Credit crunch...what credit crunch? (Published on IFAonline 08-04-08)

John Robinson's Viewpoint

We all know the story of the Three Little Pigs and how important it is to have strong foundations in both our personal and business lives. This helps us to weather the ‘storms’ that come along all too frequently.

There have been a number of financial ‘storms’ in recent months, particularly across the other side of the pond and the term ‘credit crunch’ has become a familiar echo in all forms of media in the UK.

The fact that the US government has intervened to help large investment banks has caused a ripple effect that we have felt here at home and has influenced decisions that some UK IFA firms are making about their 2008 business plans.

I got to thinking how small to medium sized companies (SME’s) can compete and indeed thrive in the IFA market, even in times that larger companies struggle due to market conditions.

I think there is one big advantage for the smaller firm and that is the ability to build a ‘servicing model’ for its clients. I work with IFA firms who are deliberately restricting the number of clients they offer a service to and then building a compelling proposition to provide to these clients.

As long as the service is then of a high quality and the clients are prepared to pay for what is on offer, we start to see a business model that is all about the care of existing clients. This does not rely upon ‘new blood’ at times of financial uncertainty and the ‘credit crunch’ largely becomes irrelevant. The IFA firm has a steady flow of recurrent annual income and can make future plans for growth based upon this greater certainty.

Many larger firms struggle with the concept of a ‘servicing model’ to run their business, as much time is spent marketing to new ‘prospects’ and the existing clients are seen as parts of a database and no time is spent building the type of more personal relationship that are crucial in smaller firms. Other factors, like high staff turnover, are injurious to close client relationships and banks are particularly culpable here.

When considering a strong, sustainable, service proposition, there are some basic guidelines to assist:

• Only offer what you know you can already deliver as a service.
• Ensure that you have the systems and processes available to consistently deliver this service
• Decide upon the types of client you wish to target with the service
• Know your costs and the profit margin you require, in order to ensure the service is excellent value for the annual amount the client pays (via fees and/or commission)

With a small amount of strong, profitable, clients I believe IFA firms can weather these larger storms and plan for the future with increased confidence.

John Robinson is senior consultant at FP Advance.

The views expressed in this blog are those of the individual and not necessarily the company he represents. 

katrina.baugh@incisivemedia.com

This article was first published by IFAonline, part of the Incisive Media group.

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