In the last edition I shared some thoughts on the challenges to be faced by businesses in a post AdviserCharging environment. I highlighted the need for business owners and advisers to start planning their future client proposition now, and the importance of being able to articulate the value of your service to customers, who will have to pay explicit charges for your service. But how do you start with all this planning and what should you really be focussing on?
As part of our Business Solutions Programme, we encourage businesses to focus on three key areas:
– How to reduce costs and convey value;
– how to increase revenue and develop equity strength and
– managing risk and exit strategies.
Our development managers have been trained and have access to a number of modules designed to help businesses approach and tackle these issues which has already led to positive results and helped some advisers.
Of these, understanding the value of your time is a fundamental cornerstone of any business planning exercise. Do you really know what an hour of your time is worth? This is not to say that your advice charges should be expressed in terms of £/hour but if you don’t understand your revenue generation requirement you can’t determine which clients can be profitable or where to set your level of charges. Get these basics wrong and you’re unknowingly giving away your expertise and services at a loss. Likewise, by knowing these figures you’ll be in a much better place to understand the true scale of the challenge in getting your business ready for a post RDR market.
Remember, it’s total costs that counts, not just your own earning requirement. For firms, this will include the total cost base of the business such as:
– the people;
– software licenses;
– accommodation costs;
– professional fees and
– FSA levies.
Even for those of you who are self-employed and setting your own charges, make sure you consider all your expenses. Further, try to consider what your cost base will be once you rollout your post RDR client proposition, if it is not the same as today. Delivery of good ongoing service has a cost!
Once you complete this exercise for the first time you can start to make sensible judgements to find and retain enough customers who are prepared to pay the level of fees you will need to charge. The table shown illustrates (assuming 0.5% ongoing fees), the maximum amount of time a business could spend servicing it’s customers and still make a profit. For example, if you were to decide upon a rate of £100 an hour, for a portfolio of £100,000 you could afford to spend no more than 5 hours a year for each client. This would reduce to 2.5 hours for a £50,000 portfolio. Crucially, don’t forget this time represents the ’whole of firm’ time – including anything reasonably linked to the client! When doing this for the first time most will be surprised at the answers and identify some key challenges such as:
Costs and efficiency: By managing your cost base and efficiency you can reduce the revenue requirement of your business or the amount of time required to service each client. This can enable you to reduce your charges so you are able to attract and retain more profitable customers. Alternatively it will allow you to deal profitably with customers with smaller portfolios.
Level of charges and alternative revenue streams: By focusing on the development and delivery of your proposition (supported by other modules within our Business Solutions suite) you may be able to persuade more customers to pay the level of charges required, to operate at a profit.
I understand that many of you will be feeling the pinch brought about by the current economic environment and the end of 2012 feels a long way off. Some may even argue “…What is the point of preparing my business for the tomorrow if I can’t get it through today?…” And this is obviously true, but do you really want to emerge from today’s set of issues totally unprepared for something even bigger and more fundamental
As I mentioned at the start, Legal & General are acutely aware of these challenges and want to help. This is exactly why we have developed our
Business Solutions Programme and spent time and effort in training our Wealth Development Managers to support you with both long-term planning and in managing short-term business issues. To find out more about Business Solutions please visit our ’Business Development Support’ page at www.legalandgeneral.com/advisercentre
RDR and Commercial Director
Legal & General