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Lessons from the 2008 SA Best Practice of the Year

01 April 2009 Esm? Davies, Celestis

The results of the 2008 SA Best Practice of the Year competition reveal some interesting trends, as well as practical lessons on achieving success in these difficult economic conditions.

More than 120 practices entered the 2008 SA Best Practice of the Year competition – a 50% increase on the previous year. Adroit Financial Planning Partners took top honours in a competition that was extremely closely fought. At the time, Tony Stephens of Business Health Australia, said that the top five finalists in the South African competition compare very favourably with the best financial advisory companies around the world. Business Health runs the same competition in Australia where they had over 400 entries last year.

If you're wondering how all this affects you, start by reflecting on the words of Roger Staubach, an American football hero and latter day businessman. He said, "Winning isn't getting ahead of others. It's getting ahead of yourself."

The SA Best Practice competition allows a practice to benchmark itself against others in the industry and, in the process, identify its strengths and weaknesses. While there is only one winner in the competition, all the participants gain from it. By involving staff in the competition process, there is even more to be garnered from the exercise. The benefits flow to the practice, its employees and the clients too.

Despite an increase in the number of practices taking part, some key trends showed declines. This suggests that the economy has had an impact on our industry, with some practices right sizing, trimming client bases and associated expenses to more manageable proportions. The average number of active clients per advisor has reduced noticeably.

Working smarter not harder

Several practices reported declining gross revenue, but average expenses were also down by approximately one third against the previous year. What this boils down to is that while practices were spending 72 cents to earn a Rand in 2007, it cost them 65 cents to do so in 2008. Whether the saving is attributed to cost cutting or improved efficiency, the results are impressive. In terms of productivity, revenue generated per staff member increased by a healthy 28% and the average revenue per client increased by a massive 37%. If ever one wanted proof that working smarter pays off, this is it.

Progress in client management

SA practices have continued to make progress in the client management arena. With an increasing number of practices making use of client management systems such as Spotlight. Three quarters of the practices store comprehensive client data with leads to improved information retrieval and client communication. Roughly the same number of practices now segment or categorise their clients; but only 38% of the practices differentiate service offerings according to their segmentation strategy.

It appears that there is a well entrenched South African trait of booking our clients on an economy class ticket and then offering them first class service. Service costs are a major expense to any financial advisory practice and when the cost of delivery exceeds the revenue generated from a client, the service cannot be considered appropriate. We often pride ourselves on delivering the best service. However, by delivering the most appropriate service we will ensure that our clients are entirely happy and still remain profitable.

Managing reviews

Client reviews are considered extremely important to maintain client satisfaction, client retention and profitability. Remember that it is easier and more cost effective dealing with existing clients than acquiring new clients. It is very pleasing, therefore, to note that 75% of the practices now have a comprehensive client review process in place, although a smaller percentage of these have documented the process.

What was established during the auditing of the competition finalists was that a number of practices insist on having a second staff member (usually another advisor) present during the review. Unfortunately this practice is only followed by a few financial advisory businesses; but it is a trend that we consider very important in our industry.

Communication is key

Client communication remains an area of concern and the majority of our local practices do not have a structured communication strategy in place. Less than a quarter of the practices stated that they proactively communicate with their clients when bad news is reported about the industry or the economy. This suggests that our clients may be less satisfied than we may think. Remember that the inconvenience of having to change advisors often means that dissatisfied clients stay where they are.

On this topic, nearly half of the business owners who responded to the competition believe that only 10% of their clients are likely to leave the practice if the owner should retire today. Yet 69% of nearly 40 000 clients who have responded to an anonymous client satisfaction survey in Australia have stated that they would not be comfortable dealing with anyone else in the practice. It is entirely probable that many of our clients are more loyal to their advisors than we think and less so to the respective practices.

Business continuity remains a concern

When it comes to business continuity, two aspects are critical, namely business plans and succession plans. One in three practices that entered the competition does not have a business plan while another 27% of the respondents stated that their plans were only partially complete. The late French author, Antoine de Saint-Exupery, said, "A goal without a plan is just a wish". Do we have a wish list or a set of goals and objectives? Amongst the competition finalists, all had detailed business plans and these had been shared and discussed with their staff.

Although up on last year, only 39% of SA practices have a clearly documented succession plan, suggesting that this remains one of the "problem areas" in practice management. Identifying a likely successor remains an issue for many and this situation is exacerbated by the fact that the majority of South Africa's financial advisors are over the age of 50.

People management

Staff management is frequently underplayed in financial advisory practices. Often, the reason given is along the lines of, "We're a small office and everyone knows what everyone else is doing". That said, close on three quarters of the practices do have job descriptions for their staff while a little more than half of them document individual objectives for employees. Approximately half of the practices also conducted staff performance reviews in the latter six months of 2008. This figure is slightly down on the previous year – of concern given the trying circumstances of the period and the need for everyone to pull their weight. Difficult times frequently result in a focus on pressing issues such as cash flow whereas constructive, people-building appraisals might do more to alleviate the problem.

Super fit profits

Finally, 80% of the practices that entered the competition remained profitable, notwithstanding the economic downturn last year. In fact, more than a quarter of these rated super fit with profit rates above 50% according to the formula applied by Business Health. What this tells us is that the majority of financial advisory practices have the ability to keep their heads above water in difficult times and there are those who will thrive irrespective of the economic situation.

The message is heartening and the solution quite clearly lies in better practice management. Why not test your practice in the next SA Best Practice of the Year competition that will be launched soon? Look out for it and take the plunge.

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