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How to run a mid-sized advice firm

The world is a challenging place for a traditional one-man (or -woman) band

Increased regulation and rising costs are leading to a growing number of mid-sized adviser firms.

Sole trader and two-handed businesses are becoming rarer as changing rules and client demands present a greater challenge for smaller firms. Between compliance, technology and the implementation of Mifid II, the obstacles can seem endless.

Being one of a number of advisers at a business can reduce both the cost and administrative burden that an individual could so easily drown in. But running a mid-sized firm comes with its own set of challenges.

The RDR was widely believed to be the start of a shift away from the sole trader adviser firm model.

FCA data shows that, as of May 2017, there were 2,427 single-adviser firms in England and Wales. Meanwhile, some 6,302 advisers worked at firms with between two and five advisers, and 5,618 at firms with between six and 50 advisers.

According to statistics from trade body Apfa – now part of Pimfa – the average number of advisers in a firm is 4.55.

So, how does that affect the running of a business?

First Wealth partner Claire Phillips says that until her company hired a practice manager, every adviser “wore multiple hats”. She says: “I was doing the hiring, general office administration, purchasing, making decisions on IT, compliance and also meeting clients.”

Phillips adds: “Hiring a practice manager has allowed me to focus on our key function, which is to generate great outcomes for clients and generate revenue for the business.”

How should advice firms pay their staff?

Being part of the Best Practice network provides crucial support for First Wealth: it deals with legal and compliance elements, which may require too much resource for a smaller firm, as well as providing guidance on various issues. The business also outsources some specialist areas such as HR and IT.

Alexander House chief executive Nick Kelly believes it is inevitable there will be consolidation within the industry; not only are the costs of running an advice firm rising but fewer people are joining the industry than are leaving it.

Innes Miller, the founder of consultancy Scydonia, says: “The IFA market used to be dominated by one- and two-man bands, but fewer firms are operating that way. If you want to deliver a professional level of service to clients, it’s almost impossible to do that as a single adviser firm now.”

He believes regulation is the primary driver behind this shift, along with rising costs and changing demands from clients who increasingly want better technology and robo-advice solutions.

“You need different technical knowledge and skills within a business, and a firm with a number of advisers can have specialists in pensions, investment and estate planning, or technical support in the background,” he adds.

With so much to contend with, what is becoming apparent is that the running of an adviser firm is a different job than being an adviser within one.

Kelly says: “Someone needs to run a business. Often, we see small firms where the manager is chef, cook and bottle washer, but we are in a world of huge professional oversight and ethical governance and I feel there is an inherent risk with this approach.”

Tom Hegarty: Why advisers should consider getting extra support in their business

However, running a business isn’t just about compliance and decisions about IT. The chief executive will oversee everything from hiring and firing to outsourcing and, crucially, decide on advisers’ remuneration – all of which will be radically different for those operating alone.

Miller says typically salaries are linked to the amount of income an adviser is generating for the business. Revenue is often split roughly three ways, between overheads and costs, adviser salaries and gross profit.

Where the set-up may be different is in a partnership model, where advisers are effectively operating an individual franchise within a larger framework, though this is not a common structure.

By appointing a specific individual to handle the running of the business, not only are any areas of potential difficulty regarding the division of responsibilities avoided, but advisers are able to concentrate on their actual job of advising clients, as well as being freed from any conflict of interest that trying to carry out both of these roles could create.

Kelly adds: “If you’re spending your time dealing with clients, you can’t go to CPD seminars and come back and change your websites, update your terms and reconfigure your back-office systems. This industry is only increasing in complexity.”



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. “How to run a mid-sized advice firm”? Start with a large one…

  2. I see that this nonsense is also being put forward by Jack McVitie in this week’s profile.

    Evidently he is worried about the competition. I could stand up to his firm both on advice, performance and most of all on price. I am sure many small firms can do likewise. We probably have a better client relationship too, as the larger firms are constantly churning personnel.

    I ran my own sole trader firm for 25 years. Yes it was hard but enjoyable work. As I always said once you got past the first 60 hours it was all downhill. And I managed to get qualified to Chartered and CFP standard to boot. I’m no hero, it can be done. You just need to be prepared to work hard and apply yourself.

    McVitie’s pronouncement that small firms would have to join a Network is both stupid and insulting. Networks have always been a drag anchor on high standards.

    I think Göethe put it well:

    Du must herrschen und gewinnen
    Oder dienen und verliveren

    You must be a master and win,
    Or Serve and lose.

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