Why it's important to analyse your revenue

Most advisors run their commission and fee tracking as a back office function with little or indeed no integration of this vital data into their everyday business.  In our experience most advisors seem unaware of the “hidden treasure” that can be unearthed and put to good use in building an efficient and profitable business or if they are aware of it, they simply don’t know how to tackle this mammoth task.

Other than the obvious fact that the revenue is needed to run the business on a day to day basis, what are the other reasons advisors should be paying more attention to this function in their practices?  Here are just a few:

·         Building a debtor’s book to prepare business revenue projections to support future growth

·         Understanding how each client contributes to the income of your business

·         Being able to match client income to client service levels efficiently

·         Making sure that what you expect to receive from product providers is what you actually receive

·         Keeping track of business that falls off the books

·         Assist in making your practice RDR ready

Very often the main barrier to putting commission data to good use is that the reconciliation process in the business is manual and time consuming.  Spreadsheets and highlighters are the tools used and in the end the figures given on the provider commission statements are accepted as correct because the task of checking each entry is simply too big and the FSP practice has neither the time nor the resources to do so. 

Also, many product provider commission statements are supplied in a format which does not allow for easy matching and tracking of information.  This means that if the practice does decide to get serious about checking the commission receipts, they have to accept that the cost to the business will be a full time person whose only job will be commission tracking and reconciliation.  For smaller FSPs this cost can be too high and in larger FSPs the amount of work involved exceeds what one person can handle resulting in additional staff being employed at additional cost and so on.

The truth of the matter is that the longer this task is left, the bigger it becomes and the less the advisor wants to tackle it.  Added to this is that advisors are expected to be technical experts and understand the software systems on the market that can be used to track and reconcile commissions and fees.  Even if a software system is successfully chosen, implementing it into the business and ensuring you have a trained person to operate the system is equally as daunting.

So what is the answer to getting a handle on this vital element of your business? 

One way is to talk to an expert who can help you select and set up a commission system in your business as well as help you train an in house administrator but this option comes at a cost of system license fees and staff salary.  If you are big enough and can afford the costs, then this could be a solution for you. 

An alternative is to simply outsource this function to an expert for a set monthly fee and remove the hassle from your business altogether.  This way you get to focus on your core business and the commission expert focusses on releasing and delivering the added value that your commission and fee data can give to your business.  Talk to us at Linktank if you'd like to explore that option. It is also a good idea to complete an RDR Reality Check questionnaire to measure your firm's readiness.

6 steps you need to take to getting "RDR ready"

The FSB's Retail Distribution Review (RDR) is just around the corner and firms need to be thinking about getting ready.

The UK RDR process started with consultation in 2006, fully six years before implementation in 2012. Whilst the process will inevitably be a bit different in South Africa, the direction of travel is fundamentally the same, and if anything, the timescales appear to be significantly shorter. Some of the RDR principles have already started.

Firms need to ensure they are ready, and the time it takes to make the transition will depend on the firm, but if previous experience is anything to go by, these things still take time.

In these situations, the early adopters advance the quickest, and I am reminded of the famous quote attributed to Darwin "It's not the strongest of the species that survives, but the one most adaptable to change." And this change is quite a big one.

The headline is about making the move from getting paid commission by product providers to getting paid fees by clients, but there's a bit more to it than that.

The key issues are:

• Creating a  profitable business structure
• Building your own 'product' and understanding how to market and deliver it
• Finding and managing the right clients
• Understanding how to position different conversations with new and existing clients

In this post, I want to provide an overview of what we see as the six steps that firms need to take to get themselves "RDR Ready." We think they need to happen in order.

1. Understanding who you have in your business and defining your ideal client profile

The industry has taught financial advisers to prospect for anyone with a pulse. It used to be a numbers game, and many firms have ended up with a diverse range of customers and clients, some of whom are profitable and some of whom are unprofitable. Some we have great relationships with and some we may have sold something to once, and never seen since.

It's not just financial advisers that face this challenge. Almost all businesses are having to be a bit smarter about who they work with. You need to understand who your ideal clients are and what makes them ideal, because you need to understand the problems that they will pay you to solve. You also need to make a plan for what you will do about those clients that are less than ideal.

2. Understanding what people want and designing a proposition to meet it

We are going to need to be clear about the value we add to clients, and be confident when answering the client's question "What do I get for my money?" Clients have never had the visibility they will get after RDR and it's quite likely that the press and media will be persuading clients to ask the questions about value.

You may think your services are highly valuable (and they are) but can you package them in a way that convinces your client, and persuades them to willingly pay for those services? It helps when you know why your ideal client is ideal and what they want.

3.  The move to adviser charging

We need to find a way to price our proposition(s). Historically, the price has been set by the industry, but now the price will be set by advice firms. Will your clients pay what you want to charge in order to be profitable? Will you be able to make a profit? Do you even know what it costs you to deliver your service?

Financial advice firms are a diverse bunch, and there are lots of pricing strategies to consider. You can't price your services though, until you know what you have built, for whom, and what it costs to deliver it.

4. Positioning your services to new prospects

The first meeting engagement process and conversation is a crucial point to getting consistent buy-in from clients and ensuring their future expectations are managed and met.

Now you've created a proposition, you'll need to articulate it in a compelling way, so that prospects perceive it to be the value it genuinely represents. You need to manage their expectations and communicate your service and price confidently. That takes time and practice. How will you have those conversations?

5. Developing your regular planning service

Generating regular revenue means delivering ongoing value. Forget 'passive' income. There's nothing passive about having to continually deliver value. To ensure you continue getting paid, you need to continue delivering value. The key point for this is your regular planning or review service, which for most clients will probably involve an annual meeting and some touch points in between.

If you can't continue to deliver value, then clients will have the option to switch off your fees. How are you going to design your ongoing service to prevent this from happening?

6. Re-positioning your existing client relationships

No, we haven't forgotten about your existing clients. You need to develop an effective strategy that will take your existing client relationships on the RDR journey with you. How do you ensure that you protect your existing profitable relationships, your revenue stream and the value that you have created in your business? And what do you say to those clients that are not profitable?

You don't want your existing clients to find out about RDR from anyone other than you, and that conversation needs to take place from a position of confidence.

There are plenty of other things to think about along the RDR journey, but the first phase in surviving the changes is to make sure that your business is still in one piece and is fit for the future.

Why don't you check out our "RDR Reality Check" self-evaluation to see how your firm shapes up. It's available as a free tool when you register on our website. You'll also get instant access to our e books too.

Using revenue data to segment your client base

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Preparation towards the implementation of RDR legislation is a factor in many financial planning practices currently thinking along the lines of re-evaluating efficiency and profitability.  To that end, proper analysis of revenue information offers valuable insight to inform a client segmentation exercise, assuming you have:

• A robust segmentation strategy, which you could look to a good consultant to assist with for fresh perspective and objectivity
• 12 months' worth of revenue statements from all your providers, which you'd need to consolidate to a common format
• A unique identifier, such as an ID number, for each client (and/or each client group), which can be used to tie together information about the same client across multiple product provider data sets
• selected CRM and financial data to overlap, as required to inform your segmentation strategy

What you can expect to be able to glean from revenue data

Even if you don't overlay your revenue data with other demographic information, you can still expect to come away with something pretty functional and decidedly more scientific than a subjective A, B or C rating.

• Total revenue earned, per client (and/or client groups), across all revenue types, contracts and providers
• Total ongoing revenue per income recipient
• Spread across revenue types, categories and sources
• Risks and opportunities lurking in your client database

Pulling all of this together can be an enormously taxing job, though, and outsourcing it may well be a quicker and more efficient approach.  Talk to us at Linktank if you'd like to explore that option.  Definitely also complete an RDR Reality Checkquestionnaire to measure your firm's readiness.