Maturity is often associated with age yet some of the oldest financial planning businesses are also the most immature. Fortnum’s Neil Younger outlines the components of business maturity and why they’re increasingly important.
Financial services businesses have operated under a stable and prosperous backdrop for decades.
Australia has enjoyed three decades of economic growth since “the recession we had to have” in 1991.
From 1992 to 2021, Australia’s prosperity was driven by strong population growth, robust exports and a rapidly expanding mining sector.
In more recent years, growth has also been buoyed by unprecedented volumes of fiscal and monetary stimulus.
For thirty years, Australian shares have delivered 9.7% per annum and listed property has returned 8.6 per cent per annum, underpinning superannuation balances and household wealth.1
But the operating environment is changing.
As the world emerges from the grip of COVID-19, there are new challenges to navigate including rising interest rates and inflation, and global political and economic uncertainty.
With significant, unknown headwinds on the horizon, it is critically important for professional advisory firms to ensure the right foundation for future growth.
Many will need an experienced, well-resourced partner to provide hands-on practice management support, particularly in areas like service delivery, process optimisation and technology implementation.
Positively, the pace of regulatory and structural change is easing and advisers are experiencing clean air for the first time in a long time.
After decades of confusion and disruption, there is headspace to think about strategy, invest in people and build for the future.
Advisers need to suck in that clean air fast to get bigger and better before operating conditions worsen.
All things being equal, larger businesses are better resourced and managed. They can offer broader services and consumer choice. Scale also brings purchasing power and better access to capital.
For relatively small, immature businesses, the mission must be to transition to a larger, more mature state.
As is often the case, this first step is to assess and understand your position, and set targets and goals.
What does good look like?
Examining business maturity is a simple and effective way to gauge strength.
This task can be approached the same way as grading a university assessment, where a matrix is used to determine what constitutes a high distinction, distinction, pass and fail.
Universities have a predetermined methodology for assessing a student’s competence and grasp of a subject. When grading assignments, teachers look for factors like understanding of the course material, critical thinking skills and essay structure.
Similarly, advisers should have a clear picture of the components that make a mature business such as a clear mission and strategy, compelling value proposition, and formal HR policies including a strong employee value proposition.
We’ve identified 20 key components of business maturity.
In our experience, most businesses sit at a pass level.
To be classified as mature (the equivalent of a high distinction), businesses need to have most of the key components. A fail is where a business is missing vital aspects of good business hygiene. Bad business hygiene will cause many problems which will effect profit and ultimately enterprise value.
Grading is useful for a number of reasons. It gives businesses an understanding of their strengths and weaknesses, and where they need to improve. It helps businesses prioritise and effectively direct resources.
It doesn’t have to take years to effect positive change. With the right support, structure and attitude, stepped change can be achieved in 12-18 months.
For example, a common deficiency inside advice businesses is a lack of purpose and direction. Many business owners, let alone staff, don’t know where their business is headed.
This problem can be fixed relatively quickly by a consulting process that identifies individual and collective goals for both the leadership and participants in the business. From there a plan is formulated and agreed, documented and the business activities are then tested against that plan to ensure alignment.
A clear mission and strategy that is understood by all staff from the CEO to the receptionist is a fundamental component of business maturity.
It lays the foundation for further progress, enabling management to effectively set KPIs, track progress and establish governance and accountability frameworks.
Another sign of business maturity is an evolving client value proposition (CVP) including pricing. A businesses’ CVP should not be static.
Advisers are continuously growing in knowledge, experience and confidence. Over a period of time, the calibre of client they attract often increases. Their value proposition should reflect that. It should also reflect changing consumer needs, expectations and preferences, yet many firms have not touched their value proposition for decades or adjusted their pricing. In an inflationary environment and with evolving client expectations, that must change.
To reach maturity, it is important for businesses to regularly assess where they’re at and how they are tracking against their short, medium and long term goals.
It is important that they have a clear picture of what good looks like so they can identify key areas for improvement. By doing so, advisers can futureproof their businesses and help more Australians achieve their goals and dreams.