by Tony Vidler 
Regulatory reform is everywhere (in the west at least) in financial services and the biggest distraction for advisers is what they need to do to adjust for it…again…and the focus is almost always entirely upon the short term. Knee-jerk reactions become the norm as advisers grapple with the burning questions, such as:
What do I have to do differently?
What process do I have to change?
What course do I have to do?
What do I need to say or do differently now when introducing myself to potential new clients?
These are all legitimate questions which need to be answered of course, and the short term adjustments to process or practices cannot be ignored. However the bigger question which is generally overlooked is:
What do you want your business to be in 10 years time?
Gone? Niche or boutique practice? Transactional service provider? Holistic advice delivery? National chain? Just delivering a job and a pay-packet?
Growing a professional services business into a commercial entity which is profitable and valuable to the owners while also delivering value to the chosen target market doesn’t tend to happen accidentally. It doesn’t tend to eventuate for practitioners who are constantly reacting to external influences and spending all of their thinking and development time on just trying to comply, or respond to short term adjustments.
Practitioners who think and react this way almost always end up working for some other entity. When the first serious wave of regulatory reform came at financial services I suggested that it would create the resurrection of preferred agency arrangements – there would be a flight by individuals to structures which created the illusion of “safety in numbers”. Sure enough, we saw the rise of dealer groups (of various sorts) promising protection and shared licensing structures. Institutional advice channels got a boost as suddenly the product supplier Big Brother didn’t look quite as bad as the Bigger Brother who had the regulatory stick. Practices got together and circled their wagons to create new brands with shared costs and infrastructure to try and protect each other from the dangers of the wild.
Eminently predictable behaviour from human beings who sensed danger and didn’t want to face it alone. Equally predictable was the development over time as new systems and processes were bedded in by those practitioners was the thought that they could actually stand alone and run their own business. And practitioners began to move out of those protective groups to begin building their own brands and businesses again. They didn’t want to be controlled any longer and wanted to pursue their own visions of how their practices could evolve as they sensed that they could cope without Big Brother protection.
So here we are roughly a decade later, and here comes Serious Reform Round 2.
Guess what is happening? All over again.
“Circle the wagons…..”
The unknown impact of regulatory reform has a tendency to do that, and of course too much of the impact is always unknown. We cannot be entirely sure of how severe the new regime might be in the event of professional error…we don’t know what the tolerance of consumers might be for pricing changes – or entire shifts in how we have to charge for services – and so on.
Too much uncertainty equals potentially great danger, and so the shift to collective protective structures begins again. People are often quite predictable after all.
This is not necessarily a bad thing of course, and I am certainly not suggesting that practitioners pulling together or partnering with a big group or institution is wrong. For many it is precisely the right thing to do as the institutional partner or group with shared infrastructure and resources can inject much needed skill and expertise into the individual practice, which in turn typically results in improved professional performance and client service. And often they can provide the back office support and administration and marketing and whole bunch of other things better than an individual practitioner can.
The price that a practitioner pays though is foregoing their sovereignty. The subjugation of identity for the greater good, the compromise in personal style, positioning and professional aspirations…these things are the price one pays for playing safety in numbers. Provided a practitioner is aware of that and is prepared to pay that price, then by all means join a herd. It is usually safer in there if you don’t think you can thrive in the wild, provided you aren’t one of the youngest and weakest – or one of the largest and bravest. They tend to be the targets for the predators, don’t they?
The greatest danger of the knee-jerk reaction by an adviser to regulatory reform is not usually the regulator. It isn’t the rules or the penalties for breaching the rules…it isn’t even the consumer demanding a different business model. It is the fear of the unknown taking precedence in a practitioners’ mind and then driving them to make a business decision which is not consistent with their professional and/or personal dreams.
People sell themselves short and trade away their independence dream. That’s the greatest danger I feel. The loss of autonomy, future capital growth, the ability to adjust a business or service rapidly to meet your own perception of customer or market demands, the additional rules and restrictions imposed by “the group” over and above what a regulator might set…these are the dream killers. But then, for some, these might be a fair price to pay for protection and safety.
What we have seen happen before though, and what will probably happen again, is that once the sense of danger passes there will be a desire to become autonomous again. Practitioners want to leave the herd when the danger passes and go grazing on their own again…and then many find that they no longer have that option. Fences and walls have been built around them and free-range grazing is no longer an option. A wall keeps danger out, but it also keeps people in. The price of protection is often an insurmountable wall.
Figuring out whether that is a fair price to pay comes down to the question posed at the beginning:
What do you want your business to be in 10 years time?
The short term adjustments and changes from regulatory reform need to be managed and made, but they should be viewed as an iteration. They are a mere step on the journey. They are just part of the evolution of the practice if one wants to continue being an independently owned professional services business. They should not in themselves necessarily determine the direction or shape of the business for its owner.
Begin with the end in mind as you contemplate how to adapt a practice to deal with regulatory reform. Be very clear about what sort of business you want to have in a decade, and how you want it to work, before indulging in knee-jerk reactions to perceived danger. After all, if recent history has taught us anything about reform it is that good practitioners adapt and adjust to it and find a way to work with it in time. It is rarely a business-killer, and it shouldn’t be a dream-killer. History has shown us that many practitioners have also regretted their initial response to the perceived dangers of regulatory reform, and spent significant time, money and stress trying to undo the decision a few years later.
It is far better to spend some time and perhaps money now getting very clear about what sort of business you are trying to build, and what is important to you, before indulging in a knee-jerk reaction. If you know what you are trying to achieve then the decision on what is the right way to go about it should be that much easier and less likely to involve drama and stress in the future.
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