When Capital Asset Management chief executive Alan Smith set up the group, he knew he wanted a different approach. He had been uncomfortable with the way that advice was delivered to clients long before he found the solution. He knew he did not like the adversarial relationship of transactionbased advice. He knew that the solution was not always a product and that finding the best pension or Isa was not really where he added value but he could not see how to rectify the problem and still get paid.
As such, Smith faced similar problems to most advisers. Capital Asset Management started as a traditional broker and he knew that while they were ostensibly acting on behalf of the client, they were really the distribution arm of the product providers. He says: “We were transaction-led. We had no client segmentation and we were reactive. We had a big enough client bank to ensure the phone rang often enough but it was a lifestyle practice – there were no long-term business plans.
“The advice did not have as much as integrity as I wanted. If a client was paid a large bonus, paying down debt may be the best thing they could do but there was no pay structure to deal with that. Also, because of the link between remuneration and activity, there was no ongoing relationship. People would only call if they needed another product.”
The process of changing the business began around five years ago. Smith found that the key to beginning the restructuring process was a brainstorming session, where the team thrashed out what they did for clients and what they wanted to do in future. He said this laid
out where they added value and was crucial in changing the mindset from a product-centric to a relationship- based culture.
Smith says the process of educating clients was lengthy and not without casualties. He adds: “We had to do it one by one. We had a review meeting and said that we did not feel the current service we were providing did the best for them. This was a particularly difficult situation with the bigger clients because it was an admission that there had been an element of cross-subsidy – the activity in investing a £100,000 portfolio v a £500,000 portfolio was not five times as great, yet we got paid five times the amount.”
Clients were told they would have a different remuneration structure in future and the group laid out its new proposition and the service they would provide. Smith says some clients wanted to stay on a commission basis and did not want an ongoing service, adding:
“Advisers have to accept that there will be clients like this. That said, the vast majority of our clients love it and the opportunities for new referrals have skyrocketed. Nobody is going to tell their friends how great you are if all you are doing is recommended Scottish Widows over Standard Life.”
Smith decided against an hourly rate approach, not wanting to bill someone for making phone calls or sending emails. He also thought it rewarded inefficiency – there was no incentive to make things quicker and more efficient. For most clients, the group charges an annual fee for of 0.25-1 per cent of invested assets, with any commission waived or reinvested. For those clients who do not have invested assets, an annual retainer fee is agreed, subject to a minimum of £2,500
Smith believes that technology has really helped the process of transition. “We couldn’t have delivered our current client proposition five years ago,” he says The group uses its own white-labelled portfolio management platform where clients can access their portfolio at any time – www.mywrapaccount.co.uk
Technology to bring client plans to life
In particular, the group has developed FutureMap, which is an interactive planning and cashflow modelling tool which uses technology to bring client plans to life and sits at the heart of the group’s process. Smith adds: “Clients love it because it focuses on them and not the latest ’hot fund’. The system initially focuses on the bigger picture strategic issues and then gets into the detail, tactics and sometimes complex planning. The system will bring in advice from other professionals – such as tax and estate planning.
Smith adds: “We don’t believe in risk modelling as such. Rather than recommending one fund over another, we build a plan and say ’this is what your life looks like if you do this’. Obviously we need to keep reassessing the plan but it is a different conversation than to the standard ’risk’ conversation, which is all about how much pain the client can take.”
The group has made use of professional connections but has tried to approach it in a different way. Smith says: “Wealth management is about tying up all the component parts, from investment planning to legal services to cashflow modelling. We wanted to work with other professional financial services firms to deliver this, but too often, relationships between advisers with lawyers and accountants have been those of servant and master.
“Because we were not looking for solicitors or accountants to hand over their clients, the relationship was different. The remuneration structure was also reassuring to other professional services firms. The truth is that there are as many good, bad and indifferent lawyers as there are IFAs and we had to go and meet these people to check we could entrust our clients to them.”
When building the business, Smith has generally resisted buying other firms. He says: “We have all worked in big businesses and we know they don’t work. If someone builds a relationship with their adviser, they don’t want to have to see someone else on their next visit. Large businesses tend to have revolving doors – either someone is bad and they leave or they are good and they get promoted. We have acquired a lot of clients from private banks in recent years.” Smith has consciously limited client numbers to around 80 per adviser.
On the investment side, the group considered taking a discretionary approach but found that there wasnot much call for it from clients who preferred the advisory route. The group buys in fund research from OBSR and focuses on the strategic planning aspect. Looking to the future, the group wants to develop new relationships but to make sure that they are the right relationships. With this in mind, it has been working with a specialist marketing company. The resulting direct marketing strategy is helping the group to target specific professions and break new ground.
The group is also doing another, more detailed client segmentation exercise. Smith says: “For us, the key thing is profit per client. The problem for a lot of advisers is a lack of management information. There is also an issue around disengaging with clients. They may be clients that saw you through difficult times or that you have known a long time. We have sought out professional relationships with firms for whom these clients might be a better fit.”
Smith concludes: “Planning should be a consultative process and it should be about people’s lifestyles. For example, it is perhaps not about retirement but more about achieving financial independence and what that might look like. Once you get here, you can have a really great conversation. We want to deliver a process that client can understand and engage with. We want them to understand the necessity of planning. Too many advisers just begin with the product.”
- Number of RIs: 4
- Outsourced investment management: Uses OBSR for fund research
- Wrap provider: White-labelled from Standard Life – www.mywrapaccount.co.uk
- Membership of associations: IFP, CII, PFS
- Qualifications: FPC 1, FPC 2, FPC 3, Advanced Financial Planning Certificate G60
- Number of clients: 350
- Awards: Money Marketing IFA of the Year; IFP
- David Norton Business Excellence
- Smith wanted to move away from the adversarial relationship of transaction-based advice and knew that the solution was not always a product
- The group began the transition process with a brainstorming session to define their proposition
- Smith educated clients one by one and face to face. He said it was a lengthy process and not without casualties.
- The group either charges a percentage of assets under management or a fixed annual retainer, subject to a minimum of £2,500
- The next stage is further client segmentation and a direct marketing strategy to build the group’s profile among target clients