There's a question I keep hearing again and again in conversations at the moment.

    It was raised most recently in the Black Swan, the Octo Members' virtual boozer (the pub name is interchangeable) - a gathering of like minded folk discussing all things financial services.  

    The question is: Why is it so difficult to scale a financial planning business?

    It seems there’s few, if any, firms in the UK that as of yet have managed to do it.

    Let me first qualify what I mean by scale; a planning business that sustains consistent growth, offers a planning proposition to all clients and has reached a size that puts it alongside some of the existing national and large regional firms.

    Perhaps a good starting benchmark to measure scale is a firm of 50 planners and with £15m turnover? I may be setting the bar a little high, but I’m not sure I could name a ‘true’ financial planning firm with more than 15 advisers.

    So why such a challenge? The market is large enough and the proposition offer is compelling.

    Here's some thoughts from me on some of the obstacles to scaling a financial planning practice, and how this may change in future. 

    It’s difficult to recruit and retain good planners

    Finding good planners is hard - most experienced ones with a decent client base are already running their own business.

    Younger planners have less of a client ‘following’, and I would suggest that 50 per cent or so have an ambition to run their own business one day.

    When a planner leaves a business, most of their clients go with them.

    Few businesses have created enough synergy between the client and wider business to overcome this. I think it can be done, but only where a clear ‘client team’ approach is used.

    Getting everyone on the same page is hard

    Larger firms on the journey to becoming a true planning firm, with multiple registered individuals, need to make difficult decisions.

    Losing people who aren’t ‘on board’ with planning is difficult, not least due to the impact on revenues.

    The lack of a strong brand

    Very few firms have strong brands that appeal to employees and the external audience.

    A strong brand builds both external and internal affinity. It reduces employee attrition rates and attracts new clients.

    Only a few firms in the sector have invested in creating such a strong brand that it acts as a catalyst to growth.

    Applying the right model

    The disciplined team approach is essential to scaling up, as reliance on a single planner for managing the client relationship puts the business at risk.

    It also hinders the opportunity to scale, as the adviser is mostly centred on only growing their own client bank. It may even lead to individual advisers ignoring opportunities that the wider business would welcome.

    That approach needs to be re-engineered.

    We all know the hunter/farmer analogy, with hunters constantly prospecting for new business and farmers more minded to tend to existing client relationships.

    Both are important, but success comes more readily when a much broader team approach and culture is enabled. 

    It’s difficult to scale through acquisition

    There just aren’t enough planning firms looking to sell to make this a viable strategy.

    Most planning firms are pursuing their own growth ambitions (although success can be greater than the sum of the parts.)

    I don’t know the details, but I guess the Paradigm Norton acquisition of The Red House would make a compelling argument for scaling through acquisition. But such examples seem few and far between.

    Financial planners hate the idea of being vertically integrated

    But should they?

    If the proposition is compelling and centered around client value with the right culture in place, can a planning firm be vertically integrated and realise the benefits of this model? 

    Perhaps this is something worth considering. 

    So what are the answers to all this?

    Firms with a client relationship owned by a single adviser will struggle to scale, as planner attrition will always carry increased risk. The planning proposition needs to be built around a team approach.

    Perhaps the market isn’t quite mature enough yet. This will change as younger planners build their client following.

    Banks, one of the traditional breeding grounds of advisers, are starting to develop planning propositions. As this develops, advisers trained in this way will emerge into the wider independent market, providing firms with great access to talented planners.

    As the advice market evolves, there is a growing opportunity for financial planning firms. 

    Not all firms want to scale, and that's fine. But those that do may see increasing opportunities to do so over the coming years.

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