How do adviser businesses grow?

The leading adviser businesses tend to be corporates, not groups or co-ops – but they nearly always involve more capital than one person can raise: so external shareholders are usually a must.

Tuesday, May 17th 2022, 9:26AM

by Russell Hutchinson

A close partnership with another person, or small group, that shares the vision, coupled with some access to external capital is usually a requirement for scale. You will not make it alone, but the group must not be too large.

They leverage the work of others. This leans against a group of equals, and, as above, against a co-operative structure. They have employees and contractors. Those relationships trade-off some freedom and some margin for something valuable. As regulatory and technological barriers to scale are rising, the trade-off becomes more valuable – which is why the larger adviser businesses have grown in recent years. Make the trade good enough, growth follows.

Acquisition is nearly always a strategy. Rapid growth means step changes rather than incremental ones. Most people who run these organisations are driven by a need to shift the performance needle within a few years – not decades. Patience is rarely a major feature of their leaders. They can be patient, but only where required. If they can grow quicker by acquiring, previous objections are dropped, and they learn to acquire.

Ours is a small market so they often have a multi-line approach to business. Client acquisition is usually the most expensive part of the value added by a financial adviser – as most advisers know. As most economists will tell you most gains to productivity come from the division of labour. Amongst the many small adviser businesses there is a lot of scope to increase specialisation.

Innovation in model: business model innovation is also a hallmark. That can include value chain extension. It definitely includes a willingness to experiment – and that includes turning over old ideas, investing in technology, listening to people who have gone through radical market change in other markets. They advocate for the sector – it is true – but are unsentimental and will not flog a dead horse. When change must be made, it is made.

Investment in technology is common, although in our market pure new development is rare – usually the investment comes from looking for interesting configurations and instances of technology. The emphasis is often in identifying a unique mix of low-cost standard components combined to deliver some special advantage or, at a minimum, differentiation in results.

Tags: business management