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.

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.

Income reconciliation needn't be the bane of an IFA's existence

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Revenue management remains a source of misery and mystery to many financial advisory practices.  It's often a counter-productive, poorly automated part of the business, and not without reason.

Multiple data sources in multiple formats

If you're an independent financial advisory firm, you'll be familiar with the frustration of having each product provider supply revenue information in their own preferred format, either via logins to their systems or by dispensing files via email.  It's a pretty consuming job just to consolidate the data, never mind balancing against expected revenue or bank statements.  And, of course, some product providers still insist on delivering revenue statements only as PDF documents, causing many FSPs to employ the mind-numbingly inefficient 'yellow highlighter method' of reconciliation.  Going on to analyse client profitability, discern fees on client level or mine data for business opportunities or risks isn't often even part of the plan, given the enormity of the task of simply pulling the various sources of information together in the first place.  And being able to accurately and efficiently manage revenue is only going to become more important in the changing legislative landscape.

There are more efficient ways of doing it

There are some seriously great pieces of tech out there to assist businesses with revenue management, some of which can be implemented pretty quickly and painlessly, especially if you already have the right dedicated resources in your business.  Alternatively, outsourcing the entire function of income reconciliation is increasingly popular among financial advisory practices of all shapes and sizes.  Let's face it - the ability to streamline non-core functions whilst focusing more energy on core business is a differentiating edge in the evolving financial services industry.

Considering outsourcing?  Chat to us at Linktank.