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Forward Thinking Magazine : December 2010
13 growth strategies The idea is to consider all your options and only make a change when you know what’s really involved. The golden rule is to ensure the service delivery model or models you use should support your long-term business strategy... Liz McCarthy, Head of Macquarie Practice Consulting and tax situation. They are often used as a core Australian equity exposure for wealthier investors or for investors with complex tax needs or for those who want a more tailored service. SMAs and IMAs are certainly growing in popularity as advisers seek ways to get a complete picture of a client’s entire asset base at the one time, and to help simplify financial reporting around clients’ accounts. But no matter which service delivery model, or combination of service delivery models, a practice chooses, cost should be a key consideration. “Scale and cost management seem to have a direct impact on the level of profitability of a practice,” says McCarthy. “Most profitable practices tend to be slightly bigger and maintain tight control over overhead costs. Which means advisers need to focus on back office cost implications of different options when assessing or re-assessing their service delivery model,” she says. According to the Practice Management Survey 2010, the most profitable practices have 500 clients, while the least profitable practices have 310 clients, with the average number of clients per practice being 380. The survey also shows that the most profitable practices have overhead costs of 13 per cent of total revenue, while the least profitable practices have overhead costs of 43 per cent. Indeed, advisory firms thinking of changing their delivery model need to think carefully about the implications of doing this. “If you’re not going to be on a wrap you have to ensure you have the right systems and processes, and that they are sufficiently robust to meet your custodial obligations,” says McIntosh. “If we didn’t outsource this responsibility to our wrap, we’d have to build and manage new systems and that’s not what we’re focused on; we concentrate on client service and retention. Outsourcing administration to the wrap allows us to do this; we’re a financial planning service not an administration facility,” he says. “If you’re thinking of changing your service model, you need to think about whether you have the right business structure to support this step,” says McCarthy. She says firms that want to make a change “will need to consider how their human resources requirements in the back office may need to change. If it means increasing the number of people on staff you’ll also need skills in the business to be able to manage and motivate a larger team.”