Planning for your $uccess

Making your first million in the financial planning business can be as much about business acumen as it can be about financial planning. Rob Luke found that what separates smart planners from the rest of the pack is their superior ability to plan - not only for their clients’ financial outcomes but also their own business.

Like the old cliche of a cobblers' children going shoe-less, it seems that financial planners have concentrated their planning efforts on their clients but not given their own businesses the same level of attention.

So much so that many in the profession now believe the ability to devise and use an effective business plan is what separates the highest-achieving planners from their run-of-the-mill colleagues.

"The most effective first step towards making your first million is to write down how you're going to do it," says Andrew Creaser, managing director of Associated Planners. "The fact is that, for various reasons, planners often don't do what they say they're going to do."

Observers like Creaser believe that ongoing active use of an effective business plan, not just writing one and then filing it away, is one of the biggest differentiators between top-performing planners and the struggling pack.

Yet according to anecdotal evidence, very few planners appear to be writing and using business plans effectively. Brian Walker, executive vice president and head of technology at BT Funds Management, estimates the number at "less than five per cent."

And a recent survey of financial planners from around Australia, conducted late last year by AM Corporation, bears this out.

Almost half (45 per cent) of the 700 respondents had no written business plan whatsoever. Of those who did, only one-third used the plan to actively manage their business form month to month, as experts advise, while almost 10 per cent did not use it at all.

The survey also highlights the correlation between active business planning and business growth for financial planners and advisers.

Of those who use their business plan to manage their business on a monthly basis, 73 per cent expected their gross revenue in 1999 to increase by more than 10 per cent, while 69 per cent expected their profitability to increase by the same amount.

By contrast, of those who do not use a business plan so actively, only 53 per cent expected gross revenue to increase by more than 10 per cent, while just 45 per cent expected a similar increase in profitability.

But just what is an effective business plan, and how should it be used to help a business grow?

International business planning specialist Kevin Austin, writing in a recent edition of Tower Life Australia's Adviser's Choice newsletter, states that the fundamental question which any business plan must seek to answer is: "where do you focus your efforts which will optimise the financial returns?" To help businesses answer this question, Austin has devised a progression framework that allows small businesses such as those managed by planners to write focused business plans (see box).

Business planning consultant Simon Neaverson, director of CPM Solutions, says an effective business plan should articulate where the business is now, where it wants to go and how it gets there. He says such a plan should be divided into strategic (longer-term) and operational (shorter-term) elements, with the latter allowing for ongoing monitoring and management of the business.

Neaverson, presently consulting to financial planners through Adviser Business Services, a joint arrangement with AM Corporation, says financial planners and advisers also face issues that are specific to their profession (see box).

Planners face these issues, he says, when they come to write the strategic part of their plan - that is, where they want to be in three or five years time and how they intend to arrive there. So they must be taken into account at every step of the business plan.

In doing so, planners will then naturally focus on the most important strategic issues over the next few years, he says. These include developing systems for monitoring the business, improving remuneration by focusing on more profitable business, and getting paid more effectively for what they do.

"A lot of very solid performers are under-charging, whereas the really top performers are getting paid properly for their time," Neaverson says. "That's because they've used their business plan to focus their business by constantly looking at the client base and stratifying it."

A key component of that aspect of business planning involves developing technological and service systems that allows the planning business to monitor client profitability and optimise its time utilisation without relying on the presence of a single, dominant individual.

AMP-owned Hillross Financial Services has combined these by developing an Internet-based business plan outline called the Hillross Practice Management Guide.

The guide lays out a business plan process in chronological order, similar to the process advocated by Austin. It begins with the initial elements like developing a value proposition and identifying target markets, through advanced business practices to the final step, planning for succession.

Hillross managing director Jonathon Harrison says the system is part of the group's desktop wrap, which aims to channel everything a planner needs to do business onto their desktop computers.

Once the strategic elements are finalised, the operational component of a planner's business plan - how the business should perform over the next 12 months to achieve the strategic goals - sets the benchmarks for monthly reviews. These could include funds under management, number of clients or aspects of staff performance.

"The business plan must be able to help manage and monitor the business as well as set its objectives," says Neaverson. "It really should be used to drive the agenda of (planners') monthly management meetings."

Hillross's on-line guide, for example, contains customised monthly spread sheets, allowing planners to do monthly reviews and updates of the operational components of their business plan. And it allows planners to download business plan templates and templates for key documents such as the firm's Adviser Services Guide.

And the experts agree that planners who employ such systems are adding value to their business and setting up a value-adding exit strategy.

"Smart planners set up a system so that the organisation runs with or without them," says Neaverson. "That way the organisation has an existence over and above the individual, and a greater value than the individual. That makes it a better proposition for sale."

Kevin Austin's guide to the business planning process:

Purpose: clearly describe the purpose of your business.

Issues: identify and prioritise the key issues affecting your business.

Opportunities: identify and prioritise your major business opportunities.

Key results areas: determine your top three issues or opportunities you wish to focus on.

Action planning: develop an action plan to implement your key results areas.

Benchmarks: as your confidence grows, develop key measures and targets to maintain your focus.

Simon Neaverson's top 5 strategic issues facing planners:

Marketing and client development - How do I grow the business?

Information - How do I manage the practice?

Client service and systems - How do I monitor the business?

People issues - How do I meet the business?

Remuneration - Ho do I maximise my returns?