If there’s one thing I’ve learned about working with advice firms, it’s that they really care about making sure their clients achieve the most they can from their own finances.  But because the focus is on that, some firms may not always have the time or capacity to put their own finances at the top of their priority list.

    I’m not for a second suggesting it’s commonplace to find reckless abandonment of any fiscal sense.  Or that clients shouldn’t be the priority.  But I often see firms put in place sound strategies for their clients’ finances while not doing the same for their firm.

    It’s often the strength of the ideology that the client comes first that means firms don’t achieve all they can from their hard work and endeavour.  Below are some of the most common examples I find of firms not following their own (very sound) advice.  The general trend is definitely shifting to greater discipline in this area and your firm may well already in the top 10% for whom none of these apply.  Otherwise, I hope to prompt a discussion or two among the firm’s principals.

    1. Planning for the long-term

    Firms would never dream of setting out a financial plan for a client that didn’t take them through retirement and at least into later life scenarios.  But most firms I know, when preparing a budget or cashflow forecast for the firm, would only ever plan 12 months ahead (or until the end of the next financial year) and only ever on a single scenario basis.  The leading firms prepare financial plans at detailed level that carry through at least a 3 year period, often 5 years, and they include financial modelling of the “what if” questions that see results improve or worsen under different strategic models or market conditions.  Such exercises do take time (and therefore have a cost) but help to identify decisions that can be taken (for example, increased investment in technology, recruitment needs or a new office) to help the firm perform better or take advantage of opportunities.

    2. Acting on expert advice

    You would never expect a client to act on your advice if you weren’t properly qualified to do so.  But most firms overlook the importance or hiring a qualified accountant to support the firm’s own financial planning.  The cost can be high, it’s an overhead to pass on to the client at the end of the day, but there are ways to mitigate this.  A full-time accountant with a professional qualification is a £50k minimum total expense on a full-time basis but this cost can be reduced by either recruiting part-time (2-3 days per week can work) or combining the role with a business manager scope to ensure the back-office is well managed.  The added discipline of a qualified accountant can support systems and controls discipline.  David Cameron asked us to “hug a hoodie” and I’m asking you to “throw your arms around an accountant”.

    3. Cashflow

    Basic cashflow modelling is a foundation of all client financial planning.  What is the client liquidity need in the short-term, and what pattern of cashflow is needed in retirement to support the desired lifestyle?  But do you have a firm grip of the firm’s own cashflow and do you have a view on what constitutes a minimum acceptable cash balance?  Each firm’s cost base will differ but it would be reasonably prudent to keep a minimum of 3 months of committed expenses (payroll, premises, PI cover) available at all times, just in case income should ever suffer a blip and you need that buffer to re-organise without needing to visit the bank.

    4. Time is precious

    The most common financial adviser question is: what are your goals in life.  The most common response is: more time for the things that matter.  We’ve all heard it and it’s common for a reason.  Time matters.  But do you know exactly how much your time is worth?  What’s the opportunity cost of getting up at 5am to drive to Truro on a Wednesday morning to see a client you think is looking for financial advice.  Every meeting, every phone call and every networking event…they all have a cost.  An adviser, taking into account the overheads of employing them, typically needs to earn £700 per working day just to cover costs.  That long drive has to be worth it.  Balance your time and your contact points with clients according to what’s right for the client but make sure it’s viable for the firm too. If the client isn’t right for you.  Say “no thanks” and explain why.  Make sure the firm has an agreed stance on when to pursue business.  Wealth accumulation should be a factor too – the tech entrepreneur with the large mortgage and no assets may well be worth that drive after all.

    5. Succession

    Estate management and wealth succession are terms every adviser will use on a daily basis.  But how many principals of firms look at their own firms in the same way?  You’ve worked hard, there’s value in the firm’s name and it’s providing you with lifestyle options.  But what’s next?  Stock market listings are a pipe dream for most firms (the cost of the action is just one hurdle to clear but there are many others…) and a network sale means negotiating with someone whose job it is to secure terms that work for them, not for you.  How can you possibly succeed with that?  Well, there are other ways to realise value and preserve your legacy.  But this is one matter where paying for objective advice is really recommended.  How you present your firm externally, the plans you have and the value of goodwill in your business should be determined by someone independent and not by the acquirer.

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