For many, the RDR seems to have led to a minimal change in approach, with execution through investments or other product purchase still determining some levels of remuneration.
We at The Ideas Lab have long held the view that bundled charging does not have a particularly lasting shelf life.
To us, the value of the process is best achieved through a modular charging structure instead of the common approach of sweeping it under a single base charge applied to your clients’ investment portfolio.
As this continues, we find ourselves in a marketplace where the use of the term “planning” is increasing exponentially.
However, that many see this as a label rather than a proper process. Indeed it is
exactly that process that is intended to deliver financial independence, in turn creating substantial value and leading to relationships with clients becoming all the more sticky.
Marketing or process?
Post-RDR financial planning for many advisers is simply being used as a marketing term, as opposed to something that helps people plan.
This is not solely a British problem, there are many in the US who call themselves financial planners when they are more accurately investment advisers.
Some time ago, I helped a financial planning software company produce a report that determined exactly when and where people put together subsequently revised financial plans. We looked into more than 200 firms and, as suspected, in only 10 per cent of cases were the original plans ever revisited.
It may well be the advisers concerned were very good at assumptions or perhaps they each had their own crystal ball but the reality is that the “planning” was being used as a means to sell investments and not really as an integral part of the service.
Taking that approach, of using financial planning as a sales catalyst, is dangerous. This approach fails to communicate just how difficult it is to create a robust plan that delivers optimum advantage for clients in all aspects of their financial interests.
Making sure you have a robust proposition is one of the things we have stressed; it is extremely important if you are to have a successful business.
Without this robust proposition, what you are offering becomes somewhat fragile and any movements that happen in the marketplace are going to be magnified to a significant extent.
As well making sure the proposition is robust, we have to start looking more and more at how much the different elements of the proposition cost; what can be automated, what can be omitted and what can be done more cheaply.
This might mean searching in different geographical locations to locate staff when the objective is to deliver excellent service but at an acceptable cost. There will not be the margin to “cushion guesses” any more and that point needs to be recognised by all parties.
Break down your time
This is the ideal time to sit down in the quiet of the summer and look at fixed costs and determine what is really necessary. This inevitably leads you towards some form of time measurement process, something which many people try to avoid but is actually the one thing that should be tackled as a matter of priority. Unless you know the time it takes to do something, it makes it very difficult to calculate how you are going to determine its cost.
The squeeze is on and this will lead to the hunt for savings. If we have a market downturn, that hunt may well go into overdrive – so know where you can make maximum savings in your own businesses without compromising on quality.
Robert Reid is a director at The Ideas Lab