Running a professional financial planning firm is challenging and, though it is rewarding both intellectually and emotionally, it is unlikely to finance a 40-foot yacht or a villa in the south of France. That said, it might be possible to make a great deal of money in UK retail financial services. Here is my fantasy of how to do it.
First, set up an insurance company. They have always been great corporate vehicles thanks to flexible and opaque accounting. Create a large set of internal funds and hire in big-name external managers to run them for fixed fees you never disclose to anyone. The cost of running these funds is a lot less than the fees you charge investors. The margin is far greater than that on run-of-the mill Oeics and grows as the size of the funds increases.
Structure the plans you offer (Isa, Sipp and so on) to levy high charges in several tiers. Then “gate” clients by incorporating surrender charges – disclosed towards the end of your necessarily long charges disclosure – that run down from 6 per cent to nil over a period of five years. There is nothing like a good lock-in to preserve the lifetime value of clients.
Motivate the salesforce by rewarding them hugely and flattering them grotesquely. The kind of salesmen you want can never be offered too much in the way of titles, clubs, annual conferences and shindigs. Make sure senior managers phone top producers to congratulate them on every big hit. Ensure everyone knows the names at the top of the leaderboards and knows they are millionaires.
Allow the salesmen maximum freedom of operation. Permit them to form relationships with independent advisers so they can pass clients to these firms for certain types of business. Gild the lily by offering these same advisers the ability to abandon independence and join the firm with a guaranteed multiple of six times their recurring fee income – and give your salesmen a bonus for each such recruit. Let the salesmen collect big capital sums by, in effect, selling on their client banks to younger salesmen when they retire.
Enable salesmen to get client introductions from solicitors and accountants by setting up joint operations that fudge the issue of independence. Buy up providers of other services like bespoke discretionary fund management that fit neatly into a restricted advice proposition and widen the product range the salesmen can offer.
Spend a fortune on below-the-line marketing and sponsorship. And spend yet another fortune on suitably aspirational and feelgood charitable ventures like disabled children sailing round the world.
Spend much less on compliance but agree with your PI insurers that they are there just for catastrophe insurance. You will, in effect, self-insure and write out all the cheques you have to in order to settle complaints so they never trouble the Financial Ombudsman Service and keep your slate clean.
Talk freely to investment analysts about your model. Chuckle as the investment managers you have hired for pennies invest millions in your shares based on the analysts’ forecasts of ever-growing earnings. Forget salary – you are now a dividend millionaire. But never, ever talk to personal finance journalists.
Chris Gilchrist is director of Fiveways Financial Planning