Getting the best value from your business

One of the words advisers are going to hear a lot about in future months and years is corporatisation.

While corporatisation may not be the most attractive word, nor one which exudes some obvious meaning, it is one which will be essential to an adviser’s business going forward.

Corporatisation is all about moving the advisory world from a cottage industry to something which is bigger, more professional and more profitable.

“Corporatisation refers essentially to basing your practice around investment platforms (wraps and master trusts) which offer a well-researched, compliant and defensible universe of product choices and portfolio options by which to rationalise client services,” TOWER business development manager Michael Coote says.

The term has popped up recently when a number of fund managers have talked about acquiring advisory firms and changing the way they operate.

Currently the advice business in New Zealand and Australia is characterised by a large number of small firms, AXA’s Melbourne-based chief executive Les Owen said on a recent visit to New Zealand.

He said that advice has to move from being a cottage industry to one that is scaleable and corporatised. This will be done partly through the fund managers and others providing services to advisers.

Coote says there are a number of important pluses available to advisers through the corporatisation process.

One is that clients can be treated to a portfolio approach and get consistent products and services, as opposed to, say, the more transactional sharebroking type of business.

“Compliance is another area where practice value can be undermined,” he says. In New Zealand compliance is tightening up at the regulatory level while at the same time its reach is increasingly extended. Progressively, every aspect of an advisory practice will come under the compliance microscope from regulators and potential purchasers - and the less rationalised and systematic a practice’s processes and procedures are, the lower the end value the practice will have to on-sell.

Indeed, the longer non-compliant aspects of a practice are allowed to drag on, the greater the likely acceleration rate of practice value deterioration. A new adviser who purchases a practice that is patchy on compliance will have to divert a lot of time and energy away from servicing existing clients and prospecting for new ones while fixing up any compliance issues.

Non-compliance in the business will inevitably impact on any final price an adviser will be willing to pay.

A major plus of the process is that these changes help enhances the sale value of an advisory business.

While many advisers think that one-day a fund manager is going to knock on their door with a big cheque for their business that isn’t likely to happen – unless it has good processes and systems in place.

“Lack of corporatisation may make a practice less saleable and difficult for someone to step in for a period of time should you need to take time out of the business,” Coote says. “It makes good dollars and sense to corporatise your financial planning or investment advisory practice as soon as possible.”

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