Walking the tightrope of demonstrating value while maximising profitability – session 1

Financial Advisory

15 October 2019

A Meeting of Minds Winning AdvisersDemonstrating ValueFinancial AdvisoryIndependent Financial AdviserProfitabilityWinning Advisers



  • From a revenue perspective there has never been a better time to be a financial planner than the past five years
  • There is fee pressure coming from the FCA and customers are being invited by the media to question the value of intermediaries or advisers through matters like St James Place charging and adviser reward model, the London Capital Finance scandal and Hargreaves Lansdown’s Top 50 ranking of the troubled Woodford funds.  The claims management ambulance chaser companies are starting to encourage clients to seek redress from tier advisers for poor product investment performance
  • If the equity bull market run ends and we see a sharp reduction in values (some predicting a sustained 30% or more correction) then clients will inevitably look at the cost component of their reduced investment return with consequent demand for fees to be reviewed and possibly reduced and there will be a higher risk of a rise in complaints etc.
  • If markets fall the revenue of financial planners (a high proportion of which is linked to AUM levels) will also fall, even if not linearly.
  • The costs of doing business are rising – talent is expensive to hire and retain, PII costs are rising and compliance, regulatory & technology costs continue to increase.
  • The FCA is becoming a price regulator - see latest comments on cost of up front advice for pension transfer advice



  • In a recent Aegon survey only 3% of clients said they would be prepared to pay £2000 or more for initial advice on how to invest £250,000 but that is indeed the typical fee they are actually paying in 75% of cases
  • Although clients are loyal, Aegon survey data suggests that 28% of clients will review their existing adviser relationship within the next 12 months and two thirds of them would do that for cost reasons
  • On the premise that 80% of revenue comes from 20% of clients, for a typical adviser this means the top 30 clients is where the attention should be focused
  • A menu of annual service changes has attractions when looking at a 20 year plus client relationship but it is complicated to implement as each client has their own needs and these may change as their personal circumstances change respective of their age or length of client tenure
  • In many firms the top 30 clients are subsidising a bank of unprofitable clients and the fear is that reducing fees for the top 30 clients will have too great a damage on overall profitability – a less perverse strategy would be to price upwards or exit those unprofitable clients  Similarly advisers should not take on new clients who are not prepared to pay your firm’s fees
  • For many long term clients who have a deep trusted relationship with their adviser, ‘fees do not matter’ 
  • However for new or potential clients there is fee pressure and different clients have different views on what is acceptable, for example some resent high initial fees preferring to pay a higher fee for ongoing annual advice than paying for setting up the relationship.  Others are happy to pay for work done up front but are dubious about a high annual servicing fee which may not involve much adviser time.


  • The FCA does not understand that financial planning is about trust and relationships not just investment performance, digital capability and costs. 
  • In the bid to maintain revenue and win new business, Financial Advisers could do more to articulate their value.  Data from surveys shows that in terms of value add, clients rank 4th out of 15 that advisers can ‘help me maximise my returns’, whereas advisers ranked this as the 14th most valuable out of 15 services they provide.  There is clearly a gap to be addressed
  • In reports sent to clients (drafted to be FCA and MIFID II compliant) the biggest focus is on investment performance and costs.  By contrast, in the USA, advisory firms put a lower priority on performance and more emphasis on tax and estate planning and the more holistic aspects of the service which advisers provide to their clients. 
  • Technology tools aimed at supporting financial planners are almost all about measuring investment performance and largely ignore the hard to measure ‘soft’ aspects of advisers interaction with clients
  • Financial planners striving to provide a holistic advice beyond investment return performance should re-evaluate the appropriateness of charging fees linked to the value of the assets they manage by which they are, it could be argued unfairly, profiting from fund managers alpha and/or market performance
  • Some advisers do charge hourly rates and others offer fixed fees for advice, especially for higher net worth clients but the market trend is much more to charge bps linked to Assets under Advice or Management
  • Clients need to understand that an annual meeting is not a ten minute exercise but both an audit and a future planning exercise
  • The greatest value financial advisers bring is ‘helping a client not screw up’ their financial affairs.  Advisers provide peace of mind, protect families and facilitate a happy retirement. 
  • Research by Vanguard and separately by Russell Investments suggest that the most significant economic benefit to a client of their adviser is to act as a ‘behavioural coach’ which can be quantified as 150-200bps per annum
  • Huge value is generated by encouraging clients to utilise all their family’s annual tax allowances
  • Clients understand the benefits of compound investing, perhaps now advisers need to help them understand even greater benefits of compounded annual tax savings and estate planning. Maybe a P60 showing use of tax allowances should be produced?
  • As a note of caution in a heavily regulated market with a history of commission based sales, financial advisers should not over sell their value to clients, they should adopt the lower key but largely successful charging approach of other professionals such as lawyers and accountants
  • Help and data is available through EDVOA and Marlborough Group for advisers seeking to demonstrate their value

Expert: Nick French – Marlborough Fund Managers

Facilitator: Richard Clarke Independent Consultant