New model advisers have been the trailblazers in dragging the advice sector from the old model world of sales-driven product flogging towards professionalism. Adopting fees and striving for higher qualifications have been key elements in this drive. But with the retail distribution review (RDR) ushering in the level four qualification requirement and the ban on commission, how will those in the financial planning vanguard continue to set themselves apart from the rest?
This concern is not lost on Dennis Hall (pictured), managing director of London-based Yellowtail Financial Planning. ‘This issue has been on my mind for a couple of years. We will lose that distinctiveness,’ he said. But he added that firms with long-established RDR principles embedded in their businesses would still enjoy an advantage over those only now making the transition.
‘It has taken us time to become comfortable with our own proposition – – so it will take firms that have only just become fee based quite a while to get into it,’ he said.
‘I don’t think people who are ready for the RDR have bought into the RDR necessarily. We will have more energy and authority, and there will be problems later on for some firms because they will have to work through all the same mistakes we have had to.’
Standing out from the crowd
Hall said it would be vital for firms to find a niche to thrive in the RDR environment. Yellowtail’s specialism had only recently dawned on him, he said, when he discovered around half of his clients were widows after the firm carried out a segmentation process.
‘We didn’t set out to attract them; it’s just how the cards fell,’ said Hall. ‘Clearly women liked our particular approach to planning more than men. We have no single men as clients. They like to try to beat the market, so we don’t go after them anymore.’
Some have argued that the RDR’s level four qualification requirement will cement chartered status as the badge for advisers looking to set themselves apart from their peers. But David Crozier (pictured below), partner at Northern Ireland-based Navigator Financial Planning, believes the firm’s accreditation with the Institute of Financial Planning (IFP) will be a key differentiator.
‘It is possible to be a chartered financial planner without having ever done financial planning, and there are far fewer accredited firms. There are only two others in Northern Ireland,’ said Crozier. ‘Financial planning has not yet come to the fore as much as other aspects, like charging fees or qualifications. It will definitely be one of the ways we distinguish ourselves.’
The scalability challenge
The next challenge for firms wedded to the financial planning model will be to operate scalable businesses, said Crozier.
‘I do not think anyone has achieved a fully scalable financial planning business. Towry is a wealth management firm; so is Hargreaves Lansdown. At best they are advice firms but not financial planners. So the delivery of service at scale is the next big thing. Most advisers will still be very product-centric and in another year’s time they will be stuffed,’ he said.
Adam Young (above), director of Kent-based Dragonfly Planning, echoed Crozier’s argument that refining a service-based approach would be crucial to success in the RDR world.
He has transformed his business into a family office service that draws on life planning guru George Kinder’s techniques. As part of that shift, he has been developing planning programmes tailored to specific circumstances and types of client. He said commercialising client services was crucial if firms were to move away from a product-focused approach.
‘We have spent a good few years getting to understand what the client values rather than what we value. On that basis we have developed a suite of education platforms that we will be charging the clients for,’ he said.
Young said it was through listening to clients that the firm had developed services focused on the needs of small businesses, such as training for trustees and help in developing corporate governance.
‘Many of my clients are business owners who need these things to support their business or help with succession planning,’ he said. ‘Alternatively there are clients going through divorce or bereavement, so we have a 12-month process to help them through that.
‘What we are doing is pricing up service at a premium, and products may sit within that. Forget the product noise; it’s all about moving on from products.’
Developing a unique persona
While the RDR will introduce an element of homogenisation within the advice sector, by imposing a minimum level of qualifications and moving all firms away from commission, advisers can still rely on their personality and the culture of their firms to set themselves apart, according to Pete Matthew (pictured), managing director of Cornwall-based Jacksons Wealth Management.
Matthew has spent the past two years building the profile of Meaningful Money, a series of educational videos he presents that explain financial planning issues.
‘The answer for me is online engagement,’ he said. ‘Meaningful Money is now the second biggest introducer to Jacksons. That is the result of two years’ hard work. We started in 2010 and got one good client from it in 2011. In 2012 we got nine clients representing 5% of our turnover.
‘The biggest advantage of this type of marketing is that it is personal,’ he said. ‘If there is to be an increasing homogenisation in the industry then personality will be one way of diversifying. While you don’t want to build business on personality, you can infuse the business with your personality.’
Matthew pointed to Seven Investment Management’s Justin Urquhart Stewart and Virgin’s Richard Branson as examples of people whose personalities are tied to public perceptions of the companies they represent.
‘I hope the way I think and my ethics are being imparted on to the company,’ he said. ‘With the advisers we have hired, that has been a key condition: that they are like-minded and know the local community.’
While the RDR will enshrine some limited new model principles in regulation, the advisers who led the drive towards professionalism years ago are still finding ways to refine their businesses. A fee-based business model may no longer be the differentiator it once was, but the new model community’s focus on the continuing development of client services means it is likely to continue to set itself apart.