The best and worst of practice management

It’s two simple words. However, when put together they cause either rapturous applause or nervous tension among financial planners.

The term practice management is used in a range of industries, but in financial planning it refers to the strategy used to organise and manage a financial planning business, incorporating staff, administration and efficiency issues.

However, the broad range of issues it covers leaves practice management open to debate on what works and what does not.

According to Gunther Doyle Griffin director Greg Gunther, there is definitely a line to be drawn between practice management strategies that work and those that don’t. Topping his good list is the introduction of paraplanners into the financial planning industry.

“From my perspective, it was a realisation that I could be more productive by not trying to do everything myself. Initially, this came in the form of a paraplanner who took the function of preparing strategy and plan structuring away from me,” he says.

“In fact, the experience was that apart from me having a lot more time to prospect and see a whole lot more clients, it also can help solve the issue of succession planning within the practice if through the recruitment process you factor this aspect in as part of the selection criteria,” Gunther says.

Most planners identify the incorporation of paraplanners into a planning business as a successful practice management strategy, closely followed by the introduction of a master trust.

According to MoneyPlan director Peter Dunn, it was the introduction of a master trust into his business that actually led him in the direction of employing a paraplanner.

A veteran of the industry with almost 20 years experience under his belt, Dunn says he discovered master funds after hearing ipac’s Peeyush Gupta speak on them at the Financial Planning Association’s (FPA) first national convention in 1992.

“I listened to his presentation on master funds and client servicing and was a convert almost instantly. This became a watershed time for both my practice and my clients,” he says.

“In a similar vein was the appointment of a paraplanner almost five years ago. The move has been cash flow positive since year one and the incumbent has become a potential succession planning candidate, at least in part,” Dunn adds.

Echoing Dunn’s point is Heraud Harrison’s managing director Ian Heraud, who says the adoption of a wrap account would rank close to being the best thing the group has ever introduced to assist with the management of clients.

However, the most important practice management strategy to his business was to clone himself.

“While it took some years, I now have two senior associates who were trained from graduates to be top financial planners,” Heraud says.

“We now have a full graduate program that has a number of different stages starting from processing clerks, paraplanning assistants, paraplanners, junior financial planners and then to senior financial planners.”

Accumulus director John Wotherspoon says financial planners can avoid many practice management hassles by realising well-trained paraplanners can write plans just as well as financial planners. He says the worst practice management crime that financial planners can commit is to believe they can take all the duties of running a profitable financial planning business themselves.

“Clients need to feel they are buying a system of service, not just your time,” he says. “They do think about what would happen if you got sick or had an accident. Usually the involvement of other staff will produce a more creative solution too.”

Concurring with Wotherspoon, Gunther says if planners continue to try and be all things to all people, particularly at the beginning of their business careers, it can be potentially dangerous.

“When starting out, the tendency is that everyone is a potential client and we move mountains to make sure we convert them into one. The danger is that whilst this will likely make you very busy, it is in essence a very one-sided affair. That is, the client wins but the financial planner loses,” he says.

“Financial planning is a business and we need to manage it as such. The only successful relationships can be where there is a win/win relationship between the client and the financial planning practice. That means the practice being fairly paid for the job done and the client perceiving value in the job being done for them,” he adds.

Heraud believes one of the poorest practice management decisions made by financial planners has been to use retail funds instead of adopting a master fund or something similar.

“When dealing with hundreds of clients with multitudes of different investments, we found it extremely difficult to accurately report to our clients on a regular basis and found ourselves spending more and more time dealing with issues that had very little to do with financial planning,” he says.

Dunn agrees: “I suspect that using a master fund has seen our inconvenience lessened than had we still been using a wider range of retail funds.”

He says the costs of technology has been a major burden on financial planning businesses, however, as a practice management facilitator, it is one cost that is central to running a successful business.

“I think it is now a fact of commercial life that we need to provide a major sum in our budgets each year for technology. Any prospect that advisers might be able to reduce the level of fees paid by clients is rapidly diminishing with items such as this and the constant legislative change costs that we are now bearing, along with increasing professional indemnity insurance costs,” he says.

However, according to Wotherspoon, while technology has improved business process, it also has created some challenges, including the telephone machine ‘triage’ system. He says nobody likes being in a telephone machine queue, especially for financial planning, which is a relationship business.

“Another ugly side is using a master trust for everything. This is very expensive for large clients and can severely limit the range of investments and hence the quality of advice provided,” Wotherspoon says.

Gunther says poor selection of staff is a major practice management issue.

“A practice cannot afford to carry staff who are not right in their positions. There needs to be clarity around what is required from each position within the practice and the best people employed to fulfil those functions. Where there is a mismatch, managing these people out of the practice is the highest priority,” Gunther says.

For Heraud, one of the greatest practice management challenges for financial planning businesses to overcome is the amount of paper generated. However, this is just one of the organisational strategies he would change if he had his time over again.

“If I had the opportunity to start again, I would work on the basis of a paperless office. If starting from scratch, I would also not make the early mistake that many planners make, we did too, of trying to be all things to all people. Instead, I would have a more narrow focus and be prepared to turn clients away who did not fit a certain profile,” he says.