession planning services and associated buy/sell insurance advice to just 10 business clients, that could result in around $80-100k of additional revenue. Advice in relation to insurance in super for 10 individual client groups/families may generate a further $30-40k. In addition there is an uplift in the value of your practice associated with any ongoing revenue and advice.

It is also a bit of a defensive play, either in response to new licensing requirements, or to protect existing client relationships. Ultimately, if you don’t offer financial advice to your clients, someone else will. If you have offered some of these additional services then your relationship will be protected and enhanced. Not only have you better satisfied your clients needs, but you have moved into a more pro-active/value added relationship, as well as increasing the number of touch points with your clients.

We don’t believe there is one right approach; the right approach for you will depend on a range of factors relating to your business and your client’s advice requirements. Becoming authorised to provide the advice yourself is one option. Alternatively, someone else can provide the advice, whether as part of your business (by employing a financial adviser) or separately via a referral arrangement or JV.

Not all accountants should become planners nor will the two industries become one; just that in the future the two will have more reason to work more closely together than they have historically. Depending on how you view it, change means uncertainty and threat, or it means opportunity.

The analogy is reasonably helpful for first-time business sellers (or buyers for that matter). Many of my clients are first-time sellers and roughly half of those are ‘one-off sellers’, meaning that they have built their business from scratch and, after 15-30 years decide to exit via sale. Unlike an elite athlete, there is very little training that you can do to prepare yourself for the sale process. It can be time-consuming, stressful, costly and (almost always) emotional.

Drawing again from Melissa Gorman: ‘‘To be honest, there’s no 10 kilometre race that won’t hurt. When you’ve got experience you can switch off the pain, or at least the bad pain. You can turn it into, like … good pain.’’

So if you don’t have experience, how is it possible to deal with the sale process in a methodical, calm, fair and “painless” way? Below are some tips borne out of my experience guiding clients through what can seem like an endurance event:

Get ‘sale-ready’ before going to market: Some simple housekeeping can make an enormous difference to the efficiency of the sale process. Kind of like de-cluttering a home before an open for inspection, you should present your business in a clear and comprehensive manner. For example, consider if your lease is up-to-date and that you have written contracts with key employees (including restraint terms). Are you FoFA ready? Deal with any niggling client claims or potential liabilities and be ready to respond to a buyer question on practice deficiencies.

Get tax advice early: Whether you sell the assets or the shares in the underlying company can have a substantial impact on your tax outcome. Talk to your accountant about your planned exit and they will guide you on the CGT, GST and stamp duty issues that should be considered when putting your sale proposal together.

Get the right cultural fit: You may think that your buyer will choose you. Yes, you must have an attractive sale offering to generate interest but you also need to screen potential candidates for cultural alignment before entering into negotiations. A good broker or agent will do this for you. If you choose to deal with the bidder with the ‘highest offer’ only, you run the risk that the deal will fall apart once you get into the nitty-gritty of discussing client management expectations, transition obligations, earn-outs and restraints and so on.

Choose your battles: Once due diligence commences, you can expect to have your business stripped back and picked apart. If you anticipate this, you will be better prepared to negotiate ‘around the edges’ and stick to your guns on the essential terms. For example, is it really worth fighting over the wording of an indemnity regarding potential fallout from a failed agribusiness product when the dollar value of those investments is such that you could simply carve out the tainted FUM/clients from the valuation multiple? Often the time/cost of negotiating contentious items exceeds the commercial risk/value of the disputed item. Be prepared to move-on and let go for the sake of the ‘big picture’.

Manage your costs: Sometimes it’s difficult to predict how parties will respond to negotiations. Good advisers will help identify and quantify potential risks/issues and will take a commercial approach to the negotiation. For the sale process to be a success, your advisers must have a clear understanding of your objectives and expectations and must manage cost and time effectively. Obtain a written fee estimate from your adviser and where stages or tasks are set at a fixed fee; be clear what the assumptions and exclusions are.

Seek quality advice: Just as your clients look to you for expertise, you should only select advisers who have a thorough understanding of your industry and are experienced working seamlessly with the other transaction participants. Commonly, your service ‘team’ will include a business broker, an accountant, a lawyer and a financier. A good broker or lawyer will assume the role of project manager and take responsibility for managing timelines and process, while you are free to concentrate on running your business.

Stay focussed on the business: If you’re selling, it’s the business (or assets) that are being sold. If your relationship with your clients or your staff deteriorates, then the value of your assets will diminish. Set clear rules on purchaser due diligence and stick to them. Having an offer on the table does not entitle the buyer to an investigative free-for-all. Set strict times for access and limit the number of staff that they can talk to (if any at all). For example, it would be unusual to grant access to clients or to view a client list until the core terms of the sale contract have been agreed to and executed.

Have fun: As Melissa says, try to “turn the bad pain … into good pain”. Negotiations can be emotional and stressful, but if you engage quality advisers and work cooperatively with them, you will have a much greater chance of ensuring the predictability and pace of the transaction.

First of all, it goes without saying that you must have a good quality business. Assuming all businesses are similar in the eyes of prospective buyers, what will make yours stand out from the crowd? Having a profitable, quality business is the first step in positioning it for sale and wooing potential buyers.

Secondly, you need to identify your preferred type of buyer. Whether that be an internal successor in the form of employees, an institution or another practice, it is important to identify who to sell the business to and who would naturally be the most appropriate owner.

Thirdly, you need to position your business to appeal to this ideal buyer. With financial market uncertainty, regulatory change in the form of FoFA and other factors, it is likely that there will be more sellers than buyers in the market. So you have to get to the front of the queue, by setting out to woo that buyer and make sure they know your business is better than potential competitors’ businesses.

Fourth, don’t put all your eggs in the one basket. You need to create a bit of competition among potential buyers and make sure you woo more than one particular buyer. If you set your sights on one and one only, they could have a change of heart or policy and turn their back on the deal for whatever reason. You don’t know what could happen, so it’s best to create a bit of competition. Of course, you don’t want to burn your bridges by upsetting them in some way, so play it carefully with this step.

Lastly, developing and executing a good succession plan takes time. Don’t think that you can just advertise your business for sale and wait to see what happens. Developing a strategy for sale, identifying prospective buyers, and communicating and engaging with them to a point where they want to buy your business does not happen overnight.

The same principles apply to an internal succession plan. In many cases, the best chance is to develop succession is from within your business and to sell to up and coming principals. So you need to make sure you get your staff involved in the business, communicate with them, and develop the business to a point over a period of time, where a potential internal successor can see that it’s a great business and that it’s up to the mark so they want to buy you out.

It was a very interesting exercise for me, as a business owner, to record the journey of The Selector Group’s Brett Abikhair and Ian Jordan, our players from series 2 and 3, as they went through the exercise of exploring their growth options through capital raising.

I found it extremely insightful when Barry Lambert mentored the guys around debt versus equity investment. The fact that Barry advised debt was the best option to raise capital at first surprised me. Surely debt was the bigger risk?

As it turns out, debt is only a risk if you can’t grow and pay it back. What it does do is leave control firmly in your own hands. And as most owners (including myself) will acknowledge, control is usually a big reason why people start a business in the first place.

What was equally interesting was the fact that Brett and Ian wanted to raise the $1 million in growing their practice to $5 million of turnover in three years. This plan was deemed by the judges on judgement day as ambitious. They asked what the core of their growth strategy was, and whether 36 months was enough time to achieve it.

This questioning on judgement day really got me thinking about business strategy and growth. It seems like having a plan is one thing, and how long it takes to get there is another. Brett and Ian remained confident throughout that their plan was achievable and they had the projections to prove it. I admired their confidence and will be cheering them on over the next 36 months.

Gerard Doherty advised the guys in series 2 that growing through your own cash flow is a great way to grow in a measured way. I really related to that, as that is how we have grown this business. I do acknowledge and at times lament that we could have grown much faster if we had more capital.

We have however, resisted this for a number of reasons. My husband and I own the company and have worked together for almost nine years. We also have three young children that we really want to spend time with. We have found every time the business is in fast growth mode, we need to have our hands firmly on the reins. This usually translates to long hours and an extremely demanding schedule.

A more measured growth means we can work less hours and trust our very capable MD to run the day to day operations.

We have always valued innovation and have really invested our time and energy in creating new business lines like No More Practice.

We realise that this does not work for everyone –and is certainly not the fast track to making big money. It has however, allowed us to make mistakes, learn best practice and test new products. And this has been achieved with the safety of allowing things to fail without destroying the broader business.

I would be interested to know your views on growth – have you raised capital to grow quickly? What did you learn along the way?

I encourage you all to share what you have learned.

All the best
Vanessa

You can follow Vanessa on Twitter: @ceovanessa

However, sometimes you might get an offer or a particular event might come up which means you need to sell quickly – and it will pay to be prepared.

Under both scenarios, you should have an adequate succession plan in place that outlines how you’re expecting to sell, have processes in place and things in shape as much as possible. Generally, businesses that are ideal for sale are usually running pretty efficiently and profitably, so the transaction will be quicker and the owner will benefit from a higher profit margin.

It’s all about making sure the transaction is as easy as possible for the end buyer. As a seller, if you can take as much risk off the table for the buyer as possible, this will provide a buyer with more comfort that why they’re buying is good, and they will likely pay a higher price.

What this means in practice is having good quality information available, whether that be on your client base, detail on active versus passive clients or how much your top 20 clients represent as part of your business. Good management reporting will also help you highlight the financials of the business in a reasonable timeframe.

Key information on clients and financials will help you communicate to a potential buyer what a good opportunity your business is, and this is what any serious buyer would expect to cover off during due diligence.

With small businesses, sometimes they don’t do accounts quickly enough after the end of the financial year. If you ask them for accounts mid-way through the year it can be a challenge for some businesses that don’t have access to that information.

If you have a potential buyer in mind and you are actively looking to sell your business, then the information you provide, usually in the form of an Information Memorandum, should really highlight the key benefits of your business from a buyer’s perspective. Like anything, if you get advice with this process you should get a better outcome.

So the key points in preparing your business for sale are: prepare early; know your likely buyer; and provide the right information.

Bringing these perspectives together creates a unique opportunity for accountants. They’ve got the history, the understanding and trusted relationship with the client that allows them to work from a position of strength, knowledge and facts with regards to the client’s financial circumstances. As a consequence, they are in a great position to build out a good quality advice relationship with the client.

For accountants who are looking to get into advice, there are a couple of things to keep in mind. No later than 2016, but as early as 2013, the traditional world of accounting and their ability to provide strategic advice in relation to the creation of an SMSF is undergoing changes. If an accountant wants to expand their advice relationship with their client, then there are legal requirements that need to be met and accountants need to become licensed to do so.

For accounting businesses, there is a strategic competitive advantage in going early into this relationship, because it means they are at the forefront of the education requirements around provision of limited advice, on top of the requirements of their own profession today.

What should accountants be thinking about as they go down this road? First and foremost, they need to think about why they are choosing to do so. What is the value their business delivers to clients? If they are a multi-disciplined wealth business, then providing good quality strategic advice and good quality product execution capability will round out the traditional tax, audit and business services solutions that accounting practices provide.

If they are at single, non-aligned business, doing mum and dad accounting with some limited SMSF advice thrown in, then shifting to a holistic financial advice model will assist in rounding out the revenue streams of the businesses.

When I look at our client’s view of the world, our clients expect us to be technically qualified and to operate with the whole-of-client brief in mind. So an accountant that understands the client’s history, that has good quality education to help them keep technically up-to-speed as well as being licensed under the regime that the regulator is putting into place, will find themselves well placed to provide strategic advice in relation to SMSFs to expand their advice offering to clients and ultimately grow a good quality revenue stream and a good quality practice.

Because we started No More Practice with the goal of focusing on the business of running a business – we have had the pleasure of talking to, and learning from, some of the best in the business. And combining these learnings made for a collective business education that I don’t think even an MBA could give – at least not in a practical sense.

If you are reading this you are likely to be a financial adviser or accountant, or someone related to these industries. I am sure it seems you have information thrust upon you from more sources than you care to think about.

While as an industry we have become obsessed with legislation, people movements and corporate takeovers, at times we have lost sight of the biggest challenge anyone who runs their own practice or book of clients faces – to drive and grow a successful business.

While some find the fundamentals easier than others, there is not one business owner out there that can’t run a better business, with access to the right advice, information and experience.

But time is not on our side – we all have lives which keep us running at a rate of knots. I have three young children and I know there have been many times I wished I could spend more time with them, or conversely worrying that I should spend more time at work – so anything that can fast-track my business, or validate its strategy, is most welcome.

This is where No More Practice has really helped me. And yes, I know, I am not supposed to be the one benefitting – I run a media and education business, not a financial advice practice. But one thing I have learned is that the principles are the same.

I worry about the same things you do – staff, cash flow, process, recruitment, succession, financing, business development, capacity … the list goes on, and these are all the topics we have tackled in No More Practice.

Whether you are new to No More Practice, or if you have been watching the show for awhile, our goal for you is to receive one good piece of advice or information every week from us, which you can use today in your business – whether it is from the show, our weekly newsletter or the blogs on the site. And I am personally stress-testing this by applying it to my own business before it goes to yours.

I am going to be contributing weekly to the Reality Check newsletter, reporting back my learnings from our experts, and share how I am applying these lessons to this business. I hope that by being honest in the challenges I face, it will help someone else avoid the same mistakes I have made over the years.

As always, thanks for your support of No More Practice to date – it is great to know we are connecting with so many of you. Please write to me if you have any comments or questions. I will write back as soon as I get the kids to bed.

All the best

Vanessa

You can follow Vanessa on Twitter: @ceovanessa

You have to show clear leadership and understand that you need to evolve. These are the issues that dealer groups should be talking to their practices about as they face identical issues.

On the evolution of financial advice, we are very clear about the future of the profession. We think niche, specialised, very fully priced and large multi-disciplined, corporatised practices are the way of the future.

In sharing that story with our own business, the media and other businesses that we come across in the profession, we’re looking for people who will buy into that. We want to work with practices that have a similar philosophy and view. If you, a business owner have a very clear view of the future, demonstrate a leadership position and recognise that evolution is compulsory, you will set yourself up brilliantly.

The number one thing we look for in businesses is a client-centric approach to providing good quality advice. Practice principals need to have a very clear view of the need to appropriately serve their clients as part of a sustainable and commercially-focused business.

The second thing we look for is cultural alignment. It is important to belong to and be part of a community, so the way in which businesses choose to engage with each other and share among their peers is important because it benefits the whole of that community.

Thirdly, people need to know why they’re in business. It’s great that advisers are there to serve their clients and deliver advice. We look for people who can clearly articulate this in a way that demonstrates the value of good quality financial advice and running a good quality financial advice business.

In short, you have to be focused on delivering good quality advice with a client-centred purpose, you need to be part of a community and you need to know why you’re in business.

If you would like to learn more about Securitor’s value proposition and offering or connect with Matt directly, click here and select Securitor from the drop down menu.

It’s a tough market for many advisers at the moment. Providing advice in good times is easy when the focus is more on investments, but that’s not the game we’re in. The current more challenging environment is an opportunity for advisers to prove their point of difference in a number of ways.

Financial advisers need to build strong, trusted relationships with their clients, with a focus on strategy and coaching to help clients through tough times like this. Solutions need to be advice-orientated and not orientated towards product, and advisers also need to consider the unique position that each client is in.

Not all clients will want holistic financial advice; some of them may just want reassurance via a telephone call. Others may be members of a corporate superannuation fund which provides access to professional advice and other services.

Even in tough times, there is innovation taking place across the industry and we need to look how we can do that cost effectively to help advisers meet the needs of consumers. Licensees plays a significant role in this process, and there are many ways in which dealer groups can help advisers prepare for a variety of challenges

A client walking in the adviser’s door is let’s say 45-years-old, with a life expectancy probably in the 80s. So they’re making a decision that will potentially set them on the advice path for four decades. We need to develop advisers with more appropriate skill sets to not only engage clients but provide them with the technical skills to cater to clients at all levels.

Bigger groups with the capital structures can better afford to develop processes, systems and people to build better business models that have long-term sustainability. For example, we are spending significant money on advice processes, technology and speeding up the time it takes to engage a client and produce a piece of advice. This is a capital-intensive piece of work, and you need money to be able to do this so the backing of an institution plays an important role in achieving scale to invest.

If you would like to learn more about Genesys’s value proposition and offering or connect with Steve directly, click here and select Genesys from the drop down menu.

With stagnant profit levels and a concerted push on for greater client acquisition, the industry is searching for systems that facilitate greater client engagement and increased productivity and profitability. With the domination of software primarily by two providers, we have seen principals design their own in-house software in areas where they have felt the need for improvement.

One example of this can be found in Bill Bachrach’s value-based tool, which enhances client engagement with software that looks like an iPhone application and is almost as easy to use. Clients can access their own secure online file which includes cash flow, assets, debt and all components of their planning needs. This tool has been generating significant referrals and is about to be brought to market after a trial test of an early adopter dealer group.

Software solutions are also coming to market specialising in the areas of practice management, commission/fee tracking and workflow systems and processes, risk profiling, asset allocation, automated and short-form Statement of Advice and secure document storage – all linked to existing or new administration platforms specialising in the IMA/MDA and UMA space. The next evolution of software is about to emerge driven by the need for greater client engagement and demonstration of value as well as the need for increased productivity and profitability.

To survive, the industry recognises the need for scalable profitable advice which can only be enabled by software. Most businesses have still not recovered from 2008 and are on average still down 20 per cent; a common theme or lament is “I’m doing more for less.”

However, there are also some great success stories out there, and what they have in common is engaging with clients in the style they prefer, and becoming an expert in a certain client segments.

Principals are facing business challenges and have gone back to the roots of business development, and in some cases, are even having fun. However, these are in the minority as the vast majority are hunkered down and just trying to wait it out. As a result of current market dynamics, many principals are thinking about either buying or selling. “There is more going out than coming in, so I need to increase revenue by acquisition – or if not, I need to partially or fully sell,” is a conversation that I am often having with practice owners.

There is significant demand for books of business, especially with around $200,000 of recurring revenue. The purchase price of $600,000 with debt servicing of $60,000 per annum creates free cash flow of $140,000 and upside potential for cross-selling and full utilisation of the current team. A book buy also means no costs associated with personnel or leases, etcetera. We are receiving two enquiries a day for books, yet we are only acquiring new sellers at the rate of one or two a month.

For more information on market trends also see Forte Asset Solutions’ July 2012 Market Commentary.

Succession planning is issue “numero uno” for advisers in non-bank channels. We have found this to be the case in our non-bank advice businesses, and solving this problem is ticky – but doable.

Key to this solution is funding sources. At ANZ we have a funding source, which is the basic ingredient of helping to solve problems around succession planning. If you don’t have a solution to succession planning today you’re not necessarily in trouble, but if you don’t have a solution in place in a year or two you probably will be.

If your plan is to sell, there are a number of important points for potential acquirers. We always look for the win-win transaction, which is easier said than done. From a commercial perspective, acquirers are often losing out.

If you look at the original assumptions in business cases for acquisitions, I don’t know of too many that stack up commercially. Many such acquisitions have been a case of win-lose for acquirers, and this has been the case in small, medium and large acquisitions. So any acquisition has to be a win-win commercially for both parties – if it’s win lose ultimately its not going to work.

Secondly, any acquisition has to fit with the buyer’s strategy. Any buyer will have an overarching financial advice strategy, with a target market and accompanying value proposition. In addition to fitting with a strategy, culture plays an important role. Often it’s the cultural aspects that can lead to a deal coming undone and a case of win-lose for an acquirer.

Lastly, both buyer and seller have to be honest and frank with each other in the process. Sellers need to be upfront and honest about their intentions – both in selling the business as well as future plans – while buyers need to be equally upfront and honest about their motivations for buying a practice. There have been many cases where sellers have not been honest and frank with acquirers, and again this will lead to a case of win-lose for a potential buyer.

The current consolidation within the financial advice industry and flight to quality in large institutional support is a natural part of an ecosystem’s evolution. When I first joined this industry 15 years ago, it was fragmented. There were many players in the market, and some of them have grown in size to become significant players while many have been acquired or merged into other businesses.

This brings us to where we are today. Through the GFC consumers shifted in their banking relationships and sought cover in large institutional ownership. And when it comes to financial advice, there is something to be said for advice which is delivered and backed by a large institution – both for the adviser and the consumer.

I believe the consumer if hearing the story we’re telling them. When they personally experience the quality of advice we can deliver and understand the value it can add, they understand that we’re serving their best interests. Whether you’re institutionally owned, institutionally aligned or independent, both in mindset and ownership structure, the quality of advice will be the thing that comes through.

For some of our advisers, they take great pride in talking about the fact that they are aligned to a large institution. If they’re talking about Securitor, for example, they would say it is a wholly-owned subsidiary of the Westpac group. Sometimes consumers want that level of reassurance in seeking advice, while others simply don’t care.

The thing that binds us all together is a desire to ensure the client is always placed at the centre of the advice. Whether the advice is being provided by a bank financial planner from Westpac or the Bank of Melbourne, I believe the quality of the advice provided is at least as good as the quality of advice found in other institutionally licensed and independently licensed advice businesses.

However, what might vary is the level of experience that is represented, depending on whether you are talking about an aligned or independently owned business, or in a salaried business. Do I think that most of us come to work trying to do the right thing for our clients? Yes I believe most of us look to provide good quality strategic advice in the first instance.

However, the level of experience an institution can bring to the table cannot be discounted, as this experience plays an important role in shaping the quality of advice that is ultimately delivered.

If you want to sell your business, then you need to position yourself so that someone will want to buy you, because you’re the only business of your kind in a potential buyer’s eyes.

While I never set Count up with selling in mind, what I did do was create a unique business. One of the big lessons for me came from Going beyond competition, by Edward de Bono. He said you should position your business so your clients don’t think there is anybody else like you. If you can position yourself so that your clients don’t want to go to anyone else because they don’t think there’s anyone who can do what you do, you have a great business.

When I started out financial planning was in its very rudimentary stages. I looked into financial planning and realised it wasn’t for me. I came to the view that accountants should give financial advice, and that’s why I decided to start my own company.
When I set Count up, there were no other accounting-based advice groups around. Some came along over the years, and they were usually backed by institutions. But I had no big brother to service, and accountants recognised that we were on their side. They loved us because we were simply there to help them build a better business, rather than just wanting referrals from them.

That’s why innovation is important in building your business. I did what I think was right and what would work – so I don’t copy other people. Many people have asked over the years where I got my business model from. I simply created a business that I believed was the right thing for accounting-based professionals.

So what I essentially did in the process was to position Count where someone wanted to buy us. That’s very important – you have to position yourself to be different and we positioned Count where there was no other business like Count in the market.

So if someone wanted to buy a business like Count, it wasn’t a matter of competition in buyers’ eyes. There was only one kind of business to buy, so that was a smart decision.

As financial advisers, you need to be confident about what you do and the contribution you make to the community and broader economy. At times there has been contentious public debate about the industry, but you shouldn’t beat yourself up over these broader debates and issues, as there are always going to be critics who are outspoken on certain issues.

Now politicians aren’t that popular as far as occupations go, and it can be easy to get distracted by generic commentary that it not necessarily always based on fact. And you can get a bit intimidated in terms of how you approach things. But you should be confident in what you do.

As a financial adviser, what you ultimately do is help people with their financial wellbeing, manage financial risks through their lives, help them maximise financial opportunities and help people who get through to retirement age achieve an appropriately funded retirement.

These are all very important things in our lives, and of course the better the advice and support we receive as we go through our journey, the better the position we will be in to face the challenges of life.

Yes, sometimes things go wrong and if there are bad outcomes from the industry there should be strong and appropriate action in such cases. But if you look at the financial services industry in Australia and how we weathered the GFC, we do have a very robust, high quality financial services sector. There is always room for improvement and room to increase professional standards and better deliver on that commitment to high quality advice. But let’s not throw the baby out with the bathwater.

If we are concerned that not enough people are seeking financial advice, that will only get worse if we make it more complex, more expensive and more difficult for people to get in the front door.

This is why we have been quite critical of the Future of Financial Advice (FoFA) reforms. There has to be a balance between making sure we have appropriate levels of consumer protection while making sure that access to advice remains available and affordable. In the interests of making high quality financial advice more available accessible and affordable to more Australians, I think we first need to look at current compliance burdens.
The Coalition has a serious commitment to cutting red tape, and we want to identify $1 billion in savings for business by cutting unnecessary red tape and compliance burdens out of the system. What I am looking for from the industry are suggestions and recommendations for cutting red tape that doesn’t add value. Ultimately, we’re all after a more efficient, more transparent and more competitive financial services industry that will deliver maximum value to consumers.

Over the past decade both the accounting and financial planning profession lost an important opportunity to lead and influence the direction of financial advisory services.

For the accounting profession, our influence started to dilute over a decade ago, with the introduction of Financial Services Reforms, and work around exemptions. Have we lost the courage and confidence to stand up, be bold and be counted? Accountants are still ranked as the most “trusted adviser” so it is time that we share our knowledge.

Trust is built by having integrity, objectivity, professional competence and professional behaviour – many of the same attributes that makes a great leader. Leadership is about owning the reform agenda, getting in, boots and all, debating the issues and driving and owning reforms.

The recent FoFA reforms are a great example. The principles were very simple, “providing access to high quality, independent and affordable advice for the community”. The story was not complicated; it was about independence and consumer outcomes. The majority of our organisation’s members did not seek to become licensed financial planners, because as members of the accounting profession they valued their independence, and they did not want to recommend specific financial products, but they did want to have basic discussions that support informed decision making, which you call simply financial literacy 101.

Given this broader range of advice accountants will be able to provide, some people in the industry have predicted a future showdown between accountants and financial planners under FoFA. We don’t see that at all.

With the right advice, and some financial literacy assistance and guidance from the professional accountant, these clients may also begin to realise the value of financial planning advice. The vast majority of our members do not wish to provide product advice and want to establish professional referral networks to other “trusted advisers”.

As clients become more financially literate, their needs grow or where they need a specific product recommendation, the business relationships previously formed between the professional accountants and the licensed financial planners will play an important role to service the client.

This generated a number of posts from readers who discussed the pros and cons of why the industry is in dire need of change. My point relates to fundamental change rather than incremental improvement. Paul Aspros is correct – we have all made improvements in efficiency and the way we deliver advice to clients over the last 10 to 20 years. The issue is, however, more fundamental than that.

If you look at the improvement in communication as a result of iPhones and their competitors compared to what a phone used to be able to do 10 years ago, we need a quantum improvement in the whole delivery system to our clients. The platforms on which we work are efficient at aggregating managed funds and now sometimes allow some share trading and term deposits on them, but they give us no line of sight at all over the client’s entire financial life (ie, a consolidated balance sheet incorporating all their assets and liabilities). Apart from that, the platforms are way too expensive and the whole notion of risk profiling and the asset allocation theories we have been using for years are clearly outdated and do not work. In the GFC, many moderately conservative investors still lost 30-40 per cent of their total assets.

Even more fundamentally, the biggest market in this country is the self-managed super fund market. Research shows that less than 20 per cent of the assets sitting inside self-managed super funds are advised on by our industry. Anecdotal evidence seems to show that there is more consumers leaving financial advisers than new clients coming to them for advice. Does this mean that there is something fundamentally wrong with our industry? I have no doubt that the negative comments by the industry funds and even our regulator – ASIC – have had significant impacts on that as well.

The future is not a replication of the past. Incremental improvements are not going to cut it. With significant change comes significant opportunity for those practices that are advice- and client-focused.

Ray Miles will be speaking along with 30 other industry experts at No More Practice Live on 9 August.

Do planners who belong to a dealer group which is owned by a large institution behave any differently to those who belong to an “independent” dealer group? The answer is ‘yes’ but that it is not to say that they behave better or worse.

This is one of the issues to be discussed at the No More Practice Live conference, with three heads of major dealer groups being quizzed on their views. They are Matthew Englund of BT Financial Group, Steven Davison of Genesys, and Mark Ballantyne of Financial Wisdom.

The owners of those three dealer groups – respectively Westpac, AMP and Commonwealth Bank – account for a big share of the advice industry. But what of the advice their planners give?

The little evidence which is available suggests that such planners are more disciplined in their approach to providing a plan; less likely to deviate from a script given certain client information. They are also more disciplined in eliciting the relevant information.

The good part of this is that they are probably less likely to make a mistake or give “bad” advice. The less good part of this is that the lack of flexibility means they may miss a truly unique case which should get a truly unique strategy.

One interesting question is whether such institutionally guided planners are more or less likely to use managed funds and possibly less likely to recommend an IMA or direct shareholdings for their clients.

Clearly, from the decline in total managed fund assets which has occurred in each of the past three years, there appears to be little correlation between the two, at least at aggregate level.

Greg Bright will be participating in No More Practice Live on 9 August along with 30 other industry experts.

Supply is limited due to principals deferring their retirement given that their revenue and business value has dropped (as has the value of their superannuation) and they are waiting anxiously for markets to recover. Dealer groups are also extremely protective and are seeking to organise internal transactions, or attract external buyers to join so fewer practices are coming to the wider market.

Dealer activity has increased substantially with one institution having six personnel in just the Victorian market mandated to go out and buy books of business or recruit new practices and FUM. This hyperactivity is due to the war that has broken out between two dominant players and also the universal need for growth.

If there is no new FUM then you must cannibalise existing FUM. This has become more desperate with the changing face of distribution – due to M&A activity there are few “independent dealers” and now, it has been reported,  90 per cent of FUM is in the hands of five institutions and this domination will continue with most independent dealer groups for sale at the moment. For manufacturers there are therefore diminishing external sources available for new FUM generation.

It is false to assume that institutions are the buyer of individual practices or books; they are the broker, they will acquire but only if they have a buyer who can service the client base, and then they on-sell or they take a minority interest. Either strategy provides them the growth of FUM and also surety of contractual adviser retention.

This strategy is not only successful in adviser retention but also recruiting advisers/practices to the institutions as they can supply growth and any port in a storm will do, especially if it is a large port. The reality is also the institutions do have a very competitive and high service offer that many of the smaller “independent” dealers cannot possible compete against. Smaller dealers compete on the intangibles of culture, “independent” value proposition, open architecture or choice.

Yet this value proposition is being challenged as FOFA forces dealers down the value chain to providing their own funds management and platform offers and therefore restrict adviser choice. However smaller dealers will adopt a “best of breed” philosophy regarding the underlying participants, who they can change if need be.

Forte has in excess of 2,000 registered buyers of which 60 per cent have nominated they would change dealers for the right opportunity; this is why the institutional dealer groups have been so successful. For practice principals it is simply about scale for survival, not who you are licensed by.

This raises the often-asked question: are we seeing the death of “independent” or boutique advisers? The answer is yes and no. Yes – for the present – but no in the medium- to longer-term. I believe as markets and practices return to normal growth levels, practices will seek a point of differentiation as will consumers and we will see the return of boutiques.

At times it feels like Back to the Future 2001 and financial services is certainly experiencing a deep and protracted recession, but without the buffer release of super funds across the wider community.

Stephen Prendeville will be speaking along with 30 other industry experts at No More Practice Live on 9 August. For more information on market trends also see Forte Asset Solutions’ July 2012 Market Commentary.

The first remains a narrow product-focused offer within the product manufacturer’s stable that is the domain of the big four banks, insurance companies and large vertically integrated financial institutions.

The second is a broader strategic-focused offer unrelated to quantum of investment and directly related to degree of financial complexity and/or depth of advice required. This second approach provides strategic financial advice on the broad spectrum of an individual’s individual financial complexity.

FoFA doesn’t have any impact on the financial product manufacturers who own the revenue stream, and will continue to sell their products. FoFA’s influence is felt in the smaller financial advice firms which have acted as retail outlets for a specific brand of financial product, and are now scrambling to consolidate, as FUM-based business models are only sustainable within the safe arms of a vertically-integrated institution.

Separate to this is the second major area of financial advice in the new FoFA era: strategic financial advice. Issues of tax planning, estate planning, asset management, succession planning and investment strategy contain much broader financial implications for an individual or family, and this is the realm of true strategic financial advice. Most importantly, the client can be confident that because these advisory firms are remunerated to resolve financial complexity rather than maximise FUM (or product), advice addresses all strategic considerations that might impact on successful financial outcomes.

In this area of the market are financial strategists who operate on a fee-for-service basis. The type of consumers attracted to this option will be those with higher incomes who currently have investment properties or a portfolio of investments and will directly benefit from understanding all the financial and tax-effective mechanisms that they are in a position to take advantage of.

While FoFA may not have achieved its full objective of eliminating the conflict of interest that is inherent when a financial planner represents the financial products of a single manufacturer, it at least makes this relationship more transparent.

Critically, the challenge for the industry is to ensure that consumers who need strategic financial advice understand the difference between these two offers, as advice on which investment product to choose will never qualify as a financial strategy.

The ASIC definition of independent is course materially unworkable and eliminates 99 per cent of the advice industry – which is a farce when it comes to consumers simply wanting a heading that says what it is, ie: not aligned or owned by a product manufacturer and not conflicted.

The advice industry is now 90 per cent institutionalised at licensing level, and if a practice operates under one of the institutionally owned dealer groups, they become an authorised representative of that licensee. This is not a new issue although it does raise questions as to whether consumers are aware of who owns who, whether in fact they care, and whether there’s a greater need for transparency in what it actually means to their financial affairs. It’s worth noting the lack of ownership transparency is masked behind a multitude of sub-brands that are presumably designed to hide the ultimate owner.

With little interest from the ACCC, (predatory pricing tactics) banks now appear to be offering advice practices very significant sign-on fees and it’s worth asking whether this changes the game and whether full disclosure of the sign-on fee should mean that the adviser has an obligation to:

(a) disclose this fact and
(b) move into a category that is correctly and legally defined as an agent

If a licensee gives an adviser up to $1 million to join their dealer group, common sense suggests that they’re going to want their $1 million back in some way, shape or form and that there are financial obligations to be repaid through product sales. Perhaps a radical move would be to accept that this is going on and simply reclassify the market into “independents” and agents and then allow the market to determine whether it really matters?

I suspect the transparency would make many of the slippery deals stutter as the word agent (while truthful) is an unfashionable image of the life industry circa 1980 … which is exactly the point – the industry is now replicating the turf war of AMP and National Mutual of that era under the more fashionable heading of “wealth management”.

This takes us to who actually takes a leadership stance in the advice industry when it’s dominated by product owners. We should all wake up to the fact that the government and regulator had to step in and introduce reform of the industry (FoFA) because the industry heads weren’t capable of leading the industry properly – not day-to-day advisers but industry heavyweights on multimillion dollar salaries who were on duty when the reforms were called for.
Now we enter the next phase and the same wealth management leaders (sic) offer money to advisers to sell product and pretend that it’s all fully transparent and that it’s good for advice good for the industry and good for consumers. Maybe it’s time for the ACCC and ASIC to start thinking more deeply about creating a consumer-led recovery by levelling the playing field and bringing back the word independent … it’s actually a pretty good value proposition if it’s allowed to be used.

I have always been passionate about the Count business; I didn’t establish and build it with a view to selling. I’ve received many unsolicited approaches over the years, but I never really considered any of them seriously. Stockbrokers and friendly societies first came knocking, followed by BT, MLC, Westpac, AMP, ING and Challenger.

When Commonwealth Bank – my first employer – made their offer, however, it was simply too good to refuse at that time. Combined with my age (I recently turned 66) and stage in life, with 3 children and 11 grandchildren to spend more time with – selling Count was an easy decision for me.

Market and regulatory uncertainty also played a role in my decision to sell. Between FoFA and the economic uncertainty of recent times, Commonwealth Bank’s unexpected offer came at an opportune time and the Directors and Shareholders thought it was a good price for shareholders.

I built Count as an independent accounting-based business, and I am confident that’s how it will remain. I used to work for Commonwealth Bank and I believe they have an ethical approach to doing business, and that has been my experience with the Count transaction. Their personal word to me was that they would keep Count separate from their other divisions, as they recognised a professional accounting-based network needed an independent approach.

The reality is Count is simply a service provider and the accountants and advisers we work with own their businesses and the relationship with their clients. The minute we do something that’s not in their best interest they will walk, so we need to keep those relationships strong and professional.

So there are a range of factors to take into consideration when selling. It’s a bit like when someone retires from the Australian cricket time; they always say “now is the time” – it just happened. You could be prescriptive and analytical about it and try to pick the top of the market, but the right time to sell is when it’s right for you. There is no point dying on the job!

Meet Barry Lambert and over 30 other industry experts at our No More Practice Live Event on 9 August.

It feels like we’re back in the 80s with the amount of money being thrown at advisers to join dealer groups. There are too many overpriced platforms, there is too much fat in products and there are too many conflicts of interest. Something has to change.

There is now some feeling around the marketplace that the model of financial advice as we know is over. For example, in The Consumer Revolution, produced by United Capital Financial Partners, it is recognised that there is a significant consumer shift occurring that will forever change financial services. My feeling is that the industry as we know it is about to get torn apart because we have very outdated models of advice.

Twenty years ago, if you wanted to go on an overseas trip you would go to a travel agent – now you go to the internet. If you wanted to buy music, you would get a CD from a mega music store. Apple destroyed that model with iTunes. If you wanted to rent a video, you would go to your video store. Netflix changed that. If you want to read a book now you go online – all the bookstores are going broke. We’re in the middle of a consumer revolution and people are finding cheaper, easier and more convenient ways to do things online.

The financial services industry has not delivered any efficiency in 20 years – and this industry will not remain untouched by the consumer revolution. Financial advisers will have to change their business models completely, and consumers will be able to get advice online at a reasonable price in the future. Change is inevitable, and it is only a short matter of time before the financial advice industry finds this out.

As a result of your reports on the educational and professional developmental benefits of watching the show, we have sought and received CPD-accreditation and endorsement by the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) for the current series of the online and digital, reality TV program and No More Practice Live Event.

Viewers can earn 1 CPD point for watching each episode of the six-part third series via the No More Practice website and through answering a short multiple-choice quiz. Attendees at the full-day event will receive 6.5 points for their attendance. As well as CPD-points, viewers of the show can also access online tools, materials and expert blogs to assist in preparing their businesses for growth or sale. With the positive take up of CPD points for season three, the same accreditation will be available for future episodes.

We thought we would share the thoughts of two viewers with you. One viewer commented that there is no one else helping practice owners out in this way: “We do our training, our qualifications but what helps us to run that practice away from the traditional model that does not really work anymore, and to remain competitive and build viable assets? No More Practice! This show has allowed me to feel normal and relate what I am experiencing to what others are experiencing. Thanks for the sanity check and real practical help.”

Another said: “I was sceptical whether I’d get any value from the series but it’s been very enlightening. Questions about business expansion are multifaceted so having the depth and width of talent from ‘the experts’ is the source of the real learning. I wouldn’t otherwise have exposure to the advice of so many different fields, and as a business owner this makes the program so unique. I commend the advisers featured. They’re gutsy and honest for the benefit of others’ learning. I like the short, punchy format as it makes the programs easier to fit into a busy day.”

Keep your feedback coming!

You can follow Vanessa on Twitter: @ceovanessa

One of the main things that we find is attractive to buyers of practices, are successful processes that are repeatable. Most businesses fail in this regard because they do not set up repeatable processes for someone else to come in and run their business after they have sold it and run it.

McDonald’s is a great company to look at in this regard. Ray Kroc was a milkshake machine vendor in the US in the 1950s. He went to a hamburger joint in Southern California, run by the McDonald brothers, and Kroc was impressed by their operation as he could see they had systems and processes that could be replicated so that a buyer could run and grow the business. Ray Kroc not only replicated that model – he franchised it around the world.

McDonald’s hasn’t stood still though, and has built upon this and also recognised the need to evolve their service offering. They have made sure this offering has improved with healthier options to cater to new customer segments. So the lesson here is that a practice will be the most attractive if it has repeatable processes as well as a way of staying contemporary with the changing needs of clients.

In the case of Chris Browne, for example, he specialises in providing advice to the Gen X and Y market segments. So if a buyer wanted access to those market segments, then that would be a logical acquisition. You need to have something that a potential buyer wants.

Having a clear value proposition is critical to the success of a business, but investing in repeatable processes and methodologies that someone else can run is critical to the successful sale of your practice.

So for every extra dollar of additional revenue a practice earns, the licensee takes an additional percentage, thereby reducing the practice’s margin. However, a business can improve their EBIT and bottom-line profit overnight by working with “business-minded” licensees that charge fixed fees for their services.

Most licensees predominately charge a component of a percentage-based fee. Some have a hybrid model, some charge a flat fee, and a lot charge percentages from dollar one and tier down from there. This can range from 15 to 17 per cent for businesses with less than $300,000 revenue, while those between $300,000 to $700,000 will come back to about 10 per cent and businesses with more than $700,000 revenue can come down to as little as 5 per cent.

Some businesses then have a flat dollar fee with a percentage on top, and that flat dollar fee could be around $20,000, with a 2 to 3 per cent percentage-based fee on top of that additional revenue.

Flat dollar fee models
We were like most other dealers in that we charged a percentage-based fee, but earlier in the year we changed our dealer model and moved to a flat dollar fee basis. With FoFA coming in and related issues around grandfathering and volume bonuses, dealer groups need to add value through providing tools, mechanisms and other support to assist advisers in transforming their businesses.

Our view is that we can’t ask our advisers to operate a professional flat dollar fee service business under FoFA, but have us in the background still taking a percentage of the revenue they create. So all the way down the value chain you have to get that alignment in order to take the industry to a more professional level.

If we can assist businesses to operate professionally, they can use whatever administration platforms they need to use in order to run their business. But rather than relying on providing shelf space for product, if they have a good value proposition and a good service model for their clients, they can actually charge a larger fee to the client and get a better margin in their business.

Take for example a $500,000 business that is on a 15 per cent dealer split. They’re paying a significant amount of fees, but if they increase that business to $750,000 they have to pay an additional 15 per cent of that extra $250,000 to their licensee.

Improving EBIT
If a business has more cash flow and a better EBIT, their financials look a lot better so they are able to go back to their bank and talk about acquisitions. So they can buy another business and bring another $200,000 to $300,000 worth of revenue into their business – but they haven’t got that incremental percentage-based cost so they are getting an immediate cost saving out of the other businesses.

EBITs normally run at anywhere between 10 and 15 per cent, so it’s a pretty exceptional business in our industry that has a 30 per cent EBIT. Where an adviser is looking to sell their business and develop a succession plan, if we can get a business that has a 30 per cent EBIT, 3x occurring is equal to 5 x EBIT. It doesn’t matter from a seller’s point of view how someone values their business, it’s still going to come out at the same figure.

So by moving to a flat dollar fee basis you can have a 10 -15 per cent EBIT but overnight you can go to a 20 per cent EBIT just by having a flat dollar fee arrangement.

The feedback we have had about flat dollar fee arrangements is positive. It’s good for cash flow, makes adviser’s financials look a lot better, and they can go back to their bank to discuss that acquisition they wanted to make.

A recent Elixir Consulting report, for example, found that financial advisers are using a hybrid of flat and asset-based fees first – but gradually shifting to a full flat fee model. Interestingly, many advisers who are either accelerating their business evolution or starting to address the issue of fees would not do so had they not been compelled to.

The report also found that clients appreciate the shift towards a fee-for-service model, with 86 per cent of advisers finding that their offer was accepted by more than 90 per cent of the clients they presented it to.

Good advice does not necessarily come cheap, so advisers need to have confidence in the quality of advice they provide. With the shift towards fee-for-advice models, quantifying and communicating your value proposition is critical in getting clients to understand and pay for advice in a post-FoFA world.

These five questions – the ‘FoFA fitness index’ – can help you gauge client engagement and assess how fit your firm is for FoFA:

1. How engaged are your active and new clients?
2. Do these clients know what they pay?
3. Do they value the advice and service they receive?
4. Do these clients refer you to their valued relationships?
5. For new investment clients, will they opt-in to you every two years

The FoFA fitness index should get you thinking about a number of important issues which are critical to improving the value of your business.

Firstly, are you engaging clients sufficiently well? This is important for any potential acquirer. Would they want to buy a business that has good client contacts and relationships, or do they just want to buy a business that is just a list, with no client relationships or contacts?

It is important to keep clients well engaged, especially if times are tough and markets are volatile. Good client engagement is something you can control in tough times and that can benefit your business, so keep in front of your clients and keep them engaged because ultimately what you’re selling is a client relationship business.

Ask yourself if you see your clients regularly enough and provide them with regular contact. Having a regular review process for your clients can assist with this – and help them see the value in what you do and make it easier for them to refer you to other people.

A number of requirements under FoFA are designed to address poor client engagement. So having good engagement will not only make life easier under FoFA – but ultimately improve the value and saleability of your practice.

Fellas, imagine Heidi Klum rang you up to ask you out for a drink. You would never say no to this invitation. Upon meeting her and spending some quality time you realise that you are not going to leave your wife for her. Why? Maybe it was because she didn’t make you laugh, maybe you didn’t have shared values or dreams, maybe you were terrified of her physical perfection, or maybe there wasn’t any chemistry. Whatever the reason and no matter how attractive she may have appeared, it was not enough to turn your life upside down for.

So, if you get this analogy you will understand what many financial planning business owners are facing. They are being approached with offers too good to refuse from competitor dealer groups. They might be offering the best processes to attract referral partners, the best lead generation system, the best IT solution and it goes on and on. No adviser though is going to put their business and staff through the administrative torture of a dealer group move unless they have fallen out of love with their current licensee. Without this there will never be the desire to look elsewhere. Just like a marriage.

Advisers also need to understand that just like a marriage compromise is essential. There is no such thing as the perfect dealer group. Most women can easily tell you the pros and cons about their partner. They’ve done the list mentally (and sometimes even on paper) and if they are still with the guy it is because the good outweighs the bad. If an adviser has fallen out of love with their dealer group I challenge them to be honest about the reasons why. There are some advisers who have unfairly attributed their unhappy state as the fault of their licensee when their expectations where quite frankly unreasonable.

Since launching My Dealer Group many males have asked me about the science I use to match make advisers and licensees. Females reading this understand how ludicrous that question is. My advice to both dealer groups and advisers is to start viewing your partnership just like you would a marriage. All those things that hold true to a successful relationship: the compromises, the necessity of respect, open communication, honesty and the ability to laugh are the essentials to productive and enjoyable dealer group / adviser partnerships.

1. Set aside time to objectively review your cost structure. When you combine the standard rise in general expenses with the costs to deliver FoFA it’s a pretty fair bet that your cost base has gone up. So, set aside time to consider the implications of this increase to your current fee structure. And don’t forget to include allowances for overhead and profit. Nothing costs nothing – ensure you’re charging properly for all of your services, all of the time.

2. Do something with your Cs and Ds. With FoFA coming in, it’s not unreasonable to assume that regulatory change will impact both your client offer and the business model you choose to deliver it. Why not ask your PDM to facilitate a working session with your practice, so you can formulate your approach without the regulatory pressure of having to do it?

3. If you don’t know where you’re going, how do you know if you’re heading in the right direction? Unless you want to be known as the plumber with a leaking tap, there’s simply no excuse for not reviewing your ‘progress to business plan’ on a regular basis. Diarise for the end of each quarter.

4. Find out what your best clients aren’t telling you. How about paying your clients the courtesy of seeking their feedback? But you have to be prepared to accept what they say and act upon their feedback if necessary.

5. Show your staff that you really appreciate their efforts. ‘Thank you’ is nice, but perhaps a ‘thank you’ dinner with their spouses/partners would carry more impact? And what better time to do this than when it’s not expected.

6. Leverage your compliance audit results into positive marketing. We are certainly in an environment when qualifications and accreditations carry significant weight with consumers. After you next audit is completed, why not include the overall rating in your marketing material?

7. Review your own life cover. Refer previous plumber comment – but we’d strongly suggest doing this sooner rather than later.

8. Proactively work your network. If your practice is looking to acquire more A quality clients, set aside time to meet personally with every accountant of your A clients. After all, they’ll no doubt be working with similarly profiled clients.

9. Analyse where your revenue is coming from. As you prepare for your 2013 business planning session, you will need to be certain about your revenue sources. Have you been satisfied with their level of support during the year? Yes or no? And what are you going to do as a result?

10. What are you doing differently over the next financial year? A great question to ask yourself any time!

Most businesses try everything – direct mail campaigns, cold calling, sponsorship, social media, advertising, seminars, PR, white papers, referral programs… The list goes on! Although these marketing activities yield varying degrees of success, the vast majority seem to fail the expectations of the adviser.

So why don’t these tactics work? I think it has a lot to do with the fact that advisers sell something that you can’t touch or experience. These traditional marketing tactics work best when selling a financial product, when what advisers are really selling is the product called ‘advice.’

Advice is all about relationships – trust, commitment and an understanding of the client’s hopes, fears and aspirations. As one of my colleagues puts it: ‘Advisers need to help their client hold the map and suggest the best way to navigate to their destination, no matter what the weather… They also need to be able to help their client change course if the weather changes, as it often does!’

Advisers can’t rest their revenue hopes on conventional marketing – they need to put themselves front and centre, focussing building and deepening their relationships.

Good licensees focus attention and resources into helping advisers develop soft skills that trigger the emotional connection to buy advice.

What do you think about conventional marketing tools and theories – do they work for today’s consumer? How do you approach gaining new clients and retaining old ones in your business?

The traditional book that most businesses want to buy is one that is unloved – one that has historically not been serviced well. The simplest thing you can try and do is make sure they get better service.

But buying the right book of clients to renovate needs careful thought. When you buy a book, first of all you need to know and understand ‘your way’. So, how you work with your clients, what your standards are for servicing clients, how often you see them, what sort of advice you give, how you deliver value and also create value for your practice and how you ultimately make a profit are fundamental to ‘your way’.

Once you understand this, you are in a better position to be able to assess a potential book of clients, conduct due diligence, establish a cost value and likely revenue shift as well as estimate the time and effort in ‘converting’ those clients to your way.

Understanding the demographics of a potential book is an important step in this process. If you do your best work with those in the 45-55-year-old age bracket, you wouldn’t go and buy a book of retirees, for example.

So in buying a book of clients, you need to know how you can renovate that book in order to not only get the renovation benefit of those clients but also reap the renovation profit to your business.

Debt – money lent to you by the bank or some other source on terms – is typically cheaper given that the interest you pay on the debt is tax deductible. While this may make it sound initially more attractive, the downside is that typically the lender requires repayment whether you make a profit or not, and generally will secure their debt against your private resources. Debt arrangements may be somewhat inflexible so the key to this form of financing is obtaining the right price over the right term and with a repayment arrangement that meets the cash inflows expected from the growth strategy.

The cost of equity, on the other hand, lies in you giving up an ownership interest in your business and is represented by a loss of future dividends and capital gains. If the business does not make a profit then there is no immediate cost to the equity financier making it somewhat more flexible than debt. The lesser immediate cost of equity makes it appear more attractive than debt, however, in my experience very few equity arrangements between unrelated parties succeed in the medium- to long-term, typically due to differing ambitions and aspirations and a lack of shared goals and visions.

In Australia equity financing sources are rare for small- and medium-sized businesses, and where they do occur, they will generally be among friends or family. Therefore, your most obvious source of finance will be debt and it will most likely be your bank.

Your rewards from future growth will come from ensuring that the arrangements you negotiate with your bank are at a reasonable cost and repayments are synchronised with the cash flows from future new clients.

• Firstly and perhaps most important, you have to be a good quality business that is uniquely positioned if you’re going to be attractive to a buyer;
• Second, you need mechanisms in place to attract new clients to the table and retain them;
• Third, you need systems and processes in place to run an efficient business;
• Fourth, you have to be able to attract quality staff to help build and sustain your business; and
• Fifth, you don’t present any risk to a potential buyer. In other words, you know what you’re doing and you provide quality advice.

In Count’s case, the reason Commonwealth Bank bought us is because they knew we were a quality business and also had a unique positioning. If you look like everyone else then you have to do something special to stand out.

When I started out, for example, I was a banker, and I knew I could never compete against the sales skills of life agents and others. I believed accountants should be involved in this business, so that’s where I focused my attention and I developed that side of the business. In doing this, we carved out a niche where there was less competition.

Count is a quality business. We’ve built a reputation in the market for delivering quality advice with good quality people. The bank can buy many financial planners, but they obviously wanted a business that was accounting-based. There are not too many businesses like Count. As a professional advice-based business, we also faced less risk as a result of regulatory uncertainty around FoFA.

We weren’t intending to sell to anyone when Commonwealth Bank came along. I’ve had plenty of people ask me if I would like to sell the business, but no-one had made an offer post listing.

The directors considered the Commonwealth Bank offer, bearing in mind economic and regulatory uncertainty, competition, changes in management in recent years as well as other factors and decided it was worth recommending to the shareholders – who voted more than 99 percent in favour of the acquisition. This speaks for itself.

Lastly, I would say you need patience. I’ve seen people come and go in this business over the years, because ‘it was all too hard’. You need patience and perseverance in this game. It takes time to gain a reputation and build and develop a quality business.

The keys to long-term business success lie in both identifying a sustainable rate of growth for your business and understanding that there is always a cost to growth, which must be financed from somewhere.

A sustainable rate of growth is one which your financial, physical and human resources can service. This may mean rejecting some opportunities now, however, I can assure you that any notional loss on those opportunities is nothing compared to the damage to your business from taking on new clients and then failing to deliver.

The cost of growth in a financial planning practice arises in two areas: increased recurrent expenditures such as staff costs, occupancy costs, administration costs and marketing and promotion costs and capital expenditures such as investments in systems and processes, building and equipment etc.

These costs are inevitable and you must plan as accurately as you can for them. Work out how much they will be and crucially when they will be incurred. Numerous businesses get themselves in trouble due to a mismatch between the time when cash comes in and the time when it must be paid out.

1. Get professional help. Professional assistance can save you time, provide objectivity in assessing the value of your business, create multiple options, and act as a non-emotional filter between you and potential purchasers. History has shown that when owners and purchasers negotiate directly it becomes personal and objectivity is lost.
2. Develop a strategy. Developing the right strategy should address issues such as: timing of the sale and the duration it may take; marketing; profiling the “right” potential purchasers; agreeing the negotiable and not negotiable items; price range, terms and conditions sought; and establishing realistic expectations.
3. Preparation. Prepare a comprehensive business profile or information memorandum. This document should contain as much information about the business as possible. It should provide the reader with a good understanding of the history of the business, its key people, clients and method of operating.
4. Develop criteria for potential purchasers. Firstly make sure you only see those prospective purchasers that meet your criteria that you develop at the strategy stage. Secondly don’t meet with anyone until you have a good insight into their business. The initial meeting is not the time for negotiations but rather one for each party gaining a greater insight into the people involved, their backgrounds and future aspirations.
5. Negotiable and non-negotiable items. Decide before you meet a potential purchaser what is negotiable and those things that are not negotiable. Knowing what is “not negotiable” can save substantial time as it can be encapsulated with the business profile and it makes it easier to reject an offer that “doesn’t quiet feel right”. Set a realistic price, timeframes terms and conditions. Remember you are protecting all stakeholders, you, your family, your clients, your staff and your business relationships.

Why deals fail

• Cultural misalignment
• Unrealistic expectations
• Lack of preparation
• Owners negotiate
• Intimidation
• Timeframes
• Poor communication
• Finance
• No professional help
• Unsure of journey
• Under resourced

An AFSL can destroy the value of a small financial planning practice. Meeting the compliance requirements of an AFSL is an onerous task, so a financial planner can easily spend all of their time trying to comply with the AFSL and worrying about this. In the process, they can take their eye off the business of financial planning.

There are many disaster cases where financial planners went out and got their own AFSL, but didn’t realise how much time and effort is required to keep it, and this created a real mess for their practice. The last thing a financial planning business needs is distraction when they should be focusing on building value and creating a great practice that someone will want to buy.

Big advice businesses need their own licence, and given the industry trend towards consolidation, any firm that is likely to buy your financial planning business one day has probably already has a licence (or can easily go and get one). Financial planners don’t need to be distracted by onerous legal and regulatory obligations. They need to be free to do what they can do best: delivering good advice, good service and good value. As long as you can do these three things, you will always have a business that someone will want to buy – no-one wants to buy the long tail liability of an AFSL when a “clean skin” licence is readily obtainable.

There are opportunities in the legislation for practices, and it’s important to strike a balance in looking at FoFA and understanding where these opportunities are.

For example, advisers will need to carefully look at their business and revenue models to make sure they comply with FoFA, but take a step back and think about long-term sustainability of your business and value creation – for both your practice and for your clients.

Competition is also on the increase in the advice space, and this presents practices with an extra challenge. There is direct competition, competition from industry funds as well as competition from the banks and other major institutions. We are seeing certain companies looking to make inroads into the advice market by going in and offering incentives for people to move, and I think that sets a dangerous precedent – but that is a sign of the times and as confronting as it is to the industry I don’t see that changing.

So what do you have to do to overcome this? Have a good hard look at where the industry is going. Talk to other people in the profession and get a sense for where the opportunities are. Look for alternative revenue opportunities that might not fit with traditional business models. Whether it’s the way you charge your fees to clients or extensions of advice to areas such as real estate or streamlining your business through technology, look at areas that will help you grow your revenue and your client base at the same time. If you happen to employ advisers, think about retention as well and what you need to do to make them stay with you and not be tempted to go elsewhere.

As much as you need to make sure you are on top of FoFA and compliance obligations, think about your business model to ensure you’re making the most of other opportunities and capture these through a profitable and sustainable revenue model.

1. Operational information. Up-to-date information about your clients, the services you provide, and the products you recommend is vital. Accurate information with regards to your compliance performance and financial records should have sufficient detail to provide an accurate picture of both your financial track record and what the buyer is getting.
2. Business processes. The second area is your business processes, are they well defined and consistently delivered. A business where your clients and employees know what is going to happen is invaluable.
3. Business efficiency. What tools do you have to make your business processes operate effectively? This includes equipment, software, research, professional and staff development programs, as well as templates that you use to deliver your products and services.
4.  Business relationship. Some referral or client agreements and contracts enhance the value of your business, whilst other agreements may limit the buyer with respect to how they might like to develop the business in the years ahead. It is important to have good documentation for all the outstanding formal and informal business arrangements and obligations.

You’re ready for sale if you can answer ‘yes’ to these questions:

• Do you have the “right” information about your clients, their usage of your products and services? (i.e. demographics, FUM)
• Is your business compliant? Are the compliance processes documented and robust?
• Have you collected and reconciled your fees and commissions?
• Are your key business processes (front and back office) clear and consistently well executed?
• Do your business tools deliver the efficiencies and profitability you want to achieve? Are they a help or a hindrance?
• Are your business agreements and contracts supportive of your business initiatives?

Out of this has grown a concept that businesses must always grow otherwise they will inevitably fail. This mindset now sees listed corporations written down in value by the market because although they have grown they have not grown enough!

I don’t wholly buy in to this mantra. There are inevitably constraints on the size of markets and ultimately exceptional growth opportunities will dissipate. Growth then will only come from individuals attacking each other for a share of the finite market.

What does this mean to a financial planning practice? Well in my opinion there is a philosophical and a practical aspect to this question. The first part lies in determining what sized business you really want to own and operate. Making a decision on this aspect will enable you to then determine a growth strategy if you wish to get bigger or a sustainability strategy if you wish to stay the same or even downsize. A sustainability strategy will of course have growth elements in it to account for and replace the inevitable drop off in clients over time.

The key learning in this is for you to disengage from the mindset that says that you must either grow or perish. There is nothing wrong with owning and operating a business that does not grow if that is your choice. There is an alternative and that lies in adopting sustainable business strategies which deliver a strong and robust business which provides the returns you desire.

The first and most important consideration is in understanding what the client base looks like. Most buyers look at the geographic spread of the client base, some look at the demographic spread of the client base, but very few look at what I would refer to as the cultural aspects of the client base.

Do you know where the clients come from? Who do they deal with on a day-to-day basis? How do they engage with the practice? How do they engage with their own peer group? How can you as a service provider meet the needs of the friends of the clients that you’re buying? These are all important questions for any potential buyer to ask – and not all financial planning practices have clear answers to these questions.

The second due diligence challenge for buyers is in properly understanding the business they are looking to acquire. What I’m finding is that not enough work and time is spent on not only understanding the present corporate structure of an acquisition target, but also how to evolve that to take advantage of tax concessions to effectively manage current liabilities of the business as well as making sure there is a smooth and seamless transition in equity arrangements for staff.

The third challenge for acquirers lies in the often secretive nature of the early stages of a potential transaction. This challenge relates to the cultural alignment of the two practices, and in particular, key staff. We’ve helped some practices through the early stages of this due diligence process, whereby the employee base is profiled to ensure there is a cultural alignment between the needs of the existing employees, the culture of the existing business and the cultural needs of the potential acquired business. Acquisitions of this nature can sometimes traumatic for employees, whether they are on the seller side or the purchaser side.

In addressing this challenge and the other issues around alignment of the client base and understanding the corporate structure of an acquisition target, good quality expertise can play an important role in making sure due diligence is thorough and the transaction is as smooth and seamless as possible.

There are also those which are making the transition, and those which haven’t yet started making that transition. I think there are actually a large number of firms in this latter category.

Opt-in has been one of the main areas of concern with FoFA. There is a large percentage of firms which have not yet transitioned to fee-for-service. They have came through the last 20 years building up large client bases where they subsidised the costs of up-front advice by charging trail commissions. Those trail commissions they collect effectively pay for the up-front advice, and obviously some of the ongoing advice as well.

So it’s not as easy just to say ‘get opt-in ready’. Even for those firms that already work on a fee-for-service basis it’s not that easy because some of them have large client lists that they need to communicate potential changes to.
Although one could mount the argument that ‘clients should not be paying for something they’re not receiving’, in many cases they’re paying for something they’ve received in the past.

So I think we’ve got to acknowledge that there is an old model and a new model. Fee-for-service is not just a matter of profitability, it’s now a matter of survival.

1. Get professional help. Professional assistance can save you time, provide objectivity in assessing the value of your business, create multiple options, and act as a non-emotional filter between you and potential purchasers. History has shown that when owners and purchasers negotiate directly it becomes personal and objectivity is lost.
2. Develop a strategy. Developing the right strategy should address issues such as: timing of the sale and the duration it may take; marketing; profiling the “right” potential purchasers; agreeing the negotiable and not negotiable items; price range, terms and conditions sought; and establishing realistic expectations.
3. Preparation. Prepare a comprehensive business profile or information memorandum. This document should contain as much information about the business as possible. It should provide the reader with a good understanding of the history of the business, its key people, clients and method of operating.
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4. Develop criteria for potential purchasers. Firstly make sure you only see those prospective purchasers that meet your criteria that you develop at the strategy stage. Secondly don’t meet with anyone until you have a good insight into their business. The initial meeting is not the time for negotiations but rather one for each party gaining a greater insight into the people involved, their backgrounds and future aspirations.
5. Negotiable and non-negotiable items. Decide before you meet a potential purchaser what is negotiable and those things that are not negotiable. Knowing what is “not negotiable” can save substantial time as it can be encapsulated with the business profile and it makes it easier to reject an offer that “doesn’t quiet feel right”. Set a realistic price, timeframes terms and conditions. Remember you are protecting all stakeholders, you, your family, your clients, your staff and your business relationships.

Why deals fail

• Cultural misalignment
• Unrealistic expectations
• Lack of preparation
• Owners negotiate
• Intimidation
• Timeframes
• Poor communication
• Finance
• No professional help
• Unsure of journey
• Under resourced

The evidence is unassailable: over very long periods – say 20 –year data points for the past 150 years (you can actually only do such a long time with US data) – equities have outperformed bonds, cash and property by at least 3 percentage points. So, if a person is 20 years off retiring and another 20 years off dying, on average, he or she should have a big exposure to equities. No question.

Well, some professionals operating in a slightly different framework have already been questioning that for the past several years – well before the global financial crisis. These are the sponsors of defined benefit pension plans in the UK and US who have moved en masses to Liability Driven Investment (LDI) strategies. Perhaps, just perhaps, Australian planners should take note for some of their clients.

An LDI strategy takes a totally different approach to designing an appropriate investment portfolio. It does not try, simply, to make the most money for the least risk for the client given all the relevant factors of age, health and so on. It maps out the known and expected cash requirements to cover the legal liabilities of the fund (pensions) and then puts together a no-risk investment portfolio to ensure they are covered. In this way, the fund acts more like an investment banker than a funds manager.

LDI investing is an ultra-conservative way corporations with worker pension liabilities have limited their downside. The company or plan sponsor has given up on trying to make money out of the market to cover future liabilities. It has, instead, built a portfolio to almost-guarantee the bare minimum required. In today’s corporate world, near enough is good enough.

The main point for Australian planners is that a pure LDI strategy will usually include NO equities. It can still be quite a sophisticated portfolio with inflation bonds and various hedges in place for its sovereign bonds, high-yield and other debt securities, but it has NO equities.

Here’s an example set by the staff pension fund of a large European bank, Deutsche Bank:

The Deutsche Bank’s staff fund, with about $US12 billion in assets and 101,000 employees, has phased in its LDI program over the past 10 years. The bank decided that to have a traditional pension plan investment strategy held too much risk, given that the bank had undertaken to pay many workers on a defined benefit basis (guaranteeing a certain level of pension depending on salary levels in the final years of employment).
So, very gradually, the fund moved away from what was roughly the German norm of 50 per cent bonds and 50 per cent equities to an asset allocation of: 10 per cent bonds, 70 per cent “spread” products and 10 per cent equities and alternatives. The “spread” products include: emerging market bonds, European corporate bonds, ESG (environment, socially responsible and governance) corporate bonds, US high-yield bonds and long-duration credit ETFs. The 10 per cent growth assets allocation of equities and alternatives is seen as a total alternatives bet, with no concern for diversification within the equities portion. Overlayed across the total portfolio are three swaps to further contain risk: a credit default swap, interest rate swap and inflation-linked swap.

Now the past 10 years have covered some unusual and turbulent times but the end performance, since the changes started being implemented in 2002, is worth noting. The Deutsche staff fund has a 10-year annualised average return of 7.34 per cent with a monthly volatility of 7.12 per cent, as of February 2012.

No planners will have a client with $10 billion to implement such a strategy, but components of the LDI philosophy are worth considering in order to inject some rationality and sophistication into the current debate. It’s actually not about bonds versus shares. It’s about a building a portfolio targeting a defined outcome.

In buying a book, typically the best approach it is to have a combination of a staged payment arrangements after the actual contract is consummated, which considers client retention. So 12 months after the contract has been consummated, if X fees are still with you, you’ll pay X amount. The best way to do this is over a two or three year period, so this staging process gives you at least some certainty that the fees are going to stick. In this process, it’s absolutely vital that you establish a very good relationship with the vendor if you can.

Another way of approaching this is to put a phase in, phase out arrangement in place. If a vendor is transferring relationships to you, your credibility in the eyes of clients is an unknown factor. However, one thing that’s going to build your credibility is the recommendation of the departing vendor. If you can structure a situation where the vendor is continuing to work on some basis in your business after you’ve bought their fees, you can work through that transference of relationship to boost credibility in the eyes of clients with a view to improving retention.

My top advice to practice owners in getting the best price for their business is to think about who you are selling to. I liken this process to selling a house. You want to get the best price for your house, so you do your homework on house prices in your suburb, potential buyers, who is likely to pay the most money, and then you set your house up for them. The same methodology applies to financial planning, so you need to have a good idea of who could buy your business.

Just as potential buyers of a house weight up the potential value to them, so too do those in the business of acquiring practices. My main message in this is that a business that sells for more than the assets has good will.

Good will is all about traffic, or the ability for clients to come back into your business and the ability for new clients to come into your business. If you’re focusing on that in your day-to-day practice management – you are in front of clients on a regular basis, you’re surprising and delighting them – they refer you to their trusted family and friends. Then, you are building a good business that’s worth something.

We quite often think of practice valuations as a multiple of recurring revenue, but practice valuations are really about customers and customer relationships. So your ability to sell a business that has the proven ability to generate new customers is always going to be worth more than the business without any proven abilities in new client generation.

If you’re selling your business, it’s easy enough to sell assets. But to get the best price for your business, the real difference is in the good will – why your clients like you, why they come back to you and why they are prepared to refer you.

Post-FoFA, client engagement will become even more important. Engaged clients – those ones who see regularly and love you enough to give you referrals – will always be the cornerstone of a business that survives FoFA. Strong client relationships will survive opt-in, they will survive annual disclosure statements and they will survive the best interest duty. So if you build your business around strong relationships with clients who are engaged, who trust you and love you enough to refer you, you will always be okay.

Another opportunity in FoFA for advisers lies in the potential to explore and develop more innovative ways of adding value to clients. Scaled advice, for example, is essentially an extension of your relationship with your clients.
You should always stand for something with your clients, and they should know what you stand for. So scaled advice is a way of reaching out, non face-to-face, to your clients in a way that they value. Normally this would be via phone or Skype.

It could be something as simple as you ringing them up to check that their super contributions are okay, talk through some changes to their risk policy or discuss a quick portfolio rebalancing. This approach also provides you with greater business efficiencies and allows you to see more clients, but at the same time it allows you to scale the way you deal with your client base.

Client engagement and the ability to deliver good advice in a way that clients value will become increasingly important in a post-FoFA world, and now is the time to start exploring the potential of these in your practice.

The accounting industry is littered with examples of people who have bought books of fees, and after a short period of time, find that the book of fees has walked off somewhere else. There are some good examples of this, whereby vendors decide shortly after selling their book that they want back into the business themselves – and the fees come back to them.

So you need to know who in the vendor’s business actually has these relationships. Quite often, it’s not actually the vendor, but a key employee or number of employees. If they’re coming into your business when you buy that book, you need to ascertain whether they’re going to be happy and whether they are going to be a good cultural fit. If they’re the ones that own those relationships, you can pay vendor A but employee B will walk off with that whole book of fees.

So in understanding the actual assets you are buying, the real key to value is in those relationships. This is the most important thing to understand in conducting due diligence of professional practices.

From an acquisitions perspective, some of the businesses we see are niche – they are specialised and very focused on what they do, while others we see are large, multidisciplined and corporatised. Both of these can be great quality businesses to sell. Unfortunately, however, there are other businesses in the marketplace where much of the intellectual knowledge and capability of the business is tied up in the relationships that the principal or principals have with their client base.

These are important considerations in assessing the realistic value of a business. Rather than just looking at an EBIT number, acquirers would also be looking at how a business would stand or fall with the exit of the practice principal or principals. This is incredibly important in understanding the value that a potential acquirer will place on your business.

A second consideration in getting a realistic and honest price for your practice is understanding who would buy you, and why. What would your business and client base bring to a potential acquirer? You need to understand how your business might fit with a potential acquirer and their future business plans. However, in many instances, there are disappointing examples of sellers who are far too focused on their future than perhaps the future of the buyer. And that to me is a major mistake.

On the other hand, if you are looking to pass the reins of your business on through succession planning, this is an opportunity for people who know and understand your business to take it forward. This too brings with it some challenges. Just as the mistakes of the father are visited upon the son, so too are the mistakes of a previous practice principal visited upon the person within the practice who succeeds them. This person has the challenge of evolving the culture, evolving the systems and then evolving the client base. These challenges are not insignificant, and they should be factored in by any potential successors within a practice.

There are a range of possible growth strategies, other than selling for growth, that can be considered to achieve growth objectives. These could be:

1. Hire new staff – a paraplanner, a senior advisor, a marketer with business development skills.
2.  Sell ‘C’ and ‘D’ clients and realise some equity. Reduce client numbers to a manageable level, focus on more profitable clients, and work to attract more profitable new clients.
3. Seek a merger with another similar business that could provide a wider range of services.
4. Align the business with an aggregator/consolidator that aspires to list in the medium-term to achieve higher valuation benefits.
5. Implement a succession plan to sell part of the business to a senior adviser. This realises some return on the investment, reduces key person risk and assists with adviser retention.
6. Consider selling a majority stake in the business to a larger, faster-growing, aligned business with which you share the future vision. This enables the vendor to participate in the total growth of the combined business.

If a combination of some of the above are properly aligned and structured – 1+1 could equal 3 or even 5!

As a result a financial advice business buying a book of clients, an institution or licensee wanting to grow their dealer groups through acquisition, or a bank lending money against the cash flows of practices wanting to make an acquisition are placing a stronger focus on value.

We are now seeing a downward trend in terms of the multiples paid, as well as a shift towards multiples of ongoing profit streams and maintainable earnings. With these trends, risk is now being priced into the acquisition.

Lower quality books and businesses, with less documentation, poorer client relationships or lack of evidence around strength of client relationships, are attracting much lower multiples from potential acquirers.

The key here is keeping your business as simple as possible, so a prospective buyer understands what they are buying. In a nutshell: the less moving parts the better.

Your most likely buyer is going to be the one whose business best aligns with your platform and administration strategy, whether that is at an institutional level, or a practice that has a similar business model to yours.

So my key message is to keep it simple, find a potential seller who looks just like you (or work to towards making your business look like them), then sell or consider alternative approaches to your succession.

The first noticeable one is that there is a bit of an arms race going on in the acquisition of planning practices, with institutions actively looking to boost their distribution channels.

But arms races are difficult things, because if you don’t participate, you lose. And if you do participate, you don’t necessarily win. Because institutions are quite serious about acquisitions, this is making it a bit difficult for some of the independent firms to compete because of some of the prices the institutions are paying for practices.

For businesses like ours, that actually own large planning firms, retaining practices through this period is quite a challenge because you’ve also got a lot of institutional competition for these acquisitions.

Another trend in the practice acquisition space is that the availability of debt funding has shrunk in some ways. There is less availability to funding than there was previously. This means that the institutions and wealth management companies are able to come in and offer an alternative to bank funding in terms of doing deals to acquire financial planning firms. So, we’re seeing quite a bit of activity there leading up to FoFA. I expect to see a lot more between now and when FoFA kicks in. So there is no doubt that things have picked up in the acquisition space.

It’s an unusual situation we find ourselves in – which is ironic because in some ways, reform has brought this on. There are a number of advisers who have decided to exit the industry rather than go through another round of reform. I’ve heard some commentators say up to 30 per cent will leave, but I don’t think it’s going to be quite that high. Planners are resilient and they’ve been through change before. But this time it’s different because they’re older, with many owners approaching retirement. Some of these planners are questioning whether they want to go through more change.

These trends are forcing just about every player to actually come up with a succession planning solution. The ultimate question for financial planners to answer is “What’s the exit strategy for the business?” Increasingly, the question is now being asked of the institutions (particularly the licensees/dealer groups) in how they’re going to offer practices a succession planning solution.

Those who don’t have a succession planning solution will lose the arms race. Those who do will survive it.

1. Your network. Colleagues, your dealer group, BDMs and PDMs and other people you come into contact with regularly who are active in the market are all well placed to advise you on opportunities. The more people you talk to, the more likely you are to come across interesting opportunities. Ensure your network is aware that you’re looking to buy and enlist their help in finding potential sellers.

2. Your strategic alliance partners. It could very well be possible that one of your strategic alliance partners would be aware of planners interested in selling some or all of their practice. For example, life insurance brokers you may work with, solicitors and accounting practices would fall into this category.

3. Professional intermediaries and business brokers. A growing trend is in the use of independent, external professionals to locate potential sellers. A buyer engages the services of a professional who identifies the buyer’s geographic target and desired characteristics. The intermediary then acts as the buyer’s agent to contact the firms directly.
This approach can be very effective, and is more discreet than a direct approach. The intermediary generally charges a fee contingent on a successful acquisition. In addition, intermediaries can offer additional consulting services to the buyer. The services may include valuation, deal documentation and negotiation. The intermediary should be the buyer’s advocate, acting in your best interests.

4. Other sources. A good adviser knows their competition. Is there an older adviser nearby who has no obvious successor? Is there a smaller firm who might be interested in a larger platform? Industry conferences and forums increasingly feature sessions on transition, valuation and succession. Network at these functions and make it known you are an interested buyer.

Identifying suitable acquisition targets in today’s competitive market can be challenging, and there may be some avenues you haven’t considered to source potential prospects. To make sure you get the best result, enlist all potential lead sources to help you find the right firm.

We’ve welcomed the fact that the industry has moved away from commissions such as product commissions. We still think that there is some refinement to be done around how this is currently addressed in FoFA. The government has backed down from the proposal to ban commissions on risk insurance in superannuation, so they’ve scaled that ban on commissions back to the barest minimum. But ultimately the key with any remuneration arrangement is to remove conflicts and to make sure that it is transparent.

In terms of acting in the client’s best interest, I believe that financial advisers wholeheartedly support the concept of a best interest duty across the industry. The way the government has currently drafted it still leaves a lot of uncertainty in terms of how it would ultimately be applied. In the legislation there ought to be some very clear steps that an adviser has to go through in order to comply with the best interest duty requirements, so there is room to improve the current definition of the best interest duty.

On opt-in, what the government is proposing to do is to force people to re-sign contracts with their advisers on a regular basis. If a client takes a view that they’re paying too much or they’re not getting a good enough service, of course they should be able to either discontinue that relationship and go to another adviser – or stop taking advice altogether – and that’s what the current government is proposing to do with FoFA as it currently stands. We would get rid of the opt-in provision which we think unnecessarily increases red tape and costs for both businesses and for consumers, and would reduce choice and diversity in the marketplace.

So remuneration arrangements need to be fully transparent, conflicts need to be removed, advisers need to have a very clear understanding of what is expected of the requirement to put the client’s interests ahead of their own, and there needs to be minimal red tape which will only increase the cost of doing business for advisers.

We need to have a sensible look at the regulatory framework as it currently applies and look for opportunities to help advisers get on with their business, which is helping people with their financial health and wellbeing. And ultimately the best person to make a judgment on whether or not they’re getting value from the advice relationship is the client – not the government.

Clients come to me to discuss a potential purchase and the proposition before them. I’ve seen cases where sellers tout 10 times recurring revenues for a sale. My first questions to a client in such a case are: what are you going to make out of this and where’s the real profit in it for you?

There is a process to work through in establishing the answers to these questions. Firstly, lock down what you think the future revenues are going to be, then determine what it will cost you to generate those revenues. In these steps, there is a lot of work in analysing the seller’s clients, the services provided to them and forecasting future revenue streams. There is just as much work on the other side of the profit/loss statement to determine what it’s really going to cost you to drive the business to generate those revenues.

When you go through that process, the outcome is what we call future maintainable profits or future maintainable EBIT. This paints a much more realistic picture of what a practice is worth. When I say to a client, “you should be valuing this potential purchase at 3 or 4 times that profit” sometimes they are surprised because the seller is spruiking their practice for 5 or 10 times that profit.

In my world, a good financial planning practice should be trading on a multiple of between 3 to 4, and that’s after adequate remuneration has been allowed for the principals that are working in the practice.

Having owned and run my own financial planning businesses, I knew that selling my business was an emotional issue as well as a financial one, and required support and professional assistance in more than one area, as well as the time and ability to assess all prospective buyers and then select the right one.

Choosing to establish a business as sellers advocate, knowing this would provide sellers with the best result in every area of their sale – financial, support, professional advice, cultural fit, long term health of the business, staff morale and payment terms – was an easy decision.

Having discussed the pros and cons with sellers of their previous attempts to sell their business, and gaining feedback of their experience working with us, their experiences have been summarised below.

Succession planning is of critical importance to IFAs. Many IFAs are approaching retirement, with many looking at exit strategies for both themselves and their business. Another reason succession planning is becoming more of an issue for IFAs is regulation.

Regulation, particularly in the form of FoFA and MySuper, are big issues for IFAs. While FoFA is designed to eliminate conflicts of interest and make advice more accessible, I’m seeing a number of IFA practices question whether they should stay in business or exit because of the complexities and potential costs of complying with FoFA. This hardly meets the objective of increasing access to advice.
It is often institutions which purchase IFA businesses, which potentially increases vertical integration and the concentration of ownership of financial planning in Australia. You would have to question whether or not this would eliminate conflicts of interest or make advice more accessible.

While the MySuper reforms are yet to play out fully for financial planners, there are definitely new forms of competition for IFAs compared to five or ten years ago. MySuper brings on a new form of competition in that superannuation will come with advice at one end of the spectrum, while at the other there has been a significant increase in the number of SMSFs.
Financial planners have to try to embrace these trends and come up with solutions for both mass-market consumers who are most likely in industry super funds, as well as higher net worth individuals with SMSFs. These competitors are in some ways threatening the standard territory of financial planners. There are, however, progressive firms that are adapting, by offering simple solutions at one end and self managed solutions at the other.

There are also some interesting trends in the independent dealer group space. With the new regulatory framework, the independent, non-institutionally owned licensees are going to find survival quite tough. In the past, they’ve relied on subsidisation to enable them to be profitable and to provide their services. However, under FoFA, these subsidies will be eliminated. As a result, independent, medium sized licensees have got a choice to make: downsize to become more profitable in a new world, or look to an institution to partner with or buy them.

We are already seeing a number of trends along these lines, with the downsizing of groups, the starting of boutiques and mid-size dealer groups selling to institutions.

So there are a number of interesting trends happening within the independent space. Regulation is playing an increasingly important role in both IFAs and independent dealer groups, and professionals within both these spaces need to move with the times in order to survive.

However, there are a number of things buyers should keep an eye out for in the due diligence process of any potential transaction. I always like to use the housing analogy, because people can understand what they need to do to sell and buy a house.

So if you’re buying a house, you’ve got to know about the suburb and area that a house is in, you would want to get a building inspection done, and you would want to ask some critical questions of the incumbent owners.

In these critical questions lie the holy trinity of due diligence for potential practice acquirers. These questions are: What does the commission statement say? What does the bank account say? And what does the download from the product system say? The answers to these questions all have to match up, so that you can genuinely assess what it is you’re potentially buying.

Using the housing analogy again, this is akin to a surveyor confirming the size of the block of land, and the building inspector confirming what’s actually in the paperwork you’re presented with. You would want to make sure the incumbent owners own the title and that everything in the files check out with the building inspection.

So if you’re buying a house, you would suss it all out. Why would you do anything differently for a business you are buying?

In the financial planning space, there have been two major drivers of forensic accounting services when it comes to business valuations. The first was the GFC, which really prompted people to focus back on what the true drivers of value are. At the end of the day, this really comes down to risk and return. The GFC has really shone the light on risk, and this is a key driver in business valuation trends. As potential acquirers that there is more risk in the marketplace, they’re not prepared to pay as much.

Regulatory change is also another potential risk for those in acquisition mode. The financial planning industry has for years basically sat on annuity streams by way of trailing and other commissions. This led to a situation where people would just simply sell these annuity streams on multiples of what these revenues were, because the perceived risk attached to these revenue streams was pretty minimal.

However, with Future of Financial Advice reforms coming into play, you can’t be certain that you’re going to maintain that continuing annuity flow. So there is more risk attached to those revenues, and this is changing the focus from ‘rule of thumb’ valuations, based on a multiple of revenue, to valuing businesses on what their true profitability is and what their true returns are likely to be.

It’s important to begin the integration process early to ensure the best outcome – a smooth and efficient transition.

An integration project needs to be managed with a well-defined project plan. The project approach to integrating your two businesses helps set realistic targets and time frames and greatly increases your chances of success during and after the integration.

The first step to establishing this integration project is to create your integration strategy as part of your overall business model and objectives.
The second step is to define your requirements. Being specific and detailed is essential to manage the expectations of all stakeholders (your new and existing clients, your new and existing employees, your new and existing suppliers i.e. dealer group, product providers). .

When integrating your business, it’s important to re-define roles and responsibilities even when the outward changes may appear to be minimal. Accountabilities shift in the context of the integrated business and it provides a great opportunity to re-energise some if not all of the stakeholders.

You’re ready to integrate your acquired business when you can answer ‘yes’ to 6 questions:

1. Do all of your stakeholders (especially your new clients) know what is happening and understand how the integration will affect them?

2. Will your service levels meet your clients’ needs and will they be appropriately priced?

3. Will your business processes meet service standards that are consistent and effective?

4. Do you have the right business processes and tools to deliver advice and service efficiently?

5. Do you have the right information to manage your clients and run your business?

6. Do you have adequate controls and processes to ensure your business remains compliant?

Reducing the level of this dependency, I believe should be a strategic imperative for many practices.

While the depth of relationship is a true business asset and key person dependencies can never be eliminated, there are some practical steps that can be taken to manage and mitigate this business risk. Here are a few suggestions:

1. Ensure you introduce all of your key staff to your clients – if your team is one of your greatest assets, make sure they are not your practice’s best kept secret.

2. Continually promote your support team. Publish their names and photos on your website, arm them with business cards, have them speak at your client seminars and develop a “who’s who in the zoo” contact flyer that you can include in your client induction material.

3. Make sure you are not the problem. Be disciplined and immediately delegate all administration calls/queries to the appropriate member of your team. Don’t get involved unless there is a problem and delegate the $20 an hour tasks to someone else – your time is better invested elsewhere.

4. Wherever possible conduct all of your client facing appointments in your premises. Make a point of involving your key support staff in these meetings and take clients and prospects on a “guided tour” of your office to showcase the capacity of your team.

5. Be mindful of the terminology you use – refer to your business, your practice, your firm and your team, always as “we” and never “I”.

6. Proactively manage any personnel changes. While it is a fact of life that people move on, don’t let the first your clients hear about it be when they ring and ask to speak to someone who is no longer with you. Make sure you put a plan in place to proactively manage the transfer of client relationships.

7. Find reasons for your key support staff to regularly speak with your clients. Supplement your face-to-face contact with a proactive client communication program that includes all of the key members of your team. All communication/contact does not have to come from you.

8. Channel all initial client enquiries through your support team. Encourage them not to put calls straight through to you and always ask “can I help” or “may I ask what it was regarding”?

9. While reducing principal dependency delivers obvious upside for your practice, in all your discussions with your clients, reinforce the benefits for them – continually explain why they are better off dealing with your team and not solely you.

10. Don’t forget your referral partners and centres of influence. While you will need to handle these relationships a little differently, it is just as important that your alliance partners are comfortable and confident dealing with anyone in your practice.

And finally, perhaps the last word should go to the numbers themselves – while it is now generally acknowledged that principal-dependent businesses will have a lower capital value, our HealthCheck data shows that those practices that have an effective succession plan (which of course includes identifying and addressing any key person dependencies) deliver 106% more profit per principal than those who don’t.

A return well worth the investment of your time and effort.

For example, a recent survey conducted by consulting firm Leap of Faith found that 75 per cent of financial planning clients would prefer an alternate way of paying fees to that of the current industry standard. One third said they would prefer a success fee based on performance and taxation savings, while 29 per cent would opt for a flat fee and 13 per cent an hourly rate. Only 12 per cent were happy with a percentage-based fee on FUM.

In contrast, ASIC’s recent shadow shopper survey of financial advisers found that 78 per cent of advisers were paid through product commissions or fees that were based on a percentage of the client‘s assets or investments under advice.

Unsurprisingly, where advice fees were contingent on a product recommendation, advice often appeared to be geared towards recommending or selling financial products, at the expense of optimal strategic advice for clients.

Success-based fees are a sensible and reasonable approach as far as clients are concerned, and forms of success-based fee payment exist in many other industries. Of course, this ‘sing for your supper’ model does place more responsibility upon advisers if they are to make a nice living. Financial planners should keep these kind of stats in mind in considering what model they might adopt in a fee-for-service post-FoFA world.

Specifically, ASIC noted that too much poor advice provided to its shadow shoppers was overly product-focused and not strategic enough to help clients develop a realistic and achievable plan for their retirement. Furthermore, ASIC saw examples of conflicted remuneration structures, such as product commissions and percentage asset-based fees, impacting on the advice and recommendations, and on the quality of advice.

A recent Roy Morgan Research report, Superannuation and Wealth Management in Australia, also found that Australians continue to remain confused about planner independence when it comes to selecting financial products when it comes to the “Big 6” financial planning groups.

Advisers are important gatekeepers who play a key role in helping clients plan and manage their finances, and ASIC highlighted the importance of the industry removing conflicts of interest and in improving overall professional standards to ensure that their client’s trust is not misplaced (something that will be interesting to watch with associations with ‘approved-by-AISC’ codes of conduct being exempt from opt-in under FoFA).

However, with increased consolidation underway in the financial planning practice sector and the big players in the industry looking to consolidate and build their revenues, the pressure is on non-independent planning practices more than ever before. It’s easy for ASIC to come out and say ‘remove conflicts of interest’, but the reality of this is easier said than done.

While financial planners who are members of the FPA and potentially the AFA may be breathing a collective sigh of relief, this raises significant questions about industry associations’ need and ability to police their members. ASIC has recently signalled it is taking a harder line on compliance in a number of areas, and soft compliance won’t cut it as far as ASIC is concerned in the future. And it still hasn’t been announced whether or not ASIC will require some form of opt-in under compliance with professional codes of conduct (which will make this whole exercise redundant).

In any case, the associations will have their hands more than full dedicating adequate resources to overseeing and enforcing their beefed-up codes of conduct. It will be interesting to see how this plays out in reality. Self-regulation comes with its own set of pitfalls, and it will be important for the associations to take note of these if they are to be successful in stepping up to the plate and taking the financial advice industry to a level that ASIC will be happy with.