South African independent Wealth Managers and Financial Planners are finding themselves under huge pressure, due to shrinking margins and the increased burden of compliance. Most small firms operate on very low margins, while the cost of compliance is rising and eating into their profits. Few value their own time accurately, which limits their own earning potential and many take on more clients than they can effectively focus on, losing the ability to deliver personal attention that made them successful in the first place. And most worryingly, few independent advisors have effective exit strategies and succession planning in place.
One solution is a merger model, in which smaller firms merge with larger ones. This addresses all eventualities and is proving the most beneficial for smaller firms with less than R10m in turnover. It increases margins and earnings and frees the advisor to focus on what he/she loves doing and is good at – advising clients.
Here are three ways a merger model is making business life easier for financial advisor businesses:
It takes care of admin and overheads – so you can take care of clients
Merger models often allow advisors to bring their own clients aboard and focus on their wellbeing, while handing over costly and onerous admin and overheads a support team. In the case of GCI’s merger model, for example, the merged firms are supported by asset consulting and sales support, full back-office support, and various systems including ALM, prospect and commissions systems. Advisors also benefit from an advanced, consolidated, paperless reporting system, which enhances reporting and improves client experience. GCI’s experience is that independents who merge with them retain their existing clients and grow their revenue significantly after merging whereas when an independent sells his or her book to another company or individual, around 30% of the client base is eroded.
It turns advisors into true business owners
A merger model can create an income for life for Wealth Managers, through annuity retirement revenue at any age and for six years after death. “The merger model turns advisors into business owners who almost always earn better net revenues after retirement than they earned working full time,” says GCI CEO Alex Cook.
It can help build a client list from early on
Merging with a larger firm doesn’t have to take place only toward the end of an advisor’s career. Joining a specialist operation early on not only takes care of succession planning, it means the financial planner has a solid platform for building a bigger client list with the help of other independents in the same stable, with a revenue-split agreement creating a new income stream. At the same time, he or she benefits enormously from shedding the burden of administration and compliance, and accessing the specialised asset consulting we can provide.