CLSR, regulatory and licensee fees are all well-known expenses and stressors for financial advice firms, and while it is true these conditions make it hard, Effortless Engagement has suggested in a new whitepaper “subtle misalignments” are leaving opportunities for businesses to make money on the table.
The Profit Gap: The Cost of Operational Blind Spots in Advice Businesses highlights some of these missed opportunities.
“On paper, many advice businesses look healthy,” said Dean Lombardo, founder and chief executive of Effortless Engagement, and author of the paper.
“But when you look beneath the surface, friction inside the operating model is quietly eroding margins and limiting enterprise value. This is what we define as the profit gap and for most leaders, it remains invisible.”
Conversion friction is specified as one of the lost profit opportunities.
“Conversion friction refers to the structural, behavioural and operational factors within a business that impede the efficient translation of opportunity into revenue,” the whitepaper said.
“Our analysis indicates that conversion friction is most evident where new client onboarding mechanisms are cumbersome and pricing models lack discipline around minimum portability thresholds and controls over discounting.
“These issues are often compounded by unstructured or informal approaches to organic growth planning.”
According to the whitepaper’s research, conversion friction represented the widest range of profit leakage, spanning 1.6 per cent to 9.4 per cent, with an average of 3.6 per cent.
“Businesses at the upper end of this range were significantly impacted by a combination of ineffective pricing models, weak discount controls and low levels of systemic referrals,” the whitepaper stated.
One method the whitepaper suggested to avoid conversion friction is the development of an organic growth strategy. According to the paper, when organic growth is not supported by a clearly defined and documented strategy, conversion friction grows materially.
“In the absence of an organic growth strategy, opportunity conversion becomes
inconsistent and heavily dependent on individual adviser behaviour rather than repeatable business systems,” the whitepaper said.
“An effective strategy establishes clear growth priorities across fee increases, new services, referrals and is reinforced through individual adviser growth plans with defined activities and expectations.”
It concluded: “These plans provide transparency over how growth is to be delivered at an adviser level and create a framework for reviewing activity, conversion outcomes and accountability.”
