A list of common mistakes FAPs can make when implementing plans to grow their company via mergers and acquisitions has been published by Strategi Group.
It states that a common misconception many business owners have is that the bigger their company becomes, the more streamlined it will be, and that operating costs will go down and profitability will rise.
However, Strategi cautions that in its experience it can take up to 12 months for sustainable cost savings to become evident, and they could only amount to 10%.
The firm also says some purchasers focus on the revenue stream they are acquiring, and neglect to conduct adequate due diligence to assess the compliance status of client files.
“After purchasing a book of clients, a FAP must ensure that the client files are current and meet regulatory requirements,” states Strategi.
“Unfortunately, we still encounter instances where acquired client books are little more than a database of names, contacts, and commission payment schedules. Bringing each client file up to date can sometimes cost more than two years of ongoing trail revenue.”
Strategi also warns that firms that expanding too quickly could end up with more clients than they can manage to the regulator’s expectations.
However, once the potential downsides are mitigated, the upsides can include becoming centralised under one management or governance structure, implementing enhanced technology and processes, and improving efficiency and effectiveness.
Strategi says it recently worked with a newly-merged business comprising 11 financial advisers.
“Embracing change, they implemented AI, process engineering, and database enhancements to streamline the advice process and elevate the customer experience.
Within 12 months remarkable results were achieved:
- Advisers could take on 30% more clients
- The initial client interaction and business processing time was reduced by 50%
- Client satisfaction increased by 60%
- Drafting of 30-page statements of advice, which used to take a day, was streamlined to 11-page statements in just 30 minutes
- The business’s EBITDA increased
Read Strategi’s full post on FAP mergers & acquisitions here.