Financial planning dealer groups tend to operate in a fairly decentralised way, but by outsourcing functions such as payroll and accounting and streamlining the business overall, profitability can be improved dramatically.
The managing director of Business Transformation Outsourcing (BTO) Group, Steven Skinner, recently conducted a wide-ranging survey of financial planning practices covering 38 of the country’s biggest 100 dealer groups and generating around 180 responses.
The research found that many principals rated the level of help they received from their dealer group at only five or six out of 10 in key areas such as strategic support, back office and administrative help, corporate governance, brand promotion, leadership, and learning and development.
Further, Skinner says many groups and practices operate in such a decentralised way that it is detrimental to profitability.
He recommends planning groups create a strategy map to drive strategic initiatives, and visualise how they can create shareholder value both for the practice and the dealer group as a whole.
“If dealer groups were to centralise their operations, imagine how much value that could potentially bring to the whole group – not just to the dealer group but to each individual practice,” he says.
If a group centralises its operations, the quality of the work has to go up and costs have to come down, he adds.
“Can you imagine with a bank like the Commonwealth Bank of Australia, if each branch operated independently and had no back-office shared service support? Can you imagine if each branch had its own payroll department, its own accounting department, its own website…?”
Many dealer groups and practices currently operate in this way, but Skinner says it should be a “no-brainer” to centralise operations and so benefit from economies of scale.
“[Dealer groups] get all this data coming in and typically record it as brokerage income less expenses. But you [should] think to yourself: where did the income come from, by category, product, client, adviser?”
Analysing income by type and also examining the cost to serve by category, product, client and adviser will give a business its contribution margin so it can understand the true profit drivers for the dealer group less expenses, Skinner says.
If you analyse revenue by category (eg superannuation, risk insurance), by fund manager, by category of product and by client, a practice will gain a full picture of its revenue, he says.
Greater centralisation, however, can leave practices with more time to see clients, while centralising data lets them benchmark their performance against other practices within a group.
Skinner adds that if a practice is able to track the time its employees are spending on different tasks it will gain a fuller understanding of which elements are the profit drivers of the business.
“If you could track client engagement from the initial fact-find to delivering the statement of advice, if you could track all the workflow and all the activities in terms of the internal processes to deliver that, it would have to be a good thing,” he says.
Seven out of 10 of the principals and senior advisers in the BTO Group survey also said that if they were able to centralise such data that would be a good thing for the business.
BTO Group offers a business outsourcing service that will take on a practice’s financial accounting, management accounting, auditing, payroll, HR and IT functions, as well as managing the platform that delivers that functionality.
The group also offers a three-year “transformation” service that Skinner says can “take a cottage-based business and … turn it into a professional services firm”.
Skinner claims the average practice should see a tripling of fee income from $1.2 million to almost $3.7 million per annum 10 years after the initial implementation, as well as a tripling in earnings per full-time employee from just under $15,000 to almost $45,000 per annum.
