Post on 15-Dec-2015
Maximising the value of an IFA relationship
What doesn’t kill you makes you stronger
IFAs understand the headwinds facing solicitors because we’ve already been there
June 2006Launch of the Retail Distribution Review
November 2007Implementation of the EU’s Market in Financial Instruments Directive (MiFID) December 2008
All retail financial services firms required to demonstrate Treating Customers Fairly principles
January 2013Investment firms must be fully compliant with RDR policy
December 2005 FSA proposes principle-based regulation
April 2009EC announces plansto improve investor protection for packaged retail investment products (PRIPs)
December 2013Minimum capital adequacy requirement for personal investment firms raised to £20,000
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Solicitors may only refer clients to independent financial advisers
Independent financial advisers (‘IFAs’) must research the whole market before making any recommendations – and must give
clients the option of paying for their services by a fee
The evolution of financial advice
1986
Financial Services Act polarises of financial advice
2005
Financial Services Authority allows depolarisation to increase high-street choice
2012/13
Retail Distribution Review recategorises ‘retail investment advisers’
Independent Tied
Independent* Tied Multi-Tied
Independent Restricted
*must offer a fee option to be called independent – otherwise called ‘whole of market’
Retail Distribution Review – your 10-second guide
• Launched by the Financial Services Authority in 2006
• Aims to improve and modernise how investments are distributed to retail consumers in the UK
• Three main goals:1. Improve the clarity with which advisory firms describe
their services to consumers 2. Address the potential for adviser remuneration to distort
consumer outcomes 3. Increase the professional standards of investment advisers
• Firms must be compliant from end of 2012
What will it require to be an IFA post-RDR?
• From January 2013, an ‘Independent Financial Adviser’ must:– hold qualifications at a minimum level of QCF Level 4* – conduct a fair and comprehensive analysis of the relevant
marketwhen making product recommendations
– have sufficient knowledge of all types of ‘retail investment product’ that could give a suitable outcome for a client
– select products in line with the ‘client’s best interests’ rule (COB 2.1.1)
– NOT accept commission from product providers (even where rebated)
– operate a product-neutral pricing structure*Qualifications and Credit Framework
What currently constitutes QCF Level 4?(NB This list is not exhaustive – for the full list see FSA Consultation Paper CP09/31)
CFA Society of UK CFA Program Level 1,2 or 3
Chartered Insurance Institute Advanced Diploma in Financial PlanningAdvanced Financial Planning CertificateAssociate/Fellow of Chartered Insurance Institute
Chartered Financial Planner, Associate/Fellow/Member of the Life Insurance Association
Diploma in Financial Planning
Institute of Financial Planning Associate/FellowCertified Financial Planner
Chartered Institute for Securities & Investment
(formerly Securities & Investments Institute)
Certificate in Private Client Investment Advice and ManagementCISI DiplomaInvestment Advice CertificateLSA Full Membership Examinations
Masters in Wealth Management
Faculty of Actuaries/Institute of Actuaries
Associate/Fellow (post June-1994 syllabus)
London Stock Exchange Full membership examinations
Personal Finance Society Associate/Diploma/Fellow
Client asset
value
Client age20 30 40 50 60 70 80
Buy first house
Get married
Have family
Move house
Change jobs
Receive inheritance
RETIRE
Familycover
School fees planning
Mortgage/ repayment adviceConveyancing
Annual ISA purchase
Annual ISA purchase
Annual ISA purchase
Annual ISA purchase
Annual ISA purchase
Annual ISA purchase
IHT & estate planningReview trusts
Spousaltax-planningWrite Wills
Lump sum investment
Pension maximisation/consolidation
Annual portfolio review
Annual portfolio review
Annual portfolio review
Annual portfolio review
Annual portfolio review
Annual portfolio review
Annual portfolio review
Pension de-risking
Income drawdown
Arrange SIPP
Annuity purchase
Regular savings pension
Set up children’s investments & CTFs
Review WillsSet up trusts
RefinanceConveyancing
ProbateReview WillsReview trusts
Long-term careEquity release
Where do solicitor/IFA synergies lie?
1. Trust & estate planning
IFASolicitor
Will writing
Trust creation& administration*
Probate
Estate disputes
Portfolio construction
Balancing interests
Inheritance tax planning
Ethical investing
(e.g. for charities)
Remember: The Trustee Act 2000 obliges trustees to review any investments made with trust money on a regular basis and to obtain proper investment advice. * NB: Where acting as trustees, solicitors should not refer trust work to businesses in which they have an
interest
Where do solicitor/IFA synergies lie?2. High-net worth clients
Trusts & asset protection
Estate management
Pre-nuptial agreements
Corporate asset structuring
Wealth management
Alternative investing
School fees planning
Tax-efficient planning
Pension planning
Insurance
IFASolicitor
Where do solicitor/IFA synergies lie?3. Elder care planning
Power of Attorney
Trusts
Will-writing
Equity release guidance
Long-term care insurance
Equity release product selection
Impaired annuities
Income solutionsRemember: Only financial advisers that hold the CF8 Long-term Care Insurance qualification can advise on long-term care products
IFASolicitor
Where do solicitor/IFA synergies lie?4. Personal injury and divorce settlements
Litigation
Claims settlement
Award assessment
Trust creation & administration
Lifetime income planning
Tax planning
Family financial planning
Pension planning
Insurance
IFASolicitor
Where do solicitor/IFA synergies lie?5. Corporate & employer services
Employment law
Corporate structure
Client/supplier contracts
Intellectual property
Selling/insolvency
Employer & group pensions
Employee benefits & share schemes
Workplace/director financial planning
Insurance
Remember: From 2012, employers will be required to enrol all eligible employees into a qualifying workplace-based pension scheme
IFASolicitor
Using knowledge of our clients to build and enhance our businesses• Enables firms to both meet regulatory compliance requirements and build better businesses
• Requires client information to be shared across the business and not kept to one adviser/partner
• Technology essential to ensure data is up-to-date and easy to interrogate
1. Client Fact Find
Deep-dive knowledge of every client
2. Sales Management Information
A real-time picture of a business
3. Client segmentation
Build a business around genuine client needs
Client Fact Find
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Pensions ISAs Bonds Cash Funds Other
1. The Client Fact Find – a power-store of information
IFAs are required to take reasonable steps to ensure that a recommendation is suitable for a client. Before making recommendations or managing investments, an advisory firm must obtain and document the necessary information regarding:
• Client’s financial situation – including- source and extent of regular income- regular financial commitments- assets, including liquid assets, investments and property
• Client’s investment objectives – including:- length of time for investment- preferences for risk-taking- risk profile- purpose of the investment
• Client’s relevant knowledge and experience – including- familiarity with relevant services, transactions and investments- nature, volume and frequency of transactions- level of education and profession
Taken from FSA Conduct of Business Sourcebook Section 9.2
Client Fact Find
The Client Fact Find - maximising the advice opportunity
Client Fact Find
Client assetsAre these all properly balanced with a cohesive strategy?
Dependants and spousesAre all personal and investment allowances maximised across the whole family?
Pension arrangementsAre all these optimised in terms of performance, charging structure and ease of management?
Risk profileIs the current portfolio aligned with the client’s stated risk profile and preferences?
Time horizonsAre investment strategies appropriate to the time left available for investment? (ongoing review)
Turning a regulatory requirement into a commercial and client advantage
Financial commitmentsAre assets and liabilities being offset as efficiently as possible?
The Client Fact Find (cont.) – using it to target solicitor issues
Client Fact Find
EstatesAre there any assets to be passed onto a dependant/ family member. How are these currently protected?
WillsHave wills been written by the individual and their partner and are these up-to-date (e.g. post-divorce or birth)
With client approval, IFAs can share fact finds with solicitors, thereby providing them with regular and
comprehensive client information
Elder careDoes the individual have any obligation to any older relatives – how are their future needs managed?
TransactionsDoes the individual face any imminent property, business or commercial transactions?
Management information (MI) – a further tool to build a picture of a business and its clients
• Level of client activity including most recent transactions
• Client activity by adviser/office/whole business
• Clients with unused ISA and pension allowances
• Investment asset allocation by client/adviser/whole business
• Assets held per provider provider/investment group/product
• Gross and net asset inflows/outflows
• Monthly/quarterly/annual revenues by client/adviser/office
• Client bank by age/AUA*/professional profile
• Transfer activity from/to other advisers/providers
• Length of client retention
*Assets under advice
Assess individual adviser
performance
Leverage client data across the whole business
Be alerted to sudden outflows of business
Identify potential risks
(e.g. high client exposure to high risk
assets)
IFAs use software and investment-platform tools to maintain a real-time picture of
Track profitability by
client/ adviser/office
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Client segmentation – improve profitability, anticipate future business direction and give clients what they need
Use the client fact find and business MI to segment & cross-segment clients by:
Age
Asset level/profitability
Transaction frequency/objective/key concern
Financial behaviour/portfolio complexity
Professional profile
1. Anticipate future needs across the whole client bank accurately and position business accordingly
2. Increase retention of high-quality/high-value clients and increase referral of new ones
3. Deploy resources efficiently to each area of financial planning and each client type
4. Identify and build key areas of expertise to build clear proposition, culture and brand
5. Ensure each client pays fairly for the service they require (i.e. no cross-subsidies)
Which in turn allows us to:
Anticipate client needs
by life stageIdentify current and futurehigh net worth clients
Differentiate advice services/ marketing/communicationsby individual client needs
This enables us to:
Segmentation in actionFor example, client profiling may tell us:
30% of our clients are professionals in their 30s-50s with fast-accumulating portfolios
10% of our clients are annual ISA buyers with few other assets with us
40% of our clients are over 60 with portfolios of £400,000+
Our key client segments are:1. Young accumulators:- Provide tax-efficient, growth
focused strategies- Keep up to date with new
investment opportunities and ideas
- Focus on online servicing- Address life-stage financial
planning
2. High-net-worth retirees- High touch relationship with
focus on regular face-to-face contact
- Focus on tax and estate-planning
- Income and risk-averse strategies
- Strong potential for client referral – including from family members
3. Transactional investors- Focus on efficient but low-
cost servicing- Email with investment ideas
and stock market commentary- Invite for portfolio review
and assess consolidation potential
What can fact finds, MI and segmentation tell you about your business?
What is the age distribution of your clients – how is this changing over time?
What is the ratio of personal to corporate clients (by numbers, by revenue share)?
What are the growing and declining areas of activity?
Which areas are seeing high levels of client referral?
What is the distribution of your clients by frequency of contact (e.g. every quarter, every year, every five years?)
Have you enough younger clients to sustain future growth?
Are you overly reliant on a few large clients or well diversified?
Where do you need to deploy resources?
Which areas are proving your greatest strength and known area of competence?
Does your servicing reflect the value of each client – how can you encourage more contact from less active clients ?
Other potential joint activities
Client mailings & newsletters, emails
• Budget updates
• End of tax year ISA and pension reminders
• Stock market reviews & model portfolios
• Best buy savings accounts
• Personalised portfolio reports and valuations
Client & prospect seminars
• Planning for a secure retirement
• Managing a divorce
• Funding old-age care
• Passing on your estate
• Asset protection (HNWIs)
Workplace marketing
• Getting the most from your pension
• Employee share schemes
• Life-after-work planning
• Wealth management for directors
Client reports: Example– Investment Portfolio Management
Client reports: Example – Risk Analysis
Client reports: Example- Montecarlo Simulation (Probability Modelling)
Benefits of a joint-venture (JV) structure for financial planning
• If the JV is an Appointed Representative of the IFA firm, the IFA firm will carry front-line responsibility for compliance with FSA requirements
• Solicitor participants can receive dividends provided the JV operates on a fee basis and accounts to clients for any commissions received
• The JV can use the IFA firm’s existing staff, compliance and business management systems but must ring-fence the clients of the JV - and revenue from them - within the system
• JV can be structured as a limited company or a limited liability partnership (tax considerations will normally dictate the appropriate structure)
• Offers flexibility over equity structure and profit share
What’s in it for solicitors?
1.Reinforce long-term high-value high quality client relationships
2.Attract more clients within your preferred market segment(s)
3.Improve levels of client referral
4.Increase levels of business from existing clients
5.Maximise efficiency and profitability
6.Build a holistic advice proposition
Transform threats to the legal sector into opportunities- The forthcoming changes are a welcome reminder of the need to change in a positive manner.