Unlock Your Advice Firm’s Hidden Value
by julie greenwood at Octopus money
Unlocking the full potential of your financial advice business requires an honest look at your client book and strategic alignment with long-term goals. This white paper provides actionable insights for financial advisers, especially those preparing for a future business sale or seeking ways to enhance profitability. Here’s why this paper deserves your attention and the key steps you can take to implement its recommendations.
The Hidden Costs in Your Client Book
One major insight highlighted is the disproportionate value distribution within many client books. In one anonymized case, half of the clients contributed just 14% of ongoing advice fees and held only 9% of assets under advice. Meanwhile, just 25% of clients accounted for over 70% of assets and more than 60% of fees.
Servicing smaller clients with lower asset values can incur significant opportunity costs. With finite adviser resources, your firm might be better positioned focusing on clients with complex needs and higher asset values. This imbalance can also impact your firm’s attractiveness to potential buyers, as they typically prefer a streamlined client base with higher average holdings.
Actionable Steps:
Analyse Your Client Data:
- Map out which client segments generate revenue and understand your cost to serve each cohort.
- Identify clients who may not be profitable due to the time and resources required to serve them.
Evaluate Alternative Models:
- Consider transitioning smaller clients to a firm better equipped to serve their needs, such as Octopus Money, which combines coaching and technology to provide cost-effective solutions.
- Alternatively, explore technology solutions to reduce the cost of serving these clients while maintaining Consumer Duty compliance.
Preparing for a Future Sale
Even if you don’t plan to sell your business immediately, treating it as a sale-ready asset can boost efficiency and profitability. Most acquirers, particularly private equity-backed firms, value businesses with clean, well-segmented client books and robust data management.
Key Areas to Address:
- Compliance: Ensure you can evidence adherence to Consumer Duty regulations, especially for ongoing advice services.
- Data Accuracy: Maintain clean, accurate client data to minimize risks during due diligence.
- Target Client Strategy: Focus on high-value clients who align with your firm’s expertise.
Actionable Steps:
- Engage expert support to identify and address areas that could enhance your business’s value.
- Develop a client transition plan for smaller clients, either improving efficiency or transitioning them to a specialist firm.
Enhancing Profitability While Maintaining Goodwill
Firms like Octopus Money offer innovative solutions for serving smaller clients. By leveraging technology and financial coaching, these models provide a lower-cost service without compromising on quality. Advisers can maintain goodwill by referring clients to these alternatives or integrating hybrid models into their businesses. This approach frees up time and resources to focus on high-value clients.
Final Recommendations:
- Audit Your Client Base: Regularly assess the distribution of assets and fees across your client book.
- Explore Partnerships: Partner with organizations that can support your goals, such as Octopus Money for client transitions or Woven Advice for actionable data insights.
- Plan Ahead: If selling your firm is part of your strategy, begin preparing at least five years in advance.
This white paper provides a roadmap for financial advisers to optimize their businesses, enhance profitability, and secure better outcomes for all clients. Implement these strategies to unlock untapped potential and future-proof your firm.