Is proper revenue analysis part of your acquisition due diligence?

For various reasons, there's a lot of consolidation going on in the industry.  We're seeing larger financial advisory firms acquiring smaller ones as there are obviously a range of benefits for both parties.  However, it's not always that easy to pre-analyse the acquisition client base for potential risks, opportunities or even an accurate estimate of monthly recurring revenue or client profitability.

A great way to have a proper in-depth look at what's going on in an advisor's client base is to analyse at least 12 months' worth of commission and fee data in order to establish:

• An expansive list of all clients from whom revenue has been generated over the last year (unsurprisingly, there are often information gaps and missing clients in CRM data).
• A view of profitable vs unprofitable clients, which can be overlaid with other information, such as AUM, or more subjective details such as relationship strength, potential revenue or advocacy.
• An objective analysis of initial vs recurring revenue over the period.
• Platform concentration and the potential ease or difficulty of switching clients to new brokerage codes.
• Potential claw backs in risk books.

All of this information is available within commission and fee data and, when combined with the advisor’s book reports, a very holistic view of the revenue and the clients can be obtained prior to take-on.  More complete knowledge also puts you in a better position for communicating with the clients and establishing a solid relationship from the start, lowering the risk of losing clients who perceive the change to be non-beneficial.

Need a hand assimilating and analysing commission data for this purpose?  Chat to us at Linktank.

Why do so many financial advisors use multiple unintegrated systems?

Earlier this year, in preparation for a presentation I was delivering at Cover Magazine's Technology in Financial Services conference, we (Linktank) conducted a survey among independent financial advisory practices.  One section of the survey related to the software systems (or combinations thereof) employed by practices to meet a range of business needs (such as client relationship management, compliance, management information, financial planning and advice, practice management, client reporting, prospect management, revenue administration and so on).

We weren't particularly surprised by the results.  As it turns out, almost 75% of respondents make use of more than one system to meet different needs within their businesses.  This means that multiple systems, usually requiring multiple versions of the same static client information, are separately (and often manually) maintained.  In most cases, little or no data is shared across these systems and spreadsheets are commonly used to try to stitch information together.  The implied inefficiency is staggering.

Isn't it possible to service business requirements with a single solution?  Are software products all competing in the same spaces and leaving similar gaps?  Are independent practices unable to successfully implement solutions to meet all their needs?  Are costs and other resources a limitation to businesses doing innovative things?  Or is it just a matter of preference for combinations of favoured tools (and an unfortunate side-effect that most solutions don't offer the option of integration with other industry-specific tools)?