Financial Advisory

20 June 2017

Financial AdvisoryMeeting of Minds





Expert: Keith Hare, Benchmark Capital

Scribe: Evie Owen, Owen James Group

Our session leader kicked off by putting forward a list of all the components which he considered as part of the adviser service offering.  He then asked all participants to decide which they thought their clients valued in order of importance:

  1. Trust/integrity/culture
  2. Competence/expertise/experience
  3. Relationship/personal skills
  4. Being available when required
  5. Delivering customer returns for clients
  6. Helping to educate clients on the importance of saving
  7. Being independent
  8. Being chartered
  9. Being small/running my own business
  10. Being large/part of a large group
  11. Helping clients plan their income in retirement
  12. Helping clients minimise their tax bill
  13. Helping clients align and keep aligned their investments with the appropriate level of risk
  14. Providing clients with a visual plan/cashflow model
  15. Regular communication and contact on relevant issues
  16. Building a plan that is specific to a client’s individual circumstances
  17. Something else?

The group agreed that there is often a discrepancy between what the adviser feels matters most and the perspective of the client.

“How do you convey this (the value proposition) through your literature? The challenge is to get the clients’ perspective aligned with what your team think is the same.” 

How do you quantify the intangible?

“Clients don't buy what we do - they buy peace of mind. It is not about a pension - it is what the pension can do.”

“More and more - just offering them a plan. Not getting involved in the investment piece.”

“Increasing numbers of people are shopping around.”

“Professional connections are more likely to ask questions around cost.  However, it is really around trust as they need to feel confident that you are the right people to work with their clients.”

The value chain:

Do you have trouble justifying your fees? Can you walk away?

“Trade fees - most challenging to justify to clients e.g. charging client £15 per trade for an ETF.”

“Can't take a 1% on £5m - sometimes you can move to fixed fee.”

There was a debate between charging £1m X 1% versus £2m X 1%. Can advisers justify this differential? It is all down to differentials of service; risk and liability fee; excess on your PI policy.

“Everything is pro rata. If you can justify it - you should charge what you think is right.”

On the hourly fee: “software would make us more efficient then we would have to bill less.” 

“Different rate for DB than other service.” 

“How about retainer fees - revalued every year?”

The investment piece:

We were definitely close to consensus within both groups that they are trying to separate the investment performance and the financial planning service. However it was also accepted that investment returns are still important to clients - particularly when they go down!

One participant counselled that he thought the annual review should be kept separate from the investments review. 

Although most advisers do seem to have moved towards outsourcing the investment piece, there are IFAs with discretionary expertise. However one member of the group who had recently acquired a DFM licence had recruited people with the necessary skills i.e. non advisers. Acquiring the license is getting tougher. When he had sought permissions the Regulator had agreed to it within three months. It now takes about six months.

There has been a huge spike in IFAs applying for DFM permissions.   

If you are a DFM do you want to offer custody and dealing service or a switching service?

Our DFM man offers six models – “some clients say they want a bit of this and a bit of that”.  At the Review meeting, the FP will do the planning piece. He will then call the investment specialist and run through the portfolio and answer any questions. He offers a review twice a year for clients on a retail platform; four times a year for those on a bespoke basis.

Back to the list:

On the whole the group seemed to agree that the first three points could all be merged as they are “housekeeping”.

“We don't ask the dentist if they are qualified. We say: can you take my pain away?”

“We offer peace of mind.”

“How do you look to reassure the clients that you are trustworthy?   Well firstly you decide whether you like each other. You get their pain and then you can tell them what they will pay.”

One of the group cited a course they had been on – the Russell Practice course.  He recounted that he had been taught to get the client to “tell me your story”. He had found it really difficult to sit quietly… but it had worked and he reported that “engagement has been so much better since we stopped talking”.

One of the group asked if there were perhaps cultural differences in what constituted trust. Is there a north south divide? City versus rural? He works quite a lot in rural Lincolnshire and said there was definitely a different approach as to how they look at life. 

Back to the hard money world: “How do you translate your value into something you can express your charge for?”

One of the group expressed the view that: “availability is the key one for clients”.  Another repeated that the fee is for services 1 – 3.

One of the group expressed the view that “Chartered” status doesn't add value. However, another countered that it can be useful when attracting new clients.  One participant expressed the view that clients were more interested in whether his firm was “whole of market”.

The right solution for clients is key.

There then followed a conversation around the FCA's approach – “trying to componentise your offering” and the focus in the asset management space.

Costs and the value of the service:

“As part of MIFID II, we have to disclose what we have earned. This is acting as a catalyst. If we have to disclose the cost, we need to better articulate what we have delivered.” 

“A passive solution saves you lots of money.”

“We have a disclosure document which states what our fees will be. These are far higher than what we actually charge in practice.”

There was a lot of talk around communicating and demonstrating value.

“It is a good idea to itemise what we are going to do over the next 12 months. We print off every single communication; what we did and when. The client then realises how much you have done for them.”

A discussion around time recording as due to MIFID II all meetings have to be recorded – either aurally or noted.

The other major piece of regulation on the horizon is GDPR. “It is a nightmare - the right to be forgotten. You have to collect lots of stuff. And then they can tell you to wipe it.” This is being introduced in May 2018.

One member of the group thought there was an inherent tension between the two pieces of legislation.  Our group was advised that there is a lot of free material on the web. Brett Williams was mentioned as being a good source for information.

“We record what we have done to check whether we are charging enough.”

Hourly fees were viewed as a disincentive to be efficient. There appeared to be greater support for fixed fees for task based activity such as implementation.

One member of the group charged a fixed fee which was split between provision of report and implementation. Another said he was moving towards charging more for a report even if nothing was put in place.

“A lot of fat in the rest of the supply chain.” Total cost to client is 2% 

The FCA has published their paper (the Asset Management Market Review).

The children:

  • 75% of children will sack their parents’ advisers. 
  • Parents quite often don't want to tell their children what is going on. 

Future proofing your company - moving towards the digital piece:

Sentiments expressed:

“Building a robo. It is an advised protocol. Allows us to take on smaller clients.”

“Machine versus person - where is the value? Do clients question cost?”

“Youngsters don’t even go into banks.”

“Biggest barrier (to the introduction of a digital offering) is the adviser rather than the client.”

“The over 65s are the most active – they have the most time. Older people are totally interested in tech.”

A few interesting acronyms: The “Turfers” (those who TV and surf).  The Henrys – the high earners who are not rich yet.

“Your values embedded in the kit (digital offering) they are using. Once the trigger point is reached they will think of you.”

“Most firms have too many clients and this helps keep the less profitable.”