But how many financial advice businesses are thinking long-term about their own asset, i.e., their firm in itself? This is an especially pertinent question for mid-sized firms.
For very small advisory businesses, it’s probably fair to say that it’s easier to sell than to grow at the end of a long career. Much larger firms, so business orthodoxy tells us, will already be reaping the benefits of scale. But are they?
Recent FCA data shows us that scale in fact creates few success stories in financial advice businesses, with pre-tax losses surging among the 50 or so firms who account for just over half of the UK’s nearly 30,000 advisers.
Ultimately, I believe that’s because you can’t scale personal relationships – financial advice isn’t software-as-a-service. Clients’ circumstances, needs, and motivations cannot be standardized. This reality creates a unique opportunity for mid-sized firms to grow thoughtfully rather than mechanically, preserving the personal element that underpins quality advice.
But when is the “right” time to push forward? I think the answer is: it depends. An advice firm’s circumstances can be as varied as their clients’.
For example, if a business is beset by problems, it’s hard to even look forward. A firm’s owners might have made a couple of small acquisitions, taken on some debt, and suddenly found themselves running a very different business. Now they’re not advising clients, they’re managing cashflow and worrying about bank covenants.
Or, perhaps a business is not enabled to grow. Maybe they’re the advice division of a larger business, say, an accountancy practice. The partners who own the larger entity might not be fully focused on realizing the potential of the smaller arm. For the latter’s management team, that’s ultimately a recipe for frustration and stagnation, not motivation and success.
Another scenario might be a firm’s founder approaching retirement. Some founders might be happy for the firm to be swallowed up by a consolidator, pocket the fee and never look back. But for others, the concept of legacy is very real. They’re rightfully proud of the role the firm plays in the community they serve, and conscious of the role their management team has played in its success – their ‘sweat equity’, as it were. But the firm’s actual equity nevertheless still has a price – what if that team can’t meet it?
Sometimes, there’s points at which ‘mid’ gets close to ‘large’, too. A firm might already be a strong regional player of some stature, but not yet ready to rest on its laurels. However, M&A at increasing scale is no simple matter; it requires not just more capital but more capacity, more expertise. Again, all too often – enter the consolidators. But must growth inevitably mean loss of control, dilution of culture, and the sacrifice of the personal?
At Vertus, we think not.
While the “right” time to grow might “depend”, I think one thing is certain: wait for the perfect conditions and they’ll never arrive. Problem-solving, growth and succession are not moments but processes, so it’s never too early to plan for the action you’ll take. And if any of the above scenarios sounds like your firm: it’s already time.
You can take action by getting in touch with Vertus. You can read in more detail here [link to case studies] about the kind of support we could provide in the scenarios I’ve described, but as I’ve touched on throughout: your circumstances are unlikely to be exactly the same.
Nevertheless, if you’re a mid-sized, regional firm, I firmly believe you’re in the sweet spot for advice firms. Yes, you can leverage scale to a degree – for example, adding a dedicated compliance function. But you also get to retain your unique culture and character. This is critical given that it would appear that scale alone is not the road to profitability in a people-centric business.
Moreover, leading on from that, I also believe that successful advice businesses are ones in which management have a real stake and a freer hand. Autonomy and accountability are mutually reinforcing and central to motivation – both are easily lost amid the glacial bureaucracy of much larger businesses.
The good news is that growing your advice firm needn’t compromise on any of the above, done the right way. You may well need capital to do so – we can help with that, and much more besides. Just get in touch.
But my key message here is don’t wait – get ahead of your firm’s future. Planners shouldn’t wait to plan.
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