Choosing between organic and active growth

Speaking on a panel at ifa’s Adviser Innovation Summit in Sydney earlier this month, Stephen Prendeville, Forte Asset Solutions founder and director, and Eugene Ardino, Lifespan Financial Planning chief executive, discussed the paths to growing an advice business.

With M&A activity continuing on a high throughout the industry, Ardino said there are risks associated with taking that path to growth, however growing organically likely means slower results.

“A lot of the time, these growth strategies are supported by acquiring because if you go and acquire a half million-dollar book of business, you bring an adviser to run it, that can be profitable from day one, but it’s quite a capital-intensive exercise that not everybody is prepared to do,” Ardino said.

“If you want to do it the organic way, you probably have to be prepared to go a few years without any significant profit growth. But you also really have to make sure you’ve got a plan. You’ve got good processes. You’ve got good infrastructure. Really look inwards to see how you’re doing things.”

Speaking on the prevalence of single adviser firms, Prendeville said there are natural limitations that come with this model of operating, and although many choose to do so for lifestyle reasons, it can also put them at risk.

“I’m thinking about the sub $500,000, there’s not a lot of options. In some ways they’re trapped. Now, I also recognise that a lot would be operating as a lifestyle decision, rather than a business decision as to revenue,” Prendeville said.

“They don’t want to take the risks or they’re quite comfortable with the returns that they’re receiving at the moment. For sustainability, there really needs to be growth.”

To combat this, some smaller firms are gaining the benefit of scale through mergers. He explained how some firms are choosing to pool their resources to ease the operation costs and provide greater opportunities for growth.

“The sharing of overheads, rent and, in some cases, personnel, getting the benefit of size. With the costs that have come through our businesses, every advice business, I don’t think it’s really going to stop,” Prendeville said.

“Yes, we’ll be passing that off to clients. And yes, we’ve increased our margins so we’re running better businesses, but I think that we’ve got to be growing. If you’re not growing within this industry, there’s a great risk of being left behind. Or just not having options when we hit our next challenge.”

Ardino noted that even though some practices may be content with the size of their firm, growth must always be back of mind to ensure the longevity of the business.

“It’s always good to be growing but it really depends on what you’re after as a business. I think if you run a profitable business, it’s a question of whether or not you want to grow,” Ardino said.

“You always need to have a growth mindset because you’re always going to lose clients for various reasons. So, you want to have a plan to bring on new clients.”

He added: “I think there’s always a tendency to go down that path because people want growth. I think it’s human nature to want growth. And so, we’ll go down that path but I also think they’ll continue to be a place for practitioners.”