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For financial advisers only CHANGE, CLIENT COMMITMENT AND MANAGING RISK How to ensure you are fully remunerated by your clients for your value and worth Lawrence Emm Business Change Specialist RDR – FSA UPDATES RDR – FSA UPDATES RDR READINESS ASSESSMENTS - FSA Firm readiness survey – we will conduct a survey of all firms that are affected by the new RDR rules. It will cover all aspects of the new requirements including professional standards, adviser charging and type of advice offered post-RDR (i.e. independent or restricted). These assessments will be a mix of telephone and face-to-face contact LEGACY COMMISSION Consultation closed in mid-January and the FSA have promised us a conclusion by end of March – Q1 2012 RDR – ONGOING DIRECTION OF TRAVEL Services that are clearly defined and can be explained to clients Remuneration structures that reflect both the services provided and the responsibility of those providing the services Standards of professionalism that are proportionate to the service offered and enhance the reputation of the industry Products and services that are more transparent and, where appropriate, simpler and more accessible, reflecting client needs Capital, liability management and other prudential requirements that result in sustainable businesses For financial advisers only RDR – PROPOSED ADVISER LANDSCAPE INDEPENDENT ADVICE RESTRICTED ADVICE SIMPLIFIED ADVICE BASIC ADVICE Whole of Market Unbiased and Unrestricted with Comprehensive and Fair analysis of relevant market Advice which is not Whole of Market Unbiased and Unrestricted with Comprehensive and Fair analysis of relevant market Simplified Advice awaiting FSA detail designed to be middle ground between advice and sales for lower income clients with basic financial need Basic Advice not yet finalised but may offer a streamlined, pre-scripted process to sell chargecapped products – limited advice QCF Level 4 QCF Level 4 QCF Level 4 TBA Adviser Charging Adviser Charging Adviser Charging Charge-Capped Products ADVISER CHARGING – A FEW IMPORTANT POINTS 1 Commission abolished from Jan 2013 IFAs (and other advisers) set their own charges – can use hourly rates, fixed fees, minimum charges, % of monies invested or a combination – the tariff of charges must be formal and available to all clients Advice charges: – can be deducted from investments on a £ for £ basis – clients can write cheques and/or set up regular payments or a combination of the above ADVISER CHARGING – A FEW IMPORTANT POINTS 1 Charges should reflect the services being provided – rather than the product or provider being recommended Ongoing charges should only be made where the client will receive an ongoing service RDR – ONGOING SERVICE PROVISION Q10. We can only receive an ongoing income for an ongoing service, post RDR. I have agreed a service level with some of my clients, which involves them being 'on the books' and I am available on a reactive basis to deal with any issues that arise. Is this acceptable under adviser charging? A. Where the ongoing charge is for an ongoing service (instead of relating to a regular payment product) it is up to the adviser and client to agree the ongoing service and the charge for that service. However, to be able to make an ongoing charge, the service must be a genuine service for the provision of personal recommendations or related services and not just, for example, a vague statement that the adviser is available on the end of a phone at any time. STRATEGIC BUSINESS ISSUES Shift to client agreed recurring income Adviser behaviours and remuneration Profitability and Financial Management Service and Pricing Increase profitability and maintain capital adequacy Implementation with new and existing clients Back office supporting processes Processes and IT support Effective management Training and skills development Change Management Communication Consultation Clear Direction People THE VALUE OF FUTURE BUSINESSES? Sustainable recurring income Owners seeking immediate exit Clear advice proposition Owners hold key client relationships Adapted from source material: Ernst & Young/J P Morgan Profitable cases Reliance on small group of clients Loyal clients High quality advisers Brand, USPs Innovation VALUE ENHANCERS VALUE DETRACTORS Poor records and back office Poor and inconsistent compliance process No access to high value clients Business Strategy Where are you going and how will you get there? Service Proposition Who are your clients, what will you do for them, how much will you charge? Process How do you provide excellent service at low cost? People Have you got the right people in the right jobs? Marketing How should you acquire and retain clients? Financial Control and Growth How is the business performing and how will you sustain and fine tune growth? SERVICE DESIGN PROCESS Assume you are designing this for Day One of a new business Determine the number of client groups – no more than 3 Give each list a SERVICE name List ALL the service components for each client group Price each service and estimate likely client numbers – check these against RI and support capacity and turnover and profit targets List all of the processes that are needed for each service Identify what jobs/roles you will need (accountabilities) to deliver the processes For financial advisers only 6 KEY QUESTIONS Why will clients come to us? What will we do for them? What and when do we need to do? – service content What information will we provide – when? What processes and IT do we need to make it happen? Right people right place - right time? ADVICE AND SERVICE PROPOSITIONS Financial Wealth Management ”We provide financial consultancy for business and private clients with complex affairs – we will work with other professionals to create and manage a comprehensive and evolving strategy on a bespoke basis” Financial Planning “We provide straightforward financial advice to make sure you have the right advice and product solutions for your immediate and future needs” Financial Advice “We will arrange to transact particular financial products at your request” A CHOICE OF ON-GOING SERVICE PACKAGES WHY GOING BEYOND PRICE COST IS IMPORTANT PRICE NEEDS TO BE BASED ON PROFITABILITY CLEARLY DEFINED STAGES OF THE PROCESS CLIENT ACQUISITION CLIENT ENGAGEMENT ANALYSE AND PREPARE SOLUTIONS IMPLEMENT SOLUTIONS REVIEW AND RETAIN MAP BUSINESS PROCESSES the complete client experience STAGE ONE First point of client contact Transfer information to software Corporate Brochure sent to client Telephone follow-up call to client Welcome Pack and First Meeting Pack preparation First Client Meeting STAGE TWO STAGE THREE Gather client information 2nd client meeting Set up or transfer agency Back Office – Financial control Client data input to system Research and Analysis Back Office - input of service elements and tracking flags Client Report – Outline document sent to client Back Office - Marketing Telephone follow-up call and make appointment Report and Recommendations Obtain client specific illustrations, quotations and support materials Review client file prior to 2nd client meeting Back Office – New Business Administration Compliance Checks On-going Client Servicing Annual Review - Flag Annual Review - Analysis Annual Review - Collation STAGE FOUR Telephone call to client to make Annual Review Appointment Review Pack despatched or delivered to client Annual Review Meeting Back Office - input of revised service elements and revised tracking flags (next 12m) Compliance Checks ARE CURRENT ROLES STILL APPROPRIATE? Financial Planner: “ADVICE” To acquire new clients and maintain key introducer and client relationships Para-planners: “TECHNICAL SUPPORT” “ADMINISTRATION” To provide extensive technical support to the Financial Planner(s) Client Support Services: To provide comprehensive administrative support to the PPs and FPs ENGAGING EFFECTIVELY WITH CLIENTS How to position ourselves with existing clients in order to demonstrate value and worth and be fully remunerated WHAT WE DO – OR WHAT’S IMPORTANT TO CLIENTS? We will ensure we understand what each of our clients want We will help you to think about what is important what you want to achieve, fix or avoid We will always explain to you the choices and options you have We will do the complex research necessary to ensure that you get the best advice – suited to your personal circumstances – we will draw up a plan to make everything crystal clear and logical We will clearly explain our approach to planning, research and analysis We will explain all the choices of levels of advice and service available and help you make the right decision We will show you what is required to make it work for you We will only act on your instructions and do what is right for you – we will ensure you have a choice of levels of service and a range of ways to remunerate us for our expertise and work undertaken on your behalf We will support our advice by agreed service levels to keep in touch We will do what you have asked us to do and meet as often as you have agreed and provide other ways of keeping in touch to keep you and your plan up to date For financial advisers only UNBUNDLING THE CLIENT EXPERIENCE Information gathering Stage 1 Client Engagement Present and negotiate client propositions Agree basis for working together INITIAL 30/40 Minutes “AT OUR EXPENSE” Information gathering – Risk Analysis etc., Stage 2 Strategy and Planning Analysis and Product research Lifestyle analysis and report FIXED OR MINIMUM FEE OR HOURLY RATE Present recommendations Stage 3 Implementation Agree asset allocation Applications - Reasons why FIXED OR MINIMUM FEE Update Lifestyle analysis Stage 4 Service Recommend change (or no action) FIXED OR MINIMUM FEE OR HOURLY RATE For financial advisers only A CLIENT SERVICE AGREEMENT - EXAMPLE For financial advisers only CLIENT SERVICES MENU - EXAMPLE For financial advisers only TRANSITIONING EXISTING CLIENTS Only consider existing client engagement when you have established and documented the ‘new client experience’ Stay focused on profitability You must be able to articulate and explain your value and worth in a way the client can clearly see the benefit of continuing to work with you and pay you For financial advisers only CLIENT CATEGORISATION AND SEGMENTATION Use your new client service titles Analyse existing client data in terms of income against costs – where data is available Categorise existing clients – aim to have 75% of existing clients comfortably fitting into one of service propositions Segment 25% remainder as follows: highly profitable – Platinum Superstars! currently unprofitable – but have potential to be profitable currently unprofitable – unlikely to have potential to be profitable do not have sufficient data - profitability or potential IMPLEMENTATION PLANNING For financial advisers only For financial advisers only This presentation is designed for and directed at professional financial advisers. It should not be relied on by consumers. This document is based on Skandia’s interpretation of the law and the HM Revenue and Customs practice as at January 2012. We believe this interpretation is correct, but cannot guarantee it. Tax relief and the tax treatment of investment funds may change. For financial advisers only www.skandia.co.uk Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Skandia provides you with access to its investment platform, known as Skandia Investment Solutions. Within this platform you can open an ISA and Collective Investment Account provided by Skandia MultiFUNDS Limited, and a Collective Retirement Account and Collective Investment Bond provided by Skandia MultiFUNDS Assurance Limited . Skandia Life Assurance Company Limited, Skandia MultiFUNDS Limited and Skandia MultiFUNDS Assurance Limited are registered in England & Wales under numbers 1363932, 1680071 and 4163431 respectively. Registered Office at Skandia House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. All companies are authorised and regulated by the Financial Services Authority with FSA register numbers 110462, 165359 and 207977. VAT number for all above companies is 386 1301 59.