Supply Chains vs Stacks

One of the key differences we are finding when helping firms put together their new era of ‘client centric’ propositions is that the design of the proposition and the components that form such are taking a very different form, in the form of ‘Stacks’ as opposed to ‘chains’. They are characterised by the fact that each layer of the ‘stack’ must add value to the overall client value proposition and work as part of it, rather than the value proposition be passed down a chain and just packaged up with layers of costs and overhead at each stage.

Whilst this may be obvious, it does have considerable impact on the design of systems and propositions from a technology perspective. What it generally means is that participants in the overall stack must work out ways to integrate into the last system that enables the investor proposition. It means that one needs to think about where in the stack a type of business sits, and what are the key integration points, authentication protocols and data related issues in order to nicely fit within the stack of your business partners.

 At Financial Simplicity we have taken this now to a new level, where we recognise that as a ‘proposition enabler’ that our technology must neatly and flexibly fit inside other systems, often our client’s web sites and client interaction layers. To do this we have broken down the overall user interface into ‘containers’ and ‘components’ where the components can be easily embedded in our client’s and partner’s web sites that deal with advisers and investors. We now fit nicely into their ‘stacks’.

 We generally see that the top level of the stack is the engagement layer, then there is the authentication layer, the  user navigation layer, the componentry layer, and then for each component, the permissioning layer, the business logic layer and the data access layers… and sometimes a few more.

 We have thought about this a lot recently and in my view the key to the better propositions moving forward will be how efficient and client centric and efficient their stacks become. Something to think about when choosing technology providers..

Connection is the new form of Distribution

AS the industry moves from the structure of ‘product’, ‘platform’ and ‘distribution’ to one of ‘proposition’, ‘site’ and ‘engagement’, we are seeing some distinct trends around how Financial Simplicity and our clients are doing things.

One of the key trends is about ‘connection’ – just connecting systems and working to common sets of data. Rocket science no, but straightforward in achieving such, no also. Naturally there are issues such as data privacy, data protection, timeliness, formats, protocols to deal with and most of these are quite easy to deal with alone, to achieve them all at the same time requires quite a change in thinking in terms of systems for many industry participants. Gone are the days where systems were built just for internal staff access, gone are the days where systems were designed as for staff who could see an entire client base….

The new era is about providing authenticated role based and data domain based permissioning, whole of supply chain access, separation of data vs presentation, and 24x7 uptime. These are becoming the tools to connect to industry participants and are becoming a significant factor in choice of suppliers. Connection is becoming the new form of distribution…. How connected are you to the industry participants that are going to be critical for your business ?

Practices or Business ?

I am spending quite a bit of time with advisory and investment boutiques (usually between 4 and 10 people) who are facing the reality of new regulation and forming intense competition. I guess this is the new normal.

Looking objectively at their businesses, many of them have sound financial performance to date, and developed a loyal supporting client base, but the issue is where do they go from here.

 Typically these businesses have been set up by principals who have had careers in major private banks, and have transported their skills to a smaller, more independent and flexible boutique. They have earned a decent living and enjoyed their jobs. They however know now that they need to make their businesses more efficient to achieve any form of exit, or even to survive, and this is requiring a considerably different skill set and thinking about what they do.

 

I would say many to date have been ‘practices’ where they have built clients, FUM and income, yet the foundation of this model is set in that a principal or staffer service a number of clients, they enjoy their jobs and juggle a variety of roles of client management, investment management and operations. These sort of businesses may command a multiple of earnings in valuation, or perhaps a FUM related valuation, but with change in regulation, these multiples are declining. To achieve an exit and with an exciting valuation, they have to turn themselves from ‘practices’ into ‘businesses’. This means the very challenging transformation of developing and implementing a set of processes and systems where they are no longer the lynch pin to the business. It means surrendering expertise in their minds and placing into processes and techniques that others can perform and scale.

Whilst some of our clients are well down this path and developing highly scalable portfolio based businesses that I suspect will be exit-able and valuable, the challenge many firms are facing is this transition from practice to business.

 In my view a key (and test) to this transition is the implementation of technology and surrounding processes that define what actually investing clients are receiving. If it is so special that only one of the key principals can deliver it then I suspect the firm will remain a ‘practice’ for some time and struggle to grow. However if the staff of the business can take a step back, really rationalise what they do for their clients and implement a systemised process for them, they then have the foundations of creating a scalable business operation.

 Next steps then are separation of roles, so instead of each staff member responsible for all aspects of client delivery, generally it is about separating out the client management and recruitment from the investment management. This critical step is often hard, but one that is critical for the development of a scalable business model. To achieve this with business management that can measure the performance of these roles and hold them accountable for their success, then becomes a key next stage.

If you are reading this, feel like a practice, and contemplating how to get to an exit, or how to achieve business growth and scale, feel free to give me a call.