Advisers put off low-value clients by calls for segmentation

Parliament-UK-London-Bus-Transport-700x450.jpgLanguage encouraging advisers to only take on high-net-worth clients is not helping to improve financial inclusion, according to speakers at a parliament-hosted event.

Issues around financial exclusion and education were discussed at a panel debate hosted by Jonathan Edwards MP last night at the Houses of Parliament.

During the discussion, Rose & North Financial Planning and Wealth Management adviser Hayley North raised the point that many potential clients feel excluded from advice because advisers won’t take them on.

She said: “A huge part of the problem in terms client exclusion is the adviser’s door. The vast majority of advisers I speak to who won’t touch defined benefit advice because it is too risky, they won’t deal with smaller clients because it is too much explaining and it is too boring and they will only make a couple of grand.”

She added: “Everyone is so afraid or so bothered about profit margin that they are less concerned about offering advice to people who want it. We have no barriers, if someone wants to pay the fees they can. There are some issues about regulation and the cost of running a business but, to be honest, I’m not sure they are as big of an issue as we like to make out.”

North also said there is a problem with advisers being encouraged at industry conferences to “segment” their business and only target ultra-high-net-worth or high-net-worth clients.

Personal Finance Society chief executive Keith Richards agreed the language used does not help the sector.

Richards said: “We talk at events about evolving your business, segmenting it, only dealing with clients with a certain passive value and that does compound the issue about trust because politicians who hear us talking that way think we just dump poor people on the street and that we are not interested in the hard-working people who want to [better] themselves.”

He explained: “It is a fair point but my experience as being responsible for a very large IFA business, the vast majority of IFAs will deal with small value clients so long as they have a genuine need. We find lots of advisers give pro bono [advice] because they recognise clients don’t need their full service but they give them free advice.”

Chartered Institute for Securities and Investment financial planning head Campbell Edgar argued that many firms work on a “Robin Hood” basis with their wealthier clients subsidising the less wealthy.

Also speaking on the panel, Baldwin’s Accountants owner David Baldwin said he has noticed advisers struggling with smaller clients – particularly around auto-enrolment.

He said: “The amount of phone calls we have had from advisers asking us to find a solution for their client for auto-enrolment because they are scared to death they will lose them to another provider, so if we can sort out the auto-enrolment it protects them to keep doing the other work.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Nicholas Pleasure 21st October 2016 at 11:48 am

    “Chartered Institute for Securities and Investment financial planning head Campbell Edgar argued that many firms work on a “Robin Hood” basis with their wealthier clients subsidising the less wealthy.”

    I didn’t think advisers were allowed to do this since RDR. Once again, you have the bigwigs trying to resolve problems that have basically been caused by over regulation and very poor regulation.

    • Cross subsidy is only banned in vertically integrated businesses.

      Percentage charging is the very definition of cross subsidy – one client investing £10k paying 3% is subsidised by the client investing £1m paying 3%.

  2. There are only so many hours in the day to meet the necessary standards, this includes CPD, updating exams, compliance research etc. Being self employed and not paid for non client related activities I have to be selective about who I can afford to take on as a client.

    If I cannot pay the bills and get CCJs I am no longer fit and proper to advise so I do not really have a choice, most of my income goes towards regulation and HMRC.

    Of course many potential clients are excluded, laying the blame at our door for Government and FCA meddling will not be well received. The language being used is commonsense, why would any business want to take on loss making activities?

  3. I imagine that most advisers are running commercial enterprises where they want to deliver the very best professional advice services to their clients in a profitable manner

    It may be that some choose to fly in the face of sound business practice and deliver those services to consumers at a price that is not sustainable and of course that is entirely their choice.

    Business is though about choice. Choice of client, choice of pricing mechanism, choice of pricing level.

    The so called advice gap is also choice based. Consumers have the right not to take advice if they don’t want to pay for it. Advisers have the right not to deliver advice if a consumer won’t pay for it.

    This is all so simple I am kind of surprised we are still debating it

    As to cross subsidy I’m sure that’s fine as long as the adviser is transparent and tells Mrs HNW that part of what she is paying is being used to deliver a free/ subsidised service to Mr Mass Market

  4. I am not sure likening us to a highway man robbing the rich really helps the IFA cause.

  5. Just as a comment… I’ve never understood this naïve and fatuous pre-occupation with ‘cross subsidy’ by some members of the governing and regulating fraternity!…

    Virtually ALL businesses work on some basis of cross subsidy – from every shop you can walk in and out of without buying something, ‘paid for’ by the people who do buy something…to builders giving ‘free estimates’…. to high end property or motor sales (and their dealers/agencies which you can walk in in & out of for free) which help cover the lower end smaller margin transactions…. and everything in between

    Unless I’m missing something in or out of context – isn’t the above exactly the same as, to a certain blurred extent, HNW clients indirectly subsidising LNW clients within a business model for an Adviser Practice?

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