L.E.K. Insights for August-24
The Road to Sustainable Growth and Profitability in Financial Advice
The financial advice market has transformed significantly over the past two decades, driven by regulatory changes, economic shifts, and evolving client expectations. Firms now face the dual challenge of enhancing profitability amid uncertain macroeconomic conditions and regulations potentially driving further increase in cost. Whilst growth through acquisitions is still the norm, organic growth and sustainable profitability are increasingly coming into focus too.
Success today means building a resilient financial advice business that thrives over the long term. This newsletter aims to provide you with actionable insights, strategies, and best practices to achieve lasting success.
In this edition, we address key questions:
·??????? What are effective strategies for organic growth?
·??????? What metrics should you measure to track this growth?
·??????? How can you sustainably reduce the cost-to-income ratio?
·??????? How can larger firms effectively utilise scale efficiencies?
·??????? What is key to successful target operating model design?
Our insights are backed by data and proven in the market. We explore why sustainable profitability should be the guiding principle for financial advice firms and outline strategies to make this vision a reality.
Organic Growth in Financial Advice
For much of its history, the industry has grappled with defining and measuring organic growth. The challenge is compounded by fluctuating economic conditions and regulatory pressures, which have driven many firms to prioritise acquisitions over organic development. However, the landscape is changing, with organic growth climbing the strategic agendas of C-suite executives.
In this article, we delve into why organic growth should be a high priority for financial advice firms. We will explore how to measure and define it accurately, what constitutes good organic growth, and effective strategies to achieve it. As more than 40 private equity-backed UK advice firms vie for investor attention, understanding and leveraging organic growth could be the key differentiator for sustained success and enhanced profitability in the competitive wealth management market.
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Re-thinking Target Operating Model in Financial Advice
The UK wealth management sector is on the brink of profound transformation. Faced with rising interest rates, stringent regulations, and industry consolidation, wealth managers and financial advisers must re-examine their operating models to thrive in this new landscape. In this article, Matt Lonsdale , Wealth Management Expert, and Bronswe Cheung , L.E.K. Partner, delve into the critical need for financial advice firms to optimise their cost base structures and operational efficiency.
Historically, the non-advisor cost base in wealth management has consumed up to 50% of revenue, highlighting a significant opportunity for cost savings. Despite some efforts to improve the cost-to-income ratio, many firms still operate inefficiently, particularly when it comes to the ratio of financial planners to support staff. Surprisingly, smaller firms often operate more efficiently than their larger counterparts.
This inefficiency is not merely a matter of scale but of leveraging the right operational models and technology. As financial planners often hold stakes in their firms, there is a vested interest in enhancing commercial success through streamlined operations and smarter resource allocation.
In this article, we unveil strategies to transform operating models, from improving the planner-to-staff ratio to adopting innovative technologies. By addressing these structural inefficiencies, wealth management firms can not only enhance their profitability but also better serve their clients, making operational efficiency a win-win for all stakeholders.
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Ashish Khanna , Peter Ward , Eilert Hinrichs , Sam Halliday , Bronswe Cheung , Douglas King , Richard Mould , Aaron Byrne , Gigi Wong , Sam Shinner ,?Clayton Souza , Felipe Ahouagi
The L.E.K. financial services team helps clients develop fact-based, practical, winning strategies for our dynamic sectors. Our work for investors, shareholders and leaders brings insight and a rare breadth of experience and perspective to drive strategic decision making.