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More advisers asking low value clients to leave firm

A wide-ranging survey has shed light on the shape of the advice market in 2017.

The research conducted by Schroders last month with 250 financial planners shows that more advisers are asking lower value clients to leave their businesses, and that the threshold for rejecting clients is moving higher.

In 2016, just under 20 per cent of advisers formally asked at least one smaller client to leave their practice. This has increased to just over 25 per cent in 2017. While in 2016, 35 per cent respondents put their exclusion point at below £25,000, less than 20 per cent did so this year.

Instead, half opted for an exclusion point of £50,000. Only 22 per cent put their exclusion point at £100,000 compared to nearly 50 per cent last year.

More advisers were setting a minimum asset size of £100,000, but fewer were setting this at £200,000. As a result, more advisers reported that their average client had between £100,000 and £200,000, but fewer said the average client had more than that.

Speaking at a dinner to announce the results of the research, Schroders co-head of UK intermediary James Rainbow said: “There is a range but it looks increasingly like £50,000 is an entry point where it looks increasingly difficult to get decent quality financial advice, which is way above the portfolio size most clients would expect to have in the UK.

“If an adviser has a relatively mature book, which I would argue most do, they are probably not actually soliciting for lots of new clients and when they want new clients they want them of a very high value because they may have to substitute clients that they already have.”

Schroders warns that “continued client segmentation and greater minimum asset requirements may widen the advice gap”.

Fee innovation lacking

The number of advisers charging on an hourly or fixed fee only remains low at around 2 per cent for each type of fee.

Around 25 per cent of advisers do not taper percentage fees according to the size of client assets, and only half of advisers segment their client base by asset size or revenue. Growing numbers are planning to segment their client banks, however, with nearly 20 per cent saying a project was in the works.

Compared with other risks such as inflation and rising interest rates, advisers placed Brexit as their clients’ biggest concern in 2017, up 10 percentage points from 2016.

58 per cent of advisers outsourced at least some portfolio management responsibilities. However, there are slight signs that the trend towards outsourcing is slowing down. Last year, around 25 per cent of advisers said they were planning to allocate more assets to DFM model portfolios in the coming 12 months. This fell to under 20 per cent for 2017.

Around five per cent said they were planning to allocate more to advisory model portfolios last year, but this rose to 10 per cent this year.

Rainbow said: “I don’t think we’re done yet [with the move to outsourcing]…You are seeing portfolios built on a holistic basis and managed accordingly.”

35 per cent of advisers said they had increased their allocation to passives in the past twelve months. Just over 40 per cent said they expected the increase to account for between 10 and 25 per cent more of their assets in 12 months’ time.

Schroders notes that while demand for passives continues, “allocation weightings remain relatively low”.

Just 10 per cent of advisers offer a basic advice service, and roughly 15 per cent offer an execution-only service, down slightly on 2016. Fewer than five per cent of advisers said they planned to launch a basic service.

Most still see technology as an opportunity for their business, with more than 70 per cent saying it could be beneficial compared to less than five per cent who branded it a threat.

Particularly with regard to platforms, 20 per cent of advisers have managed to cut the platform fees they charge to clients over the past 12 months, with more than 10 per cent reporting fees have decreased by at least a fifth.

In exclusive data compiled for Money Marketing as part of the research, more than 40 per cent of advisers saw their professional indemnity insurance bills increase at their most recent renewal. Two thirds said they thought PI was too expensive for advisers and only five per cent found a cheaper deal at their last renewal.



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. How dare they, far to many “so called Financial Advisers have their heads stuck up their own !!!” Once a client,,,,, ALWAYS a CLIENT. An acorn can always grow,,,

    • Quite right, people shouldn’t be allowed to run their business the way they want to. Who do they think they are? Next they’ll want to be able to set their own charges, only meet clients at their offices, take holidays and select the providers they want to do business with. It’s a slippery slope. Well done Robert for standing up and speaking out!

      • By 2008 I had helped over 2000 people (I am a one advsier firm) with their pension arrangments. You cannot provdie a realistic ongoing service where ytou are respoonsible for ongoing suitabilkity to more than about 150 client (records, so a client can be a couple).
        Pre RDR therefore we gave everyone the choice of an ongoing service for an ongoing fee (client)or a pay as you go service (customer) or to tell us they didn’t want either of these, in which case, we’d be unlikely to hold files for more than another 6 years, with a maximum of 15 years to match the longstop and timebars and the letter explaiend this.
        If someone who is a “customer” (transactional NO ongoings ervcie) comes us for advice in teh future, we should be able to recover our archived file and simply update KYC (lower cost) if they have said they didn’t want to remain a customer, why should we hold any records? Fees are back to our standard fort taking on a new client.
        As you imply GA, we’re not charities although Robert M seems to think we are.

  2. A practice needs to profitable for it to exist and unfortunately it is usually unprofitable clients that take up the most time, hence the most cost. So there has to be a point when you can no longer run as a charity and economics come into play. I am sorry if some of you don’t agree with this sentiment, we have been fee based since 1998 and realised this reality sooner than most, yet most advisers have yet to experience this phenomenon

  3. If this is a story then its one about regulation. Indeed, it’s specifically about behavioural regulation, i.e. thinking through the real and actionable consequences of regulation, not just the academic and well intentioned ones.

    Make giving financial advice harder and more risky to provide and you make it more expensive. Which means less people can afford it. Which means the people at the lower end will be cut out. No surprises really. The only winners are the advisers who stick around because regulation has created a sellers market for advice. Who’d have thought.

    So, whilst advice quality has increased somewhat, fewer can afford it. It’s very laudable to want everyone to be driving round in a BMW/Mercedes/Lexus but it’s not very practical. Make it compulsory and you just end up with more people walking and a small number of rich car companies. That’s life.

    Good regulation makes it easier for good firms to do business in a good way and practically disrupts bad business. Bad regulation burdens good firms, restricts choice, and has little practical effect on bad business. I’ll let you be the judge on what we’ve got right now.

    To be clear, I think the FCA have the best of intentions, they are, by and large, very good people. However, they are rooted in the perennial idea that one more rule or regulation will cure the current perceived problem. It won’t. In fact it’s more likely to do the opposite.

  4. I take one 1 small value client per month if requested. They usually only have a pension and are concerned about their retirement plans. I help them plan, find a more suitable place for their pension and help them look not only at their investment returns but all of their costs in order to ‘work it’ from both ends. I am also a single adviser firm, not a charity and profitable enough using my own retirement pots to supplement my IFA income.If you are an IFA with all of the knowledge that you have gained through exams and experience, is it not a good thing to share this with some of the more needy ‘low value’ customers/clients? Or am I being naive?

    • No you’re not Ted. Sometimes the non profitable cases are the more enjoyable. but you have to have a mix of profitable to be able to do the non and pro-bono work.

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