We recently asked our financial adviser readers to list the content they most value on our site and want to see more of. The resounding response: articles with practical tips or advice to overcome a specific challenge or to generally help them take their business to the next level.
Taking their feedback on board, below we share five business lessons financial advisers can learn from RC Brown. No matter what business you are in, how long you have been operating or the clients you service these lessons should resonate.
Lesson 1. Avoid concentration risk in your client bank
RC Brown fell victim to the issue of concentration risk in 2010. At that time the leadership team were forced to make some very difficult decisions, which led them to radically transform their business.
Here’s what happened:
RC Brown managed approximately £200 million in client assets, built up over the previous 20 years. Those assets were held by a handful of charities, pension funds and private clients.
Like a lot of businesses in our profession, this lead to concentration risk, where the impact of one client leaving could have been catastrophic.
Unfortunately, that’s exactly what happened. One of the charities, with a portfolio value of approximately £150 million, asked the investment team to take their investment strategy in a different direction. Given RC Brown’s strongly held views on how they manage money, there was a disconnect. As a result, the two parties amicably parted company and the £150 million moved to another manager.
In response, rather than throw their hands in the air and walk away, the team at RC Brown tightened their belts and made a conscious decision to shift focus to supporting financial advisers looking to outsource their investment requirements with a service designed to appeal to the mass affluent.
Rather than focus on a small number of big cases, where client loss could have a crippling effect, RC Brown completely reshaped their thinking and their value proposition. This leads us on to Lesson 2…
Lesson 2. Clearly define your value proposition, for a specific target market
RC Brown have nailed their value proposition, which is focused for a very specific segment of the market.
When I first met with Robert Clark, Sales & Marketing Director at RC Brown I asked him to talk through his ‘elevator pitch’. He responded with something like this (I’m paraphrasing here, so please forgive me. Robert is far more articulate!):
“We work with mass affluent clients, introduced through financial advisers. Traditionally, clients who fall into this category would be offered a fund-of-fund style solution as they would be deemed too ‘low value’ for your typical DFM. This is where we are different. Our minimum investment is £15k for a bespoke discretionary portfolio, which we offer at a comparatively lower cost to our competitors.”
I translate this into:
“We are democratising the delivery of DFM services.”
RC Brown have created a unique value proposition for a market segment their competitors are likely to ignore (DFMs have traditionally viewed anything less that £0.5m as too small for a discretionary service).
This approach also means that rather than delivering solutions for an adviser’s very top clients, of which there might be just a handful, RC Brown work with the clients who sit just below this who will undoubtedly represent a far larger proportion of the adviser’s book of business. Servicing a broad cross-section of an adviser’s clients further helps to foster strong and engaged long-term relationships with their adviser partners.
In Robert’s view:
“Today’s £50k case could end up being tomorrow’s £5m case. We don’t believe the benefits of discretionary management should be limited to the very few at the top end of an adviser’s book.”
I totally agree. However, your business needs to be scalable and set-up to profitably service smaller clients, which brings us on to Lesson 3…
Lesson 3. Create operational efficiencies and drive scale
As you would expect, given the changes initiated in Lesson 1, the RC Brown business looks distinctly different today compared to what it did in 2010.
Over the last four years, RC Brown more than regained the £150 million in assets they lost before their transformation – from the type of clients they work with, to their range of services, how they charge and the way the team are remunerated.
When you transform a business in this way, from servicing a very small number of large clients, to essentially the opposite, your processes and back office systems will need a complete overall. As a result, RC Brown have worked hard to refine and streamline their processes to create scale. Today the business is operationally robust and positioned for growth.
This is an area where many advice businesses struggle, particularly in cases where a business has grown quite quickly, with the operational infrastructure and processes yet to catch-up.
When it comes to building a business, especially one of a much larger size, time needs to be spent ensuring the back office and supporting processes work like a well-oiled machine. Furthermore, RC Brown have adopted an incredibly personalised approach to service. The RC Brown portfolios are not widely available on platforms. This direct servicing element is reliant on an extremely efficient, robust infrastructure.
“We are purposely not on any platforms, we believe that personal service delivery is key to ensuring both the financial adviser and client receive what is most appropriate for their circumstances. Otherwise they are just receiving a similar ‘Fund of Fund’ style solution, but by a different name (e.g. Managed Portfolio Services) and generally at a greater cost.”
This lesson is around creating operational efficiencies and driving scale is an important one. Particularly because often, in my discussions with advisers, I have heard them say “We couldn’t cope with any more clients”. Simply because their systems and processes are not set-up to support future growth. Getting this right is crucial to business success.
Lesson 4. Capitalise on your strengths
Given RC Brown’s heritage and initial focus on ‘institutional’ clients, they have used their skills, resources and relationships with City brokers to strengthen their investment proposition.
For example, RC Brown can tap into “wholesale market” opportunities, such as:
- Initial Public Offerings (IPO’s)
- Rights Issues
- Placings by Companies (to raise new share capital)
- Placings by Known Sellers (usually a key person within the company)
Typically, purchases such as this are free of stamp duty and often 5-10% below the prevailing share price. And, as RC Brown don’t charge transaction fees, they can buy as much or as little as they deem appropriate for each client.
This approach, leveraging their strengths, serves to give RC Brown an investment edge (you can find out more in this post).
Lesson 5. Demonstrate value and charge appropriately
Given the changes made in Lesson 3, RC Brown can efficiently handle a much larger volume of cases, for a minimum investment of just £15k.
They are vocal supporters of transparent, fully disclosed charging and offer clients several “inclusive fee” choices to pay for their portfolio management.
RC Brown deliver a highly efficient service, at a price point their target clients accept, and indeed, consider good value.
Most research I read suggests that most clients are not looking for ‘bargain basement’ pricing, as the perception is they will receive below par service to match. Instead, clients are willing to pay fair value for the services they receive. And in today’s world of transparent fees, where every layer is visible, it’s important to demonstrate value and ensure you are geared up to deliver it.
Crucially one should never, ever, compete on price. Inevitably it will lead to a race to the bottom – compressing margins, resulting in losses and unstainable business models.
I could go on, as there are many more lessons I could share from RC Brown’s entrepreneurial journey however I’ll leave it there. If you have any comments, questions or your own lessons to share, please post in the space below.
This article was created for the DISCUS website to share business insights from RC Brown Investment Management. If you would like to find out more about RC Brown, please visit the RC Brown page on this site