... If it's not hurting, you are not doing it right

06 April 2020

Don’t panic this isn’t some sadistic ritual of an ancient cult. It’s rather more prosaic than that.

This comment was from a compliance officer referring to implementation of MIFID II for financial services firms. His contention that firms who have breezed through MIFID II are very likely not yet up to speed with the ramifications of the raft of obligations contained in these regulations and if they were, they would be feeling a lot of pain. The difficulty with such comments is that they may have some general use but are not particular or specific. My own experience is that it really depends upon who you speak to.

In a recent meeting with a successful IFA wealth management business the managing director proudly explained how the business had developed and was set to reach new heights in the coming years. It was going swimmingly until the operations director answered a couple of points about where the business was experiencing some pinch points. She explained how each time the advisory model portfolio was reviewed it led to a long chain of administration which was increasingly difficult to manage, so much so she was worried about actually being able to do what clients had been promised.

This led to a longish conversation about what clients want and what they are paying for. That of course also depends on which client you speak to, with clients coming on board in recent years much more likely to say they had a planning experience, whilst longer established clients might focus more on how the adviser arranges their pension and investments.

This is a common evolution in advisory businesses. Financial planning in a strategic holistic sense has come a long way in the last ten years and is now common as the core offering amongst advisers. Therefore positioning the up to date client proposition with older clients is particularly important. In times past the adviser may have ‘given away’ technical information when making the sale. Now the sale is the advice, not the product. When things are apparently free they tend not to be valued or even noticed.

The mistake is thinking that the technical stuff is of interest to clients, like details and changes in an investment portfolio. It may be intriguing to some but that is a minority interest. That is not to say that technical knowledge and application is unimportant, quite the opposite. Practitioners can easily get carried away with their enthusiasm. Our own Chief Investment Officer, Phil Smeaton, remarked last week that it dawned on him earlier in his career that attendees at a client event were not interested in his vast knowledge of markets. No one had asked him anything interesting about markets or stocks at all. Does that mean we don’t value the knowledge? No of course not but clients assume we know this stuff, it’s what they pay us all for.

Back to our IFA conversation. We agreed that what clients did not especially value was paperwork and administration. They wanted the benefits but not the job itself. The benefits of course are ensuring portfolios remain in line to achieve a client’s objectives and risk tolerance.

One of the temptations is to make less changes, leading to much less paperwork but advisers are not surprisingly happy about letting that run for too long and clients will start to wonder whether anyone’s hand is on the tiller, let alone the regulatory tension this will cause within the business.

We went on to consider wider business issues:

  1. Growing the business without adding lots of new people - scale it up

  2. Keeping in touch with clients about their needs, not just completing paperwork

  3. Freeing up paraplanning and administration resource to support business demands

  4. Freeing up advisers to take on more clients

  5. Price of the client proposition


1. Growth and scaling up

One of the challenges with this business is its own success with most advisers sitting on a healthy client book. The MD was reluctant to add more people and since finding the right people was proving to be so hard, perhaps other alternatives were worth considering. That means each adviser being able to drive more revenue into the business. Whilst there were a number of contributory factors, the key seemed to be a lack of time available to see new clients and getting in touch with their top clients as much as they would wish.


2. Keeping in touch with clients

The quarterly review of portfolios lends itself to making contact with clients. However in practise this is mostly done via email and there is no value contact happening which might help understand how clients’ circumstances and needs may be changing. A lot of time is spent by the administrators and sometimes the advisers simply chasing up paperwork to implement portfolio changes.


3. Freeing up paraplanning and administration resource

The paraplanners currently spend too much of their time supporting administrators. Getting them focused back on writing reports would be valuable to the business as it would free up advisers to spend more time with clients. There is a worry about staff retention if the current state persists.


4. Freeing up advisers to see more clients

The advisers are struggling to find time to develop new business and are concerned about their ability to respond in timely fashion to existing clients, let alone bringing on new clients. They are frustrated they have become involved in too much report writing and bogged down in supporting the administrative function.


5. Price of the client proposition

The MD was keen to provide a cost-competitive offering and felt that having grown considerably over the last ten years they could cope with pricing lower than the typical financial advisers in his region. The focus was on lowering the investment management fees.

The next consideration was whether using a discretionary service from a third party would assist. The initial concern was one of cost and whether they would actually add any value. The cost issue with such a discretionary service is typically a story that is out of date. The emphasis today is about how a third party can supply a discretionary service to support the IFA’s proposition rather than simply buying an off-the-shelf DFM model solution.

This led us to conclude that an approach that could do the following would greatly assist in dealing with our pinch points identified above;

  • An investment solution that incorporated the existing IFA advice model including risk profiling
  • A discretionary service included which would remove the need for client permission for portfolio changes
  • The design of the investment solution reflecting the IFA’s own investment approach
  • Could be managed on the wrap platforms they were already using at an acceptable price
  • The ability to change all client portfolios at the same time, particularly when markets are distressed or there is a concern about a specific holding

It was felt that this was possible and discussion progressed to feasibility. The by-product of this is the domino effect through the business; the administrators having time to do their work free from managing portfolio changes, leaving paraplanners to do paraplanning, leading to advisers being confident they could deliver a good service and take on more clients.

The cost of the overall client proposition also took a more strategic turn. The focus had previously been on protecting the adviser charge fee and therefore pressure was brought to bear elsewhere in the value chain. The owner of the business on reflection felt that he needed to consider what a buyer would value most, his current adviser charge fee or the asset management fee.

Talk to your Account Director to discuss how Sanlam can help support your business, allowing you more time to focus on your clients.

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