While having the “right” data to run a financial planning business has always mattered, it has recently assumed even greater importance in three primary areas I encounter: the demonstration of good client outcomes (Consumer Duty), building embedded value and maximising the financial outcome from a sale of the business.
I want to look at what is holding some firms back and what can be done to address the challenges.
Good client outcomes
Despite the many column inches devoted to this area in the last 18 months, it is still the case that some firms are struggling in this area.
Firms that make good use of their external compliance support have made the best progress, even if this costs. Those who do not use external compliance consultants are having to devote more time to the process and without anyone to tell them if there are possible gaps.
The phrase coined by Donald Rumsfeld, “you don’t know what you don’t know”, comes to mind here.
How much individual firm scrutiny the Financial Conduct Authority will engage in post-Consumer Duty implementation is open to debate, but no one wants to be censured by the regulator.
Building embedded value
I am seeing many firms revisiting their client propositions, partly because of Consumer Duty and partly because client needs and requirements are changing.
If a firm does not understand the underlying cost and profitability of what is in place, and the impact of what is being contemplated, this cannot be a sound basis on which to build a business and plan for the future.
Part of the solution is likely to be the choice of back-office provider and how the software is used, and part will stem from the level of competency to carry out detailed financial modelling. Auditors are often a worthwhile source of expertise.
Maximising the financial outcome from a sale of a business
While the impact on clients and the people in a firm are fundamental when it is sold, the valuation achieved is important to the owners.
Buyers want comprehensive data, such as assets under management and the platforms on which they are held, average client and family holdings, and the geographic spread of clients.
The right back-office software can provide the detail needed and “interrogate” the data in numerous different ways.
Firms that cannot obtain this level of detail do themselves a disservice. If they cannot demonstrate the value of their clients, they risk receiving lower valuations and not creating the impression they would like to.
Business owners rightly need to carefully evaluate the merits of seeking external assistance, before paying out what can be considerable sums to consultants and other support service providers. That said, I often see a direct correlation between those firms that have made judicious use of external support as they have developed and the value of their firm when it is eventually sold.
Roderic Rennison is a founder and partner of Catalyst Partners
