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Forward Thinking Magazine : April 2011
13 Full house – using a diversification strategy to prepare your business Benchmark research carried out by Macquarie Practice Consulting in 2010 showed 56 per cent of advisory practices were thinking of adding diversified services over the next three years. Of these, one-third of those were looking at mortgages and 12 per cent were considering risk products. “Increasingly, advisers are seeking to diversify their sources of income to respond to changing market dynamics,” says Graham, who says he frequently talks to advisers about how best to broaden their product offering. “We’re seeing a huge interest from advisers who want to explore new revenue sources for their business,” he says. Another reason why planners are increasingly diversifying their practices is a desire to better look after their clients’ total financial needs. “The need to better service clients is a strong argument,” says Fiona Mackenzie of Macquarie Practice Consulting. “Once you have spent time with someone and established their goals, it makes sense to move toward providing them with services they need for all periods of their lifecycle – property sourcing, insurance, mortgages and tax. And the more services you offer, the stickier your clients are.” For those who are planning to diversify, it’s essential to have strong leadership in the practice with a clear vision. “The businesses that have been the most successful at diversifying are the ones that have a well-articulated strategy and business case for following this approach. They think through a multi-pronged marketing strategy, assign clear responsibilities for carrying out the strategy and put in place and communicate individual- and firm-wide KPIs so everyone in the practice understands the goals they are aiming for and what the practice is trying to achieve by diversifying into new market segments,” she explains Mackenzie says it’s critical to be clear about why you are diversifying and how you intend to go about it. “It’s been a great strategy for some advisory practices targeting the wealth accumulator market because the practice can package up a number of services and therefore increase fee revenue,” she says. A planner’s ability to offer a number of different services is also attractive to clients with an intergenerational wealth transfer strategy because the adviser can meet the needs of each generation in the family.” There are a number of ways to diversify. “You can have a collection of specialists operating in one team. The benefit of this approach is that each specialist can maintain high levels of technical excellence in their field and deliver quality advice to clients efficiently. You can also have a loose network where the person who is offering a specialised service sits outside the business and you receive a referral fee. This can be a good initial strategy that allows the firm to gradually offer other services, and may lead to a more formal arrangement in future.” Technology supporting diversification Robert McCabe, Head of Product and Technology for Macquarie’s financial planning software business COIN1 , says he frequently talks to practices seeking to diversify their business. “A process review often brings up the option of diversifying into areas such as mortgages,” McCabe says, explaining that a mortgages module has recently been added to COIN. McCabe says advisers regularly talk to him about support tools available for diversifying their businesses. “We can provide advisers with information to support their reasons for diversifying,” he says. “For example, if a planner is considering offering insurance advice, we can provide them with data based on their business and clients to see whether moving into this market makes sense.” We have explored these themes further on the following pages with two practices who have made bold moves to future proof their business and broaden their client base by diversifying into new income streams. Once you have spent time with someone and established their goals, it makes sense to move toward providing them with services they need for all periods of their lifecycle – property sourcing, insurance, mortgages and tax. And the more services you offer, the stickier your clients are. Tony Graham, Head of Macquarie Adviser Services 1COIN is a member of the Macquarie Group of Companies cover story cover story