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Chris Davies: Are you a ‘next generation’ firm?

Chris Davies MM blog

With the first quarter of 2013 now out of the way it’s a great time to assess how adviser firms are coping with the new RDR world order.

What is very apparent is that this new world of retail financial advice brings inherent risk factors. There is no doubt, for example, that the new regulator will be interventionist and regulate adviser firms as professional service providers not just distributors.

Client relationships need to be better understood, nurtured and managed.

The shift of relationship dynamic from product provider and firm, to firm and client has been played to death by commentators. What is really imperative is the experience the client enjoys with their adviser. We have seen great evidence of firms’ innovation and skill in designing meaningful services that drive value for the client.

A business as usual (complacent) ‘commission mind-set’ is a big risk for firms. Most product provider surveys seemed to have found that a vast majority of firms prefer to use product adviser charge facilitation for fees rather than direct fee charging.

I would argue this is a concern. Firms need to adopt true consultancy models in monitoring and measuring adviser time management accurately and building direct fee charging into the model.

This will ensure clients truly understand the value of advice while product boundaries are kept intact, thus avoiding potential compromises such as diminished tax allowances.

From our experience there are five key strategies firms can use to provide successful foundations for sustainable growth.

 1.    Leadership and people development

 Developing a corporate culture is a must. This will entail fully diverse and functional boards and corporate governance strategies that focus on gathering and utilising management information. This (we feel) is the most important part to the new model firm jigsaw, as by providing strong collaborative leadership, a firm will quickly develop professional relationships with all stakeholders and place the raising of professional standards centre stage.

 2.    Client service propositions

Probably overcooked by most industry commentators but still essential. The key point here is ensuring a service model is 100 per cent client-centric. This means building services around the client’s, not the firm’s, needs. This will drive advice and product suitability, ensure risk profiling is appropriately conducted and ensure clients goals and any necessary trade offs are met.

 3.    Next generation business strategies

In our surveys we ask firms what they think a broken business model looks like? The answers vary but the main factor in avoiding pitfalls is ensuring industry trends are not misread.

Adviser charge facilitation is one. The industry just does not have the technology, products or systems presently to support product charging efficiently. Fee charging models can work on a direct, contingent or retainer basis.

 4.    Client and stakeholder management

Too much focus on financial capital and not enough on relationship capital can mean that firms just do not provide enough value and professionalism for clients to stay loyal and for regulators to be confident in the services offered.

There is now a hard case for the soft skills, where behavioural change is needed for firms and their advisers to ensure clear and compliant communication to clients and the regulator.

Recognising the key points in the client engagement process and using client engagement letters as key relationship building opportunities (not just a compliance burden) will build relationship capital very quickly.

Using social media to enhance the client experience and improve the brand can only add value to all relationships.

 5.    Operations and business support

Last but not least, professional operational standards are essential for firms to demonstrate that high levels of competence and efficiency are at the heart of the business model.

Standards International promotes operational best practice as the heartbeat of next generation firms. We would argue that it’s also the often forgotten middle office that ensures a professional culture. Para-planning, technology ‘enabler’ tools such as fund and platform research analytics, client risk profiling and cash-flow modelling will all add high value to the client and stakeholder relationships. Compliance risk will also be mitigated by a robust and integrated front, middle and back office structure.  

What we are presently seeing is admirable energy and drive from adviser firms to establish themselves in a whole new ball game.

Yet with the FCA highlighting the need to address dysfunctional behaviours, poor consumer financial capabilities, industry information asymmetries and irrational human biases, we hope our five key strategies can provide a sound change management structure to survive and thrive.

Chris Davies is director of Engage Partnership


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. There ain’t half some long words being bandied about this week!

    Did the job description and objective change while I was away last week, because it sounds like I may need to sit some more exams to get up to speed with all of these buzz-phrases and the new blue-sky thinking?

  2. If we wrote to our clients like that it would be deemed against TCF in providing clear statements, must try and figure out among all the jargon what he is selling!!

  3. Good article, if i can understand it then i don’t know what others are thinking..
    It all about professionalism now and clients will only by from us if we clearly show we run an efficient and professional ship, thats it..

  4. Gareth. ‘It all about professionalism now and clients will only by from us if we clearly show we run an efficient and professional ship, thats it’…Wow, you got some work to do then fella!

    You forgot to say ‘fact’ at the end too!

  5. So rather than being a ‘next generation’ firm, I work at a ‘what are you talking about’ firm. If Mr Davies thinks I need his workshops to allow me to engage with clients that understand this twaddle, he has much greater insight than I do!
    Still, his website states:’We tend to work with senior management and have structured a compensation formula where we are rewarded for meeting the objectives set for the project. Successful outcomes attract fees, enabling organisations to transfer a portion of the financial risk to the provider’
    So that’s all right then!.

  6. Steve, Sorry no I forgot to mention that its time you left the industry…

  7. We seem to have another man of straw telling the rest of us what we should or shouldn’t do.

    According to my search Engage Partnership Ltd of Leeds is a non-trading company. Mr Davies is not listed as a director, but as a 17% shareholder in the company which has share capital of £1,500. Last annual return 08/01/13.

    As ever the one thing that Financial Services seems to have in abundance is self-appointed ‘Gurus’ who talk the talk, but who appear to fall short of walking the walk. I have never noticed that there were similar numbers of ‘gurus’ in (say) engineering. I wonder why that is? I can guess – can you?

  8. Pretty sure this article was written by David Brent

    “There is now a hard case for the soft skills”

    “by providing strong collaborative leadership, a firm will quickly develop professional relationships with all stakeholders”

    “what they think a broken business model looks like”

    And finally

    “the need to address dysfunctional behaviours, poor consumer financial capabilities, industry information asymmetries and irrational human biases,”

    So, what about CLEAR COMMUNICATION – got a course for that ?

  9. You have to hand it to Chris. If you can make a living with this consultant speak sort of stuff, it has to be easier than working. It’s rampant cobblers but I bet the pay cheques are fine.

  10. Wow Chris you’ve got this lot really rattled, truth hurts eh guys? Change is hard we know we’ve changed everything and loads more to do, I suspect there are a lot of advisers who just don’t want to hear what needs to be done..

  11. Those that can do – those that cant teach.

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