ADAPTING FOR THE - Old Mutual Wealth · 2017-10-19 · new regulation for insurance business and...

For financial advisers only

ADAPTING FOR THE NEW WORLD OF ADVICE

Conversations and opportunities For individual advisers and advisory Firms

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FOREWORD pAgE 4

SECtION 1: puttINg thINgS IN CONtExt – thE EVOLVINg LANDSCApE pAgE 5

REGULATION

A NEW TyPE OF cUSTOMER

DIGITAL TEcHNOLOGy

INcREASED cOMPETITION

WHERE THE MARKET cURRENTLy STANDS

SECtION 2: IDEAS FOR CONSIDERAtION – ChANgINg BuSINESS MODELS pAgE 11

PLANNING FOR PROFIT

OPTIMISING VALUE

REFRESHING INVESTMENT APPROAcH

SECtION 3: ADAptINg FOR thE NEW ADVICE WORLD – BECOMINg “FutuRE FIt” pAgE 19

SIx SIMPLE STEPS

A BLUE PRINT FOR RE-ENGINEERING yOUR BUSINESS MODEL

SECtION 4: ADVISER CASE StuDIES – EMBARKINg ON thE ChANgE JOuRNEy pAgE 22

cASE STUDIES

JOIN THE DEBATE

david Benskin & david snellinG

GraHam tHornton & kay pindoria

Key contRiButoRs

CONtENtS

steven levin rod Bryson karen BlatCHFord

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StEVEN LEVINcEO INVESTMENT PLATFORMS, OLD MUTUAL WEALTH

Welcome to the start of what we believe is a vital debate: how to help ensure the future success of the international adviser industry.

We’ve all been witnessing unprecedented change in our industry. customers’ expectations and demands, together with economic and regulatory reforms are throwing up new challenges, threats and opportunities.

We’ve heard a lot from advisers and fi rms we deal with about how they are dealing with change. Now we feel it’s time to facilitate a joint discussion - to exchange views on the best ways to respond and benefi t from these changes.

Research, including our own, shows that many advisers are taking the decision to develop more sustainable business models, with the aim of giving their clients better and more consistent service. They see this as the best way for them to remain relevant and profi table.

Here we are going to share with you the experiences of a number of our adviser partners who are already on that journey to secure their place in the new adviser landscape.

As Old Mutual International, we deal with different regulators from across the globe and we engage with all types of advisers operating various types of business models. I hope you’ll agree that this puts us in a perfect position to facilitate this discussion from a unique vantage point.

We have also asked international business experts, Capgemini Consulting, for their analysis of the main drivers of this transformation and the best ways to embrace it. Some of their views are summarised below and throughout this paper.

your own views and experiences will help to develop this picture further. Please let us know about the changes you are observing from where you stand and what their implications are for your future by contacting us at futurefi [email protected].

Our business aims and prospects should align with yours, so we look forward to hearing from you. In return, our commitment to you is to support you throughout this journey with knowledge, expertise and solutions that you can use in your own strategy for building an advisory business that’s truly fi t for the future.

SuStAINABILIty

Successful advisory fi rms will realise that simply providing and charging for one type of engagement model is not sustainable for the future. Even advisory businesses that focus solely on affl uent or High Net Worth (HNW) customers need to consider how to provide them with differentiated advice and engagement models offering wider choice.

StRIVINg FOR BEttER CuStOMER OutCOMES

Advisers need to ensure that they are offering their customers compelling and authentic value that can be clearly demonstrated and articulated. By identifying and focusing on their strengths, they can ensure they are delivering a competitive proposition and a consistent and simple client experience.

EFFICIENt BuSINESS MODELS

The race is now on to provide a lower cost of advice model by, leveraging technology to supplement existing face-to-face and paper-based processes, or in some cases to replace them all together.

FOREWORD

Source: www.capgemini.com April 2016 capgemini consulting is the global strategy and transformation consulting brand of the capgemini Group, specialising in advising and supporting organisations in transforming their businesses. With 180,000 people in over 40 countries, capgemini is one of the world’s foremost providers of consulting, technology and outsourcing services.

ROD BRySONPRINcIPAL, WEALTH, LONG-TERM SAVINGS AND INSURANcE cAPGEMINI cONSULTING

thE CApgEMINI VIEW

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We can all point to changes in the financial services arena; in fact it often seems that things are constantly changing. But how radical are these changes and how are they truly affecting customers and the way advice is delivered? More importantly, what changes are still to come?

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SOuth AFRICA

RDR which consists of 55 regulatory policy proposals will be implemented with a staged approach during the next few years.

In 2002 the Policy Protection Rules (PPR) defined a set of disclosures to customers.

The Financial Services Board (FSB) supervised rules to protect customers, regulate selling and advice-giving activities and ensure open disclosure of relevant facts and commission.

CANADA

Regulators are considering following the UK and Australia and legislating how financial advisers are compensated, i.e. by adviser fees only.

ChANNEL ISLANDS

Introduction of an independent Ombudsman service which is free to complainants who have received advice in that jurisdiction.

Regulation

Following the financial crisis of 2008, the main focus of regulators was to introduce measures to prevent further problems arising in the international capital markets and banking system. trust ratings for banks now stand at 63% while Financial Services firms are still at 51% in 2016.

Source: Edelman Trust Barometer 2016

Regulators have since turned their attention to the financial advice industry and clearly some markets such as those in Australia, the UK and South Africa have already seen considerable change.

Not all international markets are progressing at the same speed but as can be seen from this map, they all seem to be heading in a similar direction.

There is also greater cross border information sharing between governments and tax authorities with countries agreeing to freely share information, for example on accounts, trusts and investments.

This map shows some of the main regulatory changes under way at the time of publication. It is indicative only and not a comprehensive list.

Key: aim of each measuRe Protection of customer outcomes

Providing greater transparency of adviser remuneration

ensuring fairness of charges

PUTTING THINGS IN cONTExTSEcTION 1: thE EVOLVINg LANDSCApE

LAtIN AMERICA

Venezuela – looking to introduce new financial services regulation.

chile – introduction, for the first time in the history of chile’s tax legislation, of general anti-avoidance rules.

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MIDDLE EASt

The Qatar central Bank has issued draft new regulation for insurance business and licensing.

Kuwait – Regulations governing insurance brokers include new capital requirements.

Oman – The capital Market Authority (cMA) is looking to enhance its regulatory framework, covering investment linked life assurance, regulation of brokers and corporate governance.

Dubai – Dubai Financial Services Authority (DFSA) is consulting on revisions to the insurance regime in the Dubai International Finance centre (DIFc) zone, taking into account initiatives such as the Insurance Distribution Directive in the EU.

thAILAND

The Securities and Exchange commission (SEc) will introduce a code of conduct for intermediaries and require an efficient complaint-handling system to support their daily work. The SEc has proposed revising the rules to ensure only accredited investors – such as HNW individuals – with matching risk-profiles are eligible to invest in high risk mutual funds.

SINgApORE

The Monetary Authority of Singapore (MAS) and Financial Adviser Industry Review (FAIR) aims to improve professionalism and increase sustainability.

In 2017, MAS will implement a 55% cap on first year commissions on life insurance policies with the remainder paid over the shorter of the next five years or the remaining premium payment term.

hONg KONg

By mid-2017, client agreements must state advisers could be liable for client damages claims if they have recommended a product that is not reasonably suitable.

Securities and Futures commission (SFc) considering the introduction of an independent Ombudsman free to complainants who have received advice in that jurisdiction.

GN15 restricted Investment Linked Assurance Schemes from paying indemnity commission and limited level of initial commission paid on single premium products, requiring a proportion to be paid over subsequent years.

GN16 will see similar restrictions extend to Annuities and Endowments by 2017.

EuROpE Insurance Distribution Directive (IDD) due in 2018 includes requirements on staff competence and professional indemnity insurance.

PRIIPS initiative aims to improve transparency on disclosure of charges.

uNItED KINgDOM

The Retail Distribution Review (RDR) leading to improved professionalism and increased sustainability within the advice sector. The Financial conduct Authority (FcA) has enhanced restrictions on access to unregulated collective investment schemes. RDR also has led to a commission ban (except for ‘pure protection products’) resulting in customers now paying direct to the adviser for the advice received.

ISLE OF MAN

The Financial Services Authority (FSA) is consulting on rules impacting firms they regulate no matter where the business is conducted including product providers assessing the appropriateness of their distribution firms and whether they hold the appropriate regulatory permissions. The FSA is also considering restrictions on assets available within portfolio bonds. It will separately consult on the introduction of client-specific commission disclosure.

“ Markets that have already undergone significant regulatory change offer a useful case study for what happens when advisers don’t evolve. In the UK, Australia and, in future, South Africa the experience has and will place significant pressure to reduce margins which impacts overall financial performance for those advisers who chose not to adapt or have not invested to build a differentiated customer proposition. This is not about lowering charges for advice, it’s the ability to demonstrate value to the customer for the price charged”.

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a new tyPe of customeR

Customer expectations are forcing advisers to move beyond meeting prescribed standards set by local regulators.

Greater availability of information is aiding customer awareness. Increased means of sharing information are improving customers’ understanding. Remuneration models that thrived in the past on a lack of clarity of costs are becoming less sustainable as clients have more information available to assess the value of the service.

customers are also becoming increasingly mobile, moving to and from different markets. This is leading to the globalisation of the standards they expect, especially with regards to disclosure and transparency.

Digital technology

the ‘industrial revolution’ in technology will continue to overturn client expectations and the demands they make of financial firms.

More and more customers now expect to be able to engage digitally with their advisers, to carry out a wide variety of transactions online and possibly even conduct their business meetings via Skype.

As well as offering customers enhanced options for interaction, technology also enables advisory firms to build an efficient business model and reduce the amount of tedious, time-consuming and costly paperwork. It allows for greater integration and expansion of services such as the introduction of a menu of online services for those clients who prefer an element of ‘do-it-yourself’.

This integration can also include connections with the life office and platform providers’ administration systems to consolidate customer data and policies.

Digital customer Relationship Management (cRM) systems can help to manage client data and client contact, with the data they provide supporting segmentation and targeting to ensure you are making the most of your client base. clear explanation

of all fees and costs before they

are charged

Full disclosure of fees and other costs

25%

50%

75%

100%

• Importance to Investors• Satisfaction Level

how important are the following attributes vs. how well are investment firms delivering against them?

Source: cFA Institute Trust to Loyalty Survey 2016 www.cfainstitute.org/investortrust

“ Today’s customers are in a better position to question and challenge – but also appreciate the value a financial adviser can offer”.

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A NEW typE OF CuStOMER

Customers want to have a better understanding of the choices available to them. they want to know how much they are paying for what services and they need to feel they are getting value for money.

“ Advisers need to provide their customers with a seamless experience in the way data is captured, how that data is managed in the back-office and the way data is shared with them. Leveraging technology well and using a multi-platform approach to engaging with customers will be key differentiators”.

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incReaseD comPetition

Quality of client service and relationship remains the most important competitive factor.

Many firms and advisers have already embarked on the change journey and are offering clients a more holistic planning approach as well as an ongoing service proposition. Some are also looking to differentiate themselves with new investment processes and fund solutions.

As illustrated in the adviser case studies on page 22, firms with established business models already operating in more regulated countries are setting up in the Middle East and Asia, with their new ‘best practice’ models appealing to the expectations of the customer.

Through the power of word-of-mouth recommendations and social media these models will attract customers, leaving behind advisers and firms who do not adapt their business models.

There is also a growing trend towards the development of so-called “robo-advice”. This is simply an online wealth management service that provides ‘advice’ without the use of a human financial planner. It does this by identifying the appropriate product, and sometimes investment solution – such as a risk rated multi-asset range – through an automated flow chart and/or providing algorithm-based portfolio management advice.

“ In three years’ time, say retail investors, having a real person to help guide them will still be more important than having the latest technology and tools”


“ Embracing technology is what will allow advisers to create a super-efficient operating model. Those that are successful will be able to deliver their services cost-effectively and will also be able to take on many more customers”.

“ Advisers must bear in mind the high level of service and efficiency that customers now expect, driven by the service standards adopted by other industries that customers engage with on a daily basis. Advisers need to follow their lead, otherwise they will be left exposed”.

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wheRe the maRKet cuRRently stanDs

28%

36%

27%

3%6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Up to 0.5% 0.51%to 1.00%

1.01%to 1.50%

1.51%to 2.00%

2.01%+

28%

75%

56%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80%

what is the aveRage level of RecuRRing commission/income you Receive?

Does youR comPany segment clients?

24% yes, our entire client bank has been segmented

22% Some of our client bank has been segmented

18% We have not yet segmented our client bank but will look to do this in the near future

10% We have not segmented our client bank and are not sure how to go about doing so

26% We have not segmented our client bank and have no intentions of doing so

if you Do segment, Do you offeR DiffeRent seRvices anD/oR investment solutions?

4% No

21% yes, different services

13% yes, different investment solutions

62% yes, different services and investment solutions

what PRoPoRtion of youR commission/income is RecuRRing?

2% Don’t Know

23% 0-20% income is recurring





Does youR comPany have an in-house centRaliseD investment PRoPosition?

yES NO

28%

36%

27%

3%6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Up to 0.5% 0.51%to 1.00%

1.01%to 1.50%

1.51%to 2.00%

2.01%+

28%

75%

56%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Our own research of over 100 international advisers reveals that a good proportion have embarked on the journey to secure their place in an ever-evolving business landscape.

Equally, others are perhaps in the early stages of considering what changes may be relevant for their businesses and how they will potentially go about implementing changes to their processes and business plans. Here is a snapshot of some of our fi ndings. you can see more qualitative commentary from advisers in international regions in our case studies from page 22.

Source: Old Mutual International, January 2016

None of those listed

Offer multi-manager fund range

Pick funds/shares on a client-by-client basis,

depending on client needs

Outsource your investment process to a third party

if no, Do you use any of the following?

how many sePaRate

holDings/assets will each client tyPically holD?

KAREN BLAtChFORDHEAD OF INTERNATIONAL MARKETING,OLD MUTUAL INTERNATIONAL

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having highlighted the key drivers for change, what follows is a number of ideas for new advice models based on the opportunities we see happening in firms that are already transitioning their business models.

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CAN BEttER BuSINESS pLANNINg REALLy hELp tO IMpROVE pROFItABILIty AND BuILD A MORE SuStAINABLE BuSINESS pRACtICE?

there is evidence of a clear link between having a business plan and the profit that an adviser firm makes. One source that has consistently reported on this is Business health in Australia. their “Future Ready VI report” has been comparing increases in profit of those firms that had no business plans, partial plans, or fully documented plans since 2012.

IDEAS FOR cONSIDERATIONSEcTION 2: ChANgINg BuSINESS MODELS

FOCuS ON pRIORItIES – A SuCCESS StORy

An advisory firm in South Africa was valued for the purpose of sale at retirement. With this objective in mind and in order to increase the value of the business, the firm started to follow a clearly set out business plan to implement the changes required. As a result, they succeeded in increasing the business value by 28% in 12 months. Source: Masthead (Pty) Ltd, www.masthead.co.za

So why does having a business plan mean more profit? The main reason is focus - focus on priorities, focus on the right target market, and focus on cost.

Throughout the industry we see a variety of approaches to business planning.

Those firms who have engaged in business planning are well on their way toward making the changes required not only to deal with economic and regulatory changes, but also to adjust their value proposition to remain relevant and suitable to their target market clients. By taking a consistent, structured approach they have the opportunity to think forward 3 – 5 years and identify the key measures required to ensure that relevant changes are implemented along the way.

Some firms and advisers however have not yet engaged in such forward thinking. Their long-term sustainability will depend on the strategies and tactics they put in place to meet the challenges of the changing business environment, so having a business plan will help.

1Future Ready VI: A Healthcheck analysis for the advisory profession – released January 2015. The report was drawn from detailed results of the 328 firms that have taken Business Healthcheck between December 2012 and December 2014.

FIRMS WITH A PARTIAL BUSINESS PLAN

Profit per adviser:

AuD $225,292

an increase of

117%

FIRMS WITH A cLEARLy DOcUMENTED

3–5 yEAR PLAN

Profit per adviser:

AuD $305,478

an increase of

194%

FIRMS WITH NO BUSINESS PLAN

Profit per adviser:

AuD $104,034

putting it another way, by not having a business plan, a firm could be missing out on an extra AuD $201,444 profit per adviser.

IN pREpARINg yOuR BuSINESS pLAN, hERE ARE SOME IMpORtANt QuEStIONS yOu NEED tO CONSIDER:

What keeps you awake at night? Will these concerns prevent you from reaching your business and personal goals?

Is your advice process structured so as to create an ongoing value experience for your clients? If you are a business owner, is this process consistently applied by all your advisers?

How many of your clients have referred their friends and family, based on their experience of your financial / investment process?

Are your business practices set up to support an ongoing profitability? What practices would it make sense to outsource?

Typically, 80% of a firm’s profitability is derived from 20% of clients. Have you segmented your client base? Is the firm systemised to the extent that key clients can be identified at the press of a button?

Where do you need help? Do you need to re-examine charging structures, products or investment solutions to ensure they consistently help customers achieve their goals?

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consiDeRation 1: REMUNERATION

the first thing to consider is whether it’s time to review your fee structure to adjust the balance between upfront commission and ongoing servicing fees. Shifting towards a greater proportion of recurring income could help you to develop a more sustainable business and boost the commercial value of your book.Having a recurring income stream from existing clients also means you should start each year with less anxiety as to where your revenue is going to come from over the next twelve months – and ease the burden of constantly needing to find new clients.With client relationships moving beyond the transactional, it is right to look at a model that aligns to such expectations. However, a key consideration needs to be the overall cost to the client and the value of the services you are going to deliver. This poses the obvious challenge where there is an existing client relationship with products already in place. The key here is to recognise that this is a transition your business is going through and to ensure that you strike a balance between:• the services you are committing to• the true cost of delivering these services, and• how you position these to existing clients. For new clients and new advice, the process is arguably easier, as you are in a position to review all of the above at outset and strike the right balance from the start. you can review this against the current overall cost of ownership of the current business model.

consiDeRation 2: EcONOMIc VIABILITy

It’s important to carry out a proper analysis to ensure changing to a model based more around ongoing servicing is right for you. you could begin by asking yourself the following questions about cost and revenue:• What is the cost in time and money of

prospecting for new clients?

• What is the attrition rate suffered to secure each new client?

• How much time does it take to complete an initial advice process, compared to the time to service existing clients whose objectives you already understand?

• How much revenue do you earn from a new client compared to the potential revenue from existing clients? For example, an average initial commission could be around 5%, whilst you could earn 0.5% p.a. from ongoing fees.

In the example in the last point above, you could generate the same amount of revenue from servicing ten existing clients as you could from having to secure a new client.

The costs and revenue differential can vary greatly by business. However, there are tools and business practices you can use to optimise efficiency for servicing existing clients.

IS It tIME tO SWItCh yOuR FOCuS FROM FINDINg NEW CLIENtS tO MAKINg MORE OF yOuR ExIStINg ONES?

Whilst the financial services industry has historically been largely transaction-focused, advances in technology present greater opportunity for advisers to now develop deeper, longer and more meaningful relationships with existing clients. this is especially the case in the expatriate market where there has been a growing trend for expats to remain offshore for longer and, typically, to remain based in a single jurisdiction.

SO WhAt MIght yOu CONSIDER tO MAKE thE MOSt OF thESE OppORtuNItIES?

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consiDeRation 3: cUSTOMER SATISFAcTION

there are other benefits to servicing existing clients, stemming from their satisfaction with your service.• Ongoing service keeps you at the forefront

of the client’s mind. A well-served client, with you at the end of the phone, is more likely to repeat buy.

• clients who are well-serviced will recommend you to their business associates, friends and family, which in turn can help drive down the cost of finding new clients.

• Differentiating your service model can enable you to have different levels of service-offering for different client segments and to charge different fees depending on the type of service.

BuILDINg RECuRRINg INCOME – A SuCCESS StORy

Following its attendance at a business planning workshop, a South African advisory firm decided to implement a new fee structure, segment its client base based on profitability, and design service level agreements. As a result, the firm increased its annual recurring income by 12.2% by applying a monthly service and hourly consulting fee.

Source: Masthead (Pty) Ltd, www.masthead.co.za

“ The needs of customers vary depending on where they are in the advice life-cycle and this means advisers need to offer various types of engagement models. For instance, whilst one type of charging approach may work for customers looking for comprehensive initial advice, that same approach may not always apply when the customer is looking for just a short conversation before making a top-up”.

Of advisers have either changed their business model, or are in the process of doing so, to give more weight to ongoing servicing fees*. As we have shown, it can offer your business opportunities for growth, but it’s vital to get the planning and transition phases just right.

*Source: Old Mutual International survey to international advisers, Q4 2015

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getting expert investment advice is probably the most common reason for clients to see an adviser. But for financial advisers, it could also be the most risky and time-consuming aspect of doing business.

Poor advice, including the recommendation of unsuitable investments, can easily lead to complaints, litigation and the attention of regulators. All of which can damage the smooth running, reputation and value of the firm. Even the perception of poor advice, perhaps where the client’s expectations are unrealistic, can have the same effect.

clients will naturally want a portfolio that gives them the best chance of reaching their investment goals. It may not ultimately reach this goal, but as long as they understand and are comfortable with the balance of risks and rewards it offers them, the possibility of complaints can be minimised.

for the adviser therefore it’s important to:

• efficiently and consistently identify the client’s risk profile and their investment goals,

• match this with an appropriate wrapper and investment portfolio, and

• ensure that this is comprehensively documented and understood by the client and regularly reviewed.

the investment PRocessMany firms have found that having a robust, repeatable and recorded advice process to underpin client recommendations not only reduces the potential risk to your business, but also helps to keep your clients’ investments on track. This is commonly known as a centralised investment process.

Of retail customers said they would leave their current firm due

to underperformance

Of institutional investors said they would leave their current firm due

to underperformance

CAN yOu REDuCE thE RISK OF DOINg BuSINESS By MODERNISINg yOuR INVEStMENt pROCESS?



“ Any area of weakness in the business model represents risk and needs to be dealt with either by improvement, eradication or outsourcing”.

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typICAL INVEStMENt

PROcESS

2. RISK ASSESSMENt FOR INVEStINg

Allowing for factors like how long they are investing for

and their investment goals, the next step is to assess – and agree with the client – their

attitude to investment risk and their willingness and capacity

to accept loss.

1. FACt FIND

It’s vital to truly understand a client’s investment needs, attitudes and objectives so

undertaking a comprehensive fact find is a sensible first step.

5. BuILDINg A pORtFOLIO

The asset allocation should be designed to maximise

returns for the client’s agreed risk level – ideally with a well-diversified portfolio spreading

exposure to different geographic regions and asset classes. The development of risk-rated model portfolios or a multi-asset solution

could complement any client segmentation.

6. FuND SELECtION

The most time-consuming and demanding part of the investment advice process can be selecting funds and

building a portfolio that meets the client’s needs.

some options that present themselves for this purpose

are explored overleaf.

7. ONgOINg REVIEW

Once a client’s portfolio is set up, it’s important to review it periodically to ensure it still meets the client’s needs,

reflects their attitude to risk and is performing in line with expectations, especially in

changing market conditions.

4. SuItABILIty

The investment recommendation should take into account the

client’s:• need for investment breadth

• investment knowledge and experience

• wish to be involved in investment decisions• need for review• attitude to cost.

This assessment can also assist with segmenting clients and

identifying like-minded investors.

3. WRAppER SELECtION

The fact find will help indicate which products (if any) are the most appropriate for a

client’s needs. If an investment product is required then the fact find should help identify whether a narrow investment range will be sufficient or if

wider choice is more suitable.

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Spreading risk is one of the most important principles of investing, not only between several different investment types (i.e. the asset classes) but also between different fund managers depending on their approach.

The decision about which asset classes to invest in to achieve the return the client wishes to make should link to their attitude to risk. Investment experts use sophisticated tools to determine the right asset allocation for clients matched to their risk profile.

choosing the right funds within each asset class is also a complex task. With thousands of funds available in the market place, analysing each one and doing due diligence takes time and expertise.

That’s why more and more advisers are choosing to partner with investment experts to source solutions whilst remaining in control of the advice process as a whole. This gives them the opportunity to spend more time with clients and helps reduce the risk of making a poor investment choice.

there are several options available when sourcing suitable investment solutions.

multi-asset funDsMany advisers are now using multi-asset funds to match to a client’s risk profile. Multi-asset funds use a range of funds to make up a “fund of funds”. The multi-asset fund manager controls the underlying fund mix and makes changes to match the desired risk and reward balance when required rather than waiting for a fund review. The difference between a Model Portfolio and a multi-asset fund is that the multi-asset fund is being actively managed on a day to day basis whereas a Model Portfolio may only be re-balanced quarterly.

selecteD Range of funDsSome advisers will choose a panel of funds to select from. Panels that have already been researched are available through many asset managers, fund selectors and platform providers. The due diligence completed on the fund range should be available to provide reassurance to you and your client. If you have your own fund research team this can be done in-house.

moDel PoRtfoliosModel Portfolios are groups of funds that are put together to meet a specific risk profile. Like fund ranges, these are compiled by asset managers and fund selectors and are often available through platform providers. Model Portfolios contain funds that have been screened for their approach and performance.

DiscRetionaRy seRvicesFor those clients who require a more bespoke investment service, an alternative approach would be to use external investment experts, such as a Discretionary Manager, for some or all of the steps. In fact, depending on your business model and client profile, it may be more effective in terms of cost and risk to use such a resource for the entire investment process.

FuND SELECtION: BuILDINg A pORtFOLIO


you can see from the list on the left that a decision to outsource provides a range of choices. this allows you to choose one solution for all your clients, or offer a truly tailored service by selecting the option that best meets the needs of individual clients.

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the scale of the forthcoming transformation is greater than any previous development – but it presents fantastic opportunities for those who recognise and embrace it. We want to work with you to help set the agenda for change and to support you throughout this exciting journey.

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So far we have identified six key areas that consistently form part of a transition journey for those looking to adapt for the new world of advice. Each element will contribute to moving your business forward, but by completing all six you can truly transform your business model.

Business Planning

This is where the journey starts. Having a robust and well thought out one, two, three

and five year plan will help drive the business forward and ensure a focus on the right things.

The plan should consider the strategy, the operating model and governance, the risks as well as setting the measures of success.

It should give you a true assessment of where your business is and the potential options

for evolving it. Business planning is equally important for the individual adviser whose customer-targeted activities should reflect

and be aligned with the overall objectives of the firm.

PeoPle assessment

your people are your most important asset so it is key to understand their skills and

experience, how they work together across the organisation and how they fit with your

aspirations and goals for the business as laid out in your business plan. What training and development will your people need to bring them on the change journey? How can you use your back-office staff more effectively to help manage an ongoing service model?

PRofitaBility analysis

A full analysis of income and expenses as well as cash-flow will support the planning process, help define priorities and identify the impact of shifting the model on to one focused around the cost of giving advice

and profitability. For example some scenario planning will help to see how long it would

take to change to a more sustainable recurring income model.

investment Planning oPtions

Take a step back to review the investment process and potential solutions that you

could offer to create more time to spend with clients. consider at the same time the risks that you take on as an adviser in choosing

investment solutions and the reward that you receive for doing so. What solutions are

available that you could use in your offering to clients? These are key elements of

re-shaping the business model.

ADAPTING FOR THE NEW ADVIcE WORLDSEcTION 3: BECOMINg “FutuRE FIt”

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WE WANt tO hEAR yOuR VIEWS!

This paper “Adapting for the New World of Advice” presents a number of views and examples of how businesses around the world are adopting new models of advice. We would like to hear from you on what challenges you are facing, whether these themes resonate with you and your business and what you are doing already to be ready for the future.

Please join the debate, talk to your Old Mutual International Regional Directors, come along to one of our Future Fit events or contact us at [email protected] - we would welcome your feedback.

INtRODuCINg ‘FutuRE FIt’ A BLUEPRINT FOR RE-ENGINEERING yOUR BUSINESS MODEL FOR THE NEW ADVIcE WORLDOver the years, Old Mutual International has worked in partnership with advisers and firms to provide support for their business, alongside our product range, through a variety of services such as our technical training team and practice management support from our sales managers.

Now, in order to help our international business partners adapt to, and embrace, the challenges of the new world of advice, we aim to provide specific support and expertise for your transition. We are calling this our ‘Future Fit’ programme and we invite your valuable input to ensure it is designed to help your business in the most appropriate way.

unDeRstanDing the client

A segmentation exercise is the first step to understanding the profitability of your customer base – in most cases 80% of

income/profit generated is from 20% of clients. Understanding your customer profile

and ideal clients can help shape your proposition and indicate whether you may benefit from introducing a differentiated

service offering. This will also support you in understanding the types of customers that you could be focusing on and in developing an appropriate offering to meet their needs.

oPeRational efficiency

Finally, analysing your operational processes and where you may be able to streamline or systemise, will help efficiency, driving down

your cost base and raising your profits. It will also help improve the management of your business risk. consider technology

to support both point of sale and customer management.

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We’ve spoken about some of the advice opportunities available. Now it’s time to look at what advisers have been telling us they are already doing to redefine the advice landscape. We hear from two firms who have transformed their business models, about the journey they are on and their tips for success.

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Strabens Hall was set up in 2014 in Hong Kong to serve the needs of wealthy, mobile clients looking for someone to manage their planning and investment choices. They joined forces with Strabens Hall UK who were an established private client advisory fi rm with experience in dealing on a fee basis rather than a commission based model. David Benskin and David Snelling, the founders and Directors from Strabens Hall, Hong Kong, share their insights.

Can you tell us how you joined forces with strabens Hall uk and what your vision is for strabens Hall in Hong kong?

When we fi rst started planning the business, we identifi ed a huge opportunity in the market to deliver a transparent, fee based advice model. It was something that was missing in the Hong Kong market at the time. So we were looking really to partner with a fi rm that shared the same beliefs and values as ourselves.

As founders, we have both worked in the industry for many years and we’ve always done what’s right for our clients and in our clients’ best interest. As fi nancial planners, we understand how to source solutions for clients, what is right from a strategic point of view, but also from a price perspective.

looking into the future, what does strabens Hall look like in three years’ time?

In terms of how we want to interact with our clients, we want to be open and honest. As a result, the maximum amount of clients that we will take on individually is 40. We’re offering a very unique and tailored service that our clients pay for, and there’s only a certain amount of capacity on an individual basis.

As for growing the business, we feel that

we can grow the share of wallet with those clients, so if they’re spending money with other institutions we think we can improve on that for our clients, and have things together. Through Strabens Hall, we can access the various private banks; we can do the asset management piece, where we look to allocate money to different asset management fi rms around the world, pulling it all together in a consolidated fashion for them.

“ Another key development for us is technology, to make the processes smoother so that most of our time can be spent with clients, rather than delving through spreadsheets etc”.

How onerous is it to manage clients on an ongoing basis without the right technology in place?

It depends how far you want to take it. We want to deliver meaningful reports to clients, with very detailed data on asset allocation. To deliver that via a spreadsheet or something similar would be hugely onerous and time consuming. So, you need those systems to do that. When we send a report to a client, we’ll be writing a letter to them to clearly explain what’s happened and how it impacts their overall fi nancial situation.

Can you talk a little bit about the economic model of the business? What are the sorts of products and services and solutions that you look to utilise for your clients?

We don’t actually have any products to sell! Our income is derived in broadly three ways.

First, advice fees: when we take on a client they may require a piece of fi nancial advice and will pay us a fee for it. For example,

they may have a problem with a UK pension and require an independant review. We will produce that review and charge a fee for it.

Secondly, implementation fees: we will charge a fee to cover our risk in the business. So, for example, going back to that client who needs some pension advice, if based on our advice, they require a transfer, we will charge a fee for moving the money from one trustee to another. The implementation fee is there to cover our time for processing the transfer, to cover off our risk, as well as factoring in a small profi t.

Thirdly, there’s our ‘ongoing assets under advice’ fee - this is the reoccurring income within the business. We have an ongoing advice fee, which is usually a percentage of the assets that we’re managing. We allocate to different fund managers and provide clients with a consolidated report including in depth monitoring as to what those managers are doing, making sure that their investments are on track to hit their fi nancial goals within the constraints of risk.

The key thing is that staff and clients’ interests are aligned.

“ What we’re looking for is for staff to build long term relationships with the clients...we are charging a client for what we’re doing, and the client has to value what we’re doing”.

ADVISER cASE STUDy 1SEcTION 4: EMBARKINg ON thE ChANgE JOuRNEy

DAVID BENSKIN & DAVID SNELLINg Founding Partners, Strabens Hall

stRaBens hall: Founded in 2007 offices: London and Hong Kong team:14 members

KEy ChALLENgES:

• to move to a fee-based service that clients would pay for

• to be able to be paid directly and from the product where required

• to target clients with at least USD$1million to invest

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• Understand how to source solutions for clients, what is right from a strategic point of view, but also from a price perspective.

• Recruit like minded people and ensure staff and clients’ interests are aligned, with staff building long term relationships with clients and being proactive with their clients.

• Recognise where you can save time and money. Focus on what you are good at and build connections with third parties to deliver a holistic service.

• Invest in the right systems.

tOp tIpS

For the clients who are in an asset management service, our fees are aligned to the value of their portfolio, so the more growth that they get, the more income that comes into the business. Also, the way we have built advice fees means that we have to add value to the client, and at any point, if a client is not happy with our service, they can choose to turn off those advice fees. So, this is about transparency – we are charging a client for what we’re doing, and the client has to value what we’re doing. Within a month’s notice, they can come out of that service.

you have a business that offers bespoke advice to clients. What has the feedback been from clients? How do you build that meaningful relationship with clients, and what is it that clients value?

When we fi rst started, the biggest challenge was to explain to clients how an adviser can get paid (commission or fees), that advice is not for free and clients will have to pay for it. So, there was an education piece fi rst of all, but what we’ve found is that the clients that we’ve taken on have started to really like what we do for them, because they very quickly understand that our interests are completely aligned with theirs.

As a result we have a much deeper share of wallet from those clients who have trusted us with a reasonably large proportion of their wealth initially, and are now moving more money over to us for oversight. Even if they already have existing investment managers, they would rather pay us a fee to have oversight of that manager, to be able to produce consolidated reporting.

So, initially, there were certainly a few challenges in explaining how we get paid but, going forward, the clients that have been on board have been huge supporters of the business, and are now referring us to their contacts and friends and also adding further assets under our banner.

do you have a formal business plan that you review regularly?

When we set out, we had a business plan as to what we wanted to achieve. We based it a little bit more on a UK business and how our UK partner company is set up. We took quite a steer on that. Now we’re into another iteration of the business plan, as things have evolved, we’ve seen that some of the things that are important to our clients internationally are quite different to UK domestic clients. So, the business plan has evolved a lot more this year than, hopefully, it will in future years.

as a business, are you clear on customer segments that you want to go after or have you got more of a passive approach in terms of customers that come to the business?

We are very much active in looking for clients. For the asset-management service, we look for clients with US$1 million or more to invest. We haven’t taken on any clients with less than that. We deal with clients who fall into the lower segment of the private-banking world; so, typically, most of our clients have investible assets of somewhere between US$3 million to US$10 million. We haven’t got to a point where we’re segmenting within that base.

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Abacus Financial consultants have been operating in the UAE for two years. They saw the opportunity to offer something different when presenting Financial Planning solutions to clients in the UAE. Graham Thornton and Kay Pindoria, two of the Founding Partners share their vision for the business and insight into how they are offering a centralised investment process to streamline advice and ensure best client outcomes.

did you have a dream or vision when you started your business?

yes, as a group of UK qualifi ed advisers we were all becoming increasingly frustrated at how fi nancial advisers and the industry as a whole were perceived in the UAE, especially when compared to the UK. All fi ve partners felt we had worked hard to gain our qualifi cations which combined with our many years of experience felt that we wanted to make a difference to clients in the UAE.

How do you use this dream to build the business culture?

We are very passionate and proud of our industry, so for us setting up Abacus Financial consultants helped us realise a dream that we all have of setting up a business with like-minded trustworthy individuals that share goals, passion, dreams and aspirations. We have now been operating for just over two years and it’s exciting to see how the business has evolved, by sticking to our core principles and recruiting individuals that share our passion for the business going forward.

What types of income do you receive?

We believe in building a strong and loyal client base. We do take upfront initial commissions, but we also offer rebates of

initial commissions depending on each client’s individual circumstances.

We charge an advisory fee of 0.5% for the ongoing management and re-balancing of clients’ portfolios which is advised and agreed with the client. However, we do not take any trail income or fund rebates as we prefer clients to benefi t from clean share classes.

What is your offering in terms of products and services?

We are an Independent Financial Advisory Firm who is able offer products from a suite of providers in the UAE and this will always remain. We agreed as a company to invest fi nancially into systems so we can offer superior tax effi cient investment solutions to our clients.

As a result, we created 5 model portfolios with a risk model of 1 to 5 which are reviewed on a quarterly basis with the help of Towers Watson.

Each quarter we contact our clients to advise them of any potential changes. If changes are recommended, we always seek their agreement that they are happy to proceed with the recommended changes. By adopting this model we feel this sets us apart from other fi rms operating in the region.

We take personal responsibility for our actions and advice as we know that this approach is appreciated by our clients. By being proactive it demonstrates that we at Abacus are looking after them.

Apart from investments we also provide all the core fi nancial planning solutions to our clients, this includes Life cover for Family Protection and critical Illness.

are there clear parameters for advisers as to what and how they can charge?

yes, our internal compliance team monitor what commissions are taken to ensure that when commission is taken it is fair, to ensure consultants are suitably and fairly remunerated for the work and advice they have provided, and of course for the continued and ongoing advice

What controls do you have in place to ensure compliance?

All cases are checked by our internal compliance team.

A fi nancial planning report is then produced for every client where a sale or product has been made or recommended and then accepted by the client.

This report must be sent to the client in all cases and the case must be signed off by compliance before any remuneration is paid to the adviser. We also ensure that all trust forms are completed and we have checks in place to ensure this is done. All policy documents are hand delivered to clients and a signed receipt is always obtained.

Have you systemised your business?

We have done this. We are currently looking at a cRM system now as it has taken time to identify the right system that would complement our business but we hope to have something in place in the next few months.

ADVISER cASE STUDy 2SEcTION 4: EMBARKINg ON thE ChANgE JOuRNEy

gRAhAM thORNtON & KAy pINDORIAFounding Partners, Abacus

aBacus: Founded in 2013offices: Dubai team: 12 members

KEy ChALLENgES:

• to invest in the right systems to enable us to offer our clients superior tax-effi cient solutions

• to apply charges in a consistent way across all advisers

• to build on our website, maintain quarterly client newsletters and hold regular seminars to attract new business.

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• Stick to your original goals and principals and do not be influenced by what other firms are doing in the market.

• constantly innovate and update your business model to more mature market places.

• Make sure you provide the best possible advice to your clients and look after them on this journey and they in turn will help grow your business.

tOp tIpS

client reports are already on our existing internal system. This includes the financial planning report template and individual product specific paragraphs that all the consultants use.

Can you share your financial planning process including the Centralised investment process

Our investment process with clients involves an introduction to investments, including a description of asset classes, their relationship with risk and return and the importance of diversification. The client completes a risk profile questionnaire, and receives an explanation and discussion about their risk results.

With regard to the investment process, the internal investment team meet quarterly to review the individual portfolio performance, the individual funds held in the portfolios and any changes to the asset allocation following the quarterly notification from Towers Watson.

new business and client services

The new business process includes fact-finding, recommendations and concluding advice within a report. We have a client service agreement with those clients who have portfolios with us.

lead generation

We don’t really have a lead generation process as we do not agree with cold calling clients.

“ We work on referrals from existing

satisfied clients and with our professional connections which we also refer business to”.

The next step for the business is to build on our website, continue to provide quarterly newsletters to clients and roll out quarterly seminars to attract new clients.

Building business value: which processes and behaviours have you implemented to promote customer retention?

We ensure all our consultants keep in regular contact with their clients at least once a year. An easy way to achieve this and demonstrate value to our clients is the quarterly investment review email that all consultants send to their clients. All clients must reply to the email to ensure the recommendations contained in that email are actioned by the consultant.

on what % of your client base, does the firm receive ongoing fees?

Nearly all of our existing investment clients and 100% of all new business.

do you deliver differentiated services to the various segments?

At the moment we operate a one service fits all approach, but this will change/develop over the coming years to accommodate the future needs of our clients

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THE KEy THEMES WE HAVE SEEN SO FAR FROM THESE AND OTHER BUSINESSES THAT ARE ALREADy ON A cHANGE JOURNEy ARE:

• Moving from transaction-based selling to more holistic advice planning.

• Segmentation of client bases to understand profitability and drive the right proposition.

• Using technology to aid customer management, customer engagement and streamline processes.

• A greater focus on an ongoing service proposition and funding this through moving to a recurring income model rather than just upfront commission.

• Having a centralised investment process to bring consistency in the advice given across advisers in the same firm.

• Using investment solutions such as multi-asset funds, model portfolios to help de-risk the business and save valuable time.

• Moving from solely product-related income towards a business model focused on assets under advice where a fee is charged for managing the client’s assets and planning needs.

• General alignment of interests to underpin those of the customers.

KEy tAKE-AWAyS FROM ADVISERS

JOIN thE DEBAtE

• Do you agree with the views and ideas set out in this document?

• Do our case studies reflect your own experiences?

talk to your old mutual international Regional Directors, come along to one of our future fit events or contact us at [email protected] - we would welcome your feedback.

ADVISER cASE STUDIESSEcTION 4: EMBARKINg ON thE ChANgE JOuRNEy

these case studies describe how some firms and advisers are already shifting their models and embracing the challenges involved.

“ Embracing the future with enthusiasm will give financial advisers the best chance of success. It is impossible for advisers to do this alone though, so choosing the right partners is vital. Advisers need to look for partners who recognise the changes ahead and are innovating on behalf of customers”.

www.oldmutualinternational.com

www.oldmutualinternational.com/hk

calls may be monitored and recorded for training purposes and to avoid misunderstandings.

Old Mutual International Isle of Man Limited is registered in the Isle of Man under number 24916c. Registered and Head Office: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0)1624 655 555 Fax: +44 (0)1624 611 715. Licensed by the Isle of Man Financial Services Authority.

Old Mutual International Isle of Man Limited is a member of the Association of International Life Offices.

Old Mutual International is registered in the Isle of Man as a business name of Old Mutual International Isle of Man Limited.

Old Mutual International’s Hong Kong office: 24th Floor, Henley Building, 5 Queen’s Road central, Hong Kong. Phone: +852 3552 5888 Fax: +852 3552 5889 E-mail: [email protected]

Authorised by the Insurance Authority of Hong Kong to carry on long term business. Old Mutual International Isle of Man Limited is registered in the Isle of Man under number 24916c. Registered and Head Office: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0)1624 655 555 Fax: +44 (0)1624 611 715. Licensed by the Isle of Man Financial Services Authority.

Old Mutual International Ireland dac is regulated by the central Bank of Ireland. Registered No 309649. Administration centre for correspondence: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU. Tel: +353(0)1 479 3900 Fax: +353(0)1 475 1020.

Registered and Head Office address: Hambleden House, 19-26 Lower Pembroke Street, Dublin 2, Ireland. VAT number for Old Mutual International Ireland dac is 6329649S.

Old Mutual International is registered in Ireland as a business name of Old Mutual International Ireland dac.

SK12506/INT16-0179/April 2016

ADAPTING FOR THE - Old Mutual Wealth · 2017-10-19 · new regulation for insurance business and...

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Transcript of ADAPTING FOR THE - Old Mutual Wealth · 2017-10-19 · new regulation for insurance business and...