Advice firms remain overly reliant on provider marketing support and are failing to value their businesses accurately, according to a state-of-the-market report by Engage Insight.
The Adviser Benchmark Survey found one in five advisers do not have a business plan that determines the costs for delivering their advice service while half of firms have not factored in the costs of gaining or retaining clients.
The report says: “The value of these firms can be questioned, given that the days of valuing a firm through trail income are gone. A forward focus is now required on
the strength of client relationships and loyalty.”
The national survey, which was carried out among 225 advisers, also found 44 per cent of firms are yet to place boundaries around product provider marketing allowances and business support.
In addition, the report raised concerns about the use of marketing literature by advisers. It found client documentation is used predominantly for compliance purposes and not relationship building.
A third of firms also say they do not protect the relationship of all parties in the value chain through either client agreements or terms of business.
The report says firms’ marketing strategies and literature are “too rigid and outsourced through product providers”.
It says: “Documentation such as client agreements and terms of business is a marketing opportunity as much as a compliance requirement.
“Focusing on communicating clear and transparent fee structures will help client decision-making through offering context and allay the regulator’s concerns for opaque practice.”
The report also found 79 per cent of advisers are confident their client segmentation matches clients’ financial planning needs – down from 92 per cent in January 2013.
One in three firms is unsure if their client service proposition is designed around the client experience – an increase from one in five in January 2013.
The report says: “Developing propositions around client needs and incorporating strategic lifetime value of the client to the business are crucial.
“Good work is evident on client segmentation and investment propositions yet walking the service walk is now crucial so clients understand the true value of sticking with financial advice.
“Firms need to demonstrate at all times what they are doing to justify their ongoing fees.”
Ian Lowes, managing director, Lowes Financial Management
My experience is that marketing and administration support from providers has drastically reduced in recent years and I disagree that advisers remain reliant on it.