Business of Advice

THE BUSINESS OF ADVICEHow to manage and develop a successful financial advice business

David Shelton

The Business of Advice

© 2009 Copyright Taxbriefs Limited

All rights reserved. No part of this work covered bythe publisher’s copyright may be reproduced orcopied in any form or by any means (graphic,electronic or mechanical, including photocopying,recording, taping, or information storage andretrieval systems) without the written priorpermission of the publishers or a licence permittingrestricted copying in the United Kingdom issued bythe Copyright Licencing Agency Ltd, 90 TottenhamCourt Road, London W1T 4LP.

Every effort has been made to ensure that theinformation in this book is correct. No liability canbe accepted for any loss incurred in any waywhatsoever by any person relying solely on theinformation contained in this publication.

Taxbriefs Limited2-5 Benjamin StreetLondon EC1M 5QL

Telephone 020 7250 0967Facsimile 020 7251 8867Email [email protected]

ISBN 978-1-905482-41-2

British Library Cataloguing - in Publication Data. Acatalogue record for this book is available from theBritish Library.

Produced by Buckley Deane WakefieldPrinted and bound in Great Britain

Author

David Shelton is head of IFA Business Planning atScottish Widows with over 20 years of working inmarketing and business development in thefinancial sector. For the last 10 years he has workedwith a wide variety of IFAs specifically helping themdeal with a range of business issues. These includestrategic planning, designing service, effectivemarketing, managing people and implementing thetreating customers fairly initiative.

With unparalleled experience of running over 500consultancy exercises across a range of advisorybusinesses, all the tools and techniques David setsout have proven effective and time efficient..

David has written many articles and speaks atconferences on the development of the financialadvice market, with particular regard to distribution,service design, and business planning. He is a Fellowof the Chartered Institute of Marketing and ismarried with two grown up children.

PART1STRATEGIC PLANNING

Introduction 1/1

CHAPTER ONE Context, analysis and key Issues 1/5

CHAPTER TWO Setting direction 1/29

CHAPTER THREE Implementing the plan 1/39

PART 2HOW TO DEVELOP AN EFFECTIVE SERVICE PROPOSITION

Introduction 2/1

CHAPTER FOUR Be clear about your target market 2/5

CHAPTER FIVE Why service design is fundamental to your business 2/17

CHAPTER SIX Making your price structure simple and transparent 2/41

CHAPTER SEVEN A practical approach to designing service 2/51

PART 3MARKETING YOUR BUSINESS

Introduction 3/1

CHAPTER EIGHT Marketing communications 3/5

CHAPTER NINE Profile and image 3/15

CHAPTER TEN Client acquisition 3/39

CHAPTER ELEVEN Client retention 3/55

CHAPTER TWELVE Effective marketing planning 3/65

Contents

PART 4FINANCE, GROWTH, ACQUISITIONS AND SALES

Introduction 4/1

CHAPTER THIRTEEN Using financial data to manage your business 4/3

CHAPTER FOURTEEN Valuing advice businesses 4/21

CHAPTER FIFTEEN Buying and selling advice businesses 4/41

PART 5HOW TO MAKE YOUR BUSINESS MORE EFFICIENT

Introduction 5/1

CHAPTER SIXTEEN The main business processes and Treating Customers Fairly 5/5

CHAPTER SEVENTEEN Making information technology work for you 5/27

CHAPTER EIGHTEEN When to outsource 5/43

CHAPTER NINETEEN How to design and manage projects 5/49

PART 6HOW TO RECRUIT, DEVELOP AND RETAIN THE BEST PEOPLE

Introduction 6/1

CHAPTER TWENTY The importance of job descriptions 6/7

CHAPTER TWENTY ONE How to manage performance 6/17

CHAPTER TWENTY TWO How to design an effective reward structure 6/27

CHAPTER TWENTY THREE How to recruit effectively 6/43

CHAPTER TWENTY FOUR How to manage communication and change 6/61

PART 7FINE TUNING YOUR BUSINESS

Introduction 7/1

CHAPTER TWENTY FIVE The fine tuning process 7/3

Foreword

Fay Goddard, Chief Executive of the Personal Finance Society

It gives me great pleasure to welcome the publicationof this important new initiative aimed at helpingfinancial advisers develop their businesses and facilitatetransition to the new model for advisory firms.

The mission of the Personal Finance Society is far morethan qualifications and technical updating. The Societyis concerned with every member’s professionaldevelopment in its widest sense, and that meansassisting members with their business planning andpractice.

The Business of Advice is well-named: providingfinancial advice is a business and we should make noapology for that. Delivering a professional andsustainable client service requires advisers to run well-managed and efficient businesses that also need to beprofitable. In the new world being ushered in by theRetail Distribution Review, the challenge for advisorybusinesses will be even greater.

The author of The Business of Advice, David Shelton,is a widely acclaimed expert in the strategy andmanagement of financial advisory businesses. He builthis knowledge and skill advising hundreds of firms ofadvisers. So it is good to see all his experience andwisdom brought together in this ground-breakingpublication.

Fay Goddard

Introduction

If over 90% of advice businesses do not have astrategic plan, just think of the scale of the opportunityfor the 10% that do!

We all know that having a plan is no guarantee tosuccess and that many advice businesses survivewithout one. But think about your car. It could run foryears and years without you looking under the bonnet,but what state would it be in when you finally took itto the scrapyard?

You have to think about your business in the sameway. In fact, you are not just trying to maintain it – youshould be actively increasing its value. There are nosubstitutes for creativity and entrepreneurial flair, but ifthey are applied with superb management practice anda clear vision, their potential will be maximised.

This book offers no certainty of success; that is downto you. But it does give you tried and tested tools andtechniques that work in the advice sector. We willavoid theory and jargon, and deal in practicalities andapproaches that save you time.

To make sure that you run your business well and builda plan that is achievable, we deal with every aspect ofmanaging and growing your business. The book is splitinto the following seven parts:

• Practical strategic planning techniques.

• Designing service that will attract the right clients.

• Marketing your business cost effectively.

• Controlling your finances and managing growth.

• Running your business efficiently.

• Finding and keeping the best people.

• Fine tuning your business to keep it on track.

The following chart shows how the seven parts fittogether.

1 Part 1 on strategic planning provides a frameworkand range of tools to analyse your business and themarket. It goes on to help you decide on businessdirection and how you are going to achieve yourbusiness ambitions. The approach is practical, andyou will develop a plan that is realistic andachievable. This part is not designed to produce along list of actions and projects that lack of time willdefeat; it is about prioritising and concentrating onthe most important issues.

2 Service design is essential for all advice businesses,and part 2 covers this in detail. It deals with whatyou are offering, who it is for and how you willdeliver it. We begin with target market definitionand profiling your client base to help design servicethat is attractive to them and for which they willpay. We analyse market position to make sure that

BUSINESS STRATEGY

Where are you going and how will you get there?

SERVICE PROPOSITION

Who are your clients and what will you do

for them?

MARKETING

How should you acquireand retain clients?

PROCESS

How do you provide excellent service at

low cost?

PEOPLE

Have you got the rightpeople in the right jobs?

Strategy sets direction and objectives which guidewhat you do and how you manage progress

CONTROL AND GROWTH

How is thebusiness

performing,and how will you

sustain andfine tunegrowth?

you are competing in the best place in the market,and that you have an offering that is consistentwith your business strengths and operating model.We look at the differences between employed andself-employed advisers, and how you can develop aservice and pricing proposition that is manageableand cost effective to deliver. The final chapter inthis part deals with the essential issue of pricingand making sure that your advice charges areprofitable and credible with your clients.

3 When you are satisfied that service is robust, you canmove on to part 3, marketing. The marketingprocess is split into three distinct and manageablechapters, with a fourth dealing with marketingplanning. The process covers brand profile, clientacquisition and client retention, and concentrates onmaximising the value of the resources and effort thatare devoted to marketing. The widest range oftechniques is covered, with clear guidance on whichtechniques you should use for different marketingtasks. The chapter on planning provides astreamlined and proven process to help you organiseyour marketing activity as efficiently as possible.

4 Part 4 deals with the very different issues offinance and growth. There is a detailed review ofthe construction and use of financial accounts, withan emphasis on the insight they provide into thehealth and effectiveness of the business. You willalso cover best practice approaches to budgetingand cash flow management, which are critical inthe financial advice sector. Too many soundbusinesses suffer due to liquidity problems or thefailure to budget properly and track progress. Thereis a detailed chapter on business value, which setsthe traditional multipliers into context and providesa clear set of criteria for valuing businesses andpreparing them for sale. This chapter is designedfor buyers and sellers, and will give you a broadperspective on where to concentrate if you areintending to sell and what questions to ask if youare intending to buy. The final chapter in this partdeals with the detail of the acquisition process,succession planning and the best legal structure foryour business.

5 The efficiency with which you run your business isthe subject of part 5. The goal of this part is servicedelivery, ensuring that you provide the servicedesigned in Part 2 as consistently and costeffectively as possible. There is a detailed analysis ofthe main processes, from initial client contactthrough to review meetings for established clients.This is supplemented by a chapter on informationtechnology to help you decide if you have the rightback office software and how to go aboutchanging if necessary. Outsourcing is an importantfeature of the advice market and has a directbearing on business efficiency. You will reviewwhen outsourcing makes sound business sense andhow to make sure you get the right supplier. Finally,we deal with project management, which is anessential capability that you need to implement yourplans and make changes in the business. This hasmany applications and links with other parts of thebook.

6 People are one of the most important assets ofadvice businesses, and all the people issues andprocesses are covered in part 6. The central part ofthis is the job description, and we deal with jobdesign and provide several examples that cover themajority of jobs in advice businesses. This is thefoundation for performance management, and youwill find all the pro-formas and templates you needto undertake this objectively. The chapter on rewardcovers all employee types, and employed and self-employed advisers. The approach to profit-relatedreward is also covered, and you will find examplesof generic bonus frameworks that you can use. Wethen deal with every aspect of the recruitmentprocess, which is one of the most difficult thingsyou have to do. The aim is to take as much risk outof this as possible. We cover everything fromdrawing up a recruitment specification toadvertising the job, developing selection criteria andproviding effective induction. The final chapter inthis part deals with internal communication andchange management. It is hard to achieveconsistently high standards in this area, so our aimis to give you a range of best practice techniques.

7 Part 7 is about fine tuning your business. Therewill often be times when you are satisfied that youroverall strategy and direction are right but thebusiness is losing its efficiency or competitiveness.This may be more pronounced during a recession,but fine tuning your business is as important askeeping fit and should be done regularly. You willget to your destination more quickly and use fewerresources.

You will find plenty of case studies and examples toshow good practice, as well as checklists and ‘killerquestions’ for you to benchmark where you stand. Wealso give specific guidance to help you put thecontents of this book into practice, including agendasand content for meetings, and templates forcompletion.

You can use this book from start to finish, or just takeindividual chapters if you need to concentrate on asingle issue. There are plenty of cross references, soyou can choose the order that suits you best.

Finally, for many of the management challenges thatyou deal with, there are no ‘right answers’. In fact, theright answers are those which are relevant andpractical for your business. In practice, it is hard toachieve perfection in all areas, and you have to judgewhere the priorities lie. This book will help you do thatand make changes in your business which have alasting and positive effect.

DOWNLOAD THE TEMPLATES

To make sure you maximise the value of this book,we have created a website which contains all thetemplates that you will need to construct yourbusiness plan and put many of the tools andtechniques into practice. You can download thetemplates as PDFs or Word documents to amendthem to suit your business.

The aim is to give you complete flexibility in howyou apply the content of the book to your business.The templates are exactly the same as those in the

book which means you can work on them whilereferring to the text and examples, or print them offto use in meetings with colleagues.

The website will also contain business planning tipsand examples as well specific applications ofbusiness planning tools.

You can access the website by going towww.businessofadvice.co.uk. Log on to downloadthe templates and access subscriber-onlyinformation.

3/55

CLIENT RETENTION CHAPTER ELEVEN

CHAPTER ELEVEN

Client retention

By the end of this chapter, your business will benefit from:

� Retention of key clients.

� Retention of all clients who are valuable to the business.

� An organised and targeted retention plan.

� Deployment of a variety of retention methods.

This chapter will cover the main methods ofretaining clients, which are:

• Newsletters.• Targeted e-mails.• Website client area.• Service calls.• Hospitality.

Of course, the most effective method of clientretention is to provide them with ongoing service tothe standards and timescales that you have agreed.These may be set as minimum levels or may vary if

you operate a tiered service model. The three tierexample in chapter 5 showed how the frequency ofcontact (face to face as well as othercommunications) varied by client value. If you applyyour service standards consistently, then you willhave very little extra to do by way of clientretention. Servicing will do the job for you.

However, the five techniques listed above can play avery useful role in supporting retention, and thereare particular client groups with which they workbest.

CLIENT RETENTION works best whenthe ongoing service is delivered to thestandards and timescales agreed withthe client.

3/56

PART 3 MARKETING YOUR BUSINESS

1 Is client retention importantfor your business?

To decide the extent to which you need toundertake retention activity, answer the followingquestions.

• Do you have a lot of clients (say, over 40% ofyour client base) who are of value to you, butwho you do not see or contact regularly?

• Do you find that clients you see less frequentlyhave made their own financial decisions, or seenanother adviser or the bank since you last sawthem?

• Are you concerned that you have not informedclients about important tax and legal changes?

• Do you find that clients do not recognise the fullbreadth of your expertise and services?

• Do you tend never to use hospitality as a meansof sustaining relationships with the really topclients?

Distribute these questions among your advisersusing template 3.9.

If you have answered “Yes” to at least three of theabove, you should seriously consider running aformal retention programme using the techniqueswhich follow.

2 The usefulness of newsletters

These have been widely used by advice businessesfor many years, come in many different formats andperform different functions. The range can besummarised as follows:

• Provision of information through to updatesabout the business and its people.

• Generic coverage of financial issues through tocontent related to specific topics, such asinvestments or pensions.

• Product offers or generic information.

• Up to six times a year or just once.

• Produced in-house or purchased.

• High production quality or black and white.

• Mailed hard copy or e-mailed (or a combination).

• Sent to all clients or selected group.

The approach that individual businesses shouldadopt will vary depending on the importance ofclient retention, the number of clients, costs and thefrequency of client contact through service delivery.

Many practices only send newsletters to the topclient group, whereas others send them to everyone

NEWSLETTERS are an effective method of keeping in touch with clients who youwant to retain but only see every two orthree years.

CASE STUDY KEY POINT

There are three good practice points here:• Always survey the readership at regular intervals to make sure the newsletter is worth sending: dothis at least every three years.

• Make sure the survey is short and well structured, and that it is easy for the administrators to capturethe answers.

• If you are going to follow up with the offer of advice, do so within two weeks.

Newsletter survey

CASE STUDY

Caroline South is in charge of marketing at GreyFinancial Advisers, and has been challenged bythe managing director of the firm to prove thatthe bi-annual newsletter is worthwhile. “I amnot convinced that this is money well spent; wenever seem to get any business when we send itout, and the number of returns and gone-awaysgrows each time,” he complained.

Caroline held the same reservations, but had aninstinct that the newsletter was worthwhilefrom the occasional comments that clients andother advisers had made. The newsletter hadbeen running for five years, and they hadincluded a short questionnaire at the start of thethird year to find out what clients thought. Theresponse rate was not very good, but those whodid mail back generally liked what they received.However, at the time, the MD asked, “If theresponse is so low, should we conclude thatpeople just throw it in the bin?”

Caroline decided that another survey wasrequired, but that this could be used toproactively support the newsletter. She designeda short questionnaire that would be used by theadministrators in a telephone-based survey. Thequestions were:

• Do you remember receiving the newsletter?• Did you read most of it?• What did you like about it?• What did you not like?• Do you find it interesting?• Was the length too short, about right or toolong?

• Would you like to receive these more or lessoften?

She mapped out a response sheet that theadministrators could use to gather the answers,and randomly selected 100 names from themailing that was about to go out.

The survey ran two weeks after the mailing(including those who were e-mailed) to allowtime for the post to deliver. Caroline added afurther question which was:

• Would you like us to give you further personaladvice on the issues covered in the articles oninheritance tax or pensions contributions?

Caroline was pleased with the results, as itappeared that 90% remembered receiving thenewsletter and 50% had read it. Those who readit liked the content, and 10% asked for personaladvice. The latter were followed up by theadvisers, and the result was two pieces ofbusiness that covered the cost of the newsletterfor a further year.

The MD thought this was a good outcome, andthey decided to plan the follow-up service callsfor the next edition well in advance and call atleast 250 recipients, excluding those who hadbeen seen by an adviser in the previous sixmonths. The MD said, “This is a really good wayof getting extra business in a difficult market,and it more than justifies sending the newsletter– I wish I had thought of the follow-up phonecalls before!”

3/57


3/58


on the database. In some cases, they ask theindividual advisers to make up the list. The bestapproach is to use the checklist for marketingactivity as a starting point, and then think abouthow many clients you have who are of value to you,but who you rarely see. If you have over 500 ofthese, and they really are valuable, then newsletterscan be a very good way of reminding them of yourexistence.

Typically, advice businesses will produce or buy intwo or three editions a year and that, with acovering letter, should make a good contribution toclient retention. It follows that if you are sending tothe 500 middle value clients, you should alsoinclude the high value clients.

You need to make a careful judgement about whatto do about low value or dormant clients. If theseare simply names on the list with no contact forover ten years, then it is not worth sending to them.However, if you contact them from time to time oruse them to provide leads for new advisers, thenyou should include them.

Finally, you need a consistent approach across thebusiness, so it is not advisable to let individualadvisers decide on the list. If you have segmentedyour client base by value and service delivery, thenthat should be the basis for your circulation list.

3 Using electroniccommunication

This is a very cost effective and immediatecommunication process, and you should make fulluse of it, provided you have the e-mail addresses ofa sufficient number of clients.

3.1 Targeted e-mails are verycost effective

You should use targeted e-mails in the followingcircumstances:

• If the content is specific to the recipient.

• If recipients need to take some action (even if it isto do nothing).

• When you need to communicate quickly andwith urgency.

• At times of uncertainty, when you want tomanage expectations and pre-empt enquiries andquestions.

• When there is confusion about a change ineconomic or taxation policy that needs to beclarified.

If you use targeted e-mails in this way, your clientswill perceive you as proactive, up to date, keen tolook after them and helpful. That is a goodoutcome, which means you only need to use themin the circumstances referred to above. This meansclients will always open e-mails from you, becausethey know they are important and will not wastetheir time.

3.2 Website client area

This has been covered in the main section onwebsites in chapter 9.

3/59


4 Make genuine service calls

The purpose of service calls is to retain contact withclients and not to directly offer products, funds oradditional service. Calls that do this are part ofacquisition and should be treated like any othermarketing campaign.

It is highly likely that your ongoing service deliverywill include calls, particularly for clients you will notsee face to face every year. These calls are oftenabout the annual valuation or the products that theclient holds with you.

The types of service call referred to in this sectionare often centred on keeping client records up todate. Inevitably, they will have the spin-off ofreminding the client that you exist and sometimesprompting enquiries.

Service calls can cover the following:

• Data clean-up: checking addresses, post codes, e-mail addresses.

• Genuine surveys on service (often a month or soafter a client has transacted business with you).

• Surveys on a recently sent newsletter or similarcommunication.

You need to log on your client database who hasbeen called, for what purpose and when. Youshould use administrators who have a goodtelephone manner, and train them to listen forbusiness opportunities and how to handle technicalissues (which will typically require a call back froman adviser).

Finally, it is best to undertake this exercise intranches so that any issues or advice enquiries thatarise can be responded to in a timely manner. Youcan always suspend this exercise at busy times, butalways remember to pick it up when it becomesquieter. It will help to keep clients, and businessenquiries will always arise.

5 When to offer hospitality

Advisers' views on this vary from enthusiastic to theopposite. For some, it is an essential part ofretaining clients and meeting new ones; for others,it is time and money wasted.

This is one of the few marketing techniques thatyou have to enjoy to make it worthwhile. Youshould apply the questions in the checklist and, if itmakes sense to spend part of your budget onhospitality, you should think carefully about whatyou and your clients will enjoy. The reason forconsidering your personal view is because yourfeelings will come across to your guests. If you takethem to a good restaurant with a sense of duty,they will be able to tell. They will definitely detectyour feelings if you take them to a sporting eventthat is of no interest to you.

There is quite a lot of judgement involved inhospitality. In general, clients like it if it is a genuine‘thank you’ for being a long-standing and valuableclient. For the most part, hospitality of this natureshould stay firmly in this category and not be usedto sell new products or services. For certain events,it is perfectly reasonable to give clients theopportunity to bring another guest, but you shoulduse the event purely to make their acquaintance.

5.1 Take care with budgets andorganisation

You need to think carefully about how much youare going to spend. You should be generous withentertainment but not lavish. A decent wine with ameal is correct, but never-ending supplies ofchampagne create the wrong impression. You donot need the best seats in the theatre or the topcorporate package at Twickenham, but you shouldnot buy the cheapest. Think about what clientsmight expect or buy for themselves: that is always agood guide.

3/60


Generally, you should invite small numbers (no morethan 20), because you need to speak to them alland give yourself an opportunity to be a good hostto everybody. This means choosing events wherethere is opportunity for conversation, which placesgolf at the top of the list and theatre at the bottom.However, drinks or a meal before theatre canremedy this.

You do not need an extensive hospitalityprogramme for retention. This is because it willalways be your top clients for whom hospitality isappropriate, and they probably see you quitefrequently as part of service delivery. One event ayear may be enough, but make sure you vary it sothat the majority of interests are catered for. If youcan include partners, it really enhances the power ofthe ‘thank you’, particularly because partners oftenmiss out on such events.

For an event to be successful, you need to:

• Invite no more than 20 people.

• Invite them personally and well in advance.

• Check dietary requirements before the event.

• Ask your secretary to call invitees two days beforeto make sure they have the time and location(clearly this acts as a reminder).

• Carefully check the venue and arrangementsbeforehand.

• If appropriate, arrange seating plans with care.

• Make sure you speak with everyone, and don'tjust stick to your favourites.

• Keep a very close watch to ensure that peopleare enjoying themselves – do something about itif they are not.

• Brief your fellow advisers on the guests and theirbackgrounds.

• Thank guests for coming to the event.

• Ensure that there is a systematic process forfollow-up if new business opportunities areidentified.

HOSPITALITY arrangements need thesame attention to detail as seminars.Make sure you have enough time to pay attention to everything.

Documents

Business of Advice