The Retail Investment Supply Chain (and your firm’s value) · Retail investment supply ... Kingmakers The Retail Investment Supply Chain (and your firm’s value) Presented by Rob
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06/10/2011
1
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
06/10/2011
2
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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