Five steps to building a world-class business

by Steve Bowden, Liz Pemberton on Mar 30, 2010 at 11:17

Five steps can help turn your business into one that produces the financial returns that will
ensure long-term survival and growth, say Liz Pemberton and Steve Bowden of AXA
Wealth.

There are three options available to owners of financial advice firms considering their future:

The first is to allow regulatory decisions to drive and shape the type of business they will
operate.

The second is to shut up shop and depart from the industry because the owner perceives
the road ahead as too challenging. With this option, the best case scenario is that someone
will pay them for their client bank; the worst case scenario is that they have no business
to sell.

The third option puts the owner back in the driving seat, places regulatory factors in their
appropriate box in an analysis of the operating environment, and gives them the
opportunity to develop a world-class business that brings enjoyment and value to all who
are associated
with it.

The evolution of a financial advisory business

Global research results produced by Strategic Consulting and Training in Australia describe the
typical evolution of a financial advice practice outlined below.

Stages of business development

Activity stage
 Inexperienced and maybe incompetent (at running a practice)

Often a one-person show

Emphasis is on writing new business

Focus on generating revenue

Focus on keeping costs down

Roles fit people

Operate on a one-to-many basis

High activity levels

Say yes to all new enquiries and referrals

Administration stage
Become victim of own success

Considerable numbers of clients on the books

Working too many hours

A need for administration support

Learning to delegate

Changing habits

Developing processes

Looking for ways of becoming more efficient

Management stage
Moving from What I can do for you to What we can do for you

Needing to let go, to let grow

 Introducing rules, accountability and authority

Recognise the need for structure and systems

Benefiting from greater efficiency in doing things right

Thinking time and space to realise that they may not be doing the right things

Branding stage
Focus shifts from activity to productivity

Emphasis on recurring revenue and profitability

Say no to new enquiries and referrals where value cannot be added

Defined value proposition and business structure

People recruited to fit defined roles

Team-based service delivery

Merger and acquisition stage

Strong brand identity

Robust systems and controls

Effective use of outsourcing capabilities

Capacity for expansion

Competent staff

High return on resources and clients

Excellent cost/profit management

Integration stage
Aligning staff to a new business vision
 Designing objectives to suit new purpose

Integration of cultures and capabilities

Harmonisation of reward structures

Career planning

Many-for-one client relationships and service delivery

Stages one to three of this growth model are heavily dependent on building individual talent, and
client relationships are based on a named adviser. It is common in firms that have more than one
adviser for working practices to be completely inconsistent with each other.

Stages four to six shift the emphasis away from a dependency on individual relationships to a
team-based approach and a stronger brand identity.

An appraisal of the UK independent advice community is likely to show that most small-to-
medium-sized IFA firms are in the administration or management stages of their business life
cycle, with a smaller number breaking through to the branding stage.

What steps are needed to help make the breakthrough from a business that is generating lots of
activity and revenue but perhaps not creating the returns that should be expected for the effort
expended?

The most important step is to stop and think about your business and ask: what is its purpose?

How to decide what your business will be

Peter Drucker, regarded as the founding father of the study of management, would assert that
there is only one valid definition of business purpose, that is to create a customer. Where many
would view profit as a purpose, Drucker astutely observes that profit is a measure of how
successful a business is in fulfilling its purpose.

An essential step in deciding what your business is, what it will be and what it should be is a
systematic analysis of all products, services, processes, markets, end uses and distribution
channels. The aim is to appraise whether these are still viable, are likely to remain viable, will
still give value to the customer and will continue to add value tomorrow.

The biggest benefit of the retail distribution review is that a lot of these questions have been
posed, debated and challenged in the public domain for many months. It is clear that regulatory
forces are going to change the way that advice firms operate post-2012, so it is not necessary to
dwell too much on analysing this particular area.
The real focus of attention needs to be on the specific purpose of your advice firm and the profile
of clients that you serve or want to serve in the future.

Step 1

Identify which of your existing clients (i) have the strongest relationship with your firm; (ii)
clearly value the relationship they have with you; and (iii) satisfy your economic expectations.

This evaluation may provide you with an insight into the profile of client with whom you work
most effectively and want to continue serving under your future operating model. Examples are
provided in the Target Clients list (below).

Target clients
Generation Y (18-29): Minimal disposable income, key needs around debt management
and general insurance, require radically different services and have minimal income to
pay.

Generation X (30-44): Balancing short-term cash-flow with long-term investment goals,

key needs around cash-flow and budget management, have minimal assets and varying
level of ability to pay.

Baby boomers (45-59): Likely to have equity in home and high household expenses,
worried about when they can retire, usually have solid assets and good income.

Retirees (60+): Concerned about making money last, require high levels of reassurance,
usually have strong assets and minimal income.

Small business owners: Driven by desire for independence and fear of failure, high levels
of technology adoption, nee to focus on risk mitigation and efficiencies.

Step 2

Find out the financial planning needs and servicing requirements of clients with whom you want
to work. The way to do this is simple: ask them.

A concise and well-written survey of your key clients will provide you with insights into the
types and levels of service they expect from you, together with feedback on any suggested
service enhancements you put to them. Why waste money on monthly newsletters if clients see
them as a nuisance?

Assumptions are not helpful during this step. You want honest feedback because it is going to
help you shape your future service proposition.

Step 3
Shape your company mission. A mission is not an epigram a selection of corporate words that
sound great but have no substance. Your mission needs to communicate succinctly the purpose of
your business, the outcomes it sets out to achieve and the unique way in which you will operate.

Your mission statement must be sufficiently specific to distinguish your business from other
advice firms.

US financial planner and author Deena Katz refers to this element as the one thing the one
thing that will set you apart from everyone else. Linked intrinsically to your client value
proposition, your mission statement should express the benefits of associating with your firm.

A clearly articulated mission will become the foundation for all other building work in your firm.
It alone will enable your business to set objectives, develop strategies, concentrate resources and
be managed for performance.

Unless treated with respect and put to good use, a mission simply becomes a statement of good
intentions.

A couple of favourites provided by Katz from her 1999 book Practice Management are:

Norton Partners of Bristol, United Kingdom: To provide an excellent financial planning

and tax service to our clients, to be recognised as true professionals in our field, to enjoy
what we are doing and to provide such value to our clients that they cheerfully pay our
fees and recommend us to their friends.

Sullivan, Bruyette, Speros & Blayney of Mclean, Virginia: Our mission is to be

indispensable in helping our clients make smart financial decisions through
uncompromising integrity, trust and personalised service.

Step 4

Develop a vision. Do you have a vision? Is one necessary?

A company vision should be an expression of what your business will look like once the practice
is fully established. The vision is aspirational and subject to ongoing review. It will undoubtedly
flex and adapt to the environment in which you are operating.

If a mission is about what you do, then a vision is about where you are heading. Even if your
destination changes over the years, it is worth determining a short or medium-term ambition to
help maintain focus and motivation.

Step 5

Be clear about your business values, philosophies and beliefs. Setting these out in writing
ensures they become embedded in the culture of your firm and the way that people behave.
If you are in the process of interviewing candidates for a vacant post in your firm and have
clearly established philosophies, it is much easier to establish whether there is likely to be any
conflict or tension before it is too late.

Along with the objectives that cascade from your vision and mission, your core values will be
instrumental in setting performance standards for your staff and providing ongoing feedback.

The next stage

On completion of this five-step process you should possess more confidence through the
knowledge, insight and clarity you have developed about the future direction of your business.

Once you are a step closer to building a world-class business model that brings enjoyment and
value to all who are associated with it, your next (positive) challenge is to translate all this great
intention into action.

Liz Pemberton and Steve Bowden are business strategy consultants at AXA Wealth