06/10/2011

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Retail investment supply chains (and your firm’s value)Rob Stevenson

KingmakersKingmakers

The Retail Investment Supply Chain (and your firm’s value)

Presented by Rob Stevenson

of

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Strategy

This presentation is about

Strategy

Product/Service development

Making better margins

Building higher value businesses

This presentation is not about

M ti RDR R i tMeeting RDR Requirements

Abstract Management Concepts

Stuff you already know

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• You represent an owner/managed SME

Some assumptions

• You are not selling up in the next 5 years

• You are prepared to invest in your business

• You have in excess of £250m of client funds under influence

• You are on schedule to meet RDR requirementsq

• You have an open mind regarding independence vs restricted

Maximise revenue

Corporate objectives

Increase operational efficiency

Fully engage staff

Maximise profitability

Increase capital value

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From 7 x current EBITDA

Our mission

to

9 x an increased EBITDAEBITDA

or, put another way – the difference between

Retiring here…

or

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and retiring here

Drivers of change

Economy Technology Regulation

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A supply chain is a set of organisations directly linked by one or more of the upstream and

So, what is a Supply Chain?

linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer.

Managing a supply chain is 'supply chain management 'management.

(John T Mentzer, 2001)

Generic Supply Chain

Suppliers

Flow

of Informat

Flo

w o

f G

oods

Distribution

Manufacturer

tion

Customers

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What about integration?

• Horizontal

• Vertical

Vertical Integration

Suppliers

Flow

of Informat

Flo

w o

f G

oods

Distribution

Manufacturer

Forwardsor Downstream

tion

Customers

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Vertical Integration

Suppliers

Flow

of Informat

Flo

w o

f G

oods

Distribution

Manufacturer

Backwardsor Upstream

tion

Customers

Vertical Integration

Suppliers

Flow

of Informat

Flo

w o

f G

oods

Distribution

Manufacturer

Balanced

tion

Customers

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Horizontal Integration

Suppliers

Flow

of Inform

ation

Flo

w o

f G

oods

Distribution

Manufacturer

Customers

Integration - pro’s & con’s

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Packaged Supply Chain

Fund Manager

Flow

of Informa

Flo

w o

f G

oods

IFA

Product Provider

ation

Customers

Packaged annual charge

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Packaged Supply Chain in 2013?

Fund Manager

Flow

of Informa

Flo

w o

f G

oods

Product Provider

ation

Customers

Packaged annual charge in 2013

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The alternative to packaged?

Old Model to New Model

Tim

e

2011

Returns

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These are really useful…

‘New Model’ Investment Supply Chain

Fund Manager

Flo

w o

f Inform

at

Flo

w o

f G

oods

Financial Planner

Platform Provider

tion

Clients

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New model annual charge

• But adviser charging means we have to justify revenue – does that mean trail is less valuable?

So, that’s it then!

revenue does that mean trail is less valuable?

• Have you just shifted control out of the hands of Product Providers and into the hands of Platform Providers?

• And who are these Platform Providers anyway?

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Offence vs Defence platforms

Offence Defence

Transact Aviva

Nucleus Axa Elevate

Ascentric Skandia

James Hay Fidelity

Standard Life?

Novia?Novia?

Lets take a different perspective

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Question - how much can we get?

Distributors of investment advice

DFMDirect

DFM cÜ|ätàx

UtÇ~

Direct

IFABANKS

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Our main competition

DFMDFM cÜ|ätàx

UtÇ~

IFA

A possible long-term outcome?

IFAIFA

cÜ|ätàxDFM

Sweet Spot

UtÇ~DFM

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The Optimum Model?

Financial Planning

All under 1 roof

Planning

Investment Management

Banking & Periphery Services

Core proposition?Financial Planning

Investment M t

There are Private Banks & DFMsdoing this right now, but can they pull it off?

Management

Periphery Services

Each type of firm sees their core proposition at the centre of the diagram.

If Financial Planning isn't centralto the proposition, where is the context?

Can you build a proposition, in partnershipwith other businesses, that includes all ofthis and looks and feels like it’s all donein-house?

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You’re in the driving seat

1.How are these other businesses aiming to

Questions about the competition?

cope with the various drivers of change?

2.What’s the mix between D2C and B2B?

3.Do they have the same businesses in their supply chain?

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1.How are these other businesses aiming to

Answers…

cope with the various drivers of change? Attack other channels

2.What’s the mix between D2C and B2B? Many are heavily weighted towards D2C

3 D th h th b i i th i3.Do they have the same businesses in their supply chain? No

‘New Model’ Investment Supply Chain

Fund Manager

Flo

w o

f Inform

at

Flo

w o

f G

oods

Financial Planner

Platform Provider

What’s in here?

tion

Clients

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Inside the Retail Platform

User interface Dealing software

Data analysisont O

ffic

e

A retail platform also has a supply chain of its own.

Could you approach these Businesses and build your own platform?

Wrappers Trading

Settlement

Admin Reporting

Data analysis

Fro

Mid

dle

Off

ice

ck O

ffice

Reporting

Bac

Custody

• Take the extra revenue available upstream

Gi th li t b tt d l

Advantages of ‘building your own’

• Give the client a better deal

• Control delivery

• Fully integrate the investment proposition with the Financial Planning proposition

and

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You get to choose the (w)rappers

How to approach thisTake a clean slate approach to your offering

Create your own Financial Planning & I t t M t i / d tInvestment Management services/products

Remember the 7 P’s

1. Product or service (what is it)2. Price (how much, now and later)3. Place (marketing & distribution logistics)4. Promotion (or communication)5 P l ( h d li it)5. People (who delivers it)6. Process (predictable outcomes)7. Physical environment (the right setting)

Research the custodian market for deals

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The integrated supply chain

Suppliers (fund managers, custodian etc)

Flow

of Information

Flo

w o

f G

oods

Integrated Financial

Planning & Investment Management Firm

Clients

What share do we get now?

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Benefits of upstream vertical integration

• Take the extra revenue

Additi l tt t l di t• Additional revenue attracts lower direct costs

• Operational overheads rise initially, but quickly stabilise

• Profit margin should increase on the basis• Profit margin should increase on the basis of operational discipline

• Quality of earnings increases

Capital Value – Current Model

£

Turnover 4m

Variable costs (40%) 1.6m

Fixed Costs (35%) 1.4m

EBITDA (25%) 1m

PE Ratio 7PE Ratio 7

Value 7m

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Capital Value – Integrated Model

£

Turnover 4.65m

Variable costs (30%) 1.4m

Fixed Costs (40%) 1.85m

EBITDA (30%) 1.4m

PE Ratio 9PE Ratio 9

Value 12.6m

The Outcome

• Capital value shift from

£12 6£7m to £12.6m• 1.8 x capital value with no new clients, no

investment growth Wh it l l i d it’ j t• Where capital value is concerned, it’s just as important to increase the quality of earnings as it is the volume of those earnings

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• You will need the following: -– A fully aligned group of shareholders

A word of caution

– A fully aligned group of shareholders

– A strong management team – operational skill

– Sufficient clients & funds (min £250m)

– Sufficient time – 18 month minimum project time

– Money to invest - ???

But…

The results should be worth it

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