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Chris Gilchrist: Dinosaur transactional advisers are a dying breed


Advisers who complain vociferously about the FCA, RDR and adviser charging are also those who talk loudly about ‘my clients’ and ‘my client bank’.

They probably still take seriously the blandishments of agents who claim that such ‘client banks’ are worth 6 to 8 times the annual income they generate.

Indeed, there are models that can make purchase of a ‘client bank’ on a typical 0.5 per cent recurring income and conversion of it to adviser fees of 1.25 per cent (not impossible if there’s an investment management as well as advice margin) worthwhile on a 6x multiple, but guess what that means for the clients! (Oh, and whether the selling adviser ever gets the final payments due under the sale contract also seems to be an issue.)

There are still many advisers who believe that their clients owe them a living in death as well as in life.

They think they are entitled to ‘sell’ their clients to the highest bidder and walk into the sunset without worrying about how much their clients end up paying or what level of service they get thereafter. Undoubtedly thousands of clients will be poorly treated by many of the ‘consolidator’ operators which buy client banks and install low-cost services (restricted in substance if not in name) with high fees.

One reason for piratical attitudes like these is that most of these wannabe former advisers never gave their ‘clients’ an ongoing service at all – they simply responded to clients’ (most were simply transactional customers) requests or ‘farmed’ them when life companies handed them a proposition to sell. So they haven’t really got a clue about what a genuine service proposition looks like, what it costs or how to build a business that delivers it.

Fortunately, these dinosaur advisers are a dying breed. Climate change is killing them off.

I have never said all these old-style advisers were bad advisers. I have met many good ones over the years (I did start in this business when most advisers were ‘insurance brokers’ and there was no regulation at all). But the transactional, sales-driven model they used has effectively been outlawed by regulators. They have got to adapt or die. Rebranding commission levels as fees does not cut it.

I like good sales propositions. I try and build them for my business and for financial advice generally. But if you are selling advice and ongoing services, you have to deliver. You have to deliver consistently, in terms of timescales, recommendations, communications and charges. If you do not have methods of doing this, you are not really in the advice business. You have got to be into process engineering and quality control.

Like it or not, the trajectory of the IFA is clear. It is towards professionalism and provision of service. Firms with professional aspirations will, I guess, end up looking more like accountancy practices than old-style financial advisers in a few years’ time (only more dynamic, and hopefully with a better sense of humour).

As for the restricted chains, they probably only have a year or two before the FCA mandates the banks to re-enter the market to fill a yawning ‘advice gap’, so their business models had better be built on early flotation or sell-out. I think IFAs will eventually take over many of their clients. I certainly do not see them taking ours.

Chris Gilchrist is director of Fiveways Financial Planning, the author of the Taxbriefs adviser guide The Process of Financial Planning and edits The IRS Report



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. There was an interesting blog from Seth Godin on this subject recently:

    He concluded that we don’t ‘own’ clients’ but simply ‘rent’ them (if we’re lucky).

    IFA business value is about the combination of brand, people, systems & processes, and assets under management. It’s not now and probably never was about a client list.

  2. I agree with what Chris is saying and I would suggest that probably 80/90% of the business we do and have done in the past is transactional buisness and it that sense I am a Dinosaur but 20% of my clients are top quality ones who recognise and value the service i bring to the table. they are the ones I concentrate on

    The important points IMHO is that our business is now one of “selling advice and ongoing services”

    The advice bit is simple but ongoing service is another matter

    Many advisers are charging 0.75or even1% as a servcing fee but what exactly do they provide for that fee?

    after all if the fee is 1% and the portfolio is £1,000,000 that is £10000 per annum or £7500 per annum ?0.75%

    So what I ask do you do for that £10,000 per annum ?

    Imagine we could NOT take that fee from product and you had to invoice a client directly and the client had to write a cheque out would they recognise and value the service you provide ? If not they wont pay it and I dont blame them but if you DO give them a service they value they wil gladly pay it ?

    my top 20% do happily pay my fees and value my service do yours ?

    And if you want to know the truthful answer ask your clients

  3. I to must confess to being a dinosaur of the 80’s however I disagree with the article. Firstly how does he think the transactional business model will disappear when the overwhelming majority of advisers post RDR have kept to this model? My view is that its because the huge majority of clients are happy and content that we get paid for providing a solution to their needs by selling them a suitable product. Most people will probably not continue to pay an adviser when there is no end product and why should they? The dinosaurs in this case will more than likely continue to succeed until such times as clients want to pay directly IMHO. Currently I offer a choice of services ranging from “pay me for a fact find and acion plan then go off and sort the product yourself” (paraphrasing there but you know what I mean) through to full planning and implementation. Since the first day of work this year I have not had one person say ” oh yes please I will happily pay for a generic action plan then go off and try to sorurce it myself” (again paraphrasing). They have all said (3rd batch of paraphrasing coming up) “you solve the problem and we will be happy for you to get paid out of my plan”. Cant see this changing much in the next 10 or 20 years, sorry.

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