This is according to Alex Cook, CEO of GCI Wealth. “We find that the smaller firms are under pressure from all sides: most operate on very low margins while the cost of compliance is rising and eating into their profits. Few value their own time accurately, which limits their own earning potential. “
“Many take on more clients than they can effectively focus on, so losing the ability to deliver personal attention that made them successful in the first place. And most worryingly, few independent advisors have effective exit strategies and succession planning in place – meaning that if they should want to scale down or retire, or if they should become disabled or die, the full value of their years of hard work would not be realised,” says Cook.
Typical exit strategies such as selling all or part of the business will often impact the advisor’s independence and fail to deliver the returns that should have been possible through an optimal business strategy.
“Lump sum payments don’t replace the lost business annuity revenue, in the case of franchising – the franchise fee may be equal to gross margin, and many succession plans don’t cover all potential trigger events,” he says. While most advisors do cover disability or death in their planning, they may overlook less obvious triggers such as retirement, being forced out of business by decreasing margins and the increased demands involved in balancing advising clients and running a business.
“The merger model addresses all eventualities and is proving the most beneficial for smaller firms with less than R10m in turnover,” Cook says. “It increases margins and earnings and frees the advisor to focus on what he/she loves doing and is good at – advising clients.” The model effectively moves people from being self-employed to becoming true business owners with sustainable businesses that can continue growing even when the owner retires.
He believes that the independent fee-based financial planner will dominate the advisory landscape over the next 10 years.
